GLOBAL REAL ESTATE MARKETS FORUM
Topic: I do or do not have a problem with the
definition of
market value for realty as currently
used by every real estate appraiser, residential or commercial, in the United
States of America.
Gale Bullock, MAI, SRPA, SRA
Monetary Policy and Market Value
The Dark Side of the Force
The monetary policy of the Federal Reserve Central Banking
legal tender fiat paper funnie monie banking system established in the United
States of America under President Woodrow Wilson's tenure as Top Kat in the
White House, which is more like the Presidency of Colonel House from Texas,
than the so-called learned sage from Princeton, has provided a setup for the
sting. The setup is real estate. The sting is you. The Dark Side of the Force
is The Creature from
Jekyll Island. What's wrong with the definition of market value? Everything
in the USPAP and Appraisal Institute definitions of market value, as we
currently know it, if we get the Full Blown Bastard.
USPAP Definition of
Market Value for Real Estate:
This definition is put out by The Appraisal Foundation
mandated by Congress after the S&L Debacle and Game of Bailout, see Chapter
2, The Name of the Game
is Bailout. Assuming the scenario described by my global markets pundit Mark J.
Lundeen, a US Navy Veteran, who penned Mortgages:
What the Banks Won't Tell You, Items 1, 2, 3, and 5 will not hold up to the
last paragraph of Mr. Lundeen's essay which is shown below:
I think
that in the near future, 2 to 10 years from now, you may see the US housing
market operating on a cash
only basis. If I am correct and the mortgage market as we now know it will
become as extinct as the do-do bird on what other basis could the housing
market operate? You no doubt think I am wrong in predicting this but the
ultimate result of "policy" in so many spheres of our lives has
created some unusual situations in the past with enormous transfer
of wealth from one class of citizens to another as a result. If I am
correct and a disaster does arrive, it will not be from the operations of the
free market looking for a return on capital but rather by the execution of
"policy" from people who think they are smarter than everyone else.
If
there is an economic melt down in micro and macro realty markets, no one will
be typically motivated - they will be trying to save their assets - it will be
every man for himself. No one will be well informed or well advised, as they
will be trying to save their assets in their best interest. A reasonable time
may be fifteen minutes to save ones' assets. Normal consideration in terms of
price for a property will probably reach some very esoteric levels… eh… low's
that is…and the pipe dream of "unaffected by special or creative financing
or sales concessions granted by anyone associated with the sale," may only
exist in the Ivory Tower at The Appraisal Foundation and the those other
erudite Pundits of Pabulum, those closet smoking cigar smokers at the Appraisal Institute. With respect
to Item 4, payment in terms of cash in United States
dollars…
Folks those haven't existed since 1913. We'll discuss this
later in the essay. Now moving on to the more verbose of the Ivory Towers…
The Thunderbird Script… The
Appraisal of Real Estate, 12th Edition, Appraisal Institute
USPAP boils it down to a five-step program. The Appraisal
Institute must be vying for the 12-step program at Alcoholics Anonymous, with
their 9-step approach to market value. Given the new Resolution Trust
Corporation, which may eventually rise like a Phoenix, and given the new RTC's
re-defining market value for realty, which the closet smoking Pundits of
Pabulum, will be most happy to rewrite, since they play to Wall Street anyway,
we shall have some great fun with this definition of realty market value as
long as it lasts. Wonder what the other three steps will be when this
definition gets re-written? Will the Rascals try to outlaw heavy metal coins
and bars as payment for realty on the barrelhead as part of the 12-step
process, in lieu of lender tender debt backed currency.
Item 1 - Which Date? Date of Divorce, Foreclosure and Becoming a
Bank REO, or Date of FTAA sneaking your job off to only God knows where under
Baby Bush and Bubba Baby Clinton who started this whole globalization free
trade bullshit to send our American jobs overseas. Does this date coincide with
the date you contemplate suicide as a realty owner, because some son of a bitch
appraiser buried you alive in your home on your last refinance, to out-guess
the Federal Reserve Charlatans Greenspan, Bernanke, and McTeer, since you held
hands and bought a new SUV with the homequity proceeds?
Item 2 - Open and Competitive market for Whom? Huh? Property
interest appraised? Can I subdivide my interest in the property and make money
as well on the refinance, and get another SUV. Does this all mean that those
appraiser's are gonna give me a higher value if I say my market is not
competitive and I subdivide by SUV interest in the property? That being true, I
suppose that 40 bank REO properties on the market in my neighborhood make my
market real competitive, huh? Gee, I love that Thunderbird script on all
those Realtor For Sale signs.
