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Daily Digest - Dec 30

Monday, December 29, 2008, 8:18 PM
  • Video, Jim Rogers: "Prepared for the Worst"
  • 200+ Homes for under $1,000.00
  • US consumer confidence plummets
  • Market Wrap Week Ending 12/26/08
  • Energy dispute over Rockies riches
  • Holiday Sales Drop to Force Bankruptcies, Closings
  • "When", not "If"
  • GMAC to Get $6 Billion Aid Deal
  • Case-Shiller Index Shows Sharpest Home-Price Declines in Sun Belt
  • Case-Shiller Price Index (October)
  • Banking Industry Sinking Faster Than Government Can Bail?
  • Information Warfare and the Wall Street Journal's Demise 

Economy 

Houses for under $1,000.00 

$1,000
3 Bed, 1 Bath, 1,259 Sq Ft on 9 Acres
Property Type: Single Family Home
Bank Owned. Property sold in as-is condition. Buyer to sign ACR with City of Detroit prior to closing. Earnest Money Deposit to be held by listing broker and be certified 

US consumer confidence plummets

US consumer confidence has unexpectedly dropped to a record low in December, in the face of the US economic slowdown and continuing job cuts.

The index fell to 38, from November's revised 44.7 figure, though it had been expected to rise.
The dismal job market appears to have outweighed falling oil prices in consumers' minds, analysts said.

Separately, house prices in 20 US cities fell by a record annual rate of 18.04% in October, according to the The S&P/Case-Shiller home price survey.

Market Wrap Week Ending 12/26/08 

The National Association of Realtors reported that home resale's were down 8.6% to an annual rate of 4.49 million. The median price fell to $181,300. 

The Commerce Department reported that new home sales fell 2.9% to a 17 year low. The median sales price dropped 11.5%.

Builders are reducing inventories faster than sales are falling. The number of new homes for sale is down a record 7% to 374,000.

Holiday Sales Drop to Force Bankruptcies, Closings 

Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years. 

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry's LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.

"You'll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out," Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. "There are a number that are real causes for concern." 

"When", not "If" 

You see folks, grade six math dictates that fundamentally, world gold supply [1 and 2, above] equal approximately 113 million ounces [88 + 25 million ounces]. Now, if one simply looks at the number of ounces of gold transferred at the LMBA in the most recent 12 month period [Dec. 07 - Nov. 08], we can see that 275.2 million ounces of gold [two and one half times annual global production + scrap] allegedly changed hands:  

GMAC to Get $6 Billion Aid Deal  

The U.S. government Monday deepened its involvement in the U.S. automotive industry by committing $6 billion to stabilize GMACLLC, a financing company vital to the future of struggling carmaker General MotorsCorp. 

In a sign that the government's role in the industry could become open ended, Treasury said late Monday it had set up a separate program within the Troubled Asset Relief Program, a fund originally designed to help banks, to make investments directed at the auto industry. A Treasury official said the new program didn't have a specific dollar limit.

In Monday's move, the Treasury said it purchased $5 billion in senior preferred equity in GMAC and offered a new $1 billion loan to General Motors so that the automaker could participate in a rights offering at GMAC. That loan comes in addition to the recent $17.4 billion emergency plan to rescue General Motors and Chrysler LLC. 

Case-Shiller Index Shows Sharpest Home-Price Declines in Sun Belt 

Home prices continued to drop as the economic downturn deepened further in October, according to the S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, with home prices in the Sun Belt continuing to be hit hardest.

"The bear market continues; home prices are back to their March 2004 levels," said David M. Blitzer, chairman of S&P's index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Mr. Blitzer said.

The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index's 13th straight monthly report of a record decline.

Case-Shiller Price Index (October) 

For more information on what the Case Shiller Price Index is and why it may be an important measure, check out this old post.

The Case-Shiller Price Index (an adjustment to CPI) turned severly negative year over year, down 1.4% from last October as home prices, a global slowdown, and the reversal in energy prices severely impacted price levels.

Banking Industry Sinking Faster Than Government Can Bail?

A useful piece at the Wall Street Journal discusses the poor prospects for the US banking industry, which will in aggregate post a fourth quarter loss despite heroic interventions by the Fed and Treasury.

