patrick.net

TN,

Couldn't say. Peter P has a nice link posted earlier and I understand that the Chicago Merc. is going to do some kind of "web cast" to indoctrinate traders in the basics. Start at CME, they should have links that say "open an account?" or something like that. Remember in order trade futures (as on margin) you will need to meet certain financial standards (ie. the ability to cover a call) so my guess is that initially these will be more for institutions and then they will "tailor" a mini for us small fish.

NIA

Nomadtoons2,

I'd take business advice from your dad.

nomadtoons2,

The markets are the fruition of our ingenuity. It's the money end of progress and somebody has to do it. Can it be a drag? Sure, but if you invented something new and wanted to bring it to the world (so we could all benefit) the quickest and best way to share it is through publicly traded markets. If you have an idea, bring it to Wall Street and if they like it you'll have all the money you need to get it off the ground!

Off-topic, I think I found a funny peek at the inside baseball of Patrick.net.

Get in your wayback machine, and check out the tailender spambots that have cropped up since this old thread died out: http://patrick.net/wp/?p=153#comments

Look at the posts starting on February 17th, 2006 at 3:03 am.

And I must add, I really am sojealous of this blog. You guys are great! Really, really great. I love your blog. Wow!

Mr. Vincent,

I think Mr. Shiller is being perhaps a little disingenuous with us here? I don't believe for a minute that anyone that works on that scale is all that concerned with John and Jill Homedebtor. Besides collecting the premiums for the additional rider on the policy would be a regal pain! If that side of the market develops then yeah, sure, whatever we'll take your money too but the truth is that this thing wasn't rolled out a moment too soon for the institutions eyeball deep in MBS.

Speaking of which do we have anyone perhaps lurking out there with any experience in insurance underwriting proceedures? We (or should I say I) could use some help here! I have friends on the sell side there and they often say they would love to be able to drop their P&C line and just do health care policies b/c the hassle just isn't worth it.

Dinor,
I don't disagree with a single thing you've said. Truth be known, the most likely path to instant money is via clever transactions through investments. I have a number of mutual and IRA investments. Nothing terribly risky, but I am counting on some of these to provide some of my retirement.
On the other hand, after being a salesman for 8 years, I can tell you that the best ideas are good ideas. The most sucessfull of good ideas are ones that are sold with good intentions, and serve to give the consumer more than what they paid for. Looking at the companies we trade today, almost all of them began via humble means. Good ideas from sincere people. These are the people- Like Michael Dell, Henry Ford, Bill Gates, and a thousand others who had an idea and took it to the bank. It's the millions of others trying to piggyback off of their sucess by buying a piece of their action.
Perhaps I am old fashioned, But my idea of sucess is becoming a person who makes ideas, sells them, and makes others want to buy from me- not the other way around.

nomadtoons2,

Hey, don't get me wrong here! I have a "corn belt" upbringing too! We believe in the things we can see and touch. During the great tech run up I was buying John Deere and Caterpillar shares. Many of the brokers laughed at me and I took a lot of grief. Now, many of those "tech traders" are out of the business and their clients are probably never going to invest in the market ever again. I'm not patting myself on the back here. I'm not some kind of visionary. I just sold what I understood and I didn't really understand all that much about tech world! Besides, I still like being around "big boys toys".

Do any of you guys think the big RE companies (Remax, Century 21, Prudential) will take positions in housing futures? Is there any way to know if they do? I'm guessing not. Would they be allowed to? I think they would know exactly what is going to happen to the market. Given that they have all the data for existing home sales with their fricken closed MLS, couldn't they make good educated guesses about what will happen on the CME?

By the way nomadtoons2, from the last thread: It really $ucks that you've gotten that sort of treatment in the BA. Sales is a difficult enough field to be in anyway. When someone casts you in a stereotype, its almost impossible to get out of it.

Newsfreak,

The most sophisticated investment I've ever made has been some kind of mutual fund for my IRA. Since I sold my house everything has been siting in a passbook account because the rates were decent and I was planning to buy again.

For those of us who are nearly ignorant about investing, can you explain what these futures are buying and selling?

I read your note that My guess is that the futures will be comprised of the major new home builders, since like everything else in this country, is now composed of several large national buiding firms.

Does that mean the futures will somehow sell short positions in publicly traded companies that build houses?

I would definitely be the sucker at this table because I have no clue. Can anyone explain it on the 3d grade level?

Everything in the (legitimate) market is either debt, equity, a combination of debt and equity, or a derivative based on an asset (remember assets = liabilities + equity).

So you should never take a specific position (undiversified, managed, or indexed) on _anything_ in the market unless you really understand that asset, whether it's a company, gold, or housing.

I'm not so troubled with the theoretical proposition of housing futures. There are lots of derivatives based on indices. And, every index has its legitimate critics. Even the DJIA has a lot of legit criticisms (over weighted, includes conglomerates, etc.).

