“[The] modern economy that we live and operate in is incredibly interconnected, and a severe downturn in the U.S. economy will undoubtedly have an impact on San Francisco,” said [Michael Cohen, the city's economic director].
Companies’ fall may mean layoffs in Financial District [Examiner]

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Comments from “Plugged-In” Readers

  1. Posted by Satchel

    One aspect of this continuing financial “realignment” that I seldom hear mentioned in relation to SF is China.
    Six months ago, “China” seemed to come up all the time in relation to the “rosy” prospects for SF. China is now in the middle of a historic asset crash, and its economic fundamentals are miserable (rampant monetary inflation, leading to a real appreciation of the currency and declining competitiveness, coupled with speculative lending and construction booms, all distorted in response to a massively distorted export market – the US).
    While I think the long term picture for China is basically intact still, the prospects for the next few years in China and emerging Asia generally are horrendous, and I have to believe that this will impact one of the drivers of SF property values.
    (BTW, I have been singing this tune for a while. For instance, I posted more than 9 months ago this:
    “Here’s some investment advice. Get out of all Chinese stocks now!! Now! If you are aggressive, consider shorting them, but only if you are experienced with trading. [snip]
    Posted by: Satchel at December 20, 2007 6:37 AM”
    http://www.socketsite.com/archives/2007/12/their_mascot_might_be_a_bull_but_merrill_lynch_is_anyth.html
    I hope people listened to me back then! The Chinese stock market has been one of the most beautiful wipeouts I’ve even seen in years of trading – down more than 60% since I made that easiest and most obvious of all calls!)

  2. Posted by ex SF-er

    of course the economy matters. some of us have been squawking about this for some time.
    Just 1-2 days ago I was harping on the fact that tech will get pounded from this recession (I couldn’t believe there was even debate about it). And now from the above article:
    Separately, Peninsula-based Hewlett-Packard announced plans Monday to lay off at least 24,000 of their employees over the next three years as part of a recent merger
    the only thing I disagree with is the word “separately”.
    likewise “separately”: Dell just announced significant deterioration in demand for its products.
    also “separately”: last quarter was the worst ever for Venture Capital IPOs
    also “Separately”: this is the first year where more hedge funds will close than open. and also the first year in some time when the 2/20 structure is under attack.
    also “separately”: Google, Yahoo, Apple all down on their new projected earnings.
    also “separately”: China, Russia, and Europe are also starting their slowdown (there goes those rich foreigners)
    unfortunately, there are a lot of things that aren’t separate. and they all involve the Bay Area. Please remind me: where is this big money going to come from to keep SF RE aloft?
    but that said: there are more important things than money. Among them: your family, your friends, your life. sometimes you just gotta go outside and frolic in the sun with your friends and family.

  3. Posted by Trip

    Ex SF-er, I’m in your neck of the woods for a few days. I love SF, but coming to Chicago (or NY) is always a great reminder of how tiny SF is compared to the true world-class cities (I still prefer living in SF, but I recognize its shortcomings).
    It is nice to hear some straight, common-sense from the city on this without nonsensical cheerleading. Michael Cohen is a smart, capable guy with a lot of integrity (I know him well from his days at the City Attorney). SF is more strongly poised than it was in the early 90s, but the notion that it is immune from the same trends hitting everyone, everywhere is silly.

  4. Posted by diemos

    “Economics professor David Vencill of San Francisco State University said the last time shifts of this magnitude happened in the U.S. economy was the Great Depression – and that San Francisco is likely to feel the pain.”
    It’s fascinating that only 6 months ago everyone in the MSM was still using the euphemism “worst conditions since WWII” and now the taboo against mentioning the G—- D——— seems to have disappeared.

  5. Posted by sparky-the-bull

    That money under my pillow looks better and better.

  6. Posted by dub dub

    Nobody’s debating tech being affected, we were discussing timing (and perceived severity).
    The worst events “since the great depression”, and stock prices are all the way back to 2006. And not a single person I know has trouble finding work (a few have moved on to better opportunities or are shopping their resume around). A few can’t afford the houses they want, because the real SF won’t cooperate (yet). Some hedge funds have shut down.
    You’ll forgive me if I don’t go dig a bomb shelter right now.
    I’ve been hearing this end of the world crap since 1989, and I’m tired of worrying about it — indeed, go live your life, build your career, business, hobbies, and spend time with your family :)

  7. Posted by chuckie

    Question: There has been talk of stagflation last few months, which I think means slow growth and high CPI inflation. The latest CPI report is showing prices heading down. Fed might reduce interest rates. Recent events clarify the situation? I know there is a lot to come, but love to hear any opinions.

  8. Posted by diemos

    “indeed, go live your life, build your career, business, hobbies, and spend time with your family :)”
    Excellent advice. I would only add to it; don’t overcommit your cash flow and save some money for a rainy day.

  9. Posted by Conifer

    Of course SF is not immune, although SFDs in the northern part of the city still seem to be, for now. And of course SF is not a world class city in the sense of NY, Chicago, London, but it is a very nice place to live, much like Barcelona, or in the sense of size, Paris. SF also does not have the mad pressure of NY or London, and it has a good airport so you can go non-stop to most of the great cities of the US and Europe. For many of us, the best choice overall.

