Groupon's Sales Price: No Bargain?

Google is near a deal to acquire Groupon, the pioneering online discounter, for as much as $6 billion.

--The New York Times (11/30/2010)

There's got to be not a little irony in Groupon being bought out at something like 15x its annual revenues of $350 million.

By contrast, established consumer goods companies can sell for 2x-3x revenues.

"We Bailed OURSELVES Out??"

"We" Minus the "Us"; or,
More Pronoun Confusion

The bailout and stimulus that we have administered to ourselves have left us without much cushion. There may be room, and even necessity, for a little more stimulus. But we have to get this moment right."

--Thomas Friedman, "Got to Get This Right"; The New York Times (11/27/2010)

I suppose if you're in London or Berlin or Beijing or wherever Thomas Friedman writes most of his dispatches, it looks like the United States bailed itself out.

However, here in Friedman's hometown of Minneapolis (actually, next-door St. Louis Park), the "we" he refers to looks decidedly more like a "them."

"Them," of course, being the same Wall Street actors whose reckless bets and insane leverage caused the mess in the first place.

It's hard to see how "we can get this moment right" if "we" can't even get our pronouns right.

"Our" Banks, Warren? No, YOUR Banks

Warren Buffett's Freudian Slip

This land is your land
This land is my(?) land
From California to the New York island
From the red wood forest to the Gulf Stream waters
This land was made for you (and me?).

--Lyrics, "This Land is Your Land"; Woody Guthrie (tweaked by Ross Kaplan)

The first time I read "Pretty Good for Government Work," Warren Buffett's defense of the bank bailouts in The New York Times this week, it all seemed perfectly reasonable and logical: the system truly was on the verge of a melt-down in September, 2008, and doing nothing surely would have brought on -- if not a financial apocalypse -- something very, very nasty.

But re-reading it, I couldn't help coming back to a single, offending word: 'our.'

Here's the context:

Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world’s most famous insurer, was at death’s door.

--Warren Buffett, "Pretty Good for Government Work"; The New York Times (11/16/2010)

I suppose if I owned tens of millions of shares in Wells Fargo, Wachovia, and Moody's (the credit rating agency); $10 billion in Goldman Sachs bonds that I very much wanted repaid; billions in credit default swap positions, etc. etc. -- I would start to think of the financial system as "our" financial system, too.

But in reality, it's "their" financial system.

They own it, they derive the lion's share of benefits from it, and they -- quite logically -- defend it.

Bailout Red Herring

The second canard buried in Buffett's apologia is the inference that critics of the bailout advocated doing nothing.

Hardly.

Away from the Op-Ed pages of The Wall Street Journal and The New York Times, there has been a deafening chorus -- nay, consensus -- on what government properly should have done -- in fact, should still do now -- in response to the Wall Street-engineered financial melt-down.

Of course, that's after acknowledging that the very best course of action would have been actually trying to prevent it in the first place (vs. enabling it).

In a mythical letter addressed to "Uncle Sucker," Blogger Barry Ritholtz puts it best:

When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.

You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.

The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of violating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.

--Barry Ritholtz, "Dear Uncle Sucker . . ."; The Big Picture (11/17/2010)

There are no Pulitzers -- yet -- for blog posts, but if there were, I'd nominate "Dear Uncle Sucker."

Read Buffett's piece, then Ritholtz's in its entirety, and decide for yourself.

P.S.: Dear RE/MAX and Coldwell Banker Burnet: looking for an experienced -- albeit opinionated -- Twin Cities Realtor (and blogger)?

If my boss, Mr. Buffett, reads this, I may be available (Buffett is chairman of Berkshire Hathaway, the ultimate parent company of Edina Realty).

"Landlords Have the Upper Hand. No, Renters Do"

So Which Is It?

One side effect of a market flooded with both sales and rentals is that renters are gaining clout when it comes to negotiating, just as buyers have.

