Friday, July 31, 2009

374% Return on My Money

On July 17th in this blog I wrote that I had covered my short position in General Electric and went long the stock at $11.70 a share.

Well, take a look at the chart here.

Thank you GE.


A 14.4% gain in two weeks. Annualized that is a 374% return.

Not bad, eh? Talk about high yield investing.

Look at those beautiful gaps upward. And realize this chart only reflects prices at $12.00 and over. I was up before the chart even started.

As I will explain in later posts, GE is now the perfect traders stock. If you know how to read the tape (like me) you can play General Electric as a cash cow.

And in case you are curious what GE has to do with real estate, read this.

Robert J. Abalos, Esq.

Wednesday, July 29, 2009

I Would Buy PennyMac, Just Not at the IPO

PennyMac Mortgage Investment Trust ("PMT") will begin trading tomorrow with in a 20 million share IPO priced about $20 per share.

I am very bullish on the mortgage REIT sector these days. Below you will find an article from Bloomberg explaining PMT and how these REITs have risen phoenix-like from the ashes of market destruction.

The fundamentals of this sector are extremely strong. Record low interest rates, lots of so-called "toxic" paper to buy (which in reality is more like gold than sludge), and substantial talent in the industry looking for jobs, just like Stanford Kurland.

I'd buy PMT and the others after their IPO hype has died down. These vehicles have a long way back to respectability so there is no rush to jump in if you plan on holding them long term.

Robert J. Abalos, Esq.

Countrywide Alumni Seek Profits From Housing Collapse

By Elizabeth Stanton

July 29 (Bloomberg) -- PennyMac Mortgage Investment Trust, which plans to raise $400 million in a stock offering today, is betting that the people who helped create the housing crisis will know how to profit from the cleanup.

Chief Executive Officer Stanford L. Kurland, 57, was president and chief operating officer of Countrywide Financial Corp., the loan originator whose co-founder, Angelo Mozilo, was sued by the Securities and Exchange Commission. Ten other senior officials also worked at Countrywide, whose subprime loans have suffered from a 39 percent delinquency rate, according to data compiled by Bloomberg. PennyMac hopes to make money buying mortgages from failed banks and redoing the terms.

“People who are critical of Wall Street will find with justification things to criticize here,” said Stanley Nabi, who oversees $7.5 billion as vice chairman of Silvercrest Asset Management Group in New York. “They’re going to say, ‘Look, these are the people who created this crisis, and now they’re buying this paper on the cheap.’”

PennyMac operates in a growing market. More than 1.5 million properties received a default notice or were seized in the U.S. during the first six months of 2009, a record, according to RealtyTrac Inc., which sells mortgage data. Backed by BlackRock Inc. and Highfields Capital Management LP, PennyMac plans to charge fees similar to those at hedge funds as it tries to rehabilitate loans.

SEC Lawsuit

Rising default rates at Countrywide drove its shares down 91 percent through March 2008, prompting a sale to Bank of America Corp., based in Charlotte, North Carolina. Mozilo, who co-founded Countrywide in 1969, was sued in June by the SEC for allegedly hiding the company’s deteriorating finances.

Kurland quit Countrywide in September 2006, ending a 27- year career with the largest U.S. mortgage lender. Once considered Mozilo’s likely successor, Kurland was replaced by David Sambol, one of two top Countrywide executives who the SEC sued along with Mozilo. No one at PennyMac was a target of the lawsuit.

Ray Johnson, a spokeswoman at PennyMac, declined to comment, citing regulatory restrictions prior to initial public offerings. The company cut the size of the deal, scheduled for completion after the close of trading today, from $750 million on July 16 when it announced plans to sell shares for $20 each. They will trade under the “PMT” stock symbol.

Failing Banks

The real-estate investment trust says it will buy loans from lenders who failed as well as mortgage companies and insurers. In January, it purchased $558 million of mortgages that the Federal Deposit Insurance Corp. acquired last year after First National Bank of Nevada failed.

The collapse of the U.S. mortgage market has caused more than $1.5 trillion in losses at financial institutions worldwide and prompted the FDIC to close 64 U.S. banks this year, the most since 1992.

PennyMac’s investments may return 15 percent to 25 percent a year, said Evan Gentry, the founder and chief executive officer of G8 Capital, a private buyer of distressed loans and real estate based in Ladera Ranch, California. Two of Gentry’s funds use a similar strategy.

“New mortgage REITs look more desirable than at any time I can remember,” said Dean Frankel, a money manager at Urdang Securities Management who met with PennyMac officials on July 22 to discuss the offering. Urdang, a unit of Bank of New York Mellon Corp. in Plymouth Meeting, Pennsylvania, manages $1.5 billion of real-estate investments. “While we don’t generally invest in mortgage REITs, we are taking a hard look,” he said.

Property Stocks Fall

A Bloomberg index of mortgage REITs plunged 76 percent in 2007 and 2008 and fell 23 percent this year through March 5. It then surged 36 percent, trailing the gain in the Standard & Poor’s 500 Index by more than 6 percentage points.

PennyMac executives plan to charge a management fee equal to 1.5 percent of shareholders’ equity plus an incentive fee that’s one-fifth of profits above a certain level. It would be the first REIT since 2007 to succeed in charging an incentive fee, which are standard among hedge funds. While American Bethesda, Maryland-based Capital Agency Corp. and Cypress Sharpridge Investments Inc. of New York tried to, they scrapped those provisions prior to their IPOs in May 2008 and June 2009, respectively.

Pending Deals

At least six other mortgage-related IPOs are pending, five of which also aim to collect incentive fees. New York-based Sutherland Asset Management Corp. amended its prospectus yesterday to remove one.

