Worried about the repercussions of the current real estate frenzy, I listed my home for sale a couple of weeks ago at a price that works out to a 64% annual rate of return over the past 6 months. This doesn’t quite match the 85% return of the Nasdaq in 1999 but it’s close enough for my blood. I found a buyer within five days willing to pay within 1% of my ask price.

Now it looks like the chief economist for the Mortgage Bankers Association feels the same.

“‘I’m going to rent for a while,’ said Douglas Duncan, who expects ‘significant reversals’ in regions that have enjoyed strong home price appreciation, including Washington, D.C., Florida and California. He plans to sell his suburban Washington home, which has tripled in value since he bought it a dozen years ago, and move into an apartment.”
-The Los Angeles Times – May 29, 2005
LIV

Worried about the repercussions of the current real estate frenzy, I listed my home for sale a couple of weeks ago at a price that works out to a 64% annual rate of return over the past 6 months. This doesn’t quite match the 85% return of the Nasdaq in 1999 but it’s close enough for my blood. I found a buyer within five days willing to pay within 1% of my ask price.

Now it looks like the chief economist for the Mortgage Bankers Association feels the same.

“‘I’m going to rent for a while,’ said Douglas Duncan, who expects ‘significant reversals’ in regions that have enjoyed strong home price appreciation, including Washington, D.C., Florida and California. He plans to sell his suburban Washington home, which has tripled in value since he bought it a dozen years ago, and move into an apartment.”
-The Los Angeles Times – May 29, 2005
LIV

“…under the placid surface [of the economy], there are disturbing trends: huge imbalances, disequilibria, risks — call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.”
-Paul Volcker, former chairman of the Federal Reserve

“…we can continue to close our eyes and hope for the best. There’s no way to predict whether that will work for another few months or for many more years. But the odds are extremely low that our fiscal imbalances will solve themselves, and we place ourselves at great peril by not facing these realities.”
-Robert Rubin, former Secretary of the Treasury

“It seems to me that a $618 billion trade deficit, rich as we are, strong as this country is, well, something will have to happen that will change that. Most economists will still say some kind of soft landing is possible. I don’t know what a soft landing is exactly, in how the numbers come down softly from levels like these…. There are more people that go to bed at night with a hair trigger than ever before, it’s an electronic herd, they can give vent to decisions that move billions and billions of dollars with the click of a key. We will have some exogenous event, we will have that. There will be some kind of stampede by that herd…. When you have far greater sums than ever before, in one asset class after another, that are held by people who operate on a hair-trigger mechanism, then they lend themselves to more explosive outcomes. People with very short time horizons with huge sums of money, they can all try to head for the exits at the same time. The only way you can leave your seat in burning financial markets is to find someone else to take your seat, and that is not always easy….”
-Warren Buffett, Chairman of Berkshire Hathaway

“Dreary as it is, [a] ’soft landing’ is the very best outcome we can hope for so long as America’s future fiscal path and national savings rate remain unchanged. It is quite possible… that the dynamic of gradual adjustment will at some point be short-circuited by market psychology – triggering a sudden loss of confidence, followed by a financial and economic crisis.”
-Pete Peterson, former chairman of the Federal Reserve Bank in New York

“I do think it’s interesting that in all my 92 years, I’ve never seen a time when it was so hard to find a bargain. I aided wealthy families by helping them find stocks that were selling at a small fraction of what the company was worth. But now, it’s very difficult to find companies where you can buy the stock at a fraction of its value. In all my experience, I don’t remember a time when you had to search so diligently to find anything that was a bargain… …The immediate future is that there are more dangers than I’ve ever known before. It’s just more dangerous”
-Sir John Templeton, founder of Templeton Growth, Ltd.

“Heard ten thousand whisperin’ and nobody listenin…
And it’s a hard, and it’s a hard, it’s a hard, it’s a hard,
And it’s a hard rain’s a-gonna fall.’”
-Bob Dylan

“…under the placid surface [of the economy], there are disturbing trends: huge imbalances, disequilibria, risks — call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.”
-Paul Volcker, former chairman of the Federal Reserve

“…we can continue to close our eyes and hope for the best. There’s no way to predict whether that will work for another few months or for many more years. But the odds are extremely low that our fiscal imbalances will solve themselves, and we place ourselves at great peril by not facing these realities.”
-Robert Rubin, former Secretary of the Treasury

