patrick.net

Peter P Says:
February 27th, 2008 at 12:55 pm
“Always better to buy cheap assets with expensive money than buy expensive assets with cheap money!”

"There are always undervalued assets at any point in time."

All things being equal it is a inarguable concept. I'll trade a lower purchase price for a higher interest rate any day of the week. That's what caused the bubble in the first place, the opposite tradeoff.

Yes, it is the purchase decision. As a seller you want interest rates to drop, then you can push the price higher for the next fool.

an inarguable

I suppose one could also argue that cheap money (in and of itself) doesn't necessarily create value? Let's just look at lumber/bldg. mat. prices. At the height of the boom dimensional lumber went sky high. Why? Was it suddenly of better quality?

Yet the slightest uptick in rates and all of a sudden building suppliers were stuck with a pipeline of over-priced inventory. I guess one of the ways going forward we can determine if we're over-bidding on tulips is to simply take a step back and ask; "Is this demand truly needs driven (or propelled by access to too much cheap money?)"

Oh, that's what we've been doing here the last 3 years! My bad.

Cash would be A-ok for me: Unlike ~95% of the public, I actually *have* some.

A-OK for me also. If cash does become king, we may find out we have more savers than we think. Savers tend to put away cash quietly in contrast to the loud complaining of the debtors.

Perhaps we should... ahem, amend Patrick's contribution ever so slightly?

In a n-o-r-m-a-l world you can't renogotiate the price of the home!

With all the "Mod-Squading", Don't 1099 me bro', Jumbo raising (rate lowering) "mortgage rescinding" and Cap Lifting going on I'll have to re-think my position? :(

@DinOR, word.

How does the old saw go? "If you're going to do something stupid, do it with large numbers of other people."

DinOR, in 2004 I hit the 1 million mark in net worth and felt poor because everyone had access to cheap money. It was one of those flukey situations where everyone with a house thought they were Donald Trump and moved massive amounts of borrowed money around.

Next bubble coming, collector cars. Now instead of "What's my house worth?" the new show on is "What's my car worth?"

Guys, can we please stop the madness?

“If you’re going to do something stupid, do it with large numbers of other people.

Yeah, that is a smart thing to do. ;)

I know, I collect Japanese swords so who am I to criticize, but man these boomers wasting all this effort to constantly count their pennies is really getting under my skin.

Why can't they just own something and enjoy it for what it is rather than only caring what they can flip it for?

Can someone recommend a commodity futures broker with reasonable (NOT necessarily rock bottom) commissions and great customer service?

I want to hedge with gold options. GDX/XAU options just don't track GLD well. :(

Thanks.

Oh, this show is great. The guy told the boomer his car might be worth 18K not 22K and he started arguing with him. Just as I thought, the graph showed the price tripled in the last couple of years, right in line with the easy credit we're talking about. These boomers, I tell ya!

DinOR, in 2004 I hit the 1 million mark in net worth

Malcolm, that is very impressive for someone your age, assuming no inheritence. I would tend to discount equity in a principle residence, cars, and collectables when calculating net worth, since these are non-productive assets.

@Malcolm,

"A cynic [Boomer] is a man who knows the price of everything but the value of nothing."
--Oscar Wilde

The tax bill and assessor records actually do seperate the two and then track both. For an income property you use that figure to depreciate the structure.
Not to be overly attentive to details, but shouldn't you get an appraisal to assess the values of the building and land as "the man" tends to error on the side of allocating more to the non-depreciable asset (land). At least this is what I've read (Holmes Crouch book, I think). I suppose you have to weigh the overall benefit of the appraisal vs. its cost.
Euro broke $1.50 today; okay, I am starting to get worried.

Oscar Wilde. Important of Being Earnest. Cucumber sandwiches. :)

Malcom,

They already have such a show. (It's called the Barrett-Jackson Auto Auction) Happens every year in Y-O-U-R.... favorite town!

Yes, no inheritance and that WAS including the principle residence that has dropped by $100K. Take off about another $250K in taxes that I then paid in 05, and 06 and now I'm where I am. To be considered a true millionaire you would have to exclude your home as you say. You could always borrow against it, put the cash in the bank, and have the same net worth excluding your home and loan note. That is, if joining the millionaires list is really that important. To me it wasn't I was happy just to pay off my house.

"and felt poor because everyone had access to cheap money"

And so did I.

I have a client that was frustrated his property loan didn't go through more quickly and I told him; "You should be rejoicing in this!" Having solid financials finally.... matter!

Harm, you slay me. I swear we got our sense of humor watching the same train wreck.

