patrick.net

On Topic:

If you need your money liquid, then you don't have really any choices other than CDs, Money Markets, and bond funds which allow withdrawal without penalty.

At first, when I wasn't sure how long the bubble would last, I put our cashed out equity into primarily fed/state tax free muni bonds which earned slightly under money rates, but higher returns net of taxes for our bracket.

That configuration was 100% liquid but barely matched inflation + the remaining bubble gains (what I was losing being out of the market).

I have since rebalanced to a 25% liquid portfolio, with 75% redeemable in progressive steps. This has allowed me to allocate some to international growth, indices, and corporate bond funds. Boring, typical low risk diversification. A market risk of about .35 (the market is 1.0).

This configuration has returned well above real-estate returns + inflation.

I'm not an investment advisor, so do your own homework. I use Vanguard for funds, which has both traditional and ETFs available free of load. Many funds do have redemption fees for early withdrawal, though.

Two things I avoid:

1. Currency related bets. I don't care about the USD's strength because I don't own any foreign property, derive foreign income (anymore), or need to spend USDs in foreign places in any large number.

Betting currencies is very difficult. All large-cap funds and major indices are comprised of international/multinational corps that already do major currency hedging. So trying to hedge yourself against USD drops may actually have the opposite effect on your total portfolio.

2. Commodities bets. Some of my funds have small commodity positions, but I avoid these where possible. They are a bad bargain for anyone who doesn't own a red or yellow jacket with arcane patches on the front. High volatility, not high-enough return for the risk. Not a place to park your home-equity-in-waiting.

Randy H,

The other benefit (in spite of a slightly lower rate) is that the muni's can make filing less of a pain too! Also there are certain ETF's which actively seek "qualified dividends" that are taxed at the lower rate. I believe on the 1099 you rec. it will be in box 15 (b) not 15 (a)? I know it sounds trivial but your accountant will applaud you!

DinOR

You and I are of the same mind when it comes to protecting "the family jewels". Some folks seem to want to treat their equity savings the same way they treat their "play" money.

I want this money to be simple, easy to manage, well protected, and largely self-managed (rebalance quarterly). I'll play with shorting options on ETFs on commodities correlated to currencies in my E-Trade account, which is not money intended to buy our next house.

Randy H,

The other great thing about muni bonds is that they have really somehow remained something of a "mom and pop" shop. There hasn't been huge foreign or hedge fund interest in them and for liquidity that may be called upon in short order they make a lot of sense.

Where I'm a little more cautious is in the scale of the "down payment" when one finds a suitable home. None of us have been on the other side of a bubble of this magnitude and really have no idea how easy it will (or won't) be to get cash out if you want/need it? Most here have decent fico's and something of a cash reserve but I still wouldn't put any more down than is needed to close the deal or put the payments where you're comfortable. Just b/c you can put 40-60% down may not mean it's in your best interest to do so.

DinOR

You raise a point that has been troubling me.

There are two competing factors that are at odds with one another. The first is what you point out: credit crunch, liquidity, etc. may make it unwise to put any more down than absolutely necessary, while still holding back the remainder somewhere safe like munis so long as they return higher than your interest burden. This way you get the benefit of fixed rate debt without the risk of financial distress -- as long as you really leave those munis alone and don't dip into them.

But there's a catch. Crunches like this are usually accompanied by high interest rates. If you _know_ that rates will keep going up or stay high for a while, then you might do better earning return by buying down your mortgage debt (assuming your fixed rate loan is a high rate).

There really is no way to time this effectively because there are too many major variables, any one of which can shift your pay-down versus hold-back decision.

CG

With regard to your banned addresses: don't push your luck. You haven't been unbanned officially, just no action has been taken to ban this address. We'll see how it goes.

With regard to shorting oil stocks. Anyone who does something like that with their home-equity/home-savings cash deserves to never own a home after they lose their $ to the pros in those markets.

