patrick.net

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

Or you could raise kids in apartments.

I think people who know they like kids really should have them earlier rather than later. Having kids in your twenties or early thirties still gives you some years of asset accumulation after the kids left the house. It also forces the family into more frugal habits early on.

Plus, grandkids before you get too old to play with them. I thought it was universally understood that the reason to have kids is to have grandchildren. Kids are work. Grandkids are fun.

http://www.mercurynews.com/ci_5900084

MORTGAGE DELINQUENCIES RISING SHARPLY; EAST SIDE OF SAN JOSE IS A TROUBLE SPO

lunarpark,

It gets difficult to delve into these articles objectively. The stories become drearily alike. A few paragraphs in and you find "the weenie". Sarah Portales' realtor was ALSO her mortgage broker (getting paid on both ends of the transaction!). Gosh, I wonder if that might cloud my judgement?

She is paying $3500 a month? It boggles the mind. I don't care what her mortgage broker told her -- sometimes, you have to be the one to say "I can't afford this." Because Suzanne will ALWAYS say "You can do this." That's what salespeople do.

"on San Jose's East Side, which is 56 percent Hispanic and has a median household income of $65,015 - lower than Santa Clara County's median household income of $83,568"

These incomes are shockingly, bafflingly low. I guess, if nothing else, this just continues to prove that most homeowners did not buy recently. How could they?

But the coup de grâce is this one:

"Now she's fighting depression at the thought of moving into a rental unit and praying for a good outcome."

Rather than raising her kids in East San Jose, watching every dollar, she could be renting a house in Saratoga. Life could be much, much worse.

DinOR Says:
It gets difficult to delve into these articles objectively. The stories become drearily alike. A few paragraphs in and you find “the weenie”.

The other fun thing about these articles is to play one of the following games:
1. Where is "The Other Hand" - the American MSM always likes to take no stand on most issues, and stretches itselt to great lengths to cover both sides of everything.
2. Spot The Spin - particularly rampant in most REIC stories, where facts are used in much the same way as a drunkard uses a lamppost - for support rather than illumination. (not my own line, borrowed it from somewhere else)

SP

"Her monthly payments are $3,500 and her income is slightly less than that."

and then...

"I was ignorant; I didn't know how it all worked," said Portales, 48

Okay, step one, mortgage payment should be less than your income.

I've seen this reported about 500 times already but it still boggles the mind. Can people really be that stupid and that bad at math?

(The answer is yes. The other day, my boyfriend told me his second grade teacher denied the existence of negative numbers. LOL)

"for support rather than illumination" LOL!

I also found myself a little shocked that there is such a huge part of CA's population that at 48 years old... are just NOW discovering the benefits of home ownership? I don't want to seem judgmental but it wasn't a priority for Sarah until 2005.

At that point she should have been looking for a modest townhouse, beefing up her retirement accounts or resign herself to being a lifetime renter. I know that sounds cold but thousands of native born Americans retire to Mexico (or elsewhere) every year!

Like many in retail securities I've had to seriously modify what I thought my retirement picture would look like. Major revisions. I'll be working longer, likely have a smaller "critical mass" and have downsized our expectations in ways I can't even begin to describe. That's life in the big city. Really, I'm "o.k" with it.

Her house has bars on the windows...the indicia of a bad neighborhood.

When I sold my Cambrian Park house in April 2006, the buyer was a Mexican national (legal immigrant) represented by a buyer's agent who also was his loan broker. This appears a common situation among brokers who represent minority purchasers. My own seller's agent ranted to me in private how much he dispised these vultures. But then again I sold for more than the asking price in under a week.

It would be interesting to see what the comps on my block are now.

Dude, what lit a fire under the DOW today?

I don't know if the FB loan situations are based on bad math, ignorance, or stupidity. I would cite the willingness of so many people to trade future security for gratification today.

Consider the fellow who pays $18/week for 10 weeks at the Easy Credit Store to buy a DVD player that he could buy at Walmart for less than $100. He isn't too stupid to see he is paying double, he just wants the DVD player today and not in the 5 weeks it would take him to save. A rationalization could be " I need to build a credit rating." This situation is not unlike the FB with the clown loan. The FB just wanted the big show-off home today (or HELOC for toys), with little regard to his finances tommorow. FB rationalized it as "always goes up" or "cheaper dollars" or my favorite "put the equity to work."

Notice that for decades we have had extended term car loans, car leases, department store easy credit, and low minimum payments on revolving charges. All were designed to take money from the "f*** the future, I want it NOW!" crowd. This mentality has been with us for a while, but was excluded from the home buying arena by lending provisions. "Nothing down, Bankers Frown" was once a proverb. With the introduction of lax home lending standards, this "mentality" was able to extend itself into, and thus pork up, the housing market.

No, the FB is not math challenged, just short sighted in his greed.

DennisN,

This conflict of interest is common enough in the upper income ranges as well (but it's almost a given where minorities are concerned). I didn't notice the bars on the windows but at $589,000 it sure looks smallish?

I don't wish bad on this person but with a 10 y.o son, an 83 y.o mother (and no mention of a husband) virtually ANY alternative would have been preferable.

It's not my intent to make this a racial/cultural issue... b/c for me it's strictly economics, but I can't for the life of me understand why a solid percentage of people that in essence *were priced out don't make a bee line south the minute they're retirement eligible? If they have "little America's" south of the border what would be so wrong with with returning to the country of your birth when you retire? At least you wouldn't have to get roomies to make ends meet and work until you drop.

FAB,

What's a top 5 grad school?

The houses at the San Diego auction a couple of days sold for 30-50% less than prior sales or valuations. These were genuine values that I had researched. I believe this is now the new starting point for negotiations and valuations since last month we set an all time record for foreclosures. This was an auction attended by 1000 plus people. All of these potential buyers which represent the most serious buyers are now satisfied and now demand is reduced even more. This is the realization of something that many people said was absolutely impossible a year or two ago. These sale prices are now the new comparable values which are still slightly above the fundamental value but as I speculated in some scenarios, the rate of decline is sudden when the issue is forced. As soon as you remove the speculative valuation the market instantly adjusts. The mask is now off IMO.