Dry Erase Board Musings

A bit short on time tonight, but what can you do? It might break 50 degrees here tomorrow! I may just pass out.

Home Prices Still Falling Basically Everywhere
I am sure the readers here have seen the new home price decline numbers as reported by the Case-Shiller index today. Good old Charlotte North Carolina showed an impressive 1.8% gain. Places like Phoenix and Miami are sporting amazing 15% plus losses year over year. Want to get an idea how much further prices could drop? Just take a look at some comments picked up in a Yahoo Finance article about the price drops:
AP
Home Price Drop Signals Tough Spring
Tuesday March 25, 5:48 pm ET By Vinnee Tong, AP Business Writer
Spring Home-Selling Season Could Disappoint if New Data on Falling Prices Is Indication
NEW YORK (AP) -- Home prices plunged by record levels in January from a year ago, with almost no major cities immune from the spiraling market. Analysts worried that even the usually reliable spring selling season would fall flat.
In Las Vegas alone, nearly half the homes currently on the market have seen their prices reduced at least once, according to an analysis by ZipRealty, a discount real-estate firm.
Greg and Barbara Abbott have already cut the price twice on the two-bedroom condominium they are trying to sell on the Las Vegas strip. They're asking $669,900 now -- and an offer in the $650,000 range means they'll lose money.
Abbott thinks hesitant buyers don't realize how reasonable the current price is. "They're not really being realistic about what the place is worth," he said.
Rising foreclosures have become the biggest factor driving prices lower, Moody's Economy.com chief economist Mark Zandi said.
There were already too many homes on the market, and foreclosures bring even more property -- priced at a deep discount -- into the mix. Zandi said while prices are still falling steeply, demand seems to have stabilized.
"The psychology of the market has completely shifted," Zandi said. "Sellers do realize that homes are worth fundamentally less than they thought."
So we have the Abbott's, who are obviously illiterate and have not been informed of the mortgage mess and overpriced housing. They seem to think silly buyers are not aware what their Vegas condo is worth. Mr. Zandi in the same piece seems to think sellers indeed understand homes are not worth what they thought they would be. I say they have no idea. The sales number and prices seen right now are what the banks are getting for thier REO properties and foreclosures sales. Oblivious fools like the Abbotts have yet to get scared. Soon they will. When the average Joe runs for the doors prices will fall even further than anticipated.

Dry Erase Board Musings
When I am dealing with a complex project at work, I will employ the dry erase board to map out an experimental strategy to get the job done. Plenty of erasing and rewriting is done until a plan comes together. What kind of planning session may be going on at the banks right now? Lets put out a scenario that, due to FED overactive intervention, may be credible at this point.

Make a Run, then Walk the Stock Up
Say a huge investment bank or regular bank gets it's most influential and capitalized clients together. They isolate a few vulnerable smaller banks, whose exposure and liquidity issues they know well. Say they select one which is trading at $50. The group then aggressively shorts the common stock, while at the same time publishing reports calling into question said bank's solvency. After a while the concern spreads, and the stock falls to $20. The consortium then initiates a credit squeeze on the target bank, and margin calls to boot. The bank faces a collapse, and the irrational fear of "Financial Armageddon" crops up. The FED comes in to bail out the target bank, and sets up a deal with the guilty group to take over the target with full FED backing. The organized group can make big dollars by shorting the target to basically zero, then buying stock at the cheap before the FED bailout price is set at a higher level. Cleaning up on the way down and on the way up.

The wrinkle here is that the bailout MUST occur. The FED, by acting in a panic and in bad faith, has now provided credible evidence of the bailout intention. It would totally shock me if this kind of manipulation strategy has not at least found it's way onto some planning boards at several institutions. The law of unintended consequences due to inept FED actions.

Have a good night.