patrick.net

FortWayne says

Did or did not Bush open up the oil reserves when oil prices went up, "coincidentally" close to election?

You mean the bill passed by Congress that Bush was against, but signed anyway because it would have been overridden?

http://www.foxnews.com/story/2008/05/19/bush-will-sign-bill-halting-strategic-oil-stockpile/

In any case, the SPR has limited effect on global oil prices and very limited effect long-term. It use has generally been limited to deal with short-term price shocks, and it's unclear how quickly this can affect prices overall anyway -- you want $2 gas for 5 minutes at some unspecifiable time a few weeks from now? The SPR can probably do that.

The Energy Secretary agreed (you know, the one that certain people want to eliminate by eliminating the DoE):
Energy Secretary Sam Bodman and others counter that the SPR has no tangible effect on global oil prices and that filling the SPR doesn’t affect the deficit.

RentingForHalfTheCost says

Prices are stalling at best in most places. Falling in many.

Sorry but no. Remember just last year you went on record telling people to wait & keep renting til Case Shiller (SF) smashes below the March 09 lows of 117.71

http://patrick.net/?p=1221690&c=934394#comment-934394

At the time, I gave you a chance to cry uncle and call it quits when SF Case Shiller was @ 146.23. You didn't do that and now it is at 181.91

http://www.spindices.com/indices/real-estate/sp-case-shiller-ca-san-francisco-home-price-index

So in any event, your true moment of "vindication" comes if (and only if) this chart smashes through the Mar 09 levels of 119 & change - and don't you forget it as the people who listened to you wont.

CDon says

RentingForHalfTheCost says

Prices are stalling at best in most places. Falling in many.

Sorry but no. Remember just last year you went on record telling people to wait & keep renting til Case Shiller (SF) smashes below the March 09 lows of 117.71

God God man, why are you wasting bandwidth on this habitual liar?

bob2356 says

$70k median household debt is only 140% of median household income. Most rich households certainly have total debt (not debt service interest payment) more than 140% of their annual income. Income/wage is what's more sticky during a recession than asset prices.

Thtat's just silly. Rich households have exponentially more income producing assets bought with their debt. As long as the revenue continues to service the debt then the price of the asset is irrelevant.

Have you never heard of debt roll-over? Many commercial loans are structured in such a way that it is interest-only, and need roll-over to pay off principal. During a crunch time, not only is revenue suspect, but also the cost of rolling over debt skyrocket. Prices of assets don't just drop on a whim. They drop because the ownership becomes less desirable/profitable at that moment. Did you ever think through why market crashes happen? What force people to sell?

How is income more sticky in a recession? People in the median get laid off a lot earlier than the top executives. There's nothing sticky about zero income.

Go read your saint Keynes' General Theory. The entire theory is based the observation that wages are more sticky than assets and commodities in a recession. It is this stickiness that eventually lead to lay-offs. The fundamental motivation for Keynesian inflation is to gradually erode the real purchasing power of wages, so that wages are reduced when it is not raised . . . hence as a way of avoiding labor conflict.

CDon says

Remember just last year you went on record telling people to wait & keep renting

Yes, I did exactly that and am another 250k richer for it. A house would have tied up all my loot. Instead it grew way more than a house ever could. Didn't you hear today that the DOW hit an all time high.

control point says

Taking an equity position in a corporation does not mean you take on its leverage. You could buy $1k worth of Citigroup, and if they are leveraged 1000 to 1, it does not mean you have personally taken on $1M in debt.

What's your point? That rich are good at leveraging themselves and doing it while hiding themselves behind corporate veil?

control point says

As of the most current FED balance sheet, Lending to depository institutions, liquidity swaps, lending through TALF, & TALF itself all are less than $500 million. Maiden Lain I, II, III have balances of $2B. Lets conservatively say that, at most, lending to depository institutions in any form is currently less than $4B.