Item 3 - Folks acting prudently and knowledgeably? Now that's a
tough one to qualify. How can anyone in any market place act prudent or
knowledgeable under the Greenspan Fed and the current NeoCons in Washington,
D.C., under the pre-emptive tactics of the New American Century?
Item 4 - Price not affected by undue stimulus? Under the Greenspan
Fed and the GSEs and that Jumpin' Jesus Raines Kool Kat? Welcome to the Fairly
Tale Word of the Appraisal Institute and its Thunderbird script. I
suppose now that the new Number 10 added to the definition will include something
to the effect that real estate can never be a markets bubble, since all these
micros are local? That one's so great a lie, but that Goebbels
kat proved, the bigger the lie, the easier it is swallowed by the governed
population.
Item 5 - Item 6 - acting typically motivated and in their best
interest is a no brainer, so why do we have excess baggage cluttering up the
definition? Beats the hell out of me!
Item 7 - Market efforts adequate and reasonable time for exposure in
the open market, sounds great in Real Estate 101, but what about in Depression
Real Estate and Foreclose Rap Sheets 101? When the auction gavel goes down,
that Thunderbird script gets really hard to speed read, don't it?
Item 8 - Ooops…. There's that payment made in cash in U.S. dollars again…. We shall skip that one for now.
Item 9 - price representing normal consideration unaffected by
special or creative financing or sales concessions by parties associated with
the sale, generally means that the price paid for the property did not involve
kickbacks, a new Cadillac in the garage, or other booty in the sales price. Is
this the reason why my 150% homequity line appraisal ain't really no good for
marketing my house, you ask? The appraiser said my house was just great, but
that silly Realtor tells me my house ain't gonna sell until I put on a new
roof, recarpet, and repaint the sucker you say? It seems to me that the FED and
the GSEs are always party to any sale, or any refinance… Humm? Is that undue
stimulus, or what in the game of two-tiered structured finance?
About Those U. S. Dollars in the Definition of Market
Value for Realty…
Real Estate is, always has been, and always will be a
depreciating asset.
Real Estate is, always has been, and always will be a depreciating asset. Real
Estate is, always has been, and always will be a depreciating asset. Real
Estate is, always has been, and always will be a depreciating asset. Real
Estate is, always has been, and always will be a depreciating asset. Mozart
used to do that. When Mozart liked something he wrote, that sucker repeated the
Holy Hell out of it.
Explain to me how every micro and macro real estate market
in the United States of America continue to percolate to the upside like the
Maxwell House Coffee Maker on 2000 volts? No, it dudn't make any real sense! I
have already written an essay about the subject. The essay is my Blitzkrieg
Essay #5 - Ponzi and Electricity. When you have been doing the realty
valuation gig since 1976 and do the cost approach daily, building costs are
always increasing and land values are continually increasing…. And the same can
be said for depreciation respecting physical deterioration, functional
obsolescence, and external or economic obsolescence pertinent to that subject
property appraised, respective of the market and the property's locale…. Yet value
is always higher when I re-appraise the same property, even if it is in the
same observed condition. If the owner improves the property with a new kitchen
or bath, puts on a new roof, repaints and recarpets, I have lots of money to
play with on the final estimate of value, because the homeowner lowered the
effective age of the property. If by chance local micro markets factors such as
supply and demand, increasing and decreasing returns, enhanced location, buyer
appeal, or I get a whole influx of new Doctors to the market, I probably have
some real and recognizable local market forces that are pushing prices and
values upward. Payment in terms of cash and US Dollars make perfect sense then
in light of USPAP's (The Appraisal Foundation, mandated by Congress after the
S&L debacle and bailout) and the Thunderbird Script definition of www.appraisalinstitute.org, a
realty valuation professional organization.
The caveat to the definition of market value for realty or real estate linked to
payment in terms of U. S. Dollars is the fact that the definition of market
value for realty, or real estate linked to the conceptualization of a U. S.
Dollar is simply put… HYPOCRISY… on the part of those who claim that they profess
the Body of Knowledge, and the Credentials to write the definition of market
value for realty and real estate for everyone to use. U. S. Dollars don't
exist. Federal Reserve Notes exist. I also, wrote an essay about this gizmo, or
smoke and mirror. See: Definition of
Market Value… (a fatally flawed definition… ?)
Monetary Policy and Market Value… or
Just a Damnable Boomerang…?
