The Norris Group Blog

California Real Estate Headline Roundup

Posts Tagged ‘investing’

« Older Entries
Newer Entries »

174-TNG Radio – Bill Shipp 5-15-10

Friday, May 14th, 2010

Bill Shipp 

Bill Shipp, California Real estate Investor

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined by Bill Shipp. Bill has been investing in Riverside real estate for many years. Bruce thinks Bill is Riverside’s best kept secret.

Bill began flipping homes in 1986. He did his first flip deal when he was 18 years old. He had a family member who had bought the lot but could not afford it, so Bill agreed to buy it for 2,600 dollars and he sold it a couple years later for $6,000.

Before his first real estate investment, Bill was an airforce brat. He moved around a lot which made him wish he could own a house. Prior to 1986, Bill was working a corporate job and strongly disliked it. He had a good friend who was a real estate investor in the Long Beach area. This friend encouraged Bill to learn real estate. Bill’s friend explained that Bill would most likely not become very wealthy if he continued to work in the corporate world, and he would always have to worry about his job security. If you own your own business of buying and selling real estate you can never get fired. This encouraged Bill to quit his job and begin working as a real estate agent.

Bill did learn some important lessons from the corporate world. He learned to run his real estate business the same way as if he was working a corporate job. He did not sleep in just because he owned his own business. He would begin working at 8, and he worked normal hours.

Bill’s mentor taught him how to buy homes, and how to figure out prices and fixing costs. His mentor was very regimented. If Bill was even a minute late, his mentor would leave him. Bill listened to all of his mentor’s phone calls, and he learned how he conducted business with other visitors.

Bill’s mentor never got into educating people. He simply picked a few people that he new personally to work with him. Bill thinks he was the lucky person to be picked by this mentor because he showed good discipline.

Bill has bought and sold 360 houses. He does not have make many deals in which he personally speaks to the home owners he buys from; he probably only talks about 10 percent of these home owners. He never used mailers or signs.

If Bill was beginning to invest in Riverside with all his current knowledge, he would first call his agent and show them his accomplishments. Agents hear from many people who claim to be real estate investors but are not truly serious. For this reason, Bill keeps a portfolio of every house he has bought and sold. He shows this portfolio to agents during interviews. He then tries to persuade these agents that working with him is a good idea. He interviews multiple agents until he finds a couple of agents who are willing to be trained for his specific style of work.

Bill has not tried to develop relationships with people who control the most popular sources of REOs, but his name is somewhat well known by these people because of the business he does.

A typical investor will receive a call from an agent in which the agent explains what kinds of new inventory have recently come up. This agent might tell the investor that 20 new listings showed up. The agent and the investor would then look at many of those houses and attempt to narrow down their options. The kind of calls that Bill receives from his agents is very different. Bill’s agents will tell him which one of those 20 properties he would most likely be interested in. Bill would then ask who is listing the home, and the realtor would be able to tell him whether or not he had done business with that person previously. His Realtor would also be able to tell him what kind of neighborhood it is in, and whether or not he has done business in that area before. This Realtor would also give him a description of the other houses on sale in that area, the price they are listed at, and a description of the property Bill wants to buy. He would then make an offer slightly below the typical asking price of that neighborhood, and his offer would be made within just a few hours of being listed. This is how you beat the competition. You have to be able to make offers and close deals before the competition arrives.

What really gives Bill an advantage over his competition is the ability of his realtors to identify houses within specific streets of his city. Bill’s realtors are so familiar with their areas that they can look at a specific street, compare the prices of the other properties for sale on that street, and quickly determine whether or not a specific house is a good deal.

Agents are often skeptical of whether or not there are whole sale deals on the market. Part of the problems is that they are not disciplined, they are not experienced, and they are not accustomed to doing their job every day. It takes time for agents to spot a good deal quickly. Bill can buy properties out of the MLS even when the market is going up, and people claim there is no way to find a deal. When Bill told Bruce this in 2004, Bruce was very surprised and it taught him something.

During the real estate boom, everyone was an investor; you did not need to be good at investing during that time to make money. During that time, Bill was not worried about competition because there was so much business.

Name familiarity is very important when dealing with people who control the source of inventory. People who know Bill know that he has only backed out of 1 offer in his entire real estate career. If people know you are going to go through with your offers, they will be more willing to do business with you.

Bill typically puts a $5,000 deposit on his offers regardless of the home price. Bill recently lost an offer to someone who gave an offer for 100 percent of the purchase price. This was an investor trained by Bruce Norris.

Bill usually offers a 10 day close, or the seller’s preference. He has actually lost offers in the past because the bank felt the closing time was too quick, so allowing the seller to choose the closing time is best.

When Bill discovers that he has made an offer on a property with multiple offers, he simply responds by giving them his highest and best offer. Bill doesn’t have a problem with making only $20,000 on a property which gives him an advantage when making offers. Some investors will not bother making a deal if they cannot buy it for 62 percent of the price.

Bill may be one of the biggest investors in California, but he actually lives in Utah. He has developed a business model which does not need him to make full time deals. Bill cannot think of anyone with a business model like this, and that is why he sticks to one city. Having all his properties within a very specific region allows him to easily manage all his properties. Bill does not invest at all in Utah.

Bill typically buys under the $200,000 price range. Many of his buyers are FHA buyers, and many of them are conventional. When the market gets slow, Bill does not fight it, he just quits and waits until things pick up. Bill did have some trouble getting back into the market not long ago, because many rules had changed since his last transaction. When Bill re-entered the market, the 90 day FHA rule was still in place, and Bill did not know about it. His first offer was an FHA and the appraisal came in $15,000 low. He chose to be satisfied with the $10,000 dollars he made off the property and move on. Bill encourages people to not fall in love with their properties, so they will make smart selling decisions. Bill decided to leave the market in 2007 because he was receiving multiple offers on all his homes, and the offers were too high. Things were getting too crazy. When Bill looked at the loan documents, his buyers would have a 10 percent interest rate with a 700 FICO score. Bill wanted to tell these people, “What are you thinking?”

