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  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    There is no conspiracy. Conspiracies are secret. The BLS's methodology is well known and well documented. And deeply misrepresentative of the way people actually live and spend money.

    The data I have is my own, about 8 years worth of detailed information on the prices of products I have purchased.

    The rest of your post is unworthy of being read, much less responded to.
    Dec 18 10:37 AM | Likes Like |Link to Comment
  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    Must,

    I think what I am seeing comes down to two specific sets of factors that obviously don't apply universally:

    1. The specific attributes of my local market. Prices are extremely high, the law is brutally hostile to landlords, and for an individual owner Prop 13 creates severe distortions.

    2. The specific economics of going into debt as an individual. The risks associated with doing so are so great that the opportunity must be overwhelmingly compelling for me to even consider it.

    Now, if you are BX, you don't have either of these problems. You have the scale to operate in the markets of your choosing, the ones in which prices have fallen considerably and the law is not abusive to landlords. You needn't have any persistent presence there yourself, as you can hire professional management companies in each city to oversee your properties. You have the funding scale to form individual funds, SIVs, and other corporate entities for different sets of opportunities, and each of those entities will still have the ability to borrow extremely cheaply. If one fails, it fails; you as BX may get a black eye but you're not out any money and the rest of your operations keep right on going. Under those circumstances, it makes a great deal of sense to opportunistically pick up real estate.

    I own 4 REITs to tap into some of those same advantages. But when I consider owning property myself, whether as a landlord or to occupy, the economics never come close to working out. The local market is not priced sanely for owner-occupiers, and is so abusive to landlords that I actually feel sorry for mine. But being an absentee landlord in some other city carries extra risks and costs that require scale to offset, and even if I could find suitable property it would still present extreme concentration risk in a 6-figure portfolio that's already returning 4%. Just what kind of cap rate am I hoping for anyway, to justify going into (costly -- you don't get those advertised 3% rates on investment property) debt equal to say 50% of my assets, then putting myself on the hook for the myriad risks and costs associated with that business? 7%? When all's said and done the money itself, the "other costs" including a local manager, vacancy, and upkeep will cost at least that much. And just in case you were wondering just how hostile local law might be, it turns out not to matter, because most properties have cap rates even lower than that -- 5-6% is typical. A San Francisco landlord is in the business of slowly losing money until the opportunity comes along to sell a vacant property to a wealthy incoming resident for a huge capital gain. No joke, that's the business model.

    There are definitely opportunities for REITs and large-scale entities like BX funds to go out there any buy up RE globally. For a retired individual living in the South or a midwestern college town, there may be some good opportunities as well. But for an individual living and working in San Francisco, no way. Too much risk, too much cost, too little reward. It all depends on your circumstances and the advantages you have. I'm happy to own REITs that capture the better opportunities, and limit my loss to the amount invested. But barring a dramatic change in circumstances, I won't be looking to buy property myself.
    Dec 17 09:33 AM | Likes Like |Link to Comment
  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    "Do the math, at ultra low intersest rates and low prices, buying is a no brainer compared to renting."

    I do that math every year, thanks. Obviously it depends a great deal on one's individual circumstances, but for me the economics of home-debting have never even been in the same ballpark as renting. It's a no-brainer: rent, and split the Prop 13 difference with a long-term landlord who pays nothing, or go deeply into debt to take on a bigger monthly payment with a big old side of risk. Interest rates don't actually make much difference; I couldn't afford to own a house even if rates were zero. Even living very frugally and saving and investing effectively, it will be at least 10 years before I could hope to afford a modest house at today's prices. Of course in 10 years I am sure prices will have doubled. There are no low prices anywhere there are jobs; nominal prices are generally well above 2006 levels now and never really were much below that level even in 2009.

    As for your colleague, I sincerely hope he lives and works somewhere within 100 miles of Lake Superior, because that's the only part of the US where one can find decent housing that's affordable on a $29k annual salary. But the only part of that area with a functioning labour market is Marquette, and the low end there is around $80-100k, which is out of reach. So it sounds more like he either got very very lucky or is hopelessly overextended and headed for default.
    Dec 16 08:54 PM | Likes Like |Link to Comment
  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    "Cost of living is up 20%? What planet are you on?"

