patrick.net

You don’t have to hold I-bonds for 5 years. You can redeem it after 12 month.

[snip]

Says Dan Pederson, author of "Savings Bonds: When to Hold, When to Fold and Everything in Between:" "You get that 6.73 for the first 6 months and then say the rate drops to 4% for the next 6 months. You are averaging 5.35% for the year. If you cash it in then, you give up three months of interest, which is about 1.35%, so you net 4 percent after the penalty.

To which I am sorry. I’ve mis-spoken,
apology accepted :)

3 month of 4% annualize to 1% interest lost, so you net 4.35% after the penalty, same as the 2 year bill.

Your math seems wrong......according to the authors senario, “You get that 6.73 for the first 6 months and then say the rate drops to 4% for the next 6 months. You are averaging 5.35% for the year.

The penalty is the average percentage ((6.73+4)/2) or 5.365% (according to my calculator) that you made for the year which would be:

P = ((I/Y)*M)

where:

P = penalty percentage
I = average interest rate (5.365% in this case)
M = months for penalty (3)
Y = months in year (12)

1.34% = ((5.365/12)*3)

4.01% = 5.36% - 1.34%

4.01% is what I get using a TI-36X SOLAR

author used 5.35% which came to 4%, but was probably trying to make the numbers work out even.

Don't know where you get 4.35%......

Ha! Now that’s stirring things up. LOL

Cole @ The Boy in the Big Housing Bubble

No....just another bullshit RE pep talk in disguise...............the problem is that the people who bought the house had money to burn, whereas most people don't.

And then the real estate bubble turned into a bust. Values plummeted. At one point, in the mid-90s their house was probably worth around $600,000

What a disaster! A terrible investment, right?

Obviously they where in good financial shape otherwise......However, if there where layoffs(or something similar) and they had to sell, they would have been bankrupt which would have changed the happy ending......instead of all that home sweet home stuff....it would be something like family left homeless after paying too much on a house

I was wondering how he got 4%, now you showed me how he made his mistake. The early withdraw penalty is to forfeit 3 most recent months’ interest, in this case paying 4% hypothetically. Now redo your math and see what you get.

H.Z.....The author believes the 3 month penalty is based on the average interest per year........actually the guy who wrote the book on bonds made that statement. I assumed that he is right because I would think that the interest is compounded yearly rather than daily or monthly.....but we can be wrong, after all, I am not a bond guy nor will I ever invest in bonds.... So I am not saying you are right or wrong, I just don't have the need or desire to look it up, but if you have the information and I'm sure you would if you are so sure that you are right, than I would be interested in seeing it.

Maybe you put too much faith in the author. Here is what treasury has to say:

Good observation H.Z. maybe you should email the author.....however the 5 yr CD still beats it in the same senario, not that I would invest in a 5 yr CD....Also I didn't realize the interest was compounded monthly as opposed to yearly.

Allah….. chill out man……… you remind me of a Jack Russell terrrier bouncing off the walls and furniture……. i’m gonna have to hide your keyboard……

Huh?

"Did you get any photos of the Greenwood Ghetto Condominium Conversion complex in Dublin?"

Not yet, doodler. I'm going to do it this weekend.

BayQT~

Hard to eat a house.

Not really........people have been doing this for years!

He tried to change the subject is all.

Didn't need to....argument was already resolved.....However, if arguments are interrupted and not allowed to be resolved because it bothers someone, this blog would be useless. I like the fact that we can resolve issues so there is something to learn, that is why I don't drop a subject until there is resolution....It is true that not all arguments can be resolved such as if there are 2 opposing opinions, but when there are facts involved (such as this situation), they always can. I don't look at it as proving who is right and who is wrong, just that the truth is learned so the argument was worth resolving. These blogs are not meant for passive people....If an argument bothers someone, they could read past it.......That's what is great about blogs, you can hear only what you want to.

banking supervisors have become concerned recently about apparent increased risk-taking in both commercial and residential real estate lending

They piss in their own beds and now they're afraid to sleep. This is what amazes me........they are supervisors and they have control over what gets lent out, so they lend out the most risky loans so they could make $$$'s....now that the market is turning, they worry about the loans they have made....talk about pissing in your own coolaide!

Before real estate prices can return to normal levels, they will first have to get dirt cheep. It has been a wild party, but in the end all that will remain is a giant hang-over.

