Real Estate Q&A–Success Leaves Clues––and the Quickbooks Stare

June 2008 Mammoth Real Estate Q&A as it appeared in this week’s The Sheet. The smoke has cleared out of Mammoth and the Motocross crowd is exiting. Looks like Mammoth is ready to settle into summer.

Q: With all the reports of businesses closing in Mammoth, and it seems like the other half are for sale, what is going on? It’s not just the Village businesses. Over the years we’ve watched the businesses come and go, some sooner, some later. Mammoth appears to be a great place to own a small business, why is it so transient?

A: Sometimes I have to laugh when I get the “you’re in real estate, what do you know about business?” question from certain people. (And in the real estate business there is nothing worse than trying to sell somebody else’s brilliant business that is a black hole and yet they think it is so “valuable.”) Between drinking beer in college I took plenty of business classes and I have the diploma to prove it. But a diploma in business is glorified toilet paper compared to experience. Before getting into real estate brokerage in my mid-20s, I was fired from, or quit, plenty of jobs. But I always took away something valuable from each one.

Early on in my Mammoth life I was mentored by many local business people. They didn’t necessarily know it, but I was watching what they were doing and trying to make some correlation between success and failure. And this was the early 80’s, and surprise surprise––there were lots of businesses going under. It was great time to watch and learn. One of my favorite mentors was Sam Walker (of Whiskey Creek, Angels, Mammoth Brewing, etc.) and it pissed me off he wouldn’t hire me, but he probably knew better.

Back then the first thing that was so obvious was that Mammoth is a seasonal economy––a very seasonal economy. In the 80’s it was worse than today because summer was completely dead. Another interesting phenomenon I noticed, and is even truer today, is that once you are a “Mammoth business owner” it means you have to go out and buy a big fancy truck. It’s a “business expense” after all. But those payments are every month, and you’re only going to make money for four months. Mammoth teaches you to make hay when the sun is shining and stack it up because you’re going to need it later in the year. Back then I first learned what a “Mammoth Millionaire” was––somebody who came with $5M and was in business here––and only had $1M left. Appearances can be very deceiving.

In the winter of 1983 I worked at a place called The Boulangerie. It was located next to the new Safeway (now VONS) where the kitchen/bath store is. It was so incredibly ahead of the times––a bakery/bistro/hangout with display cases of wonderful food, espressos and fine coffee (what was an espresso?), over a hundred colorful microbrew beers in a wall of reach-in glass-doored refrigerators, sit-down lunch and dinner (people clamored for the chicken breast Dijonaise) and wine tasting on Saturday night while folks waited for their tables. (Sorry, no wi-fi, but plenty of newspapers and other interesting things to read.) The place cranked. It was alive––like a Starbucks on steroids. The owner was almost always there––like an orchestra leader dressed in baker whites. He is imprinted in my mind.

But what happened? He hired me because I was an old Charthouse guy with some experience. He asked me to help him run the business more efficiently. What I discovered was a nightmare. He had no sense of management––calculating food costs, internal control matters, personnel training, etc. He had none of it in place. He had five waiters working out of one cash drawer! No wonder it came up short every night. In his dry storage room he had large bags of expensive imported spices. I can still see him walking in and grabbing a big handful and spilling half of it on the floor only to be swept up at the end of the day and thrown in the trash. On and on it went. I tried to explain to him what I was seeing and how a finely tuned corporate restaurant dealt with it. He would have nothing to do with it. He thought volume would overcome the deficiencies. I left after a couple of months, and he was out of business within a year. He was one of my mentors.

As a broker, I’ve listened to the dreams, the concepts, the plans of wanna-be business people. I’ve asked a lot of questions. Some want to buy a business, and some want to start something fantastic. Some want a franchise. I’ve negotiated purchases and I’ve negotiated leases for them (no thanks, anymore). A few years ago I was in a meeting with some folks that wanted to buy a small business. They had reasonable qualifications and plenty of enthusiasm. I asked them if they were familiar with the accounting software Quickbooks. I got a blank stare. I knew what would happen when they bought the business––and it did. I remember my first college Accounting class and the thick textbook’s cover––Accounting, The Basis For Business Decisions. You could glean the greatest value from that book by ripping the cover off and throwing the book in the trash––but keep the cover in front of you the rest of your life.

