The Harlem Community Development Corporation and AAREPNY hosted a breakfast symposium on real estate last Thursday in which I was the keynote speaker. The audience consisted of bankers, developers, investors, lawyers... the usual fare. I fear I may have rained on the optimism parade with my presentation, but I also feel a few salient points were communicated. I have included portions of the presentation here for the blog readers to peruse. One of the main themes of the presentation was that of "lost decades". How likely is it that we can have 20 more years of housing price declines? Note: The "74%" reference below is a typo, the Japanese residential index did not drop that far.

Let's see if any of this sounds familiar, as excerpted from Wikipedia:

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This is my response to an inciteful insightful comment posted by GJK313. It is in reference to an article which readers can find here, titled "FASB Surrenders - America Win". I suggest readers read the aforelinked document in its entirety before moving on. Notice how this is written by economists and analysts, not real world investors that are investing THEIR OWN CAPITAL! When I state "own capital" I mean their money, and not that of their clients. I cannot fathom how anyone who had their own money at stake would ever want more ambiguity in pricing assets, in lieu of less.. Let me pick this apart...

"Somehow it believes that marking everything to market (even when that market is illiquid) will somehow make the world a better and safer place"
Well, when the market is illiquid, the assets in said market have a lower market value. It really is that simple.
"Somehow it believes that marking everything to market (even when that market is illiquid) will somehow make the world a better and safer place"
Yes, because if said banks had to liquidate their loans the only place to liquidate them would be said "illiquid" market. This goes to show you how the value of the loans are probably highly overstated by those such as the authors of this article. Guarantee me that no bank will ever go bust again - guarantee me that no bank will never, ever need to sell assets, and I will soften my stance some on mark to market accounting. Until then...
"banks will be allowed to carry loans on their books at amortized cost, reflecting cash flow (payments), as well as reasonable estimates of likely loan losses."
This should now mean that the price of all unsecured loans should drop immediately and dramatically for all consumers, for FASB and these authors are not differentiating between loans backed by collateral and loans not backed by collateral. Many formerly overcollateralized real estate loans are now partially or fully unsecured due to the collapse of real estate "Values" and "Prices" (yes, there is a difference). They are also not taking into consideration the financial and strategic advantages of defaulting on a loan against an asset with negative equity. So, if the banks can now benefit from pricing loans at will (as the authors stated, "reasonable estimates of likely loan losses" - who will make these estimates?), regardless of collateral, why shouldn't that benefit be passed onto the consumer and allow them to enjoy said valuation/pricing perks. Picture me going to a bank and saying, "Just loan me $4 million with nothing hard to back it for no more than you charge that guy with a 40% overcollateralized loan. You can't charge me more since I will keep my payments current and you will be able to make a "reasonable estimate" of the losses, of which of course there will be none because.... Well, just because!"
Does this scenario make any sense to you?
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In response to the post "Japanese Downgrade Illustrates Potential Paths To Contagion", several readers have suggested that the Pan-European sovereign debt issue may be overblown since Japan has been moving along for over 20 years and its debt to GDP is twice that of my of the troubled EU nations. I want to shed a little light on this topic. To begin with, it is not so much the aggregate debt-to-GDP levels that should cause alarm, but the delta of said levels (to be discussed in my next post on the topic). Even when looking at the aggregate debt/GDP levels, one must take a look at the actual debt in question.

Public Debt-to-GDP

Japan, Greece, Italy, Belgium, Ireland, and Canada have some of the largest public sector debt in relation to GDP. Japan, Greece and Italy have public sector debt-to-GDP topping over 100% versus 68% for Euro zone and 31% and 27% for Asia and Emerging markets, respectively.

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BoomBustBlog is just about the only financially orientated publication that declared for nearly a year now, the inevitable conquest of Google's Android OS and ecosystem. I feel our highly contrarian research and analysis has been proven correct beyond a shadow of a doubt. Fresh off the heels of "If You Need More Proof Of Apple’s Inability To Keep Up With Google’s Android & Over 100 Other Android Hardware Vendors…" and Sony's widescale adoption of the Android platform, we have Nokia's apparent capitulation and what could be the (inevitable) assimilation into the "Borg". After all, they are just the largest manufacturer of phones (both feature phones and smartphones) in the world - that is, at least they are for now.

