US Housing Market is Still Collapsing

Posted on May 20, 2011 | Leave a comment

The Economic Collapse has put together a stupendous list of 20 startling facts about the US housing market:

1. According to Zillow, 28.4% of all single-family homes with a mortgage in the United States are now underwater.

2. Zillow has announced that the average price of a home in the U.S. is about 8% lower than it was a year ago;

3. U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

4. During the first quarter of 2011, home values declined at the fastest rate since late 2008.

5. According to Zillow, more than 55% of all single-family homes with a mortgage in Atlanta have negative equity and more than 68% of all single-family homes with a mortgage in Phoenix have negative equity.

6. U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

7. In February, U.S. housing starts experienced their largest decline in 27 years.

8. New home sales in the United States are now down 80% from the peak in July 2005.

9. Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

10. According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

11. It is estimated that 25% of all mortgages in Miami-Dade County are “in serious distress and headed for either foreclosure or short sale“.

12. Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

13. Sales of foreclosed homes now represent an all-time record 23.7% of the market.

14. 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

15. According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

16. In September 2008, 33% of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure. Today that number has risen to 48 percent.

17. During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.

18According to a recent census report, 13% of all homes in the United States are currently sitting empty.

19. In 1996, 89% of Americans believed that it was better to own a home than to rent one. Today that number has fallen to 63 percent.

20. According to Zillow, the United States has been in a “housing recession” for 57 straight months without an end in sight.

Source: The Economic Collapse: :”Don’t Buy A House In 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis“

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Posted in Economics, Investment, Real Estate, The FED

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LinkedIn IPO: the Public Premium

Posted on May 20, 2011 | Leave a comment

Facebook has been leading a cult of companies avoiding IPOs.  The claim is that the cost of regulation and transparency is unnecessary and inefficient.  Private markets like Second Market have grown tremendously.  This may be all wrong, and let’s hope so.

The IPO of LinkedIn demonstrated a public premium: public markets offered a higher valuation than the private markets did.   Valuations can be higher because discount rates are lower.  Think about it: public investors get maybe 15% in a strong year.  Private Equity investors are organized around discount rates of 20% or higher.    If your discount rate is so high, future profits are simply not worth as much.

There is another important reason for a public premium: regulated standards of conduct and transparency.  When owners (shareholders) are more informed and confident, risk is reduced and value goes up.

The reason to hope this is the case is for the public good.  If IPOs and public listings are shown to be a rational — because the cost of compliance is less than the valuation premium — then more companies will be public and capitalism will be more broadly accessible. Also, this will lead to higher overall investment rates and stronger economic growth.

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Posted in Early Stage, Economics, Investment, Public Policy, Stocks

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Long term investment strategy blather

Posted on May 19, 2011 | Leave a comment

“The FED has been daring us, effectively, to go out and buy risky assets for the last 2 years”

“It will be the creditor that tightens global liquidity.  Not the debtor.”

I don’t agree with Russell Napier’s ultimate conclusion about S&P hitting 400, but this interview is full of gems:

http://video.ft.com/v/946244201001/Long-View-Historian-sees-S-P-fall-to-400

(it’s part of a series: http://video.ft.com/v/940727417001/Long-View-A-gathering-storm)

The reason that I don’t agree with his conclusion is that I think emerging market credit expansion will be harder to control.  I think credit expansion will be highly private, opaque, poorly regulated, and broadly accepted by the population.  Expansion of credit is an expansion of the money supply.  During which, emerging market consumption and inflation will be higher than expected.  Corporate profit growth would likely rise faster in that scenario, so downside risk should be protected to some extent by strong corporate balance sheets.

Or of course it could go the other way.  :)

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Posted in Bonds, Commodities, Economics, Investment, Stocks, The Future

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Improving Google’s “20% time” policy

Posted on April 22, 2011 | 1 Comment

Google’s “20% time” program is not working as well as it should.  I love the idea of giving passionate engineers the opportunity to invent and build, but the policy needs tweaking.  Here is my recommendation:

  1. Engineers can submit projects to the Google management team.
  2. Managers can approve projects.
  3. Approved projects get resources, including engineering time, to achieve their vision.
  4. Google invests 20% of its engineers’ time to these projects.
  5. Managers’ approvals are tracked, plus bonuses for good records.

Why?  Lots of reasons.  Not every engineer should spend 20% of their time on side projects.   Some engineers should be spending 100% of their time on their side projects, others 0%.   Managers who demonstrate years of good decisions form the teams who lead Google into the future.

For Google to maximize the potential of its great teams and ideas, it needs to embrace a more flexible and competitive policy.  This plan turns Google managers into a sort of investment committee, the result will exploit competition and align incentives to optimize performance.

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Posted in Investment, Media, Stocks, Tech

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Black Holes and the Big Bang

Posted on April 11, 2011 | Leave a comment

I’ve been watching Science Channel shows about black holes lately. I know nobody knows the physics beyond the event horizon, including time and space… but doesn’t it seem like an elegant possibility would be that inside a black hole, everything collapses and explodes in a big bang that is entirely contained within the black hole. New time and space, and all the mass and energy in the black hole continue within the sphere of the event horizon. An explosion of the singularity at the center would look from the inside like a big bang, and the curvature of space time might even have edge effects that draw matter back toward the event horizon, causing the accelerating expansion we see in red shift.

It feels like the more we learn about the universe, the more we discover that we have yet to understand.

The scope of physics is so awesome.

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Posted in Just for fun, Personal, Science

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Bullish on POT

Posted on March 29, 2011 | Leave a comment

Potash Corp. of Saskatchewan, Inc. (Ticker:POT)

The run up in the market size for technology over the last 4 decades coincided with the dawn of an Information Age.  We are now in the dawn of a Biological Revolution and Potash is a valuable and constrained ingredient.

If you have 20 or more years to invest, the world economy will look different when you sell than it does today.  As agriculture demand expands to fit an emerging global population that doesn’t starve, production and productivity has to rise.  Potash is the constraining factor.  I expect demand to rise strongly for decades and, because supply is constrained (with what we know now), prices should rise.

With a profit margin at 30% and an operating margin at 38%, they achieve ROE of 28%.  Great numbers for a company with $6billion in revenues.  Their dividend isn’t much to look at, but with quarterly revenue growth of 68% since last year, reinvesting in growth is a good move on their part.

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Posted in Commodities, Economics, Investment, Stocks

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Tsunami dream

Posted on March 12, 2011 | Leave a comment

I finally got some sleep last night. A week of stress and conflict, topped off with a terrible earthquake and tsunami in Japan. In my dream I was in a meeting, talking to friends in a very tall glass tower. I was standing by the wall of windows and looking out over the seacoast skyline. In the distance a big wave forms like a lump in the sea. It is moving toward us. The shore recedes, rolling back into the ocean. My breath stops. My hands on the glass. The wave comes in fast and high. It climbs up, out the of sea and starts to form a crest. I feel like we’re hundreds of feet in the air, but the wave is breaking just beneath us. I don’t feel a thing. The building doesn’t move at all. I watch other buildings wiped away. A mess of lumber and cars and buildings and people floats along as the water continues to push through the city. Small fires ignite and send up little tufts of smoke that must be hundreds of feet across when you get close. I was still. The building was still. Nobody said anything. I woke up. Maybe if I go back to sleep it will be different.

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Posted in Personal, Psychology