United States Heading towards a Depression?

Fitch, S&P, and now Moody's have downgraded AIG to a point where they need $75 billion. They are done unless the Fed steps in.

 

I don't know why, but this post made me giggle.

 

Bailout? What Bailout?
Posted by Bill Anderson at 02:38 PM

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Broken AIG
Posted by Lew Rockwell at September 15, 2008 08:06 PM

 

I admit my wrongs, and mistakes. Unlike alot of other people who just post and report news and can try to teach other people what to do.

Or could maybe suggest a better position? Short seller?

 

Here's the source
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/14/ccdumas114.xml

Wall street and subprime companies made loans to anybody. The 'Alt-A' or liar loans are going to cause a lot of pain.

A lot of the subprime homes have not been maintained. That's another big issue.

I'm starting to see quite a few 'for rent' signs on apartments and buildings.

I looked at a bank owned building the other day with 2 - 3br apartments, a 1 br studio plus a store. Asking price 340k. Rent roll was $2700 not including the store. It looks like the property will need 50k of work. The store has been rented in 4 years.

The building last sold in 2006 for $550,000 and prior to that approx 395k in late 2005. I've done some research and the last selling price is +100% from 5 years ago and +230% from 10 years ago.

I'm thinking about making an offer. But I'm not too keen to catch a falling knife. If they can sell it to someone else more power to them. But prices haven't really come down that much compared to what they were even 5 years ago.

25% of all homes are being sold at a loss from the original sales price. Unemployment and inflation are pushing a lot of the 'prime' loans into subprime terrority.

The job market is not going to get better anytime soon. HP has just announced 25,000 layoffs and that's not to mention how many people will be laid off at Lehman and Merril Lynch.

 

Russian markets are setting off circuit breakers being down over 10%, if you wanted to know.

 

"Circuit breakers"...are those like "curbs"?

 

Yes, trading curbs, circuit breakers, same thing.

 

tx. I scanned the article and will re read it in depth.

Man! Great homework, especially chasing down sales prices from 5 and 10 years ago.

Here is how I'd approach this stuff.

Occupancy/vacancy rates. I'd try and get occupancy/vacancy rates for the submarket both current and historical.

I assume you mean $2700/month or about $32,000/year.

I'd discount the $2700 rent role by some vacancy factor. 1 month vacancy on one of the units is .08 of that unit's impact on rent. So I'd discount by some factor that represents your best estimate for vacancy rates on rental units and a consideration for the status of the market. Are the existing rents at market, above or below? That factors in. So discount the current rent role. FYI, in the old days before crazy price appreciation and loose credit standards 5-10% vacancy was a standard method. I'd go back to it or a higher vacancy factor if it so merits.

I assume you meant to say the store hadn't been rented in 4 years. That is bad. Why? Who is handling it? I ask a commercial broker and a tenant in the market what the problem is. Get some outside help.

Lets assume there is some rental value to the store space....say $$25,000/year but vacancy is high and it needs to be fixed up. Factor all that into the equation.

What kind of return are you shooting for. I'd shoot for something like 2-3 times the cost of borrowing. Covers for mistakes and cost overruns.

I'd bid low on properties. If I was interested in real estate I'd look at lots of properties and keep bidding low and aggressive.

The overall market is a function of all the individual transactions. If this seller is stuck on a price that is too high move on to another property.

In your analysis, besides the $50 k of improvements look at the following:

brokerage fees for leasing up vacant property, taxes, insurance, and utilities if not triple net leases. Inspect all stuff in the building that could result in repairs (usually you do that in a study period) ie you don't want to buy a new furnace two years into purchase and ownership.

Just keep looking, keep bidding low. Sellers who can't sell may come back to you if you are desperate. banks hate owning properties. Its not their business.

Good luck.

Whenever Wall Street takes a hit, NYC office rental rates take a hit. Hmmm. highest priced office rentals are over $100/foot. Man that is high. That number looks ugly to me.


Keep your day job. work hard. stay liquid. Be nice to your friends and family.

 

My neighbor is selling his house, they paid about $180,000 a year ago. They are asking over $220,000 for it now.
Houses in my area are not selling worth a damn, most are being reduced shortly after being put on the market.

$40,000 over the selling price a year ago, on a home that is 3 years old 'so improvements or updates really isn't much of a factor' is insane IMO!

 

I stopped trading for myself when I lost a fortune after reading Gilder's Telecosm.

You can imagine what happened after that....

 

And you wonder why homes are not selling.. Duh...

