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-- Posted Monday, 24 March 2008 | Digg This Article | Source: GoldSeek.com
Rick’s Picks Monday, March 24, 2008 “Phenomenally accurate forecasts” Before I discuss the imploding condo market and how it could ultimately bring down the nation’s regional banks, let me digress for a moment to a kinder, gentler story that began this evening with the hankering I had for a corned beef sandwich. My wife, Marilyn, had prepared the corned beef Irish-style on St. Paddy’s Day, with the traditional side of cabbage, but I wanted the leftovers Jewish-style – i.e., on rye bread with cole slaw and Russian dressing. Having none of these ingredients in the house, I drove to the Safeway, only to find the deli counter closed. There was a guy mopping the floor behind the cold cuts display, but he looked too busy to be bothered. With just minutes remaining before the evening shift ended, he was probably eager to finish his work and go home for the holiday weekend. At that point, the last thing in the world he wanted to hear was a request for some deli item that had been put in storage for the night. 
As I started toward the exit, resigned to having my sandwich on white bread with mustard, he called out, “Sir, is there anything I can do to help you?” “Sure,” I replied. “Do you have any packaged cole slaw?” “Yes, I’m sure we do,” he said helpfully. “I’ll show you where it is.” Mitch – that was the name on his badge -- walked me over to a refrigerated display, where he searched high and low for the cole slaw. “Must be sold out,” he said. “But that’s no problem.” He walked back behind the deli counter, opened the cold storage locker and returned with a vat of cole slaw. From this vessel he scooped a small amount into a half-pint container, then asked if there was anything else he could do for me. “Just point me toward the rye bread,” I replied. On the way out of the store, I told the manager how Mitch had gone out of his way to help me. The manager said it wasn’t the first time he’d heard good things about Mitch. Nor, undoubtedly, will it be the last.
Condo Glut Across U.S.
Now about those condos. The Wall Street Journal recently lit upon this latest problem in the real estate sector with a front-page story headlined “Woes in Condo Market Build As New Supply Floods Cities.” Incredible as it may sound, condo developers are still going full-bore in such places as Atlanta, Phoenix, Dallas, Miami, Ft. Lauderdale and San Diego. This, despite the fact that the condo market is already glutted worse than anyone can recall. At the end of 2007, there was a ten-month supply – the biggest backlog since the National Association of Realtors began compiling the data in 1999. We’ll let the Journal explain how developers could have been so stupid. “It may seem surprising that anyone would want to add supply to a market whose troubles have been well-publicized for many months,” the article noted. “But the economics of condo building encourage developers to bring half-finished projects to completion, even when prices and demand are plunging.”
So be it. But the newspaper saw a possible bright side -- fire-sale prices that are likely to attract the interest of vultures. If so, that would be a blessing for the regional banks that typically are the main lenders for these types of projects. But the Journal overlooked one aspect of the problem that we see as a relative bright spot. How big would you guess this crisis is? The answer is: a mere $42 billion. Peanuts, really. That is the total amount of condo-related debt on lenders’ books. Compared to the hit investors are about to take on Bear Stearns alone, a measly $42 billion problem is barely worth reporting on the front page. However, what if a few defaults were to take down some relatively small banks, triggering a domino effect? It’s not hard to see how a $42 billion cherry bomb could turn into a stick of dynamite practically overnight. Recall that when Bear Stearns, Merrill Lynch and Citi first acknowledged their difficulties, they did so by reporting quarterly losses in the $4 billion to $6 billion range. But it didn’t take long for those numbers to triple or worse, and we expect that to happen again if the condo crisis is allowed to run its course.
This seems like a problem the Fed could nip in the bud, and for mere chump change. Why should bankers be the only businessmen who get bailed out. It’s not as though condo developers don’t have feelings too. Do they not bleed when you prick them? Do their bunions not swell when they wear new shoes? We take up their cause, before it’s too late, with the rally cry, “Save The Donald!”
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You Can Take the Seminar at Night
There’s good news if you’ve wanted to take the Hidden Pivot course but have been unable to attend on weekend mornings, when the class has typically been held. In mid-April, I’ll be conducting the six-hour class over two consecutive evenings – Wednesday and Thursday, April 16-17, from 6 p.m. to 9 p.m. MDT. Click here, and then on the “Upcoming” tab to register; or here if you would like more information as well as a detailed description of the Hidden Pivot Method and a free Hidden Pivot calculator.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Monday, 24 March 2008 | Digg This Article | Source: GoldSeek.com
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