patrick.net

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.

Hedging can be very dangerous. What if prices go against your hedge? You will need cash to meet margin requirements.

Peter P,

But it would be part of an income generating portfolio for the elderly. The housing future would be a very small portion (only enough exposure to cover property tax costs)

But it would be part of an income generating portfolio for the elderly.

I don't know, it is more complicated than that. I have a feeling that more elderly people will lose their homes because of hedge losses.

Something makes me wonder if housing futures being placed up for investment means a desperate measure for the RE and builder's industry to prevent the enivitable.

astrid,

It kind of depends. If housing futures show promise within a short time of implementation somebody like Calamos in Chicago or Nuveen or Seligman will put together a "fund of funds" Exchange Traded Fund in no time at all! If they do you should be able to place those shares in your IRA. I own a few "option" ETF's and they haven't done that bad. About 8 to 9% without any effort but I wouldn't say they are NOT for the elderly. See that's another great plus we can attribute to "free mortgage money"! As rates were pinned to the floor many seniors (even well prepared seniors) HAD to find other means just to be able live off of their critical mass. Flushed out from behind the relative safety of muni bonds, CD's and money markets they had to buy MBS (and leveraged MBS at that) just to make ends meet. I've long since bailed on my REIT positions and I'm cleaning up the last of the MBS but people get used to those 8.75% pay outs.

nomadtoons2,

I think suprisingly Shiller ran into a number of regulatory hurdles before introducing them. I'll bet he was ready a year or so back but this is such a "sea change" and remember regulators know they are not the smartest guys in the room. Besides they get paid every two weeks regardless. It's kind of like showing up at a fire with a bucket of water and being told you need to show some ID.

astrid,

What I think I meant to say is that if you can a 100K + retirement income and do it with a 3% return, well then bully for you! If you have to chase 9% returns to have a 50K ret. inc. may I suggest watching your portfolio and Bloombergs with keen interest?

Our boomer elderly are pathetic.

Just a month ago, Barron's has a feature article for would-be retirees. The article talks about how a millionaire (someone with a million in investable liquid asset) can hardly retire. Why?

Because these "millionaires" want $100K AFTER-TAX income to support their lifestyle. So what's their lifestyle? They have a paid off home, and a vacation home NOT paid off (hello, shouldn't renting be an option?). They want frequent international travel on business classes, cruises (Crystal, not Carnival), expensive golf membership, etc.

After reading the article, I was like, gees, can't you morons get off your sense of entitlement? First of all, unless you are willing to take risks with commodities or emerging market stocks, you ain't gonna see 15% pre-tax return on only a million dollars, but you fat asses don't want to take any risk. Second, if you only have a million to retire, then scale back your freaking lifestyle, you don't need to travel internationally so much, certainly don't need to ride on business classes, and you can just join Princess cruise instead of crystal of you find carnival to be too cheap. How about going to municipal golf courses instead of paying $100K initiation at exclusive clubs?

The article pissed me off because it shows what kind of idiotic snob these "millionaires" are, they are not savvy enough to manage personal finance, if they are, they won't be setting unrealistic expectations about risk and return. They expect the world to bend over backwards to satisfy their "needs" which are all inflated and unsubstantiated. I feel sorry for the kids of these retirees, they most likely won't see a dime passed down from these relatively well-off parents while other parents with less means but a better perspective on life will have far more to pass down.

DinOR,

Thanks! I'm beginning to see how this market can come down to the regular Joes and Janes. It'll be interesting to see how this market holds up when the housing bubble comes down big time.

I think I'll sit this one out on the side lines. I don't have much in savings, other than a very small amount ($20K or so) in IRA and a locked in student loan. If the getting gets really good or interesting, I'll call my boyfriend in. He would actually know what you, Peter P, and Randy H are talking about. I'm just here for pricing info on the 400k Pound Sterling turnip.

Soliciting specific CME futures and options portfolio strategies (both speculation and hedging) on my blog here. (This Patrick.net thread is trackback, so comments there are tied here).

