patrick.net

DS,

I'm not sure if the Graphologic Psychologic Automatic Systematic Hydromatic Identity Parser software accommodates well for the borderline psychosis of our favorite regular Troll, but good old fashioned IP addresses tell me there's at least a 90% chance that TOB == TOS. They both come out of the same temporary Comcast block, which would be quite a coincidence. And the fake email addresses used are always women's names, though that's less of an indication. The reason I think the Troll is a female is because of the intuition of our other female posters like SQT and SFW, who immediately thought she was a she.

Randy: And what's the buffer? Bonds, gold... ? I feel the pain because I'm part of a credit union, have $100K+ with them and they are advertising for a 0.25% discount on Hybrid ARM loans. My CU is concentrated in CA, CO, OR. I'd like to find a home for that cash, and fast if it means that my CU is in jeapordy.

Brand,
You can buy $60K in I-bonds, and your spouse can buy $60K in I-bonds.
If you're worried about more, you can buy an additional $60K in EE-bonds, and your spouse can be $60K in EE bonds.
There. That's almost a quarter of a million in sovereign debt that you can pick the maturity on and never pay a dime in California income tax.

Brand

I don't know. Simply, I just don't know. I can give my brief arguments as to why I don't know, that's about it.

Gold & other precious metals are no good because of all the reasons I've argued against gold bugs. Gold is not magical. It's not going to become some reserve basis for a future currency. It is manipulated heavily in the modern markets. And it's hard to buy real gold without losing your ass.

International stocks are riskier on a whole than domestic stocks. What you get in currency you could well lose to instability. Developed markets are reflective of the dollar -- case in point the mass exchange of discounted euros for dollars going on by the ECB action the past many days. Developing markets can go poof, along with your investment. And those events tend to correlate well to western world instability. When we're distracted fragile regimes are at high risk of collapsing.

Corporate bonds from mainstay companies are good, maybe the safest thing right now. But then you're trading risk of default/failure for a lot of market and interest rate risk. And since there's a rating agency issue also, even the best corporate bonds might have trouble holding their value, for a while at least.

USD money funds can be inflated away, and has the taint of subprime.

Real property should have been the place to retreat, except...well...

Few of us can get into top-shelf hedge funds (or we'll call them value investment funds, since hedge fund will be a bad word in the future). Fewer into top-tier VC funds. Pretty much none of us can get into strategic evergreen funds because we weren't born into them.

Treasuries are safe, but wide open to the ravages of inflation.

--

What I'm doing for now is winging it. I'm leaving my 401k/SEP fully invested and on auto pilot. I have enough time left there to hold course. My banked home-equity is reserved in money markets and munis which return like crap but make up for a lot in tax treatment. Using taxes to boost returns is a good strategy, but only goes so far. The problem is this wealth can be inflated away -- though my hope is that home prices deflate faster than general prices inflate, so I end up equal or ahead. My discretionary investments are in tech, medical (minus pharma and biotech), heavy industrials and core transportation (minus airlines), in that order. I think tech is going to be the relative haven in this correction cycle. It will go down too, but relatively do better than say financial or home builders or consumer retail.

A lot of words to say that I have no f-ing idea.

HOUSING DOOM HAIKU

Game's over Rover!
Time to put down the crack pipe,
smile, and bend over...

Wow! The crash is really here. It's about fricken' time.

Shout it from the rooftops: free at last, free at last, free at last!

Time to break out the Cheetos & popcorn, and enjoy the action...

I almost forgot: my biggest investment is in something FAB eloquently described over a year ago --

I'm investing heavily in my ability to own and directly control a portion of positive future cash flows. Entrepreneurial trumps all if you can get the equation down. What I think I said then was I'd rather own a minority partnership in FAB's father's business than an equal investment in Warren Buffet's fund.

(Not "go out and cash in Junior's college fund to buy a TCBY franchise license" advice)

Randy,

Treasuries are indeed wide open to being ravished by inflation.

But not Ibonds, because you can redeem them any time after the 6 month holding period.
But since you can only get 120K per year per joint household, they're more for working Joes than for rich dot com elites.

"Taking specific advice from a blog isn’t advisable..."

@Randy H,

Understood. I gather information from multiple sources (as I hope most do) before making decisions. Blog content runs the gamut from fluff to profound insight. I thought your comments were wonderfullly blunt regarding recent events, and they motivated me to review my own position. Thank you for that.

sybrib

I agree on Ibonds. I need to look into them more. I think everyone can use them, though there might be some AMT related problems -- not sure.