Another anecdote that stands out for me––Mammoth Monthly. I had sold George and Jean Shirk a condo a few years before and they came to me with their business plan for Mammoth Monthly. Both were immensely qualified in the “real” world to pull this off. And the breadth of their homework was like nothing I had ever seen––work by top-notch consultants, realistic projections, detailed distribution plans, etc. (Probably far greater research than for some of the recent real estate developer’s acquisitions in Mammoth.) George had written a year’s worth of stories before publishing the first issue. Amazing preparation. They “bootstrapped” much of their operation (which is one of the keys to success here in Mammoth). After a great start a few years ago, today they are no longer in business. What happened? A big part of it might be they just couldn’t take small town, culturally deprived living after so many years living in the Bay area. That happens too.

Another thing that happens is that people discover owning a business is a huge responsibility (who knew?). And in a resort town the recreational opportunities are always pulling like an addiction on an addict. It’s a big part of the balancing act. Some owners are better at it than others. Some lose control. I’ve learned to be satisfied with “cherry picking”––skiing or riding on the optimal days (like when you know there’s great wind blown and no crowd). Some have enough “scale” that they can hire people to do most of the work–(or they have enough partners to dilute the profits). And some are Mammoth Millionaires. But survival is often knowing when to put business before pleasure––and not being a workaholic/burnout either. It helps to really like what you do. And don’t forget the commute is often less than a couple of miles.

Over the years I’ve spoken to representatives of many national companies taking a peek at Mammoth. Ultimately, there isn’t sufficient demographics or “traffic counts” to meet their criteria. Call it the Trader Joes Effect. Simply, there are too many better places with a higher likelihood for success to warrant the investment of dollars and energy. They aren’t emotional. Lifestyle or “quality of life” has nothing to do with it. For them it’s all about the numbers. That factor is what ultimately breaks so many Mammoth businesses. You better understand it going in. And high expenses, especially rents, are the first killer. Oh, and the big fancy truck too.

29 thoughts on “Real Estate Q&A–Success Leaves Clues––and the Quickbooks Stare”

  1. Pretty much sums it up Paul, Mammoth is a very tough business market and the pie has gotten much more divided the last 5 years with the Village and other retailers opening up shop, as our skier visitor numbers have decreased the last two.It is going to get very interesting short term as many more shops close up. Come for the weather…stay for the drama!

  2. mm1968
    Paul brings home the PAIN, the REALITY and what may just be the perfect Mammoth future.

    As someone that was a naive shop owner in a DART shopping mall and is now an owner of commercial and residential rentals, I truly know the dream and the pain of strip mall shop owners. I also understand the need to keep your properties rented.

    So many LA/Mammoth property owners bought in at the boom stage, they cannot afford to hold their properties at less than boom rent rates. Triple net leases out of syn with potential shop revenue is a toxic, losing scenario.

    Paul’s “Trader Joes” syndrome is so true. My wife and I were repeat Mammoth renters for 30 years. Yes, the first ten years were as children of Mammoth lovers. We could always do better, safer with a duplex or small apartment complex buys near Caltec/Pasadena or the beach. We did not buy into Mammoth until 1998, when it was clear that Intrawest, unlike Starwood, was going to have a significant impact on value. Even at 60% of peak value, we are happy. We leveraged up, taking real profit off the table, and own two premium Mammoth location properties. We also benefit from the fact that we can hold these properties and I will hold one until I die. I love Mammoth ,as a backwater mountain town, or a destination resort.

    Naive, undisciplined, no business education shop owner is not unique to Mammoth and does not explain the Mammoth business owner challenge.

    The seasonal factor and work force factor that Paul talks about is unique to Mammoth and a challenge I would not dive into to.

    The small town syndrome, pointed out by Paul, via the outstanding “Mammoth Monthly” people, is a major accolade to the really capable, smart, hard working people committed to survive and prosper for decades, in Mammoth.

    Mammoth is not Denver, Salt Lake City or Jackson Hole. Mammoth has Bishop, not Reno down valley. Mammoth is not in the middle of the country. Mammoth is a single, solitary, Ski/Fishing resort, without significant air service, on the farthest edge of North America. (Don’t tell me it will all be different with four flights per day.)

    Because some “promoted” Mammoth as a destination resort and because Starwood paid $$$$$$ for Mammoth does not mean if you build it or try to build it, they will invest/buy $$$$ real-estate. Mammoth may have seen its 30 yr peak and may be mature enough to reset it’s real DESTINY level.

    Mammoth may be doomed to be a regional, non-glitz “SKI” town, without world class service, shopping, real 5 star hotels and nightlife. That is not to say Mammoth will not provide good comfort and value services. That is not to say Mammoth is not a unique SKI destination.

