nathanredondo

L.A. Commercial Real Estate: No Signs of Life

I've heard several stories of falling rents. Several renters in our building (oceanside Redondo Beach 90277) were able to secure lower than the initial asking rent after the units were on the market for 3 months of more. Rents seem to have fallen about 8% or so (couple hundred bucks on a 2500/month rent). Over in Hermosa, my buddy's building (Playa Pacifica owned by EQR) didn't raise rates on existing tenants this year. Judging by how they have stepped up their advertising, my guess is they are seeing a drop in occupancy as well.

High-End Housing Sits Out 'Rebound'

We're seeing similar trends here in Los Angeles South Bay- 90277 properties priced to sell below 750K are going pretty quick, but generally at a 20-25% haircut from bubble peaks. We just had a 2 bed/2 bath with a loft and ocean view in our building go out the door for 620-- probably 30% below its peak of bubble cost, but it moved in less than a month.

The bubblicious townhomes next door (3500 sq feet, 6 to a lot, Architectural plan akin to the Winchester mystery house) are STILL on the market for almost 3 years now at 1.9 mm, down from the 3.5 mm they originally listed for. Worse, last time I checked over there a few weekends ago, only 4 people had signed the book when we came in at mid-afternoon. Not encouraging for the green shoots crowd. This pseudo-luxury sludge has to move or the market will never recover.

Sequestering Carbon Dioxide in Fuel

Sounds similar to the Fisher-Tropsch process developed in Germany during WWII, which also takes CO2 from the air and turns it into hydrocarbon fuel. Combine this with an energy source such as Solar power, nuclear, wind mills or a hydro dam, and you've got yourself a refinery....

Too bad Congress would rather punish the consumer with pollution permits than promote practical solutions to our energy/pollution problems like this.

5 Dividend Aristocrats That Have Been There Before

All of these picks have two things in common: 1) they pay lousy dividends and 2) they have two much exposure to volatility in American consumer spending habits, which will almost certainly change in the next few years. Not sure how these represent "dividend champions" when I can get better yield buying TIPS (assuming I don't have a moral objection to enabling our wastral deficit spending).

My suggestions: Can Roys (ERF, COSW, HTE); Aberdeen Asian Fund (8% yield, blend of asian bond funds); (New Zealand Telecom) still up around 8-9%after some rise in the market. PAA and EPB- pipeline operators that pay around 8-12%, which along with KMP (at 7%) make good choices. More importantly, they are all long term hedges against a devaluation of the dolalr.

4 Dividend Stocks for 2009: Q2 Update

KMP I might agree with, but I wouldn't touch anything with commercial real estate with a 38 and a half foot pole right now- particularly for a puny 7% dividend.

Even at 21/share, ERF is still paying 15 cents every MONTH. Most Can Roys follow a similar model. CPL (Brazilian utility) is another good one, with a ~3.00 dividend and rising- though I'd wait for the price to drop a little. Also recommend Aberdeen International (.035 per month dividend) if prices go back down below 5.25 per share. Bought in at 4.20 and thought it was a steal!

Southern California Home Prices Rise? Beware of 'Misleading Medians'

Ah yes....The "rising home prices in Southern California" headlines that are now on the cover of every newspaper down here! I suppose every falling market needs a dead cat bounce!

"As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we’ll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose."

Ha- tell this to the idiots who built the poorly constructed 6 to a lot McMansion townhomes right next to us and are still trying to unload the at 2 million. This will bode really well after Barry and Nancy's lending scheme drives interest rates on a Jumbo to 9%...
As someone who lives in an affluent zip code in southern california and has gotten to watch the real estate market flow with the speed of continental drift the last couple years, I can assure you, things are only going to get worst.

Higher Mortgage Rates Are Not a Threat

This article is a hypersimplification which overlooks some key facts that counter its optimistic assertion- higher mortgage rates are indeed a result of the return of demand for credit. The trouble is, since they are tied to the 10 yr treasury, the fed borrows money from bondholders AT THE EXPENSE of the mortgage market. Couple this with a weakening dollar shooting commodity prices (Oil at $70/bbl) through the stratosphere and we have a case study in how gov't intervention can turn a severe recession into outright depression.

