patrick.net

@To BA Or Not To BA,

Yes, yes, yes, yes, yes, yes, yes... and maybe... yes!

We had serveral threads on this very subject back in April. You may want to look these up in the Archives:

ZIRP, Global Imbalances, and Home Prices
Inflation and Interest Rates (and the dollar)
The Global Property Boom: Danger and Delusion
Housing Bubble Pre-Flight Checklist

Foster City, Redwood Shores, with all the glimmering new buildings and relatively new housing subdivisions, are immigrant magnets.

Redwood Shores? I just do not know why they have so many powerlines there. I will NOT live under powerlines for free.

My biggest complaint about some boomers including my father is that they need to tune into reality with regards to how interesting / difficult things have become. I think trying to make it today is considerably more difficult that in times past.

What do you mean by "making it"? There are always next lives. Don't worry.

Forgive my straying from the topic at hand. I am compelled by the muse to recite some housing bubble Haikus in joie de vivre and merriment:

$900K Nervous Breakdown:

God, I’m losing it.
I’m Broke. Ha, ha! You call that
Piece of shit a house?

$900K-Mortgage Trailer Trash:

One house, three kids, two
jobs, wife left, repo’d Hummer,
no equity…Shit!

The Devil is My Realtor:

Sold my soul; bought a
house. My plastic soul looks good
in a McMansion.

Sassy Realtor Lookin’ for a Mate:

Fat temptress; brass balls.
Tall. Looks great bra-less. Lost her
ass in real estate.

TBAONTBA,

Definitely read the threads HARM pointed out.

The answer is not necessarily yes yes yes, though it probably is yes.

There are two main theories:

- Monetary Theory
- Keynesian (or rather neokeynseian) Theory.

Monetary theory has been growing in popularity since the stagflation of the 70s (which wasn't just in the US but in every industrial western country). Monetary theory states what you said: inflation simply equals increases in the aggregate money supply.

I happen to think Monetary theory is an oversimplification and is fundamentally flawed. Most popular Monetarists are, by the way, people who are heavily vested in seeing a return of a commodity based currency, like a gold-standard. The remainder are usually people who think fiat currency is a bad thing -- some for good, logical reasons, others for completely inane conspiracy paranoia.

Neo-Keynesian Theory is probably more accurate. It is a more complicated model that involves aggregate supply, aggregate demand and the money supply. This model accomodates the existence of "normal inflation", which is the biggest shortcoming of the Monetary theory. If there is real GDP growth then there must be some inflation, or else there will be structural deflation, which prevents GDP growth. Keynesian theory allows for this, and also does a lot to explain the differences between short-term temporary shocks and long-term equilibrium.

But there's a problem with Keynes; it doesn't explain unemployment properly. Under Keynesian theory stagflation cannot occur. But it did. Thus the return of Monetary Theory after the 70s.

There are a few other theories, none of which really have held up too well. The most notorious is Supply-Side economics, which was pretty heavily discredited after the 80s but still has some true believes. In this model money supply increases are not directly responsible for any inflation, only aggregate supply & demand.

The problem is, supply side theory seems to have worked very well to end the Stagflation of the late 70s early 80s, when the Fed first tightened to kill "lack of confidence" sources of inflation, then flooded liquidity. Both Monetary and Keynesian theory would predict this should cause more inflation, but it in fact was followed by a long period of the lowest inflation in 30 years.

LILLL,

Negotiating salaries is kind of alien to me b/c I've usually worked on a commission only basis? My advice though to your friend (take w/many grains of salt) is simply to threaten to walk, and mean it! From what you describe they are well qualified to work for the competition. I don't want to get involved in their family issues but an abusive relationship is an abusive relationship! Life's too short.

I should have mentioned, those involved in the foreign currency exchange business (or hedge funds investing in that market) would argue the Supply Side economics is not only correct, but irrefutable. They use international floating currency rates as empirical evidence, which is reasonably convincing.

