I encourage everyone to fill in the blank with the omitted years in this passage from a book I read about six months ago ..

"The common-stocks-as-long-term-investments doctrine. Along with this idea as to what constituted the basis for common stock selection emerged a companion theory that common stocks represented the most profitable and therefore the most desirable media for long-term investment. This gospel was based upon a certain amount of research, showing that diversified lists of common stocks has regularly increased in value over stated intervals of time for many years past. The figures indicated higher income return and a greater principal profit than purchases of standard bonds.

The combination of these two ideas supplied the "investment theory" upon which the (years omitted) stock market proceeded. The theory ran as follows:

1. "The value of a common stock depends on what it can earn in the future."
2. "Good common stocks are those which have shown a rising trend of earnings."
3. "Good common stocks will prove sound and profitable investments."

These statements sound innocent and plausible. Yet they concealed two theoretical weaknesses that could and did result in untold mischief. The first of these defects was that they abolished the fundamental distinctions between investment and speculation. The second was that they ignored the price of a stock in determining whether or not it was a desirable purchase."

And then try re-reading it where you replace the word "common" with "Deep Creek" and the word "stock(s)" with "real estate". Kind of makes you think about history repeating itself doesn't it? I would be willing to bet that most will guess the wrong years omitted, but give it a try and prove me wrong. In a few weeks I'll give the answer and the source.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Checking in on another "vacation" housing market ..

this from Salt Lake City which has been mentioned several times of late in comparison to the Deep Creek market in terms of the relative immunity from the housing downturn. While Mr. Yun's optimism parallels that of his predecessor, Mr. Lereah in 2006, what I find most interesting is Mr. Yun's final statement that "Five years from now 99 percent of the markets will have higher values than today." Is that a promise? That sounds an awful lot like a promise to me. If I buy a house in every market is he going to personally insure any losses I might incur in this speculative foray?

An alternate view by David Leonhardt, which suggests house prices would have to fall by 1/3 to become realigned with their historical ratio to personal income (one of those mean reverting numbers you hear about). But we all have a 99% guarantee from Mr. Yun so get out there and buy, buy, buy before it's too late. Where have we heard that before? Oh yeah, none other than Mr. Yun's precedessor again. Notice from the cover of his book that in 2005 he was predicting the boom to continue through the end of the decade. My "alternate source" pretty much sums it up in saying that "The exact path that housing prices will take over the next few years is, obviously, unknowable"! Thanks for telling us otherwise Mr. Yun, you wouldn't be doing your job if you didn't, but oddly enough we always seem to know what your forecast will be. Sunny days, cool nights. Lots of good wine making in REALTOR land.

And as an added bonus here is Mr. Yun in Michigan promising huge equity gains within two years! Pay special attention just after the 2:30 mark in the video. Where does the NAR keep finding these guys? And as to his reference a little later on to Warren Buffett, here is what Warren Buffett himself had to say a month afterwards on the credit crisis and residential real estate.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

So much for the hope of a stronger dollar and cheaper oil ..

at least for the last two days. The EU wants to raise interest rates to prevent runaway inflation (making their currency a more attractive investment than ours) and people think our economy stinks (so they don't want to invest here). All this leads to a falling dollar and rising oil prices because our friends in the Middle East want more of our devalued dollars in exchange for their oil. Simple right? Well then you also have to consider all the speculators, perhaps the same ones who previously drove the NASDAQ and housing bubbles, and the fact that many of the oil rich nations of the world are politically unstable, see Iran as one example from today's headlines.

It's a much more complex issue than many realize so I would hope everyone being critical of the oil companies would at least consider there are many other variables that are contributing to the prices we are paying at the pump. For anyone who does not realize it yet, the oil companies big profits are coming from the relatively small amount of crude oil being extracted from the ground here in the US due to the high price they can get for that crude in the global market. See my previous comments on this topic in response to a Republican editorial here and here.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

US homeowner equity lowest on record ..

showing that Americans have more housing related debt than wealth. I'm still stunned that I read on a Deep Creek real estate blog that if you buy a vacation home now you could use the equity to pay for your kids' college in 5 years. In my opinion that is pure speculation and should not be the reason you buy a home right now or ever for that matter. The thing about taking equity out of a home to pay for things is that you are trading wealth for debt and one way or another you still have pay that money (debt) back eventually. They call it a home equity loan for a reason. Equity is not free money!

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Could the credit crisis last two more years?

Contrary to something I read on a Deep Creek real estate blog last week about the credit crisis being over, today, Jack Malvey, Lehman Brothers Holdings Inc's chief global fixed-income strategist, and Richard Bernstein, chief investment strategist at Merrill Lynch & Co Inc, predict a "credit recession" that may last for 2 more years and lead to "massive consolidation" in the financial services industry. You can read more of their comments at Yahoo! Finance.

While it is completely possible that the worst is already behind us, this also suggests that now is probably not the best time to overextend yourself and go out on a limb hoping to make a speculative gain in the next 2 or 3 years. Of course, everyone must also remember that if these guys were truly fortune tellers and seers of the future their firms would not be writing down billions of dollars in losses related to bad investments in the sub-prime/housing arena.

This story from CNN/Money Magazine scrolled across my news feed at the bottom of the page while I happened to be looking. It seems the CEO of Toll Brothers thinks housing is currently in a "depression" and a recovery could be 3 years away. I suppose the sooner we get to the maximum amount of pessimism where everyone is ready to throw in the towel, the sooner we can move beyond this and start to turn things around.

Don't forget to check back to Dan's Deep Creek Blog for future updates.

Disappointed in deteriorating quality of Republican newspaper editorial page ..

As a native and frequent visitor of Garrett County, I often like to read the Republican newspaper to catch up on the latest local news. Over the past year or so, however, I have noticed that the editorials in this paper have often been very ill-informed or intellectually lazy. Take last week's editorial as a perfect example.

http://www.therepublicannews.com/article.asp?id=2665

The editor criticizes the fact that oil companies (in truth, only integrated oil companies) are making record profits and implies that something should be done to correct this. I assume if newspapers were making record profits his opinion would be different. But what really strikes me as poorly thought out is that the editor closes his editorial with a statement that the US government should in effect pay a bounty for "a vehicle that is efficiently powered by something other than gasoline". Let me just ask the editor one question, if these oil companies are making record profits isn't there already a great incentive to create an alternative (much as alternative media sources are profitably displacing newspapers). Wouldn't someone who created a vehicle as the editor describes sell millions of them and make a large fortune themselves? Why exactly is it necessary for the government to subsidize such a business? I suppose as soon as they became very profitable the editor would also be calling for a government sponsored bounty for another alternative.

I assume the editor also does not understand the true reason behind the integrated oil companies record profits either and yet he continues to write on the topic and potentially mislead his readers. Any editorial about the oil companies record profits that does not include a discussion of low interest rates, global demand, the weak dollar and our policies which keep it weak is missing the big picture and too narrowly focused in my opinion. In the future, I can only hope that the editor of the Republican recognizes this or at least admits that he is not telling us the whole story.

Don't forget to check back to Dan's Deep Creek Blog for future updates.