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Housing Bubble Glossary


By HARM   Follow   Thu, 11 Aug 2005, 6:50pm PDT   3,738 views   110 comments
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There have often been requests for defining acronyms and RE jargon that not all readers are familiar with. There have also been quite a few gems made up along the way by bloggers. Here are some of the most frequently requested or re-used terms, along with their anti-spin translations. Perhaps you have a few of your own? Discuss, enjoy...
HARM

Homedebtor (a.k.a. “recent homebuyer”): Perpetual debtor/serf who will probably never own the home outright, thanks to cyclical refinancing (used to fund conspicuous consumption) and property taxes.

FB/AFB (“Another F@cked Borrower”): Colorful synonym for homedebtor, coined by "SoCalMtgGuy".

Serial Refinancer: A Homedebtor/FB who is as addicted to mortgage refinancing, as a street addict is to crack. This type of FB typically refinances several times a year, almost always for the purpose of "liberating" more equity gains to purchase such life essentials as European vacations, plasma TVs, HumVees, and bling.

Loanowner: Another synonym for homedebtor or FB, that more accurately describes what a FB really "owns". Bap33 coined the derivative "Loanership", or the state of possessing a mortgage.

Jealous Bitter Renter/JBR: Originally a term used by housing bulls to disparage bearish non-homedebtors. Has since been co-opted by bears and is now used ironically. Technical definition: Someone who pays a homedebtor for the right to live in his home, at a huge discount and with no downside risk of falling property prices, rising property taxes or maintenance nightmares.

Jealous Bitter Owner/JBO: HelloKitty's complete 180 on "JBR". Basically a FB who must now watch as his/her home is dropping in value, even while their option-ARM rate ratchets up and negative equity swells. Soon-to-be a foreclosure statistic. Views happy, solvent care-free renters with growing bitterness and envy. Variants include JBH (Jealous Bitter Homedebtor) and JBL (Jealous Bitter Loanowner).

Sheeple/Sheople: Derogatory term for the vast, clueless, herd-following mass of homedebtors, who are unaware of the Bubble's existence, believe what MSM tells them, and have no idea of the ass-pounding they're about to receive.

Alligator: Term recently popularized by that media whore and self-help spruiker himself, Robert Kiyosaki. Refers to any unsuccessful investment that "eats" far more income than it generates, such as a neg-am financed Florida condo purchased anytime in the last 2-3 years for example. May be his only useful contribution to the world of finance.

McAlbatross: Term coined by skibum; a creative synonym for "alligator" (see definition) as well as a play on McMansion. FBs who are owned by their McAlbatross and cannot sell them for enough to cover mortgage, HELOCs, back taxes, etc. can be described as living “under house arrest” (see Coté-isms section).

Accidental landlord: A flopper who cannot sell his flip-house for either the wishing-price, or enough to cover the existing mortgage, so finds himself in the position of becoming an unintentional landlord. This type of landlord is easy to spot: he usually has simultaneous 'for rent' and 'for sale' listings on Craigslist for the same house. Accidental landlords are typically easy to bargain with, as they are usually underwater and cash-starved, which gives the renter plenty of leverage. However, renting from them also carries greater risk: if they sell the place, or the place goes into foreclosure, the new owner may not honor the prior rental agreement.

I/O (Interest-Only): Exotic mortgage loan product designed to attract more homedebtors by keeping initial payments marginally lower, while ensuring the homedebtor never builds any equity (except by perpetual appreciation).

Neg-Am (Negative Amortization, a.k.a. “Option ARMS”): Exotic mortgage loan product even more toxic than an I/O, in that the homedebtor falls even further into debt each month. Ending up upside-down is virtually guaranteed unless prices appreciate very quickly.

No-Doc (aka "Stated Income", "NINA"): Exotic mortgage loan product designed to get around federal/state lending requirements with regard to LTV ratio and borrower credit-worthiness, by allowing the borrower to declare “stated income/assets” without proof.

Stated-Outcome (aka "Liar-Loan"): A No-Doc loan where the lender deliberately inflates the buyer's income to whatever level is needed to “qualify” them for the loan amount.

NINJA (No Income, No Job, no Assets): Variants include "NINA". Also see "NAAVLP", "No-Doc", "Alligator" and "Stated Outcome".

NAAVLP™ (Negative Amortization Anal-Voodoo Loan Product): Term coined by the legendary Surfer-X to satirically encapsulate all exotic loans varieties (above). He is a Patrick.net "old-timer" who’s acerbic, anti-Boomer rants added much color to the early threads. An alternate definition was provided by Peter P, another blog "old-timer": National Association for the Advancement of Very Leveraged People.

Viable: Any mortgage capable of generating a commission for a mortgage broker. Redefined by "Thomas" from thehousingbubbleblog.com.

ARM (Adjustable-Rate Mortgage): Designed to keep the lender covered while interest rates shoot back up. Often used in conjunction with the “exotic” loan products above.