--"As Sales Slump, Rental Stock Rises"; The New York Times (9/25/2010)

To the chagrin of many renters . . . the balance of power in the rental market has tipped back toward landlords — if not far enough for landlords to start celebrating quite yet.

--"Landlords Are Back in Control"; The New York Times (9/25/2010)

Want evidence that "all real estate is local?"

Look no further than the real estate section of today's New York Times.

The lead story proclaims that the rental market has surprisingly tightened, giving landlords more leverage; scarcely an inch further down the page (I get 99% of my news online), the same newspaper(less?) observes that the "rental market is flooded."

The explanation?

One article is discussing Manhattan, the other residential New Jersey.

P.S.: Variability in market demand by area and even neighborhood characterizes the Twin Cities, too.

25 Minutes to Rochester, 50 to Duluth??

Bullet Trains . . . in Minnesota

How can you compete with a country that is run like a company?

--Thomas L. Friedman, "Too Many Hamburgers?"; The New York Times (9/22/2010)

I suppose that depends on whether the country in question is run like Costco -- or Citigroup.

In fact, Friedman makes a number of trenchant juxtapositions between China's state-of-the-art infrastructure and the U.S.'s decaying one, starting with those bullet trains.

So, how long would it take to get from the Twin Cities to Rochester and Duluth if we had a couple of those babies?

Try, 25 minutes and 50 minutes, respectively.

A bullet train to Rochester would cement Minnesota's world reputation for all things medical, and turn the Twin Cities' airport into a gateway to the Mayo Clinic.

A bullet train to Duluth would make the North Shore a major tourist destination, and do wonders for that city's economy.

Funding

But wouldn't that cost billions?

And where would it come from?

Why not the same place Boston got $25 billion to bury 2 miles of waterfront freeway? (in a just-completed project called "The Big Dig").

And what convenient timing, given that we're supposedly looking for worthwhile infrastructure projects to stimulate the economy.

P.S.: Given the politics, a Twin Cities-Chicago bullet train is probably more realistic, because two more states' political delegations could help do the heavy lifting.

"Microchips vs. Poker Chips"

Engineers, Financial & Otherwise

OK, so I'm not coming down on the side of buying more Intel stock (vs. selling what I did buy, way back in 1995; see, "To Buy Intel (or not) . . . that is the question").

But I still like what Intel does a whole lot better than what Wall Street does:

For a decade we sent our best minds not to make computer chips in Silicon Valley but to make poker chips on Wall Street, while telling ourselves we could have the American dream — a home — without saving and investing, for nothing down and nothing to pay for two years. Our leadership message to the world (except for our brave soldiers): “After you.”

--Thomas Friedman, "We're No. 1(1)!"; The New York Times (9/12/2010)

Brain Drain

My only quibbles with the above?

First, Friedman's casting his lot with the "we're all to blame" camp ("Wall Street may have been dealing the dope, but our lawmakers encouraged it").

I take strong exception to that analysis, for reasons discussed in "No (Financial) Cure Without Proper Diagnosis."

Second, Friedman's timeline.

I'd substitute "a generation" for "a decade" to describe how long Wall Street has been vacuuming up our "best and brightest" (albeit most morally bankrupt).

One of the more dismaying things about Wall Street continuing "business as usual" -- notwithstanding the economic carnage it's wrought on the rest of the economy -- is that it leaves that "brain drain" dynamic intact.

As Dan Quayle might put it, "what a waste it is to lose one's mind . . "

Housing "Buy" Signal

Contrarian Indicators -- Housing Market Edition

If you like contrarian indicators, here's a good one, courtesy of today's New York Times:

"Housing Fades as a Means to Build Wealth, Analysts Say"

--headline, NYT (8/23/2010)

Or as Barry Ritholtz puts it, "the time to be an über-bear on Housing (or anything, really) is before the collapse — not afterwards."

Betting Grandma's Money

The Financial Crisis for Beginners
(or Grandmothers)

Mystified by the financial crisis?