I'm also not going to worry about manipulation of the index in the early days. It won't work unless its transparent, and the regulators will be watching it like a hawk. The worry will be later, after it's become established and everyone takes it for granted. I'd worry mostly about the big HFs trying to distort things, perhaps by shorting correlations to cause movement in the index? Something like that, but not for a while.

Scott,
Actually when I was in sales( which I haven't been for 3 years) having the "fine southern gentleman" accent was a plus. People seemed to trust the accent when I was selling things. There is a amazing albeit absurd, but common belief that southerners are honest- perhaps somehat stupid- but incapable of telling a lie when they hawk their wares. I was one of the more sucessful salesmen at my company. By cranking up the charm to Jack Daniels level, it worked wonders. I have found it doesn't work as well in the corporate world.

Nomadtoons2,

My father had a Gravely for YEARS! Built like a tank. The "play" in my mind was that while much of the U.S infrastructure has already been built out, the developing world still needed things like, uh, electricity and they needed heavy equipment to make this happen. Much of CAT and DE's sales are engineered through the the EX-IM Bank in Miami (I believe) so the U.S market has become more of a "service" oriented market with their true growth markets being overseas. Deere had developed a complete "agricultural mechanization" plan for China complete w/satelite guided tractors for maximizing use of arable acreage to feed their growing number of factory workers that were no longer plowing behind an ox. Some of the board members have been there for like 4 generations, unlike dot coms where the guy has been there for 4 weeks. This much even I understand.

*Not a paid advertisement for John Deere*

Scott J,

(Randy H help me out here)

I think it's called the "put to call" ratio. Yes the major RE houses (and lenders) are expected to take massive positions and this is a good thing. It will make RE much more transparent b/c when David Lerah is talking about missing out on the RE Boom on CNBC just call up the quote and you'll be able to see HUGE volume that suggests the players in that arena don't share his bullish sentiment. In short? He's full of it and now it will be there in "real time" for all to see!

Dinor,
My Uncle has signifigant investements in Deere and co. The company is somewhat profitable, but they will only remain so if they have sucess in China and beyond. The only problem is that there are already numerous well established Chinese and Indian brands that compete against them. My father actually helped with HR in a small and unsucessful small equipment plant set up by Deere in East TN a few years ago.
The biggest problem with Deere is that they make their products TOO WELL. My uncle has a number of tractors from the mid 60's that he still uses every day. The value of these actually go UP with age since they are deemed excellent products by many farmers. He even has a few old steel tine wheelers that he has in an old barn from the 20's. So unlike cars, they last 50+ years so the turnover is small.

Do any of the major online brokerages allow you to trade these futures?

Any brokerage specializing in futures should allow you to trade these.

I still don’t know how it can possibly work. Housing is real estate, they’re by their very definition unique. How can a commodities market possibly trade in them.

The housing futures to homes is like stock index futures to stocks.

Peter P,

Thanks for clearing that up. One thing we should remind ourselves is that where futures contracts are concerned we never actually take "possesion" of anything. People don't leave the "Merc" at the end of the day with bushells of soybeans.

DinOR,

You make a great point about being able to instantaneously call David Lerah (David Liar) on his bs. I like it! I should ask the "powers that be" in the bank for which I work about what they're plan to do. Of course they won't give me details, but I might be able to find out the magnitude of their involvement.

btw... I always wanted a John Deere, but growing up in the 'burbs of the BA automatically disqualifies one's family from buying one. A 15x40 lawn does not need any sort of John Deere equipment. Of course that lawn looks luxurious compared to the lawns that you can put on one of the new $hitboxes being built today.

newsfreak,

Buy him a flock of sheep :P

I am considering to write puts on it if
1. the options volume is large enough
2. the premium on the puts is high enough (as I expect it will be because the institutions buy them to hedge against their MBS/RE)

My reason to do this is that even though I believe there's a housing bubble, I don't want to it to be a all or nothing bet. In case the housing prices stay flat without major reduction, I would still be able to pocket some premiums on the puts.

Peter P,

So we're not dealing with houses at all, but some concept of house. So, is this just people gambling on overall house prices...so basically a derivative?

My head hurts. But that's okay, the important thing is I'm meeting new people.

nomadtoons2

"I have found it doesn’t work as well in the corporate world."

The Southern accent in my bank is/was never a hinderance to anyone of my co-workers. Perpaps we're like a government entity because of our size, so it's not allowed at all. The more I think I know things, the more I find I'm wrong.

Hmm... it's close to lunch on the west coast and since I've been thinking about the South, I'm getting hungry for country fried steak. Of course Peter P would say "SUSHI!". Well, if I lived in "high corn" like many of y'all I might be able to afford sushi for lunch.