    Mammoth may just find its special factor in its off the glitz grid uniqueness.
    Mammoth will sell more multi-million dollar properties. SoCal can still be milked for more investment and rental business, but Mammoth may have discovered its real, unique limits and destiny.

  3. The perception of Mammoth from a visitors point of view is skewed. The visitor (entreprnuer) comes to town during high season and sees a potential gold-mine. They head home after a great experience. The 6 hour drive has them brainstorming some cockymani (i suck at spelling) business idea of what might work in town. That same person, doesnt see the ghost town mid-week or summer, but desperately convinces themselves what would work. If only they knew that mid week population is like Bodie. Most of the locals walking around mid-week heading to work don’t speak english. Mammoth will always get tmeporary new money, but gravity will always prevail…Mammoth is a skiers town, not a tourist town.

  4. You are not just speaking of Mammoth, but lets look at it.
    The thing is. Most under 32 year olds that live and work in Mammoth that bought a place, got the down payment from Mommy. So if they bought the place at the inflated price of 300k, they got the 20% from Mommy. They did not save it themselves, especially on a work at a ski resort salary. Here is where it gets totally CRAZY. 60k is a lot of money to Mommy. BUT, her place in L.A. or san diego went from 350k to 900k in 4 years. So she thought she was 550k richer. So why not give a measily 60k to her perfect son or daugter? Here is where the problem comes. The real big problem. Now the family is in the whole twice. The place in Mammoth is now worth 200k right now, on its way to 120k. and a 240k place is hard to make payments on when working in a ski town. And you can’t sell and leave, you can only foreclose and leave. Then your credit is shot and you have no money. And you can’t go back to Mommy and get more, cause here place is headed back to a ratio to rents and salaries, that never changed over the last 5 years. So her soon to be 340k house again, has a morgage of a 700k house, cause she used it as a piggy bank. This happened all over the country, ESPECIALLY in californ ia. A whole generation overpaid for their place and put their parents in deeper into debt. And if you put zero down, yes you are better off. The sooner you walk away, the better. But this is a scenario even economists have not thought of yet. Not that it is that important. But it will make thanksgiving dinner interesting over the next 5 years.

  5. You above have a pretty good pulse on what happened in the RE market and how people thought they were rich with equity.
    Now, go poll the same group of friends you know that bought either at or near the top. They bought with equity, or gift from mommmy. How many of those people can save 60K in a year, 2 years, 3 years, 4 or 5 years???How long would it take you to save 60K???They can’t, nor can you!!! Unless you are making 300k/yr. So to sum it up for you… 20% down on a 300k home is 60k. The area’s, where homes currently sell for 300k in are very far from areas where incomes have the ability to save the 60k. With that example, if you can actually understand my babble, it is evident that homes have a lot more downside. Remember Bob Toll of TollBrothers builder said “we are dancing on the bottom” about 1qtr 2007. He could not have been so far off. Brace yourselves for the biggest drop in home prices ever seen in the history of america. Hopefully through the “bubble” you made money on it and saved it!!!

  6. mm1968
    Remember a few months ago when Paul dropped a line in blog about “Rusty and friends” may be seeting up for a deal?

    In a recent press conference, Rusty Gregory just happened to mention that Village may be worth $13M. CNL, majority owner of Village recently mentioned they would be interested in selling the Village for their Boom Bubble purchase price of $23M.

    Rusty throws out $13M after pulling four MMSA shops out of Village and slamming door closed on only Village parking. Relocating all MMSA “events” to Main or Canyon Lodge, with great parking could be next blow to CNL Village.

    Was this the scenario Paul was talking about?

  7. Reading comprehension will always get you better grades on this blog!!

    Let’s not forget that MMSA/Mammoth Hospitality has major vested interest in the Village via the ownership of the “front desk” operations at Lincoln House, White Mountain Lodge and Grand Sierra Lodge. Ten years ago Intrawest was touting the hotel operations and commercial landlordship as the genius “long term cash flow positions” of condo hotel and Village development.

    Happy 4th of July to everyone! Let’s not forget all of the things that make this country great. Even though the annual 4th parade is a couple of hours away, I can see, from this desk, the crowds gathering on Old Mammoth Road. It is one of Mammoth’s best traditions.

  8. You know what else is bad for business?

    Blogs that say how business is bad.

    I was all set to buy a house up there, even put some people to work on it until I found this blog. It paints a bleak depressing view of Mammoth – and it’s right.

    If you all were smart, you’d lift the no short term rental of houses policy in Mono County. And force cheap bastards to update their 70’s condos. Mammoth’s biggest problem is the lack of taste. Even the village already looks cheap and run down.