Bill does not buy and hold rentals. Bruce thinks that is interesting because many people think that is the best way to invest. Bill believes that if you are a full time investor, flipping houses will be more profitable then renting. However, renting is a good option for passive investors. Passive investing is what Bill did when he first started investing. When he first starting buying properties, he bought 45 rentals and he eventually ended up with negative cash flow. When times get tough, people start moving which leaves you with vacant rentals.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Tags: , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

Important Notice: New EPA Lead-Based Paint Rules

Friday, April 23rd, 2010
Hi %$firstname$%,
I wanted to quickly inform you of new lead-based paint guidelines
released by the EPA and enforceable as of April 22nd.
This will be important for Realtors, contractors, investors, and
property managers. Please spread the word. According to the EPA:
“Beginning April 22, 2010, federal law will require that contractors
performing renovation, repair and painting projects that disturb
more than six square feet of paint in homes, child care facilities,
and schools built before 1978 must be certified and trained to
follow specific work practices to prevent lead contamination.”
http://www.epa.gov/lead/pubs/leadinfo.htm#remodeling
Removal of lead paint is similar to mold removal. There do not
appear to be any new disclosure forms but there is potential
risk/liability including a large fine if caught violating these
guidelines.
The onus ultimately resides on contractors that are trained and
certified in new mediation practices.  Please take the time to
read the EPA’s website and take a look at the National Association
of Realtors website below and get informed.
National Association of Realtors Videos and Resources on the New
Lead-Based Paint Rules:
http://www.realtor.org/government_affairs/lead_paint_main
EPA Info for Contractors:
http://www.epa.gov/lead/pubs/renovation.htm#contractors
EPA List of Certified Prfessionals
http://cfpub.epa.gov/flpp/searchrrp_firm.htm
I will also post this on our blog.
Thanks,
Aaron Norris

I wanted to quickly inform you of new lead-based paint guidelines released by the EPA and enforceable as of April 22nd.

This will be important for Realtors, contractors, investors, and property managers. Please spread the word. According to the EPA:

“Beginning April 22, 2010, federal law will require that contractors performing renovation, repair and painting projects that disturb more than six square feet of paint in homes, child care facilities, and schools built before 1978 must be certified and trained to follow specific work practices to prevent lead contamination.”

http://www.epa.gov/lead/pubs/leadinfo.htm#remodeling

Removal of lead paint is similar to mold removal. There do not appear to be any new disclosure forms but there is potential risk/liability including a large fine if caught violating these guidelines.

The onus ultimately resides on contractors that are trained and certified in new mediation practices.  Please take the time to read the EPA’s website and take a look at the National Association of Realtors website below and get informed.

National Association of Realtors Videos and Resources on the New Lead-Based Paint Rules:

http://www.realtor.org/government_affairs/lead_paint_main

EPA Info for Contractors

http://www.epa.gov/lead/pubs/renovation.htm#contractors

EPA List of Certified Professionals

http://cfpub.epa.gov/flpp/searchrrp_firm.htm

Hope you find this helpful.

Tags: , , , , , , , , , , , , , , ,
Posted in News | 2 Comments »

169-TNG Radio – Harry Dent 4-10-10

Friday, April 9th, 2010

Harry-Dent

Harry Dent

Author and Economist

(Full Bio)

 stream

itunes

download

rss

This week Bruce Norris is joined once again by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

The title The Great Depression Ahead is gutsy. This book came out in 2009. Harry finished writing the book in the first half of 2008. However, we had some significant events occur at the end of 2008. The only thing that really surprised Harry was the stock market rally. He assumed that the economy would get worse, and as it got worse, the government would stimulate it. Harry predicted the stock market would bounce to 9800 and maybe even 11,800. We are right in the middle of that zone right now. Short term indicators predict that we might go even higher in the near future. However, he thought this stock bounce would begin and end earlier. Harry does not believe the recovery will last, because the baby boomers will go from spending to saving.

Harry defines a depression as an extended downturn in which you also see a deflation in prices. The reason why prices go down is because banks and loans are failing. This destroys credit and money. The deleveraging of credit causes deflation. In a depression, everything goes down. In an inflationary downturn like the 1970s, real estate goes up. Real estate does well during inflation. The failure of the banking system is the biggest shock an economic system can have. Harry believes that later this year and in 2011 we will go into a depression.

Alan Greenspan once said, “I watched my whole intellectual education fall apart in 2008”. That took a lot of guts to say, and it was astonishing to think that someone like Greenspan had studied economics for 50 years but still estimated incorrectly. Economists can look at a chart and come to two completely different conclusions.

Anyone who has studied business cycles throughout history knows that human greed takes over every time. Anytime you have low regulation, low interest rates, and bubbles building, people go nuts. People start thinking that the market will never go down, and the banks will lend to anyone. If bubbles go on for long enough, anyone will buy into a bubble. Its not a matter of intelligence, it’s a matter of understanding human nature, and that is where economists fall short. All economists look at is statistics.

There are no exceptions to the cycle of economics. The economy always goes from summer to fall, from inflation to disinflation. In the fall season is when you get bubbles, and when you get bubbles, the government always claims it can fix the problem, but they cannot and they have proven this over and over again. Bubbles have to deflate. We don’t want real estate to be so expensive that young people cannot afford it.

The bigger the boom the bigger the bust. Fortunately, we have a tool that tells you how long a boom will last approximately, and when it will wind down. Harry predicted how the economy would change by looking at the birth index. Booms always lead to excesses, and excessive lending and business expansion.

Japan had a real estate bubble similar to ours. They had excessive lending and unaffordable real estate prices. They had a demographic boom peak before the rest of the world, because they were the only major country who did not have a baby boom after WWII. Japan went through their downturn while the rest of the world was in the greatest boom of history. They didn’t have as much deflation as we will have, and their export industries can still be working at 120 percent. Japan also entered their crisis as a net creditor to the world. Almost all their debt was financed by their own citizens, so they had more capacity to stimulate and keep stimulating.

The U.S. is entering this downturn, and the whole country is going down with it. Baby boom demographics are down around the world. The world has also had a banking crisis and real estate bubble. We’re dragging people down with us, but they would have gone down anyways. The U.S. is the biggest net debtor in the world. We owe trillions of dollars to other countries. 50 percent of our debt is financed by foreign investors. This is contributing to the world downturn.

In 2011, Harry believes debt will overwhelm the banking system. This will cause the deficit to reach about $22 trillion. Harry thinks the debt will encourage our government to borrow even more, and we will pay for it. Japan tried to do this, and they will be sorry for it. Their debt to GDP ratio is 2.5 times what ours is. The only reason why they are surviving is because they are still paying interest rates on that debt at less than 2 percent. In the next decade, they will have to pay market rates like the rest of the world. Japan never truly deflated their bubble. They deflated their businesses, but they didn’t deflate their financial institutions. They have no way to easily get themselves out of this trouble.

Harry believes that Europe is going to start having debt trouble as well. When this happens, France and Germany will have to pick up the tab, but they won’t want to have any part in that. They will demand that the other countries cut their spending and raise taxes to cover their own debt.

In the United States, healthcare and social security expenses are already at costs above what we can afford, and we are now looking to expand that. Company and government pensions are unrealistically generous. Once we get to the point where we have to cut those pensions, people are going to go nuts. There may be riots. Bruce agrees with Harry on this issue. $46 trillion in unfunded medicare, Medicaid, and social security liabilities have already been promised to people. That is 4 times as much as the current government debt. We can’t afford the healthcare we have, and now they are trying to pass another healthcare bill.