Randy,

"if there ever were hyperinflation, then fixed rate mortgage debt would be among the most valuable instruments one could hold. Remember that inflation increases the value to fixed rate debt holders and punishes savers. "

I have big plans to profit from the converse of this situation. I hope long term interest rate shoots up to 15% in 2009 and I buy into some nifty 30 year treasury bonds. As long as long term interest rate drops down below 10%, the spread should do very nice things for my retirement account.

With regard to your banned addresses: don’t push your luck. You haven’t been unbanned officially, just no action has been taken to ban this address. We’ll see how it goes.

CG/GC is probably just someone wilder and more extreme than me. I do not think he is evil or mean.

Sometimes I even deplore my own insensitivity.

allah failed to either read or understand:

All large-cap funds and major indices are comprised of international/multinational corps that already do major currency hedging. So trying to hedge yourself against USD drops may actually have the opposite effect on your total portfolio.

Owning a foreign commercial REIT may help some people, while hurting others regardless of the direction of the dollar. It depends where your other investments are held. If you hold lots of things like Exxon, for example, then a foreign REIT will hurt you because it will un-hedge the hedging Exxon is already doing on billions of USDs.

Peter P,

Claim you were born somewhere in Asia and all will be forgiven.

Pending home sales for September 06 are down:

http://money.cnn.com/2006/11/01/real_estate/pending_home_sales/index.htm?postversion=2006110110

Claim you were born somewhere in Asia and all will be forgiven.

Didn't I do that already?

I have an aversion to activities that lack risks or dangers. It’s just me.

So you are a risk seeker. What is your birth month/day?

Not til now.

Okay, you're forgiven. Congrats!

@Peter P

CG/GC is the only person I've banned. I continue to believe (s)he is a bona fide Troll, but that is just my opinion. If Peter P and either HARM or SQT want to unban, (s)he should be unbanned. In fairness, CG/GC has probably done less Trolling in the past half year than some others' running commentaries purely designed to offend various regulars.

I guess we’re even now.

Touche. Your point is well taken, sir.

Peter, I will PM you.

Huh?

If Peter P and either HARM or SQT want to unban, (s)he should be unbanned.

I will delegate judgement to others.

This is just what is scary about trying to figure out how to wait out this housing bubble collapse:

http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393160/index.htm?postversion=2006110111

"Can the economy survive the housing bust?"

Real estate downturns have a way of leading to recessions and stock market slumps. So far the damage has been limited, but the numbers keep getting worse, says Fortune's Jon Birger.

The article is not so bad considering it's MSM, but this quote is ridiculous:

"The effects of the housing correction will be entirely contained within the housing sector," says Mike Englund, chief economist of Action Economics.

Makes me think who is relying on the economic forecasts from those bozos.

CG/GC is the only person I’ve banned.

How about banning ConfusedRenter?

How about banning ConfusedRenter?

I think spam is a bigger threat now.

My opinion on CR is that (s)he is really MP/FR. If so, the ban has been decided and should be updated.

But I seem to recall the "vote" to ban failed.

Randy H,

True, many of us have agonized over the "hold back/buy down" dilemma and as you suggest timing this whole matter can drive one self quite insane! Since this is really a personal decision I don't want to sway people one way or the other.

Where I'm concerned, I lean toward being a little 'cash fat' and having the option to implement that toward incrementally paying down/off the mortgage early yet having it liquid gauging that on a monthly basis. It really is going to be that "day to day".

Allah

There are plenty of Economists with negative sentiment/predictions. A part of the blame goes to the media which doesn't usually give these guys a platform. Or, when they do, they pick the worst negative economist and put him/her against a really slick positive one.

There's even one extremely negative economist who's a Federal Reserve Governor right now, and keeps dissenting on all the decisions.

But I seem to recall the “vote” to ban failed.

Actually, I vote to unabn MP/FR. What damage can they do? The idea of perpetual 20%/yr housing appreciation is getting funnier every day.

Actually, I vote to unabn MP/FR. What damage can they do?

