What the housing experts are missing that Warren Buffet sees

Watch the following video. See if you can spot the trend. I’ll give you a hint; it is almost at the very end, but you have to watch the whole thing to pick up on it.

Did you hear it? If not, watch the video again.

Warren Buffet is investing in COMMERCIAL INVESTMENT stuff, the banks that lend money to commercial leasing companies. But these commercial leasing companies aren’t leasing traditional commercial space. They are leasing to commercial property holders that are buying up the inventory of foreclosed properties, fixing them up like flips but instead of flipping for resale, they are flipping for longer-term leases to people who have kids and have grown used to the suburban lifestyle.

These commercial leasing companies are creating suburban slums in the first and second outer suburban rings to city centers.

Watch the video again. Did you catch it? Do you now understand why these pompous “experts” never quite see trends coming? I’ll give you more than a hint on that; I’ll give you the answer.

They are too enamored with the sound of their own voice to listen to what they’re saying.

This is why Congress has no interest in helping out those going through foreclosure. If they intervened, it would slow or stop the flow of inventories into the private residential leasing industry.

The real estate market is heating up and recovering; it’s just not flowing wealth into the middle class but rather, pushing more wealth into the upper classes and corporate coffers. Corporations have found a way to skim off the wealth that even a massive recession creates.

Give me another ten years and see if I’m right. I’ll bet you $10,000 I am.

What does it mean to own something?

I passed this sign on the way through the Village of North Clayton on our way to the “dog park” yesterday and it made me pause. Firstly, because it wasn’t there yesterday so that probably means the economy is starting to move (we’ll lose our dogpark when it does) but also, because the lot is in one of those “planned villages.”

The dirty little secret about these planned villages is when someone buys a lot and builds a building, the developer still owns the property. The structure is on private property even though it looks like a public street. No First Amendment protections, endless association fees and in this case, every business not only pays rent, but a percentage of its sales.

In dog-speak, owning something now means a leash.

Meet the head of your new HOA; The Bank

Common wisdom was once upon a time that the bank did not ever want to own your home. It would try so hard to not own your home it would fall over backwards to work with you if you ever fell behind on your mortgage.

Until the housing bubble burst in 2007-08.

Everything has now changed. Banks want so badly to own your home that they will literally dodge your phone calls and letters attempting to restructure your loan or even work out terms with you.

Being rather old school, this sort of behavior puzzled me at first. What would a bank do with a house? They are not in the real estate business?

But they are. Getting into the real estate business is their way of turning lemons into lemonade.

When the foreclosure rate was insanely low, the cost to the bank to manage a house that was foreclosed on was too great for the return. But look what has happened since the bubble burst. The foreclosed homes have consolidated. Where there was only one home in a subdivision, there are now 20-40 homes or more. It now makes sense to hire property management companies to flip the house, maintain it and manage the renters*.

The banks are slowly owning large tracts of private property. They are becoming the de facto Home Owners Association. Eventually, they will be the loudest voice at city council meetings and zoning boards.

Are you noticing? Is anyone in Washington?

*We have had one such company rent out an old church and set up shop just right outside of Englewood. Their signs are on almost every distress property in every subdivision for miles. Like watching McDonalds expand.

A middle-aged, middle America impression of OccupyWallStreet

I’m a middle-aged mutt in this wasteland between the two coasts commonly known as Middle America. Most of the United States lives here, but we rarely — ok never — get asked about important things like politics and the economy. We are the gun-toting, Bible-banging, slack-jawed, under-educated, corn-fed, polyester-wearing yahoos that the liberal media like to make fun of and Wall Street dismisses.

That is a little harsh. Ok, fair enough. I’ve seen my neighbors in their natural habitat (Kroger during wine and cheese hour) so I get where you’re all coming from. But just because we are out here in your idea of Wastelands doesn’t mean we are any less important and informed as you are.

Try to keep up.