The government will have to confess its inability to pay the baby boom generation its social benefits around 2012 or 2013 when the crisis will be at its worst. We will not get out of the mortgage and housing crisis until 2012. Harry believes that Obama will not be reelected, because he became president at a bad time.

We are going to have an enormous amount of debt in the next couple years, which is part of the reason why Harry does not support the new health reform bill. We will not be able to sustain the cost of this new program, and Bruce doubts that Congress has fully read through this health care bill.

When you have deflation, it exaggerates the current debt level. Harry believes that this will cause the government to scale back on age limits for social security and health care. Private debt will scale down substantially. All the debt ratios will get worse. Many businesses will go under or merge with other businesses. Banks will have to write off trillions in loans. Deflation works to restructure debt, rather than pay it off. If we had to pay all that debt off with deflated dollars, it would be much more difficult. At the end of this deflation period, we will be much stronger. Stronger companies will take over weak companies, costs get cut, and real estate goes down.

There are very few properties for sale in California right now, and it is easy to resale. The default rate has doubled in the last 12 months, but the foreclosure numbers have been cut in half. Banks are not foreclosing on people, because they do not know what to do with so many properties. Despite the 6 percent GDP, which Harry does not believe will last, defaults will continue to increase and foreclosures will continue to hit the market. This will suppress real estate prices. Banks will eventually have to write off a lot of those loans and foreclose. This is what will kill the recovery. Once the banks realize that real estate won’t recover, we will see the next banking crisis.

There is a psychology attached to exaggerated events like booms. When booms occur, people rationalize their decisions and the same thing happens in a down cycle. When things go down, people develop a pessimistic attitude towards the future. Baby boomers have not yet had a major downturn in both the real estate and stock market at the same time. This crash is going to cause retirements to disappear for baby boomers, and this loss will cause them to save even more. They will have to work longer but they may not be able to get jobs, because older people cost more in benefits. Harry is forecasting 15 percent unemployment.

Harry believes interest rates will increase this year. However, the bond market will eventually notice that the economy is slowing and then interest rates will decrease. This is what happened in 1931 when the crisis was building. We had a great boom market in bonds from 1932 to 1940 when interest rates were falling. In the next decade we will see deflation. If you want to buy long term bonds, Harry encourages people to wait until later this year or early next year. If you want to refinance, you may want to wait until interest rates come back down. This downturn in interest rates will happen between 2011 and 2013.

Bruce never thought he would see interest rates go down this low. Bruce began his real estate career in 1981 when he refinanced his house at 17.5 percent. Now we are at sub five percent rates, and we may see rates go even lower. Harry agrees and claims we may see rates go down to 3 to 4 percent.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

The Norris Group Vlog – Mold Featuring Julie Crittenden

Wednesday, April 7th, 2010

It’s finally here! The first Norris Group video blog featuring mold expert Julie Crittenden.

The Norris Group is dedicated to continued education through our radio show, news blog, and now the newest feature to our website, our video blog. These short segments will explore basic concepts and important topics not often understood and/or covered from the point of view of the real estate investor. We look forward to your feedback as we grow this new feature and resource. We hope you find it helpful.

Special thank you to Julie for being our first guest and Rich Durant for editing!

Tags: , , , , , , , , ,
Posted in Video Blog | No Comments »

168-TNG Radio – Harry Dent 4-3-10

Thursday, April 1st, 2010

 

Harry-Dent

Harry Dent

Author and Economist

(Full Bio)

 streamitunes

download

rss

This week Bruce Norris is joined by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

Before he wrote his books, Harry was working towards a degree in Economics, but then changed to Finance and Accounting. He felt that economics did not teach much, and that most economists were not able to predict anything. He eventually went to Harvard Business School and studied business strategy and marketing. This is probably why he comes to different conclusions than many economists.

Harry has been studying demographics in his consulting work. In 1998, he was sitting in front of the S&P 500 and the Birth Index for Baby Boomers. He looked at those 2 charts and he noticed that they looked a lot alike. Harry knew that the peak in spending was between 45 and 49 for the average economy, and this knowledge led him to conclude that he could predict the economy 50 years in advance with just one indicator. A boom typically starts when a generation is young, and ends when they begin hitting their 40s. Not too long after, he discovered that there were many correlations between different economic factors.

Harry’s business of predictions has been an ongoing learning process. He has extended his studies to real estate and different pieces of the economy. Recently, he had to revise his book The Great Depression, because he got new information about merging markets between countries like Europe and Australia. Emerging countries do not have the same kind of spending habits as that of developed countries. This is why he makes different predictive calculations for merging countries.

Attempting to accurately predict the future can be exhausting, because every time you think you’ve accounted for all the factors, you discover there is something missing. Harry has to account for political cycles, commodity cycles, urbanization and other factors which affect the merging of countries. Bruce feels that Harry’s non-arrogant mentality lends credibility to Harry’s work. The fact that Harry is open to new information, and to the idea of revising his own theories, is why Bruce pays attention to him.

Harry’s first book was named The Power to Predict. This book is about indicators like “the spending wave”, “the 46 year lag,” and “the inflation indicator.” This book also contained the “S-curve,” which describes the 4-stage business and economic cycle. Harry predicted that DOW would hit 10,000 by the early 2000s, and that the boom would end by about 2007. This book accounted for new technologies like the internet and new car models. When new technologies develop, they cause bubbles.

Japan was mentioned in this first book as well. Harry claimed that Japan was going to slow, and that the United States and Europe would improve. People thought he was crazy for making that claim, because at that time, Japan was booming with growth. In 1992, people thought the U.S. had seen its best days, but Harry claimed that there would be a boom around the year of 1998 to 2000, which would result in a government surplus. Harry also predicted at that time that inflation and interest rates would decrease around that time.

Bruce feels that the legitimacy of Harry’s predictions is confirmed by his ability to predict both bad times and good times. Also, Harry uses very specific terms when describing the future of economics. Harry doesn’t use moderate language in his predictions. He has noticed that economies tend to either be bullish or bearish. The good times don’t last forever, and he thinks that people who make predictions about never-ending prosperity are foolish. When markets go up, they tend to increase for 25 to 27 years. When markets go down, the downturn typically lasts 12 to 14 years. Harry currently believes that we will have a period of demographic weakness from 2008 to 2023.

Every 40 years we get a major downturn and the government tries to fix it, but they cannot do this because they cannot fight demographics. When you’re in a demographic boom, the government can stimulate because you have a generation that needs to spend and borrow a larger amount of money. Harry is claiming that the current government stimulus program will fail, because it is simply causing the younger generation to buy earlier when they would have bought a home in the future. Also, Harry does not believe the baby boom generation will be affected by the stimulus, because they are done with the home buying part of their lives.