MEW (Mortgage Equity Withdrawal): Any form of additional debt/leverage on top of your original mortgage, using your house as collateral. Typically refers to cash-out refinancing, HELOCs and home equity loans (second mortgages), the use of which has skyrocketed in recent years. Designed to bury homedebtors even deeper and further fuel spending on frivolous bling and other nonessential consumption. Also see "Serial Refinancer" and "Equity Liberation".

Liberated Equity: An Orwellian industry-friendly euphemism for MEW originally coined by CAR Vice President and Chief Economist, Leslie Appleton-Young.

Monopoly Money (aka "funny money"): The anti-spin term for MEW or NAAVLP-derived debt. Used to counter RE industry Orwellian terminology like "liberated equity".

Appreciation: Debt & speculation-fueled inflation of real estate prices.

CPI: Government price index that only tracks goods and services that consumers don’t actually use or need, such as Chinese-made plastic lawn furniture.

Credit Score: Easily manipulated number allowing lenders to underwrite "exotic" loans to anyone with a pulse. Scratch "with a pulse" --made to ANYONE, period.

Real Estate Appraiser: A person who lies for a fee.

Unemployed Real Estate Appraiser: A person who refuses to lie for a fee.

Realtor® (aka "Realt-Whore®"): On either coast, a person who just recently used to be an Internet VC “entrepreneur” or a tech stock day-trader.

Speculator/Flipper: See "Realtor®". Popular variants include "Specuvestor" and "Investulator". Coined by OC Renter and Marinite.

Spruiker: Australian term for huckster, con-man or any slick showy (and presumably dishonest) salesman. Introduced to Patrick.net by Different Sean.

Heli-Ben (aka "B52-Ben", "Helicopter Ben"): Nickname for incoming Fed chief Benjamin Bernanke. Specifically lampoons a speech where he said the Fed could, as a last resort, drop cash from helicopters in order to fight deflation. “Bendover Bernanke” is another creative variant coined by NARB.

MIRAGE (Moneyed Immigrants, Rich Ancestors, Generous Expatriates): Acronym coined by HARM to lampoon the bulls’ argument that housing demand is being supported by cash-rich immigrants, wealthy parents and transplants from other states.

ILLUSION (Irrational Lending Lax Underwriting Speculative Investing Ownership Nonsense): Acronym coined by Dipanjan to describe what bears believe is really driving housing demand.

CHUMPS (Cunning Hard-eyed Ultra-savvy Market ProfessionalS): Acronym coined by HARM to lampoon the bulls’ argument that most recent buyers who used exotic loan products are market-savvy professionals who fully understand the downside risks and are financially prepared for them.

AEDS (Acquired Equity Deficiency Syndrome): Very un-PC acronym coined by Allah to describe underwater borrowers with falling equity as the RE market downturn gets underway.

Chewbacca (short for “Chewbacca defense”): A legal strategy first used by the fictionalized Johnny Cochran during a South Park episode. A favorite of Praetorian’s, it refers to any argument based on non sequiturs and/or circular logic for the purpose of confusing one’s opponent into submission.

Pergraniteel™: Pergo fake wood floors, granite countertops, and steel appliances. Coined by SJ_Jim, an amalgamation of today's most popular home "improvements", which supposedly allows sellers to command a 200% premium above what they paid for the place.

ASSHOLES (Arrogant Self-Serving Highly Over-Leveraged Egotistical Speculators): Not-so-subtle acronym coined by motorcityjim. Self explanatory.

Schadenfreude: Delighting in other’s misfortune, such as feeling joy while watching over-leveraged specuvestors crash and burn.

Torschlusspanik: The panic a crowd has of a door slamming in it’s face (or of not getting on board a movement or opportunity on time). Prospective homedebtors/sheeple have this feeling very frequently.

REdarwinism: The study of the survival of the fittest in the real estate market. Coined by SFWoman.

NEOs (Negative Equity "Owners"): Homedebtors who owe the bank more than what their property is worth. Also see: FBs, Homedebtors, Speculator/Flippers, Sheeple. Coined by Owneroccupier.

Buyer-User: Industry term, coined by Mike Dwight of Frontier Homes, for someone who buys a home to actually (*gasp*) live in it. An increasingly rare and endangered species in California.

Buyer's Market: When used by a Realt-Whore®, this means a housing market with exploding inventory, plunging sales and sellers that refuse to negotiate on price.

Repartments: Condo conversions that have been converted right back to apartments, leaving recent buyers completely screwed (and surrounded by JBRs). Term coined by Sacramento Bee reporter, Molly Dugan.

Jingle Mail: Term coined by early bubble prognosticator Bill Fleckenstein, referring to homeowners who have "mailed in the keys because they can't make the payments and no longer have any equity in their homes". Bound to become a popular trend in the very near future.

Wishing Price: Another Robert Cote original. A fine companion for the more commonly used "needs-based pricing"; referring to seller's unrealistic/absurd asking prices based on greed/need, and their failure to recognize the new reality of a changed/declining market.

SILSIH (Suck It Long, Suck It Hard): Not-so-subtle acronym expressing defiance against housing perma-bulls and trolls, coined by the legendary Surfer-X who also coined NAAVLP™.

