patrick.net

Scott, I would assume that a retiree would build a ladder of bonds with different maturity in order to match his monetary needs. This will lessen the effect on a particular maturity. I don't know.

Jack, the 1980's boom ended in a hard landing for much of the country. Question: did the Bay Area have more growth in rent than other areas over that boom?

"I have no idea how bay area rents behaved relative to the rest of the country during the mid to late 80’s boom. Sorry."

Places with high rental growth rate will weather busts better than others. I am just speculating. :)

Is it just me or the BA inventory is having a leap today. (Much more than other recent Fridays)

"Better give your speculator friends the heads up!"

Their heads are so too buried in sand and nothing I say will help anymore. Oh well, time will inevitably tell.

Anyone has experience in trading GSCI (Goldman Sachs Commodities Index)? I heard that it is quite heavy on energy.

This may not be a bad way to trade a basket of commodities but I am worried about liquidity though. (The CRB index is practically worthless as a trading vehicle)

Escape from DC, welcome back!

Lies can only go so far. It will not be long before reality asserts itself firmly over fairy tales.

The original article is CNN here . . .http://money.cnn.com/2005/06/24/news/economy/newhome_sales.reut/index.htm
And no, they didn't provide the methodology for the adjustment.

Yep,

100 + 27.3 = 127.3

127.3*.755=96.1, so the net loss is about 4% over the two months.

Boy, if you're in the Northeast and you see the number dive that much in one month, you've got to be thinking, Huh??? Again, I recall reading that 75% of high school seniors couldn't pick out the U.S. on a globe with no labels, so they probably are alright hoping that most people in the NE can't figure out the math.

T. Boone Pickens is big in the alt fuel/natural gas industry now so it is in his interest to say oil will be $120. When I worked for the City of LA, we hired his company to build us a natural gas refueling station. Not that he's necesarily wrong, but he is biased at least.

ptiemann, I do see something weird going on. Some homes are getting multiple bids and are going fast. Some homes are just sitting and are reducing prices. Some homes are back on the market.

On the other hand, the subset on the MLS that I monitor grew quite a bit just over the last week.

I suspect that something fishy is going on here...

BTW, has your gf sold her current place yet?

Forgive Surfer-X. :)

The alternative fuel debate is comical. There's so little science involved.

People get hysterical and want to talk about wind power and tide power and solar.

IMO, there is only one realistic energy source that will last through the next several centuries - dirty uranium. Hopefully within 300 years somebody will master cold fusion.

The best one yet is the "hydrogen car" theory. Not only do we all get to drive Uber-Pintos with H2 bombs strapped to our asses, but they're planning on generating the H2 by, get this, stripping petroleum products. So we pollute at the H2 production plant, not in the streets, and we end up using just as much oil. Great for Chevron.

Here's a thought - generate the H2 from uranium. The only pollution that you need to worry about then is the spent uranium. Granted, a significant issue, but certainly within the scope of science to corral.

"I also suspect that some fools do buy at these ridiculous prices."

Great fools will even overbid 100K on top on these already ridiculous prices. :)

Higher median prices with lower volumes is in line with this theory.

Escape from DC, alternative energy will upset a lot of oil and gas interests just like a potential AIDS vacine will upset companies that sell expensive cocktail drugs. Totally disgusting.

I think we are perhaps seeing the beginning of a secular crude oil bull market. However, I am tempted to short oil near 60 for a probable counter-trend retreat as it failed breaching 60 repeatedly. Any thought?

Matt Walsh, to capture a minor trend, futures/options will be the way to go. For a secular trend, you may be able to trade oil companies that are valued in your favor.

Honestly, I have not traded oil before. (I have traded interest rate before but I have to admit that I still have the fear to pull the trigger)

News and Netrugu probably have a lot of experience on this.

I do feel that commodities will offer more opportunities than equities and real estates in the near future. I will probably start trading again.

The single most important thing in trading is risk adversion. The focus is to avoid loss. This is all I can say. I am in search of a mentor myself.

(Futures trading is very risky and losses can easily exceed initial investment. It is not for eveyone. Not investment advice.)

P - I have my economic game plan, and I've started to fully implement it.

With regard to oil, which is not part of my game plan, I think your prediction is tight.

I think that there are very many powerful interests who do not want to see oil keep spiking. Spiking oil is very very bad for the U.S. economy for many reasons, the most obvious two being 1) shakes stock investor confidence and 2) creates real inflation and lowers standard of living. I see the powers that be pulling out everything to suppress oil prices. I see the economic reality winning out, and oil continuing its climb. I think 80 by this time next year is a very supportable conclusion. I think a few months tapering back down to mid 50s is also very supportable. But I don't think there is any chance oil stays down.

SurferX you are like Eminem. After about the 1,000th "fuck," the word is pretty much the same as "the".

As in, I'm so theing tired of reading your theing rants, because they aren't worth a the, and whatever charm they added to these threads two months ago got theed like a theing theer.

So the off.

What are MREs? Is that food?

theing A! Yes, I often don't sleep. The. The problem is, I have way too much on my theing mind. I wish I just didn't give a the. Then, life would be easy. I could play X-box 10 hours a day and watch my kids the-up in school. I could blame the school and squeel that the Governement shoudl do more for my kids. Theing governement never does enough. I wish I didn't care about other people. I wish I could watch them hang themselves and laugh and think, "what the the!"
But unfortunately our Creator has given me both sense and conscience, and I am obliged to apply both.

The.

