patrick.net

jazz music says

Nothing is going to happen. No pitchforks are coming. We are not going to do anything but bitch whine and fuck over each other. At the end of the day we will have a beer (or a fro yo) and go home to bed: tomorrow is a school day.

You are finally getting it.

jazz music says

Nothing is going to happen. No pitchforks are coming. We are not going to do anything but bitch whine and fuck over each other.

Some will accept a few bucks, to do the dirty work of keeping the peasants in their place. Feudalism in fact can survive and for quite long periods, with only occasional revolutions to spice things up. Nobody alive today, will be taking up pitchforks.

Strategist says

Take the example of stock prices going up....the man on welfare is just as poor,
but Warren Buffett is richer then ever. That poor man should not whine about
Warren getting rich, he should worry about himself by trying to get off welfare,
and becoming a productive citizen. Assuming he is able bodied.

Sure the one poor man is just as poor. The problem is that thousands of middle class people are now poor because their wages haven't matched inflation or they have been laid off as jobs went to China. That's why the stock price rose and Buffett got richer.

But, make no mistake, as the rich get richer, inequality and the number of poor people is growing.

jazz music says

Nothing is going to happen. No pitchforks are coming. We are not going to do anything but bitch whine and fuck over each other. At the end of the day we will have a beer (or a fro yo) and go home to bed: tomorrow is a school day.

What Joe-6-pack would get off the couch and drag his knuckles to a revolution?

Naaahhh

marco says

You can even vote for it in the future - per State Dept. official press release :

"The annual list of gifts from foreign leaders to government officials in 2012 was released by the State Department on Thursday.

The most valuable gift was "white gold jewelry with teardrop rubies and diamonds containing a necklace, a bracelet, earrings and a ring" valued at $500,000 to then-Secretary of State Hillary Clinton from Saudi King Abdullah.

She also received a "Mouawad Larme D'Amour 18k gold, sapphire, and diamond earrings, necklace, and bracelet," valued at $58,000 from the Queen of Brunei and a $1,750 silver tea set from the president of Algeria."

You realize they don't keep those things, right? I suspect you don't know that and probably didn't read that part of the article if it was in there.

http://leaksource.info/2013/08/30/gifts-to-president-obama-and-top-u-s-officials-from-foreign-leaders-in-2012/

Under law, most gifts must go to the National Archives or General Services Administration, unless recipients reimburse the U.S. Treasury for them.

tatupu70 says

Strategist says

Take the example of stock prices going up....the man on welfare is just as poor,

but Warren Buffett is richer then ever. That poor man should not whine about

Warren getting rich, he should worry about himself by trying to get off welfare,

and becoming a productive citizen. Assuming he is able bodied.

Sure the one poor man is just as poor. The problem is that thousands of middle class people are now poor because their wages haven't matched inflation or they have been laid off as jobs went to China. That's why the stock price rose and Buffett got richer.

But, make no mistake, as the rich get richer, inequality and the number of poor people is growing.

IF the middle class is poorer its certainly not because Warren Buffett is richer. It's normal for the middle class to get hit during bad economic times, but that changes as the economy improves. As the stock market jumps and confidence sets in, corporations start adding capacity, and hiring employees which directly benefits everyone, poor, middle class and the rich. It just comes with a lag.
As for trade with China or any other country hurting us, it's an entirely different topic. Thousands upon thousands of books have been written by economists about this. The conclusions are normally the same......trade benefits both countries involved. It does hurt some people, and you are right, but society benefits overall and their standard of living takes a jump.
Trade and mechanization is not going away. It's best to learn how to deal with it.

Strategist says

IF the middle class is poorer its certainly not because Warren Buffett is
richer. It's normal for the middle class to get hit during bad economic times,
but that changes as the economy improves. As the stock market jumps and
confidence sets in, corporations start adding capacity, and hiring employees
which directly benefits everyone, poor, middle class and the rich. It just comes
with a lag.

Of course it is--well, I'm not sure I'd say they are poorer BECAUSE he is richer. But, when Buffett's income grows faster than productivity gains, there is, by definition someone or some many that see income falling. That is a fact.

Strategist says

As for trade with China or any other country hurting us, it's an entirely
different topic. Thousands upon thousands of books have been written by
economists about this. The conclusions are normally the same......trade benefits
both countries involved. It does hurt some people, and you are right, but
society benefits overall and their standard of living takes a jump.
Trade and
mechanization is not going away. It's best to learn how to deal with it.

I've dealt with it fine, thank you. That is most certainly not the point. In the purely academic sense, you can make an argument that trade helps both countries. In the real world, however, all the gains are allocated to the "owners" and none to the "workers" so it actually is a great detriment to society overall.