“It seems to me that a $618 billion trade deficit, rich as we are, strong as this country is, well, something will have to happen that will change that. Most economists will still say some kind of soft landing is possible. I don’t know what a soft landing is exactly, in how the numbers come down softly from levels like these…. There are more people that go to bed at night with a hair trigger than ever before, it’s an electronic herd, they can give vent to decisions that move billions and billions of dollars with the click of a key. We will have some exogenous event, we will have that. There will be some kind of stampede by that herd…. When you have far greater sums than ever before, in one asset class after another, that are held by people who operate on a hair-trigger mechanism, then they lend themselves to more explosive outcomes. People with very short time horizons with huge sums of money, they can all try to head for the exits at the same time. The only way you can leave your seat in burning financial markets is to find someone else to take your seat, and that is not always easy….”
-Warren Buffett, Chairman of Berkshire Hathaway

“Dreary as it is, [a] ’soft landing’ is the very best outcome we can hope for so long as America’s future fiscal path and national savings rate remain unchanged. It is quite possible… that the dynamic of gradual adjustment will at some point be short-circuited by market psychology – triggering a sudden loss of confidence, followed by a financial and economic crisis.”
-Pete Peterson, former chairman of the Federal Reserve Bank in New York

“I do think it’s interesting that in all my 92 years, I’ve never seen a time when it was so hard to find a bargain. I aided wealthy families by helping them find stocks that were selling at a small fraction of what the company was worth. But now, it’s very difficult to find companies where you can buy the stock at a fraction of its value. In all my experience, I don’t remember a time when you had to search so diligently to find anything that was a bargain… …The immediate future is that there are more dangers than I’ve ever known before. It’s just more dangerous”
-Sir John Templeton, founder of Templeton Growth, Ltd.

“Heard ten thousand whisperin’ and nobody listenin…
And it’s a hard, and it’s a hard, it’s a hard, it’s a hard,
And it’s a hard rain’s a-gonna fall.’”
-Bob Dylan

I’ve looked under chairs.
I’ve looked under tables.
I’ve tried to find the key,
To fifty million fables.
They call me The Seeker.
I’ve been searching low and high.
I won’t get to get what I’m after,
Till the day I die.
-The Who

I don’t think that anyone would dispute that most of the news we read or hear is “spun” by someone with an agenda. The New York Times has a strong liberal bent; Time magazine a more conservative tone. I can watch a “news” story on Fox News and then the very same story on CNN without even knowing they are reporting on the exact same thing.

The Wall Street Journal, CNBC and Wall Street Research, brokers and even regulators may sometimes have even stronger biases. Their greatest influence: stay in business. We all know, however, that what helps business for CNBC or brokerage houses doesn’t necessarily help us make money. In fact, much of the time what’s good for ratings or revenues is bad for us.

Did CNBC send out a warning in March 2000 that stocks were overvalued and should be sold? Did your broker call you and tell you to get out of the market? (If so, your broker’s worth more than his weight in gold.) On the contrary, CNBC spent hours upon hours focusing on “Dow 36,000” and trotting out scores of bullish prognosticators. Most brokers were pushing the latest internet company to split its stock and almost every financial periodical was touting the “New Economy.” (Fortune Magazine, in November 1999, did run an interview with Warren Buffett who warned of the historic risks in stocks at the time).

The bottome line is this: the whirlwind of information that now engulfs us is like junk food. It’s fast; it’s easy; and some of it even tastes good. BUT, if we’re not careful it could very well kill us. (If you haven’t seen “Super Size Me” than you may think I’m being a bit melodramatic. I’m not.)

I started “My Back Pages” not as a rant on housing prices, conflicts on Wall Street, our economic challenges or anything else although I’ve spent a good deal of time so far on these issues. This web page is a process, the process of seeking what is true and what is important to all of us as citizens, investors and human beings. I know this process won’t be popular with many people. But I think it is necessary to question common wisdom, especially when it may not really be wise.
LIV

I’ve looked under chairs.
I’ve looked under tables.
I’ve tried to find the key,
To fifty million fables.
They call me The Seeker.
I’ve been searching low and high.
I won’t get to get what I’m after,
Till the day I die.
-The Who

I don’t think that anyone would dispute that most of the news we read or hear is “spun” by someone with an agenda. The New York Times has a strong liberal bent; Time magazine a more conservative tone. I can watch a “news” story on Fox News and then the very same story on CNN without even knowing they are reporting on the exact same thing.

The Wall Street Journal, CNBC and Wall Street Research, brokers and even regulators may sometimes have even stronger biases. Their greatest influence: stay in business. We all know, however, that what helps business for CNBC or brokerage houses doesn’t necessarily help us make money. In fact, much of the time what’s good for ratings or revenues is bad for us.

