patrick.net

House prices must go down to return ill-gotten gains to the people who need them - the young!

I mean, that potentially allows them to put down up to $400,000 in interest and principal over 25 years, based on a third of their income, in current, non-inflated dollars.

Huh? 50K income cannot support a 400K mortgage with 1/3 income.

I don’t know anybody under 26 years old making less than 60Gs and I’m being dead serious.

I know a few 5-year-old kids that are making absolutely nothing.

I got foofoo.com errors also.

It is amazing how much money the people at the top are making these days. Last month at the Milken conference in S. Cal I met an attractive (but married) sharp gal a little older than me who worked at Goldman in NY named Suzanne Nora Johnson. I Googled her to see what she did and found a site that said she made $17mm in 2004.

A recent issue of Commercial Mortgage Alert had the blurb below that says the new top guy at the UBS Conduit will make $7-$10mm

UBS Seeking Execs for New CMBS Group UBS has approached a number of senior real estate executives about heading
a new commercial MBS group, which would compete with a unit that the bank spun off earlier this year. Among those being wooed were Mike Mazzei and Haejin Baek, co-heads of Barclays Capital’s two-year-old real estate group. Mazzei and Baek discussed bringing along a team from Barclays, but the talks collapsed a few weeks ago after Barclays made a counteroffer, according to market players. UBS is considering a $100 million operating budget for the operation, including compensation of $7 million to $10 million annually for the top executive according to market sources. The group will originate mortgages and trade CMBS. It’s unclear if UBS is close to making a hire. Executive-search firm Ferguson Partners of Chicago is overseeing the recruitment. UBS, Ferguson Partners, Mazzei and Baek declined to comment.

Maybe that little Palo Alto house near the halfway house will sell for $3mm in a couple years...

I don’t know anybody under 26 years old making less than 60Gs and I’m being dead serious.

Why are we talking about salaries? Most people in SF make around 100K+ a year.

Wow, you should hook up with HaHa, grab a jar of mayonnaise, a muscle mag, a cucumber and get freaky. He'll show a thing or two about income.

HaHa reigns supreme in salary discussion, you are but a pale imitator.

I once met a homeless person working outside the Hyatt Regency who claimed to make 70k a year begging.

He better be paying tax!

Randy H,

Some of the normal career paths toward becoming a full fledged IB are being closed off to a degree. The popularity of ETF's (largely un-managed indices) and other industry consolidations have done away with many of the fund manager and other analyst positions. This can make it tougher for folks coming up through the ranks. It's a great gig if you can get it though.

The foo@foo.com errors are because I started this thread without realizing that this blog architecture cc's all thread posts to the email address that I registered with patrick.net. Because I haven't found a whay to disable that and the signal-to-noise ratio of this thread is so unbelievably low, I simply changed my email to a bogus value so the nonense doesn't hit my inbox. Feel free to nuke this entire thread if that helps.

Let's not lose sight of the BIG PICTURE here.

Why do IBs make more money? They are smarter? No. They do something innovative, interesting? No.

The reason is plain and simple, IBs make lots of money because there are LOTS of money floating around, and the closer you are situated to where these money gets pumped into the system, the bigger the portion you get. We all know why and how these money gets pumped into the system. But is this sustainable? Can we as a country be single-handedly lifted by the high finance industry?

Finance is a derivative of the "hard stuff" that we do. You can't push paper around if nobody is making paper. The Fed cannot endlessly pump money into the system. This game is bound to end, we have to making stuff, not trading, but making.

Some of the smart folks who luckily situate themselves close to the pumping action will get to keep most of the money flowing their way. Some won't. I have a colleague who cashed out his option the same time that I did, he joined earlier so got more options than me prior to the IPO. Then he turned around and put almost all his lotto money into a hedge fund which turned around and managed to lose it all within a couple of years.

If everyone sees that a small portion of people are making most of the money, particularly in a world where individuals are given more freedom and power, such an earning advantage won't be defensible. High-than-normal profit will have to go, it is a matter of time.

Surfer X,

The "muscle mag" really cracked me up! I'll be sure to make that part of my barrage of insults the next time someone wants to show me how big their "salary" is! Keep it up X!

totoro:

Aha! So you're the one who was supposed to be getting all those messages! Gimme a second and I'll forward them right over. (j/k)

But the top IB guys are worth every single cent, because what they do is strictly sales job. I have a lot of respect for sales people, these are the people who pull in the cashflow for the rest of the crew. The analysts/associates or even some junior VPs running spreadsheets have little value-added, and their jobs can all be outsourced to India. I am sure India produces better number crunchers.

I survive mostly by mooching. Do I have to pay taxes on that?

DinOR,

the cost of living aside from the housing cost is actually very reasonable in CA. Even the rental cost is not that high compared to the rest of the both coasts.

