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Momentum Stock Fiasco Already Pricked San Francisco Housing Bubble
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
San Francisco is unique in many ways, and not only because it gets cold in the summer. Wild boom-and-bust cycles rule the city, and right now we’re in a boom cycle. Medium-rise and high-rise buildings for offices and apartments are sprouting like mushrooms. Cranes dot the skyline. Construction sites are everywhere. Streets are even more congested than usual, with concrete pumps blocking three of the four lanes. Tax revenues are flooding city coffers. Money grows on trees. Rents are soaring. People are getting evicted. And home prices, oh my....
By February, the median home in San Francisco changed hands at $945,000, according to DataQuick (now a division of CoreLogic). That was up a screaming 35% year over year, and 16% higher than the peak of the prior bubble.
That peak was in November 2007, the craziest time when nothing could go wrong because stocks were still riding high, though some had already fallen off a cliff, and San Francisco was immune to the implosion of the housing bubble that had been ravaging other cities for over a year because everyone knew that San Francisco was unique and not subject to gravity, and a month later it all blew up. Afterwards, everyone called it “the housing bubble,” and everybody knew it had been a crazy time, that it hadn’t been sustainable.
This time, it’s not a bubble. It’s just a “healthy housing market.” But in March, distinct screeching sounds emanated from the big money machine of San Francisco and Silicon Valley. It was still hard to see at the time, but the machine had started to grind down. The fuel that feeds the machine? One, publically traded companies whose stocks are valued at insane or infinite multiples that can buy tiny startups for billions of dollars in freshly printed shares, and thus transfer shareholder wealth from around the world to the Bay Area; and two, IPOs of small companies with big losses that generate billions for the sellers, and for stock option holders as well, again transferring money from buyers around the world to the Bay Area.
Nothing works in San Francisco and Silicon Valley without this money transfer machine. It’s how early investors exit with immense profits. It’s how engineers become sudden millionaires. It’s how people with median incomes suddenly don’t mind plunking down a couple of million in cash for a three-bedroom apartment. It’s how billionaires are created. And many of them plow part of their windfall back into the startup mill, convinced that their genius had made them rich, hoping to benefit from it a few more times, though most of it will simply dissipate in the local economy.
What they all must have are soaring stock prices – but not the stocks that are in the Dow or in the S&P 500, which have been setting new highs but which don’t really matter that much here, except for Apple, Google, Facebook, and the like, but tech stocks, biotech stocks, cloud stocks, Big Data stocks, sundry app makers, internet stocks, or social media stocks – which are mostly about advertising and personal-data collection technologies, another hot area.... And they have been getting slaughtered. So the average stock in the Nasdaq is down over 24% from its 52-week high.
San Francisco’s favorite baby, Twitter – so favorite that the city’s taxpayers were shanghaied into granting it tens of millions of dollars’ worth of payroll tax exemptions so that it would move from one building to another a few blocks away, rather than move to another city whose taxpayers might have been shanghaied into an even worse deal. Well, Twitter is the locally best known among these momentum fiascos, down 56% from its high in less than five months. Hope has wheezed out of it.
The Bay Area is full of these companies that are part of the big money transfer machine that is screeching to a halt. Take FireEye, in Milpitas, next to San Jose. It sells network and cloud security products, one of those formerly white-hot sectors. These outfits follow the same pattern: immensely hyped pre-IPO funding rounds with ever sillier valuations, an even more hyped IPO (last September), a Wall-Street instigated run-up into the stratosphere, and then a giant hissing sound. It’s down 72% from its high in March and trades well below its IPO price. Like Twitter and most of the others, it’s still way overvalued. In this manner, spread over hundreds of companies, many billions in fake wealth have evaporated in just a few months.
That brutally bursting stock bubble is wreaking havoc on IPO and momentum-stock hype, and on the necessary flow of money from all over the world to the Bay Area. The whole construct begins to teeter. And it’s already taking down housing in San Francisco.
