By now, you'd think powerful and important people would have learned not to put anything incriminating into an e-mail. Once you shoot something into cyberspace, it's out there. And it will come back to haunt you...
Former Countrywide head Angelo Mozilo took the fall when the SEC leaked his e-mails explaining how terrible the mortgages his firm was peddling were... He called the 100% loan-to-value subprime mortgage "the most dangerous product in existence." He went on to say, "In all my years in the business I have never seen a more toxic prduct [sic]."
Matthew Tannin and Ralph Cioffi, the former managers of the two Bear Stearns hedge funds that failed in 2008, were also indicted, partly due to idiotic e-mails they let slip about the condition of their funds. In one e-mail, Tannin wrote, "If we believe the [collateralized-debt obligation report] is anywhere close to accurate I think we should close the funds now. The reason for this is that if [the CDO report] is correct then the entire subprime market is toast. If AAA bonds are systematically downgraded then there is simply no way for us to make money – ever... Caution would lead us to conclude the [CDO report] is right – and we're in bad bad shape."
Later, Tannin followed up with, "Believe it or not – I've been able to convince people to add more money."
Despite the previous examples of his brethren, Treasury Secretary Tim Geithner, then president of the Federal Reserve Bank of New York, was also busted sending shady e-mails. If you need more proof the government doesn't exist to look out for your best interests, here it is...
After bailing out AIG, Geithner told the firm to withhold details from the public about its payments to banks during the crisis. According to AIG's regulatory filings, the insurer paid banks – including Goldman Sachs – 100 cents on the dollar for credit-default-swaps (CDS) they bought from the firm. I don't remember the exact market value of CDS at the time, but I guarantee, in the midst of the worst financial crisis our country has experienced since the Great Depression, bundles of mortgage debt were not valued at 100 cents on the dollar.
Congressman Darrell Issa, ranking member of the House Oversight and Government Reform Committee, obtained Geithner's e-mails. In total, the Fed decided Goldman and more than a dozen other banks would be fully paid for $62.1 billion of CDS.
Hershey is one step closer to making a bid for Cadbury. According to folks familiar with the matter, Cadbury directors have held talks with Hershey to encourage a rival offer (besting Kraft's current offer of around $17 billion). Cadbury told Hershey it would support a bid by the company and, according to the Wall Street Journal, even provided "some guidance" of prices Cadbury's board would support. Cadbury feels Hershey would be a better operational and cultural fit than Kraft.
Talks between Cadbury and Hershey have been going on for about a month, but they've recently become "more frequent and more open" an insider said.
Warren Buffett, Kraft's largest shareholder, said he would not support the company's efforts to issue new shares to sweeten its bid. This leaves the door wide open for Hershey. Byron Trott, Warren Buffett's favorite banker in the world, is advising Hershey on the deal. And Cadbury is holding closed-door meetings with Hershey to encourage an offer.
Everything is lining up for Porter's prediction that Hershey will buy Cadbury. And as we wrote previously, Porter has already recommended his favorite way to play this situation. It's a long-term trade, but he thinks it will return 20 times your money over the next 20 years (much better and safer than Treasury bonds at this point). To learn more, click here...
Reis, a New York real estate research firm, says apartment vacancies hit a 30-year high in the fourth quarter of 2009. Vacancy rates hit 8%, the highest level since Reis started tracking 79 U.S. real estate markets in 1980. To keep tenants, landlords will do anything: lower the rent, shampoo your carpet, paint the walls... or give you a Starbucks gift card.
The worst performers last quarter were apartment markets in Tucson, Arizona; Charlotte, North Carolina; and Lexington, Kentucky.
Making matters worse, 120,000 new units came onto the market last year. Many of those were busted condo projects that were converted to rentals. Reis said it's the biggest supply boost since 2003.
The credit crisis put the brakes on most new development, and Reis expects new apartment building completions to fall in half by 2011.
Another report on apartment markets is due out tomorrow from real estate firm Marcus & Millichap. It's projecting another 2%-3% drop in apartment rents this year, after rents fell 3% in 2009. It'll also report that once again, for the second straight year in a row, Washington, D.C. will be the healthiest rental market in the country.
When the housing boom was going great guns, some who wound up buying $500,000 homes were previously turned away from apartments because they couldn't qualify for the lease. Even today, some renters are moving out to buy homes so they can take advantage of government programs to prop up housing. Those programs won't last forever, and a total reinflation of the housing bubble is unlikely. Also, record-low interest rates make it smart to buy a home, when compared with making mortgage payments. I doubt that'll last forever, either. A wave of option-ARM loan defaults could send homeowners running for rentals in the next couple of years.
Unemployment is another headwind that causes apartment vacancies, as out-of-work family members move back home. When inflation really gets going – and I view that as a one-way bet – it'll eventually make its way into wage earners' pockets.
Unemployment is high these days, and the government is sucking up economic resources at an unprecedented rate. But sooner or later, the money-printing trickle will become a raging flood. Wage inflation is late-stage inflation, so maybe it won't really get cooking until a couple years from now.
Apartments could easily have a lousy 2010, but sooner or later, it sure looks like the demand for rental units will have to rise, even as the supply falls over the next couple of years.
As for what to do about it, that's not easy. All the apartment REITs have rallied along with the rest of the stock market. Maybe you just look around your area for a distressed apartment building and buy it. I'm sure there are plenty of folks who thought they were going to be real estate moguls by buying at the peak with little or no equity.
If you find one who is now in trouble, you might be able to swing a great deal. In a few years, when we're all taking wheelbarrows full of greenbacks to the grocery store, you'll have an appreciating asset providing you with a rising stream of cash flow.
New highs: Fairholme Fund (FAIRX), iShares Hong Kong (EWH), Central Europe & Russia Fund (CEE), Cresud (CRESY), Valhi (VHI), New York Times (NYT), iShares High Yield Bond Fund (HYG), Burlington Northern Santa Fe (BNI), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Altria (MO), Humboldt Wedag (KHD), POSCO (PKX), Northern Dynasty (NAK), Jinshan (JIN.TO), Eldorado Gold (EGO), Encore Acquisition (EAC).
In the mailbag, more praise. If this keeps up, we're going to get complacent. Send us your rants here: feedback@stansberryresearch.com.
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January 7, 2010