This is a snap shot taken after half a decade of alleged recovery. All those devices have had many years of unwinding. If you really believe FED window lending to favored banksters is miniscule, how about let's just close the FED window and never allow it to open ever again?

control point says

The FED clearly has sufficient market size to affect interest rates, but to say that they set interest rates, even in the short term, while they own around 1/6th of the market for treasuries is a bit of a stretch. 5/6th of the price of treasuries is set by the market, after all.

1/6 is enormous market concentration. Nobody else owns 1/6 of the treasury market. This is not even counting potential additional FED ownership via off-shore entities. FED also controls interbank overnight lending rate, which sets a cap on how much banks would pay on short-term deposits.

sbh says

Reality says

The purpose of Keynesian inflation is to reduce real wages via inflation

The purpose Of Austrian deflation is to reduce wages via destruction of jobs through deflationary depression. Since capital ownership is more sticky during this event it exacerbates wealth and income disparity by hardening money and giving firesale buying power to the wealthy who own all the surviving debt instruments and hence all the newly thrown off cash. It's a thing of beauty.

Are you out of your mind? or are you born stupid? There is no "Austrian deflation" any more than "Austrian sunrise" or "Austrian sunset." Deflation happens after a bubble bursts.

Job destruction is not due to "deflationary depression" but due to prices being held artificially high and the market being prevented from clearing. Otherwise, old jobs would just be replaced by new jobs. Sears jobs being replaced by Walmart jobs, and Walmart jobs being replaced by Amazon/UPS jobs, these are not job destructions but normal progress in the economy, just like horse cab drivers being replaced by automobile taxi drivers. Job destruction is when the city regulators ban air-taxi at much lower cost when people can not afford to pay the high medallion taxi rates.

What do you mean by "capital ownership is more sticky"? Keynes used the word "sticky" in reference to price. Labor price was/is clearly more sticky than asset prices and commodity prices. During the 2008 crash, capital asset prices crashed 30-70%, most commodities dropped more than 50%. Most people did not lose their jobs; the overall labor price in the economy did not change more than a tiny per centage; government jobs actually went up in labor price.

Since the rich own most of the debts, debts being liquidated is fundamentally bad for the rich. Government intervention to rescue bad debts at the expense of future tax revenue and monetary devaluation essentially transfers wealth from the middle class to the rich, exacerbating the wealth disparity.

You have everything backwards. No wonder you are very confused and self-contradictory.

corntrollio says

I don't know how you'd expect to eliminate transaction costs entirely or what you propose as an alternative.

That's the point I was getting at. There is no way of replicating the Index return for a small time individual investor. People often make the mistake of expecting stock portfolio return matching Index over many many decades. That's just not unrealistic.

Reality says

Are you out of your mind? or are you born stupid?

...any mini miney Moe!

Somewhat OT: What happened to Roberto?

RentingForHalfTheCost says

CDon says

Remember just last year you went on record telling people to wait & keep renting

Yes, I did exactly that and am another 250k richer for it. A house would have tied up all my loot. Instead it grew way more than a house ever could. Didn't you hear today that the DOW hit an all time high.

That's not the point and you know it. Look, you can fabricate tales of earning a cool mil for all I care - there certainly must be some Ballerz & Shot Callerz blog where you investment only types can make up after the fact stories of how your packages have gotten all swole...

The point is, for the patnet crowd whose only decision was should I:

(A) buy now,
OR
(B) wait for prices to smash below the 09 nominal bottom

You came here telling us with a stunning, cocksure certainty - B - B is the answer. DO NOT BUY NOW, WAIT FOR PRICES TO CRASH.

Problem is, that didn't happen now did it? So what now? What then is your advice for the A or B crowd. Do you double down on your (thusfar) terrible prediction and tell them to wait further - or do you finally call out uncle, capitulate, and recognize the nominal bottom is long gone...

Ball is in your court...

CDon says

That's not the point and you know it.