Now--if we decided to implement policies to counteract this by redistributing wealth, then perhaps free trade would be less detrimental.

Strategist says

It's normal for the middle class to get hit during bad economic times, but that changes as the economy improves. As the stock market jumps and confidence sets in, corporations start adding capacity, and hiring employees which directly benefits everyone, poor, middle class and the rich. It just comes with a lag.

I disagree with this, unless you call "bad times" the past 30 yrs. Most people are not getting better, they are getting worse. They work more and get less. They get hit but things never come back in the following expansion.

Strategist says

The conclusions are normally the same......trade benefits both countries involved.

I personally disagree with economists on this point, for obvious reasons: most wages are anchored down because of international competition. You can say "the country benefits" who is "the country"? Those at the top benefit hugely yes, but 80% of the population suffers. People can buy cheap crap but they don't have jobs, and the things they actually need are unaffordable. This was masked to some level by growing debts but the last recession removed that illusion and what we see now if the reality: the result of economic globalization, and it's disastrous for developed countries.

Maybe in 20 more yrs it will turn out for the better, but you can't plan on this scale. Too many things can change.

What we have done with underdeveloped country is essentially send them our technology, our capital and our jobs (after transforming these jobs in slave labor positions).

People at the top were bribed into thinking this was a good thing. I don't see any return from it.

We would be much better off with cheap houses and expensive TVs.

Strategist says

IF the middle class is poorer its certainly not because Warren Buffett is richer.

I sort of agree. The question is what would re-make a Middle Class.

There are a few key areas:

Housing Costs
College Costs
Transportation Costs
Job Opportunities and Income

Housing and rents need to be brought down. At the same time, we can't all live in prime urban land. We need to add land, and build more single family homes for cheap or price the existing bank owned properties much lower

College Costs

People are squeezed with too much overhead for needed education.

Transportation Costs

While I am in favor of transit, we still need cars. Cheaper, and automated ones and hydrogen fueled.

Income/Jobs

This is the lynchpin. We need raises at the lower ends of middle class work. Maybe even doubling of salaries. It wouldn't have to bankrupt the rich to do this.

Strategist says

Housing is how the middle class build up a nest egg, John. Let it gradually go up.

Only because they're not disciplined and need someone to force them to do it, namely a bank giving them a mortgage. If you're middle class but not high earning, you can save 10% of your income and have a great retirement, and if you're upper middle/high-earning, you can save 20% and have a great retirement and still have enough to live on in both cases.

Expensive housing gets in the way of that for people who are prudent. In addition, in most of the country, housing doesn't appreciate by much more than inflation in the long run.

Hmmm. so you don't budget at all for toilet paper?

Diva24 says

So Buffet "rejected" the idea that the stock market is rigged? Yeah, and I shit $100 bills...

corntrollio says

Expensive housing gets in the way of that for people who are prudent. In addition, in most of the country, housing doesn't appreciate by much more than inflation in the long run.

That's true, so here's a question.....
What's better for the average person:
1. An average priced home in low cost Mid West that barely increases in value over 20 years.
2. An average priced home in high cost Coastal California that increases well above inflation over 20 years.

Strategist says

Housing is how the middle class build up a nest egg, John.

This belief doesn't make sense.

The only way it "builds a nest egg" is if housing goes up faster than inflation. That, in turn, means it goes up faster than incomes, and this can only be followed by a fall, crushing a "nest egg" that was always illusory.

Please explain why economists believe this can work.

If housing was cheaper, people could save and invest that same money.

Strategist says

What's better for the average person:

1. An average priced home in low cost Mid West that barely increases in value over 20 years.

2. An average priced home in high cost Coastal California that increases well above inflation over 20 years.

Obviously 1.

Heraclitusstudent says

Strategist says

Housing is how the middle class build up a nest egg, John.

This belief doesn't make sense.

The only way it "builds a nest egg" is if housing goes up faster than inflation. That, in turn, means it goes up faster than incomes, and this can only be followed by a fall, crushing a "nest egg" that was always illusory.

Please explain why economists believe this can work.

If housing was cheaper, people could save and invest that same money.

1. You could get a tax write off. Saves you money.
2. Paying off principal balance is a forced savings. Many households are just not able to save.
3. Any increase in value due ti inflation is your tax free equity.
4. Over time your payments remain the same, but incomes generally increase. You will be able to save more.

Heraclitusstudent says

Strategist says

What's better for the average person:

1. An average priced home in low cost Mid West that barely increases in value over 20 years.

2. An average priced home in high cost Coastal California that increases well above inflation over 20 years.

Obviously 1.

