Saturday, May 06, 2006

When Buffett Speaks... Listen.

From CNN/Money:

Buffett: Real estate slowdown ahead

The Oracle of Omaha expects the housing market to see "significant downward adjustments," and warns on mortgage financing.

On the real estate bubble

Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market."

On mortgage financing

Munger: "There is a lot of ridiculous credit being extended in the U.S. housing sector."

Buffett: "Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."

36 Comments:

Blogger chicagofinance said...

You always steal my thunder :p

5/06/2006 08:04:00 PM  
Blogger chicagofinance said...

Also - the Oracle has and continues to make large bets against the USD.

5/06/2006 08:16:00 PM  
Blogger jhawk92 said...

Chicago- very funny...

Grim- this link should be sent to anyone who thinks that there is not something fundamentally wrong with the RE market...

It's a market. If you have a segment of buyers/investors who use leverage, the pricing on the assets/equity gets distorted by that. Banks/mortgage companies were in a race to lend money to anyone/everyone who showed up with an application. Builders took anyone's deposit. Realtors took anyones listing/commission. Huge daisy chain. No one wanted to say no and look like the bad guy...sound familiar?

Once the leveraged speculators and buyers leave the market the correction begins on pricing...

I've got my cooler of beer, chips/salsa, and my comfy chair to watch this one...look for a bloodbath in slow motion

5/06/2006 08:22:00 PM  
Blogger REINVESTOR101 said...

Warren Buffett and George Soros are two sides of the same coin; both have liberal tendencies and both have never had problems betting against currencies of their host countries and encouraging conditions to ensure that these bets payoff. It's a little like constantly calling for boycotting open houses in an attempt to set up some self fullfilling prophecy by causing market disruption. Buffet knows many worship the ground he walks on and will follow him like lemmings jumping off a cliff, so all he does is talk negatively about the housing market or suggest he's betting against the dollar so his short positions pay off. He's a liberal market manipulator; and people have the nerve to hate me because I encourage people to wisely invest in real estate, but fall all over themselves hanging on every word Buffet says.

The man is betting against the USD. That ought to tell you volumes about him and his values. I wouldn't want to have to rely on him in a foxhole; he'd be shooting all the Americans rather than the enemy.

5/06/2006 09:04:00 PM  
Blogger jhawk92 said...

reinvestor101-

I beg to differ with you, Buffett has wide and enormous holdings in different areas of our economy. When you realize that, he has to hedge against everything including a decline or upswing in the dollar. Most large international companies have to ensure through various financial instruments shifts in currencies...you make it sounds like he's trying to manipulate the dollar, almost certainly not.

I'd say he has more to lose from real estate declining than causing it to decline. In any case, I believe he doesn't have an agenda with these remarks.

The guy is beyond playing games, and how can you group him with Soros, different animals entirely.

Good Night reinvestor101...

5/06/2006 09:16:00 PM  
Blogger chicagofinance said...

Yo' RE My Man:

Lighten up a little please. You got to play it straight down the middle. For every Soros, there are the people that invest in the Carlyle Group. End of discussion.

If you hook right and slice left too much around here, you don't end up in the fairway, just the rough and weeds. You don't want Lyme disease or West Nile do you?

5/06/2006 09:34:00 PM  
Blogger REINVESTOR101 said...

The guy is beyond playing games, and how can you group him with Soros, different animals entirely.

They're different like lions and tigers being different. Both are still in the big cat family. Both of them hate our president and both have liberal tendencies. The only difference is that Buffet hasn't made a billion from his currency play.

With regard to hedging, most of Berkshire's assets are in USD anyway, so there's really nothing to hedge. I suppose you could stretch it and say he's hedging against his US Treasuries in the event longer term rates rise due a severe decline in the dollar, but the financial press refers to his position as a "bet". A bet means its speculative that that's another ball game.

Now you guys will sit up here and have a problem with real estate "bets" and assail me or anyone else who suggests that's okay, but old Warren can bet all he wants and it's just "hedging". Hmmm...I wonder why that is.

5/06/2006 10:06:00 PM  
Anonymous Anonymous said...

Reinvest sounds like aguy stuck in a recent purchase he/she can't dump! I am so happy to see the "investor" or
speculators in hot water.

5/06/2006 11:40:00 PM  
Blogger bubble disciple said...

