Friday, November 07, 2008

Bainbridge Island: Post Election Psychosis



Now that Bainbridge Islanders can't engage in their two favorite activities (endless yammering about home appreciation and wallpapering over the entire island with OBAMA '08 propaganda), we are going to have to brace for the next annoying, self-serving, short-sighted, hip-n-trendy corpus of mindless twaddle that they will lord over all of us in the name of neo-enlightenment.

11 comments:

Anonymous said...

Maybe they'll go back to telling all and sundry what a "wonderful sense of community" they have.

BI Renter said...

Clearcut, where are home prices headed for the 'westcoast vineyard' (now that the market for MBS' has evaporated, CA transplants aren't, and Seattle jobs diminish)?

thanks, always enjoy your bloviating.

Eleua said...

My outlook for Bainbridge Island real estate has not improved. A few years ago, I stated that the peak-trough drop would be 80%, and I still stand by that. The only difference is that I once suggested that the 80% discount would only be for the most stupidly priced properties, but after the government reaction to the credit crisis, and the recent election of a Marxist government in the US, I am now comfortable saying that "80%-off" will be the benchmark that most people use to gauge how well they did compared to the larger market.

The math does not lie, and we are not going to get inflation. We have the largest group of Americans that are on the cusp of retirement, while their primary retirement wealth stores are under severe attack. The attack will not abate and homes, stocks, and government handouts will be just pennies on the dollar from what the Boomers thought they would be.

Rent now, or be locked in forever.

Bainbridge Island is not special. They are in the same economic reality that the rest of us find ourselves. They are just more clueless and arrogant.

Proverbs 16:18

Anonymous said...

Now, now, not everybody on Braindead Island will be suffering. Some of us bought before the bubble and resisted the temptation to "upgrade" to a McMansion or to go hog-wild on tapping that fat paper equity.

Now we're sitting pretty on a rapidly depreciating (and quite affordable!) mortgage with a fixed low-interest rate, laughing ourselves silly at the ostentatious cretins who are now facing foreclosure.

I've thought about vulturing some of the foreclosures but so far none of them are properties that I would want to own. They're all either grossly bloated McMansions with huge maintenance costs or tiny boxes that are unsuited for anyone other than a young single (and our of their price range even as a rental).

The one house that might have been worth picking up was a notorious drug house. The owners had to do quite a bit of work in the cleanup once they evicted the druggies, and basically rebuilt it from the inside out. Nonetheless, cleanup or not, there is no way that I'm going to risk my money in a house with that history. It seems that other buyers have been doing due diligence, since it's been on the market for months and remains unsold.

I'm in no hurry...

Eleua said...

Anon,

I like your style. Be sure to come back and contribute.

Yes, the fallout is going to be ugly and The Obamessiah can't save us.

Back in the 2002 timeframe, I was looking at a partially constructed home in the Agate area. The X-Cal owner levered up a little too much and could not complete the project. When the real estate agent (one of the few honorable ones) prepped us for the viewing, she said, "I must tell you that the kitchen has been stolen."

Huh? How do you steal a kitchen?

Well, she was right. Someone stole the kitchen, right down to the bare floor and walls.

The house was kind of bizarre. It was constructed into the side of a hill on the northeast part of Agate and had a stairway to each bedroom. There was no central location, but looked like a poor-man's Winchester Mystery House.

Crazy. I'll bet some idiot sunk a half million into it and will probably end up in foreclosure.

Now is not the time to vulture. Wait until after the bond market collapses and, if you are really aiming to get a smoking hot deal, wait until after the war.

Anonymous said...

Eleua,

Thanks for the nice words. I've contributed to your blog before.

I've lived on Braindead Island for 20 years now, originally because it was the furthest away I could get from Seattle yet still be in the same local call zone. Back in those days, Internet meant dialup to work.

I remember when Kitsap was a solidly Republican county except for the island and the area around the shipyard. Back then, the Braindead Islanders were afraid to go to Poulsbo.

The island was always a bit crackpot, but it got steadily worse after all-island incorporation when they behaved like children with an unlimited credit card at the candy shop.

Unfortunately, there's no escaping the creeping crud. I own land in a part of the country where I used to be considered one of the "liberals" because I'm not a member of the John Birch Society. It, too, is rapidly changing.

It isn't just the Californicators. There is also the "redneck socialist" element that is all too happy to sit on its posterior, collect government giveaways, and subdivide into 5 acre "ranchettes" for incoming Californicators.

bi renter said...

Clearcut

A piece from Bloomberg is skeptical the feds recent action will have much impact...similar to spitting in the wind. Here's a snipet:
``The root of the problem is our securitization markets are non-functioning,'' said Josh Rosner, managing director at New York research firm Graham Fisher & Co. ``We have capital problems at the banks so they can't take over.''