What I know by getting to middle-age
There never was a Middle Class in America. We only ever had two classes; the Rich and Those Who Expected to be Rich (ETBR). It is the American Carrot, that thing that gets dangled in front of us to keep all of us reaching for more. The Middle Class was always a nebulous scale of the lower Rich and the upper ETBR which ebbed and flowed depending on the economy at the time. The indicator of where you were was how much wealth you had relative to what others had.

Equity (or wealth if you want) is a very cold, harsh ledger. There are only two ways you can grow it; invest Liquidity or Time.

For example, if you buy a house, you can add equity only one of two ways: put more cash into the place to quickly reduce the amount of mortgage debt OR accept more mortgage debt and increase equity over time, holding your breath the entire time, hoping the equity will eventually exceed the amount of money you have put in. When the equity teeter-tots over to the asset column, you now have wealth. (Unless others around you get foreclosed on, but we’ll get to that.)

The same thing with those who financed a college degree. They expected that even though the degree cost more than most peoples’ houses, they would get a job and over time, not only pay off the loans but make more than the average salary. (They should have bought a calculator first)

It’s just not that complicated. Most people in the ETBR class have a whole lot more time than liquidity. They trade their time all day long for liquidity with wages, mortgages, three easy monthly payments, etc. The Rich class can choose liquidity or time, depending on the rate of return. A slow rate of return means they can use time. A fast rate of return, they use liquidity. The ETBR class does not really have that choice (or more accurately, the degree of choice is scaled depending on the ratio of liquidity to time one has.)

The lack of choice is mostly what pisses the ETBR off most. This generation thought they had time. They were wrong.

This “law of economics” is about as rock solid as the law of gravity. You can ignore it or deny it, but it is still going to affect you.

People without liquidity tried to accelerate time. People with some liquidity but — not enough — tried to expand the value of each liquid unit too fast. Eventually, the ETBR ran out out time before they had a firm grasp on equity and lost it all. When you are clinging to a rock face on a mountain by your fingertips, when you fall, you don’t just slip; you fall all the way down. It does not matter if you are ten feet up the mountain or ten feet from the summit. (Did you catch that? I equated laws of economics to gravity. Genius. I should be ruling the world by now. Roll your eyes if you got ’em.)

How this all ties into #OccupyWallStreet
I do not support Anonymous or Adbusters. I am not a big fan of the fist-pumping, kill Wall Street bankers rhetoric and other hippy crap like stuffing dollar bills in your mouth and marching like zombies. Sanctimonious hipsters with no life experience annoy me, too. It is unsettling to us out here that the OccupyWallStreet “non-leadership” has connections with these groups if only that they decide unilaterallty who is good and who is bad. I like steak, but the fifth “fact” in their Declaration gives me pause that reads, “PeTA is invited to join us.” All of a sudden, now my support for OccupyWallStreet means I support PeTA? Hell no!

Just because I lean to what this country defines as “left” does not mean I hang with the crazy-left. For the record, people claiming the right of human dignity is not a left-leaning principle. Groups that use terror tactics for good scare the hell out of me just as much as those who use them for evil. In the end game, “there is no good or evil; there is only power.

And she is very, very seductive.

To the middle-class middle America, if a group like Anonymous can target a big bad corporation, what is stopping them from concluding — unilaterally — a mom-and-pop business is supporting a big bad corporation (like Visa) for taking credit cards as payment? I understand how the affiliation is feeding Visa, but the rain nourishes the grass and weeds alike. It is incumbent upon groups like Anonymous to make sure the rain falls on the grass and not the weeds if they choose to pee all over my garden without my consent.

I believe the 1% are and have been exploiting their advantage of liquidity to enhance their fortunes. I also believe the 99% have been exploiting their victimization caused by their unwillingness to learn and adapt to the law of economics stated above.

Money finds the path of least resistance. It is what keeps corporations from innovating, what keeps individuals from having to make changes and politicians from reforming their cheating ways. As we used to say when I worked for The Man; cash hides a lot of sins. The only people entirely unaffected are those who are so rich they could not run out of money if they tried and those so poor they don’t have a hope of becoming a member of the ETBR ever in their lives. The rest are gaming the system in almost every way they know how.

