Professor Elam

In today’s DMN Scott Burns details the latest Florida condo and home bust.  This helps explain why the Recession will not be quickly solved by all of us rushing to Home depot with $600. But there is nothing new in all of this. Every boom hatches derivative boomlets that are even more destined to fail when the fathering bom collapses. And so low interest rates got the housing boom going convincing everyone that like the stock market of 1999, prices went ever upward, causing the creation of tv shows like Flip this House. Former icon Donald Trump who came to fame in the NYC renaissance a few years back, re emerged wtih the Apprentice and then nation wide seminars. His latest is of course, ever the resourceful type, how to get rich in foreclosure sales, presuming you are not the object of the exercise of course. My point is that this is a replay of the Texas S & L bust which was the real estate bubble bursting in Texas in the 1980s which was brought on and fostered by the oil boom. When oil collpased so did the money to buy and so the ‘flippers’ became the one losing in the real esate game of muscial chairs so to speak. You never want to be the last person to try to sell…no buyers….

I have been pushing for a course on business history. History repeats again and again, understanding that and what has happened will make you a better investor. This Florida bust happened previously in 1925.

Palisade Palms in Galveston shows most of their units to be sold. Of course sold means in most cases, a mortgage. And lately that means a short term bet on values rising. I wonder how many bought expecting to re sell at higher prices?  The other great example is Las Vegas where multi story condos are the order of the day.  Starting at $500 K they are literally everywhere. Boyd Gaming is down 50% and the Sands and Wyn’s are well off their highs, I suspect those stock prices are  pretty good proxy for the economy their.

And so it goes.  The best use of understanding a first derivative in calculus is that it derives from another curve. The derivative is actually a measure of the rate of increase from unit to unit of the first curve or graph. In these cases a stock market ala the Roaring 20s gave rise to the first Florida Land and RE boom in 1925.  Eight five years later it is deja vu all aover again.