    Earth, pretty sure. I was being conservative to avoid flames; by my own analysis it's about 37% but any time I say so there are hordes of people with no data beyond what the BLS publishes who excoriate me. Obviously the exact change for a given individual depends a great deal on where and how you live.
    Dec 16 08:33 PM | Likes Like |Link to Comment
  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    If the demand is real, I have to assume it's coming from investors and/or speculators tired of waiting for the enormous REO inventory to come onto the market. Time will tell whether these are a more professional and better-funded version of 2006's flippers or REITs and individuals buying up rental properties. It seems safe either way to assert that most of the buyers won't be living on their new property.
    Dec 16 06:44 PM | 2 Likes Like |Link to Comment
  • "It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others? [View news story]
    Let's see, in the last 5 years, personal deleveraging has been a tiny blip in the steady steep rise in indebtedness, wages haven't risen, the cost of living is up 20%+, the savings rate has been low single digits to negative, employment is still weak, and taxes are going up. So where is all the money coming from to lay out for a new lot or house, especially with prices not much lower than the 2006 peak, if at all? This doesn't really make any sense, unless the people buying are people with access to unlimited free money; i.e., funds, banks, etc. Overall economic trends in personal wealth and income simply don't support any big increase in end demand.
    Dec 16 04:10 PM | 4 Likes Like |Link to Comment
  • Senators have given up on pushing through an online poker bill before the end of the year after Republicans failed to line enough support on their side of the aisle. With most major players in the gaming industry supporting a federal framework under which Internet poker is legalized across state lines, Senator Harry Reid says the bill will get pushed forward sometime in 2013. The poker payday down the road: MGM Resorts (MGM), Wynn Resorts (WYNN), and Caesars Entertainment (CZR) think the power of their brand will help them beat back challenges from Internet upstarts in the space, although Zynga and Facebook could still be a factor. [View news story]
    Might as well say this, right? It's not like you have much left to lose at this point. Maybe enough people will believe it to bid that dog up to $5 so you can get out with less than a total loss.
    Dec 15 04:22 PM | Likes Like |Link to Comment
  • Describing his decision to again dissent from the FOMC decision, the Richmond Fed's Jeff Lacker paints a picture of a man with views 180 degrees different than his fellow board members. "A single indicator cannot provide a complete picture of labor market conditions," he says, wondering how a group of learned men and women can derive major policy decisions from the headline unemployment rate. Lacker is out as a voter on Jan. 1. [View news story]
    But the velocity of the newly-created money is zero, so any increase in overall M is offset by a corresponding decline in overall V. This isn't the answer.

    There are a lot of unconventional things the Fed could do, if it wished, in an attempt to escape the liquidity trap. Undoubtedly most of them would not end up working, or would have some negative side effects. What's very clear though is that zero deposit rates and buying MBS and Treasuries are not going to have any positive impact whatsoever on output. And for that particular piece of data we don't need an academic paper; we need only pull open the drapes and look out the window.
    Dec 14 09:42 AM | Likes Like |Link to Comment
  • "Let the fiscal cliff happen and reduce the deficit very substantially as a consequence," quips GOP advisor Bruce Bartlett. The combination of spending cuts and tax hikes will eventually strengthen the economy. Conversely, he says, the Republicans refusal to raise taxes will actually hurt the economy. Baby boomers are due to retire in droves over the next few decades, and government spending has to rise. If we don't raise taxes we'll just have to borrow more from abroad, thereby increasing interest payments on the debt. (video[View news story]
    Or we could cut spending. Just saying.
    Dec 13 09:35 PM | 5 Likes Like |Link to Comment
  • General Electric Poised To Double? Don't Drink The Kool-Aid [View article]
    Who cares about the market price? It's plausible that the dividend could be doubled 18 months from now; if analyst estimates (ha-ha!) are correct, that would put the POR at 79% which at least is not outrageous. But it's probably too high for a capital-intensive business; 50-60% would be more appropriate. Personally I would be very happy to see modest earnings growth to $1.50-$1.60, and a POR of 50%. That would provide a nice bump in the dividend and show continuing growth in excess of global GDP. If the market likes that outcome, fine. In reality, the market would hate it, which would make a larger dividend available to me at a lower price: the best possible outcome. Either way, I agree with your assessment that the market price is unlikely to double in 18 months, but I don't really care either way.
    Dec 13 12:06 PM | Likes Like |Link to Comment
  • As the Fed ponders new bond buys, the Treasury sells $32B in three-year notes at 0.327%, a new record low auction yield. Bid-to-cover ratio of 3.36, vs. a recent average of 3.71; indirect bidders take 21.9%, vs. a recent 30.1%. Direct bidders take 24.8%, vs. a recent 16.7%. [View news story]
    Because you borrowed 20x your capital at 0.10% and have a written guarantee from the Fed that your cost is never going up. Multiply that together and it's a pretty nice return for a perfectly hedged, riskless position. If the dollar loses half its value over the next three years, you've still made money. If we enter another depression that lasts the whole 3 years, you've still made money. No matter what happens, you will make money. It is impossible to underestimate the power of the combination of unlimited leverage, long-term costless financing, and nominally riskless assets. It is exactly the same as if the Fed simply agreed to give the banks billions of new dollars every 6 months, then sent the Treasury a bill for it. Nice, huh?
    Dec 11 08:07 PM | 3 Likes Like |Link to Comment
  • The right-to-work issue in Michigan isn't going unnoticed by labor unions. UAW President Bob King was at the state's Capitol building leading a protest against legislation that would allows workers to opt out of unions and not pay dues. The state House passed the measure yesterday by 58-42, sending it along to the Senate. Though the Big Three are deathly quiet on the issue, it wouldn't be a stretch to imagine weakened union laws in Michigan could help bottom lines. [View news story]
    "And most stock holders get free money in the form of dividends that the pay NO tax on."