Karmic Bubble Correction (KBC): Term coined by newsfreak to characterize pain caused by the Housing Bubble's inevitable collapse in terms of Karmic causality. Those who are driven by negative, destructive emotions (fear & greed) are ultimately undone by it, which is karmic-ally just.

Bubble Battle Fatigue (BBF): Term coined by yours truly to characterize the cumulative psychological damage caused by constantly doing battle with housing perma-bulls, trolls and unrepentant specuvestors. May result in sporadic grouchiness, ennui, and the tendency to mumble aloud about "cap rates", "rent vs. buy" & "ain't feedin' no damn squirrels" at inappropriate moments. If left untreated, extreme cases may result in total bear capitulation, where the subject assumes the identity of the trolls he's fighting and may even begin to recklessly speculate in RE.

Prodigal Parents: Term coined by astrid (or perhaps credit should go to Sinclair Lewis?) to describe spendthrift hedonistic Boomer/SilentGen parents who have no concept of thrift, saving for the future, deferred gratification, etc., and therefore end up being supported (and financial burden on) their Gen-X/Y children.

UnBoomers: Term coined by LILLL to describe those who are technically Baby Boomers by birth (1946-1964), but share few of the dominant values and characteristics of that generation: self-serving narcissism, hedonism, greed, smugness, sense of entitlement, grossly inflated self esteem, lack of compassion for others, condescending attitude towards later generations, etc. "UnBoomers" include virtually every regular poster on Patrick.net who falls within this birth date range.

Potemkin American Work Ethic: Term coined by Jimmy Jazz of Ben Jones' Housingbubbleblog. Defined by Jimmy as "all style, no substance, instant gratification".

Dark Towers of Financial Doom: Term coined by ajh referring to a failed condo development in Australia, later generalised by DinOR to cover any High-rise condo tower that has been sold almost exclusively to flippers pre-construction, and which is now completed but basically uninhabited. Credit also due to Voice of San Diego reporter Will Careless, for his May, 2005 article "Downtown's Dark Towers".

"Any two will do": Term coined by DinOR of Patrick.net. Refers to the current ('relaxed' to put it mildly) standard that Congress applies to establishing "primary residency" for a particular house in order to qualify for the $250k/500k capital gains exemption. "Any two will do" means that, if Mr. Specuvestor claims to have lived in the house for any 2 years out of a 5 year period, he can get the full exemption. In practice, nobody bothers to check anyway, so your typical Specuvestor can have 300 "primary residences" for all the government cares.

HaHa: Patrick.net's monetary base unit of measure. As defined by Randy H:

For current purposes, 1HaHa = USD 150,000. The precise definition of 1HaHa is 3x National median family income*, for which HaHa (after which the unit of measure is named) stands as a reasonable substitute. Therefore, we may peg the unit of 1HaHa to HaHa himself so long as:
1) HaHa remains in the state of California; preferably in the San Francisco Bay Area;
2) HaHa’s family median income remains within alpha=.05 of the predicted Bay Area median income level;
3) HaHa is still living.
At such time as HaHa becomes disqualified, the base formula may be still used to determine the HaHa unit of measure or a more suitable peg may be established which captures the spirit and intent of the measure.**
*Note that 1HaHa is a relative measure vis-a-vis National median family income compared to SFBA median family income. Therefore, the 3x multiplier will also be a dynamic variable in this system of measure.
**It is for the reasons of this inherit complexity that we prefer to us the HaHa measure as shortcut nomenclature when discussing real-estate issues on this blog. It’s also funny.

Inflation: Standard macroeconomic definition: The erosion of the purchasing power of one's currency over time, due to an increase in the aggregate money supply. As defined by the Fed & BLS:
Price of stuff regular people need goes up = NOT inflation
Price of stuff regular people DON’T need goes up = inflation

Real-Estate-Industrial-Complex (REIC): Variant of Eisenhower's Military-Industrial Complex, referring to the banking/mortgage/Realtor/NAR-dominated crime syndicate that currently constitutes the Shadow Government behind the public government behind the Fed behind the cannibalistic aliens who are hell-bent on turning the human race into perma-debtors and/or meat popsicles. Coined by... possibly one of the guys over at Ben's blog. There are other close variants in circulation, such as RMIC (Realtor-Mortgage Industrial Complex). Still not convinced? Then clearly, you must be one of "them".

Banksters: Members of the powerful REIC cabal of corrupt mortgage lenders and central bankers who are hard at work, bankrupting the middle and working classes. Banker + gangster = bankster. Get it?

Escalation of Commitment: (from Wikipedia) "the phenomenon where people increase their investment in a decision despite new evidence suggesting that the decision was probably wrong." As applied specifically to the housing bubble, the concept that as f@cked borrowers dig themselves deeper and deeper into debt, their financial commitment to (futilely) trying to "save" their failed investment grows exponentially, along with desperation. Practical upshot: you do not want to be a: (a) friend, or (b) tenant of such a person, because they will most likely try to (a) borrow money from you (which you will never see again), or (b) jack up your rent to cover their mounting losses.