I didn’t buy more house than I could afford nor did I refinance on the house equity I had to finance a non-asset like a college education or vacation. I did not take out or encourage my kids to take out huge student loans so they could attend a swanky out-of-state university. The social contract I had with you, the 99%, was that you would not purchase more than you could afford so that your house would not be foreclosed on or your kids would not be recklessly in debt. We were supposed to be in this together. Without your participation, colleges would not have been able to raise the tuition rates. Banks would not be offering 0% loans if nobody took them.

You broke that social contract by always needing more. I kept my end of the bargain.

I expect the 1% will work tirelessly to extract wealth from me until my last breath. But this much I know also about the 99%: They will not be there to help me guard the gate from the Barbarians. They will be busy guarding their own gates.

What I want
What I want most is my own space that is warm and free from the prying grasp of government tax departments, the whims of landlords, the perils of curable illness and disease or the selfish and short-sighted lust of those in power. Owning my own home is none of these things. Even if I were to get to pay the last payment of my mortgage to the bank, I could still lose my home if I could no longer pay the property tax the county continues to demand. Or lose my freedom due to the ever-increasing criminalization of poverty. Or suffer health problems that deplete the wealth I used a life-time of time to build.

The Barbarians will always be at the gate. This season’s Barbarians are the Wall Street bankers and politicians on the take. Next season, it could be drought and famine. The next could be the City of Englewood deciding that my house sits on a patch of land they want to turn into a park. Or Anthem Blue Cross/Blue Shield increasing my premiums 38% or denying a treatment they pre-approved. The list of Barbarians are endless.

As I move through middle-age and into old-age, I know that my ability and desire to fend off the Barbarians will become less and less while my desire and need for security and warmth will become more and more. I can already feel the fear and rage creep into my bones when some punk-kid behind me in traffic does that dodge-and-weave thing, trying to pass me as I am not speeding fast enough for him. I feel it in the deep sighs of a younger generation who mistake patience for inaction. I know it in my heart when young women no longer look at me with anything less than pity.

What fears me the most, though, is knowing I will not have enough time to build the wealth needed to construct a gate strong enough to keep the Barbarians at bay. I fear they will destroy me before it is my time to go.

*I don’t think the percentages are split 1%-99% but that is a heck of an effective way to market the movement. My use of the numbers are just a short-hand convenience; no more, no less.

You may find this interesting.
And this.
And this from @Karoli who started me thinking down this path, culminating in this here blog post. Blame her 🙂

Where are the small businesses in all these economic recovery summits?

Mark_Zuckerberg 2008 SXSW

Apparently today, President Barack Obama will be meeting with Mark Zuckerberg from Facebook, Eric Schmidt from Google and Steve Jobs from Apple to discuss how the business community and government can work closer together.

Excuse me?

Apple, Google and Facebook are the business community? Where are all the small businesses that are supposed to be the backbone of this economic recovery? What could a 26-year old kid who built an empire of cards on a parasitic business model, a do-no-evil-but-dominate-the-world-anyway CEO who gutted newspapers and is about to topple the smart phone industry and a megalomaniacal evil genius possibly know about surviving and thriving in this economic disaster? That is like asking Eric Cartman to explain Phase II of the Underpants business or checking out eHow.com on becoming a multi-millionaire. (Hint: Step One; Start with a million dollars)

All Jobs cares about my business is he has sold me a Mac II, Mac IIvx, (2) Quadra 900s, (2) G3 towers, (3) iMacs in bondi blue, tangerine and grape, a Mac Mini and the latest iMac for the desktop, a Powerbook 170 and 165c, Powerbook G3 (Pismo and Lombard) (4) Powerbook 15″, (2) Powerbook 17″, (2) MacBookPro 13″ and a MacBookPro 17″, a MacAir 13″, (8) iPods, an iPad and (3) iPhones, a Newton, a MacPlus, 2 AppleTVs and 3 Imagewriters. All Zuck cares about my business is how many times I post to my blog, who reads it and how he can sell my data to anyone for the highest price. Eric Schmidt knows everything, down to the number of minutes all my employees take bathroom breaks, and I have no idea what he is doing with the data. I suspect not anything that will benefit my bottom line. But none of these guys really knows anything about building out a business in a down economy.

