patrick.net

@lunarpark,

Thanks for the numbers! SF, Marin, SD & San Benito Counties all in single digits now, Placer the only one neagtive. I'm actually surprised at the number of areas still posting strong double-digit YoY gains, but then watching the housing market reverse is like watching grass grow. I believe this will be a long, slow-mo crash much like the last one, which took 7 years to fully bottom out.

@DinOR,

I wish I could take credit for "cram-down", but it's actually a term that's been in use by the media for some time.

Harm,

As in; cram-down our throats?

SFWoman,

I had no idea that much of our medical resources were being used so unwisely! I've always promised my family that if I were diagnosed terminal that I would check myself into a some flea bag hotel in Tijuana and drink myself to death. I am not kidding! As a Fin. Planner I have seen more money squandered on this than you can shake a stick at! I've had clients actually re-affirm that sentiment. Their only fear was that you may not be coherent at the time and we all know the "end game" from there isn't pretty. I hate to sound so mercenary about it and I can't speak for others but I feel it's the least I could do.

From today's FT:

"Housing frenzy fades as US confidence dips"

A couple of relevant points--

* Resales fell 2.8% in Jan, 5th consecutive monthly decline
* Decline in condos fell 10%
* Backlog is 5.2 months of inventory, the highest level since 1996
* New homes fell even more, with highest number of cancelations in over 20 years
* quote "demand is dropping and supply is rapidly rising. Unless something happens soon to correct the supply/demand imbalance, prices are likely to decline sharply in the future"
* consumer confidence index is also dropping sharply, the lowest level of "bouyant economic conditions but cautious consumer sentiment about the future since 9/11"

Price stickyness:

* Median prices still growing at 6% per year (down from 14% in 2005). SFH median prices still growing at 13%.
* Economy.com says future rates rises coupled with narrowing credit restrictions must cause a price correction in the near future. "Without riskier mortgage products, buyers in expensive markets simply cannot afford homes now in inventory"
* Further, it may be likely that sticky prices may begin to finally decline in as few as 2-3 months. Support to prices now may be soley in the form of in-progress purchase contracts, especially in new homes.

DeoV,

I can't make this week. I've got daddy-daycare-duty with a sicky out for the week. I did put your stock picks into my spreadsheet and if I get a chance I'll run a stawman Black Litterman portfolio optimizer. I don't have access to any decent backtesting tools anymore, so I can't do much else.

I can't start a fund, lol; I'm not NASD or Series licensed. I'm more of the quant-econometric-dork in such matters.

Randy H,

Good stuff! Price stickyness? Declines in as little as 2-3 months? Well if we could get some tamper proof data it might well indicate that we are already there! SQT has "gravity defying" numbers from Sacto yesterday that I frankly found beyond belief. 50 and 75%+ declines in sales but median prices flat or slightly up? Please! Then of course we all know that FT isn't all that revered a publication.

Scott made some solid observations about the complexity of "savings accounts" 401K, Roth 401K, SEP, SAR SEP etc. Out of control or are we just looking for a one size fits all solution?

Scott made some solid observations about the complexity of “savings accounts” 401K, Roth 401K, SEP, SAR SEP etc. Out of control or are we just looking for a one size fits all solution?

We do not need any of those saving accounts if we switch to consumption-based taxation.

Fewlesh,

No debate. Bikers are stingy! Pedestrians should be able to use some of their paths but it doesn't seem to be working. We've had this radical "Critical Mass" Bikers Rule mentality and it's taking a toll. Last summer I believe 4 cyclists were killed, scores of injuries and almost daily confrontations. In short it was just another reason I elected to go independent and walk away from the "commute" and what I fell is a mess in the making.

Peter P,

So I'm assuming we're doing away with short/long term cap gains and the AMT in fell swoop? That's a trade I'd gladly make but if that isn't happening in our lifetimes isn't a consolidation of "plans" more effective in the interim?

