patrick.net

Peter,

Yes, 60/40 treatment with positions treated as if closed on last day of tax year. There's all this stuff in my Hull book about exemptions from this rule (to get better trax treatment) that involve using futures as hedges. That was what I was referring to, as I assume most people want to use these to hedge rather than speculate.

newsfreak,

So t=30

You are betting what will happen in the next month?
So you have to change your position every month?

There are different contract lengths, but a lot are for 1 month. Depends upon the market. Some are much longer. The longer out, the less certainty you have about the future price, so the greater the potential difference from the spot price. You see this in oil all the time. Spot prices move by $1, but futures prices move by more than $1.

Your position in a futures market depends upon why you're there. Are you there to speculate for fun and profit or are you there to hedge something you own, produce, or purchase?

I think there will be both futures (Globex) and futures options (pit).

Hmmm, then we're back to the IV problem for the options market. I can't wait to see how this works out. Maybe they already have a bunch of HFs commitments, so they know they'll have both liquidity and volatility?

That was what I was referring to, as I assume most people want to use these to hedge rather than speculate.

Of course. :)

But I think it is a superior RE speculation vehicle, especially over short-term and if it really settles into backwardation. The lack of tax-deferral can be an issue though, but won't it be more attractive to foreign entities?

The lack of tax-deferral can be an issue though, but won’t it be more attractive to foreign entities?

That can be arranged ;) I'll have to renew that business license in Mauritius.

But I think it is a superior RE speculation vehicle, especially over short-term and if it really settles into backwardation.

I see where you're going with this now that I get that there will be futures-options. I'll start my blog thread on specific strategies later today and post the link here. We should set up a couple and track them for a month, then report how much we woulda made or lost.

Randy/Peter

Many "trading firms" are set up as either an LLC or Sub S to defer some of the tax issues. I think as long as they retain profits within the account they remain property of the entity. We would do well to form one.

Oh, Randy, you're right. We trade to mitigate risk, not generate short term gains.

newsfreak,

I know Lee Valley sells a pretty extensive set of sharpening implements, including for manual mowers.

As for the sheeples, I predict a future of ramen and PB&J.

Hmmm,

Can you do futures trading with your IRA and 401Ks? That would get rid of the tax problem altogether.

Soooo...what does the housing future mean for the market?

more liquidity? more scrutiny?

I can see the speculative angle, but who would want to long a housing future as a hedge? people who rent? people deferring a big buy?

Can you do futures trading with your IRA and 401Ks? That would get rid of the tax problem altogether.

It may be possible with IRA. I think eFutures has something like that.

NOT INVESTMENT ADVICE.

but who would want to long a housing future as a hedge

People who afraid of being priced out, aka sheeple.

I guess longs could be packaged for fixed income elderly with homes in non-prop 13 areas. Since property tax go up with property value, this would be a hedge for it.

My friend just gave up

Well, if he sees something that he likes and that he can afford, you cannot blame him.

Peter P,

Sorry. I can't say much about the actual investment and technical portion, so I'm trying think of how this product can be packaged for consumption.

I guess longs could be packaged for fixed income elderly with homes in non-prop 13 areas. Since property tax go up with property value, this would be a hedge for it.

Hedging can be very dangerous. What if prices go against your hedge? You will need cash to meet margin requirements.

Peter P,

But it would be part of an income generating portfolio for the elderly. The housing future would be a very small portion (only enough exposure to cover property tax costs)

But it would be part of an income generating portfolio for the elderly.

I don't know, it is more complicated than that. I have a feeling that more elderly people will lose their homes because of hedge losses.

