The Tasgall Group

A few days ago I was asked how real estate was doing in Las Vegas…

Here’s the a chart from the government’s official house price appreciation (compared to Durham for kicks and giggles):

Within the metropolitan area of Las Vegas, there are approximately:

• 7,132 pre-foreclosure properties
• 2,457 properties up for auction
• 5,365 bank owned properties (e.g., the foreclosure occurred and now the bank owns the house/property)

Here are the same numbers for Raleigh. For comparison, Raleigh is about half the size of Las Vegas:

• 557 pre-foreclosure (15% as much as Las Vegas, adjusted for population)
• 7 auction (0.5%, adjusted for population)
• 562 bank owned (20%, adjusted for population)

And to add insult to injury, the average price of pre-foreclosure houses listed on RealtyTrac (where I looked this up) was approximately 2x or more in Las Vegas, despite only have a 20% higher cost of living…

There’s also an interesting ecological / health issue with pools attached to abandoned or underfunded properties… the stagnant standing water (if not property treated with chemicals) are a hotbed for mosquitoes and mosquito related program activities.

The Southern Nevada Health District, which includes pool-packed Las Vegas, relies on neighbors’ complaints to identify pools green with algae. By June 25, the district’s “green pool” count outpaced last year’s numbers by more than a fourth. Many involved vacant homes in the process of foreclosure, environmental health supervisor Mark Bergtholdt says.

(The pool/mosquito problem is also present in Southern California and Arizona where pools are common and foreclosures are unfortunately increasing.)

Ok, so here’s another attempt at a discussion…? feel free to comment below or do your own post as a trackback to this one.

Almost all financial plans promote the concept of building a pool of “safe money” to cover emergencies and unexpected expenses.? This is certainly a good idea, though to think about it critically, we need to look at the real requirement behind the idea.? The idea isn’t just to have cash in a bank account, the point is to have immediate access to funds if/when you have unexpected situations crop up.

The traditional place for safe money would be a savings account or money market account.? Keeping this pool of money in such a safe place gives you many benefits — almost instant access, near zero chance of loss, etc.? You also have the benefit of knowing exactly how much you have available — maybe enough to cover expenses for 3 or 6 months were you to lose your job/income.

In many respects, you can consider your lines of credit (credit cards, home equity loans, etc.)? as part of your cash reserve.? You have nearly instant access to it — in some cases even quicker than getting money out of a money market account.? You have a near zero chance of losing the credit line — unless you sell your house (for HEL) or close your credit card account.? You also know how much you have available in the form of your credit limit (and your credit score can actually benefit from having a lot of unused credit available).? You can also potentially build a larger pool of safe money if you have good credit — in effect having a credit line that exceeds the same amount you can/would keep in cash.

So, allow me to posit a question — is there a real difference in keeping safe money in cash versus keeping the same amount in available credit?? (more…)

Mike Shedlock (a.k.a. Mish) tends to have a bearish bent, but does good analysis of the macro scene.? He’s got some very good articles about the Bear Sterns hedge fund situation, and what is happening behind the headlines…

• The Redemption Trap & the Merrill Lynch Cover-Up
• Who’s Holding the Bag?

Here are some of the high-points:

Losses at hedge funds are being masked by “mark to model” pricing.? That means that their illiquid holdings are worth what the hedge funds say they’re worth, not what they can actually be sold for.? This is important for many reasons, one is that it goes into the monthly balance sheet, which determines bonuses for the hedge fund managers.? Think there’s an incentive to avoid realistic pricing?

State pensions are currently holding large amounts of sub-prime related securities, and will likely see losses in those investments if subprime loans continue to fail.

Normal markets can become illiquid in rare cases (e.g., the 87 stock market crash), illiquid markets have the same problem, but start further down the spectrum of problems.

“The derivatives business is like hell — easy to enter and almost impossible to exit.”

News hit last Friday that Western Digital was going to buy Komag Inc., a maker of hard drive parts. The impressive thing is that the premium paid is small to the price before the news (8%), and is lower than the average price of the last year (the average price can simply be the 200 day moving average: chart).? What a bargain for Western Digital.

I owned some Komag shares a while back as a value-based trade, but the grinding downtrend and my trailing stop loss trigger knocked me out well before it could damage my account capital. ? Ironically, I bought above the $32.25 price that WD is offering for shares, so even had I done the buy-and-hold thing (it was a value play for me, after all) I would still be taking a loss despite being right on the underlying value.

And, of course, someone knew about the deal before the news broke and (illegally) bought a lot of calls…? which doesn’t make sense to me.? The risk of getting caught seems too high relative to the returns…? but one thing I’ve learned is that we can always rely on some speculators not understanding the risks they are taking.

There are two very good articles worth reading on the current issues at Bear Stearns, and the funny money action at a few hedge funds.

