December 2008 Edition

In This Issue:
Song Dedication: Money for Nothing
Thoughts While Bored
Cartoons
Alert! Alert!
Blue Light Special: Mortgage Rates
A Putz, Ponzi and Bezzle
How to get Lucky
Appraisal Quote
Commercial RE: The Next Shoe to Drop?
Stock Charts
Charleston Real Estate Stats

Saved by ZERO?

This issue of The CMR is dedicated to Dire Straits, Ben Bernanke and the song, Money for Nothing.
That is right we are going old school in this edition of The CMR baby! I think this song came out right
when MTV started and is a classic! If Dire Straits had coined it checks for free they would have been
considered psychic today and you could probably find this tune in Paulsons IPod.

Now that ain't workin' that's the way you do it

You play the guitar on the MTV
That ain't workin' that's the way you do it
Money for nothin' get your chicks for free
Money for nothin' get chicks for free

Click below to Play:

http://www.youtube.com/watch?v=aNaKWXqXkhw

Thoughts While Bored (Back by Popular Demand)

So let me get this straight. Obama wants a minimum $600 billion New New Deal stimulus to
build roads and bridges. Ford, GM and Chrysler want $15 billion to build cars that few consumers
can buy because there is no credit. Ok, that makes sense especially when the last New Deal set up
by FDR in 1934 DID NOT WORK!
Do you remember how just a few months ago the experts were actually debating whether we
were actually in a recession? No disagreements now huh?
Stock tip: Companies that make green ink and manufacture/repair printing presses.
The government should just let us print our own money on our color printers. Maybe not because
that would be called counter fitting.
This just in. Santa had to lay off 20 elves due to the slow economy. He also cut two reindeer in
order to reduce overhead. Just kidding.
Maybe Bernard Madoff and Al Parish can share a cell. The conversation would be: My ponzi
was bigger than your ponzi. Watch that soap boys and enjoy your stay in the pokey!
Quit watching the news at night and tune into the Comedy Channel instead from 8-9pm. During
this time slot is The Daily Show with John Stewart and The Colbert Report. It is much better to
laugh during difficult times rather than watch doom and gloom.
 I think they should start holding the World Bar B Q Championship in Washington DC instead of
Memphis, TN. DC is truly the Pork Capital of the World. Between the politicians, lobbyists and
spending you have a smorgasbord of pigs and pork.
Why is Goldman Sachs only being taxed 1% by Big Mama?
I wonder how much Jingle Mail the banks and lenders get during the holiday season?
Bernie Madoff out-ponzied Charles Ponzi. Do we now call it a Madoff Scheme?
If you want to research the dangerous financial road the U.S. is heading towards just read about
Japan and Argentina. Hopefully we never get a taste of the inflation Zimbabwe is experiencing
today.
2008 will go down as the Year of The Meltdown, Year of Wealth Redistribution, Year of The
Bear, Year of The Bailout, Year of Hope, Year of Change, The Year of The Short, The Year of
Deleveraging, The Year of BIG MAMA, Year of The Ponzi. Take your pick because all of them
apply.
Wasnt oil recently trading at $145 per barrel a couple of months ago? Now it is less than $40 per
barrel. WOW!!!
The buy and hold strategy is officially DEAD! Case in point: if you invested in the S&P 500 in
2000 what is your portfolio worth now? Can you say lost decade?
How come the financial experts who are ignorant and missed this entire financial train wreck get
so much publicity in the media?
Amazing how everyone suddenly got smart and now knows why the economy collapsed. Where
were you smart people 2-3 years ago?
Why would anyone want to be President of the United States?
How do guys like Paulson and Madoff sleep at night and look in the mirror each day?
Got gold and cash?
We can learn so much from history but our fearless leaders refuse to accept this and continuously
make the same mistakes over and over again.
Are fraud, power and money worth it in order to screw over thousands of people and charities?
There are large numbers of people who do great deeds everyday but it is never reported because it
does not sell newspapers or deliver high TV ratings.
Maybe an entrepreneur should start the Positive News Network (PNN). No negative news or
sensationalism! I would tune into that every night.
What does George W. really think about his 8 years as President?
Does Obama really believe that Big Government can fix this economic mess? I thought he was
soooooo smart?
Did you know that the most spiritual people that ever walked the earth such as Gandhi, Moses,
Jesus Christ and Mother Theresa were not rich?
Did you know you can not take your materialistic stuff with you when you die?
Why are we all so driven to buy more stuff?
Why are the most miserable and dangerous people usually very wealthy?
Everything happens for a reason but sometimes when it does happen it really does not make sense
at the time. You just have to believe and have faith.
Do these politicians in Washington really believe their own BS???
Do politicians know what proactive means?
I am very thankful to have a wonderful family and live in such a beautiful city like Charleston.
Why is Chrysler, which is owned by Private Equity Firm Cerberus, asking for a bailout? Cerberus
is run by former Treasury Secretary John Snow (What a cowinkidink!) and this private equity firm
is far from broke. GM is actually bankrupt.
Here is the article: http://tinyurl.com/5om69d
Cartoons
Happy Holidays Everybody!
Do you like my festive holiday colors?

