patrick.net

And yes, I would love to be a charter member of CBA! Organizational Chart as follows:

Surfer X: Chairman/CEO and HMFIC

35% of the exam will be about the legacy of surfer-X.

The abundance of one's life does not consist of what one possesses. Revisit any place where you have experienced joy and you'll realize it was 95% the people you were with. Renting will not ruin a childhood if the surroundings are reasonably safe.

Is getting an MBA a good way for me to steer into a career in finance?

It depends. If you're too old, and have a long employment track record in industry, then getting into high-finance is nearly impossible. I knew many of my cohort, and lots of others from Stanford and Wharton who thought they'd become investment bankers/private equity principals after getting their MBA only to find that they were too old or too experienced.

But, your chances of getting into corporate finance are pretty good, especially given the people you'll meet and network with. It's really all about the network, which is why it is worth it to try to get into a top-tier school. Luckily, there are at least five BA options:
- Wharton West
- Stanford GSB/Sloan
- UC Berkeley, Haas Full-Time Program
- UC Berkeley, Haas Evening/Weekend
- UC Berekely, Haas and Columbia Business School Joint Program

I can't recommend doing a "lesser tier" MBA, unless you already work for a corporation which will foot the bill and promote you for getting the degree. Generally, the cost of the program only pays back in salary surveys for the top-tier.

(your mileage may vary; there are plenty of examples of losers from Stanford and winners from Saint Mary's; i'm just stating the odds)

It depends. If you’re too old, and have a long employment track record in industry, then getting into high-finance is nearly impossible. I knew many of my cohort, and lots of others from Stanford and Wharton who thought they’d become investment bankers/private equity principals after getting their MBA only to find that they were too old or too experienced.

Thanks for your advice. I will keep that in mind. I am turning 30 last next year, so I guess time is soon running out and I must act soon or I will be left behind. :(

The hard landing will be world wide and the Fed will not control it:

"As the delinquencies and losses on mortgages flow through to subordinated mortgage- and asset-backed securities, who will be affected? Who buys these securities? The interesting part about these private label subordinate pieces is that for the most part, they’ve ended up in CDOs [collateralized debt obligations] and have been sold outside the U.S. Subordinated pieces are trading at their most expensive levels ever primarily because of the demand from structured deals—CDOs are underwriting the risk in the mortgage market. The lender (buyer of the CDO) is the person in line to lose money. While CDOs often have higher yields for a given rating level, they also usually have higher risk for a given rating level. Because the investors are CDOs, the bonds are outside the banking system, and the regulatory agencies cannot police the market. That has been a frustration for the regulators—they can’t do as much about the situation as they had hoped."

"Are you taking the June Exam in SF?" -- Peter P.

Yes indeed, I am registered.

Yes indeed, I am registered.

I will be there too. ;)

"So, everyone, go into RE and finance! Those are the jobs of the future!"

Well it could be worse: I could be a Realtor (TM).

There will be no hard landing, you doom and gloomers have been predicting one for the last three years and there is still no evidence of it.

The economy will keep bumbling along, with average real wages continuing their long slow downward trajectory in the US, and jumping up in the rapidly industrializing nations. Globalization is pretty much unstoppable at this point and wages will tend to equalize over the world until the average Chinese citizen makes more or less the same as the average American. We have been speeding the process along with our unwillingness to save, but it is inevitable in any case.

I think the only thing that can stop this is World War III and no one is interested in that.

Real estate will stumble though, already has in fact. A nice two little two unit around the corner from me has been sitting on the market for six weeks at $1.2M. Last spring it would have been snapped up in the first week. This is not going to bring down the world economy all by itself though, you guys are seriously delusional if you think that a slowdown in California real estate is going to collapse the whole world economy. Most of the US hasn't even experienced any real housing bubble.

California and the East Coast might get hit pretty hard though, we shall see.

To Jimbo's point, real-price inflation in many areas of the Plains, Midwest and Southeast have been around 5% for the past 10 years. There is no national RE bubble; there are instead a number of regional bubbles--mainly on the coasts or in some inland urban metra areas.

It is for this reason that there will not be a widespread MBS/CDO collapse. Even if the regional bubbles crash hard, and the aggregate default rate ticks way up, it will be far from the threshold to cause the kind of "dogs and cats sleeping together" scenario some have predicted. This is true even if you remove liquidity from derivatives based on these instruments. The simple fact is that there will not be 100% defaults; not even 50%; not even 20%. The number will be much much much lower, in the worst case (barring some type of truly exogeneous catastrophe like WWIII). The resultant slack will be absorbed by inflation.

It won't be pretty; but it won't be armageddon.

So, everyone, go into RE and finance! Those are the jobs of the future!

I am thinking more of a career in Dedicated Short Bias.

I'm thinking of a career on the dedicated short bus

Randy we agree to disagree.

A WW III did not bring down the, Britain's empire, Soviet Union (evil empire), and Japan's massive economic success.

I expect you may distinquish each of these event. Doom and gloom does happen.

A WW III did not bring down

Huh? When did WW III happen? How could I have missed that? Please explain.