SFWoman,

That meadow sounds absolutely lovely! My boyfriend and I made it to Antelop Valley poppy reserve after last year's rains and it was gorgeous. I love the shimmery California hills of summer though, it looks very impressionistic, especially when there's a breeze moving the grasses.

Have you considered planting a marionberry (a kind of west coast blackberry) hedgerow? I had some wild ones in Oregon and they were absolutely delicious. They would make for a good wildlife habitat and are practically natives to Calistoga.

Owneroccupier,

Well, that's social Darwinism for you. Nobody will be there to pity these snobs when they are forced to subsist on $25K a year. At least this is one area where I don't worry about a taxpayer bailout :)

Would be a pity for their kids and grandkids though. Properly invested, $1M in a generation skipping trust would be a heck of a lot of money in 20 or 30 years.

DinOR,

The other thing about chasing a 9% yield or any degree of active management is to keep a good CPA and/or tax lawyer close by. The transactions will get complicated in a hurry.

Peter P,

So the elderly probably shouldn't do derivative trades directly. But I still see these futures as useful cost of living hedges for a pension manager or the likes.

SFWoman,

Check out the Ford Thunderbird, they're all pretty ugly in my eyes, but the latest generation is just the silliest looking thing on the road.

http://en.wikipedia.org/wiki/Ford_Thunderbird

SFWoman,

perhaps the development is targeted at asians and middle-easterners? Anatolia as Asia Minor?

Oh well, we may see a subdivision named Babylonia or Alexandria very soon.

Owneroccupier Says:

"Just a month ago, Barron’s has a feature article for would-be retirees. The article talks about how a millionaire (someone with a million in investable liquid asset) can hardly retire."

A million dollars in a safe bond fund will kick off about $50K a year pre tax and in CA after paying state and federal taxes you will keep about $2,700 a month, so you "could" retire if you had a paid off house with a low property tax bill.

Every time I hear a so called "Expert" talk about retirement they always seem to forget about inflation. Almost everything costs at least 10 times more than it did 40 years ago and it seems like a safe bet that most things will cost a lot more 40 years from now.

The amount you need to actually invest every year to actually support yourself some day is way more than 99% of all individuals (and companies and governments) will ever actually invest.

In 10 to 15 years things are going to get real ugly when Social Security, Private Pensions and Government Pensions all start to run out of money at the same time...

"I feel sorry for the kids of these retirees, they most likely won’t see a dime passed down from these relatively well-off parents..."

Dude, talk about entitlement. Why should kids expect to have money handed down to them? Nothing like inheritance to sap one's ambition. I say let the young-uns fend for themselves and maybe then history won't repeat itself! Maybe I would change my tune if I had a big fat inheritance check coming...

SFWoman Says:

"Sorento at Anatolia. I just have a problem with that. Developer must have received an atlas for Christmas."

The developer must have been dyslexic, Sorrento is most certainly not in Anatolia!

SFWoman,

well, you know the subdivision and development names never have a logic in between.

I am wondering if the downtown development "The Royal" will throw in a free knighthood or something so every buyer will be addressed Sir, Lady by the doorman.

NABNALB,

what you say is true, but getting a headstart in a wealthy family is definitely more of an advantage than not. Somehow these free-spending parents won't set a good example for the kids, and don't look like the type that will spend a lot of time with kids setting their values straight. So what else can these parents provide for their kids? Money perhaps? Unfortunately with their parents' spending style, the kids won't see any of that either.

This is much worse than growing up in a poor family with hardworking parents. I know of two kids who grew up seeing their parents blow through about 50-70M worth of their inheritance. One went to Pepperdine and had to quit the second year after his dad went bankrupt. Another went to Pomona and had a problem graduating, and got into drugs for years. From rags to riches is a great ride, the other way around is very harsh for kids. Very few of them may come out as legendary entrepreneurs, most of them just sink to the bottom.

Owneroccupier,

Whoever did the trusts and estate work for the parents did a horrible job. There's no reason on earth why a family that wealthy can't create a spendthrift trust just in case the heirs blow all their money.

NABNALB,

Without trust fund babies, we wouldn't have the luminous Hilton sisters with their blank stares and orange perma tan. What can you possibly have against the system?