The article makes much of recent and almost-certain-to-get-worse bank credit losses as the economy continues to deteriorate. Commercial real estate vacancies, particularly of retail space, are starting to mount. Construction loans were an important business for local and regional banks; a high proportion almost assuredly no longer look viable. And we of course have the grim outlook for credit cards and ongoing weakness in housing.

But the credit losses are masking a second problem: banks' earnings engine in broken. As many have noted, as long as they are taking losses, they are not terribly keen to extend new credit.

But more serious is the fact that banks had shifted their business model to be more depended on fee income, and much of that was related to the securitization of real estate. Pending changes in credit card rules will dampen down some of the non-interest charges banks could formerly extract. 

Information Warfare and the Wall Street Journal's Demise 

Flying around the Internet and blogosphere is the Wall Street Journal's ridiculous feature of Dr. Igor Panarin's prediction for the United States (interestingly enough, Bloomberg posted the same story to less fanfare a month ago): 

Mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control.

So why can't I take Dr. Panarin seriously, besides the fact that he also mentions Texas will be taken over by Mexico? The #1 Google result when searching 'Igor Panarin' turns up this russiahouse.org bio. 

Energy 

Energy dispute over Rockies riches  

Reporting from Salt Lake City -- A titanic battle between the West's two traditional power brokers -- Big Oil and Big Water -- has begun. 

At stake is one of the largest oil reserves in the world, a vast cache trapped beneath the Rocky Mountains containing an estimated 800 billion barrels -- about three times the reserves of Saudi Arabia. 

Extracting oil from rocky seams of underground shale is not only expensive, but also requires massive amounts of water, a precious resource crucial to continued development in the nation's fastest-growing region.

The conflict between oil and water interests has now come to a head. On Oct. 31, Congress allowed a moratorium on oil shale leasing to expire. That paved the way for the Bush administration to finalize leasing rules last month that opened 2 million acres of federal land to exploration.

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11 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 30

Real Estate Blogs cartoons image illustration picture

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 30

I just got the book "Mean Markets and Lizard Brains" and as of last night I am 1/3rd the way through it. One nugget I thought I'd share is from page 69:

Bear #1: Animal Hosue Fraternity Goes National

"Fat, drunk, and stupid is no way to go through life, son," says Dean Vernon Wormer on his way to expelling the member of the Animal House fraternity. When learning of his expulsion, John Belushi's character Bluto remarks, "Seven years of college down the drain!"

The first argument against the U.S. economy suggests that an economic path that is the equivalent of fat, drunk, and stupid cannot have a good ending. The three "pillars" of the U.S. economy are: (1) government deficit spending, (2) the Federal Reserve's easy money policy, and (3) profligate spending by the U.S. consumers......

Bill85's picture
Bill85
Status: Member (Offline)
Joined: Sep 7 2008
Posts: 13
Re: Daily Digest - Dec 30

Hey Davos, many thanks for all the fine nuggets of info you post in your Daily Digest. It is appreciated. Besides thanking you I also wanted to point out that the "When", not "If" link does not appear to be pointing to the intended article.

Cheers,

Bill

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 30

Hello Bill:

Glad to post to this community, and like so many of the posts this one makes me learn something new, I'll fix it now, take care 

http://www.financialsense.com/Market/daily/monday.htm

Looks like they change the article and leave the day in the naming convention of the link.....so it might change again? 

jeanius2's picture
jeanius2
Status: Member (Offline)
Joined: May 23 2008
Posts: 14
Re: Daily Digest - Dec 30

"When" not "If" correct link:  http://www.financialsense.com/Market/daily/monday.htm

 

in edit sorry redundant post

 

DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Re: Daily Digest - Dec 30 US consumer confidence plummets

A wonderful piece with Jim Rogers. What a man!

With regard to today's figures;

  • US consumer confidence plummets
  • Case-Shiller Index Shows Sharpest Home-Price Declines in Sun Belt
  • Case-Shiller Price Index (October)

And yet, once again, the market rallies, this time finishing nearly 190 points up.

The other week, on the worst jobless figures for 35 years, the market rallied, finishing up by nearly 290 points.

At some point the rubber band, getting stretched for all its worth, must snap (mustn't it? Or are we really into a new paradigm?).

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 30

Snap!

yoshhash's picture
yoshhash
Status: Martenson Brigade Member (Offline)
Joined: Sep 20 2008
Posts: 271
Re: Daily Digest - Dec 30- houses under $1000

I am having a hard time getting my head around the Detroit houses under $1000.  It seems there must be a catch to it.