Most people only study one theme of economics. This means that if they are bullish, then they will selectively read bullish material. These people have already come to a conclusion before studying the evidence.

In the early 70s, Bruce read a book from Howard Ruff named The Coming Bad Year. At that time, Bruce did not have much knowledge of economics, so he read this book as if it came from God. One of the suggestions that Howard made in this book was to buy 200 pounds of wheat. At that time, Bruce had two kids and he didn’t want to run out, so he bought 1000 pounds. This experience taught Bruce that you cannot believe everything you read from proclaimed experts.

Economists don’t have tools to project 50 years in advance, but Harry believes that demographics can do this. Harry predicts that the value of gold will decrease in value during the downturn, because this is a deflation season not an inflation season. This is contrary to the opinions of many people, but Bruce actually tends to lean in favor of Harry’s opinion on this matter.

The more popular you are as an economic writer, the more people respect your opinions, and the more likely they are to plan their lives according to your predictions. This is something that Harry thinks about frequently. Harry actually encourages people to read other authors who think contrary to his opinions, so they can have a fully educated opinion.

A long-term boom prediction is bound to have some down cycles mixed in. Bruce asks how one can know the difference between an anomaly downturn and a downturn which leads to a depression. If demographic trends are still up when downturns occur, then the market will eventually recover. Baby boomers are moving into their 50s and 60s. During this time, they will be saving more and spending less. This tells Harry that the government stimulus will not work.

It is easier to predict long trends than it is to predict precise downturn points. For example, during the past crash, our indicators led us to believe that the DOW wouldn’t go past 7200, but it actually went down to 6440.

Harry claims there is an 80-year new economic cycle. This 80-year cycle is described as the 4 seasons model. There are always 4 seasons that occur in economics just like summer, spring, winter, and fall. We had the spring boom during the 1940s to 1960s. From 68 to 82 we had the summer downturn in which we experienced inflation and low spending. From 1980 to we went through the fall boom in which the baby boom generation began to spend a lot. We are going from high inflation to low inflation, which causes lower interest rates. The stock market does well when interest rates are low and this causes a bubble. Now we are up against the winter season, in which all our bubbles will decrease and cause deflation.

This 80-year cycle occurs over two generation booms which last around 38 to 40 years each. This cycle is repetitive going backwards, but there is an exception. If you go back into the 1800s, we still had a similar cycle system, but the two generation cycles only lasted about 28 to 30 years. This is because we were more of a farming society at that time. We did not have so many powerful middle class consumers. Right now, the commodity cycle is less important to our countries cycle. Commodities only represent about 10 percent of our economy.

Bruce asks if Harry has a process to determine whether or not false predictions are based on something unforeseen. Harry assumes that when bad predictions are made, that something was missed. Most people assume that the markets just aren’t getting something, and those people will be vindicated. The automobile industry correlated with a technology bubble from 1912 to 1919, and then a big crash occurred in the 1920s. We assumed another bubble would happen in 2006, but we did not see this. Harry tried to find an explanation for this by searching through history. He found a commodity cycle and a geopolitical cycle. During the boom of 2006, we had oil prices dramatically increasing which affected our ability to accurately predict the effect of the boom. Also, we had war problems which affected Harry’s predictions.

Harry Dent’s website is www.hsdent.com

You can find his books there and other activities which his company is involved with.  Join us for part two with harry Dent next week.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

167-TNG Radio – City of Riverside 3-27-10

Friday, March 26th, 2010

Deanna Lorsen

Deanna Lorsen, Development Director with The City of Riverside

(Full Bio)

Scott Barber

Scott Barber, Code Enforcement
Director with The City of Riverside

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined once again by Deanna Lorson and Scott Barber. Deanna is the Development Director for the city of Riverside. Her job includes redevelopment, economic development, marketing, housing and neighborhoods, arts and culture, and capital projects. Deanna previously worked for the County of Riverside as the managing director of the Development Agency. Scott Barber is the Community Development Director for the city of Riverside. His job involves building safety and code enforcement. Scott has been involved in the creation of new, innovative programs for financial systems.

You may be calling on a case file that is out in the field with the officer. During that sort of situation, Scott won’t be able to answer your questions. If a lender calls for his bill, Scott will give you the bill and suspend daily penalties for 10 days. The buyer will have to pay for the fines already there, but the city will work with the buyer on getting the house rehabilitated. As long as you are making an effort to rehabilitate the property, you won’t have trouble.

The investor’s goal is to get something fixed as quickly and as well as possible, so that he or she can sell it for a profit. The city and the investor have the same goal. The problem comes in from perception, because the investor perceives property inspection as threatening. The city must make it clear that defying the rules will not be tolerated. Recently, some people in the financial industry challenged the city’s constitutional right to fine unkempt properties, but the city won. Scott lives in Riverside, and he cares about it, so he will not allow it to deteriorate.

Riverside recently rebuilt the Fox Theatre in downtown. The city used multiple funding sources to pay for its redevelopment. The performing center itself was not paid through redevelopment funds; It was paid for by a bond issuance. Redevelopment funds must be made in redevelopment project areas for specific reasons outlined in state law. The city financial officer was responsible for the bond issuance. This issuance was done before Deanna began working for the city. This bond involved a long term, fixed rate loan for the city’s capital improvement. You could compare it to having a trust deed against the future progress of the city. The decision to take on these loans is approved by the City Council.

Riverside city has a down payment assistance program. Five years ago, there was little activity in this program because prices were so high, but now that prices have declined, this program has played a significant role in encouraging long term home ownership in Riverside. This program is funded with redevelopment funds and some Federal funds. Rental assistance is primarily given from the county. However, Riverside city did receive one Federal grant for preventing homelessness. The name of the Federal program for down payment assistance is named The Home Investment Partnership. This assistance comes in the form of a “silent second”. This means the homeowner gets the maximum fixed rate mortgage that they can afford, and then the city helps pay for the gap between their mortgage amount and the home price.

There are projects that Scott handles which get his attention more quickly, and get dealt with more quickly as well. If you are involved in a project which provides a large number of jobs to the city, or if you are in danger of causing a large loss in jobs, then you can receive a discount for your utility expenses. If your project is a new development, then you get “fast track” authorization. This gives you priority treatment through planning, building and safety, and through inspections.

Riverside is one of the leaders in the Green movement for energy conservation. The city is providing a program for investors who make certain environmentally friendly changes to their investments, and Bruce thinks that investors will respond to this. Riverside is the first city to be labeled an “Emerald City” in California.

The fact that Riverside has its own resources saves it from a lot of expenses. There are many Inland Empire areas who are serviced by Edison for energy, and MWD for water. The forefathers in Riverside secured water rights for Riverside that are unmatched. The public utility programs in Riverside make energy use much cheaper for its citizens. Riverside has had a planning committee since 1915. This city has always been fortunate to have people in charge who were thoughtful of the future.