SIM, I believe we talked about this particular hedging product in this blog before. It may come into existence just in time to mark the climax top of the housing market!

I have said earlier that the market maker of this contract will have trouble managing risks. If you are long the contracts, do you short the housing market to hedge (HAHAHAHA)? If you are short the contracts, do you buy homes to balance (and manage those properties too)? Are we going to rely on more derivatives or delta hedging (remember 1987)? Are we going to rely on speculators (more instability)?

It may help homeowners or insurance companies to shift risks, but it will also allow investors to speculate on home prices without buying homes! This is very significant as it breaks the feedback look between prices and price appreciation.

I will await the arrival of this contract. I suspect that it will spike and then crash. Trade accordingly.

Let me add that excess liquidity and money creations are mostly caused by the FED.

Economics textbooks offers better explanations of inflation. However, I doubt that they will talk about asset bubbles.

Most economists live in the fantasy land where the market is always right and perfectly efficient. The very existence of bubbles is in conflict with these views.

You may want to read the works of Joseph Stiglitz (2001 Nobel). He has a lot of regarding the role of "asymmetric information" in the market and can offer some insight.

But where is the money utimately created?

If the pool of money is fixed then there will be no inflation, right?

SIM, let me read more about the specifics of the contracts. I doubt that they can have a contract for each home because the contract needs to be somewhat standard for it to be traded on the exchange and to have liquidity at all.

To return to the main thread subject...

I've been wondering about wither we go - inflation or deflation. I strongly suspect it'll be the latter.

Why? Well, we can be sure the feds will be forced to monetize the debt once the bottom falls out of the dollar. And while that will be inflationary, along with the oil shock that's certainly coming, I don't think it's enough to drive inflation against the other two main forces - the stall, then collapse of the housing market, and the fall of the stock market. The housing market fall has been discussed here. The stock market fall can be easily demonstrated with one thought experiment - what happens when the boomers cash out their 401k's? Their shift to bonds in preparation for retirement has certainly moved that market of late.

Additionally, wages won't grow, due to competative pressures from China & India. Can't get real inflation w/o *some* wage growth.

So, for investment opportunities, what have we got? All I see is gold and asian-denominated bonds. Anyone see any others?

Two things:

(1) I do not think that I am particularly insightful. I am learning a lot here just by throwing around ideas.

(2) Our discussion is meaningful only if we approach the problem with the intention of taking positive actions.

Looks like th MACRO contract will be on some housing indice. This will be of limited value to homeowners because individual home prices do not track a index perfectly. In fact, half of the homes are sold for less than the median price (Duh). Also, additional tracking error may come from the fact that in a down market, there is little liquidity for homes.

On the other hand, I can see that insurance companies can write equity protection policies using these instruments.

Potential buyers can use Up-Macro to "protect" themselves from panic buying.

One interest thing is that Robert Shiller is a co-founder of this. If this is done right, the introduction of the contract can induce a healthier market. I still see it as a misguided attempts and there are lots of caveats (real trading opportunities).

Patrick,

On craigslist today:

http://www.craigslist.com/eby/rfs/81075446.html

BayQT~

"If the CBOE would exer get the VIX offered, there’s a real volitile instrument. Imagine trading the volitility of the markets."

TWIT, there are currently many ways to trade volatility.

To buy volatility, one can go long a straddle/strangle or implement a calendar spread. Or even a ratio-spread if you want a directional component. A good options simulator is really helpful.

SPY options look reasonably liquid. I have not been trading options for the over a year now. Do people still trade OEX?

Oil breached 60.00 soon after opening and is currently trading at 60.37!

We may be seeing a major breakout if it closes above 60.

Oil above 60 in the same week as the FOMC meeting. Hmm....

TWIT, there is also the VX futures for the VIX index.

Jack, saying that low interest rate will keep housing prices high follows the same line of logic as asying that low rent will keep housing prices low.

Fake P, if low rent makes it harder for people to buy a house, won't it keep housing prices low as I said?

BTW, you may be able to refinance into a better 30-yr fixed rate, but I think yours is already very good (4.5%).

Jack, it is not all about the payment. Both interest rate and rent are part of the fundamentals. Price movements are dictated by changes in the fundamentals or expectations among market participants.

If low interest rates are to stay, the bubble bust may be deferred but this does not mean that prices can just stagnate.

If I read him correctly, TWIT was describing a conundrum. As we all know, conundrums get resolved eventually, either by intervention or by market forces.

As I said earlier, the current price implies a large speculative premium, which is based on the expectation of high appreciation. A stagnant market will remove this speculative premium and is not probable state.

Oil is retracing some of the recent gains, just ahead of FOMC.

Of course oil will return. It may hit some resistence at 90 though. It is widely acknowledged that 90 (inflation adjusted) is the all time high.

Home prices have reached what looks like a permanently high plateau.

It is a totally new paradigm. It is different this time. There is no irrational exuberance; we are seeing a productivity miracle.

Indeed, housing wil not crash, it’s stationary.

Remember the SoCal landslide? Homes can and do crash although they are stationary most of the time.

Did you mention "economy improvement news"?

Why would they report anything that does not "improve" the economy?

Economists are optimists. Do you expect them to say that the sky is falling? That would be politically infeasible.

If I were you, I would observe the behavior of traders. Lower long-term bond yield is not part of a conundrum. It simply says that the market is predicting a recession.

Jack/Hannah, do not feel that you must disagree with us for a peace of mind. Unless you are over-leveragized everything will be just fine. Enjoy your house and ride out the correction!