DinOr, Malcolm,

Access to cheap money does not equal wealth, you had nothing to feel "poor" about. Maybe you felt you were "underconsumers."

Never envy another man's debts.

Malcolm,

may I ask how old you are? It will save me an archive search...

It impacts what you can do. When every wannabe Trump is jumping on every bandwagon that you're on, the competition gets to where things (like investment real estate) stop making sense because a fool and his borrowed money especially, are easily parted. That's how you end up with houses valued at 3 times what the income stream says they are. In that respect you feel like you are in old Russia. You have money but no way to spend it properly and the interest rates are punishing if you want to save it. You have to take on more risk to gain the same rate of return, that's why I am so hopefull about the future now that credit is tight and cash is king again.

I am 36.

You have money but no way to spend it properly and the interest rates are punishing if you want to save it.

What about gold and platinum coins/bars?

Not investment advice

I regret not buying more gold when I did, but I had a little fun with it. I did well, can't really complain.
Not having a mortgage is the equivilent of investing that money at about 8% very safely, so I'm happy.

What about gold and platinum coins/bars?

Speculative, ain't we? Some folks like investing in items that pay a return. Why are you trying to inflate another bubble? Just for that, I'm going to try to bid up the price of sushi.

Not having a mortgage is the equivilent of investing that money at about 8% very safely, so I’m happy.

Yep, like having your very own form of rent control.

Speculative, ain’t we? Some folks like investing in items that pay a return.

I like investing in items that pay good *total* return.

I factored in an intuitive risk premium which is why I was conservative. I am definitely NOT a gambler or speculator. I currently make my living lending through commercial trust deeds. Some of the long time posters like DinOR know my activities in a little more detail since the subject has come up. I used to try to represent the investor's point of view on the threads where we talked about the roles of the servicers and what they can and can't do, and how mortgage pools work.

Buying gold and PMs when the Fed & Con-gress are trying to debase the USD like mad is "speculative"? Since when?

I agree that putting 100% of your savings/investment money into PMs is risky --as any undiversified investment is-- but having a small % as an inflation hedge hardly reflects a casino mindset. There are also plenty of other inflation-hedging plays out there: foreign currencies, oil/gas/commodity ETFs, etc.

I like buying into something with a tangible income stream where I can compare the rates of return and determine whether it is actually more than banking it. That's what I mean by everyone having access to cash sucks because you are then looking at a proposal where you get to invest money which should be called a subsidy since the return is so poor. Some of these deals look so ridiculous you have to put hundreds of thousands into them to just break even on a monthly basis. I then would say, why the hell would I do that, the response, "I know what you're saying but that's what these buildings are selling for." My biggest asset is that I have the discipline to say, thanks but no thanks, at leas the banks will pay me a real return.

least

The information I got from this site led me to buy gold when I did because I knew that was happening. Remember, gold had been very stable up until then, it was definitely a perceived risk. Very few things react logically in the marketplace, speculators and interests constantly throw it off kilter.

RE: Foreign currencies

I have a feeling that other countries will too run into "issues" like ours and have to debase their currencies like crazy.

Of course, some currencies are safer than others.

Not investment advice.

That's my fear with gold now, is that it has surpassed the real decline in dollar valuation but it seems unstoppable probably because of these legitimate future concerns. Logically, an ounce of gold should always buy the same thing, now it buys a lot of the same thing. Real wealth has been created by gold ownership over the last few years. That welath is further amplified if you want to buy a house which is decreasing in price as your gold is increasing in dollar value. It's a nice position to be in, then again, houses are dropping much faster than the inflation tax on your saved dollars so it's kind of hard to screw up right now. All these sideline buyers IMO are doing exactly the right thing, nothing!

People make a recurring mistake which is they feel they always need to be doing something. Sometimes doing nothing is a very logical decision.

Again, nobody should be married to his gold. Eventually, gold WILL become overpriced and a spectacular decline in gold price is in the future. For now, it looks interesting.

I swear to jump headfirst into the next financial orgy.

Disclaimer: I have position in gold and GLD.

Not investment advice

No offense intended, I just think buying a PM merely on the hope of price appreciation is a but speculative to ME.

Yes, the US gov looks like it is trying to devalue the dollar, but that fact is well known and may already be priced into today's gold. There is still a reasonable chance that gold and other PMs may fall in price.

I have paid off real estate that I think protects me against deflation or inflation. I am assuming we will get deflation in house prices, which is making my money in the bank more valuable to buy more real estate in the future. In the mean time, I am putting up with 3.5% to 6% returns (6% were long term CDs bought a couple years back). If we get rampant inflation that hits even house prices, I lose, and you PM folks win.