Mental Accounting: (thanks to Randy H for much input) Concept referring to the powerful role of seller and buyer psychology in promoting rapid price inflation, but working against rapid price DE-flation (hence the term, "sticky on the way down").

  • People think in nominal terms, not in real terms.
  • People think in numbers, not percentages or ratios.
  • People think in terms of cost, in this case monthly cost, not in terms of value.
  • People tend to be risk-averse when considering losses, but risk-accepting when considering gains.
  • Seller example: Sellers tend to set their mental "fair market" value of their own house based on the highest comps they've heard about in their neighborhood. If comps begin to fall, they are often very reluctant to lower their price, even if doing so would still mean realizing a huge profit over what they paid only a few years ago --and getting out early enough to prevent suffering an even greater loss of value in the future. Most sellers also do not mentally "book" the erosion of the value of their house due to cumulative inflation. Even though selling a house 10 years later for what you originally paid for it would mean a substantial loss of wealth due to inflation, most sellers do not view it this way. This thinking process is clearly non-rational, but quite natural.

    Buyer example: A buyer prepared to spend $4,000/mo on mortgage (buyers don’t even think in PITI, though they should) is still prepared to spend $4,000/mo no matter how much homes drop in price (all else being equal). Unless the buyer loses a job or takes a pay cut, they’ll just buy a higher-valued home which drops into their target price range. They won’t go buy the home they wanted in 2004 for 30% less. In fact, they may have even saved up more $ thinking that they’d need more to buy into a rising market. The fact the market is dipping only means they get an extra bedroom, a hot tub, or a nice yard. This also explains why many buyers do not understand or question the terms of their own mortgages --they only care about the monthly payment and do not "sweat" the fine print. Hence, the dramatic rise of NAAVLPs and "Joe Howmuchamonth".

    This explains a lot of the “anomalies” people intuitively feel about the current statistics, particulary the recent phenomemenon of rising median sales prices in the face of plunging sales volume and exploding inventory.

    Phantom Inventory: Per Randy H, a phenomenon where unrealistic sellers try to list an asset for a price far above its market value. This phenomenon exists in all markets to some extent, but becomes especially pronounced in declining bubble markets (such as housing right now) and such phantom sellers may eclipse all other sellers. Phantom Inventory is very much related to sticky-price action and "mental accounting" (see section above). Per Randy:

    "If you think back to your basic econ 101, there were always just two simple curves or lines, Supply and Demand. Where they meet is the price. In real-estate, there isn’t just one Supply or Demand line for a given type of home in a given area. For existing home sellers especially, there is a great reluctance to drop prices, namely because it is their only point of control. What happens is sellers self-select onto different supply curves, with some willing to drop prices and others not.

    Obviously, after buyers quit buying on the higher supply curve, those sellers have supply that isn’t really in the market. It’s phantom supply, because no one will buy it. It’s like the guy who lists something common on E-Bay for 5x what the other thousand sellers are asking. That guy’s item isn’t real inventory, it is phantom.

    The traditional job of a real estate agent in this case should be to educate sellers about the market, and convince them to move their listing from phantom to real. I think this is one of the things that will help to shake out newbie “me-too” realtors from the true pros. A pro can still make good money in a down market if they are good at getting sellers to price to sell."

    Pocket Listing: In general, refers to an insider deal, where the seller works directly with a Realtor or mortgage broker and does not list the house in the MLS or internet/newspapers. Per FormerApartmentBroker, "“pocket listing” can describe both an actual exclusive listing agreement that “was still in our pocket and not yet in the system” (the most common use of the term) and a verbal agreement with an owner that he will look at offers and pay us a fee if we sell his property even though the property is not actually listed." Corrupt Realtors are known to use pocket listings to set aside the best properties for themselves and their friends/cronies ("cherry-picking") in order to purchase them for well below market value. Per Randy H, this corrupt practice is common in Marin County.

    Coté-isms: Satirical acronyms or terms coined and/or popularized by the talented Robert Coté. Targeted squarely at hypocritical NIMBYists and self-serving left-leaning activists with an anti-development and/or anti-automobile ideological agenda. This agenda is often (mis-)represented to the public as environmentalism or as a "cure" for urban sprawl and/or foreign oil dependence.

    SmUG = Smart Urban Growth
    SmUGLers = Smart Urban Growth Lovers
    NUTS = New Urbanist Transit Supporter
    TODLers = Transit Only Development Lovers
    FOAMers = Forces Of Anti-Mobility
    TROGlodytes = Transit Only Groupies
    PEVERT = Promoting Exclusion of Vehicles Except Regional Transit
    OPAC = Obsolete Pre-Automotive Cities (credit Prog JF Scott)
    CLODs = Chicken-Little Oil Depletionists
    TPVs = Transit Potemkin Villages
    NURB = New Urbanism

    "wishing price" : Robert's tongue-in-cheek response to homedebtor's absurd asking prices.
    "under house arrest" : Robert's tongue-in-cheek description for FBs holding McAlbatrosses they cannot sell for wishing price.
    "Housing Pustule": It isn’t a “bubble.” Bubbles are cute , they float along on lasy summer breezes. Little children, green lawns. Bubble baths, exotic models, smooth skin. No, this is a housing pustule and it is time we call it that.