That magnificent February, when the median home sold for $945,000, something terrible was already under way: sales were stalling. Turns out, only a few wealthy people could afford to buy a median home at this price, but wealthy people – even those freshly minted millionaires – don’t like to live in median homes, which is a two-bedroom apartment in San Francisco. And so in March, the price of the median home dropped to $937,500, according to DataQuick. The hot air had begun hissing out of the San Francisco housing bubble. And in April, the price dropped again to $922,500. While that is still up 13.2% from prior year, it’s down 2.4% from just two months ago.
That this drop came in March and April is particularly nasty. This is the time when home prices rise. Even during the down-years of 2008, 2009, 2010, and 2011 when the housing bubble in San Francisco was imploding, home prices religiously rose in March and April! So this downdraft is very special; and an early indication that this fabulous boom is once again turning, as it always and inevitably does, into a bust.
Even while the googly-eyed mainstream media celebrate the Dow’s record highs, beneath the gloss, thousands of stocks are getting gutted. And the carnage is spreading. Read.... The Brutal, Beneath-the-Surface, Slo-Mo Crash of Stocks
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Please inform people to get out of TBT az soon as possible? And buy another house for your grandkids!
Real estate is still local and the last meaningful buy on the dip happened last year about this time? Of course this has been THEE TIME to buy since 09 and this pattern seems to be repeating? Your information and prose is impeccable and is news worthy except the conclusion! Your writing is like a program when us not so brights need a hint at YOUR playbook! You rich SOBs used to be the last great hope and now your just another result of someone else paying too much and hoarding too little?
strangely well written without the ever present speling or usage error....is the the Atlantic?
cant be all bad iys the home of Michael Savage
WHO?
OT
EU officials plotted IMF attack to bring rebellious Italy to its kneeshttp://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027284/eu...
Seems this might be a good time to resurrect the plan to pick up illegal aliens....I mean undocumented immigrants.... I mean uninvited guests at the border in San Ysidro and bus them directly to San Francisco. That fabulous bastion of liberalism, that "safe harbor". With any luck the city would go broke quickly, devolve into civil unrest and become a true " Baghdad by the Bay".
Too late. They already make up the vast majority of the Mission District, mostly from El Salvador. They're pissed off the techies are buying in their neighborhood and raising costs.
It doesnt' matter what type of restaurant you go to there are illegal aliens from Central America working in the back whether its Indian, Thai, Vietnamese or Italian.
S F has done its very best to welcome them.
What else must be done? Charter airlines?
Yeah, we need two million more unskilled, penniless people to come join the big party.
Internet Announcement:
Wall Stree will hold an huge dancing party by the end of 2015. Music expected loud, seats are very limited. Gate will be closed after party starts. Sophisticated investors please forward to the balcony section where ( ) can observe yellen's speech titled "There is no bubble just pure confidence".
Dead Kennedys: Police Truck (SF Corporate Police Anthem)
https://www.youtube.com/watch?v=_jy04ACD030
Now THERE is an SF/Norcal band! Used to see DK's all the time, mostly in Sac. Too bad the majority of my old punk rock friends think Hilary Clinton is cool. Jello has been on tour lately, missed the shows though. One of the greats!
We all growup and out of infintile none sense? Maybe your friends realize punks and Republicans share common interests?
I loved the DK's during the 80's but it's scary to see how prescient their lyrics were. Who knew the whole system was going to come down around us? I never thought their songs would still be true today.
Yet again the irony of a default given such a backdrop would not be lost on me. "Bailing out bubbles."
Move along...
It wasn't a bubble until BEAR got taken out and it wasn't contained until after PAULSON GOT LEHMAN? THE FED TOOK THE AIG STAWK PORTFOLIO and dumped it to buyout the banking system?! All we need is to find a walmart cashier to buy it or WE hold it or in WELLS FARGO we trust to hide it? NO PROBLEMO
Great analysis.
Chinese investment in the Bay Area was overlooked and would have put the coup de gras to any argument by NAR that the current bubble is *not* a bubble.
Now all the housing investors are eyeballing the exits, inching their way toward the doors...everyone knows that a mass panic will likely kill them but everyone also knows that they must sell the real estate *before* the stampede is in full free fall.
Needless to say, millions of dollars are flooding into the local real estate rags and news sources to keep the average home-buyer unaware of the macro situation.
