Trovena Weblog

Real Estate Deals!

For those of you who'd like to own some real estate, this is what to look for.  This property in Oceanside, CA sold for 90k and rents for $1100 per month. That would produce a pretty healthy cap rate and would cash flow with 100% financing.

Christopher

DEAL OF THE WEEK: Riding the waves in Oceanside

By North County Times | Sunday, March 29, 2009 12:10 AM PDT ∞

(Photo by Bill Wechter -- Staff photographer)

September 1990: $99,500

August 1995: $33,000

August 2000: $114,200

August 2005: $309,500

February 2009: $89,800

Deal: 71 percent

This condo in Oceanside has taken a beating in price twice over. And unlike our previous Oceanside deals, this one is not in the Back Gate area, but south of Mission Avenue and between El Camino Real and I-5. The complex was brand-new in 1990 when this condo sold for just under $100,000. It went into foreclosure, and the deed was transferred to the U.S. Department of Housing and Urban Development, which resold the condo at a 67 percent discount in 1995. The condo rode the bubble to a peak price in 2005 before going into foreclosure again and reselling at another steep discount ---- below the original sales price 19 years earlier. The new owners are investors who hope to rent the two-bedroom, two-bath unit at $1,095 per month, said Leyla Pizza, the real estate agent advertising the property as a rental.

Know of a better deal? Contact staff writer Zach Fox at zfox@nctimes.com.

The great debate about financial advice...

Mr. Zweig, one of my favorite financial writers, lays out a scenario that will have massive implications for Americans in the future. Let's hope lots of you read this and contact your legislator asking for a fiduciary standard for investment professionals.

It's as simple as this. Would you rather ask Pfizer for advice about prescriptions or an MD? Turns out, most "financial advisors" work for the equivalent of the drug company. Thank about that.

Christopher

The Fight Over Who Will Guard Your Nest Egg

• By JASON ZWEIG

• Article

A power struggle in Washington will shape how investors get the advice they need.

On one side are stockbrokers and other securities salespeople who work for Wall Street firms, banks and insurance companies. On the other are financial planners or investment advisers who often work for themselves or smaller firms.

Heath Hinegardner

Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself and inspects firms every one or two years. Under Finra's rules, brokers must recommend only investments that are "suitable" for clients.

Advisers are regulated by the states or the Securities and Exchange Commission, which examines firms every six to 10 years on average. Advisers act out of "fiduciary duty," or the obligation to put their clients' interests first.

Most investors don't understand this key distinction. A report by Rand Corp. last year found that 63% of investors think brokers are legally required to act in the best interest of the client; 70% believe that brokers must disclose any conflicts of interest. Advisers always have those duties, but brokers often don't. The confusion is understandable, because a lot of stock brokers these days call themselves financial planners.

Brokers can sell you any investment they have "reasonable grounds for believing" is suitable for you. Only since 1990 have they been required to base that suitability judgment on your risk tolerance, investing objectives, tax status and financial position.

A key factor still is missing from Finra's suitability requirements: cost. Let's say you tell your broker that you want to simplify your stock portfolio into an index fund. He then tells you that his firm manages an S&P-500 Index fund that is "suitable' for you. He is under no obligation to tell you that the annual expenses that his firm charges on the fund are 10 times higher than an essentially identical fund from Vanguard. An adviser acting under fiduciary duty would have to disclose the conflict of interest and tell you that cheaper alternatives are available.

If brokers had to take cost and conflicts of interest into account in order to honor a fiduciary duty to their clients, their firms might hesitate before producing the kind of garbage that has blighted the portfolios of investors over the years.

Richard G. Ketchum, chairman of Finra, has begun openly using the F-word: fiduciary. "It's time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers," he told me. "Both should have a fundamental first responsibility to their customers."

When I asked whether Finra should be that single regulator, Mr. Ketchum replied: "Do we have the infrastructure and would we do a good job? We think yes."