Valuing real estate in a monetary system that does
not exist in the
real world is big problem. Coupling that with the intrinsic fact that real
estate is, has always been, and always will be a depreciating asset, just
compounds the problem. When one considers that the linkage between the Federal
Reserve Note and the real estate is the fact that both are debt backed
instruments as commodities, that within itself, in light of the other
revelations I have placed before you, Dear Reader, should absolutely scare the
pants off of you, and tie your Knickers in one helluva Knot.
In our view, the definition of market value for realty or
real estate, will eventually help to destroy the American Federal Reserve
fractional reserve banking system as we grew up with it since 1913. In the
final process, Woodrow
Wilson may be recognized as Traitor to the Constitution and the American
People. The process may be long, hard, and painful
to Ma and Pa Kettle on Main Street America, and their kids, Joe Six-Pack and
Sally SUV…
When I look at real estate, I see nothing but debt… when I estimate market value for
realty, I am estimating the debt the property can carry. Conceptually, a few
folks at The Appraisal Foundation and www.appraisalinstitute.org, may
want to do the same for the new Body of Knowledge they are going to need when
the Crap Hits the Fan? Real estate inflating at the printing of Bernanke's
Federal Reserve Notes is a Ponzi
Shell Game -- Do these guys at the Federal Reserve… Greenspan, McTeer and
his holding hands "Mercans buying SUVs, and that Bernanke Idiot with the
Gutenberg printing press really think they are hood winking all of us on Main
Street America?
The definition of market value for realty, or real estate if
you will, is derived from Dreamland and an Ivory Tower… you might as well go to
Worlds of Fun in Kansas City, hop on
the Boomerang. The
Boomerang certainly makes more sense than monetary policy and market value…
Enjoy the Ride!
Central
Banking Discredited - Steve Roach - Morgan Stanley.
If we are unfortunate enough to get the Full Blown Bastard,
a lot of Pundits at The Appraisal Foundation and the Appraisal Institute are
going to have some very big Gator Bites in Their Assets, let alone mention
Messieurs Jumpin' Jesus Raines, Greenspan, SUV McTeer,
and the Fool with that printing press…. Got any Heavy Metal? Better than
that! -- Got any Tar and Feathers? Grin!
© 2004 Gale Bullock, MAI, SRPA, SRA
aka Ole
Bear
www.pgtigercat.com
Email
"Double
Eagle"
Security Bond Specialist
Musings on Market Value
With the establishment of the
United States’ Federal Reserve, in 1913, more than the debasement of our fiat
currency has taken place. Intertwined with the debasement of currency has been
the debasement of our language, our culture, and our perceptions of “economic
reality.” When monetary central planning is adopted by a country, money is not
the only thing that is manipulated. The minds of the country’s citizens are
manipulated as well.
In
a free-market society (which would include a 100% gold dollar), a natural
tendency would be for the prices of goods and services to decrease over time. This would include housing prices as
houses are consumer durable goods. The beauty of a gold dollar is that,
conversely, its purchasing power would increase over time. Therefore, setting
aside part of one’s money income (as savings) would be an attractive
proposition for two key reasons. First, as mentioned above, the purchasing
power of money would increase over time, thus rewarding savings. Secondly, a
bank would pay the saver interest which is an additional reward for saving.
Clearly, having a 100% gold dollar would provide an economic environment
conducive to saving.
Since
the establishment of the Federal Reserve, in 1913, the U.S. dollar has lost
over 95% of its purchasing power. Hence, it is not surprising that the Federal
Reserve’s reckless inflation has led to the common man’s expectation for the
dollar to lose value over time. As the Federal Reserve intensifies the rate at
which it creates money out of thin air, the common man’s behavior (in the
sphere of personal finance) tends to change for the worse. He is led to
speculate in response to a constantly depreciating currency.
With
the expectation for money to lose value over time, there is a tendency for
people to seek higher rates of return than offered by passbook savings
accounts, certificates of deposit, and other savings vehicles. During
particularly acute periods of money creation by the Federal Reserve (in the
1920s, the 1990s, and today for example), the common man turned to the stock
market and to real estate in search of higher rates of return (via inflation
induced capital appreciation). However, it is clear that the common man does not understand that his behavior had
changed from being a saver to becoming a speculator. Herein lays the key as to
how the debasement of our currency has led to the debasement of our language
(i.e. eliminating the word "speculation" from Wall Street’s and Main
Street’s vernacular and ultimately replacing it with "saving").