You cannot sell anything for more than someone will pay for it. Unless there are $25,000 in improvements in that house, its way over priced.

The people behind us tried that crap. They bought a house for $175k and tried to sell it for $300k 3 months later. Yeah, they made some improvements, but the house was not worth $175k to begin with, much less nearly twice that after about $20k in improvements.

They went into foreclosure BTW, and I am looking at buying the house now.

Friggin retards!

 

after bailouts for bear stearns and fannie, freddy, and now denying a bailout for Lehman....we are all going to see how this affects the US and internantional banking and financial networks.

Cross your fingers. Hope it doesn't go down the tubes. Not predicting anything but financial institution inter relationships are so tangled and complex it will test the impact of one institution going bankrupt.

 

There will be more. Unfortunately.

Your last few posts, it seems like you found religion. I'm digging it.

 

Well there are only really two left, so I am not sure how much more could sink. Frankly, I am not too concerned. I learned a long time ago that placing money in a bank was not a good idea. I've invested in art, real estate and other collectibles, including automobiles. Money cannot appreciate if the people you give it to are giving it to people that piss it away.

Buy shit with your money..... That shit is still there when the money is gone.

 

You have to think about all of the losses the investors are going to take, the declining federal tax revenues, the credit contraction and the inflation.

Where we are now, is sitting on the Dr.'s examining table, getting told we have cancer. No one knows how far it has spread yet.

The sad thing is, the government is exacerbating the problem. Mark my words, this will get worse the more they try to prop it up.

From an article I quoted yesterday,

You've learned valuable lessons then. Maybe not the technical understanding, but certainly the pragmatic perspective.

 

Guerilla: I assume you'd like to see the US financial system collapse and the country go spinning downward.

Frankly I'd like to see more controls on the financial entities. Like SOX, Sarbanes-Oxley. A relatively harmless small cost control on institutions.

Subsequent to that correction there have been no collapses of the sort that were occurring before its implementation. It stemmed overly aggressive accounting exercises that were hiding deception on a major scale.

The current financial mess is a direct result of an incredible amt of bad debt created by unhindered financial institutions.

If Bogart's numbers are accurate it assumes $1.5 trillion of very bad debt working its way through the world economy. It has led to huge write-off losses in American and international financial institutions.

There is already reams and reams of liquidity in the international financial system. American sources have always been attractive investment sources considering the alternatives. American real estate has always been attractive.

I want to see the economy continue to operate. Most, like myself don't want to see a complete and utter collapse. I'm happy there were efforts to stem the problems. By allowing Lehman to go bankrupt we will see what happens to banking relationships going forward. If they collapse, the Feds will step in again. In fact International institutions might step in.

Meanwhile the volume of total debt and bad debt needs to be stemmed.

Speaking of religeon, and speaking of potential disasters, the RP call for eliminating controls on community banks is another stupid, ignore the lessons of the past call that would open the floodgates for more financial disasters.

I lived through that problem in the 1980's/1990's. 1,000 uncontrolled American financial institutions failed. Its another example of stupid politics ignoring expensive lessons.

Meanwhile the American economy is taking a brutal hit. It will be a long difficult move forward with huge numbers of the population losing jobs and taking big big paper financial losses. It won't be pretty.

 

You need a thesis to your trades and your overall portfolio. You must assess your risk and how much you are willing to lose overall, each position, etc. Learn how to size your positions with laser-like precision, you must do this to manage your risk. Stop watching CNBC. Don't trade emotionally, think "robot-like". You also must have a lot patience, do not chase trades, if you missed it you missed it, move on. Know when to sell and cut losses.

You can sell short if you would like, most likely do better as of late this way. Use price action and volume to determine when to enter a position and use sound research to determine what position to enter.

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From the wire: New York Times reports that American International has hired law firm Weil Gotshal to draw up bankruptcy, and the company could file for bankruptcy as soon as Wednesday if financing solution not reached.

 

Bankruptcy is the best for everyone. Sell the assets and pay the creditors.

The collapse of ML and LH seems to have triggered an unwinding in oil.

 

You directed this at Guerilla but I can't pass up the need to comment.

"All experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security."

In this case, the "suffering" is the forms of finance we are accustomed to: DEBT.

If the pain is lessened to maintain the system of debt, mankind will continue to suffer in tolerable slavery. If the pain is real, real change will be demanded.

For the good of the future, there are times when the pain of mistakes must be allowed. I believe we have reached a critical point in the evolution of our society and our financial systems, do we really want to perpetuate the existing institutions or rebuild drawing on the knowledge we have gained in the last 100 years?