Others disagree. "It would be lethal if Finra becomes the only regulator," retorts Tamar Frankel, a professor of securities law at Boston University. "Finra has an inherent conflict of interest, because it's the same people regulating themselves."

In testimony to the Senate in the past week, SEC Chairwoman Mary Schapiro said the agency is considering "whether to recommend legislation to break down the statutory barriers" that impose different regulations on brokers and advisers.

Ms. Schapiro stepped down earlier this year as head of Finra to lead the SEC. In 2005, when she was vice chairwoman of Finra's predecessor, Ms. Schapiro wrote a scathing letter to the SEC calling "this much-vaunted fiduciary duty ... imprecise and indeterminate."

When I asked her now if she still held that view, Ms. Schapiro replied: "I wear a new hat now. I completely get that I work for America's investors, so my perspective has changed. I think investors would rationally say that they prefer fiduciary duty as the standard of care. And they are entitled to have their interests come first, always."

Ms. Schapiro said it is too early to say who should be the lead regulator if brokers and advisers are brought under the same set of rules.

Ms. Schapiro sounds sincere, and they say there is no zeal like that of the convert. Here is hoping she means what she now is saying, and that Congress -- and the investing public -- will hold her to it. It is high time for everyone who says "Trust me" to be held to the highest standard.

Write to Jason Zweig at intelligentinvestor@wsj.com

Another active manager "embarrassed" by his own performance...

Dallas' Donald Hodges is humbled my his inability to "make good bets" in financial stocks last year. His fund falls from the top quartile to the bottom in 6 months ruining "a great 10 year track record". But, he's been working out in his luxurious home gym extra hard so he'll have the strength to make a come back. Please.

Poor guy. I guess he hasn't seen the data showing that only about 25% of managers beat the market over a 5 year period and rarely does that group beat it in the next five years. As it turns out, even a blind squirrel finds a nut every once in a while. I guess he thinks he's smart too for a while until winter comes.

Christopher

Top Fund Manager Sees Decade Ruined

Hodges, 'Very Much Embarrassed,' Regroups After Nearly 50% Drop in 2008

• Article

By SHEFALI ANAND

For many years, Donald Hodges ran one of the top-rated stock-focused mutual funds in the country. He also has lost money for his investors over the past decade.

A $10,000 investment in Hodges Fund made 10 years ago would be worth around $9,015 today, compared with $7,720 if it was invested in the Standard & Poor's 500-stock index. Years of stellar performance were wiped out by a 49.5% plunge in 2008, a much steeper fall than the S&P, and a 11% drop so far this year.

Brandon Thibodeaux for The Wall Street Journal

Mutual-fund chief Donald Hodges, in his Dallas office this month.

This hurts badly. "You carry it with you every place you go because you have friends investing with you," says Mr. Hodges, a silver-haired, 74-year-old Dallas money manager, who also suffers because he has money in the fund. "I'm very much embarrassed by our performance last year."

So, Mr. Hodges, who maintains a calm aura despite all, has found himself logging extra hours soothing clients. He has become more cautious in his new stock picks, leery about buying until he is sure they are unlikely to blow up. He also is working out more often at home with his treadmill and weights, trying to remain fit to tackle what lies ahead.

Mr. Hodges is emblematic of well-regarded fund managers with good track records who have been chastened in the short term. Of the 468 diversified U.S. stock funds that have had the same manager for 10 years through Feb. 28, 46% logged negative returns over this period, says fund tracker Morningstar Inc. In the same time, the S&P index has fallen an annualized 3.4%, including reinvested dividends.

Robert Hagstrom's Legg Mason Growth Trust was in the top quarter among peers over the 10 years ended December 2007. But after a 60% slide in 2008, weighed down by bad bets in financial stocks, the fund is now among the worst performers in the growth category. Mr. Hagstrom says he expects the fund to do a "great job" coming out of this poor period, as it has done in the past.