    Yep, bleak and depressing. Thanks for forcing me to see it.

  9. Hey Paul,
    CNL paid 23.5 million for the Village. Rusty said in todays market they might be offered 13 million.
    Whats that say for the entire Mammoth real estate market?

  10. “Yep, bleak and depressing. Thanks for forcing me to see it.”

    Yeah right, you own a property in Mammoth that you can no longer afford and the value is no where near what you paid for it. Work is getting tough too.

    No one in the entire country is looking to make money off real estate. Forcing people to drink cool aid and not face reality is not going to save you

  11. The Intrawest “sale” of the Village commercial for $23.5M is a joke. That may have been the “book” value, but…. Just be glad you don’t own any of CNL. Intrawest craftily dumped a bunch of non-performing assets into CNL in exchange for a portion of the REIT. But as we see here the value was so inflated……CNL’s consultants argued to the Mono County Assessor that the value was around $15.5M at the time of sale. The Assessor thought it was slightly higher. When I run it through my calculator (of reason) I’d say Rusty’s number is pretty close. But considering the non-performing status of the property and no parking it probably needs a 50% discount from that.

    As for Mr. Bleak and Depressed, thanks for leaving your glass-half-empty attitude out of Mammoth. We appreciate it. Sounds like you had speculation in mind rather than quality time in the Sierra. I hope you weren’t already counting on your profits?

    Mammoth doesn’t need anymore carpetbagger mentality and I enjoy weeding it out. Ironically, this blog is generating new, quality business, so go figure.

    And Mammoth had a very nice (and very busy) 4th of July weekend.

  12. mm1968
    Paul nailed that reply.

    Susstainable, Mammoth sales and growth will come from realist buyers, looking for a no-glitz, casual, comfortable, unique, Eastern Sierra experience. That does not mean that Lakefront, Skadi, Alpenrose, Nevado’s,Convict Lake will not provide outstanding dinning oportunities.

    If the no BS comments on this blog discouraged you from buying a Mammoth property, thank Paul. This blog did its job and provided a rare service which cost you nothing, but benefited you greatly. Don’t worry, Paul and associates will get rewarded.

  13. Great blog. finally…people are starting to realize the buying a house is to live in or to spend time in… not to get couple 100k equity in 2 years. A good buy in Mammoth is for the spirit of Sierras not for the investment. All the families I know that have had property in mammoth have owned for over 20 years. It wasnt for an investment. They never rent them out. These are places that have made family memories for many lifetimes to come. I love previous blogger that owns in Snowcreek and rents it out so much. Can’t wait till a bad year to see how long his reserves hold-out. I doubt he could afford a bad year.
    I also love this rent-out mentality for owners…HUGE STORM due on Friday but I can’t get FRESHIES cause my place is rented out to some gapers…HAHAHAHAHHAA!!!!!!!!!

  14. Sound Familiar????
    In the Wall Street Journal today…
    In Idaho, Ski Resort’s Promise Fades
    July 7, 2008; Page A3

    DONNELLY, Idaho — The real-estate downturn is taking Western locales like this tiny mountain village down a familiar path: from boom to bust.

    Construction halted at Tamarack village in Donnelly, Idaho after financing for the ski resort dried up.
    A half-century ago, timber brought prosperity that ended abruptly in the 1990s. This time, a luxury ski development called Tamarack Resort has whipsawed the town’s 158 residents.

    Tamarack gained headlines in 2003 when it became one of the few new ski resorts to be approved in the West in two decades. From 2004, when its lifts opened and the first homes sold, through last year, buyers committed more than $500 million for condos, houses and building sites. Fancy homes brought a rush of money, with newcomers buying land for stores and restaurants. Landlords tripled rents.

    Then, last winter, building all but stopped. While Tamarack’s lifts continued to run, motel occupancy plummeted. Rustica, a gift shop, closed down this year. McPaws, an animal shelter, endured a funding crisis. According to state estimates, the May 2008 unemployment rate was 6.1% in Valley County, where the town lies — nearly double the year-earlier rate. Idaho’s May statewide unemployment was an estimated 3.6%.

    “This place just quit,” says Gordon Cruickshank, a Valley County commissioner.

    The luxury-resort boom brought windfalls to once-sleepy towns throughout the Rockies, as developers planned resorts with secluded homes and memberships to golf and ski clubs. Banks such as Credit Suisse Group, which syndicated nearly $1 billion in loans to luxury developments in the West, fueled the boom.