Riverside’s community surveys show that we are still having some population growth, but Scott is uncertain how accurate that information is. However, a census should be taken soon, and that will be more informative.

In 2007, the city of Riverside took a 20-year planning ahead mentality towards growth.

The city is divided into 7 equally populated wards, which are basically districts. Each ward elects a member of city council, and those wards represent the city’s governing body. The wards that receive the most redevelopment attention are those that have the most economically damaging problems.

There was a set of apartment units in Riverside which were in bad condition, but those units got fixed and eventually won an award. If someone has damaged property, they can come to the city to receive funds for repairs. The city is required to spend 20 percent of redevelopment funds on affordable housing, and part of that money goes towards new construction. However, there are very strict rules regarding what kind of projects are eligible for funding. These projects must be for long-term affordable housing.

There are 3 significant building projects in Riverside which had to be stopped after they had already begun. One of them was near Lowes. It was a condominium program, but the FDIC completely tore it down. They are currently marketing that property for development. The problem was that it sat in a raw lumber state for too long, which caused problems for the wood structure. There are two in the west side of the city, which involves a large home development. This project will not be dealt with for a while because there are 4 different banks involved in it. This is actually fairly contained damage, but the County of Riverside probably has more trouble than the city.

Thank you Deanna Lorson and Scott Barber for being a part of the TNG Radio Show.

California’s budget problem has affected Riverside’s spending. The state has decided to use some of the city’s redevelopment budget to help with the budget gap. Riverside is currently expected to pay $17 million, by May 10th of this year, to help California’s budget. Riverside’s total redevelopment budget is about $50 million, so that $17 million is a significant portion.

One year ago, a court case determined that the state could not use redevelopment funds to fix the state’s budget. Right now, the state has attorneys looking for a way to challenge that decision.

The entire budget for redevelopment comes from tax collection. Property taxes have declined in Riverside. Because Riverside is an older city, it did not experience a dramatic decline in redevelopment funds. Overall, the city has experienced a 10 percent decline in property tax revenue.

On vacant properties, it can be typical for power meters to be gone. The city might have it removed if it presents a safety standard, or it might be stolen. Some people regularly look for abandoned properties to steal from. Early in the code enforcement process, Scott’s staff will record a notice of pendency. This allows investors to have records of these homes. The city’s goal is to get homes rehabilitated and reoccupied, so the city will work with investors. The city may even do on-site inspections with you, if you truly need it.

Tags: , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

166-TNG Radio – City of Riverside 3-20-10

Friday, March 19th, 2010

Deanna Lorsen

Deanna Lorsen, Development Director with The City of Riverside

(Full Bio)

Scott Barber

Scott Barber, Code Enforcement
Director with The City of Riverside

(Full Bio)

 stream

itunes

download

rss

Bruce Norris is joined this week by the Development Director for the City of Riverside, Deanna Lorsen, and the Code Enforcement Director for the City of Riverside, Scott Barber. Bruce, Deanna, and Scott discuss what their jobs look like on a daily basis, their core job functions, the state of the Neighborhood Stabilization Program (NSP), how Riverside has been dealing with the funds, how Riverside works with a private trust, the type of inventory Riverside is focusing on, and much more.

California has undergone a huge shift from a massive construction boom to becoming a foreclosure heaven. This transition has been difficult for Scott. He had to reduce his work force by 34 percent. He has moved some of his valuable employees to code enforcement from planning and building safety. These people are dealing with problems related to foreclosures and abandoned properties. His work used to be evenly spread between the areas of planning, building, and code enforcement, but now his work is mostly focused on code enforcement, and building has become a very minor part of his work schedule.

When the focus of Scott’s work shifted, he had to train many of his employees for different types of work. There are certain aspects of being a code enforcement officer, which you need to be prepared for, especially when you are inspecting abandoned properties. When you are a building inspector, you are accustomed to going to a job site where someone is waiting for you with plans and instructions, but when you got to an abandoned house, there might be someone waiting for you, but they won’t be waiting with a set of plans.

The process on foreclosed properties is very paper intensive. These jobs include a lot lender communication and follow up notices. Because of all the paper records that go into these jobs, Scott’s team never loses in court.

In 2008, the National Stabilization Program was created. Riverside city received $6.6 million and Riverside County received over $45 million. This money was used very differently between the county and the city. The city focused on existing single family foreclosures. Riverside city worked on getting these foreclosed homes rehabbed and sold. The county is more focused on partnering with large developers making track homes. The county covers 7,200 square miles, so they have a much larger focus. Riverside city has the ability to pay attention to individual neighborhoods.

Riverside’s $6.6 million was allowed to be leveraged. Riverside leveraged its money by adding in another $5 million from the redevelopment funds. Then, Riverside gained a letter of credit from a bank for $20 million.

Riverside’s focus is on houses that the market will not take care, such as homes that need substantial rehabilitation. The city of Riverside also tries to focus on areas of high foreclosure density. Scott is responsible for determining which places should receive the most attention. When neighborhoods look bad, they encourage other problems to occur, so Scott’s work makes a strong impact on neighborhoods.

Even through prices have decreased, it is still hard for Riverside to buy homes. It is not easy to find out who owns a “for sale” property, and it is not easy to get a deal from the owner. Deanna has had a lot of success when working with the National Community Stabilization Trust, which is a nonprofit group who works with banks to gain inventory. This company was made specifically to deal with foreclosed properties. The banks allow this company to know where the inventory is, and then the Trust gives the city a list of eligible properties. Some weeks Deanna might receive a dozen offers, and other weeks she may not receive any.

Not all the homes that Riverside city is offered will meet the city’s standards for purchasing. Riverside focuses on buying homes that will most likely not be bought by investors or anyone else.

Once the buying process starts on a home, an inspector goes to the home and makes plans for getting the house rehabbed. The inspector then works with the contractors on doing the inspections. Scott thinks that Riverside’s staff collaboration gives the staff a huge advantage over other jurisdictions.

The city of Riverside is not allowed to make a profit on the homes it sells. This restriction limits the city’s ability to buy certain homes, because it is not good for the city to sell a home at a value lower than the average asking price of the neighborhood. If the city sells for 15 percent lower than everyone else, then other appraisals will be affected by that sale.

25 percent of Riverside’s funds produce affordable homes for families with low income. For these people, Riverside targets small unit properties, and then works with a non profit company to make the housing affordable over the long term.

The city also looks into homes that need to be demolished. Once the land is made empty, Riverside partners with a nonprofit organization to build an affordable home there. Riverside partners with the private sector at every stage of home development. The city partners with private rehabilitators and brokers, which helps to produce jobs.