Neuberger Berman Partners Fund, which lost 52% in 2008, is down an annualized 2.4% over 10 years through Feb. 28. Big stakes in energy, materials and industrial stocks fared poorly. "Our numbers were fantastic through June, and then we fell of the cliff massively," says manager Basu Mullick. He notes that this year, the fund is ahead of the S&P by seven percentage points.

Hodges Fund suffered in the last part of 2008 because of declines in the likes of offshore-drilling firm Transocean Inc., American Airlines parent AMR Corp. and Texas Industries Inc., maker of industrial materials like cement.

Mr. Hodges's son Craig, 45, joined as a co-manager 10 years ago. "Having to see him go through this in the twilight of his career is a little bit tough," he says

The "go-anywhere" Hodges Fund -- Donald Hodges invests in both value and growth issues, and ranges from small- to large-market capitalizations -- was founded in 1992 and rose to $750 million in assets by early last year. But now it is one-third that size, thanks to the brutal decline and outflows of around $31 million for the first two months of this year.

Mr. Hodges grew up in the small Texas ranching town of Canadian. After working for others as a broker and money manager, he founded Hodges Capital Management Inc. in 1989, now headquartered in the 100-year-old former official residence of a Dallas mayor that boasts of oak and maple floors. His two other children also work with him, in marketing and operations.

Time was when Hodges Fund routinely ranked at or near the top of its category. In 2003, the bounce-back year from the tech-bust bear market, the fund clocked an 80% return, followed by double-digit showings right up to 2007, when the market's downturn began and it managed an 8.5% performance.

Glory Days

In three consecutive years through the end of 2007, the Hodges Fund won awards for having the best five-year performance in Lipper Inc.'s category of multicap core funds. Even now, Mr. Hodges frequently appears in the media.

In the first half of 2008, even as the broad market fell, Hodges Fund held up relatively better because it had few financials. In the summer, Mr. Hodges took time off for an investors' cruise to Asia. He received a daily update on the fund portfolios via faxes and emails.

But after the collapse of Lehman Brothers Holdings Inc. in September, several of his fund holdings were hit hard. Mr. Hodges figured it was a buying opportunity -- a strategy that had worked well for him coming out of the 1982 and 1987 market slumps.

He bought some cheap shares that he thought would hold up. One was Cal-Maine Foods Inc., a large producer and distributor of eggs. Wrong move. That stock has dropped 42% since September.

In recent months, Mr. Hodges has been spending a lot more time on the phone with clients, at times simply letting them vent. Recently, a client called him and repeatedly mentioned how much money the fund had lost. Mr. Hodges didn't argue, and said instead: "I haven't done well. I'm sorry about that."

Going for the Rebound

Mr. Hodges is fixated on turning around his fund. He is staying with holdings he thinks will rebound, such as oil-related stocks. "It becomes a question of proving yourself to yourself, and to your clients," he says.

Still, he has become gun-shy about jumping into new stocks. For weeks, he had been eyeing a small company called Coinstar Inc., which among other things rents out movie DVDs for $1. Mr. Hodges has owned the stock before and believed it was cheap when it was down 22% from last June's high, but only recently did he buy shares.

"A year ago, I would probably have stepped up quicker," he says.

"You have to be somewhat forgiving of yourself, and realize that over a period of time you've done well," Mr. Hodges says. "And that day will return again."

Write to Shefali Anand at shefali.anand@wsj.com

Vegas going down...

I was in Vegas a few weeks ago for a conference. (Really, I was working.) I saw this monstrosity called City Center and thought, if that was debt financed, it's going to fail. Sure enough, looks like it is. It's too bad because it is one impressive facility. Someone told me, "In real estate, it's the third owner who makes the money." Looks like it isn't going to be this owner who is largely Dubai and MGM.

Christopher

Las Vegas Project Weighs Bankruptcy

Woes at Massive City Center Project, MGM Mirage's Centerpiece on the Strip, Rattle Casino Industry

By JEFFREY MCCRACKEN

And Tamara AudiCity Center, the $8.6 billion Las Vegas development owned by MGM Mirage and DubaiWorld, is preparing for a potential bankruptcy filing that could bring the massive project to a halt, according to people familiar with the situation.

