Be vwery careful, vwery, wwery careful ... more on real estate and subprime time

As Elmer Fudd used to say ... be vwery careful ...

About investing in real estate or the subprime mortgage market. You know, just like NASDAQ circa 2000, it took speculators a long time to be convinced that, yes, things were really as bad as they seemed. And that was in the technology stock market, with its hyper-frenetic pace.

Image how long it'll take for *everyone* involved in the real estate market to realize the same. Today, it's just the subprime lenders who are depressed. Tomorrow it's the prime lenders ... and sometime thereafter ... by the real estate speculator ... then to be followed by the real estate investor ... to be finally ... finally ... followed by the deep-pocketed developer/builder.

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When even all those deep-pocketed guys can think about is surviving, then it's time to buy. And only then.

As I suggested one year ago, real estate debacles of this nature (i.e. free money from Greenspan) will take a long, long, time to boil off - expect market declines in coastal regions to continue for years. In farm country, however, things will be vastly different for several reasons.

Sit tight investors ... patience is now key if you're thinking of sub-prime investing (wait two years), or real estate developer/builder investing (wait three to five years). Yes, it takes a long time for this to unwind and people to become truly depressed about the future ...



JW

The Confused Capitalist

Sub-Prime Mortgage Mess: Did It take a genius?

I'm often amazed at how really smart people can get caught up in the crowd, along with their friends and peers. Caught up in the Extraordinary Popular Delusions and Madness of Crowds, even really smart people have trouble rationalizing their behaviours later, in a way that doesn't sound like they themselves still haven't figured out what happened to them.

In this category then, perhaps I should apply for a job as the head of GE, or perhaps GE Capital, or perhaps as the GE Chief Financial Officer (CFO). GE has recently decided to exit the sub-prime mortgage business, due to its obvious problems and potential for more. In reading one account of the reason they were exiting, GE CFO Keith Sherin said this ...

"In the first quarter we said we were committed to the business and we were. Based on the changes we saw, we made the decision to exit the business. I think it was a smart move."

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Back in March 2006 (just after this blog started), I posted on the housing market and the potential for sub-prime loans to wreck havoc on the bottom line, suggesting that ...

"Having seen the tall-headed gnomes in my own financial field previously lend to extreme ratios in the dying days of a real estate upswing, I thought they'd have figured out that lending like that at the end of a long cycle, isn't very good for the bottom line. "

I guess if Keith Sherin didn't realize it wasn't a very good business to be in at the top of a real estate cycle (like about a year-and-half earlier, when they could have sold these assets for a lot more money, instead of taking a charge to get out of the business), then I'm a lot wiser than he is.

Hmmm, I wonder what the pay is in his job? Mr. Immelt let's talk stock options ... how many can I get?




JW

The Confused Capitalist

Two worthy newcomers to the financial bloggers world ...

There's two new blogs out there that I'd like to draw your attention to. Two blogs that might battle for your attention in the future.

The first is a blog written by a TOC, Deborah, from near my area, in rainy Vancouver, BC. She writes a blog called Making Sense of My World.

It's an exceptionally detailed look into the world of mining stocks, primarily, but she occasionally touches on other financial subjects as well. It's clear to any reader, including one like myself who has little understanding of mining stocks, that she has dived in deep enough to figure out "What's Up".

With her, "making sense of my [her] world", she's helped me understand the mining world a bit more. I highly recommend a visit to "Deb's World". See also the new link on my blogroll.

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The second blog I'd like to draw your attention to is one written by Eric Fox, the Market Prognosticator. Eric recently emailed me and asked me if I'd take a look around his blog. I like someone who asks for what they want, and Eric did that. I was very pleasantly surprised when I read several of his articles, and liked his edgy tone and slant on things. I read several of the articles and enjoyed them thoroughly. An excerpt from ... The Most Terrifying Thing I Have Read in My Life ...

I get an e-mail every morning with a recap of what is going in the market. Most of the time the articles are something I have read somewhere else or I am not interested in them. Today was different. The headline was enticing. It read: How do you pay off your home mortgage in a few years or less? Learn to use hedged ...

The last word was left off but it was not rocket science to guess that the missing word was "futures." Oh this was going to be fun. When I clicked on the link it was even better than I thought. It read: How do you pay off your home mortgage in a few years or less? Learn to use hedged futures with options and arbitrageur strategy.

Well sure why not? There's nothing wrong with 80 million homeowners entering the futures market. This might even solve the sub prime lending mess. People who can't even read a mortgage note trading futures and options.

Eric goes on in the article ... rather amusingly, I might add. I recommend his blog for those looking for a bit of insight and spicy writing.

Find also the link to Eric's blog in my blog roll to the right. Well, hope you all had a safe and enjoyable Independence Day. Bye for now ...



JW

The Confused Capitalist