There is always money that comes out of sales. When this happens, the money is reused to buy new homes. However, after five years, any money the city has received from these home sales will go back to the Federal Government.

The money Riverside received for buying homes has provided the city with many opportunities. For one, it has provided jobs to Scott and his staff. Also, there are some properties that Deanna would never have been able to take care of without extra financing. The ability to repair severely damaged homes helps not only its buyer, but also its neighborhood’s value.

There is a domino effect for neighborhoods that see improvement or damage. A large number of foreclosures in a neighborhood will cause devaluation and more foreclosures. On the other hand, increasing a homes value does the opposite.

Riverside’s Municipal Code Section 611 states that when a house becomes vacant, you must maintain it and offer it for sale or rent. If this rule is not obeyed, daily fines will be accrued. These fines encourage banks to take care of the properties.

Bruce asks Scott how he notifies a lender about a property that has become a problem. When Section 611 became active, Scott received so many complaints about unmaintained properties that his staff was not been able to keep up with them. A regular case load for an officer is 100 to 120 active cases. When this program first started, the officers were carrying over 300 cases. All they could do is respond to the calls they received.

Scott has seen so many foreclosed homes that he can now spot a foreclosed home just by driving through a neighborhood. Foreclosed homes often have brown lawns, stuff on the front porch, and evidence of a break in. This look of foreclosure is the problem that Riverside wants to address.

The fines for unkempt properties apply to all parties involved in the foreclosure. This means that owner occupants, the investor intending to buy the property, and the bank that may eventually own the property can be fined for an unkempt home. Some of the calls Scott receives about unkempt properties come from neighbors to those properties, and some from departments of other cities.

Pools on unoccupied lands are a major concern for Scott. When someone calls Scott about their concerns for a pool on a foreclosed home, he has someone get to that home that day. Scott is concerned about someone drowning in an unoccupied pool. Unfortunately, Riverside has received a lot of rain, so Scott has been very busy with getting pools re-pumped.

Lenders can be hard to get in contact with, but Scott’s staff is typically very good at finding them. However, while the party responsible for the home is being found, Scott hires someone to board-up unkempt homes. After 180 days, the city can declare an unkempt property a public nuisance, and then the city has more options available for getting rid of such problems.

Scott has never had a case in which he could not find someone with some sort of financial involvement in a property. However, loan securitization has made it more difficult. Scott’s staff uses an online tax and title service to search for people involved in unkempt homes.

Tags: , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

165-TNG Radio – Peter Schiff 3-13-10

Friday, March 12th, 2010

Peter_Schiff

Peter Schiff

President of Euro Pacific Capital

 stream

itunes

download

rss

Bruce Norris is joined this week by President of Euro Pacific Capital and author of Crash Proof 2.0, How to profit from the Economic Collapse, Peter Schiff. Peter is currently campaigning for the Connecticut Senate seat to replace Senator Dodd.

Europac.net is Peter’s website and the number to reach his group is 800-727-7922.

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, including The Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and appears regularly on CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V. His best-selling book, “Crash Proof: How to Profit from the Coming Economic Collapse” was published by Wiley & Sons in February of 2007. His second book, “The Little Book of Bull Moves in Bear Markets: How to Keep your Portfolio Up When the Market is Down” was published by Wiley & Sons in October of 2008.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign. He holds FINRA Series 4,7,24,27,53,55, & 63 licenses.

In 2007, the crash was not obvious to many, but it was to Peter. Peter thinks he understood the economy better than most of the people in Wall Street and the government. Peter was better prepared because he was writing books about the economy, and he was working in the brokerage industry. He received many emails from other people who agreed with his views.

Peter believes the problem is that too many people learned Keynesian economics, and as a result, they had no understanding of how economies truly work. It is hard to see a bubble when you are inside one. Peter saw people buying houses at prices they couldn’t afford. He knew that lenders were letting people buy homes with no down payment, they were letting people lie about their income, and they weren’t documenting their assets. He knew the government was guaranteeing all that debt through Fannie and Freddie, and he understood the moral hazard of that behavior. He knew the Federal Reserve had interest rates much too low. He knew that the economy was in a mess, and that we were simply inflating a bubble. Peter claims you didn’t have to be a rocket scientist to see this problem coming; you just had to be an idiot, or too immersed in the bubble to see it coming.

Bruce saw many of the people who Peter debated, and they were very confident when they claimed Peter was wrong, and they still do. Many of these people still think that the economy is recovering right now, and that Ben Bernanke made the right choice by stimulating the economy. Peter thinks Bernanke made the problem worse. We are trying to reinflate a bubble, but this behavior is just going to make problems worse.

Bruce asks Schiff what he would label his State of the Union speech, if he was to give one. Peter does not think that the Union is currently sound. Right now, he is running for Senate in Connecticut as a Republican nominee. Peter believes that Chris Dodd enabled the housing bubble by giving support for Fannie and Freddie while they were making bad decisions. Schiff thinks we need to restructure our government, because it is spending too much and it is too big. Right now, the government is actually trying to expand rather than shrink, and that causes an increase in spending. We need to change our tax policy. Right now we are punishing hard work, savings and investment. We need to raise revenue through consumer spending. We need to remove many of the regulations that are distorting the free market. We cannot pretend that we can buy everything from China and Japan, and then pay for those products by borrowing money.

For inflation to occur, you need to have a central bank creating a lot of money. Typically, the catalyst for inflation is government spending. When governments spend more money than they collect in taxes, they often get the difference from their central bank, and this is happening right now. Not only do we have all the ingredients for inflation, but we also have the ingredients for hyper inflation. Unless the government makes changes, we will have hyper inflation.

Inflation has not been a big factor yet, but Peter believes that this is because we cannot see it. We should be currently experiencing deflation but we are not. Prices should be falling, which would be helpful to the economy, but the government is preventing price reduction through inflation. One thing that Keynesians don’t understand is that high unemployment causes high inflation. Keynesians think there is a trade off between high unemployment and low inflation; this is actually the opposite of the truth. Generally speaking, most countries will low levels of employment have low levels of inflation. When you have fewer people working and producing goods, governments print more money to stimulate the weak economy.

In the 60s and 70s, we believed in the Philip’s curve, which got us in trouble. Bruce asks if the path to hyper inflation will take over a decade. Peter says it is up to the Chinese and Japanese. They have to decide when they will stop loaning us money that we cannot pay back. Peter doubts that this inflation process will take a decade. He thinks it will most likely happen over the next several years.

When the world stops buying our debt, we will either have the Federal Reserve print money to buy our debt, or we will make radical cuts in government spending. Peter hopes that we choose to cut our spending, but based on the current officials we have in congress, he believes we will choose to print money. Many countries throughout history have made the mistake of hyper inflation, and it has led them to disaster. Unfortunately, our government officials have learned nothing from history.

