How I Spent My Summer Vacation . . .

August 22, 2008 4:00pm by

Summervacation

Christopher Weyant via Welling@Weedon

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Discussions found on the web:
  1. JustinTheSkeptic commented on Aug 22

    BR, have we found who the rumor monger is? Who the hell would want LEH, at this point…you’d have to be dummer than a bag of rocks!!!

  2. Sean commented on Aug 22

    Hey Barry,
    We hear alot about residential housing and all the mistakes made. We haven’t heard much about the commercial real estate side.

    I’ve learned alot about the housing mess from your site. Can you enlighten us on the commerial real estate side. Should we be worried? What should we look for?

  3. DL commented on Aug 22

    This cartoon may not be so far fetched.

    Given the reality of internet brokers, there’s nothing to stop some 8 year old kid from becoming a trader.

  4. leftback commented on Aug 22

    8 year olds might even be better traders than we are. Less conviction perhaps? Watching the last few days from a nearby planet must be amusing viewing.

    I have to admit I played golf today, so I was on summer vacation. But I was short oil and gold, which turned out well. It’s almost as if a certain hedge fund in Westport had been badly burned on energy positions recently and needed an exit…

    Today’s nonsense rally looks like yet another great opportunity to short the financials. A lot of data next week will surely reveal that the long-awaited turn-around in housing is finally here… NOT !!!

    Have a great weekend, Bears.

  5. Manhattanguy commented on Aug 22

    That little kid is me who is making money shorting LEH and XLF -:)

    Who is going to buy Lehman at this level and in this credit environment..seriously?

  6. muckdog commented on Aug 22

    I had some math teachers in school that ran a stock contest every year. The kid who picked the winning % gainer got to skip the final.

  7. Joe commented on Aug 22

    Hasbro up 45.6% this year including dividends. Invest in what you know.

  8. Pat G. commented on Aug 22

    I wonder, is that kid adoptable or maybe I could rent him?

  9. D.H. commented on Aug 22

    Whoever started the LEH buyout rumors sure learned how to make money in a bear market. Seriously, when was the last time a savvy investor told the whole world they were interested in buying something BEFORE they bid? It’s nonsense. The best price would have been available if the buyer waited for LEH to get to the single digits and then bid at a premium to that price. The whole thing wreaks of manipulation.

  10. Mike in NOLa commented on Aug 22

    And another one bites the dust. Looks like small potatoes, but you can’t tell how small from the article:

    Columbian Bank and Trust of Kansas Shut by Regulators

    BTW, can we get an opinion from Barry if he thinks we are near a reversal?

    Pitiful volume on today’s big rally and it’s the deepest for the VIX since the top in May, staying below 20 all day. Or will there be more build up to to the slide?

  11. DL commented on Aug 22

    Mike/NOLa @ 9:54:44 PM

    I think we’re getting very close. I’m betting on Nasdaq producing a similar pattern to the 5/16/08 – 6/5/08 period. That, coupled with the low VIX (preferably one below 18) could produce a gain for short sellers over the next 6 weeks or so. The Nasdaq and Russell 2000 appear to be good trading vehicles for this.

  12. leftback commented on Aug 22

    Mike in NOLa:

    You beat me to the bank failure story by 15 msec. Warped minds think alike.

    A couple more things of interest – first a rise in defaults on commercial RE – a subject that got some press on CNBC this am. This is via Calculated Risk:

    http://www.federalreserve.gov/releases/chargeoff/delallsa.htm

    Secondly, we are beginning to hear rumblings from a third category of MBS. After subprime and Alt-A, we have the “Not Quite So Prime Jumbo” Loans. Some of this is on Housing Wire, the high end has been caving in SoCal for a while now, and even markets like Greenwich, CT are… “slow”.

    I could not agree more with your comments about the VIX, volume etc, we seem set for another leg down and a big increase in volatility. Remember that the 2nd team is manning the trading desks until after Labor Day, so all bets may be off until then.

    Can’t help feeling we will see a new sector slaughtered soon. These alternating XLF:XLE (SKF:DUG if you prefer) trades seem a little tired. Perhaps we are ready for a new cookie to crumble.

  13. Mike in NOLa commented on Aug 22

    DL:

    Wish it would happen soon. Almost all stocked up on short ETF’s, so lost a bit today. Guess I’m too impatient. Afraid of missing the train.

    Sean and leftback:

    Here’s one for ya, although SRS got hammered again today.

    CRE Loan Concerns Grow

  14. Mike in NOLa commented on Aug 22

    Hate to post too much, but Calculated Risk has another article, this one with a chart using Fed data showing commercial real estate defaults rising as rapidly as residential in Q2. Strange that we haven’t heard more of it.

    Fed: Delinquency Rates Increased Sharply in Q2

  15. leftback commented on Aug 22

    Mike:

    There will always be bad days. Today was nothing in the greater scheme of things.

    Barry posted a great interview with Danielle Park who reminded us, among other classics, to ignore day-to-day noise and focus on weekly and monthly trends. A week seems like buy-and-hold investing in a Bear market!

    Thanks for the link. I really think CRE is permeating the general consciousness now, and there could be a blow-up in equities to reflect what is already happening in the debt markets, where spreads are taking off.

    There will be more stories along the lines of the Riverton deal in Harlem. I am wondering whether some CRE projects will ever be finished. Don’t forget the banks are on the hook for this garbage too.

    Next week should be better, for the bears!

  16. Rich Shinnick commented on Aug 22

    Sean asked……….
    “Hey Barry,
    We hear alot about residential housing and all the mistakes made. We haven’t heard much about the commercial real estate side.”