The added benefit is that it results in more frequent visits by Surfer-X.

I propose an open arm policy for CR/MP/FR and GC.

Current threats:

1. Boredom
2. Beating dead horses
3. Spam

RE: CR, good points. It's good to have a resident realtwhore to kick around once in a while (no offense, George).

The added benefit is that it results in more frequent visits by Surfer-X.

Yes. Let's focus the IP banning from spambots and jukubots.

2. Beating dead horses

Didn't we vote on a prop related to that a few years back?

I propose more home design and architecture discussions. Socketsite is doing a pretty good job at that currently.

I do one trade every 2-3 months. All my shorts have been successful. Of course, this does not say anything. But we shall see how this short trade pans out.

Yeah, all of my trades have been successful too - for either me or the other party.

Don't forget folks, this is the genius urging that Connor kid to buy Gold at $730...

For the record, I've been long CVX and XOM for sometime. Dividends... yum. YHOO... um....

House downpayment in Money Markets, laddered CDs and I-bonds. Bah Humbug. I'm sick of being beat upon by the loose money policy, but at least most of us have jobs.

Labor crunch coming. More inflation?

http://economist.com/business/displaystory.cfm?story_id=8079134

skibum,

I'm not in the habit of defending the positions taken by economists or analysts but when we think about it I believe it is very plausible.

True, 2/3rds of our economy is consumer driven but there are things we can buy besides hummers and big screens with MEW! If everyone elected to "right-size" their residence and utterly abandoned McAlbatrosses en' masse it's lenders, builders and suppliers that would be the bagholders, not Oracle and Nike!

There are things in this country that don't correlate with housing. Like I say, housing has for many years been a legitimate core industry. They weren't satisfied with that and wanted to become THE ONLY industry with everything else having only a supporting role! We've contorted lending standards, tax laws, everything to accommodate and it didn't work.

Time for a new growth engine.

Let's convert McAlbatrosses into condos!

@David Jackson,

Do you buy at Best Buy or Target or Walmart?

[Hint: Most of thier stuff is NOT made in the US]

Nothing wrong with owning companies that do operational hedging. I own all these through indices. What I am talking about is then adding in your own additional hedging.

Example: Best Buy purchases lots of stuff in JPYs. They hedge the hell out of their currency flows with techniques like transfer pricing. If I then go ahead and hedge the USD/JPY rate, what is the result?

[Hint: Any hedging in excess of the delta hedge ratio will reduce the reward/risk ratio]

Let’s convert them to factories!

I do not have much faith in manufacturing.

re: commodity investments. I lost a few ducats on oil stocks a year ago but cut my losses quickly. lesson learned. the volatility of those type of stocks makes it feel more like gambling than anything else. i am reminded of the Sicilian in Princess Bride.

There are things in this country that don’t correlate with housing. Like I say, housing has for many years been a legitimate core industry.
...
Time for a new growth engine.

@DinOR,

The problem is, how can the US make yet another smooth transition to another growth engine, as the housing industry is already clearly in the midst of tanking? Does Benny B have any ideas? Besides, I think most economists you read about are underestimating the reach of the REIC boom's effect on the overall economy. Construction materials and jobs, finance and mtg industry jobs, realtor jobs, home furnishings, and it goes on and on.

People here who'd encourage gambling on commodities, usually Gold, with their life savings are the equivalent to the jackasses who yell "jump" up to someone standing out on the ledge.

I'm seriously doubting America will turn it's back on McMansions in one fell swoop but I hope we can agree the peak of their popularity has come and gone?

The REIC and the country have taken this whole thing as far as it will go and then some. Unless we're willing to move the cap. gains exemption to 500K for singles and 1mil for couples along with making the 50 year mortgage "the standard" we're going to have to look else where for growth!

That's what's so upsetting for me. So much of the debate has been structured around "what can we do to get housing back on track?" Lower rates? (always first option) give away vacations? BMW's?

Let it go for crissakes!