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Turning Obfuscation Of Profit Into An Art Form

A weekend topic on media and financial manias starting with the Wall Street Journal. “Now 15 years old, Zillow has long been at the forefront of real estate’s digital transformation. Its recent moves, including its shift into iBuying and its acquisition of virtual home touring company ShowingTime, are sure to solidify its position as the future of online real estate. But consumer demand doesn’t automatically mean profit, which has very much been a work in progress for Zillow.”

“On Wednesday, Zillow posted quarterly unit economics for its Homes segment, which houses iBuying. That data showed Zillow making nearly $22,000 on average per home it bought and subsequently sold before interest expense. Even after interest expense, Zillow’s math shows it made positive returns on homes sold for the first quarter ever.”

“Enter Mike DelPrete, a scholar in residence on real-estate technology at the University of Colorado at Boulder, who on Thursday published a blog post noting iBuyers were ‘turning obfuscation of profit into an art form.’ In it, he likens Zillow’s unit economics chart to ‘an immaculate conception version of iBuying, where transactions magically occur without employees, customers materialize out of thin air, and technology is freely available for all.'”

“There are further expenses to account for, in other words. Lots of them. Mr. DelPrete’s math shows that, after all expenses, Zillow in fact lost $72,000 per home. That would explain why Zillow also said its Homes business lost money, even on the basis of adjusted earnings before interest, taxes, depreciation and amortization, in the fourth quarter, while it showed positive returns on a per home basis.”

“The good news is that the company is making progress toward profitability. Mr. DelPrete estimates Zillow lost nearly $129,000 in the third quarter per home on the same basis. Yet the majority of the improvement appears to be driven by factors largely beyond Zillow’s control. Zillow said operational improvements such as renovations, holding and selling costs accounted for roughly a third of the improvement in returns before interest expense from the third to the fourth quarter. The majority, then, came from factors such as better-than-expected home price appreciation and faster sales velocity.”

“What, then, will happen if Zillow’s economists are overly optimistic about the future state of the U.S. market?”

From Forbes. “So much has been written about GameStop stock it seems pointless to offer yet another take on its saga now. It also seems pointless to guess what motivated the Reddit crowd or why the short sellers hung on for as long as they did. All that is water over the dam, as the saying goes. At this point, the adventure carries two important and age-old investment lessons.”

“One is that taking part in a buying frenzy leads to at least as many losers as winners, usually more, for there are many in the Reddit crowd who enthusiastically bought at highs and have suffered significant losses. The second is that shorting is a very risky business. Both lessons should now be clear, even when seen through the tears of those who lost. What deserves attention here is that, with a few notable exceptions, the media made a hash of covering these events.”

“Outside those few experienced financial journalists, most media coverage relied on a silly and misplaced David and Goliath story. Who does not cheer as the brave shepherd boy puts down his harp and picks up his sling shot to bring down the great bully? The problem with media reliance on this Bible story is that it has very little to do with the GameStop stock episode.”

“No one was being a bully, and the Reddit crowd was not especially brave, in large part because many seemed not to realize the risk they were taking in pumping up the price of a stock of a company that was running losses. With no bullying and no courage, why bring up the ancient story at all. Yet the media could not resist.”

“Imagine the feelings of a late-January Reddit enthusiast who bought in with so many others late last month and is now left holding the bag with most of their ‘investment’ gone. He or she is hardly comforted by the gains of the few who got out in time and on whom the media has focused as if these losers are just so much unfortunate collateral damage in a gallant cause.”

“Then there is the widespread and childish indignation that accompanied anything that thwarted the Reddit crowd’s drive to push up the price of GameStop stock. For instance, many of the enthusiasts generated great leverage on the price of GameStop stock by using options and buying on margin. Buying on margin requires a loan, usually from the broker.”

“It is not unusual when such buying reaches large proportions for the lenders to ask for additional collateral to ensure that the buyer can pay back the obligation. Yet rather than see it as a simple and common way for lenders to protect themselves, both the Reddit crowd and many in the media saw this as an arbitrary move to thwart all the fun.”

“Similar indignation emerged when trading was interrupted. These trading brakes, too, were characterized as a kind of attack on the Reddit enthusiasts. It was instead a defensive move on the part of people who wanted to avoid being pulled into a vortex of risk. To avoid such inequities and risks, markets will halt trading until sellers can be lured out. Sadly, many in the media shared the indignation of the eager buyers as if no one else’s needs mattered.”