For the record, I'm not a "dot com elite". Not that you were angling that at me, but in case you were I'll clear the record. I made $0 on options or founders stock during the entire dot-com era. I was paid a ridiculous salary as CTO of a dot-com, but then everyone was paid ridiculous salaries if they worked for a dot-com. But I have some cool stock certificates from a couple long-dead companies.

My wife made some money during the boom, but in an acquisition not in an IPO. The difference was we cashed in her options at every point allowable (she was a finance insider with nasty blackout dates), and I remember everyone saying we were idiots. Leaving money on the table, etc. We also treated that money as "winnings" rather than "income", so we didn't change our life style based upon it. Because of that we kept 100% of that money plus returns whereas most of our colleagues blew most of theirs.

I made most of my money in 2001-2004, after the dot-com. My best year was 2001/2002 when my telecom software company was sweeping up after dot-com remnants from the telecom world. Telecom core systems have the wonderful requirement of actually having to really work, so it's a good cash flow stream. I also got a bit lucky in that I followed a hunch and sold out that line of business before the worst of the telecom nuclear winter settled in. I say lucky because I almost didn't. If I hadn't I'd probably have lost half of what I gained trying to keep the ship afloat.

Woooowwww! The legendary Michael Holliday resurfaces. Pretty soon we'll be treated to tales of cookie crumbs, foreclosure madness and red fruit punch Hi-C!!!

I thought you were going to be our novelist for the real estate bust? Still plenty of time, I guess...

@Randy: Why so conservative in the face of housing bear predicitions coming true? :) I realize that it's tough to place money for the long term. FYI, I tend to find claims that we're headed for a U.S. meltdown to be somewhat unlikely, mostly for the reasons that you've mentioned (dominant military, economy pegged vs. other nations, etc.). Thus I am looking for a nice balanced portfolio with a mind towards greater inflation.

I believe that China will eventually unpeg the yuan. This will temporarily kill their growth and cause massive pain, but eventually it will be a net positive as U.S. exports climb while imports decrease slightly. However, China unpegging will cause a massive U.S. shift away from China, plus all associated booms/busts in world currencies. I am unsure how to protect against that, as Treasuries are in a huge trough and thus will yield more in the future (assuming we bother to pay off our national debt, which I take as a given).

The future is difficult to predict, but this in the same vein as I asked before---what is the best way to profit off the housing bust and the onset of massive inflation?

Bap: Your debt is almost certainly transferred as an asset to the debtors of Lending Company X or the federal government.

-debtors
+creditors

@Brand

I'm very conservative with our banked home-equity. The entire reason for banking it in the first place instead of just buying another house was to protect it from uncertainty. Normally, a house is a very conservative, relatively safe place to store wealth. After the bubble corrects I'll move nearly all that money back into a house. My other investments are on the aggressive side for my age.

"stupid question here folks: If you owe Lending Company X money and it goes broke, do you no longer owe the loan?"

On a daily basis your loan history is tracked by the mortgage companies accounting software and is carefully monitored each day by their accounting dept. Nothing falls off into empty space I can assure you.

When companies go under.. or as they say close their doors..or even get aquired by another firm... they dont stop operations...the internal Accounting Dept or outside firm will be closing of the books and disposal of company assets. Filing all the IRS statments and banking requirements. The Accounts Receivable, your loan, is sold off to another company ( could be another lender ) or who ever who will contact you and make sure you send in your payment to new address.

LOL No one will just walk away I can assure you.

I hear this alot on the talk radio and their isnt clear or complete answer to all this from the host. So the confusion is wide spread.

I am in Finance (Corporate Accounting). Any accountant will tell you the same.

"Normally, a house is a very conservative, relatively safe place to store wealth."

Thats an odd statement considering all that is happening...
OK I get it .. sarcasm... what you mean you keep your gold at home...
I guess China should consider keeping their wealth at home instead of giving it to us for Goverment IOUs.

debtors of Lending Company X or the federal government

Hum? that dont make sense...

Smart move Randy, your wife did the right thing. I cashed out all my IPO shares on July 2000. I did however think of it as pure luck. We were told by our CFO take a small pinch and spend it while you lock the rest away in a MMF for three years. Best advice I ever heard. I watched the melt down safe and sound. Nothing else changed in my life... just continue with our business day to day. I was sure that home prices would crumble around 2003... but I didnt see it. The TH i was tracking went from 200K in 1998 to 500K in 2000... never went under 500K...now well over 650K

hmm, well, if the IP addresses agree, on the other hand, it trumps the GPASHIP software... still seems to be a pretty blokey female, tho, even tho SQT and SFWoman think it's a blokette, they're too heavily into number-crunching -- for instance, you don't often see SQT, SFW and newsfreak crunching the numbers in their posts -- but you never know, could be an ex-IB, ex-MB, etc with a penchant for numbers and a genghis khan streak...