Here's one of the simplest -- and most accurate -- descriptions I've encountered yet:

My mother is paying taxes to the government. The government is giving her money to the banks. The banks are gambling like they’re watching ‘Fast Money.’ But my mother didn’t sign up for that.

--Dylan Ratigan, quoted in "From CNBC Business Journalist to Critic of Bankers on MSNBC"; The NY Times (6/27/2010)

Unfortunately, it's really not much more complicated than that.

From 1934 to 1999, "betting with grandma's money" was illegal, thanks to a Depression-era law called The Glass-Steagall Act.

Wall Street got that law repealed -- and its legislative agenda enacted generally -- in the last 15 years or so.

"Down & Out" vs. "Up-and-Coming"

Northeast Minneapolis' 13th Ave.

What's the difference between a neighborhood that's down-and-out vs. up-and-coming?

Or, in the case of a Northeast Minneapolis neighborhood long anchored by the Modern Cafe, the difference between warm and hot?

One or two new restaurants, a popular new bar -- and a profile in The New York Times' Sunday travel section (see, "A Minneapolis Stretch Reborn").

FYI, the two new restaurants are Anchor Fish & Chips, and Northeast Social.

Goldman Sachs: 'Let's Be Aggressive Distributing Things'

"Distribute?!?" How About, "Palm Off?"

Dis-tri-bute: 1 : to divide among several or many : apportion
2 a : to spread out so as to cover something: scatter; b : to give out or deliver especially to members of a group.

--Merriam-Webster dictionary

According to The New York Times, as early as 2006, "company email messages show Goldman executives discussing ways to get rid of the firm’s positive mortgage positions by selling them to clients. In one message, Goldman’s chief financial officer, Mr. Viniar, wrote, 'Let’s be aggressive distributing things.'”

No, Goldman Sachs' definition of "distribute" isn't the dictionary version, or the meaning you and I associate with the term.

Rather, as used by company executives, it means "palm off on unsuspecting customers."

The Buy-Versus-Rent Question

Calculating the "Rent Ratio"

Sometimes, the decision whether to buy a home or not seems to require an economics Ph.d.

Are interest rates headed higher? How strong is the economy? Are home prices now recovering, or will there be a "double-dip?"

It's enough to make your head spin -- or hurt.

If the foregoing (unanswerable, by the way) questions seem too daunting, try this one instead:

Can I rent a nicer place for less money than it costs to buy?

In many cities, including Minneapolis, the answer is now "no."

Check out this NYT piece, "In Sour Home Market, Buying Often Now Beats Renting," for the particulars.

Warning: you'll need to divide by 20 to calculate the local "rent ratio" -- the best yardstick for gauging whether buying is a better deal than renting.

If you need help filling in the numerator and denominator . . . . call me! (612-925-7701)

Clothes, Cars -- and Homes?

Improving Consumer
Sentiment Buoys
"Medium Ticket" Items

American consumers are finally coming out of hiding.

After months of penny-pinching amid the recession, new figures —showing an improving job market, rising factory output and increased retail sales — suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again.

--"Upbeat Signs Revive Consumers’ Mood for Spending"; The New York Times (4/7/2010)

If necessities like food and medicine are at the bottom of the consumer "food chain," and discretionary items like clothing and jewelry are in the middle, what's at the top?

Big ticket, "capital" items like cars and homes -- purchases that depend not just on consumers' current financial condition, but their confidence about the future.

Keep an eye on that "trickle up" effect (see, "Trickle Down" Economics to "Bubble Up?").

Interviewing Neighbors

"How Much Do the Neighbors Trust Each Other?"

One of the standard pieces of advice I give to my Buyer clients is to chat up prospective neighbors (also mail carriers, but only if they've been on the route at least six months).

Who knows better than them if the neighborhood is safe, the local schools are good, people are friendly, etc.?

It's also my experience that people who like where they live are more than happy (if not eager) to "sell" their neighborhood to prospective Buyers -- as long as they introduce themselves properly and don't knock on the door at 10 p.m.