What President Obama really needs to do is assemble a group of middle-aged people who recently got fired and were scared sh*tless into starting their own companies just to avoid the bank taking their homes or their local church from casting them out for being shiftless, unemployed bums. Or a group of small manufacturers who had to mortgage their homes to make payroll when the banks called in their credit lines and lie awake nights wondering how to make the next payroll.

Get out of this bubble of big companies and ask us all out here how we are really surviving and thriving in this economic downturn. Ask us about the piles of forms we have to fill out every month just to stay in business. Ask us how the government can ease the strain of everyday worry on whether or not we are going to lose our health insurance before 2014 kicks in. Ask us not only about Federal regulations but State, County and Local ones as well (which, by the way, Mr. President, are much more onerous and closer to home than anything that comes out of Washington.)

Ask the small business owners who are making it through every day without giving up how they are doing it. I grant you, you will get a better picture of what doing business in America means much more accurately than meeting with the top “pop companies” of the moment.

Because for us, if we stumble, we’re not just losing a percentage point on our stock. When we stumble, we lose everything.

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Open letter to the people who will eventually buy my house

Dear people who want to buy my house;

Thank you for your interest in taking over the landlord responsibilities of this property I have held for almost thirty years. It has been quite a ride. But before we begin to sully our new-found relationship with talk of money and such, there are a few things you should probably know.

I know that you know I know that you have most likely grown up watching HGTV. You don’t look old enough to have lived in any other age before cable TV dominated the airwaves. If you have not been made aware by now, everything they have ever told you about buying a house is a lie. It has all been made up for the sake of attracting sponsors and advertisers whose only goal was to sell you more crap to improve your home. Oh, it’s ok, I believed the lies for a while too as you will soon discover the do-it-yourself projects I have embarked on throughout the house.

….

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If money were no object, here is what I would gift to you #letsblogoff

First, I would buy health care for everyone who was willing to take care of themselves. If you don’t have health, you have nothing. Then I would buy an education for everyone willing to learn. Educated people influence others around them to want to learn. Lastly, I would buy a home for anyone who is homeless and wanted one. Everyone should have some place to call home.

Then I would figure out how to save time in a bottle and give it to all the writers and artists who left works unfinished. The world is a poorer place without artists and the art they create. Most often, they just need more time.

And I would create bottles of compassion, wisdom and patience to give freely to those who need each. Because there is no such thing as a self-made man and those who think they are need to be reminded from time to time.

Happy Holidays from Rufus, Sallie, Charlie and our intern Zoey. We wish you and yours lots of cold noses and many long, pointless walks.

This blog post is part of a blog-off series with a group of bloggers from different professions and world views, each exploring a theme from his/her world view. This was about “if money were no object, what would you gift.” To explore how others handled the theme, check them out below. I will add links as they publish.

Why the housing bust is a boon for dogs

It’s been said by someone who probably has no money in the stock market or has not just bought a brand new Apple product that “there is no good or bad news, there is just news. How you see it depends on your perspective.”

And we are choosing to see this housing bust as a HUGE boon for dogs.

In Englewood, Ohio, there are at least three different housing sites where work has stopped abruptly. Over two years ago. And that is good because that means we have at least three dog parks that have paved, subdivision-style roads that lead to large fields filled with tall grasses and lots and lots of plowed up smelly things. In the winter, we have a large expanse of snow and snow hills when the plows just push all the street snow off at the end where there are no houses. Nobody ever bothers us when we’re at one of these “dog parks.”

If you are dog, this housing bust is the best thing to happen in years. Part of me hopes it goes on for a while.

Just thought I would share a small silver-lining in an otherwise gloomy economy. And if you own a dog, have no money and nowhere to go, find a housing sub-division that quit building and make it a dog park. Chances are there is one near you.

Really, it’s ok.

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