MGM Mirage and investment partner Dubai World appear unlikely to make a $220 million payment due Friday on City Center -- a massive resort and casino project under construction on 67 acres. City Center has hired Dewey & LeBoeuf to prepare itself for a possible bankruptcy filing, and the firm's Martin Bienenstock, a noted bankruptcy attorney, is handling the work, according to people familiar with matter. The law firm of Weil, Gotshal & Manges LLP is working for MGM Mirage on a range of legal issues, according to these people.

A filing could come this weekend, depending on talks among MGM Mirage, its lenders and Dubai World, these people said. There is a possibility that any filing for court-protection could be averted if the talks lead to an agreement.

CityCenter Land, LLC

A rendering of MGM Mirage's City Center. A debt payment is due Friday.

Dubai World, a conglomerate owned by the government of Dubai, has sued MGM Mirage for breach of contract and blamed it for cost overruns. It also signaled it won't provide its half of Friday's payment. MGM Mirage, meanwhile, is struggling to persuade its reluctant lenders to allow it to solely fund the project. While talks between MGM Mirage and Dubai World were ongoing Thursday night, there "may be no choice" but for City Center to file bankruptcy "if Dubai World doesn't fund," said a person close to MGM Mirage.

The casino company faces a cash crunch as it tries to meet obligations on more than $13 billion in debt. The company narrowly averted defaulting on loans last week and warned that it could default by mid-May.

City Center's troubles could spill out across Las Vegas. The project is a stark example of how excesses spawned during a lengthy gambling boom are coming back to haunt the casino industry. The project is so large that thousands of workers depend on it for jobs. At the same time, it has the rest of the city's casino industry on edge. If it gets built, it would add thousands of high-end hotel rooms that would cannibalize business from the city's gambling tables and hotels.

Missing Friday's payment would start the clock ticking on City Center's future. Work could grind to a halt within days, idling 8,500 construction jobs, said a person familiar with the talks between MGM Mirage and Dubai World. A delayed opening would also risk the jobs of 12,000 workers who are to staff the complex.

A shutdown of City Center "would be devastating to the southern Nevada economy," said Steve Ross, secretary-treasurer of the Southern Nevada Building and Construction Trades Council, which represents 22,000 construction workers.

Las Vegas, a city known for its elaborate multibillion-dollar resorts, is already reeling. Echelon, a $4.8 billion resort project on the Las Vegas Strip, was shuttered last year after its parent, Boyd Gaming Corp., and partner Morgans Hotel Group struggled to finance the project. A Las Vegas Sands Corp. condo tower sits unfinished after the casino operator decided to concentrate on finishing other projects. Several projects were canceled before work even started.

Las Vegas has suffered as tourism revenue has declined for more than a year. Unemployment hovers near 10%, and hotel-room occupancy rates have fallen to below 90% -- unusual for a town used to operating at near capacity.

City Center's over-the-top extravagance was conceived in a very different economic climate. When the project was unveiled in 2004, Las Vegas was at the height of a luxury-driven tourism boom. Gourmet restaurants were over-booked, room rates were skyrocketing and pricey shows were sold out. City Center was envisioned as the crown jewel.

MGM Mirage, controlled by billionaire investor Kirk Kerkorian, saw City Center as the next step in the evolution of both the company and Las Vegas.

The project, with two sleek condo towers, a 4,000-room resort casino, two smaller luxury hotels, a monorail, $40 million in public art and its own fire station, was envisioned as a "city within a city." MGM Mirage executives saw it as nothing less than a reinvention of Las Vegas.

Shortly after the project was launched, MGM Mirage Chairman and Chief Executive Jim Murren said, "City Center represents what we feel is a significant new direction for our city and our company."

Kirk Kerkorian

Even under bankruptcy-court protection, construction could continue or be restarted once the two sides agree on how to fund the project. Neither company is likely to walk away. MGM Mirage has $1 billion in cash invested in the project, in addition to the land contribution. Dubai World has $4.3 billion invested.