I have to tell you this economy is moving so fast and furious I can not keep up. This economy has more
drama than the writers at your favorite Soap Opera or Reality TV show could ever imagine! I literally
need to send out a CMR everyday or at least once a week to cover everything happening. Unfortunately,
that is not going to happen. We certainly live in interesting times! This is the kind of stuff you can tell
your grandchildren about when it costs them a million bucks to buy a loaf of bread. Anyway, there is
much to discuss so lets jump into the trials and tribulations of our Ponzi Economy.

Alert! Alert!
The brilliant economists over at the NBER just announced on December 1, 2008 that we are in a recession
which took effect on December 2007. Shocker! The subscribers who have been reading The CMR since
September 2006 knew this day was coming over two years ago. Now you know why I can not stand
being called an economist. You are a little late as usual on that call guys!
Rule #1: Do NOT ever get a stock tip or invest money with an economist.
Rule #2: Do NOT forget Rule #1!

The tough part regarding this recession is that it will be deeper and last longer than the previous ones due
to the credit problems. There are of course the Obama Optimists out there who believe he is going to
swoop into office and fix everything with his Change We Can Believe In message. The only thing I see
Obama talking about is printing more money for a fiscal stimulus program that looks and feels VERY
similar to FDRs New Deal, which occurred after The Great Depression. The bad news folks, if you read
history, The New Deal did NOT work and in fact unemployment averaged 17.2% from 1934-40. Keep in
mind those are government numbers so that statistic is most definitely BS. Ever notice how these
Presidents rely on these Economists (Who are consistently late and wrong on their analysis) to help them
fix the economy? Maybe they should bring in some World Class Traders and businessmen for a change.

Chart Courtesy of Money and Markets.

Blue Light Special: Mortgage Rates

There are a large number of real estate agents who read The CMR. Most of these agents have had to
struggle through a rough time in real estate over the past year to year and a half. I can honestly say to all
of the agents out there reading this that you have an opportunity of a lifetime to get some buyers and
sellers off the fence because of the lowest mortgage rates you may see in your lifetime. Can you believe
it? Good news coming from Mr. Doom and Gloom! I know an opportunity when it is staring me in the
face and I have to tell you that the next 3-4 months may present the best buying opportunity for some
buyers that they will see in a long time. Every deal is different but if you are interested in a home that is
priced correctly then it is time to pull that trigger!

Now is the perfect time to create a sense of urgency if you are representing buyers. If you are
representing sellers who will not price their home correctly then explain to them that they are missing a
golden opportunity to sell their home because of this financing gift from Big Mama aka The U.S.
Government.

Thirty-year fixed-rate mortgages are priced off the 10-year U.S. Treasury note (TNX). The 10-year note
is trading at the lowest levels since the Federal Reserve Board started recording the levels back in
the 1950s.