Side Pockets @ The Big Picture

Toxic Waste @ Bullion Vault (by Paul Tustain)

The whole thing is starting to sound like a Ponzi Scheme to me…? and if the impact is large enough, we could see buyouts start to struggle (already happening) and eventually share buybacks start to slow down.

Bulls and bears trade places on the margin, so if the sub-prime issues are not “well contained” but have even a slight impact on the overall market/economy, we could well see the tide shift.? It doesn’t look like it yet, but these are the things to keep our eyes on for further indications of change.

One of my holdings, Rosetta Resources (ROSE) took a bit of a tumble yesterday…? the shares closed near their lows of the day down 8.4%.

The interesting thing is that this happened on ?no news?.? About a month ago the price spiked upward on a Cramer recommendation when he called the stock ?criminally underpriced?.? Yet this wasn?t a Cramer-ism, the dip wasn’t because of something he said.? Rosetta is a natural gas producer, maybe it?s falling because of the short-term breakdown in the natural gas price?? Not really… all the gas producers, including Rosetta, were weak over the last few weeks and it doesn?t really explain the one day plunge.

The real story?? Calpine is suing Rosetta for $400 million.? For perspective, Rosetta?s market cap is $1.2 billion, so we?re talking about almost 33% of the market cap of the company.? Rosetta was originally spun off from Calpine, and now the parent company thinks they weren?t paid enough for that privilege (there are many sordid details, including the fact that Calpine is currently in bankruptcy and only realized the underpayment now that third parties are seeking to cover their debts).

While the soap opera will likely continue for a while (it?s a money grab, after all) the interesting point is that this news didn?t show up (and still hasn’t) on Yahoo Finance?s news for the company, nor in Google Finance nor Google News.? I only found the story when I logged into my Schwab account and reviewed the news listings that Schwab had for the company.

The lesson to take away from all of this is to make sure you have several places to go for your news…? especially if you expect to act based on news for a company or stock.? Also, Yahoo Finance and similar free services are great, except when they aren?t.?

Yet another CPI report was released on Friday, and quite a few people are reading the same report with different conclusions…

CPI “proper” indicated a 2.7% rate of price increases… While the Core CPI rate indicated a 0.1% rate of price increases. Those that look at CPI think that inflation is ramping up, and those that look at the core rate think that inflation is under control.

Sidebar: one important point is that prices do not inflation make — inflation is a monetary phenomenon (a change in the money supply), and price changes are a visible side-effect (with a lag) of the monetary inflation. We’re playing a guessing game looking at prices and thinking that prices “are” inflation.

The inflationist camp will argue that the 0.1% core rate was rounded down from 0.149%, which is a true and convenient talking point, but they’re missing a much bigger problem.

What is the Core CPI? According to Briefing.com:

CPI can be greatly influenced in any given month by a movement in volatile food and energy prices. Therefore, it is important to look at CPI excluding food and energy, commonly called the “core rate” of inflation.

(more…)

The NY Times has a new Freakonomics article about cash-back financing from real estate transactions. The gist is that, even though illegal, real estate buyers have been frequently using cash-back financing to come up with the down payment for their new homes.

So, not only are the weak hands in the real estate market going with adjustable rate loans during a period of historically low interest rates, but they’re also levering up additionally just to get the down payment…

Here’s a good chart (from Mish) that shows how many of those adjustable rate loans are about to reset…

Even though some areas continue to be stable, I think we can expect continued weakness in those areas that used to be ultra-hot…

A quick check of the mortgage-lender implode-o-meter shows over 80 mortgage companies have run into trouble…

After yesterday’s post on the CNBC Contest Controversy, I thought I would share my experience in participating in the contest. Instead of trying to game the contest, I simply had one account and one entry in the contest.

My highest ranking was on two different dates… if you count my highest placement versus my highest percentage rank within the pool of participants.

• April 2 ? 19,000th place, which is the top 3% – return at that point was 20%
• May 9 ? 31,203rd place, which was top 2% – return at that point was 25.87%

My general strategy was fairly simple: (more…)

There are interesting allegations that contestants in the CNBC Million Dollar portfolio contest may have been cheating…? taking advantage of a security hole in the contest website to place after hours trades.? The amusing thing is that the cheaters have basically done the same thing Wall Street did back during the mutual fund late trading scandal…

More amusing to me is the description of the guy who found that the leaders were cheating…

…the 42-year-old was spending 12 hours a day on the contest, using three computers in his Greenwich Village apartment to trade 1,600 different portfolios, all in an effort to win the $1 million grand prize. He even dropped his studies for the chartered financial analyst (CFA) exam, given once a year, so he could have more time for the financial news channel’s game.

He was taking advantage of a “feature” of the contest that you could have as many trading portfolios (and entries in the contest) as you wanted to…

Of course those of us with programming experience thought about gaming the system with an automated program, but sometimes life is too short to chase a contest like this…