Investors may agree with PennyMac that its connection with Countrywide is an asset, said Matthew Howlett, who analyzes real-estate securities at Fox-Pitt Kelton Inc. in New York. PennyMac’s offices in Calabasas, California, are less than five miles from Countrywide’s.

“They understand the reasons a lot of these borrowers ended up defaulting,” he said. “They’re uniquely positioned to identify and correct them, and that can be enormously profitable in this environment given the prices.”

PennyMac’s strategy may rely too heavily on the assumption that investor appetite for mortgage-related assets will recover, said Terry Wakefield. He is a consultant to the residential loan industry who helped design Fannie Mae’s mortgage-backed securities business in 1981 and later traded the derivatives at Salomon Brothers Inc.

High default rates on restructured loans may also deter investors, Wakefield said. About 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months, and 63 percent were in default after a year, according to a June 30 report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

“The big issue in PennyMac’s world is: Where are they going to sell those loans, assuming they’ve been effectively modified?” Wakefield said. “I don’t know a lot of people standing in line to buy those assets.”

Tuesday, July 28, 2009

Bruce Norris on Nightline Last Night: Good Inteview, Not so Good Advice?

I saw (quite by accident) an interview with real estate guru and investor Bruce Norris on ABC's NIGHTLINE last night.

You can see the same interview by going here.

I am a fan of Bruce Norris. He offers excellent advice on real estate investing through his website and his seminar offerings. I can't dispute that he knows what he is talking about and is honest about real estate as a career and investment.

But I strongly disagree with his suggestion made on NIGHTLINE that investors offer a way out of the housing mess by soaking up extra inventory. He suggested that Fannie recind the "Ten House Rule" on investments even to the most financially solid investors.

I couldn't disagree more.

Investors are a huge part of the problem in today's housing mess. Getting many of them out of the market is a better solution. Much of the excess inventory Norris and others bemoan was specifically created as fodder for investors. In places suffering the greatest pain these days like Miami, Las Vegas, and Riverside, CA (Norris' home turf) spec building specifically for investors to flip is the single largest reason there are so many unsold new homes never lived in by anyone.

Investors walk away from properties a whole lot faster than homeowners that live in them with their families. This logic is inescapable.

I agree with Norris that the government needs to do more to soak up the inventory choking the balance sheets of builders and developers. Obama's first time tax credit is doing little to accomplish this.

A much better solution than Norris or Obama offers is to monetize the tax credit up front so potential homebuyers can actually buy real estate. What good is a tax credit to buy property if you can't afford the purchase up front? This idea is working in California and is overcoming the prime barrier to home ownership---no down payment. The Obama tax credit should be extended to include all home buyers and last beyond the current December 2009 expiration date. It should monetize the tax credit up front so homebuyers that qualify for the credit can borrow against the credit to actually buy a home. This "loan" is then paid off at closing with the tax credit.

This would get empty homes filled with the most stable of occupants. Not tenants, but homeowners with families that plan on sticking around for a while.

America needs to view single family and condo home ownership as it has been since the dawn of time. A place for people to live, not capital to speculate. Homes should be viewed as homes, not rental properties. Real estate investors have plenty of other options beyond single family homes and condos. In fact, these alternatives offer much higher ROIs, cash flows, and more at lower risk.

This all said, I applaud ABC for giving Bruce Norris the chance to speak. He's a smart guy and well worth listening to any chance you get.

Robert J. Abalos, Esq.

Monday, July 27, 2009

Desperate Times Do Not Call for False Reporting

Today's new home sale numbers came out today and the mainstream press is having a field day proclaiming the end of the housing recession. Below you will find a typical article reprinted from the Associated Press. The original can be found here.

So what if June 2009 home sales rose by the fastest rate in eight years?


The mainstream media long ago became willing shills of many trade associations and government officials, constantly cheerleading markets to make the economy look better than it really is.

Remember the NASDAQ stock bubble of the late 1990s?

Remember the recent housing bubble?

Where was the mainstream media on both?

Now they are telling blatant falsehoods about the "recovery" in progress.

What recovery? When you are still losing money on the home you own or the one you just built day after day after day do you really feel recovered?

There will not be an end to the woes in the U.S. housing market until three things happen:

1. National income begins to rise, something a rising unemployment rate nearly in double digits does not suggest is going to happen anytime soon.

2. Home prices, new and used, start to rise.

3. Home sales, new and used, also rise year-over-year.

We aren't anywhere near #1 yet, let alone #2 or #3.

Shame on the media for lying to Americans. False hope is not hope at all.

Robert J. Abalos, Esq.


New home sales in June posted the fastest increase in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners.

While home prices are still falling, the figures released Monday were another sign the housing market is finally bouncing back. Earlier this month, the government reported that new home construction rose to the highest level since last fall. And data out last week showed home resales rose almost 4 percent in June, the third straight monthly increase.

"The worst of the housing recession ... is now behind us," said David Resler, chief economist at Nomura Securities. "We're turning the corner toward increased activity in housing."

New home sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000, the Commerce Department reported Monday.

Shares of big homebuilders soared on the news, with Beazer Homes USA up by more than 13 percent and Hovnanian Enterprises rising 8 percent in afternoon trading. But with home prices still falling, these companies won't be making much money anytime soon.

The median sales price of $206,200 was down 12 percent from $234,300 a year earlier and off nearly 6 percent from $219,000 in May.

In addition to lower prices, buyers are rushing to tax advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. Home sales need to be completed by the end of November for buyers to take advantage.

"The window of opportunity is closing," said Bernard Markstein, senior economist for the National Association of Home Builders.

June's results were the strongest sales pace since November 2008 and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units. The last time sales rose so dramatically was in December 2000.