In his column today, New York Times columnist David Brooks corroborates this approach, and adds this gloss:

If you want to find a good place to live, just ask people if they trust their neighbors. Levels of social trust vary enormously, but countries with high social trust have happier people, better health, more efficient government, more economic growth, and less fear of crime (regardless of whether actual crime rates are increasing or decreasing).

--David Brooks, "The Sandra Bullock Trade"; The New York Times (3/30/2010)

The only question I have is of the "chicken and egg" variety: which comes first -- "high social trust, " or happier people, better health, more economic growth, etc.?

Realtors, Barbers & "Haircuts"

Is it "Always a Good Time to Buy?"

Never ask a barber if you need a haircut.

--anonymous

Barber's corollary: never waste time on someone who isn't sure they need a haircut.

--Ross Kaplan

So, The New York Times ran a piece last week basically saying that -- surprise, surprise -- Realtors always think "now" is a great time to buy. See, "Great Time to Buy (Famous Last Words)."

No doubt there are some Realtors who do.

But for every Realtor who proffers such advice, there are probably at least three would-be Buyers who don't really know whether they want to buy something -- and are happy to eat up Realtors' valuable time while they decide.

In my experience, Buyers buy when they're ready -- not when their Realtors convince them to.

If it were otherwise, you wouldn't hear so many stories of Realtors spending months (or years) working with "clients" who decided they really didn't want to buy, after all -- or who "just couldn't find what they were looking for" after viewing dozens -- or hundreds -- of homes (effectively, the same thing as deciding not to buy).

Discerning Motivation

Which is why one of the most important things for a Realtor to do is determine Buyer motivation.

In my experience, here's how motivation shakes out:

Real: Job transfer to another city; change in family size (bigger, smaller); newly married (or divorced); change in financial circumstances (worse, better); health/mobility issues.

Not Real: curious about "how much house 'x' can buy"; will buy only if they can get 'y' for their current home; current home needs remodeling or updating that they've been putting off (this can be a real motivation, but just as often it's a red herring -- especially if they've been mulling it over for years).

Market Predictions

"Yeah, yeah," I can hear you say, but, "is it a good time to buy??"

If Warren Buffett, the world's greatest investor, can't forecast short-term stock market moves (he's explicitly said so, many times), I'm not about to forecast short-term moves in the housing market.

And anyone who says otherwise is full of it.

Instead, my standard comeback is, "you tell me what interest rates, GDP, unemployment and inflation are going to be . . . and I'll give you an educated guess about housing prices."

While I can't predict future housing prices, I can (and do) promise to help my Buyers find the best home for their budget and criteria.

Or, if they're Sellers, I promise to help them get the most money that current market conditions allow.

Selling -- or Buying -- Without a Realtor

Profile of a FSBO

Are real estate brokers — like travel agents and other middlemen coping with the increasingly digital culture — in danger of becoming expensive anachronisms? After all, it is only logical that as people feel more empowered based on their access to information and their ability to connect without help, they are at least questioning the wisdom of the conventional way of buying and selling a home.

--"Agent or No Agent?"; The New York Times (12/17/09)

I tripped across the article above, ironically enough, in between doing some year-end housekeeping (file and email clean-up, desk de-cluttering, etc.).

Without getting into the merits of the article -- I've addressed FSBO's, or "For Sale by Owners" in numerous others posts -- suffice to say that the files I accumulate for each client can be extensive.

In the course of representing a typical Buyer or Seller, it's not unusual for me to accumulate literally dozens of emails, and log even more phone calls, spanning half a year or longer (hopefully, not too much longer).

Much Ado about . . . Something

Admittedly, sometimes my clients are also friends, and I'm not always "all business" in every communication.

But if Realtors are really as obsolete as travel agents and elevator operators, what's all the back-and-forth about?

