patrick.net

Inflation is by definition hedonized to 2.0%. What do you mean by respectable?

Exactly. What inflation rate do you mean anyway? The Fed seems to like core CPI, which excludes energy and food, considered volatile in price. Let's not even get into the recent elimination of the publication of M3...

"Interest rate is not the main problem. Loose lending is. In short, any financing product that requires the assumption of housing appreciation is a culprit."

I agree, you can have higher interest rates which makes the fed appear tight but if money supply is increasing substatially, that is still an easy money policy.

Everyone is looking for the unwinding of the yen carry trade but I’m not clear on what causes that other than an appreciation in the yen/usd rate.

What about the appreciation in the JPY/GBP rate? Don't you think the Yen-Sterling carry trade had been very lucrative, much more so than than Yen-Dollar pair?

I agree, you can have higher interest rates which makes the fed appear tight but if money supply is increasing substatially, that is still an easy money policy.

Exactly, a 10% mortgage with a 3% interest-only introductory rate over the next 10 years will not help the correction much.

We could have a whole blog on inflation. It is actually a myth. It takes the same amount of gold to buy a house as it did 100 or even a thousand years ago. Inflation is a tool of debtors/powerful to oppress the masses. By debtors I don't mean JBRs, I mean the big boys.

It's my theory, and I welcome it to be challenged.

"What about the appreciation in the JPY/GBP rate? Don’t you think the Yen-Sterling carry trade had been very lucrative, much more so than than Yen-Dollar pair?"

I'm sure it's very lucrative but my question still stands; what it is the catalyst for a signifigant sustainable end to these carry trades?

ou’re talking about mortgage rates (FRM in fact), while ozman is talking about Fed rates.

Thanks Skibum for the clarification.

SP,

If Chinese slow purchases of treasuries won't Japan step in as the buyer of last resort just like in 2003?

Paul

What’s a respectible level of inflation?

A level that will force people to invest their savings and not park it a Bank account :)

Gee let's lower interest rates some more, and adjust inflation upwards. Ozman, you're on the right path IMO. Let's also tax gold as a captial gain. (Bastards)

I might be a little biased :)

Paul said:
what it is the catalyst for a signifigant sustainable end to these carry trades?

- A Black Swan in the financial markets (maybe several HF's crashing)
- US Government default
- Oil price denomination changed to Euro
- Another war

What was the catalyst for the Russian debt crisis back in 1999?

Reflexivity can create its own catalyst and/or tipping point.

- A Black Swan in the financial markets (maybe several HF’s crashing)

Investors turn to USD in times of crises

- US Government default

Won't happen, the USA has the printing press

- Oil price denomination changed to Euro

How does this impact the carry trades?

- Another war

Investors turn to USD in times of crises

It seems that we have one 10+ sigma event every ten years or so (e.g. 1987, 1998). It is about time. :)

Maybe black swans ain't that special after all.

Ozman,

Good start, but you missed:
- major oil supply disruption (see "another war")
- Smoot-Hawley protectionist legislation against the Yen/Yuan
- avian super-flu or ebola variant that mutates into human-transmissable form
- asteroid/comet strike

Investors turn to USD in times of crises

In a black swan event, anything can happen. Perhaps a 10-sigma euphoric event (e.g. world peace) will bring down the market. :)

RE: asteroid/comet strike

I thought NASA will simply fly a pair of space shuttle, land them on the heavenly object, and blow it up right before it passes some critical point.

Malcolm said:
We could have a whole blog on inflation. It is actually a myth. It takes the same amount of gold to buy a house as it did 100 or even a thousand years ago. Inflation is a tool of debtors/powerful to oppress the masses. By debtors I don’t mean JBRs, I mean the big boys.

It’s my theory, and I welcome it to be challenged.

I agree with your theory.
However, low Inflation probably has a good purpose in society. It is an incentive to take risk and invest in new businesses which create new jobs etc..
Inflation nourishes meritocratic societies and probably helps in the transfer of wealth to lucky/successful Entrepreneurs.

Peter P,

How naive of you. You really think the government would risk sending Bruce Willis on a mission that dangerous?? Ben Affleck... maybe, but Bruce? No way.

Paul said
Investors turn to USD in times of crises

History is no guide of future reaction. It is dangerous to assume this.

History is no guide of future reaction. It is dangerous to assume this.

Yep, that is the most important lesson from History itself.

But again, I am a naive little boy. :)

1998 - Russian debt crisis -- LTCM debacle -- Greenie bailout

87 I get. What 10-Sigma are you referring to that happened in ‘98?

WHen did LCT happen ?

Sorry, I meant LTCM, anyways Peter clarified it :)

I am most fearful of the Russian Debt Crisis of 2007.
I found the link above to be a good summary of the wonderful world of Casey. They even got quotes from the FBI (as well as Rob "Silent Spring" Dawg.. errr... Cote).

Is it time to buy?

This house is renting for $1800

http://sfbay.craigslist.org/sby/apa/330734097.html

But houses for it (it’s at 535 Fenton St, San Jose) are clearing for about $580k.

Let’s assume that this is $500k.