It
is important to keep in mind that the vast majority of people believe that
paying down a mortgage is tantamount to saving. Nothing could be further from
the truth. Paying down mortgage debt on a consumer durable good (i.e. a house)
is simply spending money and is the opposite of saving. People have literally
been fooled into believing that they can reside inside of their savings
vehicle. Such a foolish mindset would not exist under a 100% gold standard
(under which, once again, a house would be a depreciating asset). It takes central
banking, and an ever-depreciating fiat currency, to bring about such a mass
delusion.
Ludwig
von Mises astutely understood this phenomenon of mass delusion. In his magnum
opus, Human Action, he stated the
following:
Common
man does not speculate about the great problems. With regard to them he relies
upon other people’s authority, he behaves as "every decent fellow must
behave," he is like a sheep in the herd. It is precisely this intellectual
inertia that characterizes a man as a common man. Yet the common man does
choose. He chooses to adopt traditional patterns or patterns adopted by other
people because he is convinced that this procedure is best fitted to achieve
his own welfare. And he is ready to change his ideology and consequently his
mode of action whenever he becomes convinced that this would better serve his
own interests.
With
the stock market and the housing market appearing to be surefire paths to
effortless wealth accumulation, the common man really has no idea that he is on
the road to financial ruin. This ruinous road has been paved with the Federal
Reserve’s fiat currency. Indeed, a mass delusion has been wrought on America by
monetary central planning. Americans are speculating, and accumulating enormous
debt loads, in the name of “saving”. Therefore, under such speculative
conditions, it is impossible for rational market prices to emerge in the real
estate marketplace.
© 2004 "Double Eagle"
Email
Christopher Mayer
Editor: Capital &
Crisis
www.capitalandcrisis.net
Troubles With the Meaning of
Market Value…
Let us start with a little analogy from the stock market*
On December 31st, 1930, White Motors' balance sheet
reported cash of $8.5 million, receivables and merchandise of $15 million and
net fixed assets of $14 million. Less liabilities of $1.3 million, the company
had a net worth position of $36.2 million.
The company's stock price was trading between $7 and $8 per
share. At the 12/31 close, the stock price was 7 3/8, which multiplied by the
650,000 shares outstanding put the market value of the company at $4.8 million.
This valuation represented about 60% of the company's cash balances alone and
only about one-fifth of the net quick assets. As the great Benjamin Graham
noted, "The spectacle of a large and old established company selling in
the market for such a small fraction of its quick assets is a startling
one."
Such a spectacle was not uncommon then. Graham continued "But the picture becomes more impressive when we
observe that there are literally dozens of other companies which also have a
quoted value of less than their cash in bank. This means that a
great number of American businesses are selling at much less than their
liquidating value; that in the best judgement of Wall Street, these businesses
are worth more dead than alive."
Flash forward to the year 2000. Take a look at Ariba, a hot
company in that market and representative of new Internet-related businesses
that buffed up the returns of many portfolios. In 2000, the company generated
sales of $62 million with a net loss of $37 million. It's balance sheet was not
indicative of anything much, as was typical for a technology-based company,
with a book value of $1.22 per share. The company was trading for about $267
per share. Multiply that by the 96.1 million shares outstanding and you have
the market's value of this company, which was an astounding $25.6 billion.
That's a multiple of nearly 412 times sales.
Market value meant very different things depending on where
you were in the cycle of boom and bust.
Graham created a concept called intrinsic value to
distinguish it from the market price. He would likely have agreed with John
Burr Williams' assessment that "separate and distinct things not to be
confused, as every thoughtful investor knows, are real worth and market
price." Markets prices reflect the emotions of its participants, they the
manifest creation of their optimism and pessimism, their sorting and grading of
possibilities, the individual subjective appraisement of value. Market prices
can swing wildly between emotional poles; and swing they have, as these two
examples illustrate.
Markets make opinions. Opinions are not statements of fact;
not all the actors in the market will consider the same assets attractive at
their present market prices, whatever the price happens to be. Its true value
is indeterminate except from the viewpoint of the individual actor in the
market. As Williams noted "concerning true worth, every man will cherish
his own opinion."
Indeed, for the individual actor it is only his opinion that
matters, only his opinion that causes him to act. The opinion of the crowd will
change the data from which the individual must work, but only his own opinions,
his own preferences, his own felt uneasiness and his desire to remove it, will
cause him to act. Still, the reality facing every buyer and seller will be the
market price; to try to determine any objective value is a hopeless quest.
Stock prices are determined by marginal opinion. That is to
say, the least optimistic present owner and most optimistic non-owner determine
the price. As John Burr Williams wrote in his 1938 treatise The Theory of
Investment Value, "The margin will fall between owners and non-owners, the
in and outs, the ayes and nays; and at this margin, opinion, mere opinion, will
determine actual price."