All this cash that Obama is borrowing has to come from somewhere, and it will be the same pool as the mortgage market. This is going to kill whatever housing market we have left when interest rates on a 30y fixed go to 7%

Worst Job Losses Over, But Unemployment Remains Critical

3,000 new hospitality jobs- that sounds like a seasonal adjustment given the time of year. With Hotel and restaurant staffs cut down to the bone, I'm sure those are short lived summer jobs to fill anticipated demand for the travel season.

Suprised about government jobs- I guess the stimulus to nowhere hasn't hit the payrolls yet-- or the state budget cuts are basically offsetting federal outlays.

Key Unemployment Indicator Signals Recession May Be Ending

John,

Hate to stamp out the green shoots, but all of this would only be a reliable indicator if the Bureau of Lies and Scams actually published a legitimate number. Unfortunately, 66K of the jobs created in the last few months can be attributed to the census- temporary and while constitutionally mandated, adding no productivity to society. Furthermore, their predictable use of back revisions for previous months (they down revised all previous months numbers since Jan by 30K jobs lost or more) to cover their lowballing, along with seasonal and population adjustments make it difficult to find them credible.

They also fail to take into account the hundreds of thousands of college students entering the labor force starting this month, who will find that there are no jobs for them, as the retirees they should be replacing cling to their desks hoping to survive the Das Boot style depth charges they hear sinking their 401(k)s and life savings from on high.

Tragically, this years graduates will have any hopes of a positive jobs market (unless they speak Chinese, have a trade like welding or are specialized engineers) crushed by rising interest rates as Obamanomics predictably destroys any hopes of a recovery through crowding out in the bond markets, which will send interest rates through the roof in spite of Dr. Helicopter's printing activities.

Sheesh, maybe I should quit reading so much of Tyler Durden's stuff...its starting to rub off.

Is Obama Selling Military Secrets to China for Debt Forgiveness?

Where's the sources on this? This story is crap- Obama may be a socialist, but he's not about to give away the trump cards to American military hegemony.

Without getting into particular details about the B2, this deal is a non-starter. The amount of classified information transfer this entails makes zero sense and the political backlash would be suicide. From a "short on cash" perspective, it makes more sense to sell the F22 to friendly NATO countries (or Israel) for several billion dollars and save 80,000 jobs in sveral swing states.

Banks Want to Use Government Money to Buy Assets from Themselves

Someone file an FOIA claim against the Treasury and find out if Tim Belden has been hired on as a consultant- This thing reads like the patented Richochet scheme that the Portland Energy division of ENE cooked up back about 8 years ago:

en.wikipedia.org/wiki/...)

Financial engineering and "innovation" at its finest!

Preparing for Financial Innovation's Downside

Greater solution, but I have to agree with John Lounsbury on this- the fallacious belief that the developed world fell face first into in the last 15 years was the belief that finance actually directly contributed to GDP, rather than servicing more productive industries (mining, agriculture, manufacturing, technology, etc.) through better allocation of capital.

Wouldn't the simpler solution simply to better control the money supply through the reinstatement of a commodity standard (as Fisher at the Dallas Fed openly advocates)? The problem seems to be that our money supply expands to support the massive leveraging of our institutions with nothing chaining it to earth, which is extremely lucrative. Further, if the money supply was more finite, interest rates would (conceivably) rise exponentially as we worked further up the Q/P curve, which would naturally put a lid on the pot before it boils over. Not sure why such a sensible solution isn't being entertained (actually I do- I read Greenspan's 1969 treatise on Gold a while back and its conclusions still resonate in the back of my conscience).

Home Price Declines: How Much Further Do We Have to Go?

I'm skeptical of those price to median income graphs- they can be misleading since they appear to look at the median at a national level rather than in the regions which are ground zero for the housing crisis. It is important to realize that in the higher end of the market (500K+), sales volume is next to zero.