So I’m assuming we’re doing away with short/long term cap gains and the AMT in fell swoop? That’s a trade I’d gladly make but if that isn’t happening in our lifetimes isn’t a consolidation of “plans” more effective in the interim?

True.

Yesterday night, Mardi Gras turned rowdy in San Jose downtown. I guess there is no way I am staying there.

What is Mardi Gras anyway? I used to think that it is a type of Foie Gras but it turns out to be some festive day.

Either we go completely free market or completely rationed state controlled health care. This 50% government 50% freemarket doesn’t work. The way the money works, because the cost of a treatment is set by the government, vendors compete to make the most expensive most feature packed treatment for the fixed cost. The vendors then lobby government to allow cover more diseases with fixed costs.There is no incentive to create cost effective treaments, because to the consumer, you pick the best treatment available, and are not subjected to the cost. The profits are privatized, while the risk is socialized. If you actually had to pay out of pocket for each treatment, you’d pick the most cost effective/cost efficient solution.

Well said. Excellent summation of the conundrum of the current status quo. Given America's cultural distaste for socialized medicine in combination with out-of-control (and unsustainable) deficit spending, I am inclined to believe we more likely end up with something closer to a free market approach, maybe along the line's of a HSA, as Scott recommends. A bankrupt federal government is not likely to be in any position to launch a massive new entitlement progam like universal/single-payer coverage anytime soon, nor is there much political will there to do so. As the Boomers come ever closer to retirement age, this should get "interesting' --in the Chinese sense.

Scott/Peter P,

I'd love to see the necessity of IRA's/Plan X or the "latest greatest thing" just go away! If that's just not possible at this juncture why not streamline this mess. I have seen software simulations on end that show employee A and employee B one in a Roth, the other in a Regular 401K virtually end up in the same place. Either a zero sum game or not nearly enough of a difference to justify the additional expense/hassle. There is no tangilble benefit other than it gives guys like me something new to sell! It's just not worth it!

If California does not overturn the uber-silly law to ban foie gras by 2012, I may have to leave.

How can a state commit such gross violation of human rights!?

Perhaps this Foie Gras law will further depress the housing recovery.

Harm,

I nor Scott to my understanding are necessarily advocating running out and setting up an HSA. The short term benefits are of questionable value (however attractive the L/T benefits might seem). I believe this transition could be painful if not disastrous.

Scott,

I'd have to agree, HSA's WILL rock! The truth is I wouldn't want anyone to come back on me and say, "I opted out of the co. spons. health plan to start up my own HSA and 6 months in I was was diagnosed with terminal X disease!" Now I have NO health coverage, or was diagnosed "pre-existing". Big liability! I have spoke w/HSA providers and they are very careful to "tap dance" around this issue. So it can be something of a gamble.

Scott, can't you just buy treasury instead of treasury funds? I find no reason whatsoever to buy treasury bond fund because you can usually participate in auctions for free anyway.

If you are younger, yeah the Roth 401K can a lot make sense. I guess it's great to be offered the option. However when looking at the "plan participants" at large? It's usually a wash given todays brackets. Remember, when offering it to the employer he will have to make the judgement call as to whether ENOUGH employees will be able to take advantage of it to justify the additional expense. Picture a PC where most are already in the 50+ crowd. Yes, it's about the money! You talked a little about addressing the "debt" and that will be key. Some folks are already saying it may make more sense to only contribute up to your co. match!

Scott,

I had thought it SHOULD work that way as well! After further review I learned that it's firstly best to get a COMPLETE physical before doing the transition. Then have your old insurer take care of any issues you may have. Then as you move to the HDHP make sure that they can't "drop" you in the first year or have a similar clause in place. It can be a touchy issue. One way or the other I am doing it this filing year and I did find an HSA that will let you "trade" your account so while I'll have to report that, it would still be worth it to me!

but yeah buying direct would also have one other advantage: no cap gain on sale of fund (assuming there were any gains).

