patrick.net

“KURT S: AMERICAN ODDITY”

(It’s catchy, dont you think?)

--I suppose it could be worse, such as "KURT S: AMERICAN PSYCHO"

it’s insanity, especially around here (Marin) right? This county used to be a very laid back, decently well to do, unpretentious place.

Yeah--that's what I used to like about California in general! Perhaps a new ethic will return; something needs to give way. And, despite what I save personally, we live modestly (although comfortably). Certainly the environment here lends to a lifestyle that's unrelated to money, and I enjoy that. It doesn't take mad dollars here to enjoy kayaking every day, enjoying the scenery and wildlife. Ok, enough about moi...

You’re basically saying that the middle class should scale down its expectations in terms of housing and other things. It’s hard to see this is a positive development
Well, I think the housing angle is currently overvalued--and will adjust. However, if Americans learned to enjoy life with less, it would do them a lot of good. Obviously something's wrong, given the stats on credit card debt, etc. By contrast, American's should check out how the "middle class" lives in Europe--that would be an eye opener, at least by my experience. But of course, here we're entitled to the "good life"--whatever that means. ;)

In the Bay Area, it is getting very close to 10X. Also, I think homeownership rate is lower in Europe. Please correct me if I am wrong.

Peter P-
All I can provide is scant anecdotal information, but very few friend's families in Switzerland own homes, unless they're farmers or financiers. It's much more common for the middle class to live in apartments. I'm sure P.Tiemann has more info to share.

Max, Krugman has been saying for 2+ years precisely what he is saying now, that re is overpriced and that the rate of appreciation is unsustainable. Eventually he’ll be right, yet it has not been a pretty sight to see him ignore his past inaccuracies.

Technically, Krugman has not been inaccurate unless he was specific about the timing.

But if the wife stops working, the $250K will be cut in half or so which makes it hard to afford kids (at least in the Bay Area) even if you are frugal and your mortgage is relatively low (say $500K instead of $1M). Also, it’s not easy to resume an interrupted career, so this may be a long-term financial damage. Even if all these aren’t concerns, how secure is the husband’s position?

I should further explain. She currently works at home but has to travel frequently. And even if they go to one income, they would still earn 6 figures and could easily afford to go to one income if they were willing to give up some of their more lavish spending. The thing is, the wife wants to be a stay at home mom AND continue to live the lifestyle she's become accustomed to. So far the lifestyle is winning out.

On a recent visit I asked her ‘why do you prefer to pay 600 in rent over 500 in a mortgage?’. She is looking at purchasing now.

So why would an investor want to buy in Bay Area, when there are better oppurtunities to be found?

How does one go about financing something like that, if you are an American investor? Do you have to pay all cash?

This might be a good investment, if you can get your sister to do the property management for you. It might be okay even if you cannot.

It is pretty funny: I was spurred by your post to start researching property in Europe. The Craigslist postings in Europe are all trying to sell crappy condos in Florida.

The Craigslist postings in Europe are all trying to sell crappy condos in Florida.
LOL, can there be that much sun in Florida, or are flippers trying to find buyers that far away.

Lots of issues to cover:-
1) Tax implications for rent collected.
2) Foreign ownership.
3)Currency hedging (might be good timing vs USD.)
4) Financing. (Are you foreign national?, as this can help in some euro countries.)

There is no correlation between interest rates and equities (real sector).

Unless you are a value based investor, where interest rates determine a suitable price of the equity based on company dividend / equity price.

I am still not very sure about having kids. It is not a lifestyle issue. Well, perhaps kinda. It is easier to take career and financial risks without kids.

Hopefully, we can have the means to participate in philanphy when we retire, thus filling the void of old age.

Face

I am very impressed at your ability to express the possitive intangibles of having children. ;)

Having 2 kids of my own, I can speak from experience on the kids vs. money/stuff issue. I wouldn't trade parenthood in for all the Escalades and McMansions in the world. Of course there are going to be trade-off's financially and yes, you worry. But there is unbelievable joy as well. Those late nite's up with the baby may sound hard, but when I get to hold that child next to my heart and smell his hair and cuddle him close... let me tell you, there isn't a pet in the world that can evoke the kind of love a parent has for their child.

