David Goldberg of UBS Joins Bruce Norris on the Real Estate Radio Show #397

Bruce Norris is joined this week by David Goldberg. David is an executive director at UBS, covering the building and building product sector. Before assuming coverage, David was an associate analyst who focused on the home-building companies within the sector. Prior to this and before business school, he worked at the Convergent Wealth Advisors, a wealth management firm in Rockville, Maryland that focuses on providing independent financial advice to high net worth families. Bruce and David discuss businesses which are buying and renting distressed properties, their exit strategies and creating scattered REITs, the transition to the next stage in the housing recovery, construction in 2013 that drove demand above supply, margin liquidity and marginal easing, the source of capital, the process by which we funded loans back in 2004-2006, builder outlook, CD locations, the building industry overall, and much, much more on this week's real estate radio show and podcast.




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Peter Schiff, CEO of Euro Pacific Capital, Joins Bruce Norris on the Real Estate Radio Show #326

Bruce Norris is joined this week by Peter Schiff.Peter is the CEO of Euro Pacific Capital and bestselling author of The Real Crash:America’s Coming Bankruptcy - How to Save Yourself and Your Country.He is also the host of the nationally syndicated Peter Schiff show, heard daily from 1-3 Pacific Time at schiffradio.com. Bruce and Peter discuss his prediction of the US economy back in 2005-2007, the collapse of the market, America's bankruptcy and how he would deal with it, debt to GDP both here and in Japan, the Federal Reserve being the largest creditor, the hit on credibility, the benefits of reserve currency, much more on this week's real estate radio show and podcast.

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William Richards of UBS #130

This week Bruce is joined by the Hedge Fund Relationship Director of UBS, Bill Richards. Bill travels the globe spreading the good news about Hedge Funds. He serves as a director to seven nonprofit organizations. He has been working with hedge funds since 1983.

Bill has clients all over the world. Most of his contacts are made through emails, but his favorite way of meeting people is still face to face. In his younger days, when he was a security salesman, he would always go to see his business partners face to face. It is a much better way to communicate. Bruce asks if many people think differently about the subject because the younger generation is used to communicating via text messaging. Bill thinks that using messaging is not as effective as personal communication because messaging systems have a character limit. Bruce thinks that people react to people completely differently when they are face to face in comparison to when they are using messaging systems. When people meet in person, they do not just look at you as a client, they also begin to see you as a friend.

Bill has an annual meeting that he calls “The Best and the Brightest” where he discusses new concepts with interns. Julian H. Robertson Jr. from Tiger Management opens up the summer series of this event. 24 interns attend this meeting with Julian. There are about 500 summer interns around the world. Potential applicants can apply at UBS.com. This is a fantastic opportunity to meet some of the brightest people in the world. Next week the cofounder of Serious Satellite Radio will be speaking to the interns.

20 years ago there were not many people who knew what a hedge fund was. Bill made his first investment in a hedge fund during 1983 in order to support his oldest son in the future. Thanks to his investment, his son lives independently in Sacramento.

Bruce asks Bill what a hedge fund is. Anyone who wants to learn more about hedge funds should do a Google and search for Alfred Winslow Jones. A hedge fund is basically a safe insured investment which prevents you from losing too much in case your investment goes bad. The key to hedge funds is your net exposure. Most hedge funds average a next exposure of 30 to 40 percent. The net exposure is the difference between your longs and your shorts. The lowest net exposure that Bill has seen is 10 to 15 percent. Right now these markets are extremely volatile, so they are hugging close to shore.

In the real estate business, there are major changes in business rules that occur every month. Bruce feels that a hedge fund manager would need to have a crystal ball in order to predict how the market is going to change, because it can change very quickly. Bill says that hedge funds are a large global industry and that it gets a bad representation from the press. However, some of the world’s best investors such as Julian Robertson and Warren Buffet have been involved in hedge funds.

Bruce asks Bill how someone becomes involved in running a hedge fund. Most hedge fund managers have a good undergraduate education, they have are well educated in mathematics and accounting, some work experience, and they often go to popular business schools like Stanford or UCLA before going back to Wall Street for more experience.