Well that's an opinionated statement, however I do tend to agree with him.

Can someone tell me why the FED will bail out the mortgage industry on the backs of us taxpayers.... After all, they didn't bail out the investors of mutual funds when they screwed all their shareholders. There is no explicit guarentee for this action....and the GSE's are private companies. I just don't see what good bailing them out on the backs of us taxpayers will do. If people want to invest in something, they should be prepared to take to loss in the event of a failure. I do understand how that GSE's guarantee their loans, but I just don't see what right they have to make america accept the risks.....especially those suicide loans!

The GSE's claim to be helping to make housing affordable, however they are actually making it more expensive (at least temperarily) by arming the wrong people with mucho liquidity just so the GSE's can make mucho $$$'s.....and if they fall, we have to pay for it? I just don't get it!

If people want to invest in something, they should be prepared to take to loss in the event of a failure.

This old-fashioned thinking is the reason why Bull$hitter will soon own all of our asses. Get with the program, man.

This old-fashioned thinking is the reason why Bull$hitter will soon own all of our asses. Get with the program, man.

Don't know what you mean by this.........bull$hitter won't own squat!

What do you guys think? Also, notice how the graph always dips in the 4th quarter, and then rises again. I saw a study saying seasonality has been at work since 1946.

Not this quarter unless all the employers decide to geive out 30% raises...not likely!

Love to hear your thoughts. I’ve been waiting for a while, and am wondering whether I should take this opportunity to buy before it goes back up, or actually… goes up faster in 1H, or just wait it out more.

I sure hope you aren't serious!

After I own 100% of residential RE in CA

Bull$itter, you are a legend in your own mind......now go upstairs and help your mom with the dishes! :lol:

Renters will pay the inflation through higher rents.

Of course you can ask for anything you want, but when months go buy and your apartment is vacant you will soon realize that rents are controlled by supply and demand period.

I don’t think individual home owners will be bailed out, though - that would not be in the interests of banks.

No...........they will breath a little bit of water before they drown.

allah,

Actually, I think joe has a point about the monetization of debt thing. The Federal government is currently on the hook for $Trillions in unfunded future I.O.U.s, in the form of Social Security & Medicare, not to mention the interest on that $7+ Trillion of National Debt we keep adding to each year. The oldest members of Baby Boomer 'lump in the snake' are just starting to retire and there are not enough taxpaying workers to replace them and fund these obligations. This trend is only likely to get worse in the decades to come.

I've long argued that the laughably low CPI or 'core CPI' that the Fed's cousin, the BLS (Bureau of Labor Statistics), puts out is absurdly low. Considering it conveniently omits things like, oh, say food, gas & medicine and employs gimmickry like 'hedonics' and substitution to mask the real rate of inflation. Prices are only going up 2-3%/year. Yeah, right...

When you're the central government bank for a country facing such huge unfunded obligations and negative revenue (tax) stream, what do you do? And lets' get that whole 'but the Fed's a PRIVATE company' fallacy out of the way. The Fed was created by exclusive government charter, its governors are appointed by the Prez & confirmed by the Senate. The Fed is regulated by and must answer to Congress. All semantics aside, they practically ARE a government central bank.

Anyway, my feeling is that the Fed, which has now steered the nation's economy between a rock and a hard place will try to shoot for the lesser of two evils, those evils being general broad deflation v.s higher inflation. Gradually higher "off the radar" inflation masked in part by hedonics, substitution and the stuff left out of the CPI will help soften the blow for homedebtors and lenders alike, as well as slowly depreciate all those Federal I.O.U.s, which are mostly indexed to the CPI. Of course they'll want to do this gradually, so as to not set off Brazillian-style hyperinflation. That won't be easy, and the Fed's tools for accomplishing this are pretty crude.

Debasing the currency gradually will slowly monetize much of the government's debt and the homedebtor's as well. It will also reduce the nominal (though not real) housing price drops that are all but inevitable, as prices revert to the mean vs. rents and incomes. That way Joe homedebtor may see 'only' a nominal 30-40% drop over several years, but it could be closer to 50-60% in real terms.

