» Posted by Martin Weil on November 30, 2007

Click here for a great compendium of online "Best of 2007" lists. Best books, best music, best weblogs and best places to live are some of the more typical lists linked on the site. More eclectic are the top Japanese buzzwords and best UFO photos. In between, there are lists for just about every taste.

» Posted by Martin Weil on November 27, 2007

We will get back to a normal market when people buy a home to live in it, not invest in it.

Ed Leamer, head of UCLA's Anderson Forecast, in an article in the LA Times. Leamer, who has had an excellent record forecasting economic trends, expects home prices across the board in Southern California to continue declining through 2009.

» Posted by Martin Weil on November 26, 2007

The property was purchased in January 2005 for $1,157,000. The combined first and second mortgages totalled $1,156,730 leaving a downpayment of $270.

By April, the owners were able to find refinancing through Countrywide with a $999,999 first mortgage. This mortgage was an Option ARM with a 1% teaser rate. Also in April of 2005, they took out a simultaneous second mortgage for $215,000 pulling out their first $58,000...

So look at their situation: They are living in a million dollar plus home, making payments less than those renting, and they "made" $58,000 in their first 4 months of ownership.

Apparently, these owners liked how hard their house was working for them, so they opened a revolving line of credit (HELOC) in August 2005 for $293,000. In December of 2005, they extended their HELOC to $397,990. In June of 2006, they extended their HELOC to $485,000.

In April of 2007, the well ran dry ...

So by April 2007, they have a first mortgage (Option ARM with a 1% teaser rate) for $999,999, and a HELOC for $491,000. These owners pulled $333,000 in HELOC money to fuel consumer spending. Assuming they spent the entire HELOC and assuming the negative amortization on the first mortgage has increased the loan balance, the total debt on the property exceeds $1,500,000. ... if the property actually sells at this [$1,149,000 asking] price, the lender on the HELOC (Washington Mutual) will lose over $300,000.

These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal -- for them.

from The Irvine Housing Blog

» Posted by Martin Weil on November 26, 2007

No? Neither did I.

In another astonishing accomplishment of globalization (the things must cost a fortune to ship), at least 1/4 of them are made by barefooted steelworkers in Bengal, India, according to this fascinating multimedia presentation from the NY Times.

» Posted by Martin Weil on November 25, 2007

For what it is worth, I was surprised - taken aback? - to see a high-end mall in Thousand Oaks, California half-empty the afternoon of Black Friday.

» Posted by Martin Weil on November 19, 2007

The entire market in subprime debt is just 1.4% of the size of global equity markets. Or, to put it another way, a 1.4% downward fluctuation in stocks erases the same amount of value as if all subprime-backed bonds were collectively marked to $0.

Tyler Cowen points out at Marginal Revolution.

» Posted by Martin Weil on November 15, 2007

My son just turned 21 (Happy Birthday, Cole!) and received the large cash payment I had promised him back at the age of 12 or 13 if he could honestly say that he had never tried smoking. Apropos of my blatant bribe to affect another person's behavior, comes this:

If you're a smoker, the pack of Marlboro Reds or Camel Lights you're inhaling might only be around $8, but the cost to your life could be many times more. ... Every pack of cigarettes that an adult male smokes knocks off $222 from the value of that man's life, estimate W. Kip Viscusi and Joni Hersch of Vanderbilt Law School in a new NBER working paper. For women the results are slightly more muted but sizable at $94 per pack in 2006 dollars. The reason for the discrepancy is that men earn more than women over their lifetimes and are at greater risk of dying from smoking-related illnesses.

From Portfolio.com

» Posted by Martin Weil on November 15, 2007

Maybe you've been there, too -- not the cheesy hotel, but in a car or plane with small children, clinging to the last threads of your sanity. And you shudder at the thought of going through it again this holiday travel season. Or maybe you're planning to travel with baby for the first time this year and you're lying awake at night in terror at the thought.

Tip #4: Team board. The airlines think they're doing you a favor by letting you jump the line with your small children. But you're just being forced to spend even more time trying to keep a squirming child calm in a seat. So if there are two adults in your party, send one in first with the carry-on bags to secure a spot for them in the overhead bins. The other can hang back, run around with the kids then corral them into the plane after everyone has boarded.

See the remaining 9 useful tips from Kiplinger's online.

» Posted by Martin Weil on November 13, 2007

Consumer Reports will take a full-page ad in the NY Times to warn consumers about the pitfalls of giving and using gift cards. They found that 27% of all cards go unused, and retailers took in an extra $8 billion because of unused, lost, and expired gift cards. Their tips:
Register it Some cards must be registered with the issuer, especially if used online or by phone.
Spend it quickly Use the card as soon as possible, especially if it expires or has a maintenance fee.
Spend it to the last penny If the card balance gets so low that there's nothing to buy, ask a merchant to do a split-tender transaction. That uses the remaining card balance for part of the transaction and another form of payment for the rest.
Hold on to it Don't throw out the card when the balance is zero. Some merchants require it for returns.

All this according to The Consumerist. My own suggestion - make your money work for you and not the retailers: Just don't buy any.

» Posted by Martin Weil on November 12, 2007

The consumer is faced with the greatest risk of recession since 1991. Many forecasters have gone to their graves predicting the demise of the consumer. However, housing is a large portion of our collective balance sheets and is poised to deflate in real terms for just the sixth time since WW II. Each time in the past, we have entered into a recession.

From GMO, an institutional money management firm in Boston headed by Jeremy Grantham.

» Posted by Martin Weil on November 08, 2007

From Bloomberg:

U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc...

The Financial Accounting Standards Board's rule 157 makes it more difficult for companies to avoid putting market prices on their hardest-to-value securities, known as Level 3 assets, Royal Bank chief credit strategist Bob Janjuah wrote in a note today. While the rule hasn't gone into effect yet, the biggest U.S. lenders and brokerages have already begun reporting their Level 3 holdings....

Under FASB terminology, Level 1 means mark-to-market, where an asset's worth is based on a real price. Level 2 is mark-to- model, an estimate based on observable inputs which is used when no quoted prices are available. Level 3 values are based on `"unobservable'" inputs reflecting companies' `"own assumptions'" about the way assets would be priced.

» Posted by Martin Weil on November 04, 2007

In October 2005, substantial restrictions were enacted by Congress on the ability of individuals to escape debt in bankruptcy. These restrictions had been long championed by the banking industry as a way to decrease their losses. But now...

...by making it harder for consumers to escape their debts, the new law dramatically reduced lenders' losses from default and bankruptcy. As a result, they started lending more, even to consumers with bad credit. Credit card debt increased more quickly during the past two years than at any time during the previous five years.

Consumers should have responded to the new harsher bankruptcy law by borrowing less, which would have lowered their risk of getting into financial distress. But not all consumers behaved in this rational way. Instead, many behaved shortsightedly and took advantage of the greater availability of credit to borrow more than they could easily handle --- ignoring the risk of financial distress.

I think we can all predict where this is headed. From the National Bureau on Economic Research