One day reinvestor101 will post something like this:

Hey fellow bloggers! You know all of those angry/patriotic postings? Well, I was just developing a character for a new sitcom to premiere Monday night about eccentric people in the real estate profession. I hope there are no hard feelings, and I welcome you all to tune in.

It's called "Real People"...

5/07/2006 02:06:00 AM  
Blogger Roadtripboy said...

Reinvestor101,

"He's a liberal market manipulator; and people have the nerve to hate me because I encourage people to wisely invest in real estate, but fall all over themselves hanging on every word Buffet says."

As opposed to hanging off every word you say??

"The man is betting against the USD. That ought to tell you volumes about him and his values."

No, just his economics!

"I wouldn't want to have to rely on him in a foxhole; he'd be shooting all the Americans rather than the enemy."

It speaks volumes about your character suggesting that he is unpatriotic because he calls an economic spade, a spade.

5/07/2006 02:07:00 AM  
Anonymous Anonymous said...

Buffett is a shark for sure. I remember seeing a tape of him speaking to the students at UNC Kenan Flagler Business School which was made available via PBS; the long and the short of it, he was bragging how over x period to y period he made a killing in tobacco stocks (cigarette makers), he added the best part is the product is addicting, so their customers were likely to stay there customers. On the original tape I ordered, those comments were there, I loaned it to a friend and after a # of years re-ordered the VHS, guess what? for the later version that part was edited out. These day's he is trying to cultivate a teddy bear image/legacy and in line with that I believe regarding Real Estate he knows the Sh&^ is hitting the fan and the info is an easy freebie to give the masses at this point. ps: he bought the largest maker of trailers for trailer park's in the USA a few years back...that speaks volumes about his view of how the boomers are going to retire and what Americans will need in the future. Care to pay $3m for a house with a no money down loan? Oh you already own a house, then how about gettin at some of that debt...sorry I meant equity, equity :)

5/07/2006 02:21:00 AM  
Blogger William said...

See current state of real estate market in Westchester New York:

http://westchesterny.blogspot.com

5/07/2006 05:16:00 AM  
Anonymous Anonymous said...

More Warren Buffet on Housing ..


http://mba.tuck.dartmouth.edu/
pages/clubs/investment/
WarrenBuffett.html

On housing, let's pretend that Omaha passed a law saying that nobody could move in or out, that the birthrate exactly equaled the deathrate, and the only new housing construction allowed was to replace damaged or destroyed buildings. In other words, a completely stable real estate supply and demand. Now let's say that, in order to increase wealth, someone came up with the idea that at the end of every year, everyone would simply sell the deed of his or her house to a neighbor, and every year the town would increase the price of every house by 20%. Residents could borrow money from outside of town to finance the transactions, and the increased paper wealth allowed them import more luxury goods from outside of Nebraska. As you can tell, no real value has been created in the Omaha economy.

5/07/2006 07:26:00 AM  
Blogger Rob Ryley said...

REinvestor,

What is so different about betting against currencies, and betting on real estate? Why is one "better" than the other?

Oh, wait, I know! It is because YOU "invest" in real estate while Soros "manipulates" currencies. Yeah, sure.

The biggest manipulators in currencies are central govts. You had better be good if you want to play against them.

You dislike Soros for the fact he made billions betting against the Bank of England, or the Thai Bhat?

If so, you are a hypocrite.

Soros made his mony by betting against govt. and fiat currency. He took money from the greedy bankers, and govt officials. I lose no sleep over it.

I think Soros has foolish political views. That takes nothing away from the fact he has a brilliant mind for finance and speculation.

If you are going to bother posting, see if you can stick to facts, or opinions supported by facts. Quit it with the stupid political diatribes.

5/07/2006 07:43:00 AM  
Anonymous Anonymous said...

Guys, reinvestor101 is a troll. Don't feed

5/07/2006 07:56:00 AM  
Blogger grim said...

Can't talk about Soros without talking about how his theory of Reflexivity applies to the housing market..

5/07/2006 08:36:00 AM  
Blogger Metroplexual said...

REINVESTOR101 said...

"They're different like lions and tigers being different. Both are still in the big cat family. Both of them hate our president and both have liberal tendencies."

Strange analogy? As for the prez, 2/3 of the US think he's doing a bad job, so I guess these guys have some good company. You make it sound treasonous to dislike the prez. As for being liberal, well since when has that been a crime?

