GARY FONG'S CONTROVERSIAL BLOG: December 2008

Tuesday, December 30, 2008

SO CAL REAL ESTATE - 81% DECLINE - 5 FIGURE ZIP CODES

This was a crazy post on the "Real Homes Of Genius" Blog.

This blog has been an incredible documentary of the crazy U.S. real estate market, and the crash. It is painful to watch as homes in California are now hitting the five figures in some zip codes.

So the question sometimes comes up, "Is now the time to buy?" My answer is no, because there are still four million delinquent mortgages that are about to go INTO foreclosure (only 2 million have hit so far) and prices are going to keep going down.

If it was possible to sell, it would be a good time right about now, but it would probably not be possible without a huge loss.

So when will the market hit bottom? Bottoms of real estate markets stay down for a while - not like tops in asset bubbles when you can almost call the day that it topped. It flattens for a little while, then sellers don't wake up to the reality, and then panic goes out, and then markets collapse.

In 2005, a home in Palmdale probably went for mid 300's, now it is in five figures. 81% drop in values, and I don't think that's near the bottom.

I don't think it is ever good to try to time a top or bottom, because nobody really knows the day, and if you're stuck as it's falling, you can't get out.

Saturday, December 27, 2008

THE POWER OF POSITIVE THINKING

has different meanings. When I hear motivational tapes, telling people to focus on the positive, to me, that is delusional. I would rather focus on indicators.

I can think positive all I want. I can think positive thoughts that the real estate market is not going to drop dramatically in 2009. But that would ignore the simple fact that 2 million homes have hit foreclosure, four million are in default and about to hit the market, which at liquidation prices will make comparables go down further. Add to that the fact that there are still a lot of mortgages that are going to reset in Q1, 2009.

So I could blow a bunch of sunshine and say, "Hey, think positive! It's going to be fine!" and pretend it. Or I can see the undeniable imbalance of supply to demand in U.S. Real Estate.

I think positive. I am pretty positive that U.S. real estate has really only begun to collapse, and that the U.S. dollar is going to crash. I'm positive of that.

FINANCIAL ADVISORS, SHOULD I GET ONE?

I got an email from a friend the other day, asking for a referral for a financial advisor. My advice is to never use one.

I have never used financial advisors. I have talked to them, but honestly - and this is really really the case - they usually do not know anything. They will show you charts and graphs, but with the disclaimer, "past performance is no guarantee of future results".

Far better to invest with a few basics in mind:

1) "forecasting is simply determining where imbalances will ultimately resolve"
2) an investment class either has value, or there is a belief that one exists. The second case is very dangerous
3) Never ever invest amounts that you can't completely lose without losing a night of sleep
4) Never - ever - invest using leverage (option accounts, margins, hedges, derivatives)
5) When you invest, consider that money gone forever. Just like blowing it in Vegas. That way you won't care if you have to go long. Investing for cash returns is just like gambling in Vegas
6) Never buy stocks, especially in the U.S. People who buy stocks always try to time the market, and put far too much money into their bets. Far better to ask yourself what is out of balance, and then invest in that.

Financial advisors know only what the company newsletter tells them, and that news is provided by their "research" teams with buy/sell recommendations. These people are in the business of selling you their products.