There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply — the lowest level since October 2007. If that number falls to just over 6 months, analysts say, builders will feel more comfortable ramping up construction.

Fallout from the housing crisis has played a central role in the U.S. recession, now the longest since World War II. Foreclosures have spiked, homebuilders have slashed construction, and financial companies have lost billions.

But it will still be a while before homebuilders turn into an engine for the economic recovery. Construction levels are still weak because builders still have too many unsold homes sitting vacant.

Saturday, July 25, 2009

Creative Real Estate Warning from the Comptroller of the Currency

Thinking about buying one of those real estate get-rich-quick home study courses or seminars you see advertised on late night TV or the Internet?

Think again.

Creative real estate is a fraud and the gurus who sell this garbage know it.

Before you spend your hard earned money to enrich the pockets of some scam artist selling nonsense on the Internet compare the contents of the course you are considering with this warning from the U.S. Comptroller of the Currency. This is the U.S. government warning homeowners against mortgage and foreclosure rescue fraud.

Compare the course or seminar offering to the official warning. You will find that many of the "investment techniques" taught in these books, courses, and seminars are nothing more than the teaching of foreclosure rescue and mortgage fraud.

It's easy to make money when you STEAL real estate from desperate people.

Not so easy making it in an economy where real estate values have fallen 30% or more in the last three years.

The official warning is reprinted below from this source.

READ IT. COMPARE. Don't get scammed. Don't become a victim of mail fraud or even worse, a foreclosure rescue fraud con artist yourself.

Robert J. Abalos, Esq.


CA 2008-1
Consumer Advisory

Comptroller of the Currency
Administrator of National Banks

Washington, DC 20219

May 16, 2008 (Superseded by CA 2009-1 on April 21, 2009)

OCC Consumer Tips for Avoiding
Mortgage Modification Scams and Foreclosure Rescue Scams

Scams that promise to “rescue” you from foreclosure are popping up at an alarming rate nationwide, and you need to protect yourself and your home.

If you’re falling behind on your mortgage, others may know it, too — including con artists and scam artists. They know that people in these situations are vulnerable and often desperate. Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. Private firms frequently compile and sell lists of these foreclosed properties and distressed borrowers. After reading these notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They often advertise their services on television, radio, or the Web, and in newspapers, describing themselves as “foreclosure consultants” or “mortgage consultants,” offering “foreclosure prevention” or “foreclosure rescue” services. And they are only too happy to take advantage of homeowners who want to save their homes.

If someone offers to negotiate a loan modification for you or to stop or delay foreclosure for a fee, carefully check his or her credentials, reputation, and experience, watch out for warning signs of a scam, and always maintain personal contact with your lender and mortgage servicer. Your mortgage lender can help you find real options to avoid foreclosure. It is important to contact your mortgage lender early to preserve all your options. There are legitimate consumer financial counseling agencies that can help you work with your lender.

This Consumer Advisory, issued by the Office of the Comptroller of the Currency (OCC), describes common scams, suggests ways to protect yourself, provides information on U.S. government loan programs and counseling resources, and lists 10 warning signs of a mortgage modification scam.

Common Types of Scams

Here are some examples of scams related to mortgage modification and foreclosure avoidance.

  • Foreclosure “rescue” and refinance fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice.

    Remember that your mortgage lender should be the starting point for finding options to avoid foreclosure. You also should consider contacting qualified and approved credit counselors.

  • Fake “government” modification programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer.

    The scam artist’s name or Web site may be very similar to those of government agencies. The scam artist may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. So be wary of claims offering “government-approved” or “official government” loan modifications. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure. You do not have to pay anyone to benefit from them.

  • Leaseback/rent-to-buy schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.

    Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.

  • Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.
  • Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.

How to Protect Yourself from Mortgage Modification and Foreclosure Avoidance Scams

Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure. Remember that you do not need a third party to work with your lender — any such party should make the process easier, not harder and more expensive.

  • Contact your lender or mortgage servicer first. Speak with someone in the loss mitigation department for mortgage modification options and other alternatives to foreclosure.
  • Make all mortgage payments directly to your lender or to the mortgage servicer. Do not trust anyone to make mortgage payments for you, and do not stop making your payments.
  • Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.
  • Know what you are signing. Read and understand every document you sign. Do not rely on an oral explanation of a document you are signing — make sure that you read and understand what the document actually says. Otherwise, a document may obligate you to terms you don’t want or may even convey ownership of your home to someone else. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them. If a document is too complex to understand, seek advice from a lawyer you trust or a legitimate, trusted financial counselor.
  • Do not sign over your deed without consulting a lawyer you select. Foreclosure scams often involve transfer of ownership of your home to a con artist or another third party. Never agree to this without getting the advice of your own lawyer, financial advisor, credit counselor, or other independent person you know you can trust. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.
  • Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts that you sign. Again, never sign anything you don’t understand.
  • Report suspicious activity to relevant federal agencies, such as the Federal Trade Commission, and to your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims. If your complaint or question involves a national bank and you cannot resolve it directly with the bank, contact the OCC’s Customer Assistance Group by calling (800) 613-6743, by sending an e-mail to, or by visiting
  • Contact a legitimate housing or financial counselor to help you work through your problems.
    • To find a counselor, contact the U.S. Department of Housing and Urban Development (HUD) at (800) 569-4287 or (877) 483-1515, or go to
    • Call (888) 995-HOPE, the Homeowner’s HOPE Hotline to reach a nonprofit, HUD-approved counselor through HOPE NOW, a cooperative effort of mortgage counselors and lenders to assist homeowners.
    • Visit NeighborWorks America’s Web site at
  • Visit the following Web sites for further information:
  • Apply for a government-sponsored loan modification or refinancing. The U.S. government has developed a major loan modification and refinancing program to help homeowners find affordable loans and to save their homes.