Depending on whether the client is a Buyer or Seller, and what stage of the process they're at, the conversations are about . . . staging ideas, competing homes for sale, market developments, showing feedback, explaining contractual fine points, applicable Comp's for "finalist" homes, relaying documents for review and signing, getting reaction to marketing materials, arranging title work, lender referrals, clarifying showing instructions, discussing timing and magnitude of price reductions (if applicable), recommendations for home inspectors, direction about municipal point-of-sale requirements, arranging walk-thru's prior to closing, formulating a counter-offer, resolving inspection issues, progress (or lack thereof) obtaining a mortgage -- and many, many other subjects.

If you think you can navigate all of the foregoing topics on your own -- and have the time and inclination . . . . Congratulations!

You just may have what it takes to sell your own home.

P.S.: all those email's mentioned above are just between me and my clients. I omitted -- happily, I'm sure you'll agree -- all the communication with third parties (other Realtors, stagers, photographers, etc.).

"'Things' Doesn't Cut It": NY Times

What's Goldman Up to NOW?

“Certainly, our industry is responsible for things. We’re a leader in our industry, and we participated in things that were clearly wrong and we have reasons to regret and apologize for.”

--Lloyd Blankfein, Goldman Sachs chairman and chief executive (Nov. 17, 2009)

It is widely and correctly understood that Wall Street, with Goldman as a leader and with regulators in thrall, helped to inflate and profited from a credit bubble that burst and cost tens of millions of Americans their jobs, incomes, savings and home equity. American taxpayers continue to stand behind the bailouts and other government interventions that have stabilized the financial system, including Goldman, enabling the firm to post blowout profits in 2009 and to set aside $16.7 billion for bonuses so far this year.

--"Goldman's Non- Apology"; The NY Times, house editorial (11/21/09)

The only question I have *right now is this:

If one of the most profitable investment plays at the moment is shorting (betting against) the U.S. dollar -- also known as the carry trade -- and Goldman is now making literally billions per quarter . . . is any of that money coming from shorting the dollar?

Would that really be any different than shorting mortgage-backed securities as it was busy selling trillions of them to investors (as Goldman did)?

It really does seem that what's good for Goldman is bad . . . very bad . . . for the rest of us -- and vice versa.

"Justice Delayed . . ."

Last thought on this for now:

Ohio's Attorney General just filed suit against the credit rating agencies (Standard & Poor's, Moody's, and Fitch) for misrating billions in mortgage-backed securities, costing Ohio retirees hundreds of millions.

The securities blew up starting more than three years ago.

Should it really take government attorneys (federal and state) until, say, 2015, to bring appropriate legal action against Wall Street's key players??

P.S.: Want to guess what Goldman Sachs' defense(s) would be, were it to be proven that it profited, big-time, from shorting the dollar?

Pick one (or more) of the following:

A. That that's perfectly legal to do (completely true).
B. It had a fiduciary duty to its shareholders to maximize profit.
C. Profits from the carry trade made it less dependent on Fed and Treasury guaranties and other support (that it otherwise denies benefiting from).
D. Goldman made much less shorting the dollar than many others.
E. The dollar's weakness isn't due to Goldman and others shorting it (also known as the "it's not my dog" defense).

I'm sure I could double this list if I actually thought hard about it . . .

*It was Wayne Gretsky who said: 'I don't skate to where the puck is . . . I skate to where it's going to be.'

Surprise Recession Winner: Shoes (& Walking & Hiking)

Random Juxtaposition?

Maggie Nesciur, 30, a waitress, walks up to 90 miles a week around New York's neighborhoods.

--"The Walker"; The New York Times (11/6/09)

As the economy has inspired a back-to-basics mentality, with families dining and vacationing at home, people are focusing on free outdoor activities that require comfortable or rugged shoes.

The cost-per-wear of a pair of shoes is far lower than that of a dress or suit, which can only be donned so many times a week before colleagues snicker. And new shoes spruce up old outfits, a cheaper alternative to buying more clothes.

--"A Not So Guilty Pleasure"; The New York Times (11/6/09)

In what I'm guessing is just a random juxtaposition, today's (online) NY Times features two stories about shoes.