Bruce asks if companies like UBS get their investors involved in some of the hedge funds. Bill says that UBS does do this.

Bruce asks Bill what hedge funds are typically invested in. Bill says that long-short equities are a great way to make money. People who do long-short equities try to find the best companies in the world and then they buy them. They also try to identify the worst companies and invest against those companies until they break down.

Bruce asks Bill what the difference is between hedge funds and real estate investment trusts. REITs are longer term investments. REITs assemble various commercial real estate properties, and then those properties are used for giving investors dividends. Bill likes hedge funds because they invest broadly around the world. Hedge funds also give the investor the ability to invest in countries that aren’t being hurt economically and financially.

Bruce asks Bill about how hedge funds are regulated. The new administration has made it clear that they plan to have all hedge funds register with the SEC. Hedge funds deal with prime brokers who are affiliated with investment banks and all of those prime brokers are regulated as well.

Bruce asks if Bill thinks that there is more regulation coming. Bill does think that there is more regulation coming, because of the recent problems that have come up.

Under the previous administration, hedge funds had the option to register with the SEC, but very soon they will all be required to register with the SEC.

Bruce asks if people are required to have a net worth requirement before they are allowed to invest in hedge funds. The two classes of hedge funds investors are 3C1s and 3C7s. The 3C1 has a minimum net worth requirement of $1 million dollars and certain liquidity requirements. The 3C7s have a minimum net worth requirement of $5 million dollars. Many hedge funds being created right now are adopting the 3C7 structure.

Hedge funds are allowed to freely invest in other countries. The investors travel the world.

Bruce asks if Bill has met some of the smartest people in the world. Bill has met some very interesting entrepreneurs. Bill suggests that anyone who wants to learn more about great investors should read “Julian Robertson: A Tiger in the Land of Bulls and Bears” and “Soros” by Michael Kaufman.

Bruce asks if people who invest in hedge funds are allowed to ask for their money back. Most hedge funds have a one year lock up, and then a quarterly liquidity after that which requires prior notice to get out of investments. They are not a market fund. They only use a portion of your assets. A lot of the best hedge funds are moving to a 2 to 5 year lock up.

Bruce asks how bad situations, such as the one with Bernie Madoff, affect the willingness of people to take on risk. Bernie Madoff was a massive blow to investors. Investors are now requiring more transparency from hedge funds.

Bruce asks if there was much speculation that occurred in the hedge fund world. Bill says that there was a large amount of growth in the Funds of Funds Business which may have gotten ahead of itself, but Bill thinks that most people who invest in hedge funds are sophisticated.

Bruce asks Bill what he thinks hedge funds are looking to invest in now. Bill thinks that the greatest opportunities in life occur when there are the greatest problems. Right now, hedge funds are looking for companies who are being penalized by the market. This is creating many opportunities, and there are multiple new hedge funds being created in Manhattan.

Bruce asks if investors around the world are more or less willing to invest than Americans are. Bill thinks that what makes America great is that we attract the best people from all around the world. He thinks that if everyone is agreeing then everyone is wrong.

Bruce asks Bill what he was able to take away from his experience during the Vietnam War. He says that there is no better place to learn about leadership than the U.S. military. Tough times create a tough individual.

Bill is involved in many non profit organizations. Bruce asks if the wealthy are very generous towards causes. Bill says that they definitely are. People with great wealth always give back to society when asked.

For more on UBS, visit UBS.com. Thank you Bill for a great interview.

Bill Richards entered the business in 1973 and joined UBS in 1995. As a Senior Client Relationship Manager in Hedge Funds, Bill manages the global relationships for UBS with some of the world's largest Hedge Funds. He works with over 105 Tiger Clubs which collectively run 125 billion dollars and represent one of the largest concentrations of overall Hedge Fund money in the world. He met Julian H. Robertson, Jr. of Tiger Fund in 1983 and continues to cover Julian for UBS. In 2006, Bill traveled to New Zealand, Australia, Brazil and Europe with Hedge Fund Clients of UBS. Bill thinks "we are still in the very early days of The Hedge Fund business and that it is one of the most important structural changes ever to hit the Asset Management Industry". He favors Long/Short Equity Hedge Funds which are based on the model first introduced by Alfred Winslow Jones in New York in 1949.