My husband has a partner who elected to never have kids. He and the wife are still happily married after 25 years or so. They're both successful, millionaires in fact. They have a beautiful home, they go on fabulous vacations, donate huge sums of money to various charities. In short, they have a really great life. But when you go to their house you notice some things. Their place is spectacular, chandeliers from Yugoslavia-- stuff like that. But there are no family photo's on the wall. There are a few pictures of neices and nephews around, but nothing really prominent. The house is always perfectly in order but not really lived in; in fact it's a little sterile. While other people their age are enjoying the grandchildren and having family over during the holidays, they spend much of that time alone. Retirement isn't even on the agenda, even though they could easily afford it because work has filled up the void in their lives that living childless has left. I'm not saying they're unhappy, but I have to say that from where I'm standing, it doesn't look like that much fun to me. My parents don't have the money they do, but they have a home that's filled with activity and grandchildren on a regular basis. And my parents would have a comfortable retirement despite having children if they had planned better-- but that's another story.

When I was in my 20's I was sure I was never going to have kids. My 30's arrived and God only knows why, but kids seemed like a good idea. We definitely have less $$, but who cares? In the long run I still can't take it with me, but when I die I will have lived a full and happy life with the up's and down's of raising a family and that is something I can take with me.

Max,

First of all I want to thanks for your treatment above on Monetarism vs Keynesianism. Very useful for using as a model/reference point for the debate at hand.

You've made a large number of posts this evening on a variety of subjects, but the core of your argument seems to be advocating the position that asset bubble corrections are relatively harmless to the "real" economy (defined as the profit-generating business sectors) vs. equity bubble corrections. To make things simpler reference-wise, I've assembled what I think are your key points here from your various posts, with bold-face added for emphasis:

You’ve just unleashed a can of “real-vs-financial sector” model. It is probably the most complex junction of modern economy, and nobody really knows how the two behave, with exception of the IS-LM model. Crashes in asset prices I believe are not that deadly, US has withstood a lot of them. Crashes in equities are much worse…

...Assets, IN GENERAL, do not generate earnings. A single-family home is an inefficient, high-maintenance and fragile asset, located in remote suburbs, and poorly designed for generating income - and solely designed for people to live in it.

I think you’ve made some excellent and well argued points here. However, I’m not sure I agree with all of your conclusions with regards to the RE (asset) bubble’s impact ultimately being “relatively harmless” and any fallout “contained and short-term”.

For starters, I wouldn’t be so quick to dismiss the very “real” impact (both economist and layman definitions) of the current RE bubble on consumer spending, which constitutes some 67% of the total U.S. economy. This by itself has generated a huge number of new jobs, and has increased both equity profits and values (the “real economy”), especially those equities which are related to housing. Right now, we have a situation where some 50-70% of job gains since the tech bubble recession are directly or indirectly related to RE gains (new housing construction, cash-out refis, HELOCs, the “wealth effect”, etc.). Even if RE traditionally accounts for only 11-13% of the overall economy, imagine where the Dow & Nasdaq might be right now if the monetarists (Fed) hadn’t started the RE bubble in the first place? I don’t see the “financial” and “real” markets as being that disassociated from one another.

I would like to believe when the easy lending & speculation ends, and housing (non-productive asset) prices revert to the historic mean vs. rents & incomes (as I believe they will –call me crazy if you want) that “the money is destroyed in the financial sector”, but “the spillover is contained and short-term.” When you have an asset class held by 70% of the population --whether it’s “productive” or not— driving so much in the greater consumer economy (including corporate earnings & profits), then it’s bound to have a very nasty and measurable impact when it falls.

And when it falls, I just don’t see what sector in the “real economy” is supposed to pick up the slack in terms of job growth and stimulating (or even sustaining current) consumer spending. There was a time not-so-long ago when America was a net-producer and net-exporter nation, which sustained its growth in real wages and consumption by selling its industrial products around the globe. No longer. It’s difficult to even call the U.S. an “industrialized nation” anymore, when most of the jobs now are service-sector based.

The Fed/Treasury does have the ability to create money out of thin air, and destroy it just as easily, this is true. However, I think it’s a mistake to assume that the repercussions from deflating this particular asset bubble will not be “real” to a great many consumer-dependent businesses and job-dependent consumers.