Google topples Symbian from smartphones top spot:

(Reuters) - Google's Android dethroned Nokia's Symbian as the most popular smartphone platform in the last quarter of 2010, ending a reign that began with the birth of the industry 10 years ago. Research firm Canalys said on Monday phonemakers sold 32.9 million Android-equipped phones in the last quarter, roughly seven times more than a year ago, compared with Symbian's sales of 31 million. The landmark piles pressure on Nokia as it struggles to reassert itself at the top end of the mobile handsets market. The success of the open-source Android operating system, which has become the standard for most phone makers, leaves Google well placed as cellphones are due to surpass computers for accessing the web. Among key players in the industry so far only Nokia, Apple and RIM have not resisted using it. ... Canalys said the overall smartphone market grew 89 percent from a year ago in the fourth quarter, with all vendors in total selling 101.2 million smartphones.

Stephen Elop, the Nokia CEO, is quoted as saying during the firm's latest conference call (via endgadget):

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Contiguous Rich Client Computing: The ability to perform normal, daily computing tasks that include:

  • 3 dimensional, full HD media production and consumption,
  • full, high  optics including still and HD video in 3D,
  • productivity tasks via Office suites,
  • real time multimedia collaboration aka videoconferencing,
  • the ability to store, retrieve and transfer data at the terabyte level, wirelessly and quickly
  • the ability to seamlessly transfer computing sessions and states from device to device, ex. from cell phone to notebook to desktop to large screen monitor

... all in a device the size of a 4.5 inch, 5 oz. cell phone. Sounds delicious right? Sounds like tasty pie in the sky? Well, its quite possible, and it is what the major manufacturers should be working on right now. Let's run through a quick history of the last 20 years  of that tasty pie in the sky. Please expand to full screen.

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I received a thought provoking email the other day, and thought it would be good for sparking the debate on the future of the web. Please be aware that this is a reader's opinion, and not necessarily my own, but he definitely seems to have thought his viewpoint thoroughly through. I welcome any and all comment. Portions of the email have been removed to preserve anonymity.

Reggie,

You're well aware of the current models, primarily advertising and direct marketing driven by web publishers such as BusinessInsider, ZeroHedge, SeekingAlpha, etc.  Although these combination publishers/aggregators/bloggers have achieved a certain level of success they don't really have a model, at least as I see it, that will supply them with an ongoing stream of steady high-quality content, such as the research and analysis provided by your blog.

If you consider the understandings of the surplus in content as described by Yochai Benkler in Wealth of Networks, Clay Shirky's Cognitive Surplus or Rachel Botsman's Collaborative Consumption, it seems there is no end in site to free, high quality content.  I believe that the so-called net neutrality regulations are going to change that.  A tiered internet will probably create a situation where casual bloggers will lose visbility as a "pay to play" model emerges.

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[caption id="attachment_4227" align="alignleft" width="575" caption="I'm not saying that I'm bigger than those guys over there at West Street doing God's work, but I'm not a small man.... BoomBustBlog and the new media cabal vs Goldman Sachs and the established socio-political oligarchy, Ooooh! You couldn't script a better reality TV show."][/caption]

It appears as if I wrinkled a few feathers of the birds that are doing God's work with my missive "Goldman’s $430 Target, Screaming Buy On Apple At Its All Time High Is In Direct Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has Been More Right In The Past?". This is a good thing! A little creative destruction and anarchy is positive for the complacent masses. I say we take this up a notch, pull down our pants and see who is truly the most intellectually endowed, the outside the box researcher, entrepreneurial investor and thinker that has called nearly every major financial institution bust and market downturn since 2007, or those who are doing God's work with a 38% accuracy rate over the last 3 years with billions of dollars of government assistance.

In my rant yesterday illustrating weaknesses in Goldman's argument of Apple, I hinted at the potential for Google to turn the App Store delivery model on its head by transforming application sales into an advertising based model, of which Google thus far reigns supreme and the closes runner up is not yet close enough to compete. I will take this concept further in an attempt to show those who cannot see the forest due to an excess of tree bark in the way one of the several risks that Apple faces now that it has become so successful - risks that are not mentioned in the reports of prominent sell side analysts - Yes, even those that are doing God's work!