Actually, it is exactly the point. Housing as an investment needs to stand up to the other options. Housing is a disaster and has been for a while now. I know many people who regret buying because they could have just bought with cash by now if they actually invested the down payment 5 years ago. Housing is basically a place to live at best.

RentingForHalfTheCost says

Actually, it is exactly the point.

Nope - sorry. You could have made that the point back then - and hell, if that is the point, if the point is "what is the best investment" the answer is almost never housing. The ole bear mantra "a house is a place to live - not an investment" resonates with many here. Now, had you said "rent forever, invest the difference, and live all phat & swole on your big pimpin profitz" then that is fine. I truly wouldnt have cared.

Instead, back then, I asked you point blank for case shiller nominal terms, and you answered in case shiller nominal terms. On those terms, your answer then was WAIT... WAIT FOR THE CRASH AS WE SMASH TRHOUGH 2009 LEVELS - THERE IS NO BOTTOM!!!

http://patrick.net/?p=1221690&c=934394#comment-934394

As we now know, that didnt work out to well now did it?

Look - I am very sorry you made that big ole shit sandwich for yourself last year. You thus now have two options as you did then - do you continue to (A) tell people to wait for the crash, or (B) accept the consequences of your statements, capitulate and recognize the bottom is long gone.

Again, ball is in your court...

jazz music says

CaptainShuddup says

don't invest in anything you don't fully understand.

That sums up the take-away from Warren Buffett's book.

The Warren Buffett Way: Investment Strategies of the World's Greatest Investor

No his take-away would be don't invest in anything that you aren't on the inside and have government backstop guarantees.

Assuming an impending crash, do you think renters or loanowners will fare better?

sbh says

bob2356 says

That's just silly. Rich households have exponentially more income producing assets

Reality says

Have you never heard of debt roll-over? Many commercial loans

This is your stock in trade, you delirious baboon: diversion, disinformation, strawmen and lying. You can't deal with bob's point authentically so you shift it to something else and resume prattling on as if you were paying attention in the first place, which you never are. You're just waiting for someone to inhale after talking so you can resume running the tape.

You are only proving your own intellectual dishonesty. Here's how the real exchange went:

Reality says

bob2356 says

Thtat's just silly. Rich households have exponentially more income producing assets bought with their debt. As long as the revenue continues to service the debt then the price of the asset is irrelevant.

Have you never heard of debt roll-over? Many commercial loans are structured in such a way that it is interest-only, and need roll-over to pay off principal. During a crunch time, not only is revenue suspect, but also the cost of rolling over debt skyrocket.

You deliberately chopped out the most crucial point that Bob was making and I was addressing, then launched into content-free personal attacks that only made a big fool of yourself.

CaptainShuddup says

I'm saying without banks paying savers a safe and dependable return on their

But that's not how these coasters stay aloft.

We're really talking about the guaranteed Fed inflation of the money supply which has been the principal driver of the DOW and relatively low risk stocks which have done nearly zero to earn their continually increasing valuation.

That has been the essential underpinning of the Money-Gets-Money. The more of these warhorse stocks you can buy -- at least from 1987 to 2007 -- the more money you made, no work required. That is the Status-Quotization that we are describing.

Anyone who actually "did work" (insanely low salaries compared to asset growth) or had an idea and started a business (1:10000000 odds of getting a return, more likely a total loss), having the wherewithal to be part of one of the big IPOs and be one of the 10 inside-insiders (did you have the right roommate at Harvard? No? Sorry...). Or yes, maybe you got on a gravy train like real estate, but you still did a lot of work house by house and many ended up losing it all at the end.

The one safe bet was to be part of the inner circle of guaranteed returns based on somehow having a big stake to begin with.

And if you really want to know the cause of these End Game collapses, it's not really anything that Michael Lewis or Matt Tiabbi are describing. It's not some shady traders. It's the entire propped up system of 1980s companies that have been bubbled along for decades with no real increase in their basic technologies, or value, or product innovations.

sbh says

There is no "Austrian deflation"

Are you out of your mind? Are you born stupid?