    The pustule has ruptured.
    The puss is oozing.
    The festering boil has necrotized.
    The canker has ulcerated.

    Magick Golden Wonka Housing Ticket: Metaphor for the highly cyclical and volatile housing market, that is increasingly being driven by wildly fluctuating credit expansion, the international carry-trade and mass mortgage securitization. Coined by HARM. This puts the “traditional” homebuyer (who intends to *gasp* actually live in the property) at an extreme disadvantage during the “up” market cycles vs. risk-loving speculators and flippers, who are awash in easy credit during these periods. This RE market model (”new paradigm”?) contrasts with the more conservative housing market of previous generations, when mortgage credit expansions were generally not as extreme (Roaring 20’s excepted), and when housing prices mostly tracked overall inflation.

    ass-hat: Speculative asset that generates no income or positive revenue stream; the "investment" value thereof derives entirely from anticipated ongoing price appreciation. Coined by Peter P.

    credit crunch n [Latin creditum krisis] 1: general situation where grant of monetary loans are withheld from persons without the income based ability to repay 2: period of re-instated prudent lending policies following period of prosmiscuous loan grants; esp : loans formerly granted based on presumed perpetual appreciation of mortgaged asset, and the ability of the lender to divest collection responsibility through favorable sale of receivables. Definition courtesy of HeadSet.

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    SQT15   Sat, 13 Aug 2005, 5:31pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 71

    Btw, I don't think MP can have it both ways. If the fed keeps raising short term interest rates an inverted yield curve is almost a sure thing unless long term rates go up, right? Or am I not understanding something here?

    Peter P   Sat, 13 Aug 2005, 5:37pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 72

    If the fed keeps raising short term interest rates an inverted yield curve is almost a sure thing unless long term rates go up, right? Or am I not understanding something here?

    MP probably thinks that the FED will pause or even reverse its rate hikes at around 4%.

    SQT15   Sat, 13 Aug 2005, 5:43pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 73

    MP probably thinks that the FED will pause or even reverse its rate hikes at around 4%.

    But isn't the fed trying to prevent a deflationary scenario like what has occured in Japan? It seems to me that the fed would be likely to push rates up at least until the end of the year. And isn't it really unlikely that the fed would reverse the trend unless the economy all of a sudden slipped into a recession? And since the economy doesn't seem to do anything suddenly that would be very unlikely wouldn't it?

    Jimbo   Sat, 13 Aug 2005, 10:13pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 74

    http://www.alexa.com/data/details/traffic_details?&range=1y&size=large&compare_sites=&y=r&url=patrick.net#top

    This blog is growing traffic.

    HARM   Sun, 14 Aug 2005, 2:57am PDT   Share   Quote   Permalink   Like   Dislike     Comment 75

    Jimbo Says:

    August 14th, 2005 at 5:13 am e
    http://www.alexa.com/data/details/traffic_details?&range=1y&size=large&compare_sites=&y=r&url=patrick.net#top

    This blog is growing traffic.

    Thanks, Jimbo! It's even more obvious how large the increase is when you look at 2-year trendline.

    HARM   Sun, 14 Aug 2005, 3:16am PDT   Share   Quote   Permalink   Like   Dislike     Comment 76

    the Fed was trying to prevent deflation, back in early 2004 and 2003 that’s part of the reason why they dropped the Fed Funds rate to 1%. Now they are trying to prevent inflation, oh so quickly

    Greenspan was supremely WRONG when he announced to the world that deflation was upon us. The surprising thing is #1) he never admitted his mistake, 2) people aren’t criticizing him for that statement.

    Greenspan now is in a ‘conundrum’ b/c the 10-yr yield isn’t cooperating with his goal to drive rates higher.

    Now, would you trust ONE MAN to decide your financial future, or the MARKET? Greenspan is losing it. Too many people think he’s god, and that’s scary.

    MP,

    Will wonders never cease? I actually agree with you that too many people put WAY too much faith in Alan Greenspan (aka, 'Mr. Bubbles') and that he was dead wrong about deflation. I have long been critical of his easy money policy as a primary cause of the RE bubble (read back in the archives for proof).

    Personally, though, I don't think his decision to lower rates to 1% (negative in real terms) had anything to do with this phantom "deflation threat" that never existed to begin with. While I think AG is dishonest, I don't think he's stupid. He was clearly under orders from the politicians who reappoint/confirm him to lower rates in order to help shorten the recession and mitigate the effects of the tech bubble's collapse.

    The fact that he waited so long before raising them is the main reason why things are now so out of hand credit-wise. You said, "Now they are trying to prevent inflation, oh so quickly". More like "oh so SLOWLY"! A half-point hike or two would put the fear of God into the bond markets and end this credit party real fast, IMHO.