Consider one hundred people holding the stock of a
particular company. Suppose 99 people believe the stock is worth $50. One
person believes it is only worth $40 and he sells it. For that instant, the
market price is $40. Now this new holder (it could just as easily have been one
of the other existing stockholders, assuming they have the funds to invest, or
the ability to borrow) has his own opinion as to the stock's worth. Perhaps he
thinks it is worth $45. Let us say he finds a buyer willing to pay him his
price and he sells. The market price at this instant is now $45. Remember too
that the other shareholders that hold the stock believing it to be worth $50
can change their opinion too. Perhaps, one owner changes his appraisal and is
willing to sell for $43. Let us suppose he finds a buyer. Now the price is $43.
And on and on it goes.
One can imagine, with a stock trading millions of share per day
and with literally millions of onlookers watching past transactions and putting
bids of their own in the market, how much this price might move. The increments
are typically small, but on certain days, perhaps due to new information, these
prices can move significantly. Nonetheless, the process is the same. There must
be buyers and sellers, and each are motivated by their own valuations, however
arrived at.
This ought to dispel any notion that the market represents
some sort of collective mind or social intelligence that exists apart from
individual traders. To borrow once more from John Burr Williams: "Like a
ghost in a haunted house, the notion of a soul possessing the market and
sending it up or down, with a shrewdness uncanny and superhuman, keeps ever
re-appearing." Since made from the stuff of mortal man, the market is
equally prone to human folly. We can only speak of the market existing
metaphorically.
The above discussion excludes monetary factors, of course.
An increasing supply of money and credit serves as the rocket fuel to inflate
the prices of stocks just as it does with other capital goods and all forms of
investment. Stocks in essence are claims to a collection of resources employed
in meeting the demands of consumers or other producers. As the new money weaves
its way to buyers, these buyers bid up the prices of stocks.
As Mises has noted, "Very promptly these funds find
outlets in the stock exchange or fixed investment. The notion that it is
possible to pursue a credit expansion without making stock prices rise and
fixed investment expand is absurd."
In the metallic money world of yesteryear, an increase in
money and credit beyond that which was covered by specie was defined as
inflation. Today, awash in fiat currency, inflation is often defined as a
general increase in prices. This confuses cause and effect. The general
increase in prices observed is the consequences of an increasing supply of
money and credit.
An absence of observable price increases in the various
price indexes does not necessarily mean that there is no inflation. It means
that prices would be falling if not for the increase in money. Perhaps the best
we can do to define inflation today is to say that inflation is any increase in
money beyond that which would occur in a free market system (backed by specie),
as elusive a concept as that is to measure.
Such inflationary increases in money and credit are clearly
observable today. Easy money and easy credit were part and parcel of the 1990s
boom.
William McChesney Martin, governor of the Fed from
1951-1970, famously described the Fed's role as taking away the punch bowl just
when the party gets going. He neglected to mention that it was the Fed that
provides the punch bowl in the first place.
The proliferation of credit has been truly staggering in
some quarters. The government-sponsored enterprises are all large players in
today's capital markets that are inflating credit and distorting the market
process. It becomes difficult to separate what profits are attributable to inflationary
gains. This creates the illusion of prosperity.
Even knowing that there is an inflationary environment does
not alter the difficulty of separating real profits from illusory inflationary
gains. The inflation does not affect all lines equally. To know ahead of time
what prices will rise first, one will have to know what the value scales of
buyers looks like before they become manifest in action. In other words, you
would have to know ahead of time how the new money would be spent. All prices
do not rise together or in the same proportions. The bottom line effect of all
this is to make some assets appear more valuable than they really are.
© 2004 Christopher Mayer
Editor, Capital & Crisis
www.capitalandcrisis.net
Email
Sol Palha
Tactical Investor
www.tacticalinvestor.com
Definition of Market Value or Market Insanity
Land is the only thing in
the world that amounts to anything, for 'Tis the only thing in this world that
lasts, Tis the only thing worth working for, worth fighting for -- worth dying
for.
Margaret Mitchell 1900-1949, American Novelist
Having no real experience in the real estate appraisals
business, this topic was rather challenging and even after attempting to read
as much as I could on the subject, I still feel like a child trying to drive a
car. So I have decided to attack this topic in areas that I feel competent
enough to blurt out something. I will leave the very technical stuff to my
esteemed colleagues.
I am going to put the Definition of Market Value that was
kindly provided by Gale Bullock.