Didn't mean to get on my soapbox. I'm sure Jack can tell the other side and make being childless look like nirvana. But I will stand up and be counted with those who think having children is the best decision I ever made. (other than marrying my wonderful husband)

I am just not sure how well I can protect my children from the negative intangibles of this evil world.

There will always be risk in the world, but you should never let it stop you from living your life. Don't be motivated by fear.

SactoQt,
Nicely put.
I think children add the spice to life.

AntiTroll from Oz

Thank you

Peter P

I will add that for some reason having children does enable you to look at thinks from a more optimistic pov. I think it's because the world is so fascinating through the eyes of a child, and you forget this until you get to experience it again with your own.

OK
I'm done

One of the most confusing things for me is the high P/E ratios for all capital holdings nowadays - even equities are at historically high P/Es. Bonds too, as well as assets.

Max, could it be that all capital holdings --real or financial-- are due for a correction? I certainly hope not, because we'll need for equities to pick up the slack when housing-driven consumption plummets.

Harm,
Maybe the pension funds are supporting the markets, and a correction will only be achieved as people draw down on their funds.

Wow, SactoQt -- You really put things into perspective!

You put all the materialistic money-grubbing yuppies to shame. Sounds like wealth can't hold a candle to parenthood.

Heck, your speech might even have the power turn MP into a kind, generous, open-minded... WHO THE HELL AM I KIDDING?? It will go right over his head!

Heck, your speech might even have the power turn MP into a kind, generous, open-minded… WHO THE HELL AM I KIDDING?? It will go right over his head!

Lol
With any luck the rapid improvement we've seen in MP is just an indication of greater improv... *snort...chuckle....sniffle* er....improvements to come. :)

Heck, your speech might even have the power turn MP into a kind, generous, open-minded…

MP did open up quite a bit don't you think? ;)

I still think that I will be a horrible parent. Perhaps my view is going to change in a few years...

Peter P

Now who's selling themselves short? ;)
You seem very thoughtful, I think you'd do very well. Besides, you have insurance on your cat, you couldn't be all that bad.

Maybe the pension funds are supporting the markets, and a correction will only be achieved as people draw down on their funds.

In that case I will have more faith in stocks. The governemt can still flood the market with more debt (the return of US30). There is no massive IPO second-wave yet...

Getting late and my much mentioned children will be up early. Nite all.

SactoQt, thanks for your encouragement.

@ Mr.Right,

RE: Krugman, I will repeat what I posted in the other thread:

"I would not fall into the trap of buying into the “broken clock” theory, or blaming someone for being too prescient. After all, didn’t Greenspan himself call the NASDAQ bubble 4 years too early with that “irrational exhuberance” speech? Imagine if people had actually listened to him then, instead of cowing him into submission?

Calling the exact top to any asset bubble it difficult at best, impossible at worst, because (all together now!): Asset bubbles tend to last much longer and grow far bigger than any reasonable person at the time would have thought possible. Missing the exact peak doesn’t mean there's no bubble, any more than missing the exact trough proves there was no correction.

Yes, if you put off a buying decision 100% because of listening to the “early birds” you missed out on some juicy paper gains. On the other hand, if you bought recently using an NAAVLP and overextended to the hilt, you’ll soon come to wish you had listened to the early birds instead. And as to those recent paper gains… “What the market giveth, the market taketh away.”

Another thing that gets me is how quick bulls are to pounce on anyone who questions the “wisdom” of gambling on bubble-inflated assets, while uber-bulls are NEVER criticized, no matter how horribly wrong they are.

Take those two idiots who wrote “Dow 36,000″ right before the tech bubble burst — James K. Glassman & Kevin Hassett. You might think they’d be hiding out, hanging their heads in shame/ignominy. But, you’d be wrong! Guess where they are now? A: still writing for the Washington Post, National Review, etc. and shilling their clueless bull$hit to the unsuspecting public."

Max,
Does the real economy include the factories and businesses in China?
Globalisation has meant that the economic system now includes many more types of forces and politics that operate differently to the traditional models.

