patrick.net

I'm not saying I would not invest at some point, I'm just a hell of a lot safer saving, rather than trusting this market.
It's just as likely I will have 105K even if I didn't invest, than what you may end up with 25K in 30 years.

Looking at shadowstats.com, it appears the money supply has gone through the roof recently. http://www.shadowstats.com/article/hyperinflation-2010"

I've pointed this out before, but I really don't think anybody should take John Williams seriously. Just look more closely at his "SGS Alternate CPI":

Chart

(he won't let people repost images)

Just eyeballing it: Inflation according to him was running at around 9% a year since 2000. Really? I don't have access to his actual spread sheet for the precise number (requires paid subscription), but 9% inflation over 10 years is a 136% increase in prices.

136% inflation since 2000. Really?!?!?

Of what? You can maybe point to a few things that have gone up that much (like gas). But food, rent, cars, clothes, phone/cable bills... you know... the things people spend most of their money on?

Even medical expenditures have not gone up that much. And a lot of that is not inflation anyway, but just increased utilization of health services (whether useful or not). Twice as much money spent on hip replacements, MRIs, and Viagra is not 100% inflation. In fact it's 0% inflation if the cost per MRI/pill/surgery is unchanged.

Mr. Williams keeps pumping the same absurd story because he's made a nice career out of it. If you think prices have gone up 136% since 2000, then there is probably nothing I can do to convince you.

I would not be worrying about high inflation right now. Deflation is a much greater threat. The bond market is telling you right now that inflation is not a worry, and will not be for a long time. Commodities are a different story. I think we will likely see higher world commodity prices over the next decade, even as a debt induced hangover is a deflationary pull in many countries (like the US).

At 2% are the people able to afford the mortgage or is that still not enough of a cut?

Curious. Where any of the credit cards from the same banks? I'm guessing the banks figure they can make up the difference with the higher rate credit cards. Perhaps collecting up decent income from there?

Banks are probably hoping to create a more stable environment for themselves, with a more manageable number of people going bust each year, so they can maximize their returns on those properties. If everyone goes bust at once, they have to almost herd everyone through the same process and take massive lumps the entire way through, losing out on people who could have been convinced to keep paying and/or possible lawsuits.

I like your strategy as well, by collecting on this deal and then moving them to chapter 7. Well played if it works out!

When and where did he buy the house, and for how much $$$? How underwater was he?

When and where did he buy the house, and for how much $$$? How underwater was he?

rileybryan says

Thinking about it, it looks like it might make more sense to just pay off student loan debt at 5%

Yes! I assume people talking investment have already paid off debts. Discharge all debts as first priority.

"Poor people pay interest, rich people earn it."

However, the housing market also needs buyers to start moving in. Jontue and Diana Junior just bought a 4-bedroom home in Las Vegas - thanks to the $8,000 federal tax credit for first time homebuyers.

"We knew that once we got into the house -- with $8,000 -- if we managed our money right, we shouldn't lose the house," Jontue said.

But if you do, we'll gladly bail you out you fucking MORONS!

rileybryan says

Quick Search here shows the difference between Japan / US money supply, not sure of the credibility, and I know little about the Japan crisis, but it looks pretty different to me…

You'll notice that spurt of M2 was right after the Lehman collapse. It's called FLIGHT TO SAFETY. Mid 2008 I personally pulled over $100K out of money markets (M3) and put it in a CD (M2). BOOM! Just like that M2 went up $100K. And there were millions like me. What is the point of having money in a non FDIC insured deposit, when the upside is almost nothing?

By the way, what's USD money supply doing now?

In the broadest measure of money supply, M3, growth is NEGATIVE. Even according to the aforementioned Mr. John "hyperinflation" Williams:

M2 looking pretty darned anemic too. Some inflationists on Patrick.net used to rail on about how the money supply was still exploding, and that would lead to inflation (which has it completely backwards anyway, since the inflation happened WHILE the money supply was going up.) Haven't been on the board for a while, but I suspect they haven't had much to say on the subject recently.

rileybryan says

..... I know little about the Japan crisis, but it looks pretty different to me…

Yes Japan is very different.

