Vad's Best Ideas

First real signs of the next big trouble wave have started to show up in the last few weeks...W've been expecting it for a while but everyone still seems to believe that you somehow can avoid a crash...I guess that's an essential part of our human behavior- we accumulate pride and shun regrets...There is a good reason while some industries P/Es are so much lower...Think homebuilders and mortage brokers two year ago...People on Yahoo blogs went nuts about New Century and NovaStar having single digit P/Es... Were are they now? One is bankrupt and one is on the way...

I am worried about the nextbig one- commercial real estate... The other day WSJ had a nice chart of Blackstone's buyout of EOT... I can't believe that only a few months after the buyout BX have already sold most properties... Sounds like good old condo flipping TV shows two years ago all over again. Buying properties at a 2% yield? Are you kidding? You can't possibly expect to raise your rents enough to pay for this irrational pricing...

I bet you the next book Shiller puts out will be touting how the commercial real estate market is out of whack...And it will be too late again...

Now back to business- headline GDP report for the second quarter looked solid 3.4%... But let's dig a bit deaper... Main cotributors to the upside- goverment spending, foreign trade and nonresidential construction...Ouch...

Foreign trade pick up is a fluke due to a weak dollar- it might last another quarter or so but not sustainable long term. Goverment spend under upcoming Democratic rule ( http://iemweb.biz.uiowa.edu/graphs/graph_PRES08_WTA.cfm ) while sustainable is definitely not as productive as you would want... Non residendtial investment is about to turn heavily negative- Ouch again... That headline GDP number does not sound that good any more, does it?

Anyway- Monday is the first day of the Strategy Lab Open and I decided to possibly sit the first day out... On one hand it could be a good day to pick some cheap shares, on the other hand I am not sure we are quite done yet...

Comments: View Comments |  Sunday July 29, 2007