While Las Vegas is worried about the impact on employment of a City Center delay, there is sentiment in the casino industry that any delay at City Center could help other casinos -- including those owned by MGM Mirage -- keep from losing even more visitors.

It is not clear what impact a City Center Chapter 11 filing would have on MGM Mirage's other finances.

MGM Mirage's lenders have become concerned enough about the situation that they have hired the law firm of Mayer Brown LLP as bankruptcy counsel, according to people familiar with the matter.

Bank of America and Deutsche Bank are the agent banks for MGM Mirage, said these people. MGM Mirage's lenders will not let the casino giant make the City Center payment Friday unless Dubai World makes its payment, according to people familiar with the matter.

MGM Mirage earnings are projected by Wall Street analysts to tumble to $1.2 billion to $1.6 billion this year, meaning to be in line with loan covenants it needs to reduce its debt to between $9 billion and $12 billion.

Write to Jeffrey McCracken at jeff.mccracken@wsj.com

The folly of economic forecasting...

For those of you who trying to forecast the economy, futility is your destiny. Here the UCLA Anderson School shows how well they've done. In September, they predicted we'd avoid a recession. Now, they're saying things will look better in 2012 and we've been in a recession since 2007! Folks, these are the experts who do this full time. Recessions end, but we can't say when. For all we know, it may be over now.

Christopher

ECONOMY: Jobless rate foreseen peaking at 12 percent, in double digits for three years

By CHRIS BAGLEY - Staff Writer | Wednesday, March 25, 2009 2:09 PM PDT ∞

California's economy will probably continue to ebb until late this year, and growth's return next year will not be soon enough or strong enough to keep unemployment from rising to nearly 12 percent, a team of economists said in a forecast this week.

The quarterly assessment released Wednesday by the UCLA Anderson Forecast noted what it said were the earliest signs of an economic turnaround, but argued that full recovery would take a couple of years.

Shriveling home equity, which economists have blamed for an 18-month slump in consumer spending, has nearly run its course, and home building has been so slow for so long that population growth could begin to nudge it back to life by year's end, Anderson argued. And a tsunami of deficit spending by the federal government will also push the state's economy along, according to the forecast.

But Anderson acknowledged that its predictions are highly uncertain, even by the standards of economic forecasting. Indeed, Anderson forecasted in September that the U.S. economy would narrowly dodge a recession; three months later, the semi-official panel that measures economic cycles concluded that the nation had been in recession since December 2007.

And Anderson forecasted three months ago that California's jobless rate would rise to a plateau of 9 percent this year; in fact, a monthly survey of 5,500 Californians showed joblessness topping 10 percent in January and hitting 10.5 percent in February.

Some sectors of the economy will continue to shed jobs well into 2010, even as business begins to pick up again in others, lead author Jerry Nickelsburg wrote in the forecast. The state's unemployment rate could hit 11.9 percent in the second quarter of next year and remain in double digits through 2011, he wrote. Similar peaks at the local level would mean 10.2 percent joblessness in San Diego County and 13.6 percent joblessness in the two-county region of Riverside and San Bernardino.

"California is in for a rough ride in 2009," Nickelsburg wrote. "There does not appear to be anything uniquely Californian to bring us out of the recession."

One large hurdle for the state is the enormous and persisting debt of its government. Federal spending aimed at stimulating economic activity will merely help to narrow the state's deficit, Nickelsburg said. The sheer scope of the spending now foreseen by the Obama administration is unprecedented, so it's difficult to predict its exact impact, Nickelsburg said.

And the state's relatively cumbersome process for approving public-works projects will delay a large portion of that impact, he said.

It's also unclear how deeply California's real estate markets will be undercut by the rising unemployment, Nickelsburg said, echoing other economists. It will depend on how many people let their homes slip into foreclosure after losing their jobs, economists have said.