  10. Posted by The Milkshake of Despair

    “Please remind me: where is this big money going to come from to keep SF RE aloft?”
    I’d use the past tense in this situation : the money came from the prior boom times and there might still be plenty floating around to spend on big purchases.
    There’s a lag between earning and spending. Which is why RE cycles seem to lag a bit behind economic cycles.

  11. Posted by sf

    “Please remind me: where is this big money going to come from to keep SF RE aloft?”
    Three years ago who had ipods?

  12. Posted by TechDefender

    To say that “tech will get pounded from this recession” and then to inconspicuously use the HP layoffs (and other consumer based tech companies) to back your statement is misleading. It is separate in that the layoffs are a result of the merger and the resulting overlap (not to mention that several articles state that HP plans to eventually add half off the positions back).
    I don’t think anyone will argue that the broad economy will feel (or is feeling) the effects of this recession. There will be layoffs/etc. but to say that the entire tech industry will be ‘pounded’ and cite layoffs resulting from a merger of two behemoths and financials from consumer tech companies and claim it to be un-debatable is ridiculous.

  13. Posted by Satchel

    There is obviously a sea change going on in the financial markets (and world). It’s exciting, and to diemos’ point there is an excellent chance that a Great Depression style meltdown can be averted. I hope there are some Austrian credit cycle guys thinking about this in policy circles, because if they’re all Keynesians we’re in for trouble! SF will adapt to what is coming, or it will whither.
    To ex SF-er’s point that there is much more to life than money (and financial assets) I couldn’t agree more. But the financial turmoil itself is a good thing, and if left alone to sort itself out will result in society having more of the “good” things in life that we want. I posted this link and excerpts in a thread yesterday, but it didn’t seem to attract any notice. Apologies to all who have seen this already, but I think it’s worth reading over and over again:
    “The events on Wall Street, the collapse of Lehman and the selling off of Merrill, are magnificent and inspiring events. What we see here are examples of sweeping and fundamental change taking place, a huge upheaval that affects the whole of society, and toward the better, since what we have going on here is a massive reallocation of resources away from failing uses toward more productive uses….
    The agent of change here is that composite of all the world’s exchanges that relentlessly shove resources this way and that way, so that they will find their most economically valued uses in society….
    But as wonderful as the daily shifts and movements are, what really inspires are the massive acts of creative destruction such as when old-line firms like Lehman and Merrill melt before our eyes, their good assets transferred to more competent hands and their bad liabilities banished from the face of the earth.
    This is the kind of shock and awe we should all celebrate….
    The need for dramatic shifts is essential for progress. … Enacting change — any kind of change but especially big and fundamental change — sometimes seems impossible in this world. We all desire it and know it is necessary….
    …Wars and revolutions yield change but at too great a cost. The change wrought by markets goes to the very core of the issue. It makes and breaks whole institutions, sometimes overnight. And it does so in a beneficial way for the whole, without blood and without the risk of unanticipated calamity….
    All the plans of big shots, all the desires of our governing masters, all the wishes and dreams of people who imagine themselves to be larger and more important than the rest of us, melt like snow on a sunny day.
    In this sense, the market is the great leveler, the force in the universe that humbles all people and reminds them that they are no more important than anyone else and that their wishes must ultimately be shelved when faced with the overwhelming desire on the part of market traders that some other reality emerge.
    For this reason, everyone has reason to celebrate the end of Lehman and Merrill. Overnight, while we slept, the seemingly mighty were humbled, the first made last and the last made first. The greatest became the least, all without a shot being fired.
    http://mises.org/story/3109

  14. Posted by uncle satchel

    “The events on Wall Street, the collapse of Lehman and the selling off of Merrill, are magnificent and inspiring events. What we see here are examples of sweeping and fundamental change taking place, a huge upheaval that affects the whole of society, and toward the better, since what we have going on here is a massive reallocation of resources away from failing uses toward more productive uses….”
    You said the exact same thing yesterday. Say it. Don’t spray it.

  15. Posted by paco

    yo satch,
    “Overnight, while we slept, the seemingly mighty were humbled, the first made last and the last made first. The greatest became the least”
    nice moralizing. but i think you’ve got it wrong; the rich are still rich and these global events have not made the last the first, nor will they. i know far more people who avoided tech stocks than “invested” in them. i know far more people who are avoiding the markets now than are getting hammered by them.
    and i know that my real estate assets are still generating lots of income. that’s important b/c if/when stuff gets cheap i know
    where to get money and what to do with it.

  16. Posted by Sb

    Uncle Satchel is clearly a little senile… Don’t mind him.

  17. Posted by diemos

    It’s an article of religious faith among austrians that ending the distortions instantly leads to a new equilibrium that better uses the available resources.
    But the economy is a dynamic system and it has a limited ability to absorb changes. Shock the system too strongly and you can easily get into a situation where resources sit idle that could be producing wealth that people want. The classic example is farmers plowing under their fields even as the people in the cities starved because they had no money during the GD.
    In a situation where real resources (capital equipment, labor, raw materials) are sitting idle you can put those resources back to work by printing money and putting it in people’s hands to stimulate demand. Of course, once those resources are employed further money printing just leads to detrimental inflation.
    The “liquidate everything” idea was the economic orthodoxy at the beginning of the GD. It didn’t work.
    Be careful what you wish for Satchel, you might get it.