However it is instructive to look at. Every central banker sells the idea that sustained deflation is UNPOSSIBLE because the benevolent banksters control all the printing presses and they know just which levers to throw to prevent it. EVERY single central banker for the last century has promulgated the idea that deflation is well-nigh extinct. Or at most it's a temporary condition until the central bankers get to work and manufacture up some nice inflation for ya. And yet.... in Japan there has been slow deflation for decades. It was most pronounced during the Lost Decade.

Jawboning inflation is nothing more than attempting to wish it into existence by engendering behavior consistent with "protecting" from it. The propaganda machine for inflation is deeply set. Here's a 1933 film where they tried to brainwash the public how inflation was TO THE PUBLIC BENEFIT rather than the slow wealth transfer it actually is:

http://www.liveleak.com/view?i=3e0_1235601005

If you watch this 1933 film, you'd think that by 1934 at the latest the economy would have been right as rain. But it wasn't.

What do you guys think of shorting real estate ? The Symbol is SRS

SF ace says

Riley, I would not payoff the student loan and here is why. This is a good chance to learn what investment work and does not work. What you learn in investment options will be invaluable later on in life when your savings is far more significant. When you are talking about 10k or so, any mistake is really not that costly. When you work and save hundreds of thousands, the exp in your pocket will be helpful. As a finance guy, all I’m saying is don’t be lazy, passive to your approach.

What the hell are you talking about? How is paying 5% interest on a student loan when it is nearly impossible to beat that return anywhere "learning how investments work"? He's just throwing money away.

Riley,

Leverage is fine if the rate of return exceeds the cost of capital but as you pointed out, I can't think of any investment that's returning over 5%. Pay off your debt ASAP and then start saving money. Once you're saving you can start thinking about where to put that savings.

TMAC54 says

What do you guys think of shorting real estate ? The Symbol is SRS

I played SRS a while back for substantial profits. However short ETF are for suckers these days I think. Any and all insane efforts will be made to prop up Commercial Real Estate, or at least zombify it and give it the public APPEARANCE of life. Anyone making money short in this arena these days will be pros not retail guys like you and me.

Vicente & S.F. Ace.... Thank You both for your experienced insight.

I believe that upward spike (in SRS) was caused by the announcement of failures of subprime mortgages AIG, Bernie, etc.. The peak and immediate crash of srs was caused by a $ 700 billion bailout. Ommitting a new glut of money, ( like the invention of the computer ) wouldn't a particular area's median income establish that area's median sales price. The $ Trillion bailout has not returned Real Property values to where the median incomes start buying. Therefore an additional and significant reduction in sales prices is anticipated either rapidly as the public realizes freddie and fannie are black holing billions, or over the next decade with additional sales gimmicks and continued government bait & switch programs. ie I give you an $ 8000 tax credit if you buy a house that will be worth $ 100,000 less next year .......

On the risk side , I see a long term floor at about $ 7.00.. Are Real Estate prices on their way UP ???

There are 2 separate issues.

CRE prices are out of whack yes. However efforts are being made to overlook late/low payments as long as possible. Tax credits, funny new accounting rules, etc. See Japan. Did RE there march right down to a comfort-zone for the incomes? No it did not, it took a very long time. We're only 5 years past the bubble pop, people are calling bottom MUCH too early. They are more used to stock bubbles which might stabilize in a mere 5 years, but not RE which is less liquid and slower-moving.

(blue=Japan,red=US overlay)

ETF went from almost nothing in a few years to trillion-dollar market. At this point it's flooded with whacky products. I got burnt fingers playing FAZ (3x short financials). ETF in any case only sort of loosely couple to actual index. Go compare SRS to DJUSRE which it is supposed to be 2x inverse of and you'll see it doesn't track very well at times. Also lots of overhead and simple "burn" as it's about daily changes so it's not a "buy & hold" entity.