Even the Chinese know that Bay area real estate is batshit crazy expensive. That's why they are buying up Palos Verdes and Orange County.
"Herbert Hoover, who later became one of Strong’s sharpest critics, suspected correctly that Strong had become ‘a mental annex to Europe’ and was making his decisions with the interests of international finance and not the interests of the American people in mind. "
Imagine that. What's different now is that both sides of Congress and the executive and judicial branches are solidly aligned against their constituents, in favor of alien interests. I hate the Fed like my chickens hated me.
SAME AS IT EVER WAS! You do realize that history of the Fed is even lost on the governors! Our money system is more BLACKMAIL than logic? Hoover was blackmailed and Congress voted the global banking mechanism into law on Christmas eve? A epic mind fuck on a special holy day before? This organization puts the big B in bank robberies? Its going to be exciting during the world cup seeing your income filling stadiums in L. AMERICA! OH fucking LA?
Webster G. Tarpley, in “British Financial Warfare: 1929; 1931-33; How The City Of London Created The Great Depression,” draws on the memoirs of US President Herbert Hoover in his analysis of “the great economic and financial cataclysm of the first half of the twentieth century," the Great Depression.
Hoover (a great philanthropist who believed in the importance of private giving), writes Tarpley, “had moments of surprising lucidity even as he, for the sake of absurd free-market, laissez-faire ideology, allowed his country to drift into the abyss. As we will see, Hoover had everything he needed to base his 1932 campaign for re-election on blaming the Federal Reserve, especially its New York branch, for the 1929 calamity. Hoover could have assailed the British for their September 1931 stab in the back. Hoover would have been doing the country a permanent service, and he might have done somewhat better in the electoral college. But Hoover was not capable of seriously attacking the New York Fed and its master, Lord Montagu Norman.”
The Crusade Years: 1933-1955., published in 2013, is a thick book of nearly 500 pages and is the remainder of Hoover’s memoirs along with Freedom Betrayed published in 2011. Hoover includes in the chapter “Crusading for Benevolent Institutions” a speech he gave in the mid-1950s about why a voluntary society is necessary. “Many citizens ask themselves: For what reasons should we support the voluntary agencies? Why not let Government do it all?”
He gives six answers, including that “morals do not come from government” and “governments and bureaucracies cannot build character in our youth.” But Martin Wooster, in a review, says that to his mind, Hoover’s “first answer is the best”:
http://tarpley.net/online-books/against-oligarchy/british-financial-warfare/
http://learningtogive.org/papers/paper268.html
http://www.philanthropydaily.com/herbert-hoover-president-philanthropist/
By the way, Wolf Richter’s journalistic technique is what makes the Internet so powerful; overcoming the controlled press and the spoon feeding of lies it has continued for decades. Richter uses logic and principle, carefully backing his statements with proof, data and conviction. This is how truth expands and legitimate trends are revealed.
I let my chickens "roam free" and give them "free" food. It's like the Welfare State. They don't realize that I'm the one that's been stealing their eggs and eating their fellow chickens so they still love me. It's important that they don't ever wise up.
How is this different from American society?
Fyi. Churchill died broke from market loses.....
“It’s morally wrong,” exclaimed W.C. Fields, “to allow a sucker to keep his money.”
This San Francisco phenomenon involves the arrival of smart money, first, then selling to the dumb money, but where does the smart money come from for these high risk investments? Answer: The banks.
The central bankers are trying to herd people into certain investments, and if they won’t be herded, they exterminate them.
The Fed is a crime syndicate. Period.
And the wrong guys always get the blame because the Fed banksters can create their money out of nothing to acquire control over the power centers of society, i.e., to buy up the groups and institutions and individuals that control people. And that includes all the media.
Writes E. Michael Jones in “The Return of the Golden Age"
“Coming on the heels of a crushing depression caused by the Fed’s deflation policy, the easy money policy of 1924, which (Benjamin) Strong inaugurated at (Montagu) Norman’s request, caused consternation among the politicians who had borne the heat for the deflation. Herbert Hoover, who later became one of Strong’s sharpest critics, suspected correctly that Strong had become ‘a mental annex to Europe’ and was making his decisions with the interests of international finance and not the interests of the American people in mind. Hoover ‘became especially bitter about the easy-money policies of 1924…and of 1927, blaming them for the ensuing stock market boom and collapse.’”