DEFINITION OF MARKET VALUE
(A fatally flawed definition…?)
A definition of market value as stated in the glossary of
the most recent edition of the Uniform
Standards of Professional Appraisal Practice is “The most probable price
which a property should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected by undue stimulus.
Implicit in this definition is the consummation of a sale as of a specified
date and the passing of title from seller to buyer under conditions whereby:
1.
Buyer and
seller are typically motivated;
2.
Both parties
are well informed or well advised, and acting in what they consider their best
interests;
3.
A reasonable
time is allowed for exposure in the open market;
4.
Payment is
made in terms of cash in United States
dollars* or in terms of financial
arrangements comparable thereto; and the price represents the normal consideration
for the property sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.”
I will start my attack by looking at point number 4. The
United States Dollar is no longer the same Dollar that existed before the Gold
standard was abandoned. Hence one can unequivocally state that the definition
of market value as it stands is a fatally flawed one.
The Central bankers have done away with real money and
replaced it with a form of money that is not even fit to be called toilet
paper. At least toilet paper has somewhat positive function that is far more
than can be said for fiat money. Its only function is to take the little you
have and replace it with nothing. There is a Silver lining; if one follows the
Feds closely one can use this fiat to generate some real wealth. However this
is a completely different topic and possibly something we can examine in the
future.
Fiat money is only accepted because a whole generation has
been dumbed down so much that they don’t know the difference between real and
fiat money. Hey most of them have a
hard time telling the difference between credit and savings. To them a credit
card is the equivalent of having money.
Well onto the main point. How can you sell valuable land for
worthless dollars that are no longer backed up by Gold or Silver? For the
Definition of market value to hold, we would have to back up every worthless
dollar with Gold. A concept the bandits in charge are not likely or willing to
embrace in the near future.
To sum it up basically the definition of market value as it
stands should be scrapped and a new one put up. Where in bold letters it states
that, when you sell your land you are no longer going to be paid in United
States Dollars, but Federal Reserve Dollars that are completely worthless. And
your now valuable land will be taken from you and replaced with this worthless
paper to do as you see fit.
Another disturbing phenomenon is that real estate has no
standard value. One appraiser can come
in and appraise it at a higher value then another who is really doing his job
and not busy trying to pump up the value of the land. The reason for this
discrepancy and fraud is due to the passing of the Fierrea Act. It has
basically centralized the appraisal process and has put a bunch of imbeciles in
charge. In simple words it stated that all Appraisers had to be State Licensed;
the result was that an average Joe from the street was now on the same level
with someone who had 10-20 years of experience.
So now you can get some guy who appraises your house for 50K
more than it should. Lets say you house now is valued at 350K instead of 300K
and you have mortgage of 200K. You can
now go out and take a loan of up to 125% of the value of your house. That means
you can borrow up to 187.5K (125% of
150K) and spend this money in whatever way you see fit. Now just imagine this
being done several million times. A ton of money is being created from nowhere
and this money slowly but surely indirectly ends up feeding the financial
markets. So what you have is fraud being committed on level and a scale that is
completely almost beyond imagination. Furthermore this fraud indirectly ends up
pushing the financial markets even higher.
As far as point two goes I completely disagree with it; both
parties are not well informed, and they definitely do not know what’s going.
They have been systematically misinformed and lied to. They are only acting on
information they think is true, because they trust their government and
indirectly the Central Bankers. If they really understood what was going on, I
don’t think they would be so eager to part with something that has value for
something that is nothing but a joke and an illusion. The only thing they would
be willing to accept for their land would be Gold, Silver or another piece of
land in exchange.
What is a lie? It is to
say what is real is not real. It is to deny the existence of what exists.
Peter Nivio
Zarlenga American Businessman, Founder of Blockbuster
Videos
Conclusion
Every appraiser whether he has 0 years experience or 10
years experience is on the same level due to the Fierra act and so now we have
a bunch of imbeciles over valuing properties. This overvaluation then creates a
false sense of wealth and the consumer starts to think that investing in
properties is a good business. On the
same note the consumer feels that he is richer and therefore can afford to
spend more. This prompts him to borrow more money and so a vicious repetitive self-feeding
cycle is created.
The worst atrocity committed here is that the US dollar is
no longer the same dollar it was and so the definition of market value is
completely invalid as it stands. Instead it should be called the Definition of
insanity. Since worthless paper dollars are now able to buy something physical
that has value and is in limited supply. Last time I looked one could not print
or produce land, as can be so easily done with today’s American Peso. This
problem is further aggravated by the fact that one really does not know what
the true value of one’s or for that matter any ones property is: for the simple
reason that the appraisal process is now centralized and experience counts for
nothing.
