Filed under: Scandals, Entrepreneurs, Housing

A piece in the latest issue of BusinessWeek discusses an interesting trend among scammers, charlatans, and con-artists: they’re renting out virtual offices on Wall Street in an effort to enhance their credibility and project an image of success. For just $100 a month, they get a fancy address to put on stationary, a post office box, and a conference room they have the ability to use for occasional meetings — all shared with dozens, or even hundreds or other clients.

The president of one company that rents out virtual offices to businesses told BusinessWeek that “As much as our services help hundreds of small businesses brand themselves, there will always be crooks who try to misuse the polished facade for their dirty business.”

Maybe I’m a prude, but I would have nothing to do with a company using a “virtual office” for its address, even a legitimate one. I would argue that the goal of these set-ups is to mislead potential investors or customers — projecting an image of something that differs from reality. Even if the company is legitimate, a phony address is still dishonest.

In any case, investors shouldn’t be hoodwinked by a fancy sounding address. After all, Worldcom and Enron also had great addresses and pretty offices, and investors lost billions.

To avoid getting scammed — or just losing money on a bad investment — there are two things you can do: make sure you comprehend how a company makes its money, and make sure the returns offered aren’t too good to be true. As the managers of West Coast Asset Management wrote in their book The Entrepreneurial Investor, the people who really understood Enron’s business model did quite well — but ended up in jail.

And use common sense. One firm that was using a “virtual office” promised returns of 25-30% per month. That’s a better return per month than Warren Buffett earned per year. And if they could earn those great returns, why would they need your money? If it’s so risk-free, can’t they just borrow it from a bank for a lot less money?

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Filed under: Forecasts, Bad news, Consumer experience, Economic data, Housing

The Boston Globe interviews Warren Group CEO Timothy Warren whose firm tracks housing in Massachusetts. He recommends that it could take about 10 years before housing prices return to where they were at the peak in 2005.

Warren is a breath of fresh air when it comes to examining the housing market. Unlike industry-sponsored studies — such as this bubbly comment from the National Association of Realtors — Warren carefully tracks and analyzes data and his observations are not filtered by the need to use public pronouncements to spur real estate transactions.

But Warren’s loyalty appears to lie with objective data gathering and analysis, rather than having an ulterior motive. He thinks that the declining number of home sales is worse than the previous housing slump of the early 1990s. He notes that “In the 1990s, we’d just two years when the number of sales declined. We’re in the fourth year of declining sales in the current slump.”

He points out that the decline in Massachusetts’ median price doesn’t look as bad as it did in the ’90s, but he thinks that the downturn could last longer. As Warren stated, “if 2008 is another year of declining price, this would be the third year.” He noted that in the 1990s slump there was a very slow — six year — recovery. After prices stopped falling in 1993, it took six years for the Massachusetts median price to exceed its level before the slump started.

Using this logic, Massachusetts is likely going to hit bottom in 2009 and then take another five years to see real estate prices return to where they were in 2005 when the prices started falling. People ask Warren when the recovery will begin and he says, maybe in 2009. However, “after the recovery starts it might take five years.” That would mean Massachusetts housing prices would recover to their 2005 levels in 2014.

Warren’s five year recovery estimate seems optimistic to me — I’d give it a year more than the 1990s recovery period — or seven years. If my more conservative assumptions prove correct, then housing prices will bottom out next year won’t return to where they were in 2005 until 2016.

Warren fingers simple money for blowing up the housing bubble. And since we’re in the middle of figuring out how much damage the economic backlash from that simple money will cause — in terms of foreclosures, excess housing supply, and far tighter credit — it is somewhat encouraging that Warren thinks housing will ever rise again.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter.

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Jamie found a NYTimes op-ed by a grad student and a professor from Cornell, outlining some research they did into alternate baseball universes. The goal was to find out how unlikely in fact was Joe DiMaggio’s 56-game hitting streak, played out in the 1941 season. No one since has even come close to that record. The math guys ran simulations of the entire history of baseball from 1885 on — 10,000 of them. For each simulation they put each player up to the plate for each at-bat in each game in each year, just care about it happened; and they rolled the dice on him, based on his actual hitting stats for that season. (Their algorithm sounds far simpler than whatever the Strat-O-Matic guys use.) The result: Joltin’ Joe’s record isn’t merely likely, it’s basically a sure thing. Every alternate universe produced a steak of 39 games or better; one reached 109 games. Joe DiMaggio wasn’t the likeliest player in the history of the game to accomplish the record, not by a long shot.