What is an "Austrian deflation"? How is it different from a "Keynesian deflation" or just "deflation"?

Reality says

Job destruction is not due to "deflationary depression"

Of course it is.

Nope. Job destruction is due to market not clearing. Widespread job destruction without replacement jobs is what leads to "deflationary depression." You have the cause and effect backwards.

sbh says

Oh, so the best way to create jobs is to destroy the value of wages so they are so low that no one can live by means of them.

No, you idiot. The nominal prices for wages are more sticky than nominal price for capital assets and commodities (the very reason why Keynes invented Keynesianism). Keynesian inflationary policy is designed to redue the value of wages without explicit reduction in nominal wages.

sbh says

As they are falling there is some ephemeral gain just before massive unemployment when the price of a car is near 99 cents and every store miraculously innovates from being Barneys to being a 19 cent store. And they'll innovate and sell cars too, for 19 cents. (They won't run or even have a motor, there will be a hidden charge for delivery and set up and registration and they"ll be made in Botswana, you'll pay extra to ship them.)

What the heck are you talking about? Nominal wage reduction during a time of massive commodity price drop would save the job without damanging the purchasing power of wages, so there is no need to ship the job to Botswana or anywhere else. More importantly, deflation is fundamentally about debt restructuring. The company, or a new company buying up the liquidated assets of the old, would be able to hire the employee without the burden of the old debt.

But this is the Austrian deflationary remedy at work.

You are making up shit as you go. You have zero understanding of either Austrian School or Keynesian Economics, or pretty much any economics.

This is the sweet spot BEFORE a depression?: your vaunted rising standard of living.

The goal of nominal wage reduction is to save the job; the goal of liquidating old over-endebted company is to enable new companies buying up the assets at fire sale prices so it can afford to hire workers.

Then the great disparity of wealth really kicks in and despite your cowardice wrt bob's point, the income producing instruments of the wealthy continue to run on......mostly because they own.....wait for it.....treasuries....oh God, how disgusting....and the hardening of money hammers all the debt ridden unemployed working stiffs you sacrificed for the sake of an Austrian wet dream. What's not to like about that?

You are once again tossing together a bunch of words that you have zero understanding. I addressed Bob's point, but you are the fraud and coward chopping up posts lying through your teeth in your ass, as you bury your head deep in your ass.

Debt restructuring is first and foremost making sure the capital owners who made the bad investments are held to account. So new investors have a better chance at competing for the labor and resources. Competition among capital owners is what fundamentally bids up the real wages for workers.

Don't wait to buy when it crashes...don't buy at all...ever. Lose interest in real estate entirely, as I have (except as an amusing source of potential social upheaval). Do you feel the beauty of living out of the 20th century distortion field? Retirement? What the hell is that? Dying only a little bit? Half a million bucks for a shack? Damn, it gets funnier every time I think about it!

Carolyn C says

Holy crap! That was just the information I needed to hear in order for me to let go of my properties when it comes time.

Sound like you are a leverage RE investor. The more pertinent question is where to park your cash?

John Bailo says

We're really talking about the guaranteed Fed inflation of the money supply which has been the principal driver of the DOW and relatively low risk stocks which have done nearly zero to earn their continually increasing valuation.

John Bailo says

It's the entire propped up system of 1980s companies that have been bubbled along for decades with no real increase in their basic technologies, or value, or product innovations.

I think you're wrong about that--companies ARE more valuable now. See this:

Reality says

Nope. Job destruction is due to market not clearing. Widespread job destruction without replacement jobs is what leads to "deflationary depression." You have the cause and effect backwards.

He's got it correct. When consumers run out of money (demand), jobs get destroyed. And until they get more money, these jobs are not replaced.