Something makes me wonder if housing futures being placed up for investment means a desperate measure for the RE and builder's industry to prevent the enivitable.

astrid,

It kind of depends. If housing futures show promise within a short time of implementation somebody like Calamos in Chicago or Nuveen or Seligman will put together a "fund of funds" Exchange Traded Fund in no time at all! If they do you should be able to place those shares in your IRA. I own a few "option" ETF's and they haven't done that bad. About 8 to 9% without any effort but I wouldn't say they are NOT for the elderly. See that's another great plus we can attribute to "free mortgage money"! As rates were pinned to the floor many seniors (even well prepared seniors) HAD to find other means just to be able live off of their critical mass. Flushed out from behind the relative safety of muni bonds, CD's and money markets they had to buy MBS (and leveraged MBS at that) just to make ends meet. I've long since bailed on my REIT positions and I'm cleaning up the last of the MBS but people get used to those 8.75% pay outs.

nomadtoons2,

I think suprisingly Shiller ran into a number of regulatory hurdles before introducing them. I'll bet he was ready a year or so back but this is such a "sea change" and remember regulators know they are not the smartest guys in the room. Besides they get paid every two weeks regardless. It's kind of like showing up at a fire with a bucket of water and being told you need to show some ID.

astrid,

What I think I meant to say is that if you can a 100K + retirement income and do it with a 3% return, well then bully for you! If you have to chase 9% returns to have a 50K ret. inc. may I suggest watching your portfolio and Bloombergs with keen interest?

Our boomer elderly are pathetic.

Just a month ago, Barron's has a feature article for would-be retirees. The article talks about how a millionaire (someone with a million in investable liquid asset) can hardly retire. Why?

Because these "millionaires" want $100K AFTER-TAX income to support their lifestyle. So what's their lifestyle? They have a paid off home, and a vacation home NOT paid off (hello, shouldn't renting be an option?). They want frequent international travel on business classes, cruises (Crystal, not Carnival), expensive golf membership, etc.

After reading the article, I was like, gees, can't you morons get off your sense of entitlement? First of all, unless you are willing to take risks with commodities or emerging market stocks, you ain't gonna see 15% pre-tax return on only a million dollars, but you fat asses don't want to take any risk. Second, if you only have a million to retire, then scale back your freaking lifestyle, you don't need to travel internationally so much, certainly don't need to ride on business classes, and you can just join Princess cruise instead of crystal of you find carnival to be too cheap. How about going to municipal golf courses instead of paying $100K initiation at exclusive clubs?

The article pissed me off because it shows what kind of idiotic snob these "millionaires" are, they are not savvy enough to manage personal finance, if they are, they won't be setting unrealistic expectations about risk and return. They expect the world to bend over backwards to satisfy their "needs" which are all inflated and unsubstantiated. I feel sorry for the kids of these retirees, they most likely won't see a dime passed down from these relatively well-off parents while other parents with less means but a better perspective on life will have far more to pass down.

DinOR,

Thanks! I'm beginning to see how this market can come down to the regular Joes and Janes. It'll be interesting to see how this market holds up when the housing bubble comes down big time.

I think I'll sit this one out on the side lines. I don't have much in savings, other than a very small amount ($20K or so) in IRA and a locked in student loan. If the getting gets really good or interesting, I'll call my boyfriend in. He would actually know what you, Peter P, and Randy H are talking about. I'm just here for pricing info on the 400k Pound Sterling turnip.

Soliciting specific CME futures and options portfolio strategies (both speculation and hedging) on my blog here. (This Patrick.net thread is trackback, so comments there are tied here).

SFWoman,

That meadow sounds absolutely lovely! My boyfriend and I made it to Antelop Valley poppy reserve after last year's rains and it was gorgeous. I love the shimmery California hills of summer though, it looks very impressionistic, especially when there's a breeze moving the grasses.

Have you considered planting a marionberry (a kind of west coast blackberry) hedgerow? I had some wild ones in Oregon and they were absolutely delicious. They would make for a good wildlife habitat and are practically natives to Calistoga.

Owneroccupier,

Well, that's social Darwinism for you. Nobody will be there to pity these snobs when they are forced to subsist on $25K a year. At least this is one area where I don't worry about a taxpayer bailout :)

Would be a pity for their kids and grandkids though. Properly invested, $1M in a generation skipping trust would be a heck of a lot of money in 20 or 30 years.

DinOR,

The other thing about chasing a 9% yield or any degree of active management is to keep a good CPA and/or tax lawyer close by. The transactions will get complicated in a hurry.