“Other than such matters, little in this whole episode deserves the moral overlay so freely used in describing these events. There was a group of people who for obscure reasons wanted to buy large quantities of a small stock. There was a group of people who thought that the buying was misplaced. They bet against each other. Some won and some lost. Millions were entertained. There is no good or bad involved, unless stupidly taking excessive risk is somehow immoral.”

This Post Has 55 Comments
  1. I am appreciative of this Blog … but want more! Can anyone recommend additional sources [so called feeds confuse this old-timer sometimes] to read or follow? Or are all the good articles behind paywalls? Thanks — sign me stuck at home with a gameplan of NO TV during daylight hours.

  2. “There are further expenses to account for, in other words. Lots of them. Mr. DelPrete’s math shows that, after all expenses, Zillow in fact lost $72,000 per home. That would explain why Zillow also said its Homes business lost money, even on the basis of adjusted earnings before interest, taxes, depreciation and amortization, in the fourth quarter, while it showed positive returns on a per home basis.”

    This is during a period of extraordinary Fed-fueled asset price support in the form of Unlimited Quantitative Easing pushing housing demand to frenzied heights.

    These guys are gonna be fooked when Housing Bubble 2.0 eventually collapses. For starters, there’s little barrier to entry in online real estate listing, and they have plenty of competition. Secondly, their approach to buying and owning homes of anyone who wants to sell seems predicated on the assumption that real estate always goes up.

    1. ‘For starters, there’s little barrier to entry in online real estate listing, and they have plenty of competition. Secondly, their approach to buying and owning homes of anyone who wants to sell seems predicated on the assumption that real estate always goes up.’

      The person who thought up naming a star after someone created the best turnkey business model ever. Since then, everyone wants to create a needless Rube Goldberg machine to extract money from people’s wallets.

    2. What stunned me was the loss of $129K per house, or $72K per house. They must be trucking only in million-dollar neighborhoods. They certainly aren’t on my block.

  3. https://www.yahoo.com/finance/news/u-home-builders-urge-biden-215030897.html
    The number of single-family houses being built in the U.S. soared last year, and by December reached the highest since 2006. This strong demand took the industry by surprise and lumber producers have not yet replenished inventories, causing prices to surge and builders to scramble to find enough product for their immediate needs.

    “The increase in lumber prices is forcing our company to delay construction starts, which will only exacerbate the lack of supply in our market,” said NAHB First Vice Chairman Jerry Konter, who is also a home builder and developer in Savannah, Georgia.

    Alicia Huey, a high-end custom home builder in Alabama and second vice-chair of NAHB, said the price of her lumber framing package on identically-sized homes has more than doubled over the past year to $71,000 from $35,000.

  4. “The problem is you’re thinking of a house as a place where people live and build families.

    This is wrong. A house is simply an investment vehicle to be flipped frequently in search of ever inflating gains, so that you can build enough equity to retire with some degree of dignity. If you’re lucky you die before exhausting all of that stored value.

    You’re thinking of a community as a place where individuals and families grow together over time, and because they all have a long term stake in that place, they pull together to advocate for their best interests, like a healthy local ecosystem for example.

    This is wrong. Communities are simply containers for investments, temporary stops on a never ending road to continuous gains. Social bonds are unnecessary since you will have shiny new neighbours within 4-6 years anyhow. And everyone has their own snowblower, so what’s the point in talking to people.

    You’re thinking of commuting as way to get to work. This is wrong. Commuting is the key to making this charade work by slowly acclimatizing workers to longer and longer commutes because no one lives where they work anymore, and furthermore it’s ridiculous for anyone to expect to be able to.”

    https://www.reddit.com/r/waterloo/comments/kxnvqh/comment/gjclg2c

      1. Ugh, I don’t think I like any of those. The one on Oakstrand has the best pool (I like the raised hot tub), but it has horrid paint and decor (mostly fixable). The one on Cumberland appears to have a terrible floor plan.

        Not sure what to think of the first one — looks dangerous. Gas stove exposed out in the middle of the room, and three steps up to the kitchen with no railing or warning. Do I want to break my neck or burn to death?

        1. Oakstand is the most fixable but it’s too close to the high school’s sports fields that have night lights. Cumberland does have an awful floor plan; I have the builders’ floor plans for all three. Besides backing up to a busy street, everything about Cumberland is ugly. Sandhilll was originally 2600sf so the bedrooms, bathrooms and laundry room are all small relative to that kitchen addition. I’m hoping inventory increases once mortgage forbearance ends.