5/07/2006 09:03:00 AM  
Blogger REINVESTOR101 said...

Can't talk about Soros without talking about how his theory of Reflexivity applies to the housing market..

Soros' manipulative behavior is very reflective of his theory, which essentially says there are no efficient markets per se and that there's a feedback loop between what people believe and the markets they're observing. No doubt, Soros came up with this observation through a dope induced haze, but it does hold some validity.

That's why its important to control perceptions of market participants and why market disruption by calls to boycott open houses and etc is so dangerous. This is why these sorts of calls have to be viewed as suspect and balanced with positive statements.

5/07/2006 10:24:00 AM  
Anonymous Anonymous said...

Ba ba ba ba ba ba BOYCOTT Overpriced Houses!

Just say NO MAAS!

Boooooyaaaaaaaa

Bob

5/07/2006 10:43:00 AM  
Blogger REINVESTOR101 said...

From Ryley

If you are going to bother posting, see if you can stick to facts, or opinions supported by facts. Quit it with the stupid political diatribes.

I noticed that while you call for facts, your post is bereft of major facts about Soros. How about the fact that Soros attempted to influence elections here by campaigning against Bush? How about the fact that he's trying to liberalize drug laws here and in other countries.

Here, read more on the man you apparently love:

http://www.aim.org/special_report/A2089_0_8_0_C/

He's a liberal dirtbag and that's a fact.

5/07/2006 10:51:00 AM  
Blogger Rob Ryley said...

"I noticed that while you call for facts, your post is bereft of major facts about Soros. How about the fact that Soros attempted to influence elections here by campaigning against Bush?"

Look, John Kerry turns my stomach, and my preference was for Bush.

Soros is a fool in his politics--so what? What does that prove? It is against the law to vote against GWB?

"How about the fact that he's trying to liberalize drug laws here and in other countries."

The govt. has no business telling people what they should put into their bodies. Our drug laws are crimes against humanity, and should be repealed. I only hope the govt. stops the stupid persecution of people who take unpopular drugs.

I say this as a "right-winged libertarian, who is probably to the right of Barry Goldwater.

But this has nothing to do with real estate, so I'll end my rant here.

Bottomline: you are using the shotgun approach to smear the credibility of someone who has a message you don't want to hear.

5/07/2006 11:17:00 AM  
Blogger REINVESTOR101 said...

From Ryley

The govt. has no business telling people what they should put into their bodies. Our drug laws are crimes against humanity, and should be repealed. I only hope the govt. stops the stupid persecution of people who take unpopular drugs.

What?? This is an outrageous statement from someone who says they're on the right. I felt the same way about William F. Buckley a few years ago when he came out in support of decriminalization of drugs.

Do you realize that al qaeda funds themselves with drug money? Half of the left wing regimes in south and central America that hate us fund themselves with drug money. Do you want people like Hugo Chavez to sell us both drugs and oil? Do you think Barry Goldwater would like that? Of course he wouldn't. You're concerned about our drug laws being crimes against humanity and yet the regimes that would make and are making the money are our enemies and are the worst enemies of humanity! This statement is an outrage!!

You called Soros' politics foolish and yet both of you are in 100% agreement on this point.

5/07/2006 01:19:00 PM  
Blogger Rob Ryley said...

"Do you realize that al qaeda funds themselves with drug money? Half of the left wing regimes in south and central America that hate us fund themselves with drug money. Do you want people like Hugo Chavez to sell us both drugs and oil? "

You really are a fool who can't string two thoughts together. Maybe you are smoking something.

You believe everything you are told to by the fascists in the Republican party who think anyone who is opposed to the stupid drug war is "a leftist."

The drug trade is so profitable and violent because of prohibition. Didn't our very own CIA profit from the drug war back in the 80's?

Allow drug producers to produce and settle disputes like regular business, and watch profits come down to normal levels.

Considering the ease of production, it wouldn't surprise me if the buisness became unprofitable, like many other agricultural businesses.

Our "war on drugs" is a war on people. Why else would we have millions of people locked up for nothing other than possession of a drug? What do they have to do with "terrorism", "national security", and the like? We've been locking up people long before Al Qaida was a problem.

Prohibition makes OUR govt. more oppressive. You could lose your home simply by RENTING to someone who does drugs, due to civil forfeiture. Is that fair?