  18. Posted by Satchel

    “The classic example is farmers plowing under their fields even as the people in the cities starved because they had no money during the GD.”
    I recognize of course that reasonable people can disagree, and that it IS an article of religious faith among the Austrians that resources should be mercilessly liquidated and reallocated.
    But, diemos, you disappoint! The fields being plowed under while people went hungry? This was done in DIRECT RESPONSE to foolish government policy! The Agricultural Adjustment Act of early 1933 PAID farmers to restrict their output!
    “By the time the Agricultural Adjustment Administration began its operations, the agricultural season for many crops was already under way. The agency oversaw a large-scale destruction of existing cotton crops and livestock in an attempt to reduce surpluses. No other crops or animals were affected in 1933, but six million piglets and 220,000 pregnant cows were slaughtered in the AAA’s effort to raise prices. Many cotton farmers plowed under a quarter of their crop in accordance with the AAA’s plans.”
    http://en.wikipedia.org/wiki/Agricultural_Adjustment_Act
    That was as dumb as the idea that we should bulldoze houses to support housing prices… oh, wait a minute, some people are actually advocating that today!

  19. Posted by diemos

    “The fields being plowed under while people went hungry? This was done in DIRECT RESPONSE to foolish government policy! The Agricultural Adjustment Act of early 1933 PAID farmers to restrict their output!”
    Agree. Stupid policy. They should have just printed up money and handed it out to the people. Of all the drawbacks of a fiat currency it’s one good thing is that it allows demand to be stimulated in these situations, but their commitment to the economic orthodoxy of a gold standard disallowed that option so we got idiocies like this.

  20. Posted by EBGuy

    Overnight, while we slept, the seemingly mighty were humbled, the first made last and the last made first. The greatest became the least, all without a shot being fired.
    Have to admit I was tempted to hum of few bars of the “Battle Hymn of the Republic” when watching “hold the line” Hank on the news last night.
    So what fills the void here? Are we talking innovators like WR Hambrecht and their dutch auction IPOs (or is that so dotcom era)? Or is it more like Redfin/Trulia and the transparent marketplace? Quite frankly, the new world order (financial services silos like BoA, WF, JPM) is a bit frightening to me.

  21. Posted by ex SF-er

    There will be layoffs/etc. but to say that the entire tech industry will be ‘pounded’ and cite layoffs resulting from a merger of two behemoths and financials from consumer tech companies and claim it to be un-debatable is ridiculous.
    Tech defender:
    convenient of you to ignore the rest of my post. I spoke about more than just HP. I also spoke about Dell, Apple, Google, etc as well.
    Yahoo announced layoffs this year
    Google announced layoffs of Doubleclick employees
    Dell warned today about end user demand
    recent
    there was a recent survey done (by TechTel out of Emeryville) that this is the first year of tech spending drop since 2004.
    Regardless, my point with bringing up HP is its effect on the SF RE market. Are you suggesting that the 24k layoffs for HP (of course these are not all bay area jobs) overall will be good for the SF RE market?
    are you suggesting that tech has a good short/medium term future with probable global recession looming?
    ===
    @Trip:
    enjoy your stay in Chicago. It’s supposed to be perfect weather this weekend.
    Ironically, while you are whooping it up on Michigan Avenue I will be taking in the views from One Rincon Hill (really).
    I was sorta hoping that it would be warmer in SF this weekend given that it’s the end of September, but c’est la vie.

  22. Posted by Sunny Jim

    Satchel,
    You said,”I recognize of course that reasonable people can disagree…” Uh, just not here in San Francisco where the Luddites shout down all debate. I stayed up late last night reading the articles on http://mises.org and was very impressed. Thanks for the link!

  23. Posted by Sb

    And Paco sounds like he took Satchel’s post very personally… Don’t worry Paco, you’re not the richest man in SF. :)

  24. Posted by optimus

    With rates dropping to cyclical lows and housing prices stagnant to down, now is actually the best time to be buying.
    I see the financial turmoil having a stabilizing effect.

  25. Posted by San FronziScheme

    now is actually the best time to be buying.
    Not if the prices are going down.
    RE is not frozen in time. Just because a place sold 10% less than last year does not mean it will not be selling an extra 10% down. It’s a constant flow governed by market forces. Less loans approved in SF could mean less demand and therefore a gradual decrease in prices. For the same property, the market could command 900L for a property in 2007, 800K in 2008, 700 in 2009 and 650 in 2010. I say COULD, not WILL. Just to say that you cannot say it’s a good time to buy just based on a snapshot.
    It’s a living thing and financial/economical news are not giving any sign we’re at the bottom.

