Higher mortgages and lower prices
As mortgage rates move higher, my attempt to take advantage of the busted housing market here in southern Oregon is becoming less likely to work out. We had the Multiple Listing System (or MLS) showing for our house yesterday. To get ready, we put the dogs in the kennel down at the local vet. We cleared the house of all clutter. My wife, Lori, made the place spic and span from top to bottom.
And only one person showed up in three hours. The day before, about 15 of our real estate agent's colleagues filed through. They all said the place looked great, but the price had to come down. These people see dozens of homes a week, so I trust them. I immediately dropped our asking price about 6%. Still... I'm starting to think it'll be much harder to sell this place for a decent amount of money.
I also found out that living up in the hills might not be all I'd hoped. The housing lots up there are so cheap, some folks are building cheaper, smaller houses on them. If enough of those little houses pop up, it could bring the overall exclusivity and value of the neighborhood down. I don't want to buy a 2,600-square foot custom house across the street from a bunch of 1,600-square foot houses with old pickup trucks and weeds in the front yard.
And I'm not going to build when houses are priced for less than the cost of materials. So we sit and we wait, like hundreds of others in the valley... hoping to get just one little bid for our one little house.
Aside from trying to sell our house, I've spent most of the week working on the next issue of Extreme Value, which comes out tomorrow after market close. I've found two excellent small bank stocks, the best investment ideas I've seen all year.
It's unlikely you've heard of either of these stocks. Both are in outstanding financial condition. Both have recently done FDIC-assisted deals and are located in or near one of the top-eight states for bank failures in the U.S. So they're highly likely to do more FDIC-assisted deals. The FDIC will cover 80% of their losses... and sell them other banks' assets at a 20% discount.
When you can't possibly lose, it's a whole lot easier to win. It's a government-guaranteed profit.
And for reasons I'll explain in my newsletter, the stocks are good and cheap right now. They're safe, too. Both of these banks have two to five times as much capital as they need to be classified as "well-capitalized." They're two of the safest banks in the country, and probably in the entire world.
It's really hard to find safe, cheap stocks these days. But this month, I've found two. If you want to learn the details on my latest recommendations, and how to take advantage of government-guaranteed profits from FDIC-assisted deals, it's all in the next issue of Extreme Value. You can get access to Extreme Value by clicking here.
Jim Chanos, the increasingly famous short seller, is in the media (again!). He discussed with Bloomberg today the massive bubble forming in China, which he says is "Dubai times a thousand." Chanos says if China doesn't keep up the current pace of development, it's doomed. He says nearly 60% of China's GDP is construction. Once the building stops, the economy will collapse. Chanos says the bubble will "run its course" in late 2010 or 2011.
He also said China is "on a treadmill to hell," and "they can't afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing."
Chinese property prices rose at the fastest pace in nearly two years in February, even after officials re-imposed a tax on homes sold within five years (to curb speculation) and ordered banks to increase reserves (to curb lending). Chanos said the government will eventually be forced to nationalize a lot of the bad loans underwritten during the boom.
Whether it's Chanos' bearish China argument or Jim Rogers' bullish one, I'm skeptical of any investor who seeks the limelight (yes, including Warren Buffett).
My idea of an investor is a guy like Seth Klarman, the value-investing legend who cofounded the Baupost Group. Klarman will show up at a conference or two and speak about investing, but he's very secretive about his portfolio.
The other funny thing about Rogers and Chanos is they could both be right, and you could still lose big by trying to follow either one's advice. Rogers is a long-term bull, and Chanos says there's a bubble set to burst. So Chanos' short could work, setting Rogers up to double down on his China bet. Entertaining as they are, their advice is as useless as most guru chatter, since neither publishes any detailed research or tells you how to control risk on their investment ideas. It's pure entertainment (for someone, I guess... but not for me).
While it appears the bubble in China is still inflating, the one in Greece has finally burst. The yield on Greek 10-year bonds rose to almost 7.6% today, a new all-time high. The markets now realize Greece will need a bailout... "The fear factor is beginning to creep in. In fact, it's galloping in," said Neil Mellor, a senior currencies analyst at Bank of New York Mellon in London.
The euro fell to nearly $1.33 today. If the March low of $1.327 breaks, look out below. Technical traders are piling into the short euro trade. Steve Sjuggerud is already up 14% on his euro short (from the January 2010 issue of True Wealth).
The same thing will eventually happen in the U.S. When the markets realize our government has printed more debt than it can repay, interest rates will rise and the dollar will crash. While 10-year Treasuries still hover around 4%, 30-year mortgage rates jumped from 5% to over 5.3% in the past week.
New highs: San Juan Basin (SJT), Enterprise Partners (EPD), Banco Latinoamericano (BLX), Markel (MKL), Steak 'n Shake (SNS), Rainey River (RR.V).
Check out the NPR link in today's mailbag. Has anything made you angry lately? Let us know: feedback@stansberryresearch.com.
"I had a genuine Danny Thomas coffee-spewing reaction Friday morning when I heard the comely voiced NPR radio host say 'Lawmakers from both sides of the aisle are calling for Treasury secretary Timothy Geithner to declare that China is manipulating its currency.' I'm not making this up. Here's the link. It seems some of our lawmakers believe the Central Bank of China's control of their currency supply is putting American's out of work. How dare they! Why, only the US can do that, right? Good thing we've got Geithner on our side. It's like 'Please, please, Mr. Fox. Please protect our henhouse.'" – Paid-up subscriber George Gartseff
Ferris comment: Currency manipulation, like so many aspects of our global financial system, is in the eye of the beholder. And if the beholder is Tim Geithner, you better be holdin' on to your wallet.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Panama City, Panama
April 8, 2010