    HARM   Sun, 14 Aug 2005, 3:36am PDT   Share   Quote   Permalink   Like   Dislike     Comment 77

    MP,

    You still haven't answered SactoQt's point about Fed rate hikes & the yield curve:

    SactoQt Says:

    Btw, I don’t think MP can have it both ways. If the fed keeps raising short term interest rates an inverted yield curve is almost a sure thing unless long term rates go up, right? Or am I not understanding something here?

    ...It seems to me that the fed would be likely to push rates up at least until the end of the year. And isn’t it really unlikely that the fed would reverse the trend unless the economy all of a sudden slipped into a recession? And since the economy doesn’t seem to do anything suddenly that would be very unlikely wouldn’t it?

    If you think that: (a) the Fed is not likely to pause in short-term rate-hikes anytime soon, and (b) long-term bond rates aren't going any higher (which I think you DO), then an inverted yield curve is a certainty, no?

    Peter P   Sun, 14 Aug 2005, 3:40am PDT   Share   Quote   Permalink   Like   Dislike     Comment 78

    Too many people think he’s god, and that’s scary.

    Wasn't he knighted as "Sir" Alan Greenspan? ;)

    They will probably find out that George Soros is a saint in comparison.

    Peter P   Sun, 14 Aug 2005, 3:44am PDT   Share   Quote   Permalink   Like   Dislike     Comment 79

    Greenspan was supremely WRONG when he announced to the world that deflation was upon us. The surprising thing is #1) he never admitted his mistake, 2) people aren’t criticizing him for that statement.

    He was probably not that wrong. I think both inflationary and deflationary pressures are present in the economy. It is just hard to ascertain which is winning out at each given time.

    Anyway, I agree that he is not God. :)

    Peter P   Sun, 14 Aug 2005, 3:51am PDT   Share   Quote   Permalink   Like   Dislike     Comment 80

    MP, I thought RRPIX (ProFunds) is a managed-futures fund. It is practically tracking a short position on long-bonds.

    Why should we pay someone to short bond futures when we can do the same and keep the 60/40 tax treatment (1256 contracts)?

    (Not investment advice. Not tax advice.)

    Peter P   Sun, 14 Aug 2005, 3:53am PDT   Share   Quote   Permalink   Like   Dislike     Comment 81

    Considering how much Soros has given away to worthy goals, there’s at least an argument for sainthood.

    IMO, England should thank Soros because he prevent them from switching to Euro. I really do not have faith in the idea of a single currency for so many distinct economies.

    Peter P   Sun, 14 Aug 2005, 3:58am PDT   Share   Quote   Permalink   Like   Dislike     Comment 82

    Deflation is extremely unlikely and the federal gov’t can just print more money to prevent it.

    That was probably what Greenspan was thinking. He did "print money" to prevent deflation, didn't he? ;)

    IMHO, economy-wide inflation is just as unlikely as economy-wide deflation. While fiat currencies give central bankers more flecibility in fighting deflation, increasing "global arbitrage of commodity prices" aka globalization will counter inflation.

    There will always be exceptions.

    Asset pricing is another story.

    Peter P   Sun, 14 Aug 2005, 4:03am PDT   Share   Quote   Permalink   Like   Dislike     Comment 83

    LOL, I can think of the same for America, where region to region dynamics are very different from each other.

    That is correct. However, we have one single federal fiscal policy and only two languages.

    I think the long term efficiencies and the effect of economic integration might be enough to be worth the trade off.

    We will see about that. Single currency means single interest rate though.

    Peter P   Sun, 14 Aug 2005, 4:15am PDT   Share   Quote   Permalink   Like   Dislike     Comment 84

    Yes, in "fighting deflation", they create "inflation". Unfortunately, they have no "real-time" information and they have no control over where the "inflation" will be.

    HARM   Sun, 14 Aug 2005, 4:38am PDT   Share   Quote   Permalink   Like   Dislike     Comment 85

    I don’t follow. My thinking goes, if the US borrow enough money at a fixed rate and can’t afford to pay, then we’ll print more money to pay the bonds, therefore creating inflation. There’s nothing foreigners can do if we do decide to take what will seem the easiest course of printing more money.

    Yes -bingo! Lowering interest rates to negative (in real terms) is basically the same thing as printing more money. It massively increases credit/liquidity, although as Peter says, it's very hard for the Fed to control exactly where all that credit goes.

    I don’t think US politicans today can think past their next fund raiser, nevermind past the next election cycle.

    Yes! AMTABTY, astrid.

    Peter P   Sun, 14 Aug 2005, 4:46am PDT   Share   Quote   Permalink   Like   Dislike     Comment 86

    it’s very hard for the Fed to control exactly where all that credit goes

    We need the help of congress (or God) to do that.

    HARM   Sun, 14 Aug 2005, 4:56am PDT   Share   Quote   Permalink   Like   Dislike     Comment 87

    "In a social democracy with a fiat currency, all roads lead to inflation."
    --Bill Fleckenstein, MSN Money

    I know you don't agree with this view, Peter, but I really do believe that the Fed is/has been/will continue trying to deflate the National Debt (and federal entitlement obligations) via inflation, and that deflation was never a real threat to begin with.