  26. Posted by paco

    i agree w/optimus. times of turmoil present opportunities, but like good meat in a shark pool, it does not last long.
    meanwhile lots of money is sitting in CD’s treading water w/inflation.
    what would all you bears do? yeah yeah i know- “real estate is tanking-you’d be a fool to buy now”. aside from ex-sfer’s speculative market timing i have heard nary an idea on this board about how to make money, how to put capital to work.
    still waiting..,

  27. Posted by Satchel

    paco,
    “what would all you bears do? …aside from ex-sfer’s speculative market timing i have heard nary an idea on this board about how to make money, how to put capital to work.”
    I gave you a whole strategy when you asked this question three months ago. I didn’t go into excruciating detail because I know you used to be an option trader. The portfolio I gave you (long treasuries/short commodities/flat equities/flat-long USD) is up nicely since then, and since you have actual experience trading you should have been able to capitalize on it.
    Here it is:
    http://www.socketsite.com/archives/2008/07/san_francisco_recorded_sales_activity_in_june_down_63_y.html
    (See “Posted by: Sachel [sic] at July 18, 2008 11:15 PM”)
    I still the approach I outlined makes sense even now, although obviously commodities have had a huge wipeout since then, so there is less “juice” left in the downside commodities bet. And equities have a little less risk (but still pretty risky – I’m short the 1200/1350 S&p put strangle expiring Friday, so I’ve got a little gamma risk here and I’m sweating it a bit).

  28. Posted by KH

    Satchel,
    What do you do for a living? What is your educational background?
    I have to say that you have made some great calls on the stock market and some wise buys/shorts of certain industries/geographies. I imagine that your portfolio is doing quite well this year.

  29. Posted by unearthly

    About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California.


    The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers’ Association.

    U.S. Mortgage Rates May Wreak Further Havoc After Libor Climbs

  30. Posted by paco

    (long treasuries/short commodities/flat equities/flat-long USD)
    ok satch, let’s break it down a bit.
    long treasuries. that means buying the 10 or 30yr bond yielding 4.5% and it goes to 3.5% (roughly). unless you use leverage or throw a whole lotta money at this you don’t stand to make much here. so did you invest $50k or $500k on this one? how much did you make here?
    short commodities?? thru the futures?? or some etf?
    as you know this (and any commodity speculation) is super risky, and capital intensive and requires lots of babysitting.
    how much money did you risk here?
    flat equities means selling off any portfolio of equities you may have had (or buying some etf like srs which has not done so hot)
    flat/long USD- that’s called currency trading. like other commodity speculation this is no area for amateurs/retail traders. expensive commisions, high capital requirements and constant monitoring.
    all these plays are for the pros who do this everyday. there is no realistic retail dabbling in these markets and i defy ANYONE to show me how they can make any real money trading these from home on a retail account.
    when you break out the risk/reward for the abovementioned strategy you will see how this plan is closer to betting against the house in any casino-the odds are stacked against small traders.

  31. Posted by ex SF-er

    per optimus: I see the financial turmoil having a stabilizing effect.
    huh?
    per paco: aside from ex-sfer’s speculative market timing i have heard nary an idea on this board about how to make money, how to put capital to work
    I’d like to clarify a few things
    -I don’t think of myself as a market timer, although it is possible that I am. Up until last fall I held my positions for YEARS. The Fed and govt have forced me to reallocate my resources.
    -even so, I have recommended what to do many many times.
    I’ll reiterate to make sure that I’m not misunderstood on this blog.
    1) the goal right now should not be making money. it should be to not lose money. I’m in captial preservation mode, not trying to “beat” the market. Me killing the market this year has been a by-product and I have no expectation that will continue.
    2) now is not the time to jump into anything you don’t understand. it’s one reason why I’m not listing my exact trades on here, because I don’t want to lead people into ruin. I only started listing the concepts behind my trades because people were calling BS on my trades earlier this year. so I started naming my trades broadly and publicly to silence the critics
    what I am focusing on right now:
    -reducing as much debt as possible (I actually have no debt except mortgage, and I have enough cash to pay off the note if worse comes to worse)
    -having a large amount of VERY LIQUID assets. (6-12 months of expenses minimum. I have years of liquid assets). Preferrably some in cash, some in checking/savings accounts as example.
    -making sure my financial institutions (banking, insurance, investment, etc) are “safe” and make sure that all of my assets are under insurable limits
    -not taking on new debt (like big purchases)
    Sometimes the winner is the one who loses least.
    I do have “play” money that I am trading right now. But I am fully prepared to lose it all, and think that I will lose it. in fact, as we speak I am WAY down on an oil trade I made a while back. nobody is fallable.
    but make no mistake, the majority of my wealth is in
    -my home (I love my home and don’t want to sell, but it is very cheap)
    -Treasuries
    -FDIC insured CD’s spread around
    -More Treasuries
    -Checking and Savings accounts all under the FDIC limit at 5 different institutions
    -More Treasuries
    -My 401k and IRA etc (invested mainly in Treasuries)
    -did I mention Treasuries?
    But I took a little cash and used that to trade starting when Ben Bernanke betrayed me and all savers last year. (I posted a soliloquay when it happened, maybe I’ll try to google it later). I have been both very knowledgeable and VERY LUCKY with some of those trades, and that money ballooned in value.
    But I am taking some of that play money OFF the table (too much govt intervention right now) and putting it in… you guessed it… a savings account.