Here's a decent recent article summarizing problems with ETF:

http://www.usatoday.com/money/perfi/funds/2010-02-12-etfs12_CV_N.htm

I spend much more time watching MACRO-ECONOMY sources than particular stocks or indices. For me what I'm going to do with money, is all about knowing WHAT IS REALLY GOING ON and what are the likely outcomes of that. I'm still watching Nouriel Roubini, and however much I think he's wrong about "how to fix things" he's been dead-on about WHAT IS HAPPENING despite all the ADD-afflicted chuckleheads in financial media that he has to contend with. Here's a good 7-minute video with him from today:

http://www.fundmymutualfund.com/2010/02/video-nouriel-roubini-crushes-kool-aid.html

I would say the Japanese real estate bubble was far different from what we've got here. Especially in how they handled this. I unfortunately don't remember the larger differences right now, I just remember reading about how the cultural aspect played into their very long decline vs a more abrupt decline and bottoming. They knew what was going to happen, and they didn't want to change this due to cultural norms that would be broken.

@SFace
I'm betting that some of the stock advice given here is probably better than most available anywhere else. There is more hype going on elsewhere, anyone who has written a book has had millions subscribe to their methods and likely changed the course of stocks. That or they're just crackpots, extolling about their great systems. There are too many sales people in the stock business. It's often difficult to get around all the sales fluff. Much like the real estate market, for most, it's hard to find good solid information, because so many are in the business of selling homes, realtors, banks, appraisers.

pkennedy says

[Japan] knew what was going to happen, and they didn’t want to change this due to cultural norms that would be broken.

Exactly same as in US. Has anyone in the oligarchy announced the end of "The Ownership Society" and said publicly we should just forget the whole thing and restore normalcy in any reasonable timeframe? Hank Paulson tell people just jingle-mail in their keys and let's get on with it? Did banks offer to en-masse write down loan balances to actual supportable values? NO!

We have a ridiculous set of programs that fraudulently claim to be about "keeping people in their homes". We want peasants to eat Mac & Cheese and crawl bleeding through the snow, because that is THE AMERICAN DREAM.

Weinerschnitzel garfunkel der kablunket droppel.......mitte auspuffunlaung der fritzen drammner zeiss braun heineken mechen ze bumzen.

Vicente says

Exactly same as in US. Has anyone in the oligarchy announced the end of “The Ownership Society” and said publicly we should just forget the whole thing and restore normalcy in any reasonable timeframe? Hank Paulson tell people just jingle-mail in their keys and let’s get on with it? Did banks offer to en-masse write down loan balances to actual supportable values? NO!

Hank Paulson did in fact on several occasions state publically and in testimony to Congress..’ the Government should not impede the on going housing correction’.

http://www.treas.gov/press/releases/hp1142.htm

"We are working to minimize the impact of the housing correction on the rest of the economy, but we do not want to impede its progress --- because the sooner we turn the corner on housing, the sooner we will see home values stabilize, the sooner we will see more people buying homes, and the sooner housing will again contribute to economic growth."

Bzzzt! From Hank Paulson remarks before Congress, March 3rd 2008:

Third, the current public discussion often conflates the number of so-called "underwater" homeowners – that is, those with mortgages greater than the value of their house – with projections of foreclosures. Let's be precise: being underwater does not affect your ability to pay your mortgage, nor create a government responsibility for assistance. Homeowners who can afford their mortgage should honor their obligations --- and most do.

Obviously, being underwater is not insignificant to homeowners in that position. But negative equity does not necessarily result in foreclosure. Most people buy homes as a long-term investment, as a place to raise a family and put down roots in a community. Homeowners who can afford their payments and don't have to move, can choose to stay in their house. And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.

