I knew the housing situation was bad, but I had no idea how bad until I spent some time on this site.  More than any other resource I’ve found this site useful for getting unbiased info on the local market.

It’s scary reading.  Check it out: sdlookup.com

03-29-2009 update. Another good site: Piggingtons.

When the market was near it’s top I reasoned that the best reason to sell was the “Law of Rents”. I created this Law, so allow me to explain.  The Law of Rents states that there can only be a delta of ~15% between mortgage payments and rents in any area (ignoring downpayments).  Any imbalance will result in shifting rental/housing markets to readjust.

At the market top a mortgage on a 2bdrm/2bath townhouse in my neighborhood with a $30k downpayment would have conservatively been ~$2700 at a selling price of ~$480k. The same townhouse could be rented for ~$1900.

No matter what expected appreciation or tax benefits are taken into consideration, it’s impossible to justify paying $2700/month (plus $30k down) for a home that you could rent for $1900.

Given the Law of Rents, the expected point of equalization for the home previously valued at $480k is ~$310k. $310k is the fair market selling price, the price at which rents and homeownership intersect.

Looking at the local market today, I expect a further decline of 15% from our current home value levels given that the comparables for the same unit mentioned above is currently $360k.

If you think the decline in home values is over, I would argue that the Law of Rents disagrees.

I think he’s onto something.  In the dotcom days I was a part-time (and highly delusional) daytrader.  I was up 1000%.  Yes, you read that correctly, 1000% gain in just 18 months.  My extraordinary gains were due to daytrading dotcom stocks during the historic dotcom bubble.  My day job also happened to be at a dotcom.  Being a diligent hardworker I was under deadline for a big project and putting in 16 hour days for a week straight.  As a result I didn’t watch the news or follow my portfolio during this critical time.

This critical time happened to conincide with the dotcom implosion.  After the project was complete I logged into my portfolio and I had lost 30% of my net worth.  I was shellshocked and in disbelief.  Denial is a strange thing and I rode the market down another 30% before I bailed to 100% cash.  It was a painful lesson and it still haunts me.  For the mathematically challenged, losing 60% of your 1000% gain is mind numbing.

Shortly thereafter I was laid off.  Luckily for me I found employment easily, but working in the dotcom field and investing in dotcoms left me doubly exposed when the market crashed.

Fast forward to 2003 and I am working for one of the largest subprime lenders.  I left that company in 2004 and predicted a subprime crash.  I was several years ahead of the curve.  Their stock rose 100% over the next 12 months as I watched in further disbelief.  Around the same time, I picked up a mortgage company as a client in my new consulting business and continued to watch their unabated growth, knowing that I predicted a crash several years earlier.

At the end of 2007 the lending industry started to unravel.  With all of my experience in the subprime industry and my close association with a subprime lender, I was still slow to react.  I joked that if my house hit a selling price of $500k I would sell.  It hit $485k, then ran off a cliff.

During this time I’ve worked hard at my business, considered myself to be an intelligent and shrewd investor and sat on my hands while the market has crashed around my feet.  As the housing market ran off a cliff I found myself frozen yet again, unable to pull the trigger that I knew should have been squeezed until my hand went numb.

I can admit that I was blinded by greed.  I wanted $500k and held out for that magical number. Had I followed the advice outlined by CriticalMAS in the article above my paper losses would be offset by handsome paper gains from shorting the lending industry.

There’s hardwork, there’s intelligence and then there’s cold hard profits.  When the profits are staring you in the face and you know it’s too good to be true, it’s time to sell. 

I won’t be fooled again.

An important (and overlooked) part of the release of the new iPhone was the availabilty of new firmware for ALL iPhones.  This new firmware upgrades existing iPhones enabling the purchase of applications to be loaded on the iPhone.  This represents a new revenue stream for AAPL.  I have not seen any speculation on what this revenue could mean, but I do know that the currenet small sample of iPhone users in my social circle are quickly adding free and PAID applications to their phones.

The barrier to the iPhone taking a foothold in large organizations was the inability to be managed securely and connect to corporate email.  These barriers have been removed and new capabilities have been unlocked, notably SalesForce and other custom applications.  Given the elegant and extremely user-friendly interface, corporate adoption of the iPhone should be brisk.

The iPhone was a phone and an iPod.  Now it is also a portable game console, medical imaging device and serious business tool.

Yesterday Jim Cramer of CNBC called AAPL a “don’t buy”.  Instead he recommended purchasing ATT.  This advice misses the mark badly.  ATT is not the carrier of the iPhone in 70 new markets.  AAPL will also be the prime beneficiary of the new “App Store”, not ATT.  Plus, every iPhone sold (did I mention 70 new markets?) is more revenue to AAPL’s bottom line

Personally I am staying out of the market for the forseeable future, but options on AAPL six months out at $200 is definitely a viable, and likely more profitable, investment than ATT.

India will soon produce a $3,000 car. With 1.2 billion people the availability of a $3,000 car will intensify worldwide gas consumption and demand for oil. Add in China with it’s parabolic increased consumption of all natural resources and the problem is mushrooming.

The United States still consumes more resources than any other Country. We send $700 Billion overseas every year for oil. This transfer of wealth has resulted in American institutions like Anheuser-Busch struggling to fight off foreign takeover and the Chrysler building being eyed for purchase by Abu Dhabi.

The perfect storm is here in the form of the housing crisis. Our financial institutions are in trouble. The dollar is devalued due to liquidity injections from the Fed. Meanwhile our addiction to oil is a one-way pipeline of American money to the Mideast. These two dark clouds are raining misery on us all.

While we are all suffering due to the higher price of oil, the pain is offset because the effect of these prices is that our habits are changing. Less driving, more conservation and intense pressure to lessen our dependence on oil.  Americans are finally thinking globally and acting locally.

Conservation is good for the planet and the United States. We’ll feel the pain at the pump for years but this pain is going to motivate action.

Better now than never.

In the book Is the American Dream Killing You? How the Markets Rule our Lives Paul Stiles explores how Capitalism and unabated Free Markets have destroyed the American Dream. The market is unrelenting, driving Americans into further spirals of debt, work and detachment.

The book lays bare the issues created in a culture where celebrities rule, financial concerns outweigh morals and the media has more influence than our nation’s greatest minds. The current housing crisis makes this book a very timely read, but don’t expect a feel good ending.