Don't bother answering the questions. You are an idiot. Just go away.

5/07/2006 02:10:00 PM  
Blogger njdoc said...

Do you realize that al qaeda funds themselves with drug money? Half of the left wing regimes in south and central America that hate us fund themselves with drug money. Do you want people like Hugo Chavez to sell us both drugs and oil?

Relax, take a xanax or something. The reason they are able to sell us these drugs is because there is a huge demand in the US. I am sure this demand is not only from the left wing. Prohibition made wealthy men of many fugitives. Once there is the political stomach to decide that "people use drugs", just as they smoke and drink, one could make the argument that we can grow it and sell it domestically. Along with similar regulations as are applied to tobacco and alcohol (which kill many more people than al qaeda). Just think about it, openly, before you decide if one way or another is superior.

5/07/2006 02:36:00 PM  
Blogger REINVESTOR101 said...

Don't bother answering the questions. You are an idiot. Just go away.

Dear Rob Ryley:

The quote above makes me think that like I've apparently touched a nerve; a very raw nerve. Be that as it may. The bottom line is that you hate republicans, hate drug laws and by extension are in sympathy with Soros.

In your rather long and rambling diatribe, I noticed that you never dealt with my point that al qaeda and many leftist central & south american regimes are involved in the drug industry. It appears that your argument is that their profits should be taken away from them by legalizing the industry. In other words, you and Soros see ending the war on drugs as the start of a war on terror. I believe that position borders on the ridiculous.

Here's a newsflash for you Ryley. Drugs are illegal in this country and that's why the people are in jail. If they leave the drugs alone, then they won't be in jail. That's just like the discussion a few weeks ago about illegal immigrants. The reason they're illegal is because its against the law to slip across the border and come here and work. Yet folks want to give a break to lawbreakers.

What's the purpose of a law if it's going to be ignored or changed to accomodate those who've broken it. Where does it stop? Suppose I don't like paying taxes and I decide to stop paying them in hopes of getting tax law reform? You can't have people doing that in a nation of laws.

I want you to notice Riley, that I've responded to you, as I do to everyone, in a gentlemanly fashion without calling you stupid, idiotic or a bunch of other assorted names. You're free to reply if you'd like.

Sincerely yours,
REinvestor101

5/07/2006 04:34:00 PM  
Blogger pesche22 said...

traveling a few days, i see we have attracted a few sickos.

mills continues to have problems with the xanadu. watch, a buyer will have to appear to bail this one out.

5/07/2006 04:59:00 PM  
Blogger Rob Ryley said...

"I want you to notice Riley, that I've responded to you, as I do to everyone, in a gentlemanly fashion without calling you stupid, idiotic or a bunch of other assorted names. You're free to reply if you'd like."

I have no patience with you because your points are--SO STUPID!

You've made the following STUPID arguments in you numerous posts:

* People who forecast a dollar decline are unpatriotic

* People who question the wisdom of buying real estate at current prices are unpatriotic

* People who question any laws are unpatriotic

There is no reasoning with someone like you.

As for your points about drug
laws---you could make the same arguments about the arrests of blacks in the south for violating all sorts of racially based laws.

Just because something is "illegal" doesn't mean it is immoral, or that the punishment should be severe. The punishment should fit the "crime", and some "crimes" deserve no punishment at all, because the law itself is stupid.

Drug laws fall into that category. End of rant.

5/07/2006 07:43:00 PM  
Blogger REINVESTOR101 said...

Just because something is "illegal" doesn't mean it is immoral, or that the punishment should be severe. The punishment should fit the "crime", and some "crimes" deserve no punishment at all, because the law itself is stupid..Drug laws fall into that category.

Well you're hollering a lot and not saying a lot. You still have not addressed the following my point which is:

Al Qeada and many leftist central and south american regimes are funding themselves through illegal drug sales. You've suggested that legalizing drugs will substantially reduce profits and appear to be suggesting that we should stop the war on drugs so we can reduce the funding of terrorist organizations. This at best is tortured logic and at worst just plain STUPID.

So drugs laws aren't just because some fool decides to get toasted and winds up in the slammer. What the hell is next? Someone wants to drive while drunk and thinks its unjust when he gets caught and gets arrested.