Scott J,

This will definitely take the cheer out of cheerleading! Now, a guy can make his case that he feels the market is "oversold" and that his right to do so. In about 1 to 3 years we may be able to say that. What's happened here is that we've taken a "broken" system with "hit the number" appraisals and replaced it the consensus of a much broader market place that will be difficult to manipulate on a local level. Also, Scott, if you don't seem to know what's going on at work ask the swing shift janitor. He always seemed to know more about what was going on at work than I did anyway!

Nomad,

Have you ever picked up a manual push lawnmower? They seem ideal for the BA's small lawns and can be had for approx $150. But I've never seen one.

"what about sheeple futures?"

What for? indentured servants? I'm not sure I'd want anything that mindless.

newsfreak,

So do they work as promised?

Anthony,

Good strategy! And that is what makes a market my friends. We all have a different perspective. I used to do that for clients that owned shares at such a low cost basis they could never actually sell them and yet the dividend was paultry to non-existent. Take Amgen for instance. So getting paid the premium in a flat market was about as good as it got.

newsfreak Says:

"Scott J. A lawn as we know it is being redefined. With the price of gas, people like my father may rethink mowing."

As a kid I mowed our ~1/4 acre of lawn every week in the summer and once a month in the winter. We filled the 5 gallon gas can in the wood shed about once a year...

Astrid,
I did have a manual push mower at a house I lived in back in TN. It sort of "came" with the place. The thing was from the 30's and worked great until the grass grew over 3".. then it was a pain in the ass.
My folks live on 13 acres, so we HAD to have larger lawn tractors to mow it, and of those, we went through probably 4 of them because they simply wore out. I simply go to yard sales and flea markets, find old gas powered mowers, fix them up, and resell them on Craigslist. Sort of a lawn mower flipper of sorts. You can find them for as little as 10 bucks used, and many times people just throw them out on the street. Made probably around $1500 last year reselling them. Not a bad chunk of pocket change. I just sold the first one of the season last week- a little Sear's mower, for $60.

newsfreak,

white clover?

newsfreak,

I saw blueberry and raspberry plants for sale at Costco a couple weeks ago, they might be working their way to your neck of the woods.

THough you probably can't expect a high yield unless they're bird netted.

You know, nobody gets more depressed (or depressing) than an Oregonian during winter. Believe me we're having the first nice days since Oktoberfest (actually held in mid September) so I've taken time to stop and smell the roses too but can we get back to cold, calculating, steely eyed market talk now!

There's a real estate crash going you know people!

Worlds are colliding Jerry! Worlds are colliding!

DinOR,

Sorry, just survival instincts taking over. Just planted the tomatoes and okra out this morning. Lined the borders with nasturtiums (both leaves and flowers edible). Then some camellias and ume against the north wall.

I've also planted about 150 lily bulbs this year. If things get really bad, I may have to dig them up and eat them.

newsfreak,

Oh thank God! I feel so much better. I'd rather the bad news than no news at all. In fact, I've never come across a void yet that I couldn't fill with negativity! I realize folks in the BA have had a dose of what it's like to be an Oregonian so believe me I understand.

But if someone doesn't say something derogatory about RE bulls and fast I swear I'll..........

People don’t leave the “Merc” at the end of the day with bushells of soybeans.

Wife: Honey, why is that big truck parking outside?

Husband: I did not offset my long position on corn, here they come.

Wife: Do you want them steamed?

Husband: With butter please.

DinOR,

In terms of investment opportunities, I just don't think enough people will understand housing futures to take advantage of it.

I guess if you're a house owner, you can do what Anthony suggests.

Maybe you can talk about the macro-economic consequences. What will a functional, frequently traded RE futures market do for the RE market? Who do you see as participants? Who are in a position to take advantage of this? I can barely grasp what this market is, so it's hard to talk intelligently about it.

So we’re not dealing with houses at all, but some concept of house. So, is this just people gambling on overall house prices…so basically a derivative?

Yes, derivatives.

astrid,

Yeah uh huh, that's great. How nice. I just buried a few realtors (face down of course) in my flower bed and I don't care if they ever come up!

Just kidding.

astrid,

(And I really was just kidding)

It's really pretty simple. When you're short, bad news = good news.

I'm much better now. During the lull I crank called a mortgage broker and asked him how IO mortgages work, pretended to be interested and then acted like my line got cut off. Hello, hello?

In terms of investment opportunities, I just don’t think enough people will understand housing futures to take advantage of it.

How many people understand the dynamics of investing in rental properties?

They just buy the darn thing and hope that it goes up in value.

With futures, it is even easier. It is literally one click away. The commission is not 6% or even 2%, it is likely to be $5 a round turn per contracts even for retail customers (on Globex). So the roundtrip commission of 1M worth of "housing" exposure (~20 contracts) is likely to be around $100.

NOT INVESTMENT ADVICE