patrick.net

newsfreak,

So do they work as promised?

Anthony,

Good strategy! And that is what makes a market my friends. We all have a different perspective. I used to do that for clients that owned shares at such a low cost basis they could never actually sell them and yet the dividend was paultry to non-existent. Take Amgen for instance. So getting paid the premium in a flat market was about as good as it got.

newsfreak Says:

"Scott J. A lawn as we know it is being redefined. With the price of gas, people like my father may rethink mowing."

As a kid I mowed our ~1/4 acre of lawn every week in the summer and once a month in the winter. We filled the 5 gallon gas can in the wood shed about once a year...

Astrid,
I did have a manual push mower at a house I lived in back in TN. It sort of "came" with the place. The thing was from the 30's and worked great until the grass grew over 3".. then it was a pain in the ass.
My folks live on 13 acres, so we HAD to have larger lawn tractors to mow it, and of those, we went through probably 4 of them because they simply wore out. I simply go to yard sales and flea markets, find old gas powered mowers, fix them up, and resell them on Craigslist. Sort of a lawn mower flipper of sorts. You can find them for as little as 10 bucks used, and many times people just throw them out on the street. Made probably around $1500 last year reselling them. Not a bad chunk of pocket change. I just sold the first one of the season last week- a little Sear's mower, for $60.

newsfreak,

white clover?

newsfreak,

I saw blueberry and raspberry plants for sale at Costco a couple weeks ago, they might be working their way to your neck of the woods.

THough you probably can't expect a high yield unless they're bird netted.

You know, nobody gets more depressed (or depressing) than an Oregonian during winter. Believe me we're having the first nice days since Oktoberfest (actually held in mid September) so I've taken time to stop and smell the roses too but can we get back to cold, calculating, steely eyed market talk now!

There's a real estate crash going you know people!

Worlds are colliding Jerry! Worlds are colliding!

DinOR,

Sorry, just survival instincts taking over. Just planted the tomatoes and okra out this morning. Lined the borders with nasturtiums (both leaves and flowers edible). Then some camellias and ume against the north wall.

I've also planted about 150 lily bulbs this year. If things get really bad, I may have to dig them up and eat them.

newsfreak,

Oh thank God! I feel so much better. I'd rather the bad news than no news at all. In fact, I've never come across a void yet that I couldn't fill with negativity! I realize folks in the BA have had a dose of what it's like to be an Oregonian so believe me I understand.

But if someone doesn't say something derogatory about RE bulls and fast I swear I'll..........

People don’t leave the “Merc” at the end of the day with bushells of soybeans.

Wife: Honey, why is that big truck parking outside?

Husband: I did not offset my long position on corn, here they come.

Wife: Do you want them steamed?

Husband: With butter please.

DinOR,

In terms of investment opportunities, I just don't think enough people will understand housing futures to take advantage of it.

I guess if you're a house owner, you can do what Anthony suggests.

Maybe you can talk about the macro-economic consequences. What will a functional, frequently traded RE futures market do for the RE market? Who do you see as participants? Who are in a position to take advantage of this? I can barely grasp what this market is, so it's hard to talk intelligently about it.

So we’re not dealing with houses at all, but some concept of house. So, is this just people gambling on overall house prices…so basically a derivative?

Yes, derivatives.

astrid,

Yeah uh huh, that's great. How nice. I just buried a few realtors (face down of course) in my flower bed and I don't care if they ever come up!

Just kidding.

astrid,

(And I really was just kidding)

It's really pretty simple. When you're short, bad news = good news.

I'm much better now. During the lull I crank called a mortgage broker and asked him how IO mortgages work, pretended to be interested and then acted like my line got cut off. Hello, hello?

In terms of investment opportunities, I just don’t think enough people will understand housing futures to take advantage of it.

How many people understand the dynamics of investing in rental properties?

They just buy the darn thing and hope that it goes up in value.

With futures, it is even easier. It is literally one click away. The commission is not 6% or even 2%, it is likely to be $5 a round turn per contracts even for retail customers (on Globex). So the roundtrip commission of 1M worth of "housing" exposure (~20 contracts) is likely to be around $100.