The trick will be how to get incomes to rise along with the price of all other non-housing commodities, especially in the face of global wage arbitrage and outsourcing. Voters will not be too happy if the price of practically everything rises, but incomes don't. "Hey, Bob, heard you had hamburger last night. Wow, we haven't had that in months --what's it going for now, $200/lb.?" Considering that RE has been the main engine of job creation over the past 5 years, that will be some trick indeed. Glad I'm not in Bernanke's shoes right now.

And lets’ get that whole ‘but the Fed’s a PRIVATE company’ fallacy out of the way.

Forget the FED, I'm talking about the GSE's (fanny and freddy)....as far as I read they were created by congress as private companies......there must be a reason why they were created as private companies don't you think? I am just not so sure they will be bailed out when they fall....after all there is no explicit guarantee made by the government.

The trick will be how to get incomes to rise along with the price of all other non-housing commodities, especially in the face of global wage arbitrage and outsourcing.

Never gonna happen! Wages have been slipping, I don't see them rising as fast as would be needed.

“Hey, Bob, heard you had hamburger last night. Wow, we haven’t had that in months –what’s it going for now, $200/lb.?”Considering that RE has been the main engine of job creation over the past 5 years, that will be some trick indeed.

This is why a huge resession is inevitable.....many jobs will evaporate and consumers will seriously cut back on spending. I don't see any way out of this mess....if you ask me.

I am just not so sure they will be bailed out when they fall….after all there is no explicit guarantee made by the government.

Allah, check out "Too Big to Fail?" and "Right Said Fed" in the July archives. No matter what 'Bubbles' Greenspan says publicly (and he's leaving anyway), I doubt the Feds will allow the GSEs to fail. After all, LTCM was a completely private hedge fund, and that wasn't allowed to fail, right? Neither were the S&Ls in the late 80's.

Here we have Fannie, Freddie & Ginnie, the multi-$Trillion dollar Cerebrus with their monopoly governement charters and "implicit" guarantee of government protection and tons of angry voters with pension funds heavily vested in GSE-issued paper. Plus, the bonds traders have priced GSE paper with a very low risk premium (as in, they believe in the implicit govt' guarantee).

Not saying it can't happen, or that GSE investors aren't going to see painful times, but complete collapse seems pretty unlikely as long as there are plenty of spineless politicians around.

"When you owe $100, the bank has a problem. When you owe $100 million, the bank has a problem."
---J. Paul Getty

Jersey,

What to invest your money in to avoid having it inflated away is a big question, and there are no certainties or easy answers. You might be interested in checking out these threads:

July;
"Inflation or deflation?"
"In Debt We Trust"
“Right Said Fed”

August:
"Strategies for profiting off of a housing bust"

September:
"Fannie: what is really wrong?"

I knew prices would fall eventually, but I'm surprised it's happening so quickly:
http://tinyurl.com/88bgq

@Girgl,

$0 :lol:
Now THERE's a house even I can afford!

Neither were the S&Ls in the late 80’s.

S&Ls were explicitly protected by the FDIC....so they had to bail them out. I wish I had the capitol to buy RE back then when the RTC was auctioning off properties for pennies on the dollar...but I didn't....this time I will be ready though..

What is going to happen is anybodies guess, maybe they will get bailed out, but all I know is a bailout is not guaranteed.....and if us taxpayers are going to be stuck with the bill, who is going to be hit the hardest? Those who have no savings and are overextended right? This will worsen the problem even more by causing more foreclosures.

As far as where to put your money, the best place is different depending on who you ask. Some people say gold, but I think gold is overvalued already and if it falls, you will be one sorry fool! International investments are a good idea...warren seems to think so, but still in all, cash is king! I'm not saying keep all your money liquid, but all great investors have a good amount liquid. I feel that if you are planning on using your money as a down payment on a house, it will have more buying power when the RE prices fall so inflation isn't really a problem in this case. I believe that inflation will take off because of the FED keeping the rates too low for too long and then they will crank up the short term rates to fight it which will put a damper on the economy and plunge us into a recession.....but I believe in the long term, the dollar will come back. Paying $70 for a loaf of bread.....I don't think so, I cannot see inflation getting way out of hand without salaries going up tremendously and I seriously doubt that will happen. You can find articles that contradict what I say, but then you can find other articles that contradict that contradiction.

"Ranging in space from about 140 to 500 square feet, they may come equipped with bathrooms or even a tiny kitchen. Some cost as much as $500,000, and those with better views or more prominent locations command the highest prices."