Read more of this story at Slashdot.

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Stanislav_J writes “All you wealthy Slashdotters superior start making alternate arrangements for stashing your millions. Switzerland’s storied role as discreet banker to the world’s tax-avoiding wealthy is under threat like never before, and this time the country ultimately may not be able to stop the rest of the world from prying into those legendary ’secret’ accounts, said to contain between $1 trillion and $2 trillion. A massive German tax-evasion scandal is putting pressure on the Swiss to cooperate, and the rest of Europe is also hardening their resolve to force change upon them. Per the article, ‘The official Swiss reaction has been self-conscious detachment, which they hope will deflate the issue,’ but even their own citizens are not too concerned about those outside their borders: 80% of Swiss support the banking confidentiality law, but that number drops into the 40s when it is applied to foreigners. Pressure is also coming from US pols — not the ‘let’s pry into everyone’s business’ Republicans, but the ‘make the rich pay their fair share’ Democrats, including Illinois Senator (and presidential candidate) Barack Obama.”

Read more of this story at Slashdot.

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Ace905 writes “For years the razor-sharp beak that squid use to eat their prey have posed a puzzle to scientists. Squid are soft and fragile, but have a beak as dense as rock and sharp enough to break through hard shells. Scientists have long wondered why the beak doesn’t injure the squid itself as is uses it. New research has just been published in the the journal Science that explains the phenomenon. One of the researchers described the squid beak as ‘like placing an X-Acto blade in a block of fairly firm Jell-O and then trying to use it to chop celery.’ Careful examination shows that the beak is formed in a gradient of density, becoming harder towards the tip end. Understanding how to make such hardness gradients could revolutionize engineering anywhere that ‘interfaces between soft and hard materials [are required].’ One of the first applications researchers imagine is prosthetic limbs.”

Read more of this story at Slashdot.

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An anonymous reader tips us to a story up at Wired reporting on what might be the first computer attack to inflict physical harm on victims. Last Saturday, griefers posted hundreds of bogus messages on the support forums of the nonprofit Epilepsy Foundation that used JavaScript and strobing GIFs to trigger migraines and seizures in users. For about 3% of the 50 million epileptics worldwide, flashing lights and colors can trigger seizures. “‘I don’t fall over and convulse, but it hurts,’ states [an IT worker in Ohio]. ‘I was on the phone when it happened, and I couldn’t move and couldn’t speak.’ … Circumstantial evidence suggests the attack was the work of members of Anonymous, an informal collective of griefers best known for their recent war on the Church of Scientology. The first flurry of posts on the epilepsy forum referenced the site EBaumsWorld, which is much hated by Anonymous. And forum members claim they found a message board thread — since deleted — planning the attack at 7chan.org, a group stronghold.”

Read more of this story at Slashdot.

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Filed under: Rumors, Management, Newspapers, Rants and raves, Scandals, JPMorgan Chase (JPM), Housing

Jeff Manning, staff writer for The Oregonian newspaper, released a story Thursday, March 27, 2008, that claims the paper has come into possession of a copy of an internal memo from JP Morgan Chase (NYSE: JPM). According to The Oregonian article, which hints at unsavory or even fraudulent mortgage processing practices, the memo indicates that loan processors can (not should) use creative data entry to modify automated underwriting system results. The Oregonian writer entertains the “dark side” scenario in the tone of his article.That’s a real convenient, time-tested ploy for selling newspapers. Kudos for his attempt.

However, representatives for Chase mortgage operations have dismissed the memo as nothing more than a strategic angle on automated process. While no one has actually come out to say they created the memo or why, the company allegedly admits that the document is genuine. I get no sense that anyone from the company who commented on the situation has anything to hide. In fact, company reps appear to be quite forthcoming on the matter.

Let’s get one thing straight here, banks have a right, or even an obligation, to review every lending situation from a multitude of angles and perspectives. Automated underwriting programs assist in that process. If in fact, loan screening associates at Chase were instructed in the ways to “tweak” their system to produce differing results, it can safely be assumed that it was for the benefit of borrowers who are continually seeking personally convenient options to make mortgage contracts on homes of insanely inflated value. Nowhere have I seen an accusation that Chase forwarded mortgage papers based on fraudulently manipulated data. If someone has documentation of fraudulent practices that they have the ability to substantiate, I’d really like to see them.