Using this calculator, if you assume that the downpay is only 10% and that the appreciation is 4% (same as appreciation over the long term), then according to the details tab it would be equivalent to $1098 in rent.

The calculator is at: housemath.us [protecting from moderation]

Could it be? This is cheaper to own than to rent? Is this The Sign?

D'oh! My bad on the mort vs. fed rate.

I think if the Fed was going to lower the rate to try and save housing's butt, it would have done so by now. I think the only reason they aren't raising the rate is to try and keep the crash as slow as possible.

A friend of mine just sold his Burlingame home for $200K over asking price. ($1.4M) sold for $1.6M. WTF? the house is a 30 year plus 2200 sq. ft. rancher. I give up.

Why rule out a potential depression GC?

Hey, new name for TOS!

And... a friend of mine bought a house in the Willow Glen area of SJ for 25k under asking... (734k, asking 759)

The difference is... my friend is not imaginary.

Burlingame is PRIME!

skibum Says:

May 14th, 2007 at 8:56 pm
Burlingame is PRIME!

So, does that mean that Burlingame is different? I am sort of new here, so please help me understand what exactly is happening with prices in the BA.
Are prices still going up? Sorry to sound dense, but I am not getting it. I was just in FL last week, and prices are really starting to plumment. I don't think we will see the same sort of declines in the BA, but you never know.

Thanks!
New Attorney

New Attorney Says:

> A friend of mine just sold his Burlingame home for
> $200K over asking price. ($1.4M) sold for $1.6M.
> WTF? the house is a 30 year plus 2200 sq. ft.
> rancher. I give up.

I know a lot of “kids” (in their 30’s) who have talked their parents who live in Hillsborough in to buying them a home in Burlingame so the grandkids will be close by. The same thing happens with Ross parents buying in Larkspur, Presidio Heights parents buying in Laurel Heights and Atherton parents buying in Menlo Park…

Peter P Says:
1998 - Russian debt crisis — LTCM debacle — Greenie bailout

Oh crap, HTF could _I_ forget that! A couple of years ago I spent several months studying that mess, but when I was thinking about 1998, I completely missed it.

Thanks for the clarification
SP

With the way things are going I am worried about what move to make. For my case 2 possible things will occur:

China will stop the bulk buying of toilet paper er I mean US treasuries. Uncle Ben will have no choice but to crank the inerest rates up and start an asset deflationary situation. Many people, due to the new bankrupcy laws, will become financial serfs to the plunder they bought with cheap credit.

The alternatve is the Fed will put up new restrictions for making home loans requiring a 20% down and will inflate the problem away with low fed rates. People like myself will watch their hard earned savings for a downpayment slowly burn away. The dollar menu at McDonalds will become the $5 menu.

What will it matter? Every one gets paid more and the debts are not so bad right?

Homes are so overpriced that it is not funny at all, it is hurting the new families more than other people. The speculvestors could at least dump their second home, I don't even have a home to dump.

Either situation is very bad and will have loads of pain for everyone to share in. I am young, married, about to start having kids and am in NEED of a home. I rent 600 sqft now and have saved enough to have 20% on a 100k home. Too bad the home I need/looking for is going to cost at least double that :( I just want a 3 bed 2 bath 1300 sqft place for a reasonable amount. In either senario I think I could pay the monthly bill and give myself a hedge against all possible outcomes from hurting too bad.

I am trying to buy a home to use as a place to live, not some "investment". If the super inflation method is chosen, The 20% down I paid for the home and future payments will wind up going down in real terms to my income, but I will have rent control on a home in my name. All my other assets such as CDs, Bonds, Savings, 401k balances will end up going to the toilet. This means I will be an angry old man with a home that is owned outright. *watch out for the whiskey bottles and anrgy incoherent yelling from an old guy in the future kids*

In deflation, I can pay the painful monthly bill. But hey my savings will actually be worth more over the course of the year. This time would hurt, but it may be best to take the pain now and maybe learn from our follies.

I also received an email from my dad showing that the prices of the US equities compared to commodities like corn, other currencies, and gold have not recovered from 2000 and wont anytime soon.

It was made by the NY times and can be found here

http://www.nytimes.com/2007/05/05/business/05charts.html

Starting from 2000:
S&P is down 22% vs the Pound
S&P is down 33% vs the Euro
S&P is down 44% vs Corn
S&P is down 43% vs Housing
S&P ia down 60% vs Oil
S&P is down 68% !! vs Gold

The only good point is the Yen; S&P is up 18% vs the Yen. This means a cheaper PS3 and TV for me :)

These are all comparisons with many commodities and currencies. Things are very much out of whack and not just housing is messed up, I think I am going to start calling myself a bear and not just a Housing Bubble Believer.

New haute couture for FB's

http://tinyurl.com/ysz6sb

SP

I am young, married, about to start having kids and am in NEED of a home

Hold off having children until you can afford them. If you are young, you can wait a few years until you save up some more downpayment or move to someplace where houses are cheaper. No one is forcing you to start a family now.

GC is a woman Says:
That’s a disturbing image. Why did you post it?

What are you talking about? The Ramen outfit?

SP