www.charlestonmarketreport.

com

February 2008
Our Fearless Fed Chairman Ben "Bunyon" Bernanke
Only a few more trees and we will have a Fed Funds Rate of 0%.

Hillary has finally found her calling....LOL!

Were You Aware?
A major subprime broker has just written a book called Greed, Fraud & Ignorance: A Subprime Insider's
Look at the Mortgage Collapse. Bitner reports that up to 80% of all subprime loan applications were rejected
by honest subprime mortgage brokers. This stunning statistic suggests the frenzy which overtook the nation as
people who were clearly below-average credit risks stormed the housing market, trying to get in and get rich
just like everybody else.

Bitner describes how Wall Street's securitization of mortgages fragmented what was once an integrated process.
The granting of a mortgage used to be--and still is, in smaller local banks--an integrated process within the
bank. The loan officer verifies employment and income of the borrower, hires a trusted local appraiser,
confirms the loan meets all underwriting requirements, confirms the down payment wasn't borrowed, etc.
As Bitner writes:
In addition to creating a renewable source of capital, mortgage securitization helped fragment the industry. An
entire process originally performed by one entity was divided into separate components. This fragmentation
gave each player a claim of plausible deniability.
Back in the early 90s, private investors were the only buyers of subprime debt. Obviously, if you sold a poor-
risk loan to an investor who was subsequently burned, that was your last sale to that investor. Word would get
around and your business would dry up and blow away. But once Wall Street got into the act, according to
Bitner the demand for mortgages to securitize was insatiable.

Bitner concludes with some suggestions on fixing the mess. The entire inherently conflicting models of
payment for the rating agencies, appraisers, brokers, lenders, and Wall Street all have to be radically changed.
The model will simply blow up again unless appraisers are paid for the accuracy of their appraisals, not by those
with a vested interest in the highest appraisal. Ditto for the ratings agencies and everyone down the line. As
long as everyone only gets paid by foisting off high-risk debt onto the next chump, the system is destined to fail,
and can never regain the trust of global investors.

Sounds to me like the entire mortgage process model needs to be rebuilt. Should be interesting to see how it
unfolds.
Source: http://www.oftwominds.com/blog.html
The Bank Implode-O-Meter

The peeps that started Mortgage Implode-O-Meter have now started a website for the banks. This shoud be
interesting.
Note: The Mortgage Implode-O-Meter did not start until after I had told all of Charleston in the Post & Courier
we were in a Lending Bubble back in Sept. 2006.
If you want to check it out click here.
I am telling you a big bank is gonna fall. Not sure who it will be but I have some ideas.

Droppin the Ball

The mainstream media as usual was late to reporting the problems in mortgages and housing in 2005-06.

A Harris Interactive survey for Zillow.com in December found that 36% of homeowners thought their homes
had increased in value over the past year, vs. 23% who thought they had decreased. That willful optimism
translates directly into the record overhang of unsold existing homes: more than 4 million.

I do not know of any mainstream publications who got it right back when very few of us had the "gahoonies" to
try and warn everyone about the risks out there in housing/mortgage land.

In fact the front cover of the magazines could actually have been used as contrarian indicators on most of the
housing/mortgage stocks. If you could only go back in Time....no pun intended.
It has happened before out West but how soon the media Sheeple forget.
Predicting Mortgage Rates
I received a cool article last week that was written by Barry Habib, who contributes to CNBC on mortgage
stuff. If you are in the mortgage biz and need to learn to time rates check it out.

The gist of the article is that mortgage yields mirror the direction of the NASDAQ Composite. The reason is
simple....SUPPLY and DEMAND. This is because money managers and mutual fund companies typically keep
funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds,
causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked
into bonds, which improves bond prices and causes interest rates to decline.

Based on what I see with the postion of the NASDAQ it looks like rates will be climbing in the near future.

Below is the 10 Yr Yield.

The Stock Market
On 1/20/08 in the Q4 2007 CMR Report I mentioned the following prediction:

"The stock market is oversold and there will soon be a nice rally in what appears to be the beginning of a bear
market. This rally may be spurred by the Fed dropping rates 75-100 bps. Got cash?"

I had no idea the Fed would have an emergency 50bp rate cut the day after MLK Day and the day after the
international markets got clobbered. This turned out to be a pretty good call considering the DOW closed at
12,099 on 1/18/08 and then closed at 12,552 on 2/13/08.

Why was this such an easy call in the midst of such bearish people and news regarding the economy and the
stock market. Technical analysis is the answer my friends. It is what I use on real estate and securities and it
has not failed me in the past 9 years since I have been using it. Why should I listen to a bunch of suits on
CNBC with hidden agendas for my analysis when I have Supply and Demand. S&D has no hidden agenda and
merely just tells you the truth and helps you reduce the risk. What else would you ask for unless you had a
crystal ball?? If anyone has one of those please let me know.

Let me give you a little taste of what is going on in the market without getting to complicated. I am going
to give you two views of the market by looking at the NYSE (New York Stock Exchange) when it was at its
most recent top and bottom so you can see how technical analysis works by looking at sectors. All stocks
are categorized within certain sectors on the NYSE. BTW, the DOW Jones only has 30 stocks so why is
everyone always so concerned about what the DOW did today???? This is an argument for another day.

Market and sector forces together typically cause 80% of the price movement in a stock. That means the
company fundamentals usually account for less than 20% of a stock's price movement. This is the reason a
company's stock price sometimes seems to move independently of the fundamentals!
Source: "The Latent Statistical Structure of Securities Price Changes" Benjamin F. King

The most recent "top" for the S&P 500 (from a risk standpoint) was 4/26/07 and the S& P 500 closed at 1494.25
The most recent "bottom" for the S&P 500 (from a risk standpoint) was 1/22/08 and the S&P 500 closed at
1310.50
This represents a difference of 12% from these two dates.
Based on these dates lets take a look at a Sector Bell Curve.
When the sectors are grouped to the right the market would be considered "overbought."
When the sectors are grouped to the left the market would be considered "oversold."
If you are qualified the best way to invest in this market right now is through the use of Options. When
properly used they provide the best risk management strategies.

If you are an investor in the stock market this info is not meant to be investment advice!!! Read the
disclaimer below! If you would like to learn more about how to use this type of info email me and I can
direct you to a financial advisor that uses this type of risk management analysis in their practice.

Last Lecture
What if you were a college professor who was dying and had the opportunity to give one last lecture to your
students? What would you say? This is a very inspirational video that you have to watch. It has some very
important life lessons in the lecture. If you know someone who is a "Bitchaholic" (which is someone who does
nothing but complains all the time and has no joy in life) please forward the video link to them.
Video

Single Family Residential < $500,000

Single Family Residential > $500,000
Condo/Townhouse < $500,000
Condo/Townhouse > $500,000
 Disclaimer
The research done to gather the data in The Charleston Market Report involves examining thousands of
listings. With this much data inaccuracies will occur. Care is taken in gathering and processing the data and
information within this report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is
cyclical and will have its ups and downs. Past performance cannot determine future performance. The purpose
of the Charleston Market Report is to educate you on current and consistent market conditions by reporting
leading market indicators with the support of traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other
professional services. If legal, tax or other expert assistance is required, the services of a competent
professional are recommended. This is a personal newsletter reflecting the opinions of its author. It is not a
production of my employer. Statements on this site do not represent the views or policies of anyone other than
myself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every
effort has been made to make this report as complete and accurate as possible. However, there may be
mistakes. Therefore, this report should be used only as a general guide and not as the ultimate source for
making money in real estate.