NOT INVESTMENT ADVICE

who is going to participate in this housing futures market, and with what instrument? i.e. stocks are traded because a company explicitly issued shares in order to raise some money for itself to expand or for whatever other reason, and issues a dividend. All derivatives either require that you hold a tradeable stock or intend to get one if you don't. What's tradeable on a mortgage? Is it houseowners worried their price will collapse? Potential house buyers looking to buy a put option? Lenders? They're normally covered by thier own risk assessments and LVRs in case of a downturn. Aren't futures more or less traded on behalf of farmers in order to hedge against future unknown price fluctuations? (And other commodities.) Who is the underlying beneficiary of this exchange?

there are futures and commodities trades which would end up in you taking delivery of the commodity if you don't shift it smartly or cancel it with a covering position...

The new records also raise the possibility that some of [Hilary's] profits — as much as $40,000 – came from larger trades ordered by someone else and then shifted to her account

isn't it more of a gift from some more experienced trader, who actually knew what they were doing? anyway, the Repugnants are going to dig up any trace of dirt they can find if it looks like hilary is going to run for prez in 2008, what a surprise...

I never believed in the dotcom frenzy, there was no underlying value in the internet at the time - nothing meaningful was being sold or value-added...

the price of 92 octane unleaded fuel in oz has been about US$3.70 a gallon for months now... and the cost of living overall is generally higher on a lower average wage.

Sort of a 360 degree switch

It's still 180°, nomad :mrgreen:

So you bet long or short?

Yes. But with options on futures, there are even more possibilities. For instance, you can bet that it does not go down, does not go up, goes up or down, goes no where, ...

there are futures and commodities trades which would end up in you taking delivery of the commodity if you don’t shift it smartly or cancel it with a covering position…

I think this contract is cash-settled.

What about weather futures? How do you take delivery? :)

newsfreak,

Like you wouldn't believe! I actually read an article yesterday that was about a group of realtors and lenders etc. in Las Vegas calling an emergency meeting to address the rash of foreclosures and the even bigger wave they are expecting. They had this mortgage "guru" that was being treated like the second coming but I've read the guys stuff before and his program CAN work but it assumes you're on fairly solid financial ground to begin with. Sound like anybody you know in Vegas? Yeah, me neither! Well I'm sure there are those that are established but even if they were they went out and leveraged their solid ground for fluff and hot air anyway. It was great article and it really cheered me up. But that was yesterday.

Newfreak,
The thing that happened to my folk's yard was that it "reverted" to a pine forest, mainly because one of my dad's other ingenious ideas was to have an xmas tree farm. He planted 500 of them, they all grew up, so about 50% of the yard is now pine trees. He pruned all the lower branches, so now it looks like you're walking under a canopy of trees and you don't have to mow uner them at all since all the acid in the trees kills it. Actually, I want to live in the desert. No grass at all. That said, I get physcological relaxation mowing grass. Not sure why, but I can work out my innermost thoughts and worries while behind the wheel of a lawn tractor.

why gambling makes money—
the House
always wins.

Brilliant!

newsfreak,

Don't get me wrong, if it were Des Moines I would be equally delighted. If you've been following the tone of the articles written lately it has really changed in the last few weeks. As it became more apparent that there would be no "spring salvation" the tone is more like "poor bastards" or "we're only now seeing the tip of the iceberg" kind of a thing. Gone are they days of being on the fence about the presence of a bubble! The damage control is now being discussed in even the most mainstream publications. Like I say these housing futures could have been used yesterday!

The politician- bureaucrat-businessman nexus occurs everywhere in different forms.

yes, but voters in other countries don't like it when the pollies clearly benefit personally from decisions - either from insider trading, bribes, owning the property being sold to make a 40-storey tower, picking up a job with the firm they favoured so much in office, etc... some of the above are illegal, others are just unethical or questionable... but the revolving govt-industrial door is a lot worse in the states... e.g. lockheed martin cronyism, cheney and halliburton, etc... not counting the insider trading, jack abramoff affair, and general bribery of congressmen by vested interests ('campaign donors'), etc.

Peter P, DinOR,

These will be futures, not options right?

Just for clarification: futures and options are both exchange traded, but they are not the same thing. (Forward contracts are the same as futures, but not exchange traded.)

Futures have a long payoff that looks like a straight line, sloping up from left to right (on the hockey-stick graph). The short position is the inverse.

Options have the recognizable hockey-stick shapes.

The big difference is options have built in floors or ceilings, so you can limit your losses either short (betting on a drop) or long (betting on a rise). Futures work like stocks: you're losses aren't limited (except by 0).