The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing
mortgage rates for new loans, according to people familiar with the matter.

The plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to
bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year
fixed mortgages.

Government officials are under pressure to stem foreclosures, which underpin much of the current
financial crisis. Treasury has struggled for months to come up with a plan that would ease the market
without appearing to bail out homeowners and lenders.

Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage
giants, who are temporarily under the control of the government, as well as those guaranteed by the
Federal Housing Administration. Fannie and Freddie guarantee a large proportion of all new home loans
made in the U.S.
DEBORAH SOLOMON and DAMIAN PALETTA
WSJ, December 3 2008
http://online.wsj.com/article/SB122833771718976731.html

At this writing, Bankrate's national average for a 30-year fixed-rate mortgage is 5.8 % and the 10-year
note is at 2.61 %. The 10-year has recently been as low as 2.48 %. That's a spread of 3.19 percent.
Historically, spreads are typically between 1 % and 2 %. The current widening of the spread can be
explained in part by the "flight to quality" in Treasury securities. In uncertain economic times, investors
flock to the safety of owning U.S. Treasury securities.

Folks, this collapse in the TNX Yield does not happen without government intervention. By buying up
mortgage debt The Treasury Dept. is doing everything in its power to stimulate the housing market via
cheap financing. This is NOT a normal occurrence in the bond market. I believe the spreads will shrink
and after Obama gets into office qualified buyers will be able to obtain a 4.5% or lower mortgage and
even 3.5% by buying the rate down. This is almost the equivalent of 0% financing that the car dealers
have been using over the past few years. The mortgage brokers who have been starving recently are
loving this low rate environment.

***If anyone reading this report that needs help with a purchase or refinance feel free to call me at (843)
297-2701 or email me at brundbaken@comcast.net and I can recommend an excellent mortgage broker if
you need one. I only recommend the best who will take of you if you need help.

Worst Case Scenario (Be Careful)

A downward spiral of lower prices followed by lower production followed by lower wages followed by
less demand for goods and services followed by more job losses followed by lower production followed
by lower wages.

People can't qualify for mortgages because they don't have a job and their credit is maxed out and those
who do own a home will struggle to make their monthly payments because their employer cut their salary
again.

Please don't overlook how unprecedented it is for the UNITED STATES OF AMERICA to have no
choice but to GIVE MONEY AWAY just to sustain growth and preserve price stability.This default risk
is not as big of a rate sheet influence as much as it is an MBS influence. THIS ZIRP (Zero Interest Rate
Policy) IS THE EQUIVALENT OF BERNANKE GOING ALL IN DURING A TEXAS HOLD EM
POKER GAME.
From John Burns Consulting:
Here is our national look at mortgage rate sensitivity. The line series represents loan amounts and shows
the change in the number of households that can qualify for a mortgage if rates rise or fall. The number of
households than can qualify rises significantly across all loan amount categories when the rates fall from
5.5% to 4.5%. If buyers are solely focused on price, they might miss out on opportunity.

This year, a builder's best friend has been the FHA. As other lending products vanished, FHA continued
to insure mortgages made to risky borrowers with low down payments. This week, figures were released
that showed FHA's market share grew from 3% in 2007 to 26% of all mortgages in Q3 2008.
Considering the dropping values of homes purchased during this period, it is likely FHA delinquencies
could rise and force the agency to ask for larger down payments.

The chart above is VERY powerful. As rates rise fewer buyers can qualify for a loan. This is especially
important in a market such as Charleston where we have not seen the home prices decline as severely as
other parts of the country such as California and Florida.