Bill has lectured at various Universities as well as at The United States Army War College. He was an Infantry Lieutenant in combat in Vietnam in 1969-1970. He spoke Vietnamese and served as a U.S. Army Infantry Advisor to the Vietnamese Military on The Cambodian Border. His non profit affiliations include The Vietnam Children's Fund (built 43 schools in Vietnam), iMentor (www.imentor.org) and The All Hallows School. Bill is an active supporter of 100 Women in Hedge Funds (www.100womeninhedgefunds.org). Bill is also part of the internal Speakers Bureau of UBS and a strong supporter of the Learning programs. Each summer, he runs the UBS speaker series called "The Best and The Brightest" and brings in 15 legendary managers speak to our Summer Interns in New York.

Bill appears on CNBC on Squawk Box, Power Lunch and in a year end "Outlook for 2008." Bill is also featured in a documentary called “Wall Street”, directed by Andreas Hoestli. The New York Magazine described this documentary as a worthy detailed investigation of how Wall Street operates.

Bill enjoys hosting private dinners with clients and takes this opportunity to further enhance his relationships with high profile clientele. He graduated from Denison University in 1967. He lives in Manhattan and rides horses at his farm in Upstate New York on week-ends. He collects art, rare books and wine.

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John Mauldin #128

This week Bruce is joined once again by John Mauldin from Millennium Wave Investments. John is a New York Times Best Seller and is writer of the highly acclaimed “Thought from the Frontline” e-newsletter.

There was a time when we thought that making loans to anyone that can buy a property was the wisest thing. Bruce asks John if we have discovered this to be untrue. John says that the answer is clearly yes, but making loans to people who can pay them back is still not a bad investment. What we began to do was use a model to predict who could pay off a loan and who could not. These models made us think that we did not need to be as careful about how we lent money. These models assume what is known as a bell curve, but in the real world there is no such thing as a bell curve. In the real world, there is a thing that we call “fat tail.” This means that when you get down to approaching zero, the curve starts going back up at the end. Mathematicians say that this should only happen every 10,000 years, but this seems to happen once every 4 years. You cannot model this sort of phenomenon and it is arrogant to think that you can. Yet we trained two generations of economists and MBAs in such things. Then we unleashed them on investment advisory firms and brokers, and these economists created these models saying, “If we start here, and save this much money, then your stock market investment will grow over time.” People believed them because they were smart people, but they were smart people using bad theories. Some of these theories won Nobel prizes.

One of the books that John recommends reading is “The Black Swan”, which claims that it is arrogant to think that anyone could figure out these models so easily. In the book he says that “A black swan event is retrospectively obvious.” Looking back, we could have seen that loaning money to people who did not have to prove much would have a bad ending. When John first started looking at collateralized debt obligations (CDOs) during the middle of 2006, he discovered that people were taking the worst part of a mortgage backed security (the bottom five percent) and grouping them together, which created a brand new security. They would then create models for rating companies who would then take that bottom five percent and call 70 percent of it AAA. When John discovered this he thought, “All you need to have is a five to ten percent drop in prices to make everything go down to zero.” You would think that if people from different areas of the United States could figure this out then the people actively investing and lending would be able to figure this out even quicker. Not only did they not figure out the problem they were creating, but they actually bought some of the garbage they were creating and they put it into their banks. This is why companies like Merrill Lynch, JP Morgan, and Citi with really bad paper. `

Bruce asks John what the current mood is towards the U.S. and capitalism in general. John thinks that it is more skeptical, and rightly so. A lot of the third world thought of America as this shining city on a hill, but they also thought we were rather arrogant because we told them how they should run their banks. We were not doing the things that we told other people to do. The epicenters for bonds sales were located in California, Nevada, and Florida but we sold all our bonds to Europe and Asia. This is going to come out within the next 6 months to a year. They are going to have write down far more money than they currently are. European banks are in far worse shape than American banks.