Not really. Just look at people who purchased their homes in Coastal Cal where prices have been going up roughly 6% annually. They have lots of equity. You can take that equity and retire in Florida or Vegas and live pretty well.
Those who have purchased in the Mid West don't have a home that is worth much.

It is free.
Via any smartphone and data plan.
The diploma that said you read it is not free.

Strategist says

Education is going up because public funding is going down. You don't just "bring down" the cost.

Needs to be free, period. Knowledge is priceless and an answer to our problems. Not making it free is the same as withholding knowledge, which should be a crime.

Strategist says

1. You could get a tax write off. Saves you money.

2. Paying off principal balance is a forced savings. Many households are just not able to save.

3. Any increase in value due ti inflation is your tax free equity.

4. Over time your payments remain the same, but incomes generally increase. You will be able to save more.

1 - a tax write off just means spending less. It doesn't "save" money.
2 - Why does it make sense to force saving when at the same time authorities do everything they can to punish saving, including tax deductions on debt, interests at 0%, high prices of anything you could buy with savings, etc, etc....
3 - Stocks on average increase more than inflation and are a better investment.
4 - this would be true too if the price was lower. You would have free cash flow to spend on other things or save.

Strategist says

Obviously 1.

Not really. Just look at people who purchased their homes in Coastal Cal where prices have been going up roughly 6% annually. They have lots of equity.

Someone is paying for this equity: the new entrants buy it with money they earn.

Explain why this is not a ponzi scheme: the "equity" of people who are in is paid by new entrants.

This scheme becomes less and less interesting until the whole scheme chokes off and collapses under its own weight. Then these people who have "a lot of equity" discover that they don't, and those that paid all they earned for it will wish they had purchased in the Mid West.

Heraclitusstudent says

Strategist says

1. You could get a tax write off. Saves you money.

2. Paying off principal balance is a forced savings. Many households are just not able to save.

3. Any increase in value due ti inflation is your tax free equity.

4. Over time your payments remain the same, but incomes generally increase. You will be able to save more.

1 - a tax write off just means spending less. It doesn't "save" money.

2 - Why does it make sense to force saving when at the same time authorities do everything they can to punish saving, including tax deductions on debt, interests at 0%, high prices of anything you could buy with savings, etc, etc....

3 - Stocks on average increase more than inflation and are a better investment.

4 - this would be true too if the price was lower. You would have free cash flow to spend on other things or save.

1. If it saves you taxes you have more money to save or spend.
2. Most people who live hand to mouth just can't save. They need a push.
3. Stocks do a lot better than homes in the long run. But what use are stocks to you if you don't have much money? If you have a little bit to put down on a house you have an opportunity to build a nest egg over time.
4. In high priced areas your benefit comes from appreciation - forced savings.

Heraclitusstudent says

Explain why this is not a ponzi scheme: the "equity" of people who are in is paid by new entrants.

When did it become popular to call every investment a Ponzi scheme?

Strategist says

3. Stocks do a lot better than homes in the long run. But what use are stocks to you if you don't have much money? If you have a little bit to put down on a house you have an opportunity to build a nest egg over time.

If you can pay more for the coastal CA house, then you can afford to invest in the stock market and live in the Midwest.

Strategist says

1. If it saves you taxes you have more money to save or spend.

2. Most people who live hand to mouth just can't save. They need a push.

3. Stocks do a lot better than homes in the long run. But what use are stocks to you if you don't have much money? If you have a little bit to put down on a house you have an opportunity to build a nest egg over time.

4. In high priced areas your benefit comes from appreciation - forced savings.

1 - again. When you have a tax break on interests, this still means you pay more interests than the tax break. It is not saving, it is a disbursement. There is no logic in what you are saying: If you want to give people tax breaks, give them tax breaks, don't subsidize them for buying something.
2 - At this point pushing poor people in debt to buy expensive housing is just cruel. It's a policy that produces debt slaves, that are over-extended and in a fragile position. They will struggle all their lives to pay for a commodity that has been deliberately over-priced. Cruel. Again there is no logic in this. If you really wanted to force people to save, force a larger contribution to some 401K type account.
3 - What use are stocks to you? The same use as any saving.
4 - This should be obvious and I don't know why economists think it is not: In the long term housing prices cannot appreciate faster than inflation. Therefore there is no appreciation, and when prices have already appreciated they are likely to lose ground. It's worse than no saving. It's value destruction.

I still don't see any argument that looks reasonable.

