This is the the third part of the Pop Goes The Real Estate Weasel Series. This part focuses
on the key event behind the current Real Estate hysteria.
What has the Real Estate Industry has known since the late 1990’s?
Why has the Real Estate Industry been using the most absurd arguments to motivate buyers?
What do they hope that you don’t know? After all, if Real Estate really is a lay up, then the industry
would be keeping it’s mouth shut, and quietly buying all they could! History proves that a group usually bad mouths
an investment when they want to buy some "for their own account".
Conversely, they "manufacture" the most absurd sales pitches while making the most noise when they want to
"unload" on the "unsuspecting" public. This is called "Ringing of the Dinner Bell’ or Marketing! The media depends on
the advertisers for their revenue, so they must accommodate their customers (the advertisers) by publishing any and all articles
that praise the product.
What’s the Story?
The Chicago Mercantile Exchange (CME) is going to make you free from the hype of the National Association of Realtors!
How is the CME going to do this?
The CME is creating a futures market for single family housing!
This means the creation of a real data base for single family housing market values, based on the actual buying
and selling on the CME.
Real buying and real selling with participants standing by with real money to buy or sell as the trend dictates
is our idea of a market. This includes selling residential housing short to capitalize on overbought markets!
Why is the CME doing this?
Because they were asked to!
Who asked the CME to do this?
The "real" professionals in the Real Estate business
Just who are the "real" professionals in the Real Estate business?
The major home builders, the bankers, the mortgage brokers, the building material suppliers etc.
When is the CME going to do this?
On Tuesday, March 21, 2006, the Chicago Mercantile Exchange and Tradition Financial Services, together with
Fiserv Case Shiller Weiss and Standard & Poor’s, announced the launch of S&P CME Housing Futures and Options.
According to the CNN Money article:
These derivatives will enable investors to take a position on the direction of home prices either
for the nation as a whole or for 10 major cities to start, including New York, Los Angeles and Chicago. Of the three major
asset classes, the bond, the stock and the housing markets, only the housing market, which represents some $20 trillion in
assets, cannot be speculated on easily, said Robert Shiller, the Yale economist and author of "Irrational Exuberance," the
2000 book that foresaw the bursting of the tech-stock bubble. Shiller sees these derivatives mostly as tools that large, institutional
investors can use to reduce risks. Mortgage bankers, for example, could hedge against falling real estate markets that would
increase their exposure to delinquencies and foreclosures.
But John Labuszewski, of the CME, says, "Although the main customers
will be institutional, there is a surprising amount of interest on the part of retail consumers."
On March 21,2006, the CME threw a launch party at the Waldorf -Astoria , NYC. Reports indicate the party was
well attended; "The place was totally packed. Institutional investors, investment banks, hedge funds, real estate developers,
etc. were all there. Standing room only."
The introduction of trading is imminent. The CME anticipates the opening bell for trading will occur in April.
The groundwork is complete, and the education of the professionals on the use of the futureshas just begun!
Where is the CME doing this?
The trading opportunities will be offered on CME Globex® Sundays-Thursdays 5:00 pm-2:00 pm the next day
What’s this going to cost the investors/hedgers at the CME?
The cost will depend on the value of the Index you are buying/selling.
The formula that the CME will use is the Index X $250USD/contract.
Let’s use the December 2005 Las Vegas Index of 229.47 as an example. This generates a $57,395.50 value.
To buy or sell the index at this value for a $286,837.50USD house equivalent would be five contracts.
The commission cost to buy and sell five futures contracts would be $100.00 assuming a commission of $20.00USD/contract.
The commission cost of a house bought through a real estate broker (latest national average is 5.1 percent)
would be $14,626.71USD.
The net difference is $14,526.71. or a savings of 99.3 percent!
The bizarre part of this is that fact that the CME will give you almost instant transactions, and confirmation
of your orders.
The Real Estate hookup network may, or may not, find you a buyer/seller sometime in the future!
A question arises! Just what are these people being paid these outrageous commissions for?
How worried is the Real Estate Industry?
With all the hype for the Real Estate Industry over the last two years, this "Big Story " was drowned out!
This is probably just a mere coincidence!
There is a big demand for this product, yet it has been given very little media coverage. The extreme case
of media blackout would be in Clark County, Nevada. Las Vegas, with a hot housing market, has managed to censor all references
to this new housing product.
The Las Vegas Review Journal ( the only real newspaper as the Las Vegas Sun is distributed by the LVRJ) has
managed to keep almost a total blackout of the CME media launch for housing market futures!
The amazing thing about this media blackout is that Las Vegas is one of the Indexes that the CME has for the
trading launch. One can only assume that Las Vegas will try to keep the real estate scam going till the bitter end!
The famous slogan "What Happens in Vegas Stays in Vegas" must be amended to "Stupid Is What Vegas
Does" (Copyright applied for).
What does this mean to the investor?
There is a very real possibility that the housing market is finished, and the major institutions know it!
That would explain the professional enthusiasm being shown for this new futures product!
The major players such as the government sponsored agency, Fannie Mae, know that they are in serious trouble
if the housing market breaks apart. The same applies to the mortgage brokers, and the investment trusts holding all this real
estate paper for income!
The major home builders, and the building materials suppliers also are in trouble should the housing market
break.
The local government budgets are also threatened in the event of a major real estate price break.
We can foresee some serious short selling of the Housing Indexes as many of the players currently having too
much risk decide to reduce their exposure by hedging! I personally know many individuals who are eager to hedge their financial
risk by short sales of the Housing Index!
We know that the hedge funds could place big money on the short side of this market.
What we can prove is that the story that real estate cannot drop significantly for extended periods of time
is totally refuted by an analysis of the Los Angeles Housing Index.
The Los Angeles Housing Index made a top at 100.23 in January of 1990, and didn’t make bottom until
March of 1996 at 73.07. This data provided by the CME
That’s a 27 percent price decline that lasted six years
and two months. I suggest that this qualifies as a Bear Market! This also occurred during
the so-called immigrant invasion into California! Imagine what would happen to real estate if those illegals left California?
The CME may have just brought home ownership out of the Dark Ages. The availability of the Housing Index futures
contract can protect the homeowners, the lenders who finance them, and the US taxpayers. We may all now have an opportunity
to prosper in the real estate market. The availabilty of Housing Futures at CME commission rates (99.3 percent lower that the standard real estate hookup fee) will encourage many new participants.
It just doesn’t get any better than this!
One Small Step for the CME, One Giant Gain for Homeownerkind! (Copyright applied for)
Wayne N. Krautkramer onlypill@cox.net https://onlypill.tripod.com/factsthebrokersandfinancialreporterswonttellyou
The Pop Goes The Real Estate Weasel Series links are below:
https://onlypill.tripod.com/generaleconomics/id26.htmlhttps://onlypill.tripod.com/generaleconomics/id26.htmlhttps://onlypill.tripod.com/factsthebrokersandfinancialreporterswonttellyou/id38.html