Max, I hope you are right. That would be the best possible outcome in my book --having the equities/business sector pick up the slack in the economy, while home prices gradually fall back to the historic mean. A shallow and hopefully short-lived recession, followed by sustainable growth and wage gains.

There has been a lot of talk about the European Middle Class (EMC) on this thread, and I would like to put in my $.02. Firstly it seems many people on this site seem to idealize the EMC, they aren’t doing as good as it seems many people think. Unemployment is huge on the Continent, Great Britain ain’t doing so good either. They’ve lost their blue collar manufacturing base, and there is no upward mobility anymore (if there ever was). Over regulation has destroyed Europe, they are not efficient or competitive. I really don’t want the U.S. to turn into what Europe has become.

Any former/current European residents out there care to repsond? ptiemann?

I lived in the UK several months as an exchange student 15 years ago, which is hardly enough time to give me a wholistic picture of the entire region, but it didn't seem horribly bleak and at least everyone had healthcare and a place to live. It wasn't any Socialist Shangri-La , either. Plenty of evidence that the old Imperial/generational class structure was still in place, and most working class people lived quite modestly by our standards.

There has been a lot of talk about the European Middle Class (EMC) on this thread, and I would like to put in my $.02. Firstly it seems many people on this site seem to idealize the EMC, they aren’t doing as good as it seems many people think...and there is no upward mobility anymore (if there ever was).

Sure, I'll be first to say my knowledge is very limted (and to Switzerland only) I wasn't so much a resident, as an extended visitor. In general, people I know do generally well over there--but their definition of "doing well" is rather different than here. From what I saw, 'SMC' people tend to make do on a lot less; it's a social ethic. Agreed on the 'upward mobility' aspect. If you don't like your cr@ppy bank job in Zürich, it's pretty hard to remake your career midstream. However, I would like their unemployment benefits, which struck me as rather generous (80% of annual salary I recall).

So which parts of Europe have housing prices that are 10X salaries?

I bet those are the bubble parts. Face Reality, why would you think that we are becoming like that on a national basis?

New thread: Construction Quality.

inquiring mind Says:
Hmmm….no new posts in 3 hours….no new links in 2 days….time to spice things up around here HARM & Patrick!

Um, well, I do have a paying job and life to tend to. And my time here is donated, sooo... how about a new thread from YOU, inquiring mind? ;-)

The writer doesn’t seem to know much about FAnnie Mae, Freddie Mac, etc. Their loans are NOT, repeat NOT guaranteed by th eFederal Gov.

We know. This is why I will not touch any fund with MBS exposure. However, even the credit rating agencies said that the rating of Fannie depends on the implicit federal guarantee.

if you know where to find it, or know what a charter is.

If you have such a low opinion of us, do not bother posting here.

This is pretty idiotic. What an arrogant ass.

Takes one to know, eh, Carter?

I obviously touched a raw nerve here or two. You work for the BLS or something? You know, last time I checked the intro said these were "my ideas", not "GOD'S ETERNAL TRUTH".

If you don't agree with them, how about posting your own ideas --if you have any.

Btw, Carter,

If you'd really like to learn more about why I (and many others on this blog and elsewhere) believe the official CPI numbers are fudged, or why the taxpayer is still likely to get stuck bailing out the GSEs DESPITE AG's public assurances to the contrary, go back and read the older threads.

You might learn something. However, given your rude insulting tone, I doubt that learning anything is your true aim here.

Carter basically admitted he's a realtor. I'd be interested to know how long he's held that position. My guess-- he used to be in tech.

The writer doesn’t seem to know much about FAnnie Mae, Freddie Mac, etc. Their loans are NOT, repeat NOT guaranteed by the Federal Gov

BUT, doesn't the following apply:-

If you owe the bank 1 million, then you have a problem.
But if you owe the bank 100 million, then the bank has a problem.

Appraisers contribute virtually nothing to the process because they
basically count bedrooms and bathrooms and square footage.

BUT don't they green light the big fat loan.

Disregard all those posts at the end of this thread (except from AntiTroll) Some dumbAss realtor using the same IP address keeps changing their email and screen name to appear as different people and then proceeds to post retarded no logic posts. What a tool. And we thought MP had no life...