If you look at housing prices in the hyperinflated counties of California, such as Los Angeles, San Francisco, Sacramento, Riverside, Orange San Diego and Santa Barbara counties, you would find that the more affluent areas (such as West Los Angeles or Russian Hill in San Francisco) are still hyperinflated due to price stickiness and delusional owners. In my neighborhood (90277, South Redondo Beach), we still are seeing sh&^ty 2 BR condos that are 40 years old in buildings that are falling apart holding out for 700K-1MM price tags.

Similarly, larger 3k sq ft newer townhomes are still trying to sell at 1.6-3MM (despite in one case a default on the construction loan). This generally results in a lot of lonely realtors sitting around on weekends, with the occasional client coming in to laugh at or taunt them. Many of these properties have been marked down multiple times already and have been on the market for two years or more. They will not move until the sellee's put down the crack pipe and face market reality- when this happens, due to either capitulation or financial necessity caused by the owners finally defaulting, it will not be pretty.

These prices are obviously out of equilibrium, so I see at least another 25-40% drop in prices before they are in line with median income-- with typical prices for the aforementioned properties coming in @ 350-450K and 900K-1.2MM respectively (which is more in line to 100-150K in the more affluent neighborhoods). Rising interest rates (4.69% to 4.81% this week alone) will only make this more painful.

The other shoe is yet to drop on pricing in more affluent areas- volume is next to zero because of delusional pricing- so far this has hidden the true magnitude of the bursting. Until it does, the market will continue to fall, only this time it will be the luxury properties, not the subprime ones, leading it.

The Reflation Trade Portfolio

I think this portfolio is a little distorted and not fully leveraging the potential upside in certain sectors . For instance GDX is completely absent, as is DBA.

Personally, I try to avoid ETFs for precious metals in favor of actual bullion- if you are going to get nailed on the collectible tax you might as well pay the extra premium and get the real thing and avoid the rollover costs. Further, I'm not all that optimistic about our near term prospects (perhaps I've been reading too much of Tyler Durden's posts) so you'll notice significant short positions in finance and CRE. I have also included in here some "pseudo-ETFs" such as closed end funds, but overall you can see my commodity exposure:

CEF (gold & silver bullion) 43%
GTU (gold bullion) 15%
DBA (wheat, soybeans, corn) 10%
FAX (Australian and asian bonds, pays a monthly dividend) 10%
FAZ (3x short financials) 3%
TBT (2x short treasuries) 13%
SRS (3x short CRE) 6%

Credit Distinctions: Revolving and Transactional

I think that its extremely important to distinguish between transactional and revolving credit from a consumer standpoint, particularly when enacting policy. The current credit card legislation that just went through congress, while adding some reasonable transparency measures (requiring credit card providers to "do the math" on your bill to show how underwater you are), misses the point. I disagree with the idea of rationing credit to prevent the less credit worthy from getting in over their heads- they will simply turn to loansharking and other means to make up the difference instead.

The better solution is for the Fed to simply let interest rates rise to market levels, rather than manipulating them through the open market window. This will naturally limit the supply of money and thereby the credit limits that borrowers are willing to lend to those with a high credit risk- there is a reason why, when I was in college, I couldn't get a credit card with more than a $500 limit (nor should I have been able to).

Further, I think that government intervention to create another slush "emergency" fund for the consumer to tap on a rainy day will solve one problem partially in the near term while creating further, greater problems down the road. In the cases of social security and medicare, we have done exactly this, creating an "emergency" fund to take care of us in our later years in case we can't do so ourselves through our own planning and thrift. In reality, this "asset" has been turned into a liability as politicians frequently raid it to move deficits off the balance sheet. I have a feeling any sort of "emergency" fund will face a similar course.

Higher interest rates in the long term (not necessarily right now), along with perhaps tax credits for savings in the form of interest exemptions, would reward savings, discourage accumulation of debt and allow people to create their own "rainy day funds". This is the 95% solution the free market offers. The government 99% solution costs ten times as much, is 10 times as complicated, and comes with significant unintended consequences.