People in Ca put money in homes also because they don't see a better venue of investment, housing is considered part of the real asset until it is bid up so much and becomes inflated asset.

the cost of living aside from the housing cost is actually very reasonable in CA.

Very true. In NY, I once paid $70 for 6 pieces of so-so sushi. You can have much better stuff for $35 here.

Owner Occupier,

No problems here! Just look at all the hedge fund managers that were carving out huge and unregulated fees while feeding their clients "woof cookies". These guys aren't even AIMR Compliant and they're taking a percentage of profits that don't even exist! Shameful! They are just now getting their turn in the barrel!

On a brighter note: I was approached by a group of tech guys and they said they wondered if the could have access to my book. I said what do you mean? They said they were tired of doing start-ups where they bust their butts to raise VC only to be told, "I'll be in Cabo, call me when I'm a billionaire!" Now the trend seems to be toward INVOLVING the investors! Tell your friends and peers about our product. Become a spokesman for our product. Show everyone you know our product. I really liked where these guys were going. The minimums were really small so that way they would would assure better distribution and less dominant players. You know what? I'm tired of "call me when I'm billionaire too!"

There is usually one way that I can tell an industry is near the end of its good days. This is a very reliable way, and pray don't tell other people, because it is a trade secreet :-)

When all the Chinese you know start to rush into that industry, you know it is near the end. In 1999 or 2000, tons of Chinese studying in China or here switched into coding, IT, etc. and we all know what happened. Then, tons of them switched into accounting, then we know what happened there. Nowadays, the hottest area for Chinese is finance, the top talents in China all go straight into financial engineering in China, folks here all try to get into bschools concentrating on finance. Since Chinese are very herdy, and herd means great supply, great supply means diluted profitability, so I won't count on the continued abnormally high-earning situation in certain industries.

I myself have always closely watched what most Chinese do and try to stay clear of their path, and do something that very few of them have yet to notice. If I see a bunch of them start to do something at the same time, I usually feel very nervous about that field or that investment. Thank God most Chinese press have not uttered anything about gold yet.

I think the proliferation of IBs and hedge fund managers is just more sign of a culture shifting paper around while creating little value for society at large. There's definitely a bubble there. At least the robber barrons made stuff and got stuff built. The incredibly well compensated moneymen of today seem to create very little value. If they are, as Owneroccupier, incredibly good salesmen, then their function is basically to psych other people into believing that they're worth their very large salaries.

As for BA. I think it really comes down to the cost of raising kids. Most people can deal with lifetime renting (esp. with rent control units) if they don't anticipate kids. But in the BA, you really have to be wealthy to provide any kind of a decent education and future for your kids.

Extreme Inequality is indefensible simply because envy is the strongest and the most long-lasting passion in every man and woman. In times of hardship, demogogues will fan such a passion in order to seize power for themselves.

In the past, the conquering minority, when setting up an aristocracy, always resorted to God-given rights (read, religion) to keep the conquered in subservience. Many of them also relied on racial segregation to keep their distance from the ruled. Hence the strange (actually rational) requirement in many European monarchies that a member of the royal family cannot marry a commoner with their own country but is free to marry anyone from outside the country, as demontrasted by a number of recent royal weddings in continental Europe.

But these days, any hierarchy is in serious doubt, as people have been accustomed to equality, democracy, and me-ism.

I actually think China may eventually become a safer haven for the very rich than Amerika, for better or worse.

Japan is still very hierarchical. But it's a good country for Japanese only.

Surfer-X
Cucumber and muscle mags????
Do you talk this way in the real world or do you save this stuff just for us?
(Not a criticism...I mean...it's funny!)

Owneroccupier,

Don't be so sure. I'm going to call my grandmothers and tell them to stock up on gold and platinum necklace chains :)

I think the Chinese are just extremely naive and undiversified. They're like the cleaning ladies and shoeshine boys of economic trends.

GentleCheetah,

Huh? When's the last time you've been in China? I cannot even imagine what can cause you to hold those beliefs!

Do you talk this way in the real world or do you save this stuff just for us?

@Linda, for example today in a meeting they were discussing how they were going to "retrain and recertify" the operators. I commented "oh you're going to cane them".

I typically insert a marginal profanity filter in some situation other than that I usually speak in person the same as online.

I see a lot of opportunities to be the shopkeeper to the herds of China speculators. Lots of one time deals and discretely profitable undertakings are available for anybody with a little foresight. The market aspect is actually kind of easy because the actors in them (other than the government--to some degree) are so predictable.

But in the BA, you really have to be wealthy to provide any kind of a decent education and future for your kids.

I just had the misforture of being in the BA for a few hours. Fuck that place, seriously. I think the real question regarding kids in the BA is "will they look good in my euro luxury car and do they go with my matching corgis" If not don't have them if you live in the BA. There must be river of crack running through the BA because those that expouse the magnificent attributes of the BA are either horribly myopic or from Buffalo NY.