Jimbo state, "I think the only thing that can stop this is World War III and no one is interested in that." Randy H referred to "(barring some type of truly exogeneous catastrophe like WWIII)".

I should have been clearer. This economy can CRASH without a WW III just as the Britain’s empire, Soviet Union (evil empire), and Japan’s massive economic success CRASHED.

I am not predicting the end of the US as a superpower.

That said I predict a deflationary crash lead by collapsing housing.

This below average recovery required one of the easiest monetary policies on record, two major tax cuts, a massive jump in household debt, a sharply reduced savings rate and an unsustainable increase in housing prices. The weakness in employment and income was offset by the hundreds of billions of dollars in mortgage equity withdrawals (MEW). That is why the current softening we see in the housing market is so important. MEW has simply been the key underlying support for the entire economy, and as it declines there is nothing on the horizon to take its place. The 413,000 combined new jobs created in November and December only made up for the shortfall caused by hurricane Katrina. However, for the last six months of the year monthly employment on average rose by only 147,000 compared to 190,000 in the first half, indicating that a resumption of solid income growth is not in the cards.

In sum, this is a fragile, unbalanced economic recovery that still has to absorb the impact of the most recent interest rate hikes. With the stock market P/E in the high end of its historical range, the current rally has only increased the downside risks ahead.

I believe it is not unrealistic to expect a 30-40% reduction in RE prices, especially in real-terms in an inflationary environment. I cannot begin to guess the time-frame, but it will be longer than anyone desires. It takes time for these things to unwind, especially with a sticky asset like RE.

I think we'll flirt somewhere between good old fashioned inflation and stagflation. In fact, I'm a bit of an optimist in that I dont' think stagflation will be long-lived: there will eventually be wage inflation, especially on the coasts. I'm not sure what will power this, perhaps a combination of biotech investment and deficit spending. The new CA budget alone will account for some decent amount of inflationary pressure, at least locally.

The sad thing is that every time fragmented inflation occurs it really burns a lot of people and perpetuates poverty traps. For example, Ohio is becoming a new poverty trap. A good shot of fragmented wage inflation will further cement that disparity.

Locally the mortgages are very fragile: Paul McCulley of PIMCO announced that in California over 80% of new mortgages over the last year have been exotic creatures – interest only, pay option, and negative amortization concoctions.

These exotic creatures will unwind quickly whenever the decline happens.

The "collapse" of the British Empire was a long slow drawn out process which really only reached its final act in WWII. There was still very much a British Empire at the start of WWII and there was pretty much nothing left afterward.

So yes, it took a world war to end the British Empire, but at that point it was a rusted out shell.

And yes, I think the United States is headed in the same direction, but we are not there yet.

I will have to think more about the Soviet Union and Japan. Our economy is not very much like the Soviet Union. California has some similarities to Japan, but the US economy is much larger and more diverse than just California.

2 German property funds invested in US PROPERTIES FROZEN TO PREVENT INSOLVENCY:

" Further evidence emerged on Tuesday of the spiralling crisis in Germany’s open-ended property funds sector, as a second fund in as many months froze the assets of investors to prevent insolvency KanAm, a privately owned asset manager in Munich, froze its US-Grundinvest Fonds, just five weeks after Deutsche Bank became the first company in the sector’s 40-year history to take such a step.

Germany’s open-ended funds have €88bn of assets under management, most of it private investor money. But concerns about overvaluations of German assets and poor performance have prompted a run of withdrawals from some domestically focused funds. Deutsche Bank’s Grundbesitz-Invest fund remains closed pending a revaluation of its assets and an attempt to sell €1bn worth of property.

KanAm’s case is atypical, however. The fund in question, worth $579m (€479m) according to the company, has been highly successful and is invested in US, not German, real estate."

If I can not afford a house after earning a decent amount of money then there is something wrong with the equation and we may be getting close to singularity.

Bubblebuster I think I love you :)

ha ha, you sir have faulty logic, your salary is high, just because you can't afford a house does not mean otherwise.

Randy H Says:

"I can’t recommend doing a “lesser tier” MBA, unless you already work for a corporation which will foot the bill and promote you for getting the degree. Generally, the cost of the program only pays back in salary surveys for the top-tier."

Outside of Harvard Business School and perhaps Stanford, over time, what I've seen is that it doesn't matter what MBA program you attended as long as it was AACSB certified.

The MBA, stripped of its clap-trap and hyperbole is a management degree.

You are very right on the network angle, though!

surfer-x Says:

"I'm thinking of a career on the dedicated short bus."

Cool.

I'm thinking of a career as a short-order pastry chef.

Once again, I get your point but I am looking at my quality of life and therefore demanding wages to improve my quality of life.

Oh I wholehearted agree.