        2. The one on Cumberland appears to have a terrible floor plan.

          For a million+ bucks I would expect a house where you don’t walk into the living room. But I guess it’s Poway.

          1. where you don’t walk into the living room

            Is Sandhill’s separating wall any better? For $1.55M, I expect a shower bigger than 3’x3′ opposite the toilet in the same stall and a laundry room wider than the width of a washer and dryer side-by-side.

          2. s Sandhill’s separating wall any better?

            I didn’t even look at that one.

            At least the megabuck house in Windsor actually looks like a mansion and not a crummy tract home that’s been gussied up,

  5. See more and more about working remotely – i think that folks in 2025 will look back and be amazed at the changes in just a few years. All the people spending big $s for houses in upscale suburbs might be in for a shock


    “Future meetings are likely to blend in-person and virtual participation. In some cases, that will mean colleagues from multiple locations—even some sitting at their laptops in the same room—participating in videoconferences. Doing so places everyone on the same visual footing. Such video technology can be used to better gauge worker sentiment and participation, and allow artificial intelligence to assist in moderation.”

    https://www.wsj.com/articles/tech-that-aims-to-improve-meetings-11610640133?mod=e2fb&fbclid=IwAR0yxprBg2D-BxpR8WG0p78dj3OhafkqChJoX3XFNj_dUsh5S225mIgIhJ8

    1. Did you ever read any Science Fiction stories by Larry Niven?

      In 1973 he wrote the short story “Flash Crowd” and the situation with people moving in droves out away from the ‘crowded ugly cities’ to remote locations to ‘get away from everyone’ yet still be fully connected for work reminded me of it.

      From the wikipedia summary: ( https://en.wikipedia.org/wiki/Flash_Crowd )

      “Flash Crowd” is a 1973 English-language novella by science fiction author Larry Niven,[1] one of a series about the social consequence of inventing an instant, practically free transfer booth.[2]

      One consequence not foreseen by the builders of the system was that with the almost immediate reporting of newsworthy events, tens of thousands of people worldwide — along with criminals — would teleport to the scene of anything interesting, thus creating disorder and confusion. The plot centers around a television journalist who, after being fired for his inadvertent role in inciting a post-robbery riot in Los Angeles, seeks to independently investigate the teleportation system for the flaws in its design allowing for such spontaneous riots to occur. His investigation takes him to destinations and people around the world within the matter of less than 12 hours before he gets his chance to plead his case on television, and he encounters the wide-ranging effects of displacements upon aspects of human behavior such as settlement, crime, natural resources, agriculture, waste management and tourism.

    2. “See more and more about working remotely – i think that folks in 2025 will look back and be amazed at the changes in just a few years.”

      Those jobs will be performed by someone barefoot and squatting in India before 2025; by 2035 it will be an AI cloud server.

      1. I agree. I’ve talked to some conservatives who are horrified that Biden is opening the floodgates on H1-B. I tell them not to worry. What company is going to import an H1-B when they can keep their programmers in India or Poland or wherever? No import cost, no office space, no bussing from expensive housing, and you can pay them a lot less.

        1. Biden is opening the floodgates on H1-B.
          I used to work for a TBTF bank doing planning. In our budget and actuals we would get charged $112K for a US based programmer and $80K for a non-US based programmer.

        2. There still are advantages to having everyone in the same time zone, or at least the same county. Emails are answered promptly and if you need to communicate in real time (phone, online chat, etc.) chances are you’re both awake and working at the same time. Plus there is a good chance you’ll actually understand each other.

          The low value work was offshored a long time ago. It’s a lot harder to find people over there who can do the high value stuff.

  6. Anything to keep the focus away from November 4, 2020 and what the puppeteers are having Joe Biden put into action with executive orders.

  7. Stoopid iz what stoopid sez:

    “Outside those few experienced financial journalists, most media coverage relied on a silly and misplaced David and Goliath story. Who does not cheer as the brave shepherd boy puts down his harp and picks up his sling shot to bring down the great bully? The problem with media reliance on this Bible story is that it has very little to do with the GameStop stock episode.”

  8. Trump just got a not guilty in the Senate on Impeachment.
    But, they are doing their typical after trial smearing of him by bogus speeches.
    Part of the effort is to reaffirm that the election wasn’t rigged, which we know it was.