    …that is because the media prefers to cover disasters as they happen rather than try to warn the public to get out of the way…

    For my 2 cents it is no different than asking yourself in 2005 how lending money on “stated income” to flippers was going to work out…you knew it was going to end badly but what was surprising is how long it took

    Many new housing developments had CRE projects funded and built as the last houses were built and those projects will mostly turn in to disasters although tenants often signed leases years in advance so the properties may show as “performing” for now.

    Also, many millions of sq. feet of office space are being vacated by real estate and banking related companies and retailers are closing stores at a huge pace.

    I don’t know, I could be wrong, but this is simply a connect the dots common sense call …So as to your questions: Should we be worried? HELL YES What should we look for? BIG SIGNS THAT SAY “FOR LEASE” in front of newly built, yet vacant, office complexes or empty stores in your local mall.

    Ooops…I just realized you addressed the question to Barry..but you probably knew the answers anyway.

  17. Stuart commented on Aug 23

    How to make money, let BS rumors work for you and then short the $!@## out of them. See below

    SKorea banks shelved bid for stake in Lehman: report
    14 hours ago
    SEOUL (AFP) — South Korean banks led by Korea Development Bank (KDB) have shelved plans to buy a stake and management rights in Lehman Brothers due to concerns about its financial health, a report said Friday.
    The state-run KDB and other banks were in talks with the major US investment bank until early August but negotiations failed at the final stage, the Chosun Ilbo newspaper said.
    It said Lehman executives visited Seoul in June and initially sounded out the Korea Investment Corp. (KIC), a sovereign wealth fund which had earlier invested two billion dollars in Merrill Lynch.
    After KIC decided not to proceed, the paper said, Lehman approached KDB chief Min Euoo-Sung, who had headed Lehman’s local branch for three years until early this year.
    Min initially pushed for the deal in cooperation with other local banks but backed out because the proposed takeover price was 50 percent higher than Lehman’s book value, the daily said.
    Problems with the accounts were more serious than initially believed, an unidentified government official was quoted as saying. “We concluded that it was too risky for KDB to take the deal.”

    Good comment on this from Denninger too about the media pumping this deal ALL day even though news was released early this a.m. that KDB told Lehman, take a hike.

    “The story of the day, which hit at 6:00 AM CT, was that Lehman was being “eyeballed” by a Korean group lead by Korea Development Bank (KDB).

    This resulted in an instant ramp in the futures which persisted into the day, and was the catalyst for the near-200 point rally in the market.

    CNBC and Bloomberg were repeating the story literally all day long, with Bloomberg running it as recently as 5:30 Eastern. The outright lying and complicity of the media when it comes to the market is completely out of control. We’ve been treated to these rumors of “buyouts” of all sorts for the last year, and almost without exception, they have proved to be lies and produced nothing but losses – sometimes catastrophic losses – for the investors who believed them.”

  18. AGG commented on Aug 23

    The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.

  19. JustinTheSkepic commented on Aug 23

    Mike, in Nola, I have been waiting…big short in ggp – they are so leveraged.

    And the Cramer rant: Cramers throwing so much crap around! How can he think that things would be so different – Oh Jimmy! Realize that it is 1929!!!

  20. leftback commented on Aug 23

    This is another shoe that we all KNEW was going to drop. No surprise that we see this in California first, but you can almost feel the high end market in Greenwich, Manhattan, the Hamptons grind to a halt.

    http://www.housingwire.com/2008/08/22/prime-jumbos-showing-strain-sp/

    The punch line for this was coined by the excellent Tanta some time ago:

    “We are All Subprime Now”

  21. JustinTheSkeptic commented on Aug 23

    Leftback, great quote! Another way of saying we are all crap! But from it how beautiful the flowers do grow. If the government would just let us get there. But no – they are protecting too many big-money people. Whatever happen to “creative distruction??

  22. Bruce commented on Aug 23

    How I made money in a bear market…

    the secret, revealed many times, is just knowing when to sell..

    I will share a couple of other things I have noted…during the tech bubble..which helped me immmeasurably, even though Albert Einstein was not my uncle, I had money invested in the Firsthand Technology Funds, and thankfully, I got out when I was supposed to..now the man who ran the funds at that time was a minor hero for awhile, was interviewed on CNBC, the usual…..then when the bubble burst his track record became dismal..well one of the testy comments he made during the “give-back” phase was something like,”Yes, I’m still fully invested in tech, and people who buy my fund know this is my investment philosophy”…this was the “reason” he wasn’t invested in cash….you get the idea..

    And the CGM Focus fund, cgmfx….Ken Heebner was being touted as wonderful in late spring, and probably is, and may have Einstein as a relative, but due to his continued bets in natural resources that have corrected, has lost from about 70 dollars in May-June to 47 dollars yesterday…

    Now ladies and gentlemen…that is a lot of George Washingtons to make back up…I realize his fund is now so big that it is hard to unwind from these big stakes, but this kind of correction…frankly you are better off as an individual investor just to sell the fund when the first bad odor arises…

    There is NO substitute for individual control of your finances…when you relinquish control to some other party, you risk real problems…

    You never get enough information or education..

    Bruce in Tennessee

  23. Mike in NOLa commented on Aug 23

    Straightfoward article about British banking losses in residential and commercial real estate:

    UK banks face double property crash: James Saft

    I have found Saft’s articles to be some of the more well-informed and rational in the mainstream media. If you look back on his columns, you’ll find him discussing many of the same subjects touched on here, except with a European twist. He makes it pretty clear that the UK, at least, is headed down the same path as we are.

  24. jim saft commented on Aug 27

    thanks Mike!

    James Saft

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