  32. Posted by paco

    ex-sfer
    i’m with you; return of capital is more important right now than return on capital. my flight to quality occurred in 11/07 and that capital is not producing much other than restful nights ;).
    at least you are honest about how poor the investment landscape is at the moment (barely keeping up w/inflation).
    ironically i think that sf re is one of the more ‘medium risk’
    asset classes out there when you look at the alternatives.

  33. Posted by Jack M

    The Libor increase will adversely affect many commercial loans and could begin the melt down in office, retail and multifamily securities.

  34. Posted by TechDefender

    ex SF-er,
    “Covenient of you to ignore the rest of my post. I spoke about more than just HP. I also spoke about Dell, Apple, Google, etc as well.
    Yahoo announced layoffs this year
    Google announced layoffs of Doubleclick employees
    Dell warned today about end user demand”
    No, I thought I spoke to that. These are all basically consumer focused companies (and weren’t the Doubleclick layoffs a result of yet another merger?) There are many other sub industries And don’t get me started about Dell, especially on a non-tech site, I do not even consider them a tech company as they do not innovate squat, it is a manufacturing company.
    “Are you suggesting that the 24k layoffs for HP (of course these are not all bay area jobs) overall will be good for the SF RE market?”
    I never suggested that, I though I suggested that times are harder across the board but I do not share your ‘pounding’ outlook for the tech industry.
    “are you suggesting that tech has a good short/medium term future with probable global recession looming?”
    I suggest that the tech industry will fair better than most industries and is not in for another great crash that you seem to be hoping for.
    Here are some interesting articles (some of these are actually from a bear perspective so don’t accuse me of being overly biased)
    http://www.ft.com/cms/s/0/71666208-7dde-11dd-bdbd-000077b07658.html?nclick_check=1
    “This is not an across-the-board spending slowdown. The impact of the economy on IT budgets varies widely by industry and geography,” said John McCarthy, an analyst at Forrester. “Some industries are like ground zero for financial problems, such as financial services, construction and autos. The further you move away from those industries, the less severe the problems are.”
    http://www.alleyinsider.com/2008/9/oops-tech-spending-not-immune-from-recession-after-all
    “The last downturn was particularly bad, but it followed years in which companies went hog-wild on tech spending. We expect that this recession will be worse than the last one, but, then, tech spending was much more normal in the years heading into it.
    So, bottom line, we expect tech spending to decline modestly into 2009 and then pick back up again.”
    http://blog.wired.com/business/2008/09/why-the-tech-in.html
    –As the instant money from IPOs and buyouts disappears, start-ups have incentive to take longer to develop deeper and better technology that could have an even bigger payoff down the road. It’s those technologies that often have the biggest impact on life, business and the economy.
    — In bad times, established tech companies slow down and IPOs all but stop. (H-P is even cutting 24,600 jobs, the company said today.) Ambitious people employed by those companies see their chances at stock-based wealth shrink, so have more incentive to strike out on their own and start something new.
    http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=325341
    “A recent report from the Computing Technology Industry Association (CompTIA) also found that companies in the middle market (those with 100 to 1,000 employees) are looking to bring in new technology talent to take their businesses to the next level of technical sophistication.”
    “According to the CDW IT Monitor, 51% of all businesses are expecting IT budget increases in the next six months. Combined with the already solid hiring trends and stable wages of tech pros, and the anticipated growth of IT staffs among midsize companies, the employment outlook in the tech sector is promising.”

  35. Posted by paco

    yo satch,
    let’s break that down a bit.
    long treasuries means buying the 30yr or 10yr and waiting for rates to fall. so how much money did you commit here? say you bought $50k or $500k of treasuries- how much did you make on that? are you saying you used leverage or just bought straight face amounts.
    short commodities?? thru the futures?? or some etf?
    as you know this (and any commodity speculation) is super risky, and capital intensive, has high transaction costs and requires lots of babysitting.
    how much money did you risk here?
    flat equities means selling off any portfolio of equities you may have had (or buying some etf like srs which has not done so hot)
    flat/long USD- that’s called currency trading. like other commodity speculation this is no area for amateurs/retail traders. expensive commisions, high capital requirements and constant monitoring.
    all these plays are for the pros who do this everyday. there is no realistic retail dabbling in these markets and i defy ANYONE to show me how they can make any real money trading these from home on a retail account.
    when you break out the risk/reward for the abovementioned strategy you will see how this plan is closer to betting against the house in any casino-the odds are stacked against small traders.

  36. Posted by paco

    sorry ’bout that double post. my frothing at the mouth blinded my eyes…

  37. Posted by enonymous

    sf real estate is ‘not medium risk’ paco
    hear this once, twice, and three times please. unless you own hundreds, nay thousands of properties in SF, your ‘medium risk’ asset is not ‘sf re.’ it is re that happens to be in sf.
    when you own a home (i do) in this city (i do) you take on financial risks that are not adequately compensated. moreover, unless you pay all cash, you take on the added risk of leverage. NOTHING about this sort of asset is medium risk.
    Long treasuries are medium risk. They have inflation, interest rate, and term risk.
    A single re purchase, especially in SF is the furthest thing from a medium risk asset. As a financial investment vehicle, it is incredibly high risk, and usually not high reward (excepting the recent bubble).

