Tuesday, November 11, 2008

Where Homes Are Worth Less Than They're Worth

Click here for a map that shows just how fucked certain states really are.

Nevada seems to be the most severely screwed, with nearly 50% of homes worth less than their mortgages. Also, two huge states, California and Florida, are near 30%.

No data for Wyoming however. Most likely this is because more than 80% of the state is Dick Cheney's bunker.


bloggerdotcom said...

Ok this has reached a new level of scary now.

Unbelievable FNM numbers/stats yesterday.

I wonder about mutual fund holders, people thinking that they just cannot sell now. In early 2009, they will be getting a nice surprise - a capital gains distribution, an additional tax on a holding that has lost value.

Dinosaur Trader said...




bloggerdotcom said...

How can I explain clearly.

I read a few days ago that over 99% of mutual fund managers are down on the year. They have also faced redemptions of such size (esp in the last couple of months) that they have had to sell out of many holdings to meet the redemptions.

When a manager sells, you don't know what they're selling or what their cost basis is (information on their holdings is reported only twice a year). So they could have been holding something for a very long time and thus have a large capital gain built in... but the stock has performed poorly this year so it's showing a bad return year-to-date.

If they sell out of that holding then you have a taxable capital gain. Funds don't pay the capital gain - they are instead distributed to shareholders of the fund.

In other words, fund NAV's are down this year, but many will be distributing a taxable capital gain to shareholders. So not only is your account down, but you have to pay taxes on the distribution as well.

The additional issue being that you cannot control when or what the fund manager sells. In other words, you have no control on your specific tax implication as a fund shareholder. You only find out about it when you get surprised by a letter in your mailbox titled something like "Important Tax Documents Enclosed."

My gut is that those managers might be slated for removal next year as this will force additional selling of fund shares for people to meet the higher tax burden. It's revolt-worthy. People should go the ETF route instead.

Dinosaur Trader said...

Holy shit! That's fucked up.

Thanks for explaining it so clearly.


bloggerdotcom said...

In the current economy it is rather fucked up. And the year end surprise "gift" is not being completely addressed in the financial community.

If asset values were rising then people normally shouldn't care as much (although it still hurts to have to pay it, naturally). But we are in a state of declining asset values across the board and the additional tax burden will put people further into the hole.

Of course, not all funds will be distributing a taxable capital gain to shareholders (I would guess likely those that have very high turnover). Those with a low turnover, meaning that they don't "trade" the holdings in the fund often - and therefore are the ones that hold on to positions longer - are the more likely candidates for taxable capital gains distributions. The thing is that most people look for low turnover funds to invest in because they have higher confidence in the managers if the performance is borne out....

But above that is the redemption figure.... even high turnover funds might not be immune. We shall see soon.

In the ETF world, your ETF may have gone down in value but the tax you pay (or not) on your holding is determined by when you sell it, exlcuding dividend-paying ETFs of course.

Anonymous said...

My gut is that those managers might be slated for removal next year...

I suspect 1st Qtr 09 we will start seeing announcements of funds being closed/merged with others and the managers resigning to "pursue other interests."

Given the widespread carnage in mutual fund land, I will be very surprised if we don't see a dramatic contraction in the number of funds offered to the public.

With some funds down 50 percent or more, there is no way they can ever recover to the point where they receive attractive rankings from Morningstar. Their short to medium-term records are now trashed and the best course of action will be to close the fund and start a new one.