    Ten Warning Signs of a Mortgage Modification Scam
    1. “Pay us $1,000, and we’ll save your home.” Some legitimate housing counselors may charge small fees, but fees that amount to thousands of dollars are likely a sign of potential fraud — especially if they are charged up-front, before the “counselor” has done any work for you. Be wary of companies that require you to provide a cashier’s check or wire transfer before they take any action on your behalf.
    2. “I guarantee I will save your home – trust me.” Beware of guarantees that a person or company can stop foreclosure and allow you to remain in your house. Unrealistic promises are a sign that the person making them will not consider your particular circumstances and is unlikely to provide services that will actually help you.
    3. “Sign over your home, and we’ll let you stay in it.” Be very suspicious if someone offers to pay your mortgage and rent your home back to you in exchange for transferring title to your home. Signing over the deed to another person gives that person the power to evict you, raise your rent, or sell the house. Although you will no longer own your home, you still will be legally responsible for paying the mortgage on it.
    4. “Stop paying your mortgage.” Do not trust anyone who tells you to stop making payments to your lender and servicer, even if that person says it will be done for you.
    5. “If your lender calls, don’t talk to them.” Your lender should be your first point of contact for negotiating a repayment plan, modification, or short sale. It is vital to your interests to stay in close communication with your lender and servicer, so they understand your circumstances.
    6. “Your lender never had the legal authority to make a loan.” Do not listen to anyone who claims that “secret laws” or “secret information” will be used to eliminate your debt and have your mortgage contract declared invalid. These scammers use sham legal arguments to claim that you are not obligated to pay your mortgage. These arguments don’t work.
    7. “Just sign this now; we’ll fill in the blanks later.” Take the time to read and understand anything you sign. Never let anyone else fill out paperwork for you. Don’t let anyone pressure you into signing anything that you don’t agree with or understand.
    8. “Call 1-800-Fed-Loan.” This may be a scam. Some companies trick borrowers into believing that they are affiliated with or are approved by the government or tell you that you must pay them high fees to qualify for government loan modification programs. Keep in mind that you do not have to pay to participate in legitimate government programs. All you need to do is contact your lender to find out if you qualify.
    9. “File for bankruptcy and keep your home.” Filing bankruptcy only temporarily stops foreclosure. If your mortgage payments are not made, the bankruptcy court will eventually allow your lender to foreclose on your home. Be aware that some scammers will file bankruptcy in your name, without your knowledge, to temporarily stop foreclosure and make it seem as though they have negotiated a new payment agreement with your lender.
    10. “Why haven’t you replied to our offer? Do you want to live on the streets?” High-pressure tactics signal trouble. If someone continually contacts you and pressures you to work with them to stop foreclosure, do not work with that person. Legitimate housing counselors do not conduct business that way.

Friday, July 24, 2009

Warren Buffett Says Now is the Time to Buy Stocks: He's Half Wrong

'Billionaire investor Warren Buffett says now is a good time to invest in stocks, despite the Dow Jones Industrial Average topping 9,000 for the first time since the beginning of the year.

Speaking during a live interview Friday morning on the CNBC television network, Buffett said he would much rather own stocks with the Dow at 9,000 than have a long position in U.S. Treasuries right now.

He said business is still flat, but that investors shouldn't wait until businesses turn around before investing in stocks again.

"If you wait until you see the robin, spring will already be over," said Buffett, chairman of Berkshire Hathaway Inc.

He did issue a warning about inflation, saying that the dollar would buy less 10 years from now than it does today. But he said that doesn't mean the actions being taken today to fix the economy are wrong just because it may cause inflation.

Buffett was on the business cable network to promote his partnership in a new series of Web-based educational cartoons known as "The Secret Millionaires Club." He said the idea behind the cartoons is to help entertain children and young people while delivering an educational message such as warning them about the dangers of credit card debt."

To read the complete article from the Nashville Business Journal, go here.

It goes to say I'm a huge Warren Buffett fan. I'm learned a great deal from him over the years. I'm also a long term Berkshire Hathaway shareholder.

But Warren is half wrong here.

The time to buy stocks was six months ago, when the market had cratered. Now is the time to prune positions, add to some for sure but get rid of all the easy money that rode the market tide back up to normal and average gains. Most stocks are overvalued now, not cheap.

Personal finance experts agree. You should always be buying stocks, regardless of market timing conditions. For Warren to suggest otherwise is a bit inaccurate. Dollar cost averaging is a great example of how to make money in the market regardless of stock price direction.

I see no great valuations in the stock market these days. Some cherry picking, yes. But most of the earnings gains lately have been made on budget cuts not income growth. It's easy to report good numbers based on slashing employment, cutting commodity costs, and reducing R&D budgets.

It's harder to do when you actually have to sell new things to new customers. I don't see any of that lately in the companies I study.

Warren is a great investor. He's an awful market timer.

Robert J. Abalos, Esq.

Wednesday, July 22, 2009

Bernanke to Senate: The Consumer Needs to Spend and They are Not

The article below is printed from CNN/Money. You can read the original by going here.

The reason I reprinted the entire piece is because I wanted you to have an illustration of absurdity right before your eyes. Here is Ben Bernanke telling Congress what needs to happen to help the U.S. economy knowing all to well it is precisely what is NOT happening. And NOTHING is going to make the U.S. real estate market improve until the U.S. economy improves.

Bernanke knows, for example, that Americans are not spending money despite his best desires that they would. Americans now have the highest savings rate since 1952. Wouldn't you save money too if you thought you would lose your job any day?

