Sunday, December 14, 2008

Housing Meltdown Part 2

Quote of the day....

"If we have another 20% decline in prices, we'll need another bailout of banks similar to what we just did," Susan Wachter, Professor of Real Estate, University of Pennsylvania.

I think a further 20% decline in Real Estate is (far) better than 50/50 (but I reserve the right to change my mind if the data changes).  This is the only thing that has held me back from wading into Crude Oil in the 2010 - 2012 period.  I expect I will put some money to work after January 1, but exactly when... well that's to be determined.

The amount of Oil production that has been shut in or is no longer economically viable along with depletion from existing fields will, at some point, overwhelm the loss in demand.  At that time we will likely see a spike in Oil prices.  Right on time to derail the recovery.


This Bernie Madoff story just gets weirder and weirder.  

People will need to blame someone, somewhere... the SEC, state securities regulators, the accountants... and the regulators are going to be out skinning law abiding advisors alive for not crossing a "T" or dotting and "I"... but the sad fact is: There is no way to stop a smart crook from being a smart crook.  Greed will always get to some people.  The warning signs are always there, all you gotta do is look.

After the stock market crash in 2000 I decided that in order to survive, we would have to cut our overhead to the bone (talk about bad timing... I opened my Broker/Dealer in late October of 1998, less than 17 months before the crash).  I was leasing space from my former employer Bear Stearns in a AAA office building Boca Ration and had a substantial head count.  In less than 90 days of the March 2000 sell off, we had cut head count 80% and moved into some pretty unimpressive office space (actually, it was nothing short of gross).  A long time client came to see me (this guy was right out of a Seinfeld episode and we told him so), looked around and said "the new space does not exactly engender confidence" that we were going to remain in business.  As it turned out, out of the nearly 20 small Member Firms that rented space from Bear Stearns Boca Raton office in March of 2000, only 2 of us have survived (Kaplan & Co was the other survivor and he has thrived as well), and we did it by pulling a Godfather and "going to the mattresses".  

Bernie Madoff decided to keep up appearances.  Rather than scale his business back to reflect market conditions Bernie continued to work over the community that identified with him, that trusted, that supported him because he was an arrogant, schmaltzy, showy, ego maniac, scum bag.  His clients were bamboozaled by the show. Warren Buffet lives in a modest house in Omaha, buys his suits off the rack and wears a Mickey Mouse watch.  Bernie Madoff lived in a $10 million Manhattan apartment, wore only custom suits from Italy and London, and he and his wife had a jewelry collection that was the envy of the crowned heads of Europe.  

Notice something here?

 I am absolutely positive that when the investigations are concluded that they will find that this fraud began in earnest with the 2000 market crash and was finished off with the 2008 market crash.  To survive in the environment Wall Street has found itself in over the last decade you were either:  Quick, Dead, or a Crook.

Bernie Madoff decided to be a Crook.  He could have decided to be Dead, but instead decided to Kill his investors.


The US$ has had a monster rally, but that rally appears to be long in the tooth.  I will be the first to admit that I did not foresee the monster rally the US$ had up until late November. I had good company... Boone Pickens,Warren Buffet, Goldman Sachs, Morgan Stanley... Bear market rallies are like that.  Don't over stay your welcome.

Good Luck!

Mentatt (at) yahoo (dot) com


bureaucrat said...

I know you are the functional equivalent of a "day trader" and I certainly can't deny any success you've had, but you must have some fundamental need to "see the big picture" and " predict the inevitable future" (like me). Isn't that where the great and famous economic investing minds come from, or is that of no interest to you? We all know we can't possibly pay back all the money we've borrowed or obligations we've made, and the dollar is going to be under great pressure to devalue, and we know the finite situation of oil and perhaps nat gas. But most people don't seem to realize that, or they don't want to. They want quick profits. They are ready to be skinned of their money. And that takes time. But isn't day trading in whatever form kinda exhausting? Wouldn't you rather make bets on things you know will someday eventually happen and just go waterskiing? Become your very own Warren Buffett and Peter Lynch?

Greg T. Jeffers said...

I do not consider myself a day trader. I do prefer to take losses sooner than later.

Donal Lang said...

So let's get this right; you open your office and 17 months later the market crashes!

So it was YOUR fault!! ;-)

Enjoy your Xmas, Greg. Don