Strategist says

2. An average priced home in high cost Coastal California that increases well above inflation over 20 years.

Let's put real numbers on this so we can see what this is, btw. Also, let's assume best case scenario -- you buy near a bottom and sell near a top. Look at this 50s shitbox in Menlo Park, 2/1 under 1000 sqft, and listed for $1.195M:

http://www.zillow.com/homedetails/2051-Valparaiso-Ave-Menlo-Park-CA-94025/15598473_zpid/

Let's assume it sells for asking. The 1995 sale was 339K, which was close to the bottom of the market. That's 6.9% in the best case scenario, i.e. buy low, sell high.

You can look at the reverse too:

http://www.zillow.com/homedetails/2025-Santa-Cruz-Ave-Menlo-Park-CA-94025/15598869_zpid/

It has now been re-built into a 2800 sqft 4/3.5, but it was once a lowly 2/1 with 980 sqft. It sold for 920K in 2011 and 820K in 2006. That is 2.3% annual appreciation.

And now let's look at something in a different town that's non-peak/non-trough on both sides:

http://www.zillow.com/homedetails/838-Flin-Way-Sunnyvale-CA-94087/19614918_zpid/

3/2, 1300 sqft, sold for 898K in 2012 and 732.5K in 2004. That's 2.6% and barely above inflation (2.5% according to CPI).

Timing clearly matters on this one, as it does for everything.

tatupu70 says

Heraclitusstudent says

Explain why this is not a ponzi scheme: the "equity" of people who are in is paid by new entrants.

When did it become popular to call every investment a Ponzi scheme?

By definition, an investment where the gains of people already in come from what new entrants put in is a ponzi scheme.

Otherwise explain why it is not.

Heraclitusstudent says

By definition, an investment where the gains of people already in come from what new entrants put in is a ponzi scheme.

Otherwise explain why it is not.

That's not the definition. In order to be a Ponzi scheme, there must be an ever growing pool of people paying in to pay out the returns to the earlier investors.

By your definition, all assets are Ponzi scheme-stocks, art, etc.

tatupu70 says

In order to be a Ponzi scheme, there must be an ever growing pool of people paying in to pay out the returns to the earlier investors.

... or as many people paying an ever increasing amount as a share of their income.

Heraclitusstudent says

or as many people paying an ever increasing amount as a share of their income.

Nope--that's not a Ponzi scheme

Strategist says

Not really. Just look at people who purchased their homes in Coastal Cal where prices have been going up roughly 6% annually. They have lots of equity. You can take that equity and retire in Florida or Vegas and live pretty well.

Well, careful there.

Let's take my example above:

http://www.zillow.com/homedetails/2051-Valparaiso-Ave-Menlo-Park-CA-94025/15598473_zpid/

Assume they put 20% down in 1995, or $67,800 and then got 6.9% appreciation/year for 19 years. Using Submedian's calculator, which includes interest costs, tax benefits, maintenance, insurance, etc. and assumes a sale at $1.204M, I get a net number of under $426K as "profit" when you include real costs. Anything else is the forced savings component. And Submedian's calculator actually assumes a lower property tax number than under Prop 13, so the running costs over 19 years could run another $700/year on average.

$426K isn't nothing, but at 4% withdrawal, that's $17K/year. Add that to your Social Security, and it's probably fine for somewhere cheap, but it's not a huge amount of money.

If you compare that to living in the Midwest and putting all the excess money into investments, you could easily come out ahead. For example, assume you lived in a $150K house with a $800/mo mortgage payment (7%, 120K principal). You could put the extra $1200/mo or so into investments making 7%/year and have $572K at the end, or almost $150K more.

corntrollio says

Assume they put 20% down in 1995, or $67,800 and then got 6.9% appreciation/year for 18 years. Using Submedian's calculator, which includes interest costs, tax benefits, maintenance, insurance, etc. and assumes a sale at $1.204M, I get a net number of under $426K as "profit" when you include real costs. Anything else is the forced savings component. And Submedian's calculator actually assumes a lower property tax number than under Prop 13.

$426K isn't nothing, but at 4% withdrawal, that's $17K/year. Add that to your Social Security, and it's probably fine for somewhere cheap, but it's not a huge amount of money.

Not fair. You can't use interest to deduct from the net. If you do, you would need to add back rent from 1995 increasing over time.
Now what do you get?

Strategist says

Not fair. You can't use interest to deduct from the net. If you do, you would need to add back rent from 1995 increasing over time.

Now what do you get?

That's a fair point if you are comparing to renting -- you still have to live somewhere; however, I'm talking about pure profit, out of pocket costs are out of pocket costs.

