Regarding Cramer's timing, I submit to you Exhibit A - An email conversation between a bunch of us but in particular a gentleman whose name I will disguise as Wang and Mr. Cramer (oops, i meant "Screamer") in May of 2005 worldmarket.blogspot.com (scroll down to Update on E-mail traffic) .
WANG was doing good, and SCREAMER, as it turned out, apparently wanted to do good.
From: WANG
Re: Can't Bet Against the Land Shortage
Yeah, yeah, I've heard that argument before. Now where was it?
Perhaps Japan in 1990?
Or was it Hong Kong in 1997?
The HK property developers can't go down!
They're the only ones who own land!
What happened in the next three years?
All of them were down between 70% and 90%.
BTW - Sun Hung Kai Properties (16.HK) today in Hong Kong still has a market capitalization of twice that of the largest in the US.
And it's still 30% off its 1997 highs.
Land shortage means property and property stocks can't go down?
Ask the Kwok Brothers if they believe that garbage statement.
Regards,
WANG
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From: SCREAMER
Subject: Fw: Can't Bet Against the Land Shortage
Land prices can certainly come down. But land that can be developed in
New Jersey, Florida, etc, is not going to come down until you stop illegal immigration and raise rates up huge.
Our new Action Alert Plus service is still getting raves. Get the rationale behind and the timing of my buys sent to your email boxes before I pull the trigger. Click below to sign up and try it.
SCREAMER
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From: WANG
Subject: Can't Bet Against the Land Shortage
Same argument made in Hong Kong in 1997.
Illegal immigrants? Try here in Hong Kong back in 1997.
Not enough housing? 55% of all HK-er's live in public housing.
Not enough land? HK being small enough, is 60% national parkland. Against the law to build on.
The fact is that at this point, it is becoming highly psychological. That and the affordability ratio. (see mortgage summary below). It might indeed take higher rates to effect change. But that's the entire point. Is the Fed willing to play chicken? Or do they deny yet another bubble?
A roundtable of comments by some highly esteemed economist and a couple of dummies like me.
worldmarket.blogspot.com
And a summary of a great piece on the precarious nature of the US mortgage market:
worldmarket.blogspot.com
You might be right, but it goes against history.
BTW - I worked for the world's largest property developer (Sun Hung Kai Properties) for five years.
Regards,
WANG
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From: SCREAMER
To: WANG
Subject: RE: Can't Bet Against the Land Shortage
I think we want to distinguish between two issues: 1. who has land that can be built on now, and 2. macro factors. The macro factors can wipe out housing for certain, you destroy housing with rates. You can destroy it with legislation for more money down. But that doesn't change the notion of the land-banks and their ability to build. I have been fighting developers for 15 years now, I have spent millions of dollars of my own money doing so, and I can tell you that in the tristate area the land they have is very understated on their books versus what they can get. If they were selling at premium multiples I would be wrong. But they are selling at fractions of the S&P multiples.
Bottom line: Housing could crash and these stocks simply won't get hurt nearly as badly as people think.
SCREAMER
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From: WANG
Subject: RE: Can't Bet Against the Land Shortage
Fair enough.
But SHKP had 50 MILLION square feet of land bank space in 1997 along with 21 MILLION of undeveloped agricultural land. Still didn't keep the share price from dropping more than 70%. And SHKP dropped LESS than all other developers due to its superior management and portfolio.
Admittedly because of much higher interest rates, the market suffered greatly. And this in Hong Kong, where land is much more scarce than anywhere along the Atlantic seaboard.
And prices in Japan are 75% lower than in 1989. They are more crowded than the Atlantic seaboard as well.
Interesting to note that only 17% of people in Los Angeles County can afford a median home. And only 11% of people in Orange County can afford a median home.
The huge number of people who now take out interest-only and negative-accruing mortgages tells me this is speculative, not wealth building. See the Lehman report. Fascinating and well-documented.
I just don't subscribe to the "this time it is different" argument.
Guess we'll find out in the next couple of years....
Regards,
WANG
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From: SCREAMER
Subject: RE: Can't Bet Against the Land Shortage
Yes, but how was SHKP valued? I am saying that our stocks trade at huge discounts--the same they have always--despite the changes in demographics and the changes in environmental laws.
SCREAMER
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From: WANG
Subject: RE: Can't Bet Against the Land Shortage
PE for SHKP ranged between 8 times and 20 times for all of 1997. It's funny that I know of 3 US$ billionaires who have made almost all of their money in real estate.
- One has a moratorium on buying US real estate.
- One is selling as fast and as hard as he can to the "moms and pops."
- One is shorting all of his competitors to hedge his position so as not to have to disclose selling of his own stock.