As to Bernanke's "let's state the obvious" comment that the economy is recovering when more jobs are being created, great news. But Bernanke ignores the simple fact reported by the Bureau of Labor Statistics that 7.2 million people have lost their jobs since this recession officially began in December 2007 and just last month alone another 433,000 joined the ranks of the unemployed.

Only in America do politicians talk of improvement through solutions when they know precisely the opposite is happening.

No, correction. Only in Washington D.C.

Robert J. Abalos, Esq.


WASHINGTON -(Dow Jones)- U.S. Federal Reserve Chairman Ben Bernanke told a Senate panel Wednesday that the shape of the economic recovery depends primarily on the evolution of the labor market and the health of the U.S. consumer.

Bernanke added that Fed officials expect a recovery to start off relatively slow, partly because consumers are grappling with high debt and housing price declines.

"We don't expect the consumer to come roaring back by any means," Bernanke said, adding that the American consumer isn't going to be the source of a global boom. He said U.S. officials are encouraging trading partners in Asia and elsewhere to substitute their own domestic demand for the American consumer. And we're seeing, for instance in China, "some motion in that direction," Bernanke continued, highlighting China's large fiscal stimulus package.

Responding to questions from lawmakers, Bernanke said that without the controversial $700 billion Troubled Asset Relief Program, or TARP, the economic recession would have been very deep and protracted and almost like a depression.

"The situation now is very poor," he said. "Americans are suffering. But I do believe we have a much better situation today than we would have if we had seen a collapse of the financial system last October."

Bernanke declined to wade into how to expand coverage and improve care in the healthcare system, beyond urging that the issue of cost remain on the "front- burner."

"Any program that is undertaken should look to how we're going to get control of costs so that it will not bankrupt both our government and eventually the economy," he said.

He added that troubles in both the commercial and residential real estate markets could continue to cause problems at banks.

"The systemic risks today I think come from the fact that the financial markets are still unstable," said Bernanke.

U.S. Sen. Charles Schumer, D-N.Y., meanwhile, said CIT Group Inc.'s (CIT) problems have made it clear that small businesses remain vulnerable and pressed the central bank to do more to help smaller firms get loans.

In response, Bernanke agreed that banks are cutting off borrowers who can repay. "Of course it's happening," he said, adding that the Fed is urging banks to loan to creditworthy borrowers. He added, though, that banks' loan terms are likely to be tougher as a result of the crisis and that helping small businesses is "one of the toughest areas" for the central bank."

Monday, July 20, 2009

MUST READ BOOK: The Subprime Solution by Robert J. Schiller

Most of what masquerades on the Internet and in the mainstream media as profound real estate information is pure rubbish.

Bunk. Nonsense. Regurgitated pablum written by communication majors and TV anchors and not genuine real estate professionals in touch with their markets.

A prime example of how to actually write a real estate book can be found in author Robert J. Schiller's newest book, THE SUBPRIME SOLUTION.

This book in one word---brilliant.

Schiller, who coined the now famous phrase with his book "IRRATIONAL EXUBERANCE" is a market visionary. He doesn't merely report on what is happening but, more importantly, what will happen.

And he's dead on accurate. He has a proven track record beyond reproach.

THE SUBPRIME SOLUTION explores more than just the problems of the subprime mortgage mess and how to fix it but explains a host of problems related to the real estate business in particular and the U.S. economy in general.

Schiller echoes many of the themes I have raised in my writings for many years. For example, I believe that the assumption that U.S. real estate prices will continue to rise as they have for the last two hundred years is a false premise. It is my opinion (and Schiller's too) that much of U.S. suburban development is obsolete, based on the automobile centric business model of suburban sprawl. I wrote about this in my 2001 book, INVESTING IN LAND.

Obsolete properties do not rise in value. Neither does real estate in a stagnant and declining national economy.

This book is critical of government policy that caused the mortgage mess but also offers many solutions I completely support, such as subsidizing the financial information given to investors with tax credits. The rich can afford to buy great unbiased investment advice and get tax deductions for it. The poor and middle class cannot. They rely on paid professionals (like real estate agents) who have a profit incentive for giving biased advice.

Skewed opinions based on the financial needs of others and not your own leads to bad investment decisions. Which give us the mess we're in. Ask anyone who bought at the height of the real estate market their opinion on this issue.

I cannot recommend this book more highly. It is the best analysis of the subprime mortgage nightmare I have ever read and offers more ideas, solutions, and quite frankly dire predictions for U.S. real estate than any book I've ever read.


For the record, I do not know Robert J. Schiller or have any financial stake in the sale of his books.

Robert J. Abalos, Esq.

Saturday, July 18, 2009

Get Rich Quick Real Estate and Foreclosure Rescue Fraud

Think about buying one of those get-rich-quick in real estate home study courses or seminars you see advertised on the Internet?

Think again.

Here is a news report from CNN anchor Gerri Willis on how foreclosure rescue fraud schemes work. This is a video report put up on You Tube and edited into two parts. Watch both.

Compare her report to virtually any creative real estate course being sold today. Same techniques, same promises, same procedures, same everything.

The real estate gurus that sell these courses are an embarrassment to the industry and themselves. They are criminals and they know it---but they don't care. They are making a fortune off the suffering and misery of innocent people, desperate people, the sick, the unemployed, and the elderly.

Law enforcement across the nation knows about their activities and the noose is tightening around their necks. I can't wait to see the scaffold drop and relish the pleasure of them dangling at the end of the rope.

Robert J. Abalos, Esq.

Friday, July 17, 2009

Thank You General Electric!

A few days ago I wrote in this blog about my short position in General Electric.

Well, today GE did not disappoint me or the other shorts out there.