Did CNBC send out a warning in March 2000 that stocks were overvalued and should be sold? Did your broker call you and tell you to get out of the market? (If so, your broker’s worth more than his weight in gold.) On the contrary, CNBC spent hours upon hours focusing on “Dow 36,000” and trotting out scores of bullish prognosticators. Most brokers were pushing the latest internet company to split its stock and almost every financial periodical was touting the “New Economy.” (Fortune Magazine, in November 1999, did run an interview with Warren Buffett who warned of the historic risks in stocks at the time).

The bottome line is this: the whirlwind of information that now engulfs us is like junk food. It’s fast; it’s easy; and some of it even tastes good. BUT, if we’re not careful it could very well kill us. (If you haven’t seen “Super Size Me” than you may think I’m being a bit melodramatic. I’m not.)

I started “My Back Pages” not as a rant on housing prices, conflicts on Wall Street, our economic challenges or anything else although I’ve spent a good deal of time so far on these issues. This web page is a process, the process of seeking what is true and what is important to all of us as citizens, investors and human beings. I know this process won’t be popular with many people. But I think it is necessary to question common wisdom, especially when it may not really be wise.
LIV

…and there is no one there to hear it, does it still make a sound? Chaos theory posits that even the wind from the wings of a butterfly has the power to set off a tornado in Texas because of the unpredictable interrelatedness of the natural world. So I think chaoticians would say that a tree falling the in woods not only makes a sound but has the potential to cause any number of significant calamities. Those people who think the tree doesn’t make a sound must still believe in the Tooth Fairy and the Easter Bunny, too.

In that context let’s ask another question, “does a single hedge fund blowup really have any consequence to the larger financial landscape even if the media is not there to report on it?” Of course it does. And chaoticians would say that it has calamitous potential within the complex system we call the markets.

With the losses many hedge funds are facing so far this year there have been many rumors swirling around lately of hedge funds blowing up. Up until a few weeks ago these rumors had created some degree of fear in the markets that I believe was justified.

Many hedge funds use leverage, to a scale unavailable to individual investors, to gamble on already-levered financial instruments called derivatives. Derivatives are complicated products that allow investors to place bets with numerous counterparties on less complicated products like bonds, stocks, interest rates, etc. The combined leverage, lack of liquidity and interrelatedness of derivatives have led Warren Buffett to dub them, “financial weapons of mass destruction.”

So with the potential for financial calamity so palpable why is the VIX, the so-called “fear guage” for the stock market, showing near-historic complacency by participants in the derivate world? Maybe they still believe in the Tooth Fairy.
LIV

…and there is no one there to hear it, does it still make a sound? Chaos theory posits that even the wind from the wings of a butterfly has the power to set off a tornado in Texas because of the unpredictable interrelatedness of the natural world. So I think chaoticians would say that a tree falling the in woods not only makes a sound but has the potential to cause any number of significant calamities. Those people who think the tree doesn’t make a sound must still believe in the Tooth Fairy and the Easter Bunny, too.

In that context let’s ask another question, “does a single hedge fund blowup really have any consequence to the larger financial landscape even if the media is not there to report on it?” Of course it does. And chaoticians would say that it has calamitous potential within the complex system we call the markets.

With the losses many hedge funds are facing so far this year there have been many rumors swirling around lately of hedge funds blowing up. Up until a few weeks ago these rumors had created some degree of fear in the markets that I believe was justified.

Many hedge funds use leverage, to a scale unavailable to individual investors, to gamble on already-levered financial instruments called derivatives. Derivatives are complicated products that allow investors to place bets with numerous counterparties on less complicated products like bonds, stocks, interest rates, etc. The combined leverage, lack of liquidity and interrelatedness of derivatives have led Warren Buffett to dub them, “financial weapons of mass destruction.”

So with the potential for financial calamity so palpable why is the VIX, the so-called “fear guage” for the stock market, showing near-historic complacency by participants in the derivate world? Maybe they still believe in the Tooth Fairy.
LIV

“Blogging, ‘literally takes us back to the roots of newspapers’ with one-man operations like Ben Franklin’s.’” –Don Graham, CEO of the Washington Post.

As a fan of Franklin I thought I’d share a few quotes from his “Poor Richard’s Almanack:”

“Experience keeps a dear school, yet fools will learn in no other.”

“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.”

“Dost thou love life? Then do not squander time; for that’s the stuff life is made of.”
LIV

“Blogging, ‘literally takes us back to the roots of newspapers’ with one-man operations like Ben Franklin’s.’” –Don Graham, CEO of the Washington Post.

As a fan of Franklin I thought I’d share a few quotes from his “Poor Richard’s Almanack:”

“Experience keeps a dear school, yet fools will learn in no other.”

“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.”

“Dost thou love life? Then do not squander time; for that’s the stuff life is made of.”
LIV