NPR Interview from May 4

More fun stuff... NPR was looking for some to talk expertly about the national real estate market and the recent March numbers released from the National Association of REALTORS. Instead, they got stuck with me...

Here's a link to the short segment - Scott Sambucci on NPR.

Quoted in Business Week article

This is kind of neat, and in the spirit of vanity (or more likely to help my self-esteem), thought I'd point out the article published on BusinessWeek.com this weekend where I was quoted:

Zip Codes with the Biggest Listing Price Gains by Prashant Gopal

We (meaning Altos Research) helped him out in his research by providing some real-time real estate market data.

John Hussman on the Banking & Housing Markets

From John Hussman, of Hussman Funds, this article provides one of the most lucid descriptions of why the poorly constructed (I hate using the word "toxic"...) mortgage assets on bank balance sheets pose such as problem, and a clear set of solutions that would probably work if implemented. Hussman explains why allowing the banks to charge the negative assets to existing bank bondholders instead of using government cash infusions is a more natural plan, and why we're not even close to getting out of the woods in the housing market:

http://hussmanfunds.com/wmc/wmc090330.htm

Geithner on George Stephanopoulos

Watching the George Stephanopoulos show this morning (I'm not sure why, but....), but here are some notes from the interview:

• "People with ideas still want to come to the United States."
• "We need banks to take risk again - take a chance again on providing credit to that business..."
• After Stephanopoulos introduced Paul Krugman's comments that the Geithner plan is financial hocus pocus - "This is a conservative structure to have the private investor with the government sharing the risk."
• Stephanopoulos asked how much is left in TARP? - "$135 billion in uncommitted, including money coming back from banks that are stronger than thought and are not in need to the money originally allocated to them."
• On inflation that could be caused by printing money to finance the federal actions - "We'll never have hyperinflation. Increased money supply will not cause hyperinflation."
• Government has historically taken too long to assist in recovery, and pulled out of recovery mode too soon as soon as a glimmer of light was seen - Japan and Sweden in the 1990s, the United States Savings & Loans crisis, and the Great Depression.
• "Right now, we're about where we thought we'd be."
• "Damage from this situation is brutal, indiscriminate."
• "The market will not solve this. The error is not doing enough."

Milton Ezrati at the IMN Distressed Investment Summit

Milton Ezrati, Lead Economist at Lord Abbott, opened Information Management Network “Distressed Investment Summit: Credit Crunch Investment Strategies for Institutional Investors” conference on Monday. From his viewpoint, the market is running on emotion, which is covering up current market fundamentals. And the market ran on emotion over the last couple of years, which previously covered up really bad fundamentals. But the markets have over-reacted and are pricing assets to fear instead of to value. And the markets are slowly recovering from the emotion-based marking. Got all that?

Ezrati illustrated his point of view with a few examples:

• The TED Spread: Has historically bubbled around 25-30 basis points. It rose to 460 basis points in November 2008 and has since dropped down to 100 basis points - still not back to normal, but recovering.
• Credit Spreads: Junk bonds, which normally trade around 500-600 basis points, reached 2100 basis points but have fallen to 1500-1700 basis points.
• Merrill Lynch: In their sale to Bank of America, mortgage assets were priced at $0.22/$1, indicating that 78% of assets are worthless; yet 60% of sub-prime borrowers are current (and this doesn’t even count the intrinsic value of the properties themselves…)
  

In discussing today’s market as compared to the Great Depression, Ezrati offered some salient points:

• There was no bank deposit insurance then.
• There was no unemployment insurance then.
• Unemployment rose to 30% during the Depression, versus 8.1% now
• 9000 banks went bust during the Depression, versus 40 banks now.
  

Other key points from his address:

• Worker Productivity rose in Q4-2008, even with the massive layoffs in the economy. (Those numbers have since been revised to show a -0.4% downturn in productivity, but given the sharp increase in unemployment in Q4, this value seems to indicate that productivity is still ahead of employment declines.)
• Personal Savings have risen to nearly $600 billion from nearly $0 in 2007. (You can verify this at the Bureau of Economic Analysis.)
• While the current government’s actions may create an inflationary environment, he is not forecasting any inflation at this time.
• When asked about China’s role in financing our debt, Ezrati likened the situation to a manufacturing company subsidizing a customer at a loss, only to gain when selling the end product. As long as China continues to run an export-oriented economy, then they have little choice but to finance US debt because of their reliance on the US for its economic base.
• When asked about drawing an analogy between Japan plight in the 1990s to the current U.S. situation, Ezrati cited that Japan’s government failed to acknowledge bad debt at the start (versus the mark-to-market requirements in the U.S.), that Japan’s sub-prime debt was non-paying (versus a 60% repayment rate in the U.S.), and there was not much of a corporate debt market in Japan (borrowers had to go to a bank for a loan). So overall, Ezrati indicated that the current situation in the U.S. does not compare to that of Japan’s a decade ago.
  

Overall, Ezrati saw reasons for abatement in the market’s negative direction, but as you might expect, hedged that with a little caution that future economic events such as inflation could hamper recovery in the intermediate.