    Call me a conspiracist if you like (let me go get my tin-foil pyramid hat), but I firmly believe a key component in this strategy is to keep much of the real inflation "off the books" via accounting gimmicks and statistical gymnastics (ignoring energy, food & healthcare, creative weighting, hedonics, substitution, etc.). As long as the bond markets don't catch on and demand higher yields, this works really well. If you also peg most federal entitlement programs to a phony CPI and let inflation work, then those obligations just melt away over time as well.

    I just don't see how any rational person at this point can actually believe the official CPI actually reflects reality.

    Peter P   Sun, 14 Aug 2005, 5:04am PDT   Share   Quote   Permalink   Like   Dislike     Comment 88

    “In a social democracy with a fiat currency, all roads lead to inflation.”

    I may actually agree. The question is "inflation" in where?

    I just don’t see how any rational person at this point can actually believe the official CPI actually reflects reality.

    No index can completely reflect the reality. However, IMHO, CPI is not too far off. It is fair that they use rent in the calculation because it measures the cost of housing as a consumable rather than an asset.

    HARM   Sun, 14 Aug 2005, 5:35am PDT   Share   Quote   Permalink   Like   Dislike     Comment 89

    Alright, let me play devil's advocate here. Suppose I agree that this fictional person who doesn't need food, gas, electricity or healthcare actually exists, and that when GM adds a side air-bag to my new SUV (which doesn't need gas, btw) that this constitutes a "quality improvement" which lowers the cost of my SUV, as far as the CPI is concerned (but not the price I actually paid for it).

    Ok, so now I believe in a 3% overall inflation rate. Now I see AG ratcheting up rates above the official inflation rate, and I see the yield curve flattening (which is already happening: .35 spread between the 1-year & 10-year note: tinyurl.com/exy8r). If he keeps raising the Fed rate, it should eventually invert, which usually means a recession's soon to follow. Deliberately inverting and triggering a recession in a time of such supposedly low inflation might even cause deflation. Why would he risk that, when deflation is supposed to be his mortal enemy? After all, deflation means dollars and anything denominated in dollars (National Debt, federal entitlement obligations, etc.) will RISE in value.

    Like I said, I think AG's dishonest, not crazy/stupid.

    HARM   Sun, 14 Aug 2005, 5:42am PDT   Share   Quote   Permalink   Like   Dislike     Comment 90

    @Dipanjan,

    Thanks for the bond yield stats. The link wasn't working until I noticed the missing "e" in "treas.gov". ;-)

    Peter P   Sun, 14 Aug 2005, 6:03am PDT   Share   Quote   Permalink   Like   Dislike     Comment 91

    4.75% for the 10-yr is still loooooow, and is not going to prick a thing.

    Perhaps it is not so bad. Rising short-term rate can weed-out excessive leveraged speculation while the low long-term rate can allow the bubble to deflate in a more controlled manner.

    I still think that overheated sub-markets, especially entry-level ones, will crash hard.

    HARM   Sun, 14 Aug 2005, 6:04am PDT   Share   Quote   Permalink   Like   Dislike     Comment 92

    @MP,

    Economists (at least the ones in the financial press) don't seem to be using the Fed funds rate as the basis for calculating the yield curve. They seem to be comparing the spread between the 1(or 2)-yr T-bill and the 10-yr, as Dipanjan pointed out. Exactly why they they calculate it this way, I don't know --maybe someone out there can enlighten us.

    One year ago, the spread between 1-yr & 10-yr was 2.23 vs. .35 today: tinyurl.com/exy8r. That's quite a bit flatter than it was, and doesn't leave much room for future rate hikes.

    I believe the FED will pause at 4%. The 10-yr yield is currently at 4.24% with the Fed funds rate at 3.5%. Hence, the spread is currently 0.724% if you will. Fed Funds goes to 4% as i estimate, why can’t the 10-yr yield be at 4.724% by year-end? That’s still 0.27% less than 5%

    4.75% for the 10-yr is still loooooow, and is not going to prick a thing.

    HARM   Sun, 14 Aug 2005, 6:54am PDT   Share   Quote   Permalink   Like   Dislike     Comment 93

    @MP,

    Astrid recently posted her story in "On a Personal Note". She's finishing law school, so doesn't yet own.

    HARM   Sun, 14 Aug 2005, 10:12am PDT   Share   Quote   Permalink   Like   Dislike     Comment 94

    Here we go again...

    Troll alert: "Fag Hag" & "Shmend Rick" are same poster (as if you couldn't guess). And both are now gone.

    To the troll: if you'd like to stay on this board, pick one identity and stick with it. You don't have to agree with anyone here, and you're welcome to make provocative comments/arguments, as long as they're relevant and not abusive or gratuitously vulgar.

    HARM   Sun, 14 Aug 2005, 10:19am PDT   Share   Quote   Permalink   Like   Dislike     Comment 95

    "Shmend Rick" - Again: stick to one identity if you want to stay.

    Hmmm... you sound a lot like our old Surfer-X, except different IP.
    I wonder?

