Chuck Ponzi November 15th, 2005

I thought for a while that we would be done making fun of people for a while. Then someone has to go and say something so ludicrous, so insane, so stupid, it has to be posted.

A great cheerleader piece came out describing the North County San Diego slowdown and what it could mean. There are a couple of noteworthy comments:
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In October, there were 853 detached home sales in North County down from 960 in October of last year and 926 in September of this year, Brown said.
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“I am seeing a little bit more inventory,” Smith said.
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In North County, 1,511 detached homes were listed on the service a year ago, said Irv Erdos, a Realtor with ERA Property Movers in Escondido. As of Monday, that number had zoomed to 5,624.”
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That’s just classic. No need to even comment on that one except to say that that registers right at about 6 months of inventory… a nice number to be at for a market turn. Of course, these aren’t high times of the year, so a final assesment should happen in the spring.

The next one is great:
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In condo purchases in particular, Feldman said, some speculators look at a purchase as an “option”: they are willing to default on the purchase if the value drops; if the value rises, they’ll “flip” it to another buyer for a quick profit.

However, Feldman said mortgage lenders are being “fairly conservative,” so the likelihood of a crash, which he defined as a drop in value of at least 15 percent, is unlikely.
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You gotta wonder if he has seen the 100% LTV Interest Only ARMs at 1% teaser rates that people are getting qualified for in these purchases. The idea that lenders are being “fairly conservative” is pretty laughable. The “fog a mirror” test is perhaps what he considers rigorous screening. Has he been living in a cave?

Besides, won’t the defaults drive down prices? Maybe not in his psuedo world where supply and demand don’t have to intersect for a transaction to take place.

And then Lew Feldman hits us with the MOTHERLODE of all stupid remarks:

Brace yourself for it:

It’s coming:

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The housing market slowdown is taking place throughout Southern California, said Lew Feldman, a real estate and public finance partner at the law firm of Pillsbury Winthrop Shaw Pittman LLP in Los Angeles. Feldman said the slowdown won’t become a collapse, because new buyers from overseas are poised to enter markets such as San Diego’s.

“We haven’t seen the full onslaught of what’s going to happen,” Feldman said. “The Chinese have $700 billion of our paper right now. When they cash it in, they’re going to buy real estate and they want to buy coastal communities.”
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Now, I have to admit. I sat and read that bit about 5 times before I dared to laugh. If this man really believes this, he has got to be one of the most disconnected individuals from International Finance.

First off, the Chinese GOVERNMENT have bought our paper, not individual owners. Does he really think that the government will trade Mortgage Backed Securities for our North County inventory?

China is playing an international game of hide the trade surplus in US backed securities, not individual mortgages. If they failed to do so, they would have a stronger Yuan by raising demand for their own currency, effectively making DVD players 50% more expensive due to the exchange difference. They keep us buying their cheap stuff so some day they can grow a middle class that will buy their own stuff and they can wean themselves off of us. Our trade deficit is the reason Chinese own any paper in the US; and it’s what has kept our interest rates abysmally low and created Greenspan’s conundrum and Bernanke’s savings glut.

To think that the chinese government would want to trade in liquid government backed and GSE-backed securities for residential real estate is truly one of the stupidest things I have heard since the bubble began. It’s a leap that no rational or logical thinking person could do. If we had a Comment of the Bubble Award it would have to go to Mr. Feldman. Thank you for making our day.

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