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To: Rich1 who wrote (5318)	2/28/2005 9:31:47 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 12411

Property Hunting The Daily Reckoning London, England Tuesday, February 22, 2005 We found what we believe was a typical ratio in today's news. Our dimwits were found, as might be expected, on the editorial page of the International Herald Tribune. Today's Einstein, by contrast, comes out of the pages of a private newsletter, Grant's Interest Rate Observer. Mr. Vernon W. Hill is a small town banker...and rarer than a banker with a heart, Mr. Hill has a brain. "We feel the United States is in trouble, with major weaknesses and unpleasantness ahead," he says. "Whether inflation or deflation lies ahead, or some kind of both, we believe many borrowers will be unable to repay their loans as scheduled." None of the reasons Mr. Hill mentions will be new to Daily Reckoning readers: little savings, little investment in productive industry, (much of what is invested is sunk into short-lived software), and the illusion of wealth that accompanies rising house prices. With little real investment in new factories or new methods of production, few good-paying new jobs are created. In such an economy, a banker without a brain walks lightly and lends heavily. For the president of Monroe County Bank, on the other hand, you get the impression that every step towards a new loan is uphill. He lends almost reluctantly, wondering how borrowers will be able to repay. These insights are not new to us, but neither are they profitable - either to Mr. Hill or us. While other bankers move more and more of their money into real estate loans, Mr. Hill is warily reducing his bank's exposure - especially to residential property. Home mortgages were less than a third of commercial bank loans in 1980. Now they are nearly two thirds. Other bankers will lend to anyone who can sign his name, provided he is buying a house. Mr. Hill wants to know how the borrower will be able to pay back his loan if - heaven forbid - his house doesn't go up in price by 20% this year. These are not the sorts of practices that would make Mr. Hill's establishment the "Bank of the Year" or get his photo on the cover of Business Week. Not in the year 2005. His is not the Bank of the Present. It may be the Bank of the Past. That it may also be the Bank of the Future is the guess that keeps us going. The Monroe County Bank is not only out of step with most of today's lending institutions, it seems to be marching in the opposite direction - back to the future. We have never met the man, nor never visited his office in Forsyth, Georgia. But were we to enter the bank we would expect to find a man behind an old-fashioned ledger on an oak desk...and a spittoon in the corner. If we were to ask for a loan, we would expect a disapproving look, followed by a polite, but severe inquiry into our personal finances. No, these are not the methods of the typical banker in the 18th year of Alan Greenspan's reign. Nor is Mr. Hill's approach to the credit industry particularly profitable. He admits he would earn more money by doing what other bankers do. Most bankers borrow short and lend long. As long as long rates are higher than short rates - and he does his math right - he will make money. Mr. Hill's approach, borrowing long and lending short, is a curiosity in the banking industry. It forgoes current profits, he believes, in favor of a more solid balance sheet. And when long rates rise, which they will do, sooner or later - both Mr. Hill and we here at the Daily Reckoning are sure of it -- Mr. Hill will have the last laugh. Compared to most bankers, it will be far easier for him to collect his credits and pay his liabilities. agora-inc.com

To: Rich1 who wrote (5318)	2/28/2005 10:07:36 AM
From: Chip McVickar	Read Replies (2) \| Respond to of 12411

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