On the upside, California's relatively large number of technology-oriented firms ---- particularly in the field of alternative energy ---- stand to benefit from Obama's push for clean and efficient energy sources, Nickelsburg wrote.

British PM gets a serious tongue lashing about fiscal responsibility...

Daniel Hannan MEP: The devalued Prime Minister of a devalued Government

Source: www.youtube.com

Daniel Hannan, MEP for South East England, gives a speech during Gordon Brown´s visit to the European Parliament on 24th March, 2009. Read Daniel´s blog at www.hannan.co.uk

Scott Leonard Calls the Market Bottom … Again

I don’t want to jinx this, but it looks like we hit the market bottom back on March 9th.  From March 9th through March 23rd, price changes for the following indices are as follows:

Dow Jones Industrials          18.77%

S&P 500 Index                       21.64%

Russell 2000 Index               26.35%

NASDAQ Composite              22.63%

KBW Bank Index                   65.84%

Actually, I am not looking into my crystal ball and predicting that March 9th was the bottom.  It may be, but I really don’t know.  The point of sharing this is to express how completely volatile the market is, in both directions.

Interesting article on the "help" the west provides Africa.

Once again, handouts, rather than self sufficiency, fails and makes the problem worse.

Christopher

Why Foreign Aid Is Hurting Africa

Money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial, says Dambisa Moyo.

By

DAMBISA MOYO

A month ago I visited Kibera, the largest slum in Africa. This suburb of Nairobi, the capital of Kenya, is home to more than one million people, who eke out a living in an area of about one square mile -- roughly 75% the size of New York's Central Park. It is a sea of aluminum and cardboard shacks that forgotten families call home. The idea of a slum conjures up an image of children playing amidst piles of garbage, with no running water and the rank, rife stench of sewage. Kibera does not disappoint.

For you Ayn Rand fans....

Atlas Shrugged Tops Amazon’s Bestseller List

Washington, D.C., March 18, 2009--Earlier this year Ayn Rand’s prophetic novel Atlas Shrugged was selling at triple the rate it sold at in the beginning of 2008. Now the novel is soaring to even greater heights, and its trade paperback edition is currently in first place in the Classics category on Amazon.com’s best-seller list for sales in the United States. The 50th anniversary mass-market paperback edition of Atlas Shrugged ranks as #2 and the trade paperback Centennial edition ranks as #3. For several weeks Atlas Shrugged has been holding steady in the top 10 best-sellers in the broader United States Literature and Fiction category, and as of the writing of this release, different editions of the novel stand at #3, #5 and #6 in Amazon’s ranking.

In a recent Wall Street Journal op-ed, Yaron Brook, executive director of the Ayn Rand Institute, explained the parallels between Atlas Shrugged and today’s events.

“In Atlas Shrugged, Rand tells the story of the U.S. economy crumbling under the weight of crushing government interventions and regulations. Meanwhile, blaming greed and the free market, Washington responds with more controls that only deepen the crisis. Sound familiar?”

Brook also stressed the importance today of the book’s often overlooked message that capitalism cannot be properly defended without morally defending profit and self-interest: “. . . only an ethic of rational selfishness can justify the pursuit of profit that is the basis of capitalism--and that as long as self-interest is tainted by moral suspicion, the profit motive will continue to take the rap for every imaginable (or imagined) social ill and economic disaster. Just look how our present crisis has been attributed to the free market instead of government intervention--and how proposed solutions inevitably involve yet more government intervention to rein in the pursuit of self-interest.”

Those interested in understanding the morality of capitalism can learn more in Ayn Rand’s The Virtue of Selfishness--which, at #12 in the Classics category, is setting records of its own.

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This is a great blog by DFA's Ken French and Gene Fama

For those of you who adhere to the notion that markets are efficient this is a great way to follow the thoughts of two leading thinkers.

ABOUT FAMA AND FRENCH

Eugene F. Fama

The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business

Kenneth R. French

The Carl E. and Catherine M. Heidt Professor of Finance at the Tuck School of Business at Dartmouth College

Link to blog