Once again, I'll remind you--companies hire becuase they can't meet demand. NOT because they have extra money.

marcus says

Not only is there a correlation (that holds over long terms and large changes in interest rates), there is an even more clear and obvious logical connection between the cost of capital, and the price of capital assets.

Marcus-- You are incorrect. There is basically no historic correlation between interest rates and (nominal) real estate prices. And the very small correlation is actually positive--higher interest rates tend to give higher prices.

Do the research yourself--you'll be surprised!
marcus says

What you say is the same as suggesting that the income approach to real estate appraisal is irrelevant, and that for that matter the income produced by a property is totally irrelevant to its value.

Nope--what history is saying is that personal income is a much better predictor of real estate and personal income has a strong positive correlation with interest rate.

tatupu70 says

Do the research yourself--you'll be surprised!

You sometimes seem intelligent.

Trust me, I understand where the connection begins and ends.

Inflation which can drive price increases also drives interest rates, which is the source of your confusion. But you're totally wrong, and I have investigated it.

I guess you didn't comprehend my comment.

I will grant this:

IT's more than possible (and it has happened in the past) to have a period when LONG TERM interest rates and real estate values are both increasing.

It's far less possible (not totally impossible) to have a period when LONG TERM interest rates are dropping and real estate values are not increasing.

But what I said about capitalization rates and all other techniques to value future income streams is the simple key to understanding this basic little bit of finance. Interest rates are a part of all such methodologies. Higher interest rates translate to lower values.

tatupu70 says

Nope--what history is saying is that personal income is a much better predictor of real estate and personal income has a strong positive correlation with interest rate.

You're reminding me of Fort Wayne now.

Personal income has NOTHING to do with the rise in RE prices the last few years. If it did, RE prices would have fallen further.

marcus says

You sometimes seem intelligent.

lol--sometimes is better than never I guess.

marcus says

Trust me, I understand where the connection begins and ends.

Inflation which can drive price increases also drives interest rates, which is the source of your confusion. But you're totally wrong, and I have investigated it.

I don't think you do or else you wouldn't be debating this topic. And if you verified it, you'd know.

marcus says

It's far less possible (not totally impossible) to have a period when LONG TERM interest rates are dropping and real estate values are not increasing.

Less possible? How about 2008-2011? Probably every recession.

marcus says

But what I said about capitalization rates and all other techniques to value future income streams is the simple key to understanding this basic little bit of finance. Interest rates are a part of all such methodologies. Higher interest rates translate to lower values.

Yes--all else being equal, you are correct--but unfortunately all else is never equal. And in the real world, interest rate effects are drowned out by income effects.

marcus says

Personal income has NOTHING to do with the rise in RE prices the last few years. If it did, RE prices would have fallen further.

Huh? You think nominal incomes haven't been rising for the last few years?

This is real income so nominal growth is even higher:

This isn't rocket science. IT's true for stocks, bonds and yes even real estate. Yields dropping go hand in had with prices increasing. (No this doesn't mean the opposite never occurs).

Do you really think that back in 1980 when people were expecting double digit yields in stocks, and bonds, that was because middle class incomes were so much lower? Or because of how much they expected incomes to increase?

marcus,

When was the last time interest rates increased for a sustained period? What did housing prices do?

Were there other times of sustained increases in interest rates? What did housing prices do then?

Are you predicting a long term increase in rates and decrease in house prices? In my mind, long term would be greater than 2 year period of interest rate growth and 2 point increase in interest or so? Or are you talking about shorter term fluctuations of 3 months to two years?

marcus says

Your graph is more about the number of new Walmart jobs, or cities that were able to bring back teachers and cops that had been laid off, than it is about salary increases.

So what? A cop or teacher that is now employed certainly might want to buy a house.

marcus says

This isn't rocket science. IT's true for stocks, bonds and yes even real estate. Yields dropping go hand in had with prices increasing. (No this doesn't mean the opposite never occurs).