Bap33 Says:
stupid question here folks: If you owe Lending Company X money and it goes broke, do you no longer owe the loan?

I was wondering the same for a while recently, especially when RAMS here looked like going belly-up, and someone I know desperately wanted their loan approved with them at the old interest rate before they went bust (as they assumed the interest rate couldn't change). It's similar to a firm going into administration and paying out creditors, I assume -- but with salient differences -- for instance, do other lenders offer to take on the loans, but adjust the interest rates upwards to allow for risk? It then becomes an exercise in risk management and prudence for others. Do central Reserve Banks attempt to draw from the reserves to keep the lender afloat, as the very creation of central banks was intended to stop runs on banks? What clauses are there in a mortgage agreement in the event of the lender winding up?

Both these bubbles will be part of standard economics curriculum. We witnessed them first hand.

I dont know about that... very few people can recall the other tech and housing bubble of 1991... IBM lost 50% of its value in one week. DEC and others in mainframe go belly up. Semiconductgor mfg go offshore from Silicon Valley. Unemployment skyrockets. End of SV mfg by 1995. The hype of UNIX and IBM OS2 never occurs. Only 10 percent of companies from the 80s make it the 90s. Japan destroys US chip production with DRAM Dumping..

Hot Condo Markets of the 80s in California fall due to speculation, forclosures skyrocket, mortgage companies go bust, interest rates and home prices both fall in tandem. Homes in Bay Area drop like a rock..

You talk to people about this back in 1999 or 2003 and they look stunned...

DS asked
"for instance, do other lenders offer to take on the loans, but adjust the interest rates upwards to allow for risk?"

the lenders receivable, your loan, is sold at discount to another lendor.
The difference is profit to new note holder.

thanks svcausguy. i guess it's possible to onsell a loan at discount mainly because there is so much fat in it to begin with, in terms of the (say) 8% interest over 25 years equation -- it's a huge sum of money paid by the mortgagor...

very cool UK site, well worth a look... (apologies if it's been cited before)

http://www.pricedout.org.uk/

They're even doing protests against the new PM with banners 'n'all...

I dont know about that… very few people can recall the other tech and housing bubble of 1991…

I certainly remember that. After working as a EE for defense contractors for 15 years, the USSR broke up and I was told, in essence: "Thank you for helping the West win the Cold War. Here's your pink slip. Get lost."

None of the commercial engineering firms would touch anyone with defense contractors on their resume. "Oh, you worked in defense. Obviously you can't be any good."

My escape was to cash out my 401(k) money and put myself through law school at age 40, becoming a patent attorney. But many engineers languished in low-paying technician jobs after the collapse of the defense industry in the early 1990's.

Dennis,

I worked in "tech" for few years in the 1980's. Then at the height of the Cold War I worked in Lockheed for a couple of years.

My project at Lockheed got AFR'd ("available for reassignment") in the height of the cold war. All my colleagues who wanted to were able to get a placement on something else. But it was clear to me that defense work was not the "Real World".

I thought that in the long run I'd be better off toughing it out in the "Real World" than becoming like one of them Cold Warriors who acted like they' be fishes out of water without the largesse of the American taxpayer and the patronage relation they thought the defense biz had with them. So I didn't try to find anything else to latch onto. Instead I began planning the vacation I was going to take after my AFR timed out.

I told HR that I'd just take the layoff. Since my manager found something for me (didn't even ask him to), they said it's not a layoff. They said it's a voluntary resignation. Well, they DID find something for me. So I guess that was fair.

My point is, back in the day, the "tainted" perception out in the Real World of those lifelong defense workers was not completely unfair.

Brand said:
"Isn’t Wachovia somewhat unstable compared to Wells Fargo."

I don't know about unstable. Wachovia has seen some ugly media stories in the last year or so. Still, they're massive enough (top 5 or 6? in market cap) that I don't worry they'll disappear overnight. It's the local bank with three branches, started by a local lawyer, dentist and insurance broker that give me the cold sweats. They pay 5.5% on a CD, but maybe you'll show up and find plywood over the windows. I may end up all in BofA and Wells Fargo. More likely, our accounts will be fine, but bread will cost $6 a loaf.