  38. Posted by paco

    its all relative enon,
    but like i’ve said before there is a pretty good return to be made by buying a multi-unit building, evacuating it, fixing it, selling it and financing the loan for the new buyers.
    the legal hoops are a pain but very do-able. if you find the right place you are able to exploit the difference between the value to investors vs the value to buyers. i particularly like the first time home buyer niche b/c you can sell at a price very close to equivalant rent.
    yes, it takes skill and knowledge. but its much easier to learn than any stock market trading (and i speak from over a decade of experience in both).
    yes, its very hands on but also very satisfying

  39. Posted by enonymous

    ah paco – that isn’t return on sf re. that is return on your human capital. two totally different things.
    my human capital is better utilized elsewhere, but to each their own.

  40. Posted by Satchel

    paco,
    I don’t disagree that in most trading markets things are stacked against the little guy. Sometimes the best play for the small scale trader is to just sit back and earn your risk free rate. You said you got out of equities (I assume – maybe other risk assets too?) in 11/07. It’s been a great ride, assuming you sidestepped the wipeout 2000-02 (I did – completely sidestepped it, scaling out of the NASDAQ and all US stocks in Fall 1999 at NASDAQ index equivalent around 3500). Gains in equities, especially foreign equities, after 2003 have been amazing (even true today, ESPECIALLY if you got out last November!). I got back into equities in late 2002, and got back out (flattened exposure with options because of very large gains make tax issues tricky) last July, and I have been trading it since. I’m not complaining that the risk free rate is low. I feel lucky to have made as much as I have.
    When you have an insane credit bubble, all boats get lifted. SF real estate (and real estate generally) has been one of the poorer investment decisions since 2003, as I’m sure you know. When an asset class is fundamentally overvalued by a mile (such as stocks by late 1999, real estate after 2002 or so in most places – 1999/2000 in SF proper) one MUST become a trader or risk ruin. That’s the game the Fed has set up for us.
    You say it’s cheaper to rent than to buy, and you’re asking what someone with net worth in excess of $1M should do. I always give out info about what *I* am doing, but I was a professional trader/portfolio manager at a hedge fund, so my experience is different. At my (relatively low) tax rate right now (no W-2, so a good portion of income has been capital gains and or dividends/tax free income – this is getting much tougher now that I have to do more short term trading than the last 4 years or so!), I have found it approximately 1/3rd the cost to rent as to own. To put that into numbers, I am “saving” approximately $6000 per month in real dollars (I’m renting a $1.2M house for $2800/mo). I have no fear of being priced out – I don’t think it is possible for my circumstances.
    You might be seeing the same sort of savings from renting over buying, perhaps less, but the same general point holds. (If it doesn’t and it is costing you more to rent a place than it would cost you to buy, well, then I’d much more seriously consider buying or perhaps negotiating a better deal on rent somewhere!)
    If you want a better bet than a single nondiversifiable SF real estate asset over a 10 year horizon, I would advise you to invest that monthly difference between owning and renting – starting now – in a mix of Asian bonds and broad Asian equity indices. Much of the Asia wipeout is behind us IMO by now, and in any event 10 years is a long horizon if you start averaging in right now. You could look at ETFs and good mutual funds – make sure that whatever you do that the investments are unhedged with respect to the dollar. Over 10 years, I’ll eat my hat if you don’t do MUCH better with that simple portfolio than that hypothetical piece of SF real estate you might be considering.
    In the meantime, if I were you I would continue to use my superior knowledge and skills (human capital) in the real estate trade to continue to exploit inefficiencies in the TIC-refurbishing, rehab and “TIC to condo” market, which is what it looks like you’ve been doing. Real estate in SF is a bad bet for the average sucker who cannot bring any special skills to the table IMO, but not for everyone, just as the financial markets are GREAT for people like me.
    With regard to your existing “nest egg”, count your blessings that you sidestepped this wipeout by getting out last November! Don’t get too greedy! 2-4% in a generally deflationary world should sound pretty good, especially after the nice run we’ve had with all risk assets since 2003!

  41. Posted by paco

    good point.
    as i put them together and manage the process i spend lots of time on these projects. but i am telling you that my investors only write a check and then wait for their return.
    that’s b/c the sf re is doing most of the heavy lifting-or, more succinctly, the price disparity created by rent control and BOS constrictions of supply keep this opportunity alive.