    1. I was surprised to get the alert of the sudden acquittal. When I looked earlier today, they were going to call witnesses. I guess when they found out they would open themselves up to full discovery, they wisely backed off? I’m sure the MSM was disappointed; they probably wanted to stretch it out for weeks.

      And I’m no lawyer, but I thought the Trump was impeached for inciting the riot in his speech at the White House on that day. When the Dems started making noises about Trump planning it in advance, or inciting over the course of weeks, or whatever, that’s a different charge. Wouldn’t they need a new impeachment for that? (Which of course they can’t do since Trump is now out of office).

      1. they wisely backed off

        The list of 301 witnesses Trump’s attorneys wanted to call scared them and they only had one hearsay witness.

        1. IIUC the Republicans wanted to call Nancy Pelosi and Mayor Bowser to ask about the lax security at the building.

      2. I only watched the Defense Case. I thought it was good .
        Apparently people thought the Defense was bad at first, but they knocked it out of the Park when they actually put the Defense case on.

  9. So, while Biden betrays the Country with his Executive Orders, the Impeachment Trail was suppose to distracts us with the ongoing swear of Trump by these goons in the Swamp.

    They no doubt want to kill Trump for good, and any movement like his to take back the government from this corrupted Swamp of Politicians, who have been selling us out for a long time.

    1. They no doubt want to kill T…. for good

      They lack insight. He wasn’t the force against him, we are. He was our champion du jour. They have no idea.

    2. “They no doubt want to kill T…. for good.”

      Rong! Er, Wrong!

      If anything they will want to keep Trump alive and well and kicking because he makes for them such a useful unifying enemy.

      Trump needs to be seen as enduring and indomitable threat to all things good and wonderful so resources can be gathered and employed against him and everything he stands for. If fact, if handled properly, an entire profitable industry could pop into being just for the sole purpose of saving Planet Earth from Donald Trump.

      Such and industry (and thus the associated profits) would evaporate if the Donald Trump Problem was ever solved thus all efforts should go into making sure the problem never gets solved.

      1. Right, Mr Banker, I also believe the theory that they will try to keep Trump alive as the face of the contrived enemy, as was the premise in the book “True Believer”.
        But, they are clearly trying to expand the enemy to 75 million Citizens that voted for Trump as being terrorist insurrectionists, who just got a free and fair election criminally stolen from them.
        This might be the biggest True Believer Book premise whopper in history where the victims of a criminal power grab are being contrived into the enemy of the State.
        These goons were already chanting the false narrative of the US Citizens being White privileged racist deplorable, and that America itself is bad and deserves to be looted and burned, and the Police de-funded, and the statues torn down, by criminals who were portrayed as justified peaceful protestors.
        So, while it’s obvious who the real criminal insurrectionist and traitors are, they work 24/7 on fake monopoly news to create the most ambitious creation of a enemy in history , being over half the Citizens of the Country.
        Really, I have never seen anything like it in my life. But that’s why when came back to blog on this blog I wanted everyone to read the Book True Believer.

  10. The Kinks – Sunny Afternoon (With Lyrics!)

    7,184,754 views

    https://youtu.be/pIKsHh3BFPI

    [Verse 1]

    The tax man’s taken all my dough,
    And left me in this stately home,
    Lazing on a sunny afternoon.
    And I can’t sail my yacht,
    He’s taken everything I got,
    All I’ve got’s this sunny afternoon.

    1. Sh!tcoin should have been shut down the world over after the Silk Road thing. Now millions of people are going to get burned.

  11. In terms of Climate Change.
    This relationship with Communist China where they produce the bulk of our products is a National Security issue.
    All China would have to do is cut us off, as the biggest manufacturing monopoly in the World.
    So, this idea that the US has to cut off dependence on gas, while China gets to undercut us by use of any energy source they want, is the new insanity of Climate Change false narratives.
    So, all this insanity of Government making us more vulnerable to Foreign takeover is evident. It’s like giving the enemy the means to destroy us.
    Is it any wonder that we have Commie insurrectionist, China promoting Globalist Corps that have partnered with China on a manufacturing monopoly, and a traitor in the White House being Biden.
    So, the Globalist Monopolies that just took back their US corrupted US Government, by a criminally rigged election are going to get Biden the traitor to do everything that literally our enemies want. Open borders, maintaining the China manufacturing monopoly, taking away oil independent from US over false Climate Change narratives, control of populations by fake Pandemic of Covid that isn’t following Science at all, with the Medical Monopoly being in collusion with corrupted Government on this medical fraud.
    Isn’t it interesting that we aren’t hearing anything about China administrating a mass Vaccine program in China.
    Apparently India is rejecting the mass vaccination program. India remembers how many people died when a Gates sponsored vaccine program was unleashed in the past in India, and I hear they kicked out Bill Gates after having thousands of deaths.
    The vaccine is just one big experiment, that the FDA should not of approved. They are already censoring the fact that a bunch of seniors are dying quickly after the shot.