    A resort’s success was often staked to real-estate sales: As a Tamarack lender recounted in recent court filings, the resort had a business model in which “operating expenses would exceed revenue and the primary source of profit would be generated by the sale of real estate.”

    When the bust came, Donnelly was hit hard. It didn’t have much of an economic base before Tamarack. The town, 95 miles from Boise, had thrived on lumber until federal restrictions gutted the industry in the 1990s. A succession of developers failed to build a ski resort on Donnelly’s West Mountain. Valley County had one of Idaho’s highest unemployment rates.

    Mexican developer Alfredo Miguel Afif began planning Tamarack in the late 1990s. He brought in Jean-Pierre Boespflug, a former executive at Cisco Systems Inc., as chief executive. Mr. Boespflug helped persuade Idaho’s governor to support Tamarack’s development plan, which got final approval in 2003.


    • The New American Gentry: Wealthy folks are colonizing rural areas, bringing cash, culture — and controversy
    Page One, Jan. 19, 2008Real estate in the area quickly boomed. Tennis stars Andre Agassi and Steffi Graf agreed to develop a Fairmont Hotel as part of the resort. Mr. Boespflug personally wooed prospective buyers, leading hiking tours. Construction attracted workers who spent at hotels, restaurants and bars. Idaho Gov. C.L. “Butch” Otter last year declared April 27 “Alfredo Miguel Afif Day.”

    Things abruptly changed in June 2007, Mr. Boespflug says, when he traveled to the East Coast to meet with another investor in Tamarack’s planned Fairmont Hotel. Buyers had just committed more than $100 million for an initial offering of Fairmont condos, so “we were hoping to be greeted by big cheers and a check,” he says. Instead, the investor, who had already put up money for the hotel, said, “‘We don’t have the money,'” Mr. Boespflug says.

    The investor confirmed his group has decided not to put up any more money for the hotel, but wouldn’t comment in detail because of legal proceedings.

    Funding shortages forced the resort to slow construction on the base village and hotel. With Tamarack in danger of missing a payment to Credit Suisse, Mr. Boespflug arranged a $118 million credit line with French bank Société Générale.

    But in February, amid weakening real-estate prices squeezed by the credit crunch, the bank withdrew the line “due to market conditions,” says Société Générale spokesman Jim Galvin.

    Tamarack went into default on its Credit Suisse payments. Business entities owned by Messrs. Boespflug and Miguel, which hold a majority ownership stake in Tamarack, filed for Chapter 11 bankruptcy in February. Credit Suisse followed with a foreclosure suit, seeking to take over Tamarack’s majority-ownership stake, according to state and federal court filings.

    Donnelly’s boomtown air is gone. Tamarack and its contractors have laid off many. Jerry Frank, a Boise contractor who is part of the Tamarack Club — $60,000 a membership, at current rates — says he closed his Tamarack office. Mike Pannell, a developer who bought the Little Firefly Cafe this spring, says breakfast business is down about 40% from last spring.

    Lani Anderson, who manages the local Long Valley motel, says occupancy has fallen at least 65%. “All I’m catering to now is the weary traveler, and there’s not a whole lot of them with gas prices,” she says.

    Locals lament the town’s fleeting promise. Lorie Mauk had moved back to the Donnelly area last year for a Tamarack job, having left the area years ago. But Tamarack laid her off in February, and she says the town’s job situation is back to how it was before the resort brought prosperity.

    Tamarack’s base village is unfinished. The area slated for a Thai restaurant is roofless. The ski shop and pub are in plastic tents.

    Home sales have withered, says Judy Land, a local real-estate agent. In 2006, 1,250-square-foot Tamarack cottages sold for more than $900,000, the resort says; Ms. Land says she recently sold one for $650,000.

    The resort is continuing visitor operations over the summer, with lifts running for mountain bikers, and expects to run ski operations this winter. Ms. Land expects the resort to recover. But for now, she says, the few potential buyers “want to get away from the depression, from a resort that’s in trouble.”