There's no call-put parity stuff to a futures market, only an options market. Futures prices work simply as a decreasing function to spot price. That is the futures price is higher/lower than spot at time t = 30, but the difference diminishes as time gets closer to t = 0, that is the future becomes the spot on its maturity date. The difference reflects volatility and consensus as related to future price expectations (obviously).

Futures market is a derivative market, because you're not generally trading the real asset. However, futures contracts are potentially deliverable, which drives the price. The market must behave or if it doesn't, all the futures contract holders would demand delivery (if they could make more money taking the commodity, for example). There are examples of futures with which deliver is normal, however. This makes futures markets a bit special from options markets (where you have no residual claim on the asset directly, only indirectly).

One last thing, Taxes are brutal for futures market gains. Short term gains (and most are) are taxed as ordinary income. Capital losses are a complex formula of this and that IRS mumbo jumbo, which you need to pay someone to do for you.

Most people have some exposure to futures markets in the form of currency exchange futures. When you get a better exchange rate from your bank or credit card company than other places you are taking advantage of the FOREX futures markets.

These will be futures, not options right?

I think there will be both futures (Globex) and futures options (pit).

One last thing, Taxes are brutal for futures market gains. Short term gains (and most are) are taxed as ordinary income. Capital losses are a complex formula of this and that IRS mumbo jumbo, which you need to pay someone to do for you.

Huh? Aren't they 1256 contracts entitled to 60/40 treatment (60% taxed as long-term, 40% taxed as short-term regardless of actual time-frame, marked-to-market at year-end)?

Peter,

Yes, 60/40 treatment with positions treated as if closed on last day of tax year. There's all this stuff in my Hull book about exemptions from this rule (to get better trax treatment) that involve using futures as hedges. That was what I was referring to, as I assume most people want to use these to hedge rather than speculate.

newsfreak,

So t=30

You are betting what will happen in the next month?
So you have to change your position every month?

There are different contract lengths, but a lot are for 1 month. Depends upon the market. Some are much longer. The longer out, the less certainty you have about the future price, so the greater the potential difference from the spot price. You see this in oil all the time. Spot prices move by $1, but futures prices move by more than $1.

Your position in a futures market depends upon why you're there. Are you there to speculate for fun and profit or are you there to hedge something you own, produce, or purchase?

I think there will be both futures (Globex) and futures options (pit).

Hmmm, then we're back to the IV problem for the options market. I can't wait to see how this works out. Maybe they already have a bunch of HFs commitments, so they know they'll have both liquidity and volatility?

That was what I was referring to, as I assume most people want to use these to hedge rather than speculate.

Of course. :)

But I think it is a superior RE speculation vehicle, especially over short-term and if it really settles into backwardation. The lack of tax-deferral can be an issue though, but won't it be more attractive to foreign entities?

The lack of tax-deferral can be an issue though, but won’t it be more attractive to foreign entities?

That can be arranged ;) I'll have to renew that business license in Mauritius.

But I think it is a superior RE speculation vehicle, especially over short-term and if it really settles into backwardation.

I see where you're going with this now that I get that there will be futures-options. I'll start my blog thread on specific strategies later today and post the link here. We should set up a couple and track them for a month, then report how much we woulda made or lost.

Randy/Peter

Many "trading firms" are set up as either an LLC or Sub S to defer some of the tax issues. I think as long as they retain profits within the account they remain property of the entity. We would do well to form one.

Oh, Randy, you're right. We trade to mitigate risk, not generate short term gains.

newsfreak,

I know Lee Valley sells a pretty extensive set of sharpening implements, including for manual mowers.

As for the sheeples, I predict a future of ramen and PB&J.

Hmmm,

Can you do futures trading with your IRA and 401Ks? That would get rid of the tax problem altogether.

Soooo...what does the housing future mean for the market?

more liquidity? more scrutiny?

I can see the speculative angle, but who would want to long a housing future as a hedge? people who rent? people deferring a big buy?

Can you do futures trading with your IRA and 401Ks? That would get rid of the tax problem altogether.

It may be possible with IRA. I think eFutures has something like that.

NOT INVESTMENT ADVICE.

but who would want to long a housing future as a hedge

People who afraid of being priced out, aka sheeple.

I guess longs could be packaged for fixed income elderly with homes in non-prop 13 areas. Since property tax go up with property value, this would be a hedge for it.

My friend just gave up

Well, if he sees something that he likes and that he can afford, you cannot blame him.

Peter P,

Sorry. I can't say much about the actual investment and technical portion, so I'm trying think of how this product can be packaged for consumption.