Bruce asks if this is because they have lent to emerging countries, or because they have invested in mortgage backed securities. John thinks that both of these options have created problems and other things as well. Western European banks took a huge chunk of Eastern European debt. Austrian banks lent more than the entire Austrian GDP, so the Austrian government could not rescue the Austrian banks if they wanted to. A lot of European banks also lent money to Asia. The UK is in better shape because they have their own currency. Businesses are not making as much money. Ireland is deflating by about four percent every year. There are some serious problems going around the world.

Bruce asks if there is any other time comparable to this downturn. John says we’ve never gone through anything like this worldwide. John says that world trade is down 10 percent and equipment orders in Japan are down 80 percent. Japan is doing their best to destroy their currency, but they are having trouble doing it, because if their currency rises then their products will be more expensive.

In California, there are currently about 240,000 properties in some stage of foreclosure. Today, there is a new moratorium. Bruce asks John how he feels about moratoriums. John thinks that moratoriums are just delaying the inevitable. It is not unusual for lenders to have a loan balance worth $200,000 dollars more than what a house is worth. Fitch recently said that 50 percent of people who bought their home after 2005 are under water on their mortgage payments. They are also estimating that home values will go down another 12.5 percent. This is a very difficult environment. Bruce says this says something about American character.

The problem is that if prices continue to decline and unemployment continues to go up, then you are going to have a much bigger problem. John estimates that unemployment will rise another one percent. It is going to be difficult to entice businesses in Southern California to hire people. If you compare taxes between California and Texas, it makes sense that people would want to move out of California. It is hard to attract people to your state when you are raising taxes. The states that have the highest taxes are losing the most population. John says that Florida was hit harder than California but Florida will come back faster than California because they have a low tax environment and people want to go there to retire.

In one of John’s news articles, he discussed Gary Schilling’s thoughts on solving housing problems. Gary’s idea revolved around creating demand. Gary said that about 800,000 people come into America every year. For the next two years, if these immigrants can buy a home and maintain their lives, then they could get a green card. Within a year, all the vacant homes on the market would be taken. They would also have to live in the home they are buying in order to receive the green card. There are countries such as Canada and Australia who do this. They are searching for immigrants with education and money to come into their country. One of the biggest competitions in the world is to attract young, educated workers. There are only two ways that you can make an economy grow: you can either increase the number of workers or you can increase their productivity. We’ve got a boomer generation who is trying to retire, so we need to be bringing in more educated middle class entrepreneurs. John thinks that we need to have a more welcoming immigration policy.

Bruce says that investors, who are having difficulty getting financing, are having trouble right now. There are a lot of properties in bad condition that investors could fix and make valuable but they cannot get the money to do the job. We have destroyed 40 to 50 percent of the financers for housing construction and development. We destroyed the shadow banking system which helped special investments. They are gone and they are never coming back, so now we need to make new structured security vehicles that investors will feel confident in. This is something that is going to take some time to develop, but John thinks that in 10 years we will be much happier.

For more information on John, you can visit JohnMauldin.com.

John Mauldin is a prolific author, recognized financial expert, and editor of the popular Thoughts from the Frontline e-letter which goes to over 1,500,000 readers weekly. His critically acclaimed new book, Just One Thing and previous Best Seller Bull’s Eye Investing, Targeting Real Returns in a Smoke and Mirrors Market cuts though the fog of information and gives concrete advice for structuring absolute return portfolios. John is primarily involved in private money management, financial services, and investments and research. His next series of books involves the largest millionaire study done in over 15 years with personal interviews with hundreds of affluent individuals. Investors can visit his website at www.johnmauldin.com or get his free weekly e-letter by sending a request to john@2000wave.com.

Join us next week as we launch I Survived Real Estate 2009!

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