Examination of the appraisal industry would require a
separate essay. This whole problem has arisen due to the fact that the Gold
standard was dropped and replaced with the paper standard. A lovely tree is
chopped and then turned into paper; some ink is splashed on this paper, a
stupid face printed on it and now its called money. The feds are the only ones
who could take something useful and actually turn it into something useless.
I find it dull to end on sour note so I will give you an
example of Silver lining to this whole fraudulent process. If one paid close
attention to the Feds policies after the markets started to correct in 2000.
One would have noticed that they were ready to take on an extremely
accommodative stance towards interest rates.
One could have simply started buying houses as property markets thrive
in a low interest environment (currently buying a house is not a smart move).
In addition when they started to let the floodgates loose one could have also
bought some bullion right towards the lows as soon as the very long term down
trend line was violated. Drawing trend
lines is something everyone who decides to gamble in the markets should be
familiar with. If not you have worsened your already bad odds of succeeding in
the financial markets. There are many
more examples, but that would require a whole new separate article.
This is does not mean that I support the Feds views and
actions; for the record I detest their actions. However no one ever made money
screaming on the top of his or her lungs about wrong doings. Words are cheap
actions are everything and when it comes to the Feds it pays to monitor their
actions closely. Furthermore screaming and happiness don’t go hand in hand.
Insanity in individuals
is something rare -- but in groups, parties, nations, and epochs it is the
rule.
Friedrich Nietzsche 1844-1900, German Philosopher
© 2004
Sol Palha
www.tacticalinvestor.com
Email
Chris
Sanders
Principal, SandersResearch.com
Buy others for news. Buy us for judgment.
The Question at Hand??? ....No Problem!
The question at hand is
whether or not the definitions of market value used by USPAP or the Appraisal
Institute are reasonable. Both seem admirably suited to what I assume is their
purpose: to provide a sufficiently malleable definition so as to make it
possible to justify however broad a range of potential prices as is necessary
to ensure the consummation of a sale. For example, there is the qualifier in
both definitions that both buyer and seller are “typically motivated.” It does
not take much imagination to conjure a wide spectrum of “typical” motivations,
ranging from just needing a roof over one’s head to laundering the proceeds of
narcotics or arms trafficking. If you think that the latter is not a typical
motivation, consider that in the mid-90s the Justice Department estimated that
the annual flow of the profits of narcotics trafficking through the US banking
system were on the order of $500 billion to $1 trillion per annum, then think
again.
As one who has traded in
markets for most of my professional life, the only sensible definition of
market value seems to me to be the price at which something actually trades.
Whether or not something is actually worth what it changes hands at is
altogether another question bordering on the metaphysical. What one buyer will
pay for a house or an ear of corn, an ounce of cocaine or a Uzi is a matter of
his or her unique needs and preferences. Who is to say what the price of a
piece of property should be worth? If I am in possession of $1 million in
narcotics profits, and am otherwise in my “legitimate” business subject to a
40% marginal rate of tax, I might well welcome paying $1 million in cash for a
property worth half that if by doing so I can then get my money into the
banking system, no questions asked, turn the property around and take a tax
loss against my legitimate income. This might qualify as “special or creative
financing,” but I doubt it.
Freedom
loving folk everywhere will find the restriction of sale to “US dollars or in
terms of financial arrangements comparable thereto” abhorrent, given the
unconstitutional, illiberal and monopolistic nature of the modern monetary
system, but this is not, I think, sufficient cause to reject the inclusion of
this clause in the definition at hand. After all, the intent therein is taking
care of business, not protecting one’s liberty. Nearly a century on since the
creation of the Federal Reserve, a strong case can be made that usage and
custom have long since legitimated the use of fiat currency. Indeed, I would
argue that the issue of fiat currency has been eclipsed by what we at Sanders
Research call “meta-currency.” With meta-currency one does not even have the
questionable comfort of holding a piece of paper that promises repayment in
another piece of paper printed by the same monopolist. Meta currency exists as
intangible strings of binomial electrical charges and can be created by anyone
with the ability to pay off enough congressmen, as Fannie Mae, Freddie Mac, the
Home Loan Banking System and HUD demonstrate every day.
The advent of meta-currency
promises the ability to allow infinite leverage and to explore rates of
taxation undreamt of in history. The only caveat is that everyone needs to use
it. Since no one in their right mind would consider trading real things for
nothing, this in turn imposes the requirement of repressive government to force
them to do so. The definition of fair value under consideration here is not in
the least inconsistent with this.
