Category: Series & Specials

Unlike most cities in the country, the Manhattan real estate market was not initially touched by the subprime mortgage mess. In fact, as I report in our "A Tale of 5 Cities" series, up until recently there was little evidence of problems with subprime mortgages or foreclosures in Manhattan…and the real estate market here charged ahead much like it had in recent years.

The simple reason is that Manhattan is not a subprime mortgage market. In other words, people who can only obtain subprime loans don’t and can’t buy in NYC (at least not in Manhattan). That’s because the majority or homes sold in Manhattan are co-op apartments. And, co-op boards, which must approve all buyers, did a far better job vetting the finances of prospective co-op shareholders than banks typically did. On average, people buying Manhattan apartments put down 35 percent of the purchase price….and finance the remaining 65 percent. Simply put, if you need a subprime loan, you most likely won’t be buying a home in Manhattan.

The big event of the year for shareholders of Berkshire Hathaway is Warren Buffett’s annual meeting in Omaha, Nebraska. They look forward to learning from the richest man in the world. This year 31,000 shareholders -- some from as far away as India and Australia -- made the pilgrimage.

The other big event: The Movie. The meeting opens every year with this humorous hour-long satire featuring Buffett and his sidekick, Charlie Munger, Berkshire’s 84-year-old Vice Chairman. It’s produced by Buffett’s daughter, Susie. You won’t ever see clips from it on TV or You Tube. Buffett doesn’t allow anyone to film it. But it’s a perennial favorite with shareholders. And this year’s movie was a huge hit.

Perhaps no real estate market in the U.S. will have as much trouble recovering from the current housing crisis as Southeast Michigan. Unlike a lot of areas, Detroit's housing market didn't become overheated by subprime mortgages. Rather, it is a region that has been on the decline for decades.

Detroit has yet to really recover from the race riots of the 1960s. Demographics reflect that. Detroit's population peaked in 1950 with about 1.8 million residents. By 1980 there were about 1.2 million people. Today there are only about 870,000.

Economics are another problem. Southeast Michigan has lost about 300,000 manufacturing jobs over the past few years. The auto industry accounts for about half of those losses. Those jobs won't be coming back, so the region is struggling along with other rust-belt communities to find new ones.

When real estate was booming, the mantra of people in the business of selling homes was that the DC market was “recession resistant.” The theory went that since the federal government is here, house prices would stabilize or continue to rise. While it is true that the DC economy is buoyed by the government’s presence, the region is not immune from the unwinding of real estate speculation and tightening of lending standards.

Prices are still falling in the most distant suburbs. This lower end of the housing market is where the subprime lending standards took their heaviest toll. There is still land to develop in these suburbs, which has also added to the supply of homes. When I asked John McClain of GMU’s Center for Regional Analysis if the problems were from overbuilding, he described it as “overbought.” There was a time when builders couldn’t keep up with buyer demand. Prices escalated as a result. But that’s over. Buyers backed out as lending standards tightened and prices stopped rising.

So what did I think of Warren Buffett’s kids? Here are some impressions of Susie, Howard, and Peter Buffett.

They are normal.
They are remarkably down to earth, considering their father is the richest man in the world with a net worth of $62 billion. When Howard greeted me at his home he was wearing shabby chinos, a khaki work shirt and muddy construction boots. He drove me to his farm in an old pick up truck. He is so “real” and it was refreshing to see that. When I asked Howard the size of the staff working on his 850-acre farm, his answer was “none”. He plants and harvests the corn and soybeans by himself. Sometimes he has a helper or his son gives him a hand. He can afford hiring a team of workers, but he chooses to do it this way, because he enjoys it. And I think it’s also part of his Warren Buffett DNA—keeping things simple and low budget.

Tonight's Bill of Health segment is about the growth of "telemedicine networks" around the country. These networks basically allow people and clinics in rural or inner-city areas to connect with medical specialists in urban centers. Those specialists can run the gamut from dermatology to cardiology -- and even psychiatry.

Telemedicine is not new. Since the late 1960s, technologists have been working with various devices to link physicians and patients remotely. However, the medical community didn’t really begin to take telemedicine seriously until the 1990s. Once again, we can thank the advent of the Internet, as well as cheaper computer technology, for making that happen.

It’s easy to understand why investors are piling into Bear Market funds.

Consider that the Direxion NASDAQ-100 Bear 2.5X Inverse Fund is up 35% year to date. It is designed to produce 2.5 times the inverse of the Nasdaq 100’s daily return. What most investors probably don’t know is that last year it tanked 36%.

This is a prime example of the volatility of these funds -- they can go down as quickly as they go up.

Historically, the stock market has gone up more often than it has gone down. So, while the funds may outperform in the short term, they don’t usually do well over long periods of time. That’s why financial planners say one of the most common mistakes investors make is holding bear market funds too long.

What's interesting about this week's Bill of Health is that "corporate medical clinics" are something that a great many large companies of another era - the 1950's and 1960's - used to have. Company infirmaries were a commonplace service offered to everyone, from executives to the guys driving the forklift at the warehouse. Full-service infirmaries fell victim to corporate cost-cutting efforts in the 1970s. By the 1980s, the idea of a company staffing its own medical clinic for the benefit of employees was considered a quaint throwback, and most companies were busy outsourcing any of their medical obligations to HMOs as another cost to get off the balance sheet.

Today's Bill of Health looks at the nation's latest shortage -- of pharmacists. Our nation's bulge bracket of aging baby-boomers and changes in the role pharmacists play in the healthcare system are driving this shortage.

I find it something of an irony that physicians spend less and less time with individual patients because of the demands and pressures of operating a practice and getting paid by HMOs, while, at the same time, pharmacists are spending more and more time helping to advise those same clients on the drugs they take. If you visit new chain-store pharmacies, you're likely to see small booths or "private areas" near the pharmacy counter. That's a location increasingly set aside as a place where pharmacists and patients can consult in private about their prescription, possible ways to lower drug costs, and the interactions of multiple drugs on their bodies.

Here’s what I was always told: When you buy stock in a company, you become a part-owner of the firm. However, since you can’t spend your time running the company, you delegate your authority to a group of corporate directors, whom you and other shareholders elect. And to paraphrase former General Motors Chairman Charles Wilson, “What’s good for shareholders is good for the company,” right?

Well, it all depends who you ask. In producing NBR’s "Trouble at the Top" special (which will air this Friday), I learned that this conventional wisdom is not universally accepted. In fact, it is the subject of a major dispute between some of the biggest experts on corporate governance.