From the article Pbass linked to above.
Unless their cash flow is endless, some people are truly stupid with money.

Answer: NOBODY. If you think otherwise, you won’t mind being caught with paper not backed unconditionally by the “full faith and credit” of the government. When the music stops, T-bills for me. Much safer than cash in the bank!

As far as the FDIC and banks are concerned, the money is explicitly backed by the “full faith and credit” of the government up to $100K per account....and it's a simple matter of running the printing press and saying "here's your money"......as far as MBS's...there is no explicit guarantee...but those who invested say "I think we're safe".

harm...did a little research on LTCM. I thought you said they were bailed out? Here is a list of losers.

http://riskinstitute.ch/146520.htm

@ flak: Holidays, coupled with the fact that there isn't a whole lot to say except to watch the coaster head down the slope now.

@ the mob:

Go Bears.

Also, the difference between 512 MB and 1 Gig of memory on a Powerbook is like night and day. Safari is usable, to pick one small difference.

Cheers,
prat

"Everything’s tapering off around here. Is it just because of the holidays, or is everyone bubbled out?"

I bubbled out about a month or so ago and have taken to obsessing over other things, like the sad state of my pedicure. Oh, and terrorism. Stuff like that.

But seriously, I think this is just one of those lulls. We will be ranting and raving again soon. Perhaps even within hours. Or minutes!

hi everyone,

i've been reading this blog for a couple of weeks, and tonight, i just feeling like joining in.....i'm noticing that santa clara county MLS inventory is going down(decreasing).....why is it slow in our area?....i was hoping to see alot of 4 sale signs this 4 day weekend....but it don't look like its going to happen.......every other county seems to be showing some kind of signs....except for santa clara county....anyone know why?....

That Cupertino Villa is a joke, it is not even in Cupertino, it is in Sunnyvale. And it doesn't even include the Monta Vista High school that every single SV Asian kid wants to go to, Cupertino High School is just a so-so school. I say this project is busted, not that such a apartment conversion would be successful in the first place.

New thread: "Doing Your Part for the Bubble Bailouts"

http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20051120/NEWS/511200337/-1/NEWS01

"I think prices are pretty much what the market can bear," said Bill Palmer, of Claymont, who is selling a two-bedroom condominium in Paladin Club north of Wilmington. "Whoever buys now will get the best end of the stick."

Yeah....up their ass!

…….. how in the world does thig thing “rent to own” being peddeled in the Modesto Bee work? Please keep it simple so I can follow along. Thanks

Same thing as buying except for one major difference, when you rent with an option to buy and the bottom falls out, you can just leave....you are not forced to buy. When you buy with an IO loan(because you have to), when it falls you can walk away(like I know most will).....but your credit will be destroyed, your assets will be seized and your salary will be garnished for several years.

Sellers are so desperate now since they can't sell (no buyers), they have to rent the property instead using the (0%) chance that housing will not fall as a marketing strategy.

Bap33....I am not a realtor and If I was, I would need to know more about your area. All I can tell you is that I believe(and have read) that rent-to-own will be more popular in the near future due to the fact that many have overleveraged themselves and will soon realize that they cannot sell their way out of it. Every rent-to-own contract is different and each one may be (dis)advantageous to you in one way or another. If your looking to rent and someone is offering a rental payment comparable to any other rental of the same area (option to buy or not), I'd say go for it....but don't let the option be a reason for them to charge you more.....because house prices will drop quite a bit(along the coasts) and you will not want to buy....but if you like the monthly payment and you are not obligated to buy or there is no penalties involved on the contract, then go for it.....but then again, what is the advantage?

I am only interested in this because I find it amazing that the same home that would take a $2,500 payment can be offered at $1,000 as a rent to own.

Yes...this is quite strange, however the seller may be a speculator that may be in a serious financial bind and is desperate for someone to buy them time by getting at least part of the monthly payment from a renter. Why would they do that? Maybe (s)he realizes that we're at the top of the market and figures if (s)he could get someone in there for a while, it will help make the payments until the renter gets spooked by the drop in housing prices and bails out (and maybe excercises a stiff penalty for breaking the lease). If the house was purchased using an IO loan, his/her payments may be alot lower than you think right now, also some deals look too good to be true until you find out the details of the contract.