Likewise, Winston Churchill, then Chancellor of the Exchequer, bore the brunt of the England’s ire instead of Montagu Norman whose plan for a world-wide return to the gold standard with the City of London as its undisputed headquarters immensely benefited the City financiers at the dire expense of labor who had to bear the costs in lower wages, longer hours and vast unemployment.
But in today’s lexicon, Strong and Norman are the good guys and Hoover’s and Churchill’s images have been trashed. The central bankers buy up the media to paint the image.
Powerful article, Wolf. And I'm in the epicenter of this swirling California real estate debacle.
Water is rising for them...to be sunk soon.
Blub, blub, blub....
Needs about a 90% correction.
Another excellent post Wolf.
I lived in SF in '98-'99 and at the time thought that the delerium had reached record levels. I could not have dreamed that it was just a base camp on the trail toward peak insanity.
What an amazing, beautiful city. Too bad most of the decent folks have been driven out by the hyper-ambitious.
Idiocracy; a lot of them went to Oaktown!
10% of the people here are living the Renaissance; and 90% are getting creamed. >$4 gasoline, spiralling rents, spiralling food costs, fees & taxes.
There was a wave of buying by the funds and by the nouveau riche and by the Chinese. A wave is not a stream. SOMA is getting monumentally overbuilt. The apex is nearly reached and the descent will be breathtaking. Prepare accordingly.
If SF has so much money in its coffers, why are there so many deadbeats, thugs, crazy people on the streets.
I live here and I've come to hate it. Only good thing, the climate.
It’s because there are so many crazy people and thugs running for office, and winning, in SF.
Take Mary Hayashi, candidate for East Bay 10th Senate District and convicted shoplifter. Mary said she didn’t really shoplift the $2500 in merchandise from Neiman Marcus because she offered to pay after she was caught leaving the store with the merchandise (2011).
Mary’s high-powered opponent, Bob Wieckowski, who has put “MUG SHOT MARY” on his website to highlight the case, is a San Francisco liberal dreamboat. He’s the most pro-diversity, pro-immigration candidate imaginable, even pushing for illegal aliens to be allowed to sit on juries. And he's put union interests above all else...
But then there's the group opposing Wieckowski saying he bullies women and people of color and because of him, convicted rapists can sue their victims after they get out of jail.
Which to choose, which to choose...
Don't forget Ed Lee who tried to shake down a Chinese Tea joint for $40K!
Straight to jail!
Or Leeland Yee who wanted to traffick arms as a state rep!!!!
If you refuse to vote, you don't need to choose.
Depublicrat vs Depublicrat ... where's the choice?
In San Francisco there are only Democrats.
We have both kinds: liberals and progressives!!
The climate.
Because the City supports them?
Bastiat... Good question.
Seems like the populace generally tolerates them.
Word gets around that they can hang out, here. Lots of free food at churches. And they can live outdoors, here, pretty much all year long. Probably also free clothes, medical care.
Because its not a fascist police state that rounds up undesirables and puts them into camps?
Camps too expensive. They're allowed to die miserably on the streets.
It's amazing how you just move to SF and suddenly become cool. I mean if Zuckerberg is now cool, anyone can be. Just rattle off a few restaurants in the Mission and you are the man, woot woot. Naw, I miss the old days. Gavin Newsom can kiss my ass the Liberal twit.
No, its the fascist police state that is building it's free shit army, loosing them on the public to squeeze even more revenues from the shrinking earning class.
Actually they are shipping the problem out of their midst by giving homeless people one-way bus tickets to anywhere else.
I am Chumbawamba.
No, but I wish they would.
We have a prorams called "Homeward Bound" but they have to locate a familly member who will agree to take them. Rarely happens.
Nice repeated use of the air escaping terms, well placed like grace notes in a tune. I'm just wondering how many times the carrion birds will circle the beached whale before bloat gives way to blow out, the pieces are all eaten and shit out and a high tide tugs the disembling skeleton back into the depths... "thar she blew".