  15. Wow, I read a lot of blogs about the housing crash, not because I find housing at all interesting, but because it is the BIGGEST ISSUE, facing the world today…Let’s just say you aren’t going to argue that given your worldly knowledge and connection to economics as of living in a ski resort. First off, look at a graph of bank of america, bac, or wachovia bank, wb, or citi, c, or leh, lehman brothers. The biggest banks in the world are being taken DOWNNN, solely due to the crashing housing market….THAT IS IT.
    It is so hipacritical for owners who bought say a 160k condo or house in mammoth ten years ago. Pure straight economics would make that place worth 194k today, yet solely because of a BUBBLE, it became worth 480k. Now here is where the retarded and selfish american greed comes in. People feel that is their money, and how dare you say that 480k that should never have been mine isn’t. When everyone in the world know’s it is over. And a bubble will make that same place that should be 194k around now, be worth 170k next year from 480k, because of supply and demand (all these terms you don’t understand can be looked up on the internet) Look at the s and d curver graph, it will make more sense. Anyway, I find this blog interesting because you can see the arguement between both sides of the bloggers. But you are both wrong. You are both giving your selfish side of the story that suites you best. Obviously the ones talking about a drop in price are closer to being right, but there can only be one right answer in finance. And you can’t come to it with a glass of koolaid in your hand. “people who are here because of their love of the sierra’ what the f is that, it is a real estate blog not a, hey, I am going to manipulate the truth by mentioning the pretty coniferuses. What about the children? I believe the children are our future…Whitney Houston…why don’t you just say that….Point is, the only thing that will turn around housing is for 70% price drops. This is everywhere, not just your precious pine tree mammoth….people don’t have the choice…The banks make the rules….The banks are the ones who allowed places in mammoth to go from 139k to 350k in 8 years, no one else. And now there some of the largest banks in the world are going to fail because of it. Bear stearns anyone. BSC. Start reading cnbc and marketwatch. Your worlds are changing fast. Atleast watch it happen. Get hit in the face with the shovel, not the back of the head. Atleast it will be less likely to happen again….but seriously, look at the graphs of the symbols I wrote…you can go to, it is very easy

  16. I am not a member of the sky is falling club, but I am wearing my helmet daily.

    I do track the financial news and did have some concerns about Indy Mac, a bank we park significant $$$, above FDIC limits for our business.

    Went into Indy Mac today to find bank regulators on-site and people withdrawing funds. Wouldn’t panic and take early withdrawl hit on FDIC covered funds, but I did take out all funds above FDIC. Counter checks for my funds were actually based on a Wells Fargo account. Long story, but regulators explained the process was to control and ensure that more $$$ did not flow out than could be covered.

    Tdoay’s indicates that WAMU and Downey Financial are next in line for regulatory reality check. Countrywide has more pain for BoA.

    None of this is good news for the next few years.

  17. Whoa … easy anon … don’t pop a vein unless you own a village spec unit you are trying to dump. The market price of a piece of Mammoth is that point where whatever someone is prepared to pay equals whatever someone is willing to accept. That’s it! Buyer’s think that number is too high and sellers think it is too low.
    This value will change over time and almost never linearly. There will be times of rapid increase and rapid decrease and lots of flat in between.
    Bubbles are usually started by the fundamentals but inflated by people trying to make money. If internet stocks are going up 100% in a year buy some. If that condo is going up 50% in a year buy 2 (or 4 if your bank will lend you $2mill with no money down). If commodities like oil and corn are doubling in a year buy some futures … and margin them. When the price stops going up and you are not making any money, sell them and look for the next bubble.
    People will do what makes sense to them at the time even if now looking back it seems stupid. Buy some tech stocks now if you were priced out in 2000. Pick up some real estate cheap if you were priced out in 2006. Wait for the fundamentals to pop your bubble of choice so you can buy it for your ‘reasonable’ price.
    I am looking for the next bubble not whining about the last one.
    Real estate is deflating because no one thinks they can make any money there.


  18. Banks like IndyMac that were heavily weighted in bulk residential land loans (loans to homebuilders/land developers) are having a very difficult time right now figuring out what to do about the write downs which if taken will exceed reserves. It’s a catch-22 that might need some federal rule revisions to sort out. Also, I’m hearing a growing chorus of concerns regarding the PMI sector and its solvency. I am not an expert by any means in these areas so I’m curious if anyone else has some better information/insights??

  19. I got on Google to see if there was something that would provide more details as to how these different entities affect each other. Below is a link to what I found to be a very current, interesting and thoughtful commentary on the interaction between Government Secured Enterprises (GSEs). Be forewarned it does not paint a pretty picture and may be overblown just to get reader interest. Nevertheless, the very fact that these potential scenarios are being bantered around gives me pause. Wilbur

  20. Ooohhh Wilbur!

    Throwing in a technical article by a Gold Bull!! Maybe I need to start pontificating on the Fibonacci retracement of the Mammoth real estate market–1978 to 1998. I’ve got notes all over this article and can’t figure out if I should address this and how it applies to Mammoth real estate or continue polishing Mammoth Foreclosures 3.0. I’ve got Jazz Jubilee venues on both sides of my office and all the windows and doors open so I’ll be hearing the best of jazz the next few days–we’ll see what I come up with!