You still have to pay capital gains on the bonds, if they have appreciated. You do not need to worry about cap gain distributions though.

BTW I used to think our debt was outrageous, but MISH’s blog made me reconsider:

It makes our debt seem, well, quite reasonable actually.

Maybe, maybe not....
Several points (from Mish's Comments section):

1 the main difference between japan and the USA is of course consumer debt. Consumer debt is MUCH lower in Japan.

2 US federal debt, is only the "federal" debt. There's also the state debt. There are no equivalent of states in Europe, and Japan. This explains why national debt in Europe and Japan is higher relative to GDP.

3 On top of the preceding point, Europe and Japan are more "socialized" economies. The government taxes more and provides more services, while in the US the Fed and the states together tax less and provide fewer services. The same services that are available from the government in Europe and Japan (for instance university courses, health care) are available on the market in the USA.

What is really important is the public deficit relative to the public tax base. This deficit is really really high in the USA vs. tax base.

4 finally, and very important, the saving-investing gap, is something very different from the debt/GDP increase.

For instance, Japan and China save a lot. Those are saving countries. household savings are at around 40%, USA is 0%. The gap between total savings is lower, probably around 30% in China & Japan, -5% in USA.

5. Government debt vs. GDP tells nothing about who owns this debt. It is entirely possible that Japan is a net creditor nation and at the same time running high government debt, which is entirely financed domestically. The U.S. by contrast, cannot finance its own debt and relies heavily on FCBs.

I interpreted that plan as “Don’t bother us for everyday crap, but if your leg is sliced off, we’ll take care of you with minimal outlay on your part.” That seemed like the best, more fair plan for everyone. And it’s half of what normal companies pay for health care.

This is indeed the way to go.

Scott,

The one I was referring to was www.hsabank.com. I am not compensated for a referral.

5. Government debt vs. GDP tells nothing about who owns this debt. It is entirely possible that Japan is a net creditor nation and at the same time running high government debt, which is entirely financed domestically. The U.S. by contrast, cannot finance its own debt and relies heavily on FCBs.

This also means that the US can inflate out of debt quickly while Japan cannot.

This also means that the US can inflate out of debt quickly while Japan cannot.

Good point --and one that reinforces my long standing belief that the Fed, when faced with a choice between policies that promote deflation or inflation, will always choose inflation.

Scott,

I don't know if it's a recent development but when I spoke w/their rep on the phone they said you could choose from equity mutual funds and ind. stocks. The scam? You got it! It's an IRA! In the end, can you imagine having MORE freedom than knowing your acct. is at critical mass and covers all of your premiums and expenses? How many of us keep jobs that suck later in life b/c we can't walk away from the "cram-down" benefits?

New thread: Burn rate

Good point. I think half of San Francisco is on SSdisability.

Huh?

My problem is that welfare is also a self-fed loop. Since it disincentivizes production, it creates more future demand for welfare.

My problem is that welfare is also a self-fed loop. Since it disincentivizes production, it creates more future demand for welfare.

Yes. And this particular self-reinforcing feedback loop is especially nasty, thanks to the fact that taxpayers are now subsidizing non-taxpaying illegals by the millions, who are flooding emergency rooms, classrooms and government welfare rolls all over the border states.

Yes. And this particular self-reinforcing feedback loop is especially nasty, thanks to the fact that taxpayers are now subsidizing non-taxpaying illegals by the millions, who are flooding emergency rooms, classrooms and government welfare rolls all over the border states.

Very true. To solve the illegal immigration, we only need to fix the welfare system. Once welfare reform is completed, border minutemen can finally take some rest. According to Milton Friedman, welfare and completely free movement of people do not mix well.

To solve the illegal immigration, we only need to fix the welfare system. Once welfare reform is completed, border minutemen can finally take some rest.