Shares in General Electric fell a whopping 6% on heavy volume---almost double the normal trading average. Here is a news story on why GE fell so hard so fast today. The bottom line? A disappointment on earnings what else?

Over the last few days GE shares were actually rising, against my short position so I added to it, making today a windfall gain for me. This call was obvious ahead of what was surely going to be grim news for the company.

GE is a great company with superior managers coping with lots of bad market calls and a still deteriorating economy. It still represents a core holding for most investors since it is a bellweather stock for the U.S. economy. But a shrinking GE will mean a shrinking stock price for some time to come. GE Capital, once the growth engine of the company, is now an albatross about its neck.

So what is the future for GE's share price over the next few days, weeks, months? Check out those gaps up and down in the chart above. Not good for a company the size of GE. I'm now long the stock as part of a new position I'll explain at another time.

Buy on the rumor, sell on the news?

No. In GE's case today it was sell on the rumor, buy on the news.

Robert J. Abalos, Esq.

Thursday, July 16, 2009

Creative Real Estate Courses Teach Little More Than Foreclosure Rescue Fraud

Thinking about buying one of those get-rich-quick in real estate home study courses or seminars you see advertised on the Internet?

Think again.

Most so-called "creative real estate" techniques really are just the teaching of foreclosure rescue fraud. It wasn't always this way but it has become so today.

Just find someone in foreclosure. Get the deed to their home. Then strip out the equity.

Of course you can make money fast in real estate when you are STEALING the homes of desperate people, giving them false hope they can stay in their homes, and then crushing the last financial drop of blood out of their savings.

Here is an excellent article on foreclosure rescue fraud. Compare what is described in the article against virtually any creative real estate course being offered today and you'll see I'm right.

YOU DO NOT WANT TO USE THESE TECHNIQUES TO MAKE YOURSELF MONEY IN REAL ESTATE. People get sued, go to jail, and lose everything they own trying them.

Here is the full text of the article reprinted below. Read it and learn. I warned you. Save your money.

Robert J. Abalos, Esq.


Foreclosure rescue fraud is sweeping the country and can end up costing you the home and equity you're desperately trying to save from foreclosure.

In these tough economic times, mortgage foreclosure rescue scams are sweeping the nation. Foreclosure rescue fraud is both devious and cruel. Homeowners, finding it difficult to make ends meet and facing foreclosure, are promised help to save their homes. These scammers often turn around and steal the homes from those they promised aid to. Some collect large fees for services never provided and are never seen from again.

In any form, mortgage foreclosure rescue scams add insult to injury and are expected to grow in popularity with crooks as Americans default on their mortgages in larger and larger numbers.

Foreclosure rescue scams usually fall into one of the following three categories

  • Phantom help - In this scam, the supposed rescuer charges very high fees for basic phone calls and paperwork that the homeowner could have done. Or, the rescuer will make promise to represent the homeowner but will not follow through. This is really a too little too late scam as in the helpless homeowner receives too little (or no) help too late to stop the foreclosure from taking place.

  • Bailout - Here the scammer bails the homeowner out by helping them get rid of the house. The way the scammers get the house varies, but each method ends with the homeowner surrendering the title to the house on the promise that they can stay on as renters and buy the house back once things have been "fixed." In the end, of course, the homeowner can't buy the house back and the supposed rescuers get most, if not all, of the equity. (EDITOR NOTE: This is virtually every creative real estate course scam being offered in a nutshell.)

  • Bait and switch - This is much worse than the bait and switch routines executed by unethical car dealers. At least with those scams you still get a car. The only issue there is that, you just get to spend more money for a different car than you wanted. The bait and switch with foreclosure scams involves signing away the ownership of your home.

    The scammers will tell the victim that they are signing documents for a new loan that will solve their problems. In reality, they are signing forged documents that will give the crooks ownership of the home. To make matters worse, the victim will still owe for the mortgage but will no longer have the asset.

Perpetrators of foreclosure rescue scams prey on the desperate and weak

As is the case with any scam, avoidance is the best medicine. This is particularly true with foreclosure scams as undoing the damage done will involve money for attorney fees, time, and intervention by state regulators. When people are desperate, they will believe just about anything if it involves much needed help. Just remember, if something sounds too good to be true, it probably is.

These scams are so new, and the laws are so vague regarding them, that law enforcement has so far been reluctant to intervene. Even if the con artists were prosecuted, it would probably not be enough to save the home that was being foreclosed on in the first place.

Foreclosure rescue scams usually begin with offer too good to be true

For the purposes of our discussion, we will refer to the scam artist as a rescuer even though they are anything but.

  • A rescuer finds homeowners in need of "help" through local public-foreclosure notices. Believe it or not, there are actually companies that specialize in compiling and selling such lists.

  • The rescuer advertises their service by dropping a card or flier on the victim's doorstep or calls to offer their service. The rescuers have also taken to posting ads in public places. Ignore posters, fliers and especially handwritten notes offering help for your foreclosure.

  • A meeting is set up. At the meeting, the rescuer builds up the victim's hope and promises a fresh start. There are also empty promises made such as that they will sell the house back to the victim at some point. What typically happens is the rescuer sets the rental price at a level that the victim cannot afford, then they move to evict them for failure to pay the rent. What's even worse is that all it took for the rescuer to buy the property was to payoff the delinquency.

  • The rescuer will recommend that you break off contact with the lender and any counselor that you may have been working with. This is the exact opposite of what you should be doing. If you are in a foreclosure, you need to be in contact with your lender to find out what you can do to fix the problem.

  • The rescuer will do very little to help leading up to the actual foreclosure. They might make a phone call or have their prey sign some innocuous paperwork to make it look like they are really trying to help. Then, when it is too late to stop the foreclosure, the property is either taken when the scam is completed or sold to someone else at foreclosure. If the latter event happens, there is little if any equity left due to the rescuer's fees.