In other words, you dirty peasants need to keep that yoke on and pull my plow. What should be a BUSINESS decision becomes a matter of HONOR if you are on the oligarchy end of things.

"The Banks also could have lowered the interest rates and increased the length of the loans to 40 or 50 years and most people would probably have stayed in their homes or at least have been able to rent the houses out. So I can only conclude that the Banks want all this to happen. The question is - what is it that they want down the road."

I think part of the answer was leaked by a Citi exec. when discussing the recent “cash for keys” program being implemented by them:
"“We are concerned that if there is a foreclosure glut at some point in the cycle it would have to have a negative impact on house prices,” and Citi’s pilot program should help prevent a build-up in foreclosed homes, said Sanjiv Das, the chief executive of CitiMortgage in an interview."

In other words, Citi wants to start dumping REO's on the real estate market as fast as possible before the other banks/lenders beat them to it. I think we will see the pace of declining prices in housing pick up in the second half of 2010, if not sooner. They see the massive mountains of defaults piling up with more to come and don't want to get caught holding the bag when prices nosedive. I can see real panic selling on the horizon - probably lasting a year or more. I wouldn't be surprised to see Q3 2011 home prices off by 30% from today's levels.

The second dip in a bubble correction is almost always the largest one. The first dip is usually the smallest. So far we have the first dip with a small correction last year that didn't seem to have much steam and was totally govmnt induced. This created a little buying pressure for lenders to sell into as prices bounced modestly. Get the last few suckers to buy-in thinking they are getting a bargain before the sheet hits the fan.

Aside from deflation in housing, we have had deflation in computers and consumer electronics for years. Stocks have had 2 large deflationary periods in the last decade (with possibly another to come). I see deflation coming in many areas except maybe necessities. Personally, I think this is a good thing and long overdue. When prices drop to reasonable levels buyers will come back into the market and the economy will pick up again.

We bought a house in Fairfield Ct ( on Westport border/Sturges Highway) for $1, 650,000 in 2006 because we moved here from out of state and bought after quickly selling our house in Boston. We have seen estimates and comps now that show that the house is worth between 1 and 1.2 million and it would probably be on the market for years. We aren't looking to sell it now. However, the mortgage is approx. 1 million which makes us uncomfortable if the value continues to drop. Needless to say, we are making no renovations or upgrades in the house after losing (on paper) at least half a million in a few years. About Zillow, it is bizarre: it values our house at $1.9 to 2.3 million. Not the real world.

Bap: You are no longer the winner of the unintelligible grammar contest. Not only do we hae no idea what the hell this post is about, the grammar bees really awful and. :)

@sybrib: I missed your post until today. Re: "middle class, ad naseum", I can only respond: well said. I agree that the "middle class" entitlement attitude has dug a huge hole in this country. The problem is that once people think the world owes them something, they start thinking that you owe them something... like those assets in your bank account. The net result is to make things harder on the responsible people, too, because you end up dragging everyone else forward.

This country used to have an Ant mentality. Through various means, we are far along the path to Locust.

Brand, thanks, I think I wrote it after I quit counting the martinis.

Brand says

The problem is that once people think the world owes them something, they start thinking that you owe them something… like those assets in your bank account. The net result is to make things harder on the responsible people, too, because you end up dragging everyone else forward.

......AMEN!