I do hope this was meant in jest. ;)
Let's see...what other economic factors account border migrations?
Oh yeah...jobs Americans won't do. Want to pick artichokes in Watsonville?
Granted, "migrants", "white people", even Europeans abuse the dole to varying degrees.

Let’s see…what other economic factors account border migrations?
Oh yeah…jobs Americans won’t do. Want to pick artichokes in Watsonville?
Granted, “migrants”, “white people”, even Europeans abuse the dole to varying degrees.

With welfare reform, it would be possible to make immigration more open. Jobs that Americans are unwilling to do can be filled. The economy can become more efficient.

With welfare reform, it would be possible to make immigration more open.

I agree...there needs to be more transparency. Agribusiness obviously needs the labor, so it should be above the table. I suspect there are some overhead concerns, but I'd definitely support documenting/tracking migrant workers far better. I have some security concerns for a porous border too.

I suspect there are some overhead concerns, but I’d definitely support documenting/tracking migrant workers far better. I have some security concerns for a porous border too.

Yes, I support President Bush's guest worker policy.

Oh yeah…jobs Americans won’t do. Want to pick artichokes in Watsonville?
...Jobs that Americans are unwilling to do can be filled.

KurtS,

I have to disagree with the argument that illegals are just "filling jobs that Americans won't do". If it weren't for the vast, exploitable pool of dirt cheap immigrants, American agriculture would have long ago mechanized to the degree that you see in European countries, Australia, NZ, etc., instead of relying on back-breaking stoop labor.

No, most Americans proabably wouldn't pick artichokes in Watsonville by hand these days (at current prevailing wages), but they WILL work on harvesting machine asembly lines and drive/repair the equipment. And such jobs can and do pay a living wage in countries where manual labor is scarce and agriculture is heavily mechanized.

I do believe that global labor arbitrage will proceed anyway. Expensive jobs will go overseas and/or cheap labor will find a way in. To lessen the pain in globalization, we better reform the welfare system before all is lost.

Things like allowing mortage interest to be tax-deductible tend to be ham-fisted responses by govts to address a problem of the markets. As pointed out, it unfortunately favours the well-off differentially, not usually an intended consequence.

I've found govts to be often very limited in their thinking, only using taxes or reduction of taxes as a lever to achieve some result - they don't like directly intervening in a more intelligent way, particularly in the housing market, for some reason.

Without some sort of system of caps on asking prices of houses, things like first home buyer govt grants and tax deductions on interest often serve to unintentionally inflate prices more, by the effective injection of more amounts of capital into the system which lets people bid prices higher, the real estate agents lick their lips, etc.

There is a State Valuer who runs around valuing properties for land tax purposes. I say they should take those values, halve them, set them in stone and nationalise real estate sales, and only allow housing price increases in line with CPI or median wage increases. Real estate agents should be thrown into jail or shot at dawn for the slightest ethical transgressions or attempt to incite inflation. That might make them honest. (Interesting how we trust the largest investment of our lives to the slimiest members of society who are the least trusted in all popular surveys, in the important social task of providing decent human shelter.)

"There are also cases that amaze even the staff. Mr. Pompilus recalled the homeless man who believed a positive HIV test represented his best chance of collecting welfare benefits. He said he had seen four or five such cases over the years. Mr. King said he knew of cases in which an anguished spouse who tests negative will intentionally engage in unprotected sex with his or her HIV-positive partner. "How can you make someone practice safe sex who wants to be positive?" Mr. King asked. "

“How can you make someone practice safe sex who wants to be positive”

in the bay area, the people who want to be HIV+ do it for free housing. That what my friend said.

This is obviously extremely rare, and the homeless often have severe mental illness and are known not to take good care of themselves. Further, they may have acquired it from needle sharing, not from sexual contact. In most civilised countries, such persons would be automatically covered under a pension, and would not need to stoop to such desperate measures.

