patrick.net

Actually to a certain extent, this crisis is a mechanism to give small conservative guys a nudge ahead of the risk-taking higher net worth investors.

Lots of HNWIs will wake up broke, especially those who have been earning very high salary ($500K and above) so that they have no time to manage their own portfolio. Private banking clients will be hit real hard, because lots of "innovative" financial products that came out in the last few years were targeting these people.

These HNWIs were essentially forced into high-risk hedge funds or yield chasing junk bonds in the last few years due to the extremely low interest rate. This is going to get very ugly.

Now that the subprime peons are screwed, the next group of people to be screwed are these single-digit to double-digit millionaires.

OO, no doubt you are correct and this is why the Fed's new powers/bush bailout is now surfacing.

The Bloomberg article is here.
www.bloomberg.com/apps/news?pid=newsarchive&sid=adMWraq8li6c

"listing as named plaintiffs a San Diego retiree couple who it says owned $1 million of the securities. "

Why would anyone park that kind of money in an account like that?

I currently have an empty shell of a UBS account, dating from when I worked for INTC. They hired UBS to manage the employee stock option and stock purchase plans. But I've long since excercised my options and last December sold off all my shares (at $27+ :) ) . Early this year I finally drained off the small amount of cash left in the "uninsured money market account" tied to the stock plan.

DennisN,

it is called yield chasing. I can particularly understand why the retiree couple would do that.

Wealthy retirees typically live on the assumption that they can live off the interest of their principal. It was impossible to do so for the last 5 years. Normally you would only need $1-2M to generate a reasonable after-tax return to support a comfortable lifestyle. With Treasury running at 2-3% you would need a much larger nest egg.

These ARS were all AAA rated. Not that AAA rating means anything these days, but back then individual investors were a lot more naive and trusting.

I'm a somewhat wealthy retiree living off the interest on my savings too, but I'm not that dumb. Right now I'm really feeling the pinch from these darned interest rates. But I live cheaply.

I really kick myself for not tying my cash up in CDs last fall when rates were more reasonable. I did pick up a 13 month CD at 5.55% apy when Banner Bank had a special on them.

DennisN,

the key is, you live cheaply.

Lots of single digit millionaire retirees live very lavishly.Their retirement lifestyle cost easily $150K a year, after tax.

Their expectation of lifestyle is shaped by the media, financial magazines and their peers. Vacation home, 4 luxurious international trips a year, eating out often, new cars, exclusive golf club membership, etc.

Off topic, anecdotal:
So I am friendly with a mom at my kids' school. Last spring at age 46 she proudly became a first-time condo-owner. Yesterday new condo-owner shared some rather specific plans to step up to a nice single family home in another three years or so, plus maybe take that dream vacation she's been planning. I asked her what dependencies there were, whether she had planned around recent changes in the housing market. Maybe I shouldn't ask questions like that.

She assured me that all she needed to do was break even on the condo.

By "break even" she meant that she would somehow have accumulated the full Spring 2007 value of the condo as equity. In four years. With no extra payments.

The Realtor in this case markets herself as an expert and resource for first-time homebuyers. And she let this little misunderstanding go.

How many sweet, responsible people of moderate income are subject to similar confusion? This woman tripled her monthly housing costs in order to own a home that is smaller than a lot of apartments. I can't support a bailout--though of course one is happening with or without my support--but for the first time I understand the need.

Worst of all, this lady is working until after midnight most nights to make ends meet, and she thinks she's fine. Her Realtor tells her that the condo is holding its value. And I can see pretty clearly that this particular condo-owner would never think of stepping up for a bailout. She may work herself sick, but she will not take a handout.

The people who *do* step up for the bailout will be those with more experience in gaming the system.

But that doesn't mean that there isn't real heartbreak out there.

There's a really good golf course right down the road from my house that has a mid-week senior rate of 9 holes for $9. ;)

Right now, many Asian multi-millionaires and even billionaires are being screwed real hard by a financial product called "accumulator". It is only available to private banking clients.

It is a very complicated derivative tool that enables you to buy a stock at a discount as the market heads up, but commits you to buying the same stock at an inflated price when the market heads down. The bank acts as the couter party of your bet but caps its loss by limiting how many shares you can buy at a discount but doesn't cap its gains, so your obligation to purchase stocks at an inflated price is unlimited.

The media over there calls these "accumulator" products "I come kill you later".

OO,

Sounds similar to a margin call in the 1929 era.

Peter P,

Not very logical to suddenly be FOR farm subsidies when the price of farm products are way up.

(Just like Malcolm, I did a double take).

Eliza,

That was a strangest definition of break-even I have ever heard. Can you explain it again?

NVR,

Where did you see the news about Germany?

NVR,

Re: Bush bailout plan.

Looks like the biggest anti-regulatory scam ever. As we can see, they had the plan drawn up long ago (Apr 2007). And now is the perfect time to start the economic war, following the plan.

What does remind me of, again? Oh, yes, the war on Iraq was similarly pre-planned and ready to go, waiting for any excuse.

