Got any thoughts on these last two posts Mr Rich1
a bubble in real estate
The Daily Reckoning
Weekend Edition
February 19-20, 2005
Baltimore, Maryland
By Addison Wiggin and Tom Dyson
MARKET REVIEW: WHAT THE CHAIRMAN SAID
Mr. Greenspan has been talking.
On Wednesday, testifying before the Senate Banking
Committee, he said he couldn't understand why bond rates
were so low. The economy has strengthened, he pointed out,
inflation is stirring up and I've made it clear rates are
going to keep rising. His exact words were: "The broadly
unanticipated behavior of world bond markets remains a
conundrum."
His comments made the bond market dive. But the sell off
didn't end there. The latest reading of the PPI was
announced on Friday morning, and bond prices gapped lower
again. The reading showed the fastest rate of acceleration
in wholesale prices for 6 years.
What is so remarkable - it that this time - it's core
inflation that is rising so fast. The core rate is simply
the usual PPI reading minus energy and food. The wonks in
Washington say the full-blown PPI is too volatile, so they
watch the core rate instead. They got a shock on
Friday...the core PPI reading for January was 0.8%, or 10%
annualized.
The 10-year Treasury bond started the week with a yield of
4.09%. It ended the week at 4.26%. The week before last,
10-year yields dipped below 4% for the first time 4 months.
We come back to Greenspan. On Friday he testified before
the House Financial Services Committee. He turned his
attention to the housing market. "I think we're running
into certain problems in certain localized areas," he said.
"We do have characteristics of bubbles in certain areas."
He once said he couldn't spot a bubble until after it had
burst, so this one must be a real corker. Maybe he's
noticed how expensive those trailers are on the coast in
California?
In yesterday's edition of The Daily Reckoning, Byron King
reported how trailer parks in coastal California had
transformed themselves from trash into treasure, and how
some mobile homes there were selling for seven figures.
"The value of mobile homes within walking distance of the
surf has shot up tremendously in the last few years,
reflecting a dramatic change in status for these
dwellings," said Byron's reference, the Los Angeles Times.
"Mobile homes with breathtaking views of the Pacific hover
in the $1-million range in places such as Malibu's Paradise
Cove and nearby
Point Dume Club."
Even if you buy one of these things, explained Byron, you
still have to rent the land from the trailer park!
Characteristics of a bubble indeed.
After his comments on housing bubbles, Greenspan turned on
the GSEs. He advised them to trim their balance
sheets...saying Fannie and Freddie shouldn't hold mortgage
portfolios totaling more than $100 billion to $200 billion
apiece. "Enabling these institutions to increase in size -
and they will, once the crisis passes - we are placing the
total financial system of the future at a substantial
risk," he said.
For comparison, according to Greenspan, Fannie's current
portfolio is about $905 billion, while Freddie's is $654
billion. Fannie's portfolio has more than quadrupled in the
past decade, while Freddie's has grown nine-fold.
Despite Greenspan's effluvium and the sell off in bonds,
the markets held up pretty well. The Dow lost 11 points
over the week, to close at 10,785. The Nasdaq lost 18, or
0.87%, to end the week at 2,059.
Gold, silver and oil went up, while the dollar went down.
Regards,
Tom Dyson,
The Daily Reckoning
P.S. As you just read, Greenspan has finally spotted it - a
bubble in real estate. When the Chairman joins the party,
it's probably time to leave. Do you live in a region where
house prices have been rising? Have you thought about
selling but the hassle of moving houses is just too great?
Now there's a solution...and it has been detailed in this
brand new report exclusively for readers of The Daily
Reckoning:
The Real Estate Misery Next Door
agora-inc.com |
