ERICOPOLY

Another measure of economic activity (counting the diesel fuel purchased by truckers) suggests a disappointing 0%-1% GDP growth rate in Q4. http://ceridianindex.com/news/release/November-PCI-Increases/

Unless they are all going to crowd into a tent, then we are either going to see: a) 4 million new single family home renters (just rearranging the deck chairs isn't it?) b) 4 million new apartments built (lots of new jobs!) c) A mix of both (some deck chairs shuffled, some new jobs too) I'm guessing it's c.

His thesis isn't that complicated. 1) he says homebuilding recession is a bigger piece of the total unemployment than people realize 2) by under-building we have nearly caught up with the amount that we over-built 3) unemployment is distorting the picture, keeping household formations low. See point #1

They are calling a bottom in 2012 it looks like: we look for prices to find a bottom by the middle of next year.

Mitt Romney's childhood home was torn down last year: http://record-eagle.com/statenews/x371475389/3-000-homes-to-be-torn-down-in-2010?mailingdata-ipsquote-timestamp=201006101000

Yeah, I've made my views on that pretty clear I suppose. Where is Bronco? I guess a lot of shareholders who bought high are happy at least that they can capture a tax loss at the same time that they get their laundered dividend. One of these days the government is going to get smart and tax this stuff the same as dividends.

I agree. I have absolutely no clue as to why people think SHLD is going sky high. There are probably some better vehicles to bet on a real estate bounce. The only other value driver here seems to be the cash flow from the stores. And what does he do with it? Buys more SHLD shares. No, he's not diversifying into better streams of cash flow, he's just effectively dividending it out. So what do you get left with if the cash flow keeps on dwindling? So basically the only play here seems to be KMart getting up and kicking everyone's butt in retailing. But it ain't gonna happen unless he invests heavily in the stores, instead of dividending it all out. So I don't understand where the upside is unless you reinvest in the stores instead of returning it all to shareholders.

options market makers reflect what's going on with the underlying, and in this case some weird technicals (supply and demand). I don't believe they have any more predictive power over where stocks go in the short term than anybody else does. Here is how I understand the pricing: 1) I write a $45 strike put for $14 --the option market maker buys it from me 2) He is hedged with a put now, so the option market maker buys the stock and lends it out to shorts, collecting huge cash flow from shorts. 3) He can also write a covered call So the reason why the call is cheaper than the put is that the market maker makes up the excess value by lending his long position in the stock to the shorts. Oh, and anytime somebody wants to buy the put for more than what he paid me, (the wide bid/ask spread), he can just unwind it all for a tidy profit. This has absolutely nothing to do with the opinion of the market maker on the stock's long term or short term price movement. He doesn't need to care about that -- he's just market-neutral, making money regardless.

Where do they take liquidation value of the real estate into account? They just seem to be capitalizing the EBITDA number and then subtracting liabilities from it. And after doing so they are saying it's worth $591m ($6 per share): 1x their FY11 EBITDA estimate 3x their "net adjusted" EBITDA. Quoting: Our midrange enterprise valuation is approximately $6.514bn, which is 11x our FY11 EBITDA estimate of $590.7, 32x our FY11 net adjusted EBITDA estimate of $203.7mn. After deducting $3.474bn of secured debt, $765.9mn of unsecured debt and the pension/post-retirement liability of $1.68bn, we estimate value to the equity of just $591.8mn, or $6 a share, down 91% from the current share price of $60.49.

So far I've written some SHLD puts and used the proceeds to purchase puts on my BAC position. So I have a large BAC position, to me it's easy to figure out how it goes up 4x from here in 4 years. To others it's easy to see SHLD at 4x in 4 years. SHLD puts cost more than BAC puts. So I like the dynamic there. Especially since there is risk of BAC being a zero overnight according to the contagion theories on global financial collapse, but no such risk overnight for SHLD.

Anyways it looks like we have a new source of greenhouse gas emissions to contend with as the permafrost thaws: http://www.nytimes.com/2011/12/17/science/earth/warming-arctic-permafrost-fuels-climate-change-worries.html?_r=1&scp=1&sq=permafrost&st=cse

What Hester said... IBKR does lending now for small accounts. Also, the bonds offer a wide range of ways to play this as well... true, not fully applicable to holdco, but sure provide some nice YTMs depending on what price you get. Ben What steps need to be taken to lend out shares from an IBKR account? Is this something you do from the workstation, or do you fill out a ticket asking them to help you? And what lending yield are you getting?

My options strategy gives you 1.59x leverage without increasing your downside. Reinvest all of the proceeds from writing the put into purchase of the call. Same downside. 1.59x upside.

The $45 strike 2013 put has a bid of $14.20. The $45 strike call has an ask of $8.95. Meanwhile the stock is $46. Why are you guys buying the shares?

Everyone should look at the charts on this Wells Fargo report before talking about "recovery". And as always, be careful with seasonal adjustments -- "On a not seasonally adjusted basis, single-family starts totaled 32,300 units in November, which is slightly below their year-ago level. On a year-to-date basis, single-family starts are down 10.2 percent from last year and are on pace for their weakest year on record." Quoting from the Wells Fargo report: We expect homebuilding to improve modestly in 2012, with most of the gains coming from apartment construction.