Since banks are still hoarding our Bailout Money and refuse to lend to each other you must communicate
to your buyers and sellers that the conditions may worsen if they do not take advantage of these low rates.
These low rates will not last forever! We could find ourselves in an increasing rate environment with
stricter lending guidelines and larger required down payments in the future which could make selling a
home even more difficult. All I can say is Carpe Diem if you are in real estate!
A Putz, Ponzi and Bezzle
What this Bernie Putz Madoff did privately is no worse than what Hank Paulson and Ben
Bernanke are doing publicly to the U.S. taxpayers. In a sad way, Madoff should be admired for
having been able to accomplish such a swindle without the help of the U.S. Congress.

Have you ever wondered why there is a

pyramid on the back of our fiat dollar bills?
Things that make you go hmmmmm.

And the difference between Bernie lying about the assets of his hedge fund and a Citibank - Goldman not
disclosing their funds CDO liability is?

Right, there is no difference.

A ponzi scheme is paying out the investments of others as returns.

When CDO's (the "O" is obligation!) potential liabilities (huge in today's economic environment) are not
subtracted from assets, many are using the investments of others to pay out false returns.

If you want to read a sensational document regarding the Madoff scandal please click on the link below:
http://www.scribd.com/doc/9231188/MadoffSECdocs20081217

I found this document on Barry Ritholtzs great blog The Big Picture. What follows is the Harry
Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a
fraud. This highly detailed complaint was filed regarding the apparent fraud at Madoff Securities. It was
ignored by the Christopher Cox SEC. Absolutely Amazing! You just can not even make this stuff up and
the greed and coordination of fraud is downright scary.

Warning: If you read this document written by Mr. Markopolos you will become extremely agitated and
wonder what in the world these morons in Washington DC are up to. I say to the future investigators to
follow the money if you can. My main question is where did all the money go? It is impossible for
Madoff to have spent billions of dollars on himself. Things that make you go hmmm.

I received a ton of emails regarding the Madoff Ponzi Scheme. It is truly a sad event that will ruin many
lives because of the charities and non wealthy/wealthy individuals Madoff claimed to be managing money
for. This is why I consistently say in this newsletter to DUE YOUR DUE DILIGENCE. I do not care if
you know the person or he is a nice guy. Always perform your due diligence before you get involved in
a large transaction or you have nobody to blame but yourself. Clearly the SEC (Securities Exchange
Commission) is also at fault in this complicated scheme. This is not a one man ponzi scheme and you
will find out that others were aiding Madoff once the facts come out. For example, Madoffs niece, the
Chief Compliance Officer for his firm married a major SEC Investigator a couple of years ago. The cozy
relationship that Madoffs firm had with the SEC is a major conflict of interest and the truth will come out
during the investigation.

If you read the Q3 2008 CMR where I wrote about The Ponzi Economy I was not predicting this type
of Madoff scandal but rather trying to demonstrate how our entire economy is a gigantic ponzi scheme.
This is just one aspect of many different ponzis that get forced out of hiding when the tide eventually goes
out. This scam would still be going on if it were not for the massive redemptions being caused by poor
market conditions. Unfortunately, there are more Bezzles hiding amongst us in the investment world
that will be revealed in the future.

From Madoff Scam is part of the bezzle

Harvard Professor Richard Parker Interview
The "bezzle's" a term that was coined by the American economist John Kenneth Galbraith in a book
called "The Great Crash: 1929" which he wrote in the middle of the 1950s. What he recognized was that
at any given time there is a certain amount of embezzlement going on in the economy. Now this falsely
inflates the sense of the total wealth of the economy at that moment. Because, not only does the embezzler
now have substantial resources under his control but the embezzled does not yet know that he or she has
lost those resources. There is in effect, a kind of double counting of wealth of both the victim and the
victimizer and the inventory of that duplicity is what Ken called the bezzle.

What happens is that the bezzle varies in size with the business cycle and with the financial cycle. What
we've had in the last few years, presumably, is a run-up in the bezzle in conjunction with the run-up in the
value of the markets. So that more and more people were drawn into the markets. Money was being made.
More and more people came in, threw more money at the market and, as long as the markets kept rising
and a new round of investors kept coming in, older investors kept getting good returns on their money and
spreading the news that this was a great, sound and high-returning investment.