Peter P,

So the elderly probably shouldn't do derivative trades directly. But I still see these futures as useful cost of living hedges for a pension manager or the likes.

SFWoman,

Check out the Ford Thunderbird, they're all pretty ugly in my eyes, but the latest generation is just the silliest looking thing on the road.

http://en.wikipedia.org/wiki/Ford_Thunderbird

SFWoman,

perhaps the development is targeted at asians and middle-easterners? Anatolia as Asia Minor?

Oh well, we may see a subdivision named Babylonia or Alexandria very soon.

Owneroccupier Says:

"Just a month ago, Barron’s has a feature article for would-be retirees. The article talks about how a millionaire (someone with a million in investable liquid asset) can hardly retire."

A million dollars in a safe bond fund will kick off about $50K a year pre tax and in CA after paying state and federal taxes you will keep about $2,700 a month, so you "could" retire if you had a paid off house with a low property tax bill.

Every time I hear a so called "Expert" talk about retirement they always seem to forget about inflation. Almost everything costs at least 10 times more than it did 40 years ago and it seems like a safe bet that most things will cost a lot more 40 years from now.

The amount you need to actually invest every year to actually support yourself some day is way more than 99% of all individuals (and companies and governments) will ever actually invest.

In 10 to 15 years things are going to get real ugly when Social Security, Private Pensions and Government Pensions all start to run out of money at the same time...

"I feel sorry for the kids of these retirees, they most likely won’t see a dime passed down from these relatively well-off parents..."

Dude, talk about entitlement. Why should kids expect to have money handed down to them? Nothing like inheritance to sap one's ambition. I say let the young-uns fend for themselves and maybe then history won't repeat itself! Maybe I would change my tune if I had a big fat inheritance check coming...

SFWoman Says:

"Sorento at Anatolia. I just have a problem with that. Developer must have received an atlas for Christmas."

The developer must have been dyslexic, Sorrento is most certainly not in Anatolia!

SFWoman,

well, you know the subdivision and development names never have a logic in between.

I am wondering if the downtown development "The Royal" will throw in a free knighthood or something so every buyer will be addressed Sir, Lady by the doorman.

NABNALB,

what you say is true, but getting a headstart in a wealthy family is definitely more of an advantage than not. Somehow these free-spending parents won't set a good example for the kids, and don't look like the type that will spend a lot of time with kids setting their values straight. So what else can these parents provide for their kids? Money perhaps? Unfortunately with their parents' spending style, the kids won't see any of that either.

This is much worse than growing up in a poor family with hardworking parents. I know of two kids who grew up seeing their parents blow through about 50-70M worth of their inheritance. One went to Pepperdine and had to quit the second year after his dad went bankrupt. Another went to Pomona and had a problem graduating, and got into drugs for years. From rags to riches is a great ride, the other way around is very harsh for kids. Very few of them may come out as legendary entrepreneurs, most of them just sink to the bottom.

Owneroccupier,

Whoever did the trusts and estate work for the parents did a horrible job. There's no reason on earth why a family that wealthy can't create a spendthrift trust just in case the heirs blow all their money.

NABNALB,

Without trust fund babies, we wouldn't have the luminous Hilton sisters with their blank stares and orange perma tan. What can you possibly have against the system?

I think just about everyone wants a Ferrari…

I really do not like one. For that price, I rather have a Toyota Century and some Kobe beef.

astrid,

a trust is not bullet-proof. If you don't have a skill with money, the worst that that can happen to you is inheriting a big stash, and I am being very serious about that. Only your skills and knowledge can last forever and nobody can ever take that away from you.

If you don't know enough about money, who will manage the trust for you? Whose advice will you listen to? There have been many scandals of trusts being mismanaged while the "managers" cut himself a big check regardless of performance. Investment guidelines set 20 years ago may be largely obsolete. Trustworthy friends and family die off. Shrewd lawyers, money managers, scumbacks of all sorts flock to ignorant trust fund kids like mosquitoes to blood, and rest assured they will find numerous ways to chip away the money hard earned by their ancestors. On top of this, the biggest enemy is inflation. If a rich family doesn't bring up kids properly, no money is enough to last forever.