As I said in July: "Somebody has to build those 6 million apartments (and all the rest of the jobs that construction drags along with it)."

I meant to say, the rate of positive surprise is mostly multi-family construction. building one more house in this sea of supply is idiotic. Depends where the demand for housing is vs where the oversupply is. I mean to say, not all localities have a supply problem.

It's mostly multifamily. The pessimists forgot that we don't have enough apartments to house the people who can't afford a house. Either way Buffett doesn't really care -- he still sells carpet.

I have a few cousins in Sydney who feel that their real estate won't go down. So I'm familiar with what you are hearing. We are looking at the Frenchs Forest area as a possibility -- about $40k annual to rent an $800,000 house. Originally I was thinking of Lindfield which is where my grandmother had her home near the rail station (her home sold in October for $2.05m). But she had a double lot so the price set a record for her street -- double lots are very rare. $1.4m is more typical. Anyhow I discovered rentals are about $70k annual in Lindfield. That home that sold for $2.05m -- my grandparents bought that right after WWII for $4,500 and never changed the house. Now that much money covers 1 month rent! Just sort of an amusing story about what you could buy in the late 1940s. Yes, that's better than 10% annualized increases for a 60 year stretch. I'm not sure how much areas like that will crash. My parents house in Los Altos Hills, CA has declined maybe 10% if that even during the past few years. And that's during our "Great Recession". The house was worth about $50k in 1970 when they bought it, then about $900k in 1990 after the big real estate boom, $2m in 2000 after the tech bubble, and it's still about $2m today. So not all areas are going to implode. I just figure looking at Australia as a whole the median price will fall considerably.

Yes we are planning on moving for 2 years minimum -- it will be permanent if it works out. "stamp duty" is known as "excise tax" here in Washington state (only ours is paid by the seller): http://dor.wa.gov/content/FindTaxesAndRates/OtherTaxes/tax_realestate.aspx My house in Washington state is worth roughly $500k (or so I think) and I will have to pay 1.28% tax on it when I sell it -- that's $6,400!

It works differently than it does here. I live in Washington state. My property tax is based upon an appraisal of the entire property. So if I built a $50m home on my property, my annual tax bill may actually be higher than the value of the underlying land! Australia doesn't tax you on the improved value. New South Wales has a "land" tax, and if it's your primary home you get a $400,000 land valuation exemption. So if you have an $800k home but the land is worth only $400k or less, then you pay nothing in land tax. EDIT: actually that exemption might be for homes you own that are not your primary residence. I believe it may be a 100% exemption for your primary residence. They have "rates" that pay for basic services, but they don't scale up the way our property taxes do. I mean, a $2m house is not uncommon in Sydney. Here in America it would not be uncommon to pay $20k a year in property tax on that house.

This is a good exchange from the DebtDeflation blog: Hatless March 22, 2011 at 7:53 am Hi Steve, Great talk as always. Just one question. Do you think there is a big difference in how everything plays out given that the RE bubble in Australia consisted mainly of bidding up existing house prices, compared to the US and say Ireland, which had a lot more additional building? I’d be interested in your thoughts on this. Cheers, Ben Steve Keen March 22, 2011 at 8:05 am | # Thanks Hatless, And yes I do think that’s a significant difference in how things will play out here–though not as the spruikers see it of course. Their argument has been that since we didn’t build as many houses here as in the US (true), there won’t be the same overhang of unsold new properties depressing prices (true). Therefore our prices won’t fall (false). What they’re omitting from their thinking is that, given that Australians borrowed more money to gamble on housing than even the Americans did, our bubble was more of a purely speculative one than theirs was. They at least did some “investment”, even if it was inappropriate to needs in the medium term. We did far less, so far more of our money went to gambling on house prices than increasing the quantity of housing. This is one reason our price bubble was more extreme than theirs, and therefore potentially has much further to fall. It also will spread the pain of a price fall more broadly. Whereas we will have less losers among property developers, we will have more losers amongst those who bought an existing property for capital gain as a retirement investment. Something like 30% of market demand came from “mum and dad investors” at the peak of the bubble. If a significant proportion of them think that the longer they hold a property, the less they’ll have for retirement, then–with a large lag–they could switch from the buy side to the sell side.

If you do that with a large number of companies, I'd think you'd still do well over time. I think that's how Walter Schloss did it.

This is a terrrific presentation. The presenter believes Australia is heading down the long road of debt deflation -> going Japanese. He sees that an inevitable decline in consumer debt will stick a fork in the housing market. He bases his theories on the back of Hyman Minsky's thinking. "Debt And Australian Housing" http://www.debtdeflation.com/blogs/2011/03/20/mortgage-finance-association-of-australia-talk/ At the 15:10 mark he addresses "responsible lending" in Australia At the 24:00 mark he addresses the "population growth" argument.

It's funny you posted that -- I was reading it yesterday after I noticed that Westpac uses Genworth for mortgage insurance. Genworth says: "Strong demand drives prices" I wonder: "Why aren't rents driven up in unison by strong demand" Genworth says: "Borrower recourse". I say: "This puts you on even terms with Florida's rules". Genworth says: "Mortgage interest not tax deductable" I say: "No property tax in Australia"