The other point in the article is that, for some reason, distressed negative partners try to acquire the same disease from their positive partner as some sort of solidarity measure. There is no information on cultural background or anything else about these people. That behaviour has nothing to do with housing, it just happens to be in the same paragraph.

However, low income residents in a city or state with rampant housing hyper-inflation do become increasingly desperate, and homelessness rates, and other forms of precariousness, tend to increase.

BTW I used to think our debt was outrageous, but MISH’s blog made me reconsider:

It makes our debt seem, well, quite reasonable actually.

On this, this is actually quite misleading, and a common trick that's played in reports, for I don't know what purpose. It says nothing about the private sector national debt, which is an order of magnitude higher than govt debt. The real problems a country will run into is if the private sector cannot service its own debt, just as for an individual or business. However, newspapers love to imply the govt's debt is somehow equivalent to the country's private sector debt, and that there's some sort of terrible problem if it's high.

So it's fair to compare private sector debt with GDP, since private sector activity is what is creating the GDP. The GDP itself is a funny measure, as it's just an estimate of the sum total of all economic activity in the country, whether productive or not.

Private sector debt is made up of:
- private borrowings of individuals, e.g. mortgages, personal loans, credit cards
- borrowings of business, presumably in order to successfully run the business, make a profit, and eventually retire the debt

Govt debt is simply overspends on establishing infrastructure, funding the welfare state, paying public servants, etc. It can reduce its debt by:
1) sacking large numbers of public servants
2) slashing or reducing public services and programs
3) letting infrastructure run down, or selling it off under PPPs to the private sector which often end up costing the community more than if the govt had retained control

Same as budgeting or running a household and cutting back on inessential items when there's a squeeze. Sometimes 1)-3) can be good to reduce bloated govt, sometimes it's bad when essential services are cut. The govt here managed to turn an inherited $8bn deficit into a $12bn surplus within 8 years by careful pruning. Easy.

Govt debt is not in itself bad, as it can be 'accrued' over the useful life of the programs or infrastructure being built. Finally, it is only a marker of how well the govt is doing its own bookkeeping and housekeeping, not a marker of the overall indebtedness of the country.

The foregoing is all assuming the govt is acting in the broad interests of the community, is not massively corrupt, or wasting huge piles of money on boondoggles.

(afterthought: in the case of racking up $300 bn dollars of national expense by declaring war on another country, there had better be a good payoff somewhere for someone. saddam hussein himself went broke to the tune of $200 bn dollars in the war against Iran, which is one reason he decided to try to invade Kuwait - to help pay off his earlier unsuccessful wars... The US govt as an entity is now finding it hard to borrow money to continue on this trajectory, as it's increasingly being seen as a bad credit risk...)

Regarding the existence of HMOs, HSAs, 12 month waiting periods for health insurance, personal management of risk, the need for software modelling at home, etc, etc:

None of that is necessary here under a govt-provided health guarantee, and health services are provided in most OECD countries as a universal social guarantee by govt for about half of the cost per capita of running the American system with a non-inclusive insurance approach.

In other words, it's more efficient to treat people when they fall sick on a universal basis for free by the govt out of tax dollars than it is to do all this faffing around with health insurance in the private sector which only leads to denial of care, extra stress and anxiety, extra admin overhead, and unseen gouging of citizens by unscrupulous insurers, whose main intent is not to pay out money. In terms of quality of care, the US system is ranked 37th in the world, and is particularly noted for its denial of access to needed care.

Disasters, Education, Transportation, all done better by private sector.

Disasters like Union Carbide in India? Definitely, disasters are done quite well by the private sector...

Pollution and environmental degradation? Complete disregard for workers and residents rights?

Way to go...

A recent review of bus operators in Sydney found that they were only viable because of schoolchildren subsidies they receive from govt, when they don't even carry the schoolchildren. This year, the govt finally decided to reimburse each private bus company for all their operating losses out of the public purse, as they provide essential services non-viably...