  • Homeowners who thought they had a deal to continue as renters can now be evicted from the very house that they owned. Even worse, because the mortgage was not paid off, the victims are without a place to live and owe the mortgage!

Foreclosure rescue fraud utilizes basic tactics and conditions to gain the victim's trust

It seems like foreclosure scams would be too complicated to execute. At their most basic, however, they utilize some very basic tactics under favorable (to the con) conditions.

  • The use of lies, exaggeration, misinformation and pressure.

  • Blind trust in someone that the victim's think really want to help them.

  • Fraud, deception and forgery.

  • The desperation of the victim who feels his or her dream slipping away.

  • Affinity fraud. These scams are often perpetrated by people of similar ethnic, racial, religious or age groups. The crooks understand that people who are like you are more likely to be on your side.

  • The homeowner's often lack in education or financial sophistication.

Foreclosure is difficult enough without scams being involved in the process. Follow these do and don'ts

  • Do not bury your head in the sand. The problem will not go away, and will only get worse if you ignore it.

  • Do make sure that you are in foreclosure. If you are behind in payments, you will receive what is called a deficiency notice. These letters notify you of your delinquency and give you a chance to resolve the debt. If you receive a Notice of Trustee's Sale, or similar document, you are in foreclosure.

  • Do speak with your lender. Try to work with your lender to restructure the payments or refinance the loan.

  • Do learn the laws regarding foreclosure for your state. It is important to know how much time you have to resolve the issue.

  • Do contact a counseling agency. This is often too big of an issue for a person to handle on his or her own. Make sure that the counselor is certified by the Department of Housing and Urban Development (HUD). Their website is

    Be careful when choosing a counselor and pay attention to the certification requirement recommended above. Some counselors are scammers in their own right and will overcharge for services that they not even provide. It's really very easy to tell a scammer from a legitimate counselor: You should not have to pay for legitimate housing counseling.

  • Do contact an attorney. You can find one through the National Association of Consumer Advocates ( ). Remember, you get what you pay for so you may be better off searching locally for a consumer protection attorney.

  • Do not sign a contract under duress. Always request to take time to review any documents on your own and at your own pace.

  • Do not enter into oral agreements. Get in any offers in writing and tell whoever is making the offer that you and/or your representative will review any and all offers.

  • Do not make payments to any party other than the lender.

  • Do not sign a home-sale contract where you are not released from your existing mortgage.

  • Do not sign a quit claim deed without being specifically instructed by your attorney or representative to do so. Do not agree to any deal that allows you to rent the property and then buy it back at a later date.

  • Do not accept an offer from somebody who wants to make good on your missed payments and take the house off your hands in exchange for documents that assign them the surplus from the foreclosure sale. Think about it, if you owe $200,00 on your mortgage, plus arrears of $10,000, and your house is worth $250,000, you stand to make money on the sale.

  • Do sell your home but only if there are no other options. It is not always possible to resolve delinquent mortgage payments. Selling a home and receiving the equity is much preferred to having your home stolen by thieves.

What do to if you get caught in a foreclosure rescue scam

If you get caught in one of these scams it is imperative that you contact a consumer protection lawyer right away. An attorney can assist you as you navigate your way through hearings with enforcement agencies, eviction hearings and in lawsuits. Not a pretty picture.

If you believe that you are the victim of criminal activity, such as forged documents being presented for your signature, you should contact your local law enforcement agency. Unfortunately, these scams are so new that there aren't many resources available to fight them. Consumer protection groups are already advocating for laws to fight these types of scams.

Wednesday, July 15, 2009

An 848 Mile Golf Course? A Great Use for Land

I think this story is amazing. The Australians have built themselves an 848 mile long golf course.

It's a great use for land that essentially has little intrinsic value. It will surely draw tourists and make money for the promoters. After all, it got my attention. I'd love to play it. Plus see all the historic sites along the way. Lots of fun to be had.

Nice plan. But I dare someone to walk the course. I'm sure someone will. (Not me.)

Robert J. Abalos, Esq.

Tuesday, July 14, 2009

I Know I'm Great But This is Ridiculous

JUST ONE DAY, just one teeny-weeny day after I proclaimed in this blog the coming severe decline in high end real estate prices in Seattle a major developer is announcing a TWENTY PERCENT INSTANT PRICE CUT on the sale of his condos in Bellevue, Washington.

Today's Seattle Times announced in an above-the-fold headline the big news. You can read it here.

I know I'm great at market predictions but this ridiculous. I've been forecasting the Seattle real estate market with psychic clarity for nearly five years now. I predicted buyers of Seattle real estate wouldn't make a nickel on their purchases in a prior incarnation of this blog in 2004 and guess what? I was right. Today's prices are below 2005 and falling. Here is an excellent blog discussion of Seattle real estate prices in 2009.

But I was saying this stuff back in 2004.

Robert J. Abalos, Esq.

Real Estate Opportunity of the Future: Chinese REITs

Read this article from Asia Legal Business for some background on REIT legislation in China.

Realize when REITs come to the mainland the bidding frenzy for these shares will be amazing. Lots of long and short opportunities galore.

In the meantime, study the Chinese real estate market in general. Developers are chomping at the bit for liquidity and capital. Here is an excellent overview of investing in China. I'll admit that the information here looks dated (2005) but for the most part little has really changed except the numbers. The trends mentioned in the article really have just continued as described. It's the synopsis you really want here. The raw data numbers can come later.

I'll have much, much more on this subject in the months to come.

Robert J. Abalos, Esq.