I realize that Detroit is an epicenter of sorts because of the long decaying auto industry, I was through there several times and shocked at how poor the infrastructure and apathy was- (my apologies to anyone from Detroit, this is just my impression, not trying to be mean).  I also know that some of these properties must be in poor condition, even vandalized, and that banks aren't lending, etc, but $1000, and hundreds of them?    Even if this is a prolonged recession or even all out collapse, it still beats paying rent...surely there are retirees or successful self-employed mobile people in Detroit....how can this be?

Am I missing something?  Are there hidden costs in buying foreclosed property?  I've seen small developing towns give away property for $1 to draw new industry and new blood, as long as you commit to staying, but this is a whole different dynamic.

I am an architect/builder, just starting out, and am sorely tempted to look into this....despite the economic downturn, I also believe that when things hit bottom, they can only go back up, even if that means waiting 25 years. If anyone could explain this or has experience with such, I'm sure I'm not the only one wondering about this.

Davos's picture
Davos
Status: Diamond Member (Offline)
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Posts: 3620
Re: Daily Digest - Dec 30

Hello YoshHash:

There are many hidden costs to foreclosed property, you can wind up with a second mortgage you didn't know about. Best to read a few books by folks who have done these. Also, getting access is hard, a lot of them have been gutted for scrap. REO's are the safest.

Having said that, 1k is cheap even for land. 

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
Joined: Aug 5 2008
Posts: 1234
Re: Daily Digest - Dec 30

YoshHash,

I believe these are auction properties. The $1k pricetag is a teaser to get you interested. In reality, that is the minimum bid, and the maximum bid takes the property.

Also, as Davos alluded, the purchase price doesn't include the back taxes owed, 2nd mortgages, and whatever else you inherit with the property.

When it sounds too good to be true, it probably isn't. In this case there are probably some real bargains, but they're not really selling houses free and clear for $1,000. That just wouldn't make sense.

Erik

 

bwk's picture
bwk
Status: Member (Offline)
Joined: Nov 26 2008
Posts: 7
Re: Daily Digest - Dec 30- houses under $1000

 

yoshhash,

I grew up in Detroit and left in 2000. Most of my friends from High School and College have also left - it's a brain drain.

There really *are* houses you can purchase for $1000. Typically the senior liens (mortgages) have already been extinguished if taken for city or county taxes. That said, YMMV if it's a regular foreclosure - all bets are off in that case. My parents still live there, my sister and I have been trying to get them to move for 15 years now, but they are up in age now and not in a state of health to do so at this point. Both of the homes my parents have are in "nice"neighborhoods, and *both* of these neighborhoods now have hundreds of REOs in these formerly stable middle class neighborhoods. In terms of cash value, it's not a stretch to say that both of those homes are worth as much now as they were 20 years ago. Yes, I said 20 years ago (explains why so many people were choked off from overleveraging on anything purchased in the last 5-10 years).

A few things I can point out - Detroit has been having a "renaissance" for most of my adult life. It was having one when I graduated high school in 1987, also in 2000. I decided it was better to get on with living life than hanging around there - it's just not a "worldly" city and having a great struggle against all the plagues of rust belt cities. I now live in California and have much better opportunities on all levels.

As for buying property *in* the city, keep in mind these are 1920-1950 vintage homes in a cold weather climate of constant job loss, shrinking wages, poor education, and stagnant values. I tried while I was there to work foreclosures, rehab back in the 90's, but gave up due to rampant corruption, cronyism, and asinine policy from city and county governments.

Factors which would deter investment there right now:

* Decaying city infrastructure
* Shrinking city tax base
* High crime rate
* Poor education and employment quality in proximity to city
* Decline of *ALL* American automakers with nearby local operations
* Extreme negative bias against living inside Detroit city limits
* Old housing stock, in generally average to below average condition
* High rehab cost
* High taxes
* Severely restricted services within the city, few small businesses

I hate to have so little positive to say, but buying a *house* there is just not good unless you have someone to watch it 24/7 and can wait around 20 years, assuming somebody in government comes up with a green energy tax credit for industry to do something nearby like research, education, or manufacturing. 

I would say, that with all the negative, the areas of Detroit near the Medical Center, and core Downtown (primarily condos, lofts, townhouses) are a much better investment and have a variety of attractive tax credits. For those who have jobs and have stayed there.

 

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