DS

I'm fairly sure TOS is a former IB. Too much of her jargon vocabulary, especially when she started arguing with us back some time ago, gives away finance industry speak. No argument that number-crunching gals isn't the norm, but there are plenty of smart quant women. I happen to be married to one myself.

The reason our locals thought she was a she, if I recall, was when she got into it with Surfer-X. She started, as they put it, "swearing like a girl". I tend to trust that measure. Similarly, I used swearing-abilities as my primary reason to declare that "GC" was feigning being an innocent immigrant without a grasp of Western/US/English culture. If you can swear like Surfer-X then you understand plenty.

Oddly enough, the over-the-top swearing was what initially made me suspicious as well. It was clunky, as if from someone who wasn't used to it. Then the fear mongering pretty much sealed the deal.

Associated Press
Whistleblowers on Fraud Facing Penalties
By DEBORAH HASTINGS 08.24.07, 3:16 PM ET

http://www.forbes.com/feeds/ap/2007/08/24/ap4052736.html

One after another, the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted.

Or worse.

For daring to report illegal arms sales, Navy veteran Donald Vance says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods.

There were times, huddled on the floor in solitary confinement with that head-banging music blaring dawn to dusk and interrogators yelling the same questions over and over, that Vance began to wish he had just kept his mouth shut.

>. You guys might what to consider TOS (all inc.) being a possible trans-deviant, or some type of fem-male from the BA.

Besides being Piece-Of-Shit (POS), I belive POS is trans-deviant ....

TOS is POS
TOS is POS
TOS is POS
TOS is POS
.....

After the European Central Bank pumped another $50 billion or so into their banking system yesterday, the grand total of "liquidity injections" over the last two weeks by the Federal Reserve, ECB, Bank of Japan, and various other central banks around the world now stands at somewhere around $500 billion.

Half a trillion dollars.

I have no idea now, where to invest my cash .....

PermaRenter,

Don't invest cash. Save cash.

We stash cash for our consumption needs. What do you think is the best way to preserve the value of spending money?

We invest to build for our future, ie growth. What do you think are good growth investments for the future?

I am only providing info for those who are interested in hoarding physical gold, not to encourage. Gold price is very volatile, and it generates no income, no interest and holding gold is subject to 28% collectible tax. I hold a substantial position in GLD and IAU, primarily as trading instrument since I don't know whether such paper gold is backed by anything. This is a controversial issue and you can find arguments from both sides but I am not going to get into it.

Therefore, I have been moving my position from GLD into physical gold stored in Australia at Perth Mint, a wholly-owned entity of the Western Australian government. There are two programs: the Perth Mint Certificate or the Perth Mint Depository, the former with a min entry fee of $50K AUD and the latter with a min entry fee of $250K AUD. The difference between the two is, the former has a transaction fee of 2% for buying and 1% for selling while the latter has none. You can trade in and out just as on the US exchange, and the quotes are real-time. Annual storage fee is nil you go for the unallocated gold bar or gold coin route. However, as US citizen or PR, you still cannot escape the US collectible tax, however, you are exempt from Australia capital gains tax if you declare the holding as a personal collection. In general, Australia is also moving towards abolishing all capital gains tax for non-residents since 2006 to attract foreign capital investment.

I also store gold and silver at Canada through owning shares of CEF. This is a tax nightmare because of PFIC issues, but I dealt with it alright, as long as gold and silver kept inching up. I hoard the metal itself instead of buying shares of companies because for that part of my portfolio allocation, I only care about asset protection. Gold mining companies are certainly a better trading instrument but that encompass several new risk components: company management, reserve depletion, labor contracts, hedging contracts etc. I don't invest in gold to make a profit, I hoard gold to protect what I already have.

I don't store gold in the US because I don't trust the US government, and I have had enough assets in this country so I don't need to put all my eggs in one basket. I don't quite believe in buying shares of developing markets because in bad times, these markets will suffer much more than us. I am a commodity bull so I invest heavily in energy and food. However, when liquidity crunch hit just a couple of weeks ago, my stock portfolio went down almost as much as the rest, so it is not exactly a shelter if all the CBs in the world decide to let us slide into deflation. So my entire portfolio is a bet that come hell or high water, our CBs around the world will drown us with extra money supply.

OO:

I read your information, thank you for sharing, because like you I have some reservations about storing value in bullion or in those ETFs.

You think this is a sarcastic question but I don't mean it to be.