You can sometimes improve the quality of your life while taking a pay cut.
If your job is killing you or driving you crazy, you might be better off taking a lower paying job with less stress or perhaps not working for an employer at all.
This may not sound attractive to some of you. Many of you sound like you've spent so much time in college that you cant wait to get out there in the rat race and chase the big bucks. Just remember, the more you make the more you spend. In most cases, you spend more on your housing.
Housing will typically eat up all the extra money you make when you finally get "THE" job. I know I'm generalizing here but it's what I see.
People I work with often have very little disposable income even though they're making over 100k.
Most people dive into the housing market the first chance they get. "To hell with the fundamentals, I'm tired of renting!"

I also think that owning can be a double whammy.
Here you are going through life doing all the right things. You finally decide to buy a house and you get screwed on the deal. The values going down and you cant refi because there's no equity. The double whammy is that your net worth is dropping with the value of the home AND you have to keep making monthly payments every month that are too high.

Contrast that to the stock market. At least you can push a few buttons and cut your losses when you make a mistake.

The point here is that real estate mistakes are very different. They're a special kind of mistake that stays with you for a long time and can easily alter your life. Think of it as a bad marriage.

I bring these words to you from personal experience both in real estate and marriage.

I don't think the nominal price will ever fall 40% in the US, the inflation or USD devaluation-adjusted price will fall more than that, I will venture to say, at least 50% in bubblish areas like the Bay Area, and Socal.

When the nominal fall starts and the joe-sixpacks start to panic, rest assured that Helicopter Ben will drop USDs from a F-16, one round after another to bail out banks and the economy, because he repeatedly said that the Great Depression was heightened by the credit crunch, a mistake he would never make again. So as a Great Depression buff, he would overreact and print money faster than ever just so everybody in America will live in a million-dollar home after he is done, sorry, million-peso home I meant.

So the only way for the bears to win is to sit tight in a diversified non-USD portfolio waiting for this to unfold. I am seeing a 15% nominal price reduction in the soon-to-be US peso for the Bay Area in 3 years, aided by a 35% depreciation of USD.

(not an investment advice)

FSBO homes don't show up in the MLS.

Do the FSBO homes show up in the MLS??

They don't because the MLS boards don't allow access to non-members. For this reason, and a plethora others, urge people to support the Open MLS Act.

They don’t because the MLS boards don’t allow access to non-members. For this reason, and a plethora others, urge people to support the Open MLS Act.

Randy, I am sure MLS will be open one day. The only question is when.

I feel that planet are aligning for such a change right now...

The best time to buy is about 5 years ago, so unless you can find the right kind of spart plugs for your Time Machine, keep on renting and ranting!

Not necessarily... It is quite possible that we will see inflation-adjusted 1995 prices again.

I believe I stated 30-40% real-price drop. If not, I stand corrected. Nominal prices will be flat to perhaps 15% drop, of course highly fragmented by neighborhood and region.

Inflation is an easy way out because people don't generally realize how bad they're being screwed for some time. During this lag, politicians and policy makers can have their cake and eat it too.

Note: there will not be hyperinflation. Hyperinflation is a very unique circumstance--one that is difficult for an economy like the US to get into. Remember, hyperinflation is 1% per day, which is two-orders of magnitude per year. For that to happen there would need to be much more than simple Fed policy failure, but an altogether collapse of GDP growth and current debt coverage vis-a-vis foreign obligations coupled with an interruption of foreign capital inflows (like China quits selling stuff to us). Since the US produces three-quarters of its GDP activity internally, hyperinflation is unlikely in any case.

The real risk is stagflation ala the 1970s (and very early 80s, there were two rounds in that timespan). The hope here is US productivity, which is an altogether different set of issues to discuss, but not tonight.

Clearly RE is headed for a loft sanding. Why? most lofts need sanding.

New thread: OTUS (Other Than U.S.)

Randy, by saying "real price", you imply a measure to compute inflation. What will that measure be?

If you are talking about CPI (Cooked Price Index), I am sure the real drop will be more than 15%.

Randy,

do you mean inflation or USD devaluation? Unless all countries go into a competitive devaluation mode because nobody wants to stick out like a sore thumb, inflation in the US may not be felt worldwide because it may in fact be a devaluation in disguise. If the other countries devalue their currency along with ours, they are in essence continuing to *subsidize* our lifestyle. I highly suspect the European kins will be willing to do this, look at what the French backstabbers did in 1970s and 80s! If the Japanese can find more or less a substitute market with EU and vice versa, meaning, the two trading blocs integrate more than before, they may just stand by watching our USD taking a plunge without participating in the money printing exercise. In that scenario, inflation will only be felt by us, but not necessarily by other parts of the world.

Yeah, sjot, I improved the quality of my life loads in the mid-90s while taking a big pay cut. I did basically the same job in San Francisco as I had been doing in Sunnyvale, but for 30% less. I cut 2 hours a day off my commute, so it was worth it to me.

I ended up working for Wired/HotWired, right at the start of the DotCom boom, so it worked out well in other ways as well.

It is not always about the money.

sj oldtimer Says:

"had to post this: CLOVIS, Calif..."

Clovis?

Half way between a clover and a promise? Clovis?

Bwahahahaaaa...

I think I'm drunk!

wired? I used to love that magazine. But I forgot how to read