I think just about everyone wants a Ferrari…

I really do not like one. For that price, I rather have a Toyota Century and some Kobe beef.

astrid,

a trust is not bullet-proof. If you don't have a skill with money, the worst that that can happen to you is inheriting a big stash, and I am being very serious about that. Only your skills and knowledge can last forever and nobody can ever take that away from you.

If you don't know enough about money, who will manage the trust for you? Whose advice will you listen to? There have been many scandals of trusts being mismanaged while the "managers" cut himself a big check regardless of performance. Investment guidelines set 20 years ago may be largely obsolete. Trustworthy friends and family die off. Shrewd lawyers, money managers, scumbacks of all sorts flock to ignorant trust fund kids like mosquitoes to blood, and rest assured they will find numerous ways to chip away the money hard earned by their ancestors. On top of this, the biggest enemy is inflation. If a rich family doesn't bring up kids properly, no money is enough to last forever.

Owneroccupier,

Now THAT I agree with. Might as well have the money if nothing else.
My wife works as a PT nanny for some families in Woodside, Atherton, Menlo, and sees it all. There are some trainwrecks waiting to happen and some already happening.

The easiest way for some trust fund kid to lose his inheritance is when the dad marries a new wife 30 years his junior and have a few kids with her.

Owneroccupier,

I definitely agree with you on all your points. However, a spendthrift trust would have preserved the principal and gave off enough income, so that the kids can at least finish college. I just can't imagine why the ancestors couldn't hold off some of the money to save the heirs from themselves.

Incidentally, I'm working on an estate planning homework assignment on that nubile 2nd wife scenario. ;)

NABNALB,

My parents are Silent generation (between Greatest and Boomers), and they fully expect their one successful child to support their retirement. They continue to behave irresponsibly despite any protestations or attempts to educate them. They are worse than the Boomers in that they aren't the "me" generation, instead they completely _believe_ they are acting prudent and heeding their Depression era parent's lessons. They don't even recognize the hypocrisy. At least most Boomers don't go around pretending they are suffering for their indulgences, like my parent's gen does. Yes, it's always someone else's fault...and those someones are always younger people.

Randy,

Somehow, most people are just really bad at money management. I really don't know why. I had a few friends who combined hundred dollar bank balances with a taste for expensive bars - I've made a couple of $50 loans back in those days. Most of my friends do seem savvier than their parents though, they seem to live below their means and cost justifies their purchases.

I don't know if it's nature or nurture. My boyfriend cost justifies everything he buys and lives way below his means. Meanwhile, his sister carried a couple thousand dollars of CC debt charging 20% annual interest. Either of his siblings bothered to fix their student loans last summer (when the rates were fantastic). He gives them the same advice he gives me, but they never act on any of it.

Someone wrote:

> I feel sorry for the kids of these retirees, they most likely
> won’t see a dime passed down from these relatively
> well-off parents…”

Then NABNALB wrote:

> Dude, talk about entitlement. Why should kids expect to
> have money handed down to them? Nothing like inheritance
> to sap one’s ambition. I say let the young-uns fend for
> themselves and maybe then history won’t repeat itself!

Most of the kids I've met with real problems come from either very rich or very poor families…

I don't understand why poor people have kids then become bitter when they have to work their ass off just to give the kids basic food and shelter only to dump the kids in to the world at 18, just like I don't get why real rich people have kids and then travel around ignoring the kids while paying nannies to take care of them only to dump them on the world with a drug habit and a trust fund at 18…

Most of the hard working kids I know came from families that gave them some money but taught them the value of an education and the value of hard work. Most of these families also made it clear that if the kids did not get a good education and work hard the church would get a big donation when they died and the kids would not get a penny (I plan to do the same thing if I ever have kids)...

-Either
+Neither
:oops:

Someone wrote:

> I think just about everyone wants a Ferrari…

Then Peter wrote:

> I really do not like one. For that price, I rather
> have a Toyota Century and some Kobe beef.