The first is a profile of a New Yorker who like to explore the city's varied neighborhoods on foot (that was my hobby, too, when I lived there). Apparently, she actually walks something like 90 miles a week!

The second is an article reporting that shoe sales are defying the recession, and are actually up.

Hmm, maybe there's a connection . . .

P.S.: Economists call something that experiences rising demand in a recession an "inferior good." No, it's not a moral judgment; it just means that as people have less money, they consume more of it (with most goods, it's the opposite: as you have more money . . . you consume more).

Historically, the classic example was potatoes. Inferior goods today would likely include things like mac 'n cheese, rice & beans, "Hamburger Helper," etc.

I'd also put pets in that category. They're cheaper than a health club membership, and great companions, too!

Edina Home featured in NY Times

"What You Get For $1.1M"

It's always a kick when The New York Times' weekly real estate feature, "What You Get For $_____ ", showcases a local home.

That's especially true when it's as gorgeous as this one (the Dining Room is pictured above).

The home, located at 5429 Woodcrest Drive, is about a mile north of Southdale, and backs up to Minnehaha Creek.

Here's a link to the MLS listing, if you want more info:

http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-52354363-246

P.S.: Obviously, the exposure is a coup for the listing broker and agent (Lakes Sotheby's and Anne Schaeffer, respectively). I have no idea what went into the choice. It's certainly not because the home is new to the market. In fact, it's been on for almost eighteen months, and dropped from $1.449M to $1.095M during that interval.

1930's vs. 1990's

Fascinating Juxtaposition

The two photos above, from today's New York Times, present a fascinating juxtaposition.

The photo on the left shows FDR signing legislation -- known as The Glass-Steagall Act -- separating the nation's investment banks from its commercial banks. It was the latter that held ordinary Americans' savings deposits, and it was the former's plundering of same that played a big role in causing The Great Depression.

The photo on the right shows Bill Clinton signing legislation in 1999 dismantling Glass-Steagall.

Study in Contrasts

But for the fact that the people in the two photos are exclusively older, white males, the contrasts couldn't be more startling.

The Congressmen and senior government officials surrounding FDR look sombre, if not grim. Their demeanor suggests that they had just witnessed a horrific financial accident (if not crime) -- one which they are determined not to ever let happen again.

Of couse, they had, and they (mostly) did. To their credit, their efforts to safeguard the nation's financial system succeeded for more than three-quarters of a century.

By contrast, Bill Clinton and the officials around him -- luminaries such as Fed Chairman Alan Greenspan, SEC Chairman Arthur Levitt, Texas Senator Phil Gramm, and Treasury Secretary Robert Rubin -- look like they're re-filling the punch bowl at an especially raucous party.

Which of course, they were.

Less than 2 years later, the stock market cratered.

Less than a decade later, a lethal combination of investment bank risk and leverage -- just like in The Great Depression -- created the greatest financial crisis since the 1930's.

Floyd Norris: 'Save This Store'

Trickle-Down Economics, Wall Street-Style

Floyd Norris, one of my favorite financial writers, ran a post earlier this week noting a recent London jewelry store burglary where the average bauble cost $1.5 million.

That prompted this observation, "It will be hard for stores like this to stay in business if governments refuse to support bankers in the style to which they have become accustomed."

In response, I posted this comment:

I used to think that obscene Wall Street pay would finally be stopped when shareholders stood up and said “no more.”

Then I thought it would be stopped once Wall Street had effectively emptied the government’s coffers.

Now I think it will stop only when the government’s coffers have been emptied, its debt is maxed out, and no creditor countries will lend it any more.

How far away is that point?

Do we really want to find out?

--Ross Kaplan, Comment on "Save This Store"; Floyd Norris, The NY Times (8/12/09)

The beauty of the Internet is that there's always a "last, last word," after the previous "last word."

Here's mine:

I'm starting to think that Wall Street VIP's will be obscenely paid until the last sun in the last solar system flames out.