  21. Paul…you have every right to call me out on posting a commentary by anyone affiliated with precious metals. I felt queasy myself given their penchant for self-serving exaggeration. But here me out…the degree and unison in which the macro markets are getting shaken is forcing me to at least consider what just might happen if this runaway train does derail. Is a financial “liquefaction” possible?? I don’t know but what concerns me is that I have to at least entertain the idea because it appears the markets have breached certainly one standard deviation and possibly two…what the hell might this look like if we venture into the thin air of the third deviation?? I’m not trying to be an alarmist by planting seeds of possible calamity…I’m hoping to hear from someone with a better understanding of how these entities are inter-related and whether or not the bulkheads are secure.

    With that said…I have a selfish motivation in tying to get as much information/knowledge as possible about this market because as you well know at some point it is going to serve up some spectacular opportunities. For example, I’ve been reviewing some of the quarterly reports of the national homebuilders who have been hammered. One in particular I’m keeping a close eye on is KB Home. They currently have a market cap of about $1.25 billion yet as of their most recent 2nd quarter report they have $1.31 billion in cash and nearly $1.1 billion of borrowing capacity available under their credit line. Who knows…they just might have the flexibility and be well positioned to successfully navigate through the current housing catastrophe and capitalize on new opportunities that will surely emerge.

    Ahh…I’ve rambled too much….suffice it to say I’ve got way too much time on my hands now that my own real estate affiliated biz has stalled. Hey…I know, maybe its time for me to finally move up to Mammoth and start detailing cars…or better yet “big fancy trucks”!! 😉

  22. There should be opportunities. A home on the Bluffs recently sold for 1.575. It was on the mls close to 3mil. then dropped to 1.995. Thats the most recent comp. i’ve been able to find.

  23. Today DOW is at 11,229.
    At about 6% more on the downside
    +-10,555, start buying.
    but becareful of the homebuilders. they cant sell what they have at a profit. writedowns can be questionable. how deep is it? nobody knows.
    stocks i like

  24. From today’s Shirmeyer Rate Market Report/Sigma Research, Inc.
    (The Mortgage Lending Industry’s premier daily newsletter.)

    Friday, 7/11/08 4:30 PM

    Thank the Lord this week is over. The week has been marked with talk and fear that has been the most outrageous I have seen in many years. It was all about Fannie and Freddie and I still find it hard to sit still with the media panic and with the markets’ over-the-top fear mongering that the two agencies would possibly fail. First off, EVERY single politician and all of the administration, together with the agencies’ regulator say that they have plenty of capital and will not go down. On the other side, the rag known as the New York Times and its reporting that the agencies will go down.

    The only people who care that Fannie and Freddie may have problems are their stock holders. Fannie and Freddie stock blew down to bankruptcy levels early today. If you are in the mortgage lending business you can expect business as usual with both agencies whether they would be nationalized or not. Way too much is being made out of all of this. Yes, it is real bad for the owners of the companies but there is absolutely no reason to worry as the markets are that the mortgage lending business is about to be tossed on the rocks.

    The entire issue with Fannie and Freddie is without a doubt a serious mess, but those agencies are sitting on trillions of dollars of strong assets; good mortgages that are not delinquent. I may be missing a huge piece of this puzzle, but from where I sit there is no reason to be concerned as a mortgage lender. Yes, there will be a lot of technical changes but those have been going on for the past year. Yes, some costs will go up and borrowers will likely pay the price in the future. No, there will be no cut-off of mortgage money to the industry, and no the administration will not nationalize the agencies. From Pres Bush to key political leaders all have the same thoughts; that the agencies are OK on capital now and will likely be able to raise additional capital as and when needed.

    Markets were entertained this afternoon with news reports that the Federal Reserve gave the go-ahead for the two agencies to use the Fed’s discount window as it did for the banks. So far the Fed has not confirmed that. Also this afternoon. finally George Bush was forced to step up and defend the agencies; until today he has been sleeping and has acted more like Herbert Hoover than an actively involved leader; he is a follower in all this and that keeps everyone on edge.

    OK; I am now out of words to express the child-like reactions that have been prevalent this week from the media. As for the markets, at the moment there is no cognitive rationale THAT WILL HOLD WATER OVER TIME for the way the markets have reacted today. THE LEMMINGS ARE RUNNING WILD!!