Bernie Madoff is a representative of the species of the bezzler, if you will. And he's by no means unique.
This pattern of behavior can be traced back to that famous South Sea Bubble, or the Dutch Tulip Mania.
It was a prominent feature in the crash of 1929, and is always present in the run-up in these financial
cycles. And then, as the top of the market is reached, and we tip over and start sliding downward . . . of
course, new money stops coming in and the game is over.

How to Get Lucky (A Good Read)

http://www.rd.com/advice-and-know-how/how-to-get-lucky/article27664.html

Great Quote Regarding Appraisals

The indisputable proof that "appraising is both and art and a science" is manifested in the events of the
past several years.

The "art" is the ability of many to put "lipstick on a pig" with such creative style that observers don't see a
painted pig, they see a Picasso.

The "science" is rooted in the ability to provide a thesis that clearly documents and supports the theory of
why "what appears to be a pig" is really "a Picasso", in a manner so convincing, that even the USDA
(Congressional pork inspectors- Fannie and Freddie) thought that is was a Picasso, until such time it
"squealed" to reveal its true self.

There is a lot of "oinking" going on in loan vaults these days.

Patrick Egger
Las Vegas, NV
COMMERCIAL REAL ESTATE: THE NEXT SHOE TO DROP?

Read the article below to see how the Madoff Ponzi has a major impact on the real estate industry.

http://www.nytimes.com/2008/12/18/business/18brokers.html?_r=1&ref=patrick.net

FYIThis article is from a national perspective.

by Olivier Garret

On November 19, bonds and stocks backed by commercial real estate loans plummeted on investors fears
the struggling U.S. economy might lead to a wave of defaults.

Big real estate companies suffered big losses: shares of Simon Property Group, the top U.S. mall operator,
declined 13%; Boston Properties Inc., owner of skyscrapers and office buildings in key U.S. markets, fell
12.1%.

General Growth Properties Inc., which owns more than 200 mall properties throughout the United States,
is teetering on the brink of annihilation. If the flailing company cant come up with the $958 million of its
debt that is now due, and the $3.07 billion due next year, it will have to file for bankruptcy protection.

Ghost malls may become a common sight around the country, with major mall developers and big-
name retail chains like Linens n Things and Circuit City going broke and others, such as Starbucks,
closing hundreds of stores nationwide. Small businesses are even worse off as shoppers tighten their belts.
A recent Newsweek article quipped that it would take some kind of sorcery to keep the current mix of
store closings, skeletal inventories, hard-to-find sales staff and anxious consumers from turning the
yuletide shopping season of 2008 into a seriously cranky Christmas. Even Santas have been getting pink-
slipped.

None of whats happening surprises Andy Miller, a consummate real estate entrepreneur and friend of
Doug Caseys, who presented his outlook on the commercial real estate market in the September edition
of The Casey Report. Heres what he had to say on a few topics:

Miller on retail shopping centers:

Retail is the most exposed product type. For example, we have a grocery-anchored shopping center in
Phoenix thats about 94% occupied. Weve been trying to sell it for the last nine months. Weve had it
under contract probably four times. Each time, its fallen through because the buyers were unable to find a
lender. The lack of liquidity is particularly acute in the commercial markets.

Most commercial mortgages that were written over the last 10 years for most product types, except
apartments, were done by conduits, and they were done by asset-backed finance securitizations, CDOs,
etc. The overwhelming number of those conduits are now either out of the market or shut down. Theres
going to be a tremendous upheaval in the commercial market relative to the fact that theres almost no
conduit money available anymore.

On office space:

The office market, of course, is eroding. While I expect the central business districts around the 20 top
cities in the country to probably be relatively stable in terms of office occupancy, I think the suburban
markets are going to get creamed.

On warehouses:

Warehouses are bad. Theyre very flat. Users are consolidating; theyre not expanding.