No problem.
© 2004 Chris
Sanders
Principal, www.sandersresearch.com
Email
Tom Fryer
Realtor?
To the Inman
News editor:
The Bubble
Babble Revisited - What is Strikingly Evident
|
Foreclosure Notice on Winding Trail in
the $300,000+ price range, Boone County Missouri --
|
|
Is all this bubble babble just
gibber jabber? Does it go beyond a Dr. Seuss fairy tale, or Chicken Little
saying, “the sky is falling, the sky is falling?”Those who dismiss the bubble argument, as a modern day fairy
tale with limited risks to the American dream have grown carelessly unrealistic
in their assessment of what is strikingly evident. So…what is strikingly
evident?
What is strikingly evident is that millions of American’s
are hooked on the most ferocious of the reality-avoiding addictions, the credit
habit. This insatiable dependence has resulted in the largest accumulation of
debt in the history of our country.
This is the disease-the swelling bubble is merely a symptom.
What is strikingly evident is that too many financiers have
been quick and easy to provide accommodation and a short-term relief for the
country’s burgeoning credit addiction. All financing segments of the economy
have participated for short-term profits. Millions of consumers have fallen
prey to all the wild credit pitches and unsound lending practices. This
financial malpractice is the wrong prescription-the bulging bubble is a
forewarning.
What is strikingly evident is the escalating social
structuring of mortgages to homeowners who really cannot afford the high cost
of homeownership. Everyone is entitled to homeownership but not everyone can
afford the rising costs of utilities, taxes and home insurance, not to mention
the increasing cost of home maintenance. This is unrealistic lending
practices-the inflating bubble is only an omen of things to come.
What is strikingly evident is that many balloons coming due
in the commercial real estate mortgage arena in the next few years may be
classified as “troubled loans.” for they will no longer be able to be supported
by fabricated values. Truth in lending takes on a new meaning. The financial
fabric of these commercial balloons will soon begin to tear apart.
What is strikingly evident is that the money supply and
monetary policy has been manipulated to support the “quick credit fix.” The motivating impulse has been a
methodically lowering of interest rates to refinance debt, but not to create
wealth. Most of the real estate values are a fabrication, and not real wealth.
This compromises the soundness of the credit system and the financial markets
---the bloated bubble can take only so much strain before it begins to rupture.
This entire hubbub about the bubble babble is more than
hullabaloo. At what point does the economic and monetary system’s quick credit
fix engines begin to sputter and backfire? At what period in the careless
financial cycle will the creation of capital not be sufficient to satisfy all
the ominous credit obligations? At what point does the bubble(s) burst, and
like tremors of an earthquake, send shockwaves across the economy?
All the volatile ingredients are currently present for the
bubble to burst. Current market conditions are deceiving. While most economic
barometers show near normality on the surface, the fault lines lying beneath
the financial markets are beginning to show movement. Just an upward movement of interest rates with the interest groups
not having any resources to refinance their debt will send the shockwaves
across the financial markets and spew over into all sectors of the economy late
in 2004 but surely in the first quarter 2005.
Can a change in monetary policy hold back the impending
surge? We must be reminded of what the historians have already said about
reckless money and credit expansion of the 1920’s. W.E. Woodward wrote, “No
man, or group of men, can hold back the movement of collective social and
economic forces.” Lawrence Reed said, “the economy was having a party, the
Federal Reserve was spiking the punch, and a good time was had has by almost
all. Few could read the handwriting on the wall.”
It is manifest that history tells us there will be a
momentous consequence or a day of reckoning for almost a decade of financial
greediness and credit overindulgence. This babble we constantly hear on the
bubble will be the inevitability of property value decline, the inescapability
of people going about their daily routines unruffled and unscathed by all the
financial folly. One will not be able to retreat from its realities for the
consequences will be much more than the sound of popping bubbles, a gurgle, or
fizz. It goes much deeper, further, and wider than a bubble bounced around by
easy credit terms and changing interest rates.
We have heard all the “shop worn” clichés on this day of
reckoning. “The chickens will come home to roost, an economic house of cards,
the handwriting is on the wall, what goes around, comes around, the domino
effect, and a short-fused time bomb.
All these sayings may be trite and cute, but they are certainly fitting.
Does
this commentary advocate doom and gloom? Not at all for the facts above simply
recognize the objective truth. A truth that is so strikingly evident.
© 2004 Tom Fryer
Email
© 2004 Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
info@tacticalinvestor.com
23 June 2004
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