  42. Posted by ex SF-er

    Tech Defender. You bring up some good points.
    that said, not sure I can agree with you discounting all my examples as “not really tech”… They are tech, everybody thinks they are tech. weather or not they are at the forefront of tech is a different matter. And although the downturn will create many entrepreneurs, it’s hard to buy expensive SF real estate when you’re starting a business.
    But the nice thing about socketsite is that we can simply return to this conversation next year or after that! only time will tell who is “right” on this front.
    I suggest that the tech industry will fair better than most industries and is not in for another great crash that you seem to be hoping for
    as for “hoping” tech crashes, I “hope” nothing of the sort. Just because my personal outlook on tech is negative doesn’t mean I “hope” anything. you assume too much
    I have HUNDREDS of thousands of dollars on the line based on how tech does the next few years, since half of my household income comes DIRECTLY from tech. (my other half is a high level TECH worker in an advanced TECH field making a lot of money per year. a TECH boom would be a bonanza for us ,a TECH crash could cost us early retirement)
    but you know what? life doesn’t work based on what one “hopes”. I “hoped” that the US Banking system wouldn’t have been so stupid. I “hoped” that the US wouldn’t have built such a huge trade and also budget deficit. I “hoped” for a lot of things that didn’t happen.
    so sure I “hope” tech does great. but I have too much money on the line for “hope”. I need analysis. and although I HOPE tech does great, my personal analysis is that it will suffer (yes, even get pounded).
    I never said tech will do worse than other fields. There are many fields that will do worse than tech. Financials and Real Estate as example. There are others that may do better. But most will not do well. that is the nature of global recession.
    So please: remember that not all bears have schadenfreude and that belief does not equal hope. at least not for this bear. I’d LOVE to go back to the rah-rah 90s where you throw money at a dartboard and score in the stock market, or the rah rah 2000’s where you could buy any shanty anywhere and watch it instantly appreciate. but there’s that hope again…

  43. Posted by paco

    satch, i gotta tell ya after spending time trading the markets i do not trust them or the players.
    so you suggest buying asian bonds and markets? i don’t even trust many us muni bonds!
    anyway the reason i asked the board what a person w/$1m+ net worth should do is b/c i find it hard to believe that someone would not have some real estate in their portfolio. its an investment that gives you shelter from the elements, taxes and that feeling of instability that renting engenders.
    i’m also aesthetically inclined when it comes to my environment
    and i derive a great pleasure from making my garden, from redesigning my living spaces, from telling my son that these are OUR houses.
    admittedly i am a product of my upbringing. its been a wild ride in california over the last 50 years-but aside from a coupla rough patches real estate has proven, over and over again, that it will make you rich while you sleep.
    million dollar condos in soma…not so much.
    fixers in d5,6,7,8…yes, still yes.
    here is a great example:
    602 Broderick St
    San Francisco, CA 94117
    Price: $1,575,000 9 units-double lot
    and it won’t take ten years

  44. Posted by ex SF-er

    paco:
    Over the long haul, RE has been a great investment. Especially if you do it the way that you do it: with elbow grease and knowledge of RE markets/trends, etc.
    however, I think you underestimate the amount of knowledge and ability it takes to do what you do. You assume that we novice RE moguls know what you know, or can do what you do. This was the allure for many wannabes over the last few years.
    I have no doubt that you will succeed in RE, because you have put in LOTS of time and energy. In the same way, Satchel succeeds in investing because he puts in a LOT of time and energy into it.
    I tend to be better with investing than RE. But that’s because analyzing markets is interesting to me, it’s “fun”. In the same way, I’m guessing that renovating a house is “fun” for you. so you don’t even think of it as work. But I renovated most of my current house, and I HATE it. I like designing and planning it… but when it comes to putting in a new door, or fixing siding or whatever, I’m miserable. My house looks great (I think), but I’ll never do it myself again!
    in general, i think one can succeed in almost any field if one has the expertise and the drive. but there are gyrations that make some investments “preferred” over some time periods. stocks were the preferred investment from 1995-2000. 2001-2007 was clearly REs preferred time. going forward, I’m not sure what will be preferred.
    I’d guess you could probably make MORE money in a down RE market than an up one, because you have that knowledge and expertise. but we noices would overpay, underestimate expenses to remodel, overpay to have it remodeled, or do a bang up job, or get entangled in SF’s rediculous laws. see what I mean?

  45. Posted by spencer

    “Three years ago who had ipods?”
    almost every single person i know had IPODs even 4 yrs ago. maybe 6 yrs ago is a better timeframe

  46. Posted by EBGuy

    Since we are talking about safely parking money and sleeping well at night, this may be a good time to ask: Have you checked the NAV on your money-market fund lately? We’re all subprime now…

  47. Posted by spencer's dad

    almost every single person i know had IPODs even 4 yrs ago. maybe 6 yrs ago is a better timeframe
    No, 3 years ago was when they really took off. Look it up son.

  48. Posted by techDefender

    Ex sf-er,
    I didn’t mean to discount your examples as “not really tech” although that quote was an excellent attempt to frame the debate. Hats off to that. My original intent was to point out to readers that your ‘un-debatable’ statement:
    “I was harping on the *fact that tech will get pounded from this recession* (I couldn’t believe there was even debate about it). And now from the above article:
    Separately, Peninsula-based Hewlett-Packard announced plans Monday to lay off at least 24,000 of their employees over the next three years as part of a recent merger”
    portrays those layoffs as a direct result of a recession. Sure, management padded those numbers to prepare for hard times but this kind of statement appears hopeful to me, or maybe its just that ive been reading people slam stocks on yahoo boards too long; sorry to get you wrong on that.
    How about quoting news from a real tech bellwether sometime when making generalizations about the industry, or maybe even a company closer to home like SalesForce.com?