    IMHO, as long as vital information is being censored by the Media Monopoly, you are taking a big risk taking the vaccine. They don’t know the long term effects, and they are censoring the deaths and adverse reactions that are already taking place.

  12. I’m wondering if I had it. I’ve been taking four packets of liposomal vitamin C a day for a while. Mostly have been staying home to recover from surgery. Got fed up and went out grocery shopping for a couple of days in a rowhbngh – there’s a thrill. I developed a sore throat and a sporadic slight fever. After three days, it was gone. Who knows ¯\_(ツ)_/¯

      1. Tamara,
        Whatever it was you got, your o we n immune system took care of it.
        A couple times last year I got some minor flu like symptoms, that even being old, my immune system killed within 24 hours and I was back to normal again.
        But, I didn’t rush out to get their fake Covid test.
        This testing of people who aren’t sick is the most bizarre and illogical thing I have ever seen. Than add to that the tests aren’t even accurate , than it’s evident that it’s a deception of epic proportions.
        While these mostly over 80 people were dying of some kind of respiratory attack, or other co morbidities, everything was labeled a Covid death, because they got extra money if it was deemed a Covid death.
        So, when the 2020 death stats were released, it did not show that 4oo thousand more people died in US from this new Pandemic.
        I was surprised to find out that this is how insurance Companies historically always figured out how many people died in a year from a new Pandemic.
        They take the death figures from the year before, and minus the death total figures of the Pandemic year to get how many died from the new Pandemic.
        So, in 2020 the death total from all. causes were about the same as previous year.
        There was a increase in suicide deaths. So , if Covid was true, you would have about a 400 k total increase in total death count, which didn’t happen, unless they revive all their figures down the road.
        So, it’s not that people didn’t dye from respiratory failure from something, it’s just that the death count didn’t go up in total .
        Also, if people think the Medical people were running to the lab on every Covid hospital case to confirm under a microscope that the patient had Covid, your mistaken.
        And that snarly little ball with spikes, that looks very much like the HIV virus picture they use to show, some Doctors are saying they haven’t really isolated the virus, which I don’t understand at all.

        1. Yeah, I wasn’t worried. I couldn’t really talk, only a problem when I had to make a call.

          some Doctors are saying they haven’t really isolated the virus, which I don’t understand at all
          I’ve read that too. BTW, what happened to the flu? Are we supposed to get both shots?

          My doctor’s look of pity at my ignorance in refusing to consider the vaccine was a slightly unpleasant moment between us. “It’s made for people in your situation (she meant old, sick right now.) Well, alright 🙄”

          1. refusing to consider the vaccine

            My doctor’s notes from 1/15/2020: “She declined influenza vaccination today in the setting of a viral URI.”

            My reasoning: I was already sick. Why get a vaccine when my immune system was otherwise occupied?! Let it work through that pathogen before I consider injecting another.

  13. “This testing of people who aren’t sick is the most bizarre and illogical thing I have ever seen. ” Please get real. Tuberculin skin tests have been and still are being routinely given to “people who aren’t sick”, along with blood tests for Hepatitis C, and more things than I care to type out this sunny Sunday afternoon.

  14. Tell me when they ever historically mass tested for a flu that didn’t affect 99.80 % of the Population. Besides the test for Covid isn’t accurate.
    The tests your referring to I suspect are more accurate tests on those specific diseases. But still, I don’t see them doing mass testing of the entire population for the diseases you referred to in your examples.
    In fact, I have heard some credible expert doctors say that there is no justification what so ever for mass vaccination of entire population on a flu they call Covid that 98.8% of the population isn’t at risk over.
    This is especially true when the vaccine is one big experiment on the long term effects, and it’s a new type of vaccine.
    But I’m more impressed with the therapeutic meds they are coming up with to fight the flu, than the rushed vaccine. I found out they are working on some cancer drugs that look even effective against the flu.

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