Monday, July 13, 2009

High End Real Estate Market Next To Crash

Here is a great article from Henry Blodget on why the high end real estate market will be the next to crash.

He's absolutely right. I see it where I live in Seattle and in the ultra-rich communities that surround the city, places like Mercer and Bainbridge Islands, Medina, and along Lake Washington.

Demand for these properties have held up fairly well over the last year or so. After all, rich people are rich. They can spend money when others don't have any.

But lately, the market is as soft as a month old banana. MUSH.

Look for bargains in this area for sure. MAJOR ones. 50% specials. But of course these properties are usually all cash deals and even a $5 million house selling at half off is still a major capital suck.

Robert J. Abalos, Esq.

Sunday, July 12, 2009

Near Zero Interest Rates for Years To Come???

Read this truly bizarre commentary from San Francisco Fed President Janet Yellen in FORBES magazine.

If she actually believes what she is saying she should be put on trial for silliness.

I always knew there was a reason we needed to abolish the Fed. Know I know why.

Robert J. Abalos, Esq.

Friday, July 10, 2009

Ten Things Your Real Estate Broker Won't Say

This is a super great article from Smart Money. The title of this post and the title of this article sum it up.

I agree with everything the author says and more. READ THIS!

Robert J. Abalos, Esq.

General Electric: What Happened?

This is a five year chart of General Electric, once the darling of the financial world. Jack Welch was as close to a God on Wall Street as ever there was one.

But take a look at the chart now.

GE has been dead money for at least five years---going nowhere and then down fast.

A friend of mine recently asked me to take a look at GE prior to making an investment in the stock. I did so with an open mind. GE is not a company I followed or owned. For the record, I have not owned a share of GE stock in many years. Not my type of company. Too large. Conglomerates are too tough to value.

Anyway, I was really shocked by the lack of transparency on most of the accounting issues GE uses to report earnings. "Black Box" accounting should really be a trend of the past. How can you value a company when you really don't know how it make money? If you think I'm the only analyst who feels this way about GE, think again. Read what these analysts have to say about the stock they cover full time.

What I learned about GE convinced both me and my friend to go short the stock. So far we've done well, nothing to write home about, but still the trend is our friend and we are buying our new pal drinks with the profits.

I read this great article from today and it pretty much confirms much of what I have been thinking about GE. Too big, too many capital issues, too many markets that are stagnant or in decline. Too much uncertainty.

At a P/E of 7 GE looks cheap relative to the market. Maybe it is. Going short GE means facing off against Warren Buffett who is long the stock via his convertible bond holdings. In the short run, however, I can't see anywhere else for this company to go but down. I'm keeping a close eye on the tape and will close out any short the moment I see a new trend forming but in the absense of any good news about the stock I can't recommend it.

And this is sad. GE is an American institution and I would like to own a piece of one. Maybe I will when I can clearly see a bottom, both in the stock price and how it reports earnings.

Robert J. Abalos, Esq.

Thursday, July 9, 2009

Vornado Realty Trust to Buy Assets Off Balance Sheet: What About the Shareholders?

I am a huge fan of the management team at VNO. These people are GOOD at what they do.

But I am disturbed by a report in yesteday's Wall Street Journal on how VNO is attempting to raise $1 billion to buy distressed real estate assets off its balance sheet. In other words, they want to run a hedge fund and collect fees instead of buying assets for the REIT.

Here is a story from Bloomberg that pretty much says the same thing.

As a long time VNO shareholder I have to ask---What about us?

Why should the management team of VNO pass on opportunities for current VNO shareholders and pass them on to outside investors, using the very same contacts, resources, time, and energy that should be exclusively devoted to the owners of VNO---namely people like me?

Yes, VNO will collect fees for such work.

Yes, other REITs like PLD do it. But PLD also develops these hedge fund property assets too, letting current shareholders wet their beak in these deals. (For the record, I also am a shareholder of PLD.)

I know the balance sheets of many REITs, including VNO, are weak and tired these days and in desperate need of some equity to do deals, especially at some rather amazing valuations in the commercial market. But off balance sheet financing has serious fiduciary dilemmas for companies attempting to have their equity cake and eat it too. Ask Warren Buffett and Charlie Munger who got burned in the 1970s attempting to have their fingers in too many pies.

The better course of action is to raise equity instead and reward the shareholders for all their faith and patience than let the vast majority of profits on these deals to slip away to outsiders for a small fee. Such corporate handiwork will inevitably lead to decreased earnings per share in the long run.

Where are the gains when they are being bled elsewhere?

Robert J. Abalos, Esq.

Friday, July 3, 2009

Poor Jobs Data Doom Any Talk of Quick Real Estate Turnaround

"The American economy lost 467,000 more jobs in June, and the unemployment rate edged up to 9.5 percent in a sobering indication that the longest recession since the 1930s had yet to release its hold."

To read the rest of the article from The New York Times, click here.

Anyone who is telling you that the current crisis in the U.S. real estate markets is about to end or that there is "light at the end of the tunnel" is either lying to you or has no clue what they are talking about.

Real estate markets are merely reflections on income. When income rises, so do real estate prices. This is true on a national level or in the smallest village anywhere in the world.

Take, for example, a tiny hamlet in the middle of nowhere. When jobs are plentiful, factories and stores open, and the restaurants full, real estate prices will rise because local income is rising.

When the same town is faced with closed factories, abandoned shopping malls, and a dying Main Street real estate prices will fall.

An economy cannot continue to lose 500,000 jobs a month and grow its way back to real estate prosperity. Until income rises, real estate prices will continue to fall. And like fighting gravity, income is going to have to rise sharp, fast, hard, and long to budge all types of real estate prices which have been driven down by inertia and want to stay that way.

Robert J. Abalos, Esq.