In the meantime, I think The Oregonian should stick to reporting on flower shows and high school choir productions, areas at which I believe it is particularly adept. For it to publicize sensationalist speculation based on a memo of “Zippy Cheats and Tricks” is simply fifth-page fodder for the grist mill, nothing more. The entire situation comes right back to one particularly stinging realization, and I’ll remind you of that reality in case you don’t get it yet:

People who take adjustable rate mortgages in the face of mortgage rate low ebb and unsupportable home values are just plain dumb. When interest rates subsequently increase and they then get burned, the only hand they should be slapping is the one that signed the contract. I am oh so exhausted of listening to whiners trying to blame their thoughtless choices on those who were willing to underwrite their risk-taking ventures. If they made a bad gamble and now they’re on the rocks, they have the ability to just cry me a huge blue river and get a second job.

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Filed under: Housing

Yesterday I received a great comment from long-time reader Dr. Michael Schneider of barrelomoney.com. He wrote:

Each market has buyers and sellers– so far it seems the remedies for the housing mess have been directed at helping the banks and homeowners (sellers) and, rightly or wrongly, propping up housing prices. This has the effect of helping those who created the mess or who profited from it while possibly hurting potential buyers– including 1st time home-buyers who might have to pay higher prices for homes that may still be overpriced.

This might seem like fairly obvious point but it has profound ramifications: it’s been totally missed by the people who are supposedly working to solve these problems. Propping up home prices delays the inevitable reversion to something resembling intrinsic value, and prices first time home buyers out of the market.

This was one of the effects of the subprime bubble as well: lax lending prices that made homes available to people with brand new SUVs and double-digit FICO scores made it difficult for people who wanted to do it the right way: work hard, save money, and make a 20% down payment on an affordable home with a 30-year fixed mortgage.

When you consider it like that, you have to wonder why there is so much resistance by supposedly reasonable politicians to just letting the darn prices come back down to earth: it’s a zero-sum game, and lower home prices will help just as many people as they hurt.

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dooling writes “In case you were thinking of building your own atom bomb, you may want to weigh your intellectual property liability. It seems there are over 2000 patents covering the atom bomb. To avoid publishing the patents, a central tenet of the patent system, “the project made use of an obscure law whereby patent applications could be filed but no one would actually look at them or evaluate them. They would just be stamped secret and stored in a vault at the patent office.” The irony here is that while all the patents were essentially stored in the same place at the patent office and written to be understandable by any engineer, the Manhattan Project worked diligently to compartmentalize knowledge, using code names for just about all aspects of the project and keeping tight security on all information. It seems the patents were filed to give the U.S. government an essential monopoly on the burgeoning nuclear industry and protect it against others who might patent similar technologies later.”

Read more of this story at Slashdot.

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Filed under: Industry, Housing

During summer and winter breaks from college, I used to work in a Williams-Sonoma, Inc (NYSE: WSM) store in my local mall. As a moderately eloquent speaker and the only guy in the joint, I managed to make quite a few sales, particularly among the key “25-40 year old, vaguely unsatisfied married female” demographic that made up most of the store’s customers. One day, as my father waited for me to get off work, he watched me talk a wealthy, sour-faced housewife into buying a $49 grape drainer. Shaking his head at my salesmanship, he wondered aloud how I could convince someone to shell out a pocketful of cash for what was essentially a porcelain bowl with holes in the bottom. I couldn’t really answer him and, to today, I wonder how Williams-Sonoma manages to market its wares, many of which are amazingly useless.

In the fourth quarter of 2007, Williams-Sonoma’s profit rose almost 3%, but its first-quarter same-store 2008 profits are expected to fall by between 6% and 8.5%. The store is blaming its flagging sales on the real-estate slump. While it seems reasonable to anticipate that people would be disinclined to purchase home goods when they’re having a hard time covering their mortgage payments, Williams-Sonoma is missing the large picture. In addition to its position as a major player in the home decor market, W-S is also a luxury brand store and a narrow-focus mall retailer. Both of these types of stores are facing serious problems in the current economy, one for its inflated prices and the other for its lack of diversity. Consumers looking for kitchen implements are probably inclined to go to Lechters, which is a lot cheaper, or Wal-Mart and Target, both of which have a much wider selection of merchandise. If Williams-Sonoma wants to weather this storm, it should probably follow the lead of its Pottery Barn subsidiary and begin cutting its prices. In the current economy, it’s hard to imagine someone shelling out $49 for a grape drainer!

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