Suppose that you were NOT an immigrant who can just leave the USA and have somewhere else to go to during a global inflationary or deflationary meltdown. Suppose you'd hafta stay here in the USA and tough it out.

How would you repatriate the stored value of that overseas gold to buy food and pay for shelter back here in the Bay Area/

sybrib,

I don't mean to escape to these countries, I just cannot find a safe enough gold hoarding instrument which has a solid proof that the gold is there. Also, the US has a history of confiscating gold from the public.

I don't think in any situation our way of life will grind to a halt. Paper money will still be there as the major medium of exchange, and I don't believe for a moment that we will go back to gold standard. However, as we sail through the rough waters, I need to hang on to a few things more secure than say, US treasury, because after all it is denominated in USD, which I try very hard to get rid of after each paycheck.

All these instruments in foreign countries can be repatriated electronically, CEF is traded on Amex. Once I set up the account, I can move funds in and out freely, plus most of my portfolio is in the US stock market anyway. I don't think I will ever need to bring gold coins to Safeway to exchange for a loaf of bread or something. It is just a temporary safe haven (for me, maybe not for everyone) to park my "money" as the definition of money is in upheaval.

Did anyone read Kiyosaki's article on hoarding silver? I thought he made an interesting point that silver is a consumable element, whereas most gold mined in the last 1000 years is still around in various forms. Any comments on how much consumption it would really take to push up the price of silver? I assume the monthly expenditure would have to outstrip mining supply (and much like gas/oil, I see no reason to hold extraction supply constant in the calculation as price rises).

addendum: Somebody noted previously that Kiyosaki was pushing silver when we have basically stopped using it for film (DinOR perhaps?). What are the industrial applications driving silver consumption these days?

I think using gold as a store of value is reasonable, so long as you approach it form a commodity investment perspective. I'd argue that gold is not the best vehicle for this purpose, though, because of the fact gold has a whole set of "extra" market forces acting upon it. I was up early with my son this morning. I turned on the TV, which I'd left on CNBC on Friday. The infomercial I saw running is an example of one of those somewhat unsettling "extra" forces.

Implicit to the strategy is also the idea that your stored assets are not liquid or spendable in any practical manner. The premise is that after the dust settles, you're asset value will remain when other stores of value have deteriorated significantly. I'm not sure I buy into that logic, but it is consistent and reasonable. Especially if you have a very long time horizon, and you're willing to potentially bequeath that wealth to your descendants, never being able to realize it yourself.

Likely there would be confiscatory taxation of repatriated offshore, non-business assets for many years after a global meltdown event. And there's no guarantee you'll be able to withdraw it from the host country without source taxation either. When governments run out of money they become quite creative at finding new sources of revenue.

That's the basis of the counter-argument for global equities. They are much more exposed to risk of total loss (of value), but they also constitute a working asset in your portfolio whereas commodities are just piles of value sitting there on the supply&demand curve. And if I view gold from a commodity perspective then I'm concerned about falling demand during and after a global meltdown event. In essence, you're gamble is largely based upon the "extra" value of gold above and beyond its commodity value. Otherwise you'd invest in something more calculable like uranium, crude, copper or molybdenum.

Randy,

I started hoarding physical gold by dollar cost averaging when the ibond yields dropped in 2002 and stopped when the price spiked after the hurricane Katrina.

I used a very simple concept for deciding when to hoard gold: How many hours would an average earner, based on US census data, hafta work to purchase one ounce. Don't have the spread sheet in front of me right now, but as long as it was below the mean, OK for me. For much of the time, it was below a standard deviation. Actually, if you look at raw census data it's clear we've had a declining standard of living, so it would be reasonable to normalize for the declining standard of living for Americans (ie, the "norm" would be for Americans to hafta work longer for that ounce), but I don't t have the time to model that. And no, I didn't do sophisticated modeling with the taxes, etc., probably should have though.

Right now it's slightly above the mean, but well within a standard deviation. Maybe around the 55th percentile, something like that.

On the other hand, silver is sitting right near the mean. So if I was going to insist on hoarding, silver might be slightly better priced. Also, there is no precedent for the government seizing or outlawing it. And, last time I looked, the customs form I hafta sign when I fly home doesn't ask me if I'm moving silver across the boder.

sybrib,

I think you've taken a more logical approach than any others I've seen to date. I wonder, given concerns about physical possession of an illiquid store of value and OO's discussion of Perth Mint, if those who are inclined to this route shouldn't consider diamonds, and not gold?