I suspect, in this best case scenario where you managed to buy low and sell high, you would probably have something more than my Midwest investment example mentioned above, but it's hard to say without knowing what the rents are.

In my buy high, sell low example, you probably would come out behind, but it depends on specific years and also holding time -- e.g. if it's 1991 to 2010, you probably easily made money in investments, but didn't make as much on the house.

tatupu70 says

Nope--that's not a Ponzi scheme

Definitions. It comes down to the same fatal flaw: the input can't keep growing forever.

corntrollio says

In my buy high, sell low example, you probably would come out behind, but it depends on specific years and also holding time -- e.g. if it's 1991 to 2010, you probably easily made money in investments, but didn't make as much on the house.

Timing can throw you off, I agree. The last 2 years you could have gotten 60% to 100% in some areas. Solution:
1. Use a linear regression model.
2.OR Keep it simple and go back 50 years.
3. Use the median prices. Individual homes could vary in price just by it's condition or needed repairs, especially if there is mold or serious earthquake cracks. Case Schiller index for a region would be good if they go back 20 years+.
I think in the costal areas of California, you will see a historical 6% or so long term growth rate in prices.

Strategist says

I think in the costal areas of California, you will see a historical 6% or so long term growth rate in prices.

So let's say wages grow 2% a year. In other words you are telling us that coastal California prices will increase forever 4% faster than wages.

So 20 yrs from now prices will double what they are now relative to wages.
In 100 yrs they will be 10 times what they are now, relative to wages.

No offense but this is a ridiculous belief.

The only way this could happen is if an increasingly narrow sliver of ultra-rich people bought the entire coastal California.
Which I'm not sure why they would. Coastal California is a big place.

The current housing system has stopped serving the interests of most of the population.

Heraclitusstudent says

Strategist says

I think in the costal areas of California, you will see a historical 6% or so long term growth rate in prices.

So let's say wages grow 2% a year. In other words you are telling us that coastal California prices will increase forever 4% faster than wages.

So 20 yrs from now prices will double what they are now relative to wages.

In 100 yrs they will be 10 times what they are now, relative to wages.

No offense but this is a ridiculous belief.

The only way this could happen is if an increasingly narrow sliver of ultra-rich people bought the entire coastal California.

Which I'm not sure why they would. Coastal California is a big place.

The current housing system has stopped serving the interests of most of the population.

That is what has been happening in the last 50 years. Look at New York, London, Paris, Hong Kong, Mumbai, Shanghai? It's a phenomenon that has been very consistent.
The rich move in and crowd out the less rich, who end up with smaller homes, condos, rougher areas, or out of the city.
Take the example of coastal Orange County. Very expensive, so what do the middle class do? Buy condos or move out towards Riverside and drive long distances to work.
If you are implying a relationship with average incomes, it just does not apply to specific areas.

Strategist says

That is what has been happening in the last 50 years.

Yeah... at the very least this is not a promise of future performance. And one would argue this is precisely why it can't continue for much longer.

And this didn't happen in a vacuum. There are a precise set of macro economic circumstances that allowed this to happen. Including hundreds of millions of new workers courtesy globalization. Including constantly decreasing in interest rates. etc...

You think this will continue long term? You believe in Santa Claus?

Strategist says

Look at New York, London, Paris, Hong Kong, Mumbai, Shanghai? It's a phenomenon that has been very consistent.

Do you realize "coastal California" is a much larger place than NY, London, Paris etc... Coastal California includes cities like Santa Cruz, San Diego, etc... that are not nowhere on the global radar in terms of industries or global attraction.
The rich alone cannot make it work.

Do you realize that many people who want to buy now are stretching to the max to make it work? Many young people just delay buying or are forced to double up. How do you think this will work in 20yrs, after a doubling of prices?

Heraclitusstudent says

4 - This should be obvious and I don't know why economists think it is not: In the long term housing prices cannot appreciate faster than inflation. Therefore there is no appreciation, and when prices have already appreciated they are likely to lose ground. It's worse than no saving. It's value destruction.

Finally, some common sense in a sea of delusion.

Diva24 says

So Buffet "rejected" the idea that the stock market is rigged? Yeah, and I shit $100 bills...

What he meant is that it's not rigged in your favor, because you aren't him and thus not eternally backstopped by the taxpayer.

Strategist says

IF the middle class is poorer its certainly not because Warren Buffett is richer.

No that's exactly it. The upper middle class and upper class (not to be confused with wealthy, rich, or 1%) pays for all this bullshit criminal bailouts that helped Buffet, AIG and some TBTF banks to avoid bankruptcy.