Of course, Robert Toll has sold 20% of his stake and has taken out US$268 million in the past 6 months. I guess he needed the money to re-paint his garage....
And Calpers just sold off US$2.5 billion of its strip mall portfolio.
The point being is that the smart money who have made billions in the past few decades are now sellers. Mom's and Pop's are buyers. What is the smart money doing????
I'll stick with the smart money - the billionaires...
Regards,
WANG
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From: SCREAMER
Subject: RE: Can't Bet Against the Land Shortage
I think that Toll did the right thing by any stretch. What is prudent?
What WOULD YOU HAVE DONE? It is what I preach, he's not an idiot.
SCREAMER
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From: WANG
Subject: RE: Can't Bet Against the Land Shortage
I would've sold just like he did.
But I wouldn't be touting my stock as a great bargain on TV within a day of me selling down a significant stake. I'm not really sure that's very ethical. If I'm dumping 10% of my holdings, I think I bite my tongue, not tout my stock....
JMHO
WANG
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From: SCREAMER
Subject: RE: Can't Bet Against the Land Shortage
He made a mistake; he knows that, he feels goaded into it. I really think you have to make someone at Pulte or Horton the focus, not Toll, he's too rational a being
SCREAMER
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From: WANG
Subject: Can't bet against the land shortage
OK - Enough picking on Toll.
But I still think there is too much speculation and froth in the real estate space. When prices start to drop, its going to get ugly. A couple of things.
When people start ending up with negative equity, do they try and pay it off or walk away? I don't think banks have done a very good job on making sure the loans will be good. Why should they bother? They just collect the fee and sell the risk on to Freddie or Fannie. Way too much leverage in the system. I think the attached Lehman report is both rational and damning. HK real estate dropped 70%, and interest only and other dangerous products weren't available. Banks were only allowed to lend 70-80%. None of this 0% down garbage.
And of course stories like this don't boost my confidence that this real estate "boom" is real. From the Miami Herald: "Citywide, developers are proposing more than 61,000 new condominium units -- eight times the number built during the past decade." ''As much as 85 percent of all condominium sales in [downtown Miami] are accounted for by investors and speculators,'' housing analysts at investment firm
Raymond James warned in a March report.
Spiegelman sold the condo units in the Marina Blue condo going up on
Biscayne Boulevard. "One hundred percent of the buyers were investors and speculators,'' he said. ``Anyone who tells you their projects are different are deluding themselves.''
And I would note that 30% of all "vacation homes" sold in 2004 were within 25 miles of the buyers primary residence.
11.4% annualized increases in housing prices is unsustainable.
Investors have massively leveraged positions, and housing prices can go up and down like stock prices. They go up higher on the upside and down further on the downside with leverage.... and people are very leveraged. Leverage increases volatility at the end of the day...in both directions.
I guess I've had to answer too many tearful calls from people who's mortgages were "upside down." People begging me to get my boss to let them out of their contracts. People who dropped their keys off at the bank and moved to China because they were bankrupt. They all thought buying their home was a "sure bet" to riches. But it wasn't. I'm afraid we're going to see the same in the US in the coming couple of years.
JMHO
WANG
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From: SCREAMER
Subject: RE: Can't bet against the land shortage
I think you should tell me more of those stories, I am on today show today and I can help people. Who in particular got the most hurt, the interest-only folks, the people who put no money down, the people who bought adjustables--??? I want to have a warning list of how this can be dotcom bomb like based on other experiences. I think people are being reckless, what are the true signs of recklessness in your opinion, knowing that I am going to go public with them not with your name but with your experiences top of mind. Maybe we can help some people---I am on tomorrow, whatever you can do about a checklist of recklessness and who got hurt worst
SCREAMER
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From: WANG
Subject: RE: Can't bet against the land shortage
Late for a dinner with a China Misssionary Doctor.(he helps me to keep things in perspective) Hope to respond tomorrow. (tonight your time)
WANG
Here's one article:
Attention, Speculators: Here's a Lesson from Hong Kong's Housing Bubble
Whenever housing prices soar -- in Shanghai, San Francisco or Santiago -- experts wonder whether the cause is a speculative bubble that could eventually burst, causing widespread distress. Such frenzied swings are not confined to real estate alone, of course, as any investor who lost his shirt during the dot-com mania of the 1990s knows. What causes such bubbles? Is there a way of spotting them while the bubble is actually being formed -- rather than after the fact? A new research paper that examines volatility in Hong Kong's residential market between 1992 and 1997 offers interesting insights into these questions
. . .
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From: SCREAMER
Subject: RE: Can't bet against the land shortage
Thanks man
SCREAMER |