  25. IMB (indymac) just had all its assets seized by the Feds this afternoon.
    Its crazy out there. Can you believe that CFC (countrywide) only reported a write-off of 1 billion prior to the BankOfAm purchase. What a friken joke.
    How about WFC. They have written off only 1.2 billion.
    If you own in Mammoth and have a loan about to adjust, say GOOD NIGHT. You will not qualify and the rate will be so high it wont be worth it.
    Paulson said ” the perception of a banking institution being too big or too connected to fail” was the pre-empt to FNM collapsing. It will. Homes prices will fall another 35% because rates are going much higher and nobody can rightly afford what they own right now.
    People have been paying their mortgages with their Credit Cards. That will end soon too. But please continue to drive your Range Rover and complain about gas. POSERS!
    Do you have the cajonies?

  26. Freddie Mac went from $60 a share to $3.89 over the last 8 months, that is like a 95% drop in value. That is fact. For what that means…I am not going to say that I know. I probably wouldn’t brush it off either. The one thing I do know is, I am going to keep my ears and eyes open. I also wouldn’t blame the media.

    Fannie Mae went from $70 to $6, I am not a sky is falling persons, but these stock values are. These charts are worse than the home builders.

    And many economist believe that we are not near the bottom. I don’t believe anyone can predict what is going to happen, only see what is.

  27. mm1968
    The Indy Mac failure is a very personal, devastating loss for many small business owners and hardworking families saving $$$ in the “bank” vs a coffee can buried in the backyard.

    This is the USA and people from all over the world trust our “banks” or did.
    My wife showed up at our Indy Mac branch Saturday morning to find groups of people standing in the parking lot in tears, in rage and mostly stunned. This cannot be happening in America they said. We live in SoCal and the people in disbelief were from every race and numerous countries. Many were small, local business owners, with $200k-$300k in their interest bearing “business” accounts and were finding out that it was LOST. They did nothing wrong, there was no big warning sign in the band the week before failure, no notice, just locked doors and the press saying the bank has failed.

    I think it is unreasonable to say that every person must monitor the technical bank regulator cash ratios to ensure your bank isn’t in range of failure. Didn’t the Fed step in to save Countrywide via a BoA deal? Do we all need to provide our own army for national security and test our own over the counter drugs?

    Many families and small businesses need a place for cash reserves today, that will not be needed for several months. Taxes, loans to pay-off, anticipated property or equipment purchases etc. We park these funds, in a bank, for near term requirements. That SAFETY and TRUST in the USA system is gone.

    During the boom times of the past years, my wife and I worked to build equity, not spend it, so we could pay-off several large business loans and put our business operations in position to weather any storm. By chance, we drew all those $$$$ out of Indy Mac to pay off debt four days before the failure. I still have a hard time going to sleep thinking about how close we came to loosing a life’s work and how devastating this must be for so many hard working families.

    I am glad to see that the USA is not going be in denial or take 15 yrs, like the Japanese did with their real-estate banking disaster. Japan and many countries have been asking the USA “not” to follow the Japanese example and take the pain quickly.

    Given what the USA does for other countries, given what the government is doing for people that new they did not have the income to support the homes they bought, the US bank regulators should have provided some warning or safety net for the “savers” and small business owner in this country.

    Because I do not believe in the “mommy state” and I do belive in “small” govt, does not mean that I do not see the need for govt. The banking system, stock market, drinking water standards, disease control, border control, national defense, etc are the reasons for govt to exist. Our govt is failing us, not just Indy Mac and ENRON.

    Are you monitoring your banks financials today?

  28. I’ll give a hint, DO NOT KEEP MORE THAN $100K IN CASH AT ANY ONE BANK. or more than $500k in stocks(I think that is the number) 10,000 members of indybank are going to lose all cash over $100k. The banks are the ones who are going to get stuck with the horrers of irrational housing prices. The buck stops with them. California housing prices went up more than anywhere in the country..why? is it the highest paying, no? it is cultural, and this is the result. The bank failed, and if you had more than 100k, that is gone. No getting that back. This is what happens, the end result. A society pays for its greed. That greed was thinking your house was really worth those prices, now, energy, house prices, the dollar, stock market and soon to be employment are all out of wack. AND IT IS ALL DUE TO THE housing market…by the way, this isn’t just a us thing, Europe is following down this road, just a year behind, so maybe that will help the dollar and therefore energy prices. But there will be slow growth and a lot of out of businesses and out of employments in the future. Not a happy picture or a sky is falling. It just is what it is.


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