It isn't rocket science. The only explanation is that people don't buy a house for the same reason that they buy a stock or bond. Because, you know, they actually LIVE in a house.

tatupu70 says

It isn't rocket science. The only explanation is that people don't buy a house for the same reason that they buy a stock or bond. Because, you know, they actually LIVE in a house.

But prices aren't allowed to fall in a way that simply reflects the supply and demand relative to prospective homeowners.

Enter the investor, who is attracted to the yield relative to other investments
who's yield is tied either directly or indirectly to interest rates.

Marcus got this one right. This has nothing to do with the minimal rise in incomes, but with the huge crony support of the government and Fed of the housing market, using backstop guarantees and special investor programs to prop up a market thats shouldn't. Lending standards have eased a bit again, jumbos are back so more qualify to overpay. Pair that with the foreign money trying to find a safe haven in some of the better areas in the US, ZIRP, and you have the perfect storm. It's housing inflation which the Fed calls "subdued" ;)

mell says

Marcus got this one right. This has nothing to do with the minimal rise in incomes, but with the huge crony support of the government and Fed of the housing market, using backstop guarantees and special investor programs to prop up a market thats shouldn't. Lending standards have eased a bit again, jumbos are back so more qualify to overpay. Pair that with the foreign money trying to find a safe haven in some of the better areas in the US, ZIRP, and you have the perfect storm. It's housing inflation which the Fed calls "subdued" ;)

blah blah blah Fed blah blah government blah blah blah crony...

Like I said, add a zero and all will be well. That will be my campaign slogan in 2020:

"When the going gets tough, just add a zero! Vote for me and I'll be your number ONE zero!"

Going back to the idea of a 2017 (+-) crash... Though I've seen many things over the years that scream to me, "this isn't sustainable," whenever the SHTF in the past, there always seems to be an element of surprise with respect to the critical event that starts the dominoes tumbling.

Obviously, if we could predict crashes years in advance, we'd probably opt to avoid them. With all the disruption in Europe and the sovereign debt crisis, many were convinced that the Euro was on it's last legs. Yet, rabbits were pulled out of hats to avert a meltdown of the system. Not only didn't it crash, but, for the most part, it held its exchange rate value.

It seems to me that you would have to have an unpredicted event in order to provide the spark. God knows we already have plenty of accelerant to react with the spark. So, kindly pull out your crystal ball.... Assuming you agree that there must be a critical event that no one anticipated to get things going, do you have any guesses on what that might be? Or do you believe that there doesn't have to be an unanticipated critical event, and even despite best efforts, there is nothing that can be done to avoid a meltdown in 2017 (+-)?

PS... I meant loanowner, and yes, you are correct to assume that I was referring to leveraged landowners. Loanowner is just less typing :)

marcus says

But prices aren't allowed to fall in a way that simply reflects the supply and demand relative to prospective homeowners.

Enter the investor, who is attracted to the yield relative to other investments

who's yield is tied either directly or indirectly to interest rates.

Yep. That puts a floor on house prices, not a cap. And the yield also depends strongly on rental prices which are strongly dependent on--guess what--incomes.

marcus says

I never said interest rates aren't even more highly correlated to inflation. I'm not going to apologize for this not being simple.

If you understand this--then how can you continue to say there is a correlation between house prices and interest rates?

tatupu70 says

marcus says

I never said interest rates aren't even more highly correlated to inflation. I'm not going to apologize for this not being simple.

If you understand this--then how can you continue to say there is a correlation between house prices and interest rates?

Because it's complex.

Real estate prices are affected by inflation. But it's also affected by the cost of debt, and income properties (for investment) are affected by the general expectations about return on investment.

This entire argument is silly. The monthly payment for owning a home is in a very real sense the price people pay for a home. And this is STRONGLY affected by interest rates.

The history you want to look at doesn't show this as well as it might because economics is always complex with many variables. In the period you're looking at, the baby boom becoming buyers, and women entering the workforce are probably bigger factors than interest rates or inflation.