Connecticut. This is one of the tonier Zip codes in America. It is the
home of Greenwich. A very nice town indeed. The hosts (Muffi and Chas)
put on a great spread. The invite read, “Seasonal Attire”. I had no
clue what that meant in this circle.
It turns out that Seasonal Attire means for the ladies a $3,000
Bergdorf outfit with lots of ice and gold. For the men it means khaki
colored pants, a blue blazer and hand made French cuff shirts from
China. No tie. I show up in a brown sport coat and black pants. I wore
a tie with holly berries on it; I bought it just for the occasion. What
do I know?
I ditched the tie in a potted palm and tried to be invisible. In a
short period of time I downed six flutes of Moet and most of the shrimp
platter. One of the serving girls saw that I was hungry and kept the
canapés coming. Her name was Laurina; I learned that she comes from
Guatemala. Her story is that her mother hocked the family home for a
$12k IOU to the Coyotes. They, in turn got her to El Paso, Texas. That
was in 2006. She lives in nearby Bridgeport and works steady. She has
already paid back the coyotes (with interest). She thinks America is
great. Can you see this picture?
I did my best to mingle. The ladies had a lot on their minds. There was
a consensus that the private schools were not as good as they used to
be, and as a result there is pressure to find home tutors. The problem
seems to be that there is a shortage of the ‘best’ tutors. That struck
me odd given the number of layoffs in the public schools of late.
Anyway “all” the good tutors have been taken and there is now
competition. One lady confided her solution. “Offer to double the fee
and they will drop one of their other clients”. Money talks in
Greenwich.
They guys seemed to be either bankers, Wall Street types, lawyers or
involved with a hedge fund. They only talked money. From the chitchat I
concluded that every one of them was long the dollar and short gold
last week. At least that was the talk. I think this was like lying
about one’s golf score. I attempted to participate in these
conversations. At one point I threw out something erudite like, “Ben
Bernanke is screwing things up. QE will destroy us!” From the looks I
got, you would have thought I had farted.
I did get some insight on the status of Greenwich real estate.
Properties with a price tag above $10mm are still in demand and the
price drops have been modest. “At most 10%”.
Evidence of this was a home that recently went on the market for a cool
$22mm. It sold in a fortnight for $21mm. All cash, of course. Deep
pockets are still very much in existence in Greenwich. One guy who
might have been drinking a tad too much reminded everyone that there
were still another five properties in town with a price tag north of
$20mm looking for a buyer. Party pooper.
The problem, it seems, are those properties that are in the $1-5mm
range. These have been marked down by 30 –40% and there are still no
takers. These are not for the deep pocket set. These homes have
traditionally been financed by Uber-Jumbo mortgages. No more. From what
I heard, there is no mortgage money around for a $4mm house.
One of the numbers guys provided an update on the market.
-There are currently 496 homes for sale with a price tag
greater than $1mm. The listed value of these properties comes to a
whopping $1.9 billion.
-The 2009 full year sales for these homes will come in around 175.
So there is a two plus year supply on the market. And that is just what
is listed.
-Of these high-end homes, 24 are in foreclosure. The listed mortgage
balance outstanding against them comes to a tidy $50mm. An average of
$2mm. There was some discussion as to who was the lender for the $6.7mm
mortgage on the property out on Close Road. No one knew for sure, but the thinking was, “It had to be Wells”.
-Some concern was raised for the “poor bastards” who might be losing
their big buck homes to foreclosure in the near future. As I looked
around at the unfamiliar faces in the rooms I wondered if any of them
were “poor bastards”.
The average mortgage in the US is about $200k. The average loss in
foreclosure is $75k. In Greenwich the average mortgage is $2mm. So when
one of these babies goes under it causes a big splash. The loss is
closer to $1mm. About 10 times more destructive than your every-day
foreclosure loss.
After listening to all this I concluded that America’s problems with
Sub Prime and Alt-A are in fact finally contained. That is not to say
the problem is resolved. But we at least know what the scope of the
problem is. The problems with Prime Jumbo mortgages are however still
in fourth gear. It is not just a Greenwich issue. It is in every
high-end community in the country. The loss of wealth by the owners of
these palaces is staggering. The impact to the lenders will be so as
well. The stink of Sub Prime has finally bubbled to the top.
I have never been a big proponent of the “trickle down theory”. But a
lot of others are. We may be seeing its affects. The impact of the
illiquidity and the drop in value of high end RE will influence
consumption and demand for a very long time to come.
At one point someone asked me what I did. I responded that I wrote
about financial issues. When asked where these might be seen I said
“Zero Hedge”. Talk about cutting a fart. I went home early.
The Wall Street crowd is very much aware of Zero Hedge and the other
new sources of financial information/ideas. I did not get the sense
that it was welcome. That’s a good thing.
Personally I think you should have just farted and moved on. Less effort for you and longer lasting discomfort for them.
I'm sure that there were some ethical people at that party but both of them probably left before you arrived.
Bruce:
Thanks, a really enjoyable read.
GREAT PIECE BRUCE.
This question of legal plunder must be settled once and for all, and there are only three ways to settle it:
This is excerpted from Fredric Bastiat,1801-1850. The Law.
Editorial commentary in parenthesis
Yes darling. Any sign of Thurston and Lovie?
Your farts smell likes roses to me.
TMI
Bruce,
Always enjoy the insights; keep them coming. I think Alt-A is still cycling thru, especially in the "poverty stricken" 500K-1mil range, and the losses in that area will be severe next year. Subprime, I agree is yesterdays news.
JC