Peter does not think that our generation will see another politician like Paul Volcker; someone who is willing to take the necessary actions to save us from more trouble. In the 80s, we were lucky to have the support of Volcker and Reagan. Reagan understood that the government was too big, and he understood the importance of the dollar value. When Volcker was raising interest rates, politicians were calling for his resignation, but Reagan supported him. Right now, the person who occupies the White House is the complete opposite of Reagan. Obama believes that the free market is causing problems, and that the government is the solution. Bernanke is also the complete opposite of Volcker, because Ben supports mass amounts of government spending.

Home prices in California are firming, but this is occurring because the government is sustaining those prices. Right now, the government is actually making the problem worse. Builders are still making new homes, because the government is making it easy for people to buy homes with 3 percent down payments and low interest rates. If the market were in charge, prices would be falling so low that no one would want to buy and no one would be building new homes. What builders are doing is adding more homes to the incredible supply we already have. Once the government removes its influence, the collapse will be even bigger. We are still suckering people into buying homes that they cannot afford, and they are still able to extract equity from their homes which will soon disappear.

Peter believes that real estate prices need to fall, because the prices need to reflect a true market. In a true market, the average person should be able to put down 20 percent on a house, and then qualify for a mortgage without government guarantees. Also, people should have enough savings to pay for the other costs that come with owning a house. You need to have a reserve of cash for when emergencies, such as job loss, emerge. Prices need to fall to the point where people can do that, and Peter believes that this appropriate price rating is far away in California.

Keeping real estate prices artificially high is hurting the economy, because in order to inflate real estate prices, interest rates must remain artificially low. To do this, capital has to be sucked out of the real economy, which means that businesses cannot grow and expand. The more we keep home prices inflated, the more Americans will lose their job. Eventually, we will have higher real estate prices, but more Americans will be unemployed.

Right now, there are a lot of people who own houses who should not. For example, in California, renters were sucked into the market based on the expectation of making profit. The principal motivation for buying a house, for many of these people, was to make money. People will eventually realize that owning a home is not like owning a lottery ticket. There are many home owners who need to go back to renting. It is more flexible to rent, and it is typically less expensive.

Peter also thinks that many people bought larger homes they did not need during the real estate bubble, because they expected home prices to double. People expected their houses to appreciate to twice their purchasing amount. Once prices stop going up, people stop buying huge homes based on speculation, and they will simply buy what they need. Because of this market speculation, builders built too many mcmansions.

Peter also believes that California’s other big problem is that it is bankrupt. Companies are leaving, so the unemployment rate will be much higher in a couple years. When you are unemployed you cannot buy a home.

The only thing Peter believes will save California real estate is hyper inflation. However, Peter would not consider that to be a realistic solution. Hyper inflation may allow people to live in their expensive homes, but their other expenses, like air conditioning and eating, will become more expensive as well. Peter thinks that houses will still have their value, but people will be huddled in blankets; looking pathetic.

Bruce asks Peter, “When you get to the senate, can you change certain real estate policies, which will allow investors to receive financing? Investors are willing to put 20 to 30 percent down, but they cannot currently get financing for investing.”

This is because the government is directing all it’s financing to homebuyers and college student. Peter wants to stop the government from subsidizing anyone’s mortgage. This way, loans will go to the most credible borrowers, and the investors will surely be the most credible borrower. Peter would prefer to have an investor, who has the money, buy a property and maintain it, rather than keep an individual in his or her property when they don’t have the equity to maintain it.

Renting makes sense for a lot of people. Peter was a renter for nearly his entire life, because he made plenty of money and he felt it made more sense. In Florida, he rented a nice place for much cheaper than what he could have owned. He recently decided to buy for multiple reasons: 1) He was tired of moving around; 2) He paid 40 percent less than the owner who bought it in 2002. 3) It was 60 percent less than what the property was listed for 2 years ago. It would have cost him more money to build the home.

People ask Peter if they should buy real estate for financial reasons, and he tells them “absolutely not”. If you are thinking about real estate as an investment, then Peter thinks you should rent.

Peter believes that interest rates will increase at some point, because the government is artificially suppressing them right now. The longer we keep interest rates low, the higher they will end up. Many people feel encouraged to buy homes when interest rates are low, but Peter has the opposite perspective. Peter would rather buy interest rates when they are high, because prices are typically low when interest rates are high.

Bruce mentions that last time, prices did not decrease as the interest rates increased. Peter claims that this happened as a result of government interference. The Federal Reserve kept rates low in order to allow people to overpay for houses. Lenders also allowed people to buy a home without a down payment. These two factors encouraged people to buy, and as a result, people gained a positively speculative mentality towards real estate prices. The mania of real estate profit further encouraged home purchases.

You can no longer get an ARM, and only qualify at the teaser level. People were once able to get loans with 2 or 3 percent payments.

Peter’s website is www.europac.net

You can learn about his brokerage business at that website. Peter can help you invest your money around the world.

Peter’s recently published book is “Crash Proof 2.0”.

If you want to help Peter get to senate, his campaign website is www.schiffforsenate.com

Tags: , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

162-TNG Radio – Christopher Thornberg 2-20-10

Friday, February 19th, 2010

christopher-thornberg

Christopher Thornberg

Principal at Beacon Economics

 stream

itunes

download

rss

This week Bruce is joined by Dr. Christopher Thornberg. Dr. Thornberg is the founder of Beacon Economics, and he is one of California’s leading economic forecasters. He is one of the only economists who accurately predicted the crash and the recession that followed.

During the last show, Christopher discusses the proposal to allow a bankruptcy judge to determine what they should owe on their home. Bruce mentions that banks are not foreclosing on homes because if they did then  their losses would be incredible. Thornberg says the proposal for bankruptcy judges was being pushed for a while, but it came to an end because the right side of Congress was strongly against it. Thornberg thinks that most homeowners, whether they were in trouble with their home or not, would not have been supportive of that proposal. A large number of the people in financial trouble today are in trouble, not because they bought homes at the peak, but because they refinanced at the peak. People took money out of their home to buy toys, like cars and televisions. If you walked into a bankruptcy court, and showed the judge everything you’ve done with your finances, he would allow you to keep your home, but you would lose everything else. Also, a lot of people committed fraud on their mortgage applications, so they would certainly lose their home. Realistically, people should be happy that we still have non-recourse loans, because they can take your house but they can’t take everything else.

Christopher says there are no smart economists claiming that the U.S. has potential for deflation. The deflation in Japan is being caused because of their tight monetary policy. The potential for inflation is driven by the money supply. The government pursues a tight money policy, which means they don’t expand the money policy very much. Japan had problems with inflation in the 60s, and that scarred their national psyche. They have become so scared of inflation that they have allowed deflation to occur. If Japan wanted to get rid of deflation, all they need to do is start printing money.