    Well, here's something that's actually on topic for SA. Could you please describe this in more detail? I would be very interested in learning how I can receive dividends tax-free. Currently, the companies I own pay on average around 30% tax on the earnings that support the dividend (which is not deductible), and I'm required to pay an additional 25.3% income tax on the dividend itself. In other words, for every dollar my company earns, the government is taking about 40%. That's assuming I've met the requirements for treating it as a Qualified Distribution and it's not a REIT, BDC, or other differently-taxed entity, in which case it's typically 38.3% -- not much difference, really, unless it's in an IRA, in which case I will of course have to pay tax on it as ordinary income when I take my MRDs. So please explain how one can collect these dividends tax-free; I think everyone would very much like to keep 1/3 more money without doing anything! Thanks.
    Dec 11 03:14 PM | 1 Like Like |Link to Comment
  • More on the plunge (worst since 1986) in the NFIB small business index: "Something bad happened in November ... and it wasn't Hurricane Sandy," says the NFIB's Bill Dunkelberg. A "stunning number" of owners expect conditions to worsen over the next 6 months." Note: The NFIB excluded responses from those in Sandy-affected states from the final tally. [View news story]
    While all of that is true, it doesn't explain why they learned about it only in November. It's been obvious for years.
    Dec 11 01:06 PM | 1 Like Like |Link to Comment
  • Mario Monti's decision to step down in Italy tells us the debt crisis is getting worse again, writes Wolfgang Munchau, who calls the technocrat's year in office - and the effusive praise he received - a now-deflated bubble. Little has changed except the economy has fallen into a deep depression. Two fixes: Reverse austerity immediately and force the Germans into accepting some form of common debt. [View news story]
    An alternative fix: cut government spending by 50% and cap it at that level until debt to GDP is less than 60%. It's the proven approach.
    Dec 10 03:08 PM | Likes Like |Link to Comment
  • As billions flow from actively managed stock funds into index funds and ETFs, investors seem to be buying the idea that they can't necessarily identify tomorrow's top money managers. So why is bond-fund money (of all investments) going into actively managed funds? Jason Zweig warns about overvaluing results that might be due to luck - and to focus on managers' processes. [View news story]
    The widely held perception that "one can't beat the [equities] market" is a pernicious myth that owes much to one of the fundamental differences between debt and equity. More precisely, the fundamental difference between a perpetual security and a maturing and/or callable one. Eventually, father time will call BS on bond market irrationality; a bond that is too cheap today will mature at par sooner or later. The hard upside cap, definite maturity dates, and primary customer focus on income guarantee accurate measurement of manager performance in the bond market. If you are a manager with 30 years of experience managing 5-7 year portfolios and you have beaten your index 27 out of 30 years, you are creating alpha and no one can reasonably say otherwise.

    The same cannot be said for the manager of a common stock portfolio. The metrics used by the industry for the performance of such portfolios are deeply flawed, placing too little emphasis on income and organic growth and too much emphasis on market price increases. There is no inherent check on the stock market's irrational behaviours, which can continue indefinitely, longer than any manager's career. As such, it is impossible to use the "total return" or market price metrics to accurately assess the performance of a stock portfolio manager. This has led directly to the misconception that their performance cannot be measured, or more commonly that their performance is fleeting and arbitrary and over the long haul cannot beat an index. Nothing could be further from the truth; you're just using the wrong metrics. Garbage in, garbage out.

    If one were to take market price out of the equation and focus, as bond markets do, solely on income and permanent realised capital gains and losses, one would find that there are indeed managers of common stock portfolios who consistently beat the market. They create alpha just as surely as do bond managers. But you have to give up your obsession with market price to capture it, and most haven't the wisdom to do it. So they shovel money into stock index funds, where it earns a miserable return, while paying extremely rich fees (relative to yield) for performance in bond funds. It doesn't make sense, but it's what you get when people don't know what investing is about and don't use the right metrics. Garbage in, garbage out.
    Dec 8 07:06 PM | 2 Likes Like |Link to Comment
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