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In media, particularly video, distribution costs have been literally flattened by the web, production costs have been dramatically reduced by digital HD technology and do-it-yourself CGI, and marketing made democratic via viral and social networking channels; the barriers to entry that allowed the big media houses to rake in fat margin profits no longer exist. Its just a matter of time before the world at large figures this out. It would behoove those in positions of power and influence in these shops to come to this realization and truly embrace the magic of distributed computing in lieu of trying to force the genie back into the bottle, replete with all of its accompanying magic.

With this being said, there has been much talk regarding the MSM blocking access to their content though Google TV, Google's new initiative to merge the Web and TV content through a unified, seamless interface...

ABC, CBS and NBC Stupidly Block Google TV | The New York Observer

The Wall Street Journal is reporting that the Big Three TV networks have decided not to allow their programs, which already stream online, to be available through Google TV, which puts the web onto consumers' televisions.

According to the The Journal's Sam Schechner and Amir Efrati, "The move marks an escalation in ongoing disputes between Google and some media companies, which are skeptical that Google can provide a business model that would compensate them for potentially cannibalizing existing broadcast businesses."

Fox joins broadcasters in blocking Google TV link - Crain's New ...

AP) - News Corp.'s Fox has joined broadcasters ABC, CBS and NBC in blocking access to full episodes of shows when searched from Google TV's Web browser. That's according to a person at Fox familiar with the matter.

Comedy Central, MTV now blocking Google TV | Crave - CNET

"The Daily Show" and "The Colbert Report" were some of the few high-quality TV shows that allowed streaming. The last we checked, "Conan" is still available, but there's no guarantee TBS won't begin blocking Google TV too.
Practically all of these entities offer some form of streaming content, usually without charge, over the Internet now. The Google TV product is simply a highly integrated web browser over TV interface. What the media companies are doing is akin to blocking their media content from Internet Explorer, Firefox or  Safari. Sounds absurd, doesn't it?

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The latest on Apple's earnings that went so far in corroborating what I've been preaching for months to a bunch of crazed, excitable Apple fanatics who simply refused to see facts for what they were:

From CNBC:

Apple surpassed quarterly earnings expectations again with the help of strong sales of its iPhone, but iPad sales and margins disappointed [strong demand, but the smart money is waiting to see what the Android tablets are capable of - I don't think they'll be disappointed], and its shares sank.

Weaker-than-projected gross margins [exactly as I anticipated - see How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue] and iPad shipments disappointed investors who had expected more from a company that had smashed Wall Street's targets in each of the past eight quarters. Apple shares dropped 7 percent in late trading after initially being halted. The stock finished the regular Nasdaq session [AAPL  318.00  3.26  (+1.04%)   ] more than 1 percent higher. Sales of Apple's popular iPhone jumped 91 percent to 14.1 million units in the quarter. The company sold 3.89 million Macs, an increase of 27 percent. Apple sold 9.05 million iPods, marking a decline of 11 percent year over year. The company 4.19 million iPads in the quarter....

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As I sit in the car, surrounded by thick NYC traffic, on my way to the highly anticipated CNBC interview (the Squawk on the Street show) on JP Morgan, banks, real estate and related issues, guess what I happen to drive by... MORE construction - causing me to ponder what additional damage  will be done to banks that backed these deals. Then, less than an hour later I read from CNBC and Bloomberg that JP Morgan's analysts predict that forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks”. Bloomberg goes on to state:

Future losses from repurchases of home loans whose quality failed to meet sellers’ promises will likely total $55 billion to $120 billion, or potentially $10 billion to $25 billion for the next five years, the New York-based mortgage-bond analysts led by John Sim and Ed Reardon wrote in a Oct. 15 report.

I immediately blurt out, "Now hold the hell on a minuted!!!" That report of the 15th sounds an awful lot like the article I published on the 12th, “” (Hey, no peeking, no copying, fellas!) which, among many other things, reiterated what I said in the 4th quarter of LAST YEAR!!!.

To be fair, the JP Morgan report is very similar to mine in content, scope and gist - JUST A YEAR OR SO TOO LATE! I quote (again) "Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results":

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