Vicente says

Bzzzt! From Hank Paulson remarks before Congress, March 3rd 2008:
Third, the current public discussion often conflates the number of so-called “underwater” homeowners – that is, those with mortgages greater than the value of their house – with projections of foreclosures. Let’s be precise: being underwater does not affect your ability to pay your mortgage, nor create a government responsibility for assistance. Homeowners who can afford their mortgage should honor their obligations — and most do.
Obviously, being underwater is not insignificant to homeowners in that position. But negative equity does not necessarily result in foreclosure. Most people buy homes as a long-term investment, as a place to raise a family and put down roots in a community. Homeowners who can afford their payments and don’t have to move, can choose to stay in their house. And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
In other words, you dirty peasants need to keep that yoke on and pull my plow. What should be a BUSINESS decision becomes a matter of HONOR if you are on the oligarchy end of things

I dont see an issue with what Paulson said. Back in 2004-06 you couldnt even come close to making people understand that prices were out of wack with fundementals. All you heard around here is how Google, dual income families, Tech jobs, or some other nonsense was going to keep home prices higher. I truly hope these comments by Paulson gets pounded into peoples heads.

Greece is insolvent because it lacks control over its own currency. If it were allowed to temporarily devalue its own money, it would be fine, but the Greeks made the mistake of believing that joining the Euro was all upside.

I'm very curious to see where this goes. If things go badly for the three highly troubled countries (not to mention the unmentioned massive debts of wealthy EU countries, particularly France), it could lead in two directions

1. Dissolve the Euro, go back to independent economies. If this happens, anyone with assets in dollars is going to make out like a bandit.

2. Convert into a true single economy, along the lines of the US. I'm skeptical that this would go through any time in the next century though -- for all the talk of European unity, most of these countries still hate each other.

Kevin--

http://www.nytimes.com/2010/02/15/opinion/15krugman.html

says much of the same things as you...

Hmm. Wonder if those September $150's are looking better?

very interesting discussion. I was particularly intrigued by your discussion on gold. I think the economy is headed for serious inflation problems, and that one of the only ways for people to at least try to protect themselves is to invest in gold and gold mining stocks because of the continued debasement of the U.S. dollar. I came across a pretty good article on some of these topics at http://www.goldalert.com/ called "Gold Price Spikes to $1,085 – Gold Bull to Resume?" that discusses the Federal Reserve and government's continued policies of trying to prevent the recession from running its course by printing more money, at the expense of the dollar and mounting deficit.

And I'd like to see the head of Hank Paulson on a pike, along with a few others, being paraded down a street. I suspect neither of us will get what we want.

yikes. sorry to hear you bought at the peak of the bubble. Like buying shares of pets.com in december 1999. Few people could time any bubble; still I'm surprised why many like you, did not cash in by selling in a place like Boston and just rent for a few years... unfortunately it seems you put too much in to just walk away from a 1 million dollar mortgage. but if you don't mind living there for 25 yrs everything will probably be fine. people who HAVE to sell (divorce, job loss, illness etc.) are really fucked.

I'm in for June '10 for 5k. I'm holding on 'till after the Fed stops is QE program. Something's going to shake loose. A couple rumblings in Europe are promisi

War is Peace. Up is Down. Wrong is Right, etc. How else can you explain the historical fact that a war expansionist won the peace prize?

Oh, and I would just like to add that many professional scientists gladly falsify data to "support" their own biased presuppositions.

I happen to agree with Krugman on this issue, but by and large I don't care for his opinions because his track record is pretty average among economists. I'm particularly annoyed at him because he refuses to admit when he's wrong, and he acts like winning the "Nobel Prize in economics" makes everything he says the gospel.

lmao

Actually I think rumblings in Europe are a problem for gold. As people are concerned about the Euro zone they're buying Dollars short term, thereby depressing gold prices.

My take on the Japanese situation of the last 15-20 years is that they propped up their banks instead of writing off the bad debt. I remember discussions back then about how they were just hiding the bad debt inside the banks. I think that slowed down their recovery. I see the same thing happening in the US. I think we're in for a prolonged period of shadow inventory and other problems.

I think we'll see a long term decline of the USD, whether to the Euro or just to the global basket of currencies and commodities. I'm going to watch for a breakout in gold and try an options bracket but right now I just don't see much movement in anything. It's like everyone and everything is just slowing down, afraid of making a move. That, or everyone's just watching the Olympics...