This country is getting destroyed from within and we're helping the forces arrayed against us. A goodly percentage of the proceeds of recreational drug use are going to our mortal enemies and you have no problem whatsoever with that. The bigger issue for you is to moan about the "unjustness" of the drug laws. Guess what the remedy for unjust drugs laws are? Leave the damned drugs alone and you don't have to worry about it. End of story.

5/07/2006 08:59:00 PM  
Blogger Rob Ryley said...

"Al Qeada and many leftist central and south american regimes are funding themselves through illegal drug sales. You've suggested that legalizing drugs will substantially reduce profits"

True. It is economic logic. Increase competition = reduced (or absent) profits.

If the goal is to reduce the income of the terrorists and leftist govts., then it would make sense to get them competing against each other, rather than against us.

"and appear to be suggesting that we should stop the war on drugs so we can reduce the funding of terrorist organizations. This at best is tortured logic and at worst just plain STUPID."

False. While that would be a side effect of ending the stupid war on drugs, I'd oppose our stupid drug laws even if there were no war on terrorists.

This has nothing to do with real estate, so I don't know why you bring it up, but I'll answer it anyway. But it will be my last comment on the topic.

The govt. has no right to tell you what you can eat, drink, or read.
Give them the authority to do it, you are on the road to tyranny.

"So drugs laws aren't just because some fool decides to get toasted and winds up in the slammer. What the hell is next? Someone wants to drive while drunk and thinks its unjust when he gets caught and gets arrested"

What a dumb analogy. By your reasoning, we should prohibit alcohol if we want to stop drunk driving.

Hiatory check--WE DID THAT AND IT MADE THINGS WORSE!

HELLO! WHY NOT JUST ARREST DRUNKS WHO HARM OTHERS, AND LEAVE THE PEACEFUL DRUNKS ALONE!?!?!?!

Likewise, why not arrest and punish those who harm others, while leaving otherwise law abiding drug users alone to suffer the consequences of their behaviors?

5/07/2006 09:32:00 PM  
Blogger chicagofinance said...

uh-oh

I feel it coming on......

"I don't know what I'm looking for anymore.
I just know that I'm harder to console.
I don't who I'm trying to be instead of me.
But the key is a question of control......."

5/07/2006 09:55:00 PM  
Blogger REINVESTOR101 said...

We have, in this discussion, veered far from real estate but whenever there's a discussion involving investments or business it's almost inevitable that there'll be one involving politics. This is so because the political backdrop is very present in many of our decisions about what we do.

America, and the world, are on the cusp of great changes. As that change comes, there are some of us that would like to see our nation remain in a favored position; economically, culturally, militarily and etc. Some of the great changes that are coming can threaten that, unless we take action. The culture wars that we engaged in are a response to managing that change. These are the last words to close out this discussion:

"The govt. has no right to tell you what you can eat, drink, or read. Give them the authority to do it, you are on the road to tyranny."

I'm with the idea of a small and far less regulatory government. Actually, as much as I'm loath of admit this, I'm in 100% agreement with this statement.

"Likewise, why not arrest and punish those who harm others, while leaving otherwise law abiding drug users alone to suffer the consequences of their behaviors?"

I disagree. There are few individual bad behaviors that don't have some deleterious effect on society overall at some point. There's a balance between individual freedoms and what serves the greater good of our overall society. What does drug use do to advance the overall societal good? Absolutely nothing. It tends to weaken our society by helping to make it a moral wasteland. Besides which, I know of no poll results that even suggest that the majority of people even want this (unlike the poll results favoring abortion).

I think the war on drugs is a joke for entirely different reasons; they're not catching the criminals selling the drugs. The drug industry is a billion dollar industry that has to leave huge economic footprints where ever it goes. Imagine that General Motors was declared illegal tomorrow but still continued to operate. It be quite difficult for GM to "hide" because you'd be able to find them by tracing economic activity with their suppliers, financial institutions and etc. Now, imagine the major players in the drug industry and the economic footprints they must leave. How difficult is it really to find these guys? They're not hard to find at all. The question is why aren't they being gone after?

5/07/2006 10:36:00 PM  
Anonymous Anonymous said...

BTW, Berkshire Hathaway's portfolio is loaded with insurers and reinsurers.. Who do you think is gonna pay when "Jewish Lightning" strikes after all those mortgages go underwater?

http://www.gothamist.com/archives/2006/05/03/greenpoint_term.php

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