On hotels:

Id also be wary of hotels. The hotel business is proliferating right now, in a way that Ive never seen.
There are so many new hotels being built right now nationally that theres no way, even in good times,
that I think they could sustain occupancy. A lot of these hotels now have created new flags and theyre
putting them in multiple locations in most big cities. So theres been a tremendous proliferation of hotels
and, with high air fares and high gas costs, theres no question that thats going to be a bad place to be.

On the real estate bubble:

There is no historical comparison to the situation today. Not even the Great Depression was like this. I
believe weve just lived through the greatest expansion of capital in the history of planet Earth, in the
history of mankind.

And this happened really all over about 12 or 13 years, this gigantic, dynamic expansion of money.
There is no precedent for this. One truth about cycles is that the downward part of the cycle is usually
quicker and more painful than the upward swing. We didnt get into this thing overnight. It took many
years, and we are not going to get out of it overnight. Its going to take many years to unwind.
Waiting for the other shoe to drop is an uncomfortable position to be in. Thankfully, there are a number of
lifelines we as investors can grab on to, to avoid getting sucked into the whirlpool of declining asset
values and a declining dollar...and we should take every chance we get to use them.
Stock Charts
Interesting Stock Charts which demonstrates how unique an environment we are currently involved in.
Honestly folks, this is a once in 100-200 year event we are witnessing right now.
Charleston Real Estate

Source: www.screaltors.com
Tri County
Single Family Stats

Tri County
Condo/Townhomes Stats
I wish I had some better news to deliver regarding our local real estate market but unfortunately it is still
much of the same. Overall, median prices dropped 7% from Nov. 07 to 08. If you look at the SC
Realtors Stats Chart above you will notice that things could be worse for Charleston. The Coastal
Carolina market has seen prices drop 17.3% and Hilton Head has lost 18.5%. This is a very interesting
stat in my opinion because these two coastal towns, which are tourist destinations just like Charleston,
that have demonstrated a much more severe decline in median home price. I have argued on this website
over the past two years that home prices in Charleston have not dropped enough due to the speculation
that occurred here in certain areas. The fact that the Myrtle Beach and Hilton Head areas are seeing a 17-
18% decline while we are only experiencing a 7% decline is worrisome to me. It means that our market is
not making the necessary price corrections to get back to normal. Some Realtors out there will brag about
this stat and state it demonstrates the strength of our market but I disagree. At the end of the day it comes
down to affordability and credit approval for people to buy homes. Now that rates are historic low levels
I feel there are too many overpriced homes sitting on the market. This is caused by many different factors
such as agents telling the seller their house is worth more than it really is in order to get the listing and
disillusioned sellers who actually believe their home is worth more than it actually is. At the end of the
day your home is only worth what the buyer and seller agree it is worth in a ratified contract.

Therein lays the rub! As of November 2008 there is 19.6 months worth of Single Family Homes
inventory and 43.75 months worth of condo/townhouse inventory. The total inventory numbers are
remaining fairly stagnant but the reason Months Inventory has increased is that November monthly sales
were HORRIBLE. The November 2007-08 sales volume comparison from SC Realtors shows a 46%
decline for the Charleston area. Unfortunately this was par for the course in the entire state of South
Carolina. This was caused by the stock market and credit meltdown which has damaged the psyche and
placed fear into the buyers minds. The fact that this increasing Months Inventory trend continues to
worsen as prices do not correct enough will become more problematic for the Charleston real estate
market heading into 2009. I am hopeful the low mortgage rates will help clean some inventory out over
the next few months but it is my opinion that approximately 8 out of 10 homes currently listed for sale are
not priced correctly. This buyer/seller disparity on price may prevent many homes from selling during
what I believe it a PERFECT low rate window to get rid of your house if you are a seller. I say with
100% conviction that if you are a seller right now in this market and you not pricing your home correctly
it is going to be a very expensive mistake.

Thats it for 2008 folks. I hope everyone has a safe and happy New Year! Lets all pray that 2009 is a
better year for the economy.

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.