How do you see this unwinding? At what point will bond holders begin their sell off?

oh...and happy thanksgiving.

Eleua said...

BI Renter,

Yes, this is at the root of the problem. The only way for the bubble to have attained such zany levels was for an essentially "infinite" amount of money being generated to throw at housing. Now that we can see how foolish of an idea that was, nobody wants to be on the other side of the securitization, so there is no money.

It only compounds the problem when the banks that have all this crap keep telling everyone that the value of it is much higher than it really is.

See my October 22 blog entry to understand why this is so.

When does the bond market crack? That is the question that all of Western Civilization hangs upon. My best source in the bond market tells me that it is coming very, very soon. If that is two weeks, two months, or two quarters is unknown (I tend to think that it will happen before Christmas), but when it finally shatters, life as we know it will be permanently changed.

Right now, we have thrown an additional 75% of the national debt at this problem, and we have nothing to show for it. The .gov is pumping hard because it knows what is on the other side of the failure. US debt will not be able to be wholesaled, which means that both the "Project For The New American Centrury" and the Roosevelt/Johnson/Obama welfare state will abruptly cease.

We have 305+million people in the USA right now. I'm guessing that we will start to see a "2" handle on our population in the next few years. At least a quarter of our population lives off the government, and that is going to come to an ghastly end.

Thanks for your question. Enjoy your Thanksgiving, as T-Day 2009 will likely have a very different feel to it.

Eleua said...

In the wake of a bond market crash, Bainbridge Island homes will trade for cash, as lending simply will not be available. Obviously, the debt zombies that "own" these homes are not going to sell them for what someone has sloshing around in their American Marine Bank checking account, so they will default.

The KC Sheriff will be selling them for cash. Perhaps he will get Realtor Of The Year?

The actions of our gooberment in the past 8 weeks have further darkened my outlook for the eventual clearing price of BI real estate. I used to say that extreme examples were going to be 80% off the peak price (2007).

We are going to be decidedly lower than that. Unworkable land on an island that is dependent upon highly urbanized white-collar jobs that are a 7 mile boat ride away is going to be very, very cheap.

The government has ensured that we end up in complete ruins.

bi renter said...

Clearcut - curious... I saw this from Sniglet, "Consequently, this leads us towards deflation, since the VELOCITY of money is contracting at a furious rate."

Is he a star graduate of the IER?

Your posts aren't particularly rosey...what will happen to MM accounts / cd's ~ where can cash find a safe haven in the coming years?

Eleua said...

The IER isn't really a course of study that issues graduation certificates, but more of a 'continuing education' for those with natural curiosity and a healthy dose of skepticism. If Sniglet is talking about the velocity of money and how PNW real estate will take an 80% peak-trough shellacking, then he is obviously a genius. If he got his information from the IER, then he is brilliant because he knows where to get good information (vbg). If he came up with it on his own, then I might have to offer him an adjunct fellowship at the IER, as I want to make certain that all local brilliance is concentrated in one central clearing house.

Seriously, I think we are screwed and there is not any place to hide. MMs, CDs etc are going to get increasingly risky as all the commercial paper and deposits are likely to come under severe attack, due to that lowering of the velocity of money we previously discussed. The Treasury Dept has been able to plug a few holes in CP/MMs, but the liquidity of the system is rapidly drying up. It is just a matter of time.

The big event will be when the US.gov bonds start to sell off. Right now, everyone wants part of our bonds, but if the depths of our depression become common knowledge to bond traders, along with obviously unsustainable government spending, then bonds will sell off hard - harder than they did in the early 1980s.

When we see how nasty that break is, we can then discuss where the bottoms will be and how to protect ourselves.

Where is the place to be? Shorting bonds is going to be the trade of the century, but staying short is expensive and painful.

If I find a good way to do it, I'll post it. Many are buying puts/shorting the TLT (20year USTreas ETF). That's tough because when the stock market initially sells off, money rushes out of stocks and into bonds, making your investment go bad in the short term. People tend to look at a TLT over 100 as a juicy short.

The YEN is positioned to deflate faster in the short term than the US dollar, so if you see the YEN/dollar around 100, then buying JPY or JPY calls tends to pay. The bad thing is that the ETF is not as liquid as the larger currency market, so the bid/ask spreads are too large to capture shorter term movements (at least on the puts). I have used JPY as a MM of sorts over the past 18 mos. I store cash in JPY and it deflates faster than the USD, which is a good thing.

Do some reading on it, but that is one way to play this in the short term.

BTW, these are just my personal musings and do not constitute investment advice.