If my parents died tomorrow I would not buy a "Ferrari" but I would get a (blue) "Dino" (and a Net Jets 1/4 share)...

http://tinyurl.com/o4cj7

FAB,

Re: Dino - Fancy!

Still, I don't think you'd say no to a gift of a Ferrari.

astrid,

you mean the 2nd wife or "er nai" the concubine? Or looking up to Wendi Deng Murdoch as a role model? :-)

Chinese men don't need to divorce their wife, they just pick up concubines along the way, typically 3-4 for a widely recognized successful businessman, just like Stanley Ho. That is the beauty of the Chinese system, nobody loses out, every kid gets a dip, it is a matter of bigger vs. smaller dip.

As for your spendthrift trust, the dad usually won't set up such a trust until he is of old age. When he is still in his 40s or 50s, he wants full access to his dough, well sometimes dad may get over his head and lose it all. Even if the grandpa leaves all of that into a spendthrift trust, the trust needs to be properly managed. As time goes by, inflation may start to eat into the principal and the grandsons start to need more for sustaining their lifestyle.

Owneroccupier,

LOL! No, this hypothetical second wife is an "entertainer", 27, and married to a 59 year old undertaker.

As for that Wendi Deng. Well, you can't accuse her of undershooting :) She's on the Hong Kong cinema queen retirement plan, and good for her!

I'm sure there are lots of er nai and kept women in Shanghai, though I've yet to meet a real life specimen. I heard it's really bad in Southern China and supposedly, there are entire er nai communities.

BTW, I do agree with your assessment of the pitfalls of waiting for an inheritance, I guess I'm just surprised that particular family went to pieces so fast without some legal speed bumps.

Damn, you could find a picture for this topic, like a photoshop'ed picture of a house deflating?

@DinOR, Randy, Peter and anyone whow knows ...

One thing that has me worrying a little bit about these ETFs and such exotic investment vehicles is the tax treatment. The headache of going through the tax forms at the end of the year is an additional obstacle in trading in these.

Here are some specific examples.

1. GLD/IAU/CEF etc are to be treated as "collectibles" and subject to 28% tax even on long term basis. (This is just 'keep in mind' thing, not really much of a tax filing trouble.)

2. Funds for Emerging markets stocks, EWJ etc pay taxes in foreign countries. You may or may not get complete credit for those taxes depending on your state. Double taxation.

3. DBC/USO etc are "commodity pools". I have no idea what that means. But seems like if the fund receives any income (like interest from treasurt bonds) you will have to pay taxes on them REGARDLESS of whether you received any distribution.

There may be more.

So question is, can Turbo Tax on Web handle these beasts ? Do I have to go through the prospectus and decipher the legal mumbo jumbo ? Will I have to research IRS publications ? Or there is no hope for DIY guys and you have pay a tax professional just for taking small positions in these ?

Investment risk is one thing. Paperwork at tax time is a different kind of nightmare.

Any suggestions ?

* All of the above could be wrong.
** NEITHER A TAX ADVICE NOR AN INVESTMENT ADVICE.

To BA,

1) you are correc ton GLD/IAU, not CEF. GLD/IAU are subject to collectible tax rate of 28% upon sale. CEF is only subject to capital gains tax of 15% max and annual PFIC reporting.

2) You don't pay income tax to Japan or other countries if you invest in ETF of foreign stocks. I had a few profitable trades last year with EWJ, I didn't see Japanese Treasury come hunting for my ass when I filled out my tax form.

3) DBC is a problem, not USO. DBC is a problem the same way as CEF, not because they are commodity pool, because they are Passive Foreign Investment Companies, meaning, funds held in foreign jurisdiction, and the reason why IRS dislike this because the local mutual fund companies lobbied for this law to stifle foreign competition.

Therefore, it is undesirable to hold any PFICs in your taxable account. The best place to hold it is a Roth IRA, second best is 401K or other IRA, where tax is deferred, not waived. My Roth IRA is nothing but CEF.

In the undesirable consequences that you need to hold CEF or DBC in your taxable account, all you need to do is to fill out form 8621.

Please do more research on your own, what I said is not intended to be tax or investment device.