I went back to visit China last year, under constant plodding of a lab director (in Beijing) who wanted to recruit me to his lab. Of course I visited my native city, Shanghai and then Beijing. On the one hand, I was quite impressed by the rapid growth in the city. On the other hand, I was very sad, because the old Shanghai that I grew up in was gone. Gone was the soul of the city I used to know.

Money talks in China. That's the new religion. Workers have absolutely zero rights. The state supports capitalism, as long as its rule unquestioned and its elites enriched along the way.

If you are rich and play the game right, especially if you look different, you'll be fine. When I was in Beijing, the hotel folks were very subservient to foreigners. It was less so in Shanghai.

On my way to the airport, the taxi driver (in Beijing) told me how he saw a taxi driver being beaten up by two Japanese customers -- possibly the driver scammed them -- and nobody, including the police, intervened.

Now, about how the Chinese treat each other. A couple of years ago, through mutual friends, I met a Chinese programmer who just went back to China for a year, thinking that he could take advantage of young college girls, but got kicked out and came back to US. (What has US come to??!!) I didn't know this guy. But at a supper gathering, when each of us had his/her own food, he suddenly asked me to share my soup with him, in a very rude and callous tone!!?? I am a lot stronger than he. But somehow he thought he deserved what others had. This is a graduate from a good Chinese engineering/science college but exhibits zero creativity and initiative. Why the US is getting this kind of low-born people baffles me. After a few incidents like this, I eventually gave him a public dressing-down serious enough that he'd remember for his entire life.

surfer-x,

The important thing is that the kids go with my Watanabe blades and stainless steel decor. I may have to chrome them...

GentileCheetah, I hear there are great noodles in Shanghai.

I've seen plenty of ugliness, because it's the ugliness of spoilt children, who were not given proper boundaries.

But what's this about hierarchy and stability. Hierarchy can conceal social tensions, but they don't eliminate them. I really don't think a rich person will be better off in China than in the US, now or anytime in the next 30 years.

Surfer-X
Please answer...
I have a surfer friend who talks like you. (only worse, if you can imagine)
He calls people Holmes and makes statements like
"I got me a yam a'brewin'"
that make people think they haven't heard correctly...
His statements are pointed, direct and generally right on point...but often his wording is quite suprising.
You are well loved here (maybe not by the trolls) and are our
local voice of caustic verbal outrage...much as Newsfreak is our neighborhood poet.
I imagine you , a PHD, a scientist, using words like cockgobblers in your daily life/job. So I wonder....do you save it up for us? Or does it eek out at inopportune moments? :)

Sorry...got sidetracked on the phone...you already answered!

Let's not forget,

it is homedebtors buying homes on interest only who have contributed to the size of this bubble...

The thing to remember about median incomes is that most people are not highly paid, highly educated professionals. When you work with such people, you develop tunnel vision.

The average worker is an insurance adjuster married to a dental hygenist who works three days per week.

The FedEx guy, your secretary, the worker at Barnes and Noble, the janitor, landscapers -- these people do not make $100k. Yet they all have to live somewhere.

Thank you Joe, you make the point much clearer than I did...

Actually, to hell with the janitor, dental hygeinist, fed ex guy and insurance adjuster, let them all live in rentals because they have to, along with their 2 kids and their aging mother-in-laws. Houses are meant, due to population density created by Schmoes living in rentals, only for the super elite as second homes and pads for meeting mistresses.

Kerouac would have dug that situation, he could have lived in a hammock in Berkeley, along with everyone else, yeah, that's coool, mannnn...

tsusiat
Be careful with using the word 'Schmoe' in vain...
We don't want to offend our buddy Joe.... ;)

I think one of many causes of all this madness is the human desire to emulate those that are above.

The middle class (in the traditional sense, the owner class) tried to emulate the upper class. Now the lower middle tries to emulate the middle class.

GC,

The solution is so obvious. Bring back sumptuary laws!

I think the lower classes have skipped the middle class and gone straight to upper classes. You think those receiptionists' manicure, hair weave, LV bag, etc., come cheap?

Does anyone know how the commodity bull markets have played out in their previous runs ? What's a typical cycle ?

I have only seen the dot com bubble and then the RE bubble. If these ever happen again in my lifetime I have my lessons learned, and know what to do. I don't know much about the commodities, except they are far more volatile and susceptible to non-fundamental driving events like politics.

Higher stock prices and higher house prices are loved by majority of the population. But higher prices for commodities do not seem like a good thing. Are people buying just because of inflation fears, US$ devaluation or the supply-demand equations are really changing to reflect a new reality ?

astrid, I was merely musing on the housing aspect. Women always spend inordinate amount of money and time on their appearances. It is actually the upper who tend not to care about the trappings that you mentioned. The same can be said of men. A lot of men like to spend inordinate amount of money and time on their (new) toys. But the uppers, in the traditional sense, liked to (at least used to) toy with wars, intrigues, and diplomacy.