  49. Posted by paco

    ex-sfer,
    i believe that you prove my point;
    to wit, you said that with knowledge and perseverence one could succeed in sf re.
    i’m saying that an investment in this kind of scheme w/experienced folks is a ‘medium risk’ venture with a good risk/reward ratio.
    i think its easier to understand and execute than any fancy stock market trading ideas.
    voila, the horse has finally been beaten to death…

  50. Posted by NoeValleyJim

    As far as investment ideas:
    Creditor nations – In
    Debtor nations – Out
    Germany never had a housing bubble, is still growing economically and has a positive balance of payments.

  51. Posted by ex SF-er

    @paco:
    “i think its easier to understand and execute than any fancy stock market trading ideas”
    I agree with everything in your last response except for this.
    again: everyone has their talents. one must find one’s talents, and then be the BEST in that area. if it can be done, then a person has the possibility to do well despite (or even because of?) a down market.
    I think most people will lose their shirts in both stocks and RE in the near term. a few very well positioned experts will do well in either field. The trick: you gotta know your stuff.
    I think you overestimate the difficulty of the equities markets and underestimate the difficulty of the RE market. But I think it’s because RE comes natural to you and you like it.
    that said: I do prove your point if it is that a person can do well in any market if they have a combination of expertise and dedication and luck.
    ===
    @techdefender:
    I didn’t mean to discount your examples as “not really tech” although that quote was an excellent attempt to frame the debate. Hats off to that.
    regardless, that is exactly what you did. go reread your post.
    As for attempting to “frame the debate”, it is you who is trying to turn this into a “pounding tech” debate when my argument is really: “where are the incomes going to come from to keep SF at lofty levels?”
    part of that argument includes believing tech spending will plummet and that it will get pounded. You have focused on that sub-argument and then made a lot of glaring errors in your assessment of my desires and goals. But my initial post was about a lot more than “pounding tech”, I also discussed poor outlook for Venture Capital and Hedge Funds.
    as for using tech journals: why? the argument is about tech SPENDING and tech EMPLOYMENT, not about what gadgets are coming out. Spending and Employment are the purviews of ECONOMICS and thus economic sources are the source I use. that said: I gave you DELL’s and GOOGLE’s own employment projections. but we’ve already established they’re not tech enough for you. If the question were “which tech companies show the promise for the future” or “which gadget will be the next best thing” or similar, then I would use tech journals. But I’m looking at tech in general from an employment-only side.
    But all this is not to say that there won’t be some tech winners. There are some to watch out for (on the plus side). Included in these are companies like Cisco, Juniper, possibly RIMM and Apple, not to mention the medical and biomedical related tech fields like EMR technology and hybrid biomed device technology. Of course energy technology and alternative energy technology have extreme possibilities as well. (some of this is bay-area oriented, some not). I’d also look out for video-conferencing technology as it can help due to energy issues. and there are many more possibilities out there that I don’t know about because I’m not in tech myself. But I’m not arguing about promising technologies because once those technologies exist one needs a way to bring them to market. DOH! we’re back to economics again.

  52. Posted by ex SF-er

    rereading my last post:
    @techdefender, I’m not sure if the tone comes off correctly. it should be slightly scolding with a little snark, but not malicious or condescending. rereading my post I can’t tell if the correct tone shows through.
    I see why you’re angry with my original post (24k layoffs). part of it is due to miswording on my part. there is “tech” and there is “tech as it relates to real estate/employment”. in your mind the 24k layoffs are good because they’re due to a strengthening of the new merged corporation which will make it more globally competitive. but in my mind the 24k layoffs constitute “pounding” because I am focusing on the effects on employment and its relation to a local RE market. I should have worded it clearer.
    however, even neglecting that point there have been a lot of fairly negative news outlooks on tech of late. if you reread even your sources, a lot of them indicate relative strength, and not tech strength in general.
    overall, I admit wholeheartedly that my projections of tech in general are not as strong as my financial projections, which is why I’m only talking about tech employment. I’ve been wrong in the past and I’ll make errors again in the future. however, I’m still sticking to my guns on this one- tech will not save the SF housing market.

  53. Posted by TechDefender

    ex SF-er, thanks for the posts. I know that in your mind that your arguments are sound. But im sticking to my guns too, the 24k hp layoffs(most of which will be in Plano, TX by the way) are not a result of tech being pounded by the recession. Thats not me trying to create a new debate, that was my original point! btw, I wasnt angry with your original post, I actually found it amusing and I enjoy reading your posts (even ones that involve these bearish tech theories).

  54. Posted by ex SF-er

    cool.
    :)

  55. Posted by younggun

    I heard a good one on the radio this morning – profits are privatized and losses are socialized. Thanks W.

  56. Posted by enonymous

    younggun
    is that honestly the first time you have heard that phrase?
    man, i must really be old.
    its called (crony) capitalism.
    btw, this wasn’t W’s call. This was all Ben.

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