Japan has huge national debt, but they don’t want to inflate because that would make their cost of borrowing increase dramatically. If the United States started to inflate, and that inflation coincided with a $20 trillion federal debt, we would be in trouble. However, our existing debt would become much cheaper, because the interest rates are fixed.

In 2009, banks changed the way they deal with distressed debt. They don’t need to be aggressive about how they value loans, even though many of their loans are under water. As long as the bank can keep the loan current, they don’t have to acknowledge the potential loss in that loan. If we forced a mark-to-market mentality on banks today, we would probably collapse the banking system. There would probably be at least 6,000 banks going out of business if we forced banks to comply with their actual Tier 1 capital needs. We do not have the man power or the money necessary to bail out all the depositors in those institutions.

This is similar to what Japan allowed to happen in their bank system, but it is not the same. Japan created what Christopher calls “zombie banks”, and they made it difficult for anyone to raise debt. Our banks do not have to worry about that problem as much.

One of the nice things about the American economy in comparison to Japan, is that we still have a competitive market. Christopher has some friends who have become employees of different companies due to bank buyouts. Eventually, they quit and decided to start their own bank. These people are becoming new entrepreneurs who pick up the slack for banks who will not lend. Christopher thinks that these kinds of people will be our saviors.

A little inflation goes a long way. The U.S. could easily inflate the economy, which would pick up the asset values, and that would take a tremendous amount of pressure off of our banking systems. The Federal Reserve has made the stance that they are anti-inflation. Christopher believes that Bernanke needs to think more realistically, because a little inflation would be a huge relief for our financial system.

When we have inflation, we usually have an increase in wages. However, wage increases do not usually occur quickly.

In 1982, Bruce refinanced his house to be an investor at 17.5%. That is the long run consequence of that kind of activity.

Bruce asks Thornberg if he foresees the United States having positive GDP growth over 1 percent. Thornberg feels very confident that this will happen. The U.S. economy still has a lot of problems to deal with. However, if the government backs off the stimulus and allows the economy to re-grow and if we have less consumer spending, and more exports, then we will have a great opportunity to grow as a country.

When we talk about GDP, we are talking about the fundamental ability for an economy to produce goods. Our ability to produce goods and services increases by about 3 percent per year, and we’ve been maintaining this growth for decades. The question is, “What are we losing that productive output for?” Thornberg thinks we’ve been using that output poorly. We have been using our output to supply consumer spending and to bring in imports. Also, we have lost our focus on exports and business spending.

We have had a demand shift from less consumer spending to more exports. It takes a while for supply mechanisms to restructure themselves to meet those new demands. It is incorrect to say that demand creates supply. The question is, “How is the supply being altered by the basis of demand?”

The U.S. GDP growth was supported by a lot of equity extraction. Now many people must to save for their retirement. Bruce wonders how much that hurts that which represents 70 percent of GDP engine. This is the point that Christopher has been trying to make. If we hadn’t had the big equity bubble, and if we hadn’t seen an extreme increase in consumer spending, then our ability to supply would have shifted to exporting and business spending.

California has a $1.9 trillion economy, and a $20 billion deficit. Our problems are political and not economic. Christopher thinks we simply need our leadership to make some basic decisions on how California will finance the ending of our debt problem. We don’t have a government that spends a lot of our money. The problem is that we spend it in the wrong places. At the same time, we are not a high tax state. We put high taxes on small bases, which makes us an unfriendly tax place for specific constituencies. Christopher thinks that we simply do not have the political will to get rid of our debt problem.

Christopher thinks that Prop 13 is a fiscal injustice. It amazes him that Prop 13 was even allowed to exist. Prop 13 under the fairness clause, which states that if you are receiving similar services then you should be paying similar dues. Prop 13 should have been rejected in the California Supreme Court. Thornberg thinks we need to get people to vote against this proposition, but we probably won’t make this happen.

Christopher does not currently know, for sure, if we have positive or negative migration in California. However, based on some of the recent reports he has read, California is seeing negative migration. This is largely due to the weak state of the labor markets. The good new is that once we get out of our mess, we will have a weak dollar and lower home prices. Christopher is optimistic that once we are done with this mess, California will show outstanding growth.

The United states has becomes the world’s largest debtor nation. The good news is that the dollar has to go down at some point in time. China, India, Russia and Brazil have made an explicit policy to keep the U.S. dollar strong. They do this by taxing their citizens in order to buy U.S. treasuries. This is a strategy that will someday end, and this will cause the U.S. dollar to fall. This means that they will buy a U.S. treasury, but they will probably lose at least 15 percent of the value in their investment, because of the decline of our value. They are taxing Chinese peasants to subsidize American consumption. They could stop investing like this if they wanted to, but that would immediately severely damage their currency. People keep saying that China is overcoming us, but that just isn’t true. If you owe the bank $10,000, the bank owns you. If you owe the bank $1,000,000, you own the bank. This is exactly what is going on with China. We own them, not the other way around.

Bruce asks what privileges we have as the world reserved currency status. Thornberg says that we get what is called “seniorage”. This means that we can print money, and other people will want to hang onto that money. As a result, we get a subsidy kick out of it. In reality, this is not that important of a status.

We’ve left our worries of private bank debt behind. The new worry in the financial markets is sovereign debt. A lot of nations have increased their spending to levels that aren’t sustainable. People are worried that we will see similar losses in sovereign debt as we saw in banking debt. As a result of this, more people are investing in the U.S. dollar, which is causing the U.S. dollar to improve. Unfortunately, Christopher does not believe this will help us recover.

Tags: , , , , , , , , , , , , ,
Posted in Radio | No Comments »

161-TNG Radio – Christopher Thornberg 2-13-10

Friday, February 12th, 2010

christopher-thornberg

Christopher Thornberg

Principal at Beacon Economics

 stream

itunes

download

rss

This week Bruce is joined by Christopher Thornberg. Christopher is an expert in the study of regional economies, real estate dynamics, and business forecasting. In 2006, he co-founded Beacon Economics which is an  economic research and consulting firm that specializes in real estate markets, local economic development, and public and private policy issues. Christopher has also been part of the Norris Group’s award-winning fundraising series, I Survived Real Estate.

Christopher and Bruce discuss the current state of the market and whether the market is truly experiencing a comeback or is it completely manufactured.  Christopher goes into detail about Bernanke and his current handling of the market.  Government actions has delayed the inevitable and Christopher and Bruce discuss what the different strategies have been and how effective they have been and how much longer we should expect to see these manipulations.

Bruce and Christopher talk about Fannie Mae and FHA and the growing issues with FHA’s portfolio. The Mortgage Bankers Association estimates 20% of the their loan portfolio is in trouble.

A complete transcription of the show coming soon.

Tags: , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

« Older Entries
Newer Entries »