    HARM   Sun, 14 Aug 2005, 10:46am PDT   Share   Quote   Permalink   Like   Dislike     Comment 96

    Easy MP --at 28 you're not exactly "old man of the mountain" yourself.
    We were all that age once, and I don't think I knew as much about the market at that age as Astrid does now.

    praetorian   Sun, 14 Aug 2005, 10:49am PDT   Share   Quote   Permalink   Like   Dislike     Comment 97

    Huh.

    Seems to have touched a nerve.

    Odd, that.

    Back to weekend,
    prat

    HARM   Sun, 14 Aug 2005, 10:55am PDT   Share   Quote   Permalink   Like   Dislike     Comment 98

    It seems like the bulk here are so critical of the current bubble and are already marching towards the next. They are essentially dimwits with no internal integrity at all. This ‘internal integrity’ was one fostered by what we now term ‘religion’.

    Schmend Rick,

    You've got a point about speculation in general --it distorts the market in ways that mostly harms non-speculators. I think most of the posters here actually agree with you on this. The main reason we've had discussions on RE "shorting" is because most of us are P.O.-d about speculators and would like to help strip them of their ill-gotten gains.

    Revengeful? Yup. Ethically hypocritical, maybe so... but on the other hand, most of us wouldn't be discussing this if we hadn't been priced out of the market by greedy speculators to begin with.

    HARM   Sun, 14 Aug 2005, 11:09am PDT   Share   Quote   Permalink   Like   Dislike     Comment 99

    MP - Just when I thought it was safe to permanently remove you from the Troll list, your "trollness" is making a comeback.

    You may not agree with her or most of the people on this blog, but I don't think personal attacks are going to win many people to your side. Astrid has a right to make/defend her arguments as you do.

    Let's stick to the debate, ok?

    HARM   Sun, 14 Aug 2005, 11:19am PDT   Share   Quote   Permalink   Like   Dislike     Comment 100

    Astrid: you are a retard. Go marry another rich retard youll be better off.

    *Sighhh*.... Shmend Rick, please read my last post to MP above.

    KurtS   Sun, 14 Aug 2005, 11:22am PDT   Share   Quote   Permalink   Like   Dislike     Comment 101

    Well, end of discussion with you. I still don’t buy your story. I come here for the friendly banter and discussions about modular architecture, not to pick a fight

    Exactly. There's plenty of cool people here I'd rather talk with--than validate some guy's inflated image of himself. Btw, if someone does have that success/cash flow, blah, blah.--they're off enjoying it, rather than asking others to kiss their wallet 24/7.

    May cool talk resume.

    HARM   Sun, 14 Aug 2005, 11:54am PDT   Share   Quote   Permalink   Like   Dislike     Comment 102

    But enough about me. Let’s talk about how wonderful Jack is!

    Indeed. Always a gentleman and fine debater that Jack!

    HARM   Sun, 14 Aug 2005, 11:56am PDT   Share   Quote   Permalink   Like   Dislike     Comment 103

    Let's start a new thread: "Everybody Loves Jack" ;-)

    HARM   Sun, 14 Aug 2005, 12:19pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 104

    On a serious note, I just started a new one: "Lessons from Bubbles Past"

    SQT15   Sun, 14 Aug 2005, 3:00pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 105

    Children children... Can't we all just get along?

    HARM   Sun, 14 Aug 2005, 3:46pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 106

    Shmend Rick Says:
    does anyone agree that a major real estate slide may result in riots in LA again?

    Not sure if that'll happen (wasn't that mainly caused by the LAPD cops' acquittal in the Rodney King trial?), but I guarantee there will be a major run on Kleenex --due to all the crying going on by recent "buyers". ;-)

    Btw, SactoQt --liked your follow up: "Can’t we all just get along?".
    Gee... where have we heard that before? *wink*wink*...

    Peter P   Sun, 14 Aug 2005, 4:00pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 107

    Lets all meet up in San Diego. We pool our money and buy $100K RE short derivatives on San Diego from HedgeStreet.

    HedgeStreet is a joke. You will find signifficant slippage if you want to "invest" more than $50 or so.

    $100K?

    Peter P   Sun, 14 Aug 2005, 4:03pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 108

    Peter P - About RRPIX… it provides 1.25X the return of the inverse of the long bond. It’s not perfect.. but it works. Or alternatively, you can simply short IEF.

    I am mostly neutral on long bond and have no intention of shorting it. BTW, bonds tend to be very choppy on the way down.

    I thought you recommended against shorting home-builders? I am very reluctant in doing so as well.

    AntiTroll from Oz   Sun, 14 Aug 2005, 4:33pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 109

    Tell me how you can afford a 750K mortgage Astrid? Are we really debating this issue when you are still a STUDENT???

    Astrid,
    Please do me one favour. Graduate, get a job at an investment bank, work hard, get promoted and become MP's boss.

    HARM   Tue, 23 Aug 2005, 2:21pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 110

    Jack Says:

    M arina’s
    E go
    M akes
    B ear’s
    E rrors
    R elatively
    S mall

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