Wow.
The UBS thing is just scary! Money market funds going iliquid and below par. Woah.
Reports last week on bond funds blowing up.
Scams like the accumulator.
It looks like, once again, Warren Buffett was correct.
People had unreasable expectations of return and chased some very riskey investments, or allowed financial institutions to offer products claimed to not be riskey but that were, in fact riskey.
Greed was is the market.
And now. Fear.
For any of you long time-in-the-market guys. Is this as bad as you have seen? I know we have had Enron and WorldCom and LTCM before. But this seems a much broader based run of malfeasance. I can't seem to find a segement of the market where risk was priced properly.

Right now, many Asian multi-millionaires and even billionaires are being screwed real hard by a financial product called “accumulator”. It is only available to private banking clients.

Isn't it very similar to selling naked puts.

Even billionaires can be suckers too.

Not very logical to suddenly be FOR farm subsidies when the price of farm products are way up.

Oil is a big factor. Farmers are not suddenly more profitable.

I really kick myself for not tying my cash up in CDs last fall when rates were more reasonable.

I really kick myself for not buying BSC puts. Mish had a very good analysis almost one week before the meltdown and I already had the quotes pulled up.

It was not meant to be. :(

If nothing else, I should have bought BSC at $3 and sold a week later at $10. Even longs could make money in this market.

Shorenstein isn't exactly calling a bottom yet but I believe he's saying it's close.
www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/30/BUUAVQQDJ.DTL

"There aren't a lot of people in the market with capital and there's no debt. That's a good time to be a buyer and in fact, when you look at the down cycles we've been in, the best time to be a buyer was in the early 1990s, when there was a deep recession plus a lot of oversupply of office buildings and the S&L crisis.

Then again in 1998, when there was a credit crunch, that was another great time for us. And then in 2001, when there was a recession and a terrorist event, (that) froze the capital.

Those were historically the best times to buy. I think this period - we have a recession, a very significant credit crunch - and like other down cycles, I think there should surface some pretty good buying opportunities."

So Peter, are you going to buy UBS puts Monday? ;)

Mercury News: "Startups Lose Their Sizzle"

http://www.mercurynews.com/business/ci_8747756?nclick_check=1

Lost Cause Says:
March 29th, 2008 at 9:33 pm
"I hear that you can even deduct interest on a second home, for which an RV could even qulify, which explains why there are so many of the gas guzzlers around."

Yep, even a boat if it has a toilet, qualifies as a second home.

Duke,

riskey or risky?

Depends upon whether it's Irish or Scots.

I have been saying that this country is the next Argentina, but now maybe I should embrace the coming disaster, since it will rid of the the ruling class.

So Peter, are you going to buy UBS puts Monday?

I will take a look. ;)

From San Jose Merc

http://www.mercurynews.com/ci_8748487?nclick_check=1

Couple's fuel bills nearing $1,200 a month

This is what happens when you commute from Los Banos. To everyone willing to commute - gas prices will not go down over long term. If the couple adds the 1200 to their mortgage, they could afford a house 200K more expensive.

Houses in East Bay have to be cheaper with the gas cost factored in. If your monthly commute cost is 250, you are just breaking even if you purchase a house that is 50K less.

Doesn't Baño mean bathroom in Spanish?

Lost Cause is so naive. :lol:

Human civilization is always characterized by people exploiting people, or the other way around.

I have no sympathy for that couple, did you notice they have a THIRD car? Also, why can't one of them quit his/her job and move to the city where the spouse works?

"Coffee at Starbucks is out," said Arleen. "And no stopping for Mexican takeout food on the way back home anymore."

She used to get her nails done regularly. Not anymore. Hair appointments are far less frequent.

The trips they used to take to Monterey, Santa Cruz or Reno are now memories. So too are Rick's golf outings to courses along the coast.

"There's 20 bucks for gas, $40 for green fees, 10 bucks for lunch," he said. "It adds up so fast. Pretty soon, it's near $100."

Yeah right, like I really feel bad for anyone who cannot do these things regularly any more...

I have no sympathy for anyone, but that couple is just comical.

UBS, FNM, FRE, NCC, WM, maybe LEH depending upon action.

A serious shit storm is coming.

Every cloud has a silver lining - even a mushroom-shaped one. ;)

At least your "shit storm" may mitigate the high prices farmers pay for fertilizer.

The best case scenario for the US to get out of the shit storm is:

1) more destruction of worldwide supply of food due to weather changes, epidemic, loss of land to industrialization, pollution etc. which is already happening.

2) A total collapse of fiat followed by a brief return to gold standard

We own the most agricultural land in the world, and the US government holds more gold than the next 9 central banks combined.

That will be a very possible way of the re-emergence of USD as the world's reserve currency. But before that, we must inflate away all our debt - particularly the debt obligation owed to foreign parties.

Good article, that one from The Economist.

OO, are you using the Perth Mint Certificate Program or are you doing something different? Do you deal through Euro Pacific?

In the long run, the US is infallible. It has vast agricultural resources and a strong military.

For now, we need to worry about the US Dinar.

Do you guys see the re-emergence of higher denomination FRN's? $100,000 or even $100,000,000,000?

due to weather changes

Thanks for not using the term *climate* change. ;)

Another decent one.

There is 1 guy on Zillow who posts some very useful links. I'll start trying to cross post those here when I can.

Peter P,

I am using PMDS and deal directly with Perth Mint, there is no reason to go through Euro Pacific. When I opened the PMDS account, the minimum entrance fee for non-Aussies was only $100K but now they jacked up the amount by 2.5x and I was luckily grandfathered in.