John Haverty Says:

> I’m not saying “all boomers,” but the sum total of them creates
> an interesting effect.
> I didn’t ask for charity or a grant, just a bit of leverage with the
> intention of being paid back with interest.
> I’m glad your are encouraging and have helped out those under
> your wing, it is a healthy we to promulgate one’s genes.
> My biggest complaint about some boomers including my father
> is that they need to tune into reality with regards to how interesting
> difficult things have become. I think trying to make it today is
> considerably more difficult that in times past.

My parents have not given me a penny since I started working at 14 (I bought all my own clothes in HS) and still seem to think that if I didn’t “waste all that time in school” I would be living on the Peninsula in a big house with a wife and kids…

After I turned 40 (and they were pushing 70) I think that it finally sunk in that “regular people like them that never went to college” were not able to buy $5mm homes on the Peninsula with one salary anymore…

A couple years ago they offered to give me a house in Burlingame and pay for private school if I ever have kids, but I would rather die without ever having kids than take a penny from my parents after working my ass off for 30 years without getting a penny from them…

Peter P. wrote:

> I will NOT live under powerlines for free.

Then John Haverty Says:

> Agreed. I don’t even really want to live next to a
> transformer, let alone high tension wires.

I have never read any credible study that shows a problem related to living near power lines (or using a microwave or cell phone)...

Randy H,

Could you enlighten me on the connection between Supply Side econ and the FOREX market? Thanks a lot in advance.

The problem is, supply side theory seems to have worked very well to end the Stagflation of the late 70s early 80s, when the Fed first tightened to kill “lack of confidence” sources of inflation, then flooded liquidity. Both Monetary and Keynesian theory would predict this should cause more inflation, but it in fact was followed by a long period of the lowest inflation in 30 years.

One would counter that it was a long period of lowest consumer price inflation and highest asset price inflation.

I have never read any credible study that shows a problem related to living near power lines (or using a microwave or cell phone)…

So? I can feel the presence of the energy. Science is of limited use sometimes.

Agreed. I dont even really want to live next to a transformer, let alone high tension wires.

Transformer is a definite no no. I do not even like wires or cables. They should be underground.

Nikkei 225 Index Plunges 3.05 Percent

Randy,

Thanks for the information. I need to read "Economics for Dummies" or some such book first.

HARM,

I remember those threads. I will scan them again. Thanks.

Bombay BSE is also down close to 4%. It has been dropping like stone in Pacific Ocean. It has gone down from 12700 to 9700 in last month.

The melt-down is worldwide. I would request the thread masters to start a thread to discuss this. Stock markets are a good leading indicators. Let's speculate what this means for us.

LILLL,

I had personally been hoping to invest in Vanguard's Precious Metals and Mining Fund (VGPMX), but sadly they closed it to new investors just as I had saved the money and made up my mind to pull the trigger. :-( I'm hoping they will re-open soon, as VG's emphasis is on SIMPLE for retail/dummy investors (like me) and they tend to be conservative.

If you're interested in foreign denominated CDs, I'd exercise great caution and spend some time edumacating yourself online (and re-reading our previous investment threads). Everbank.com was one of the frequently recommended sites, as I recall.

IAACIWICTI-NIA
(I Am A Complete Idiot When It Comes To Investing - Not Investment Advice)

To BA Or Not To BA Said:
The melt-down is worldwide. I would request the thread masters to start a thread to discuss this. Stock markets are a good leading indicators. Let’s speculate what this means for us.

John Haverty Said:
June 3rd Economist:
Australia, Austria, Belgium, Britain, Canada, Denmark, France CAC 40, France SBF 250, , Germany, Italy, Japan/Nikkei, Japan/Topix, Netherlands, Spain, Sweden, Dow, S&P, NASDAQ, FTSEuroFirst 200, FTSE Euro 100 and the World/MCSI are all off 2006 highs in this issue by about 5% or so. Interestingly the world bond market by Citigroup is not off highs.

Germany is looking ok, they have a good trade surplus and lots of indicators look on the up and up. Merkel isn’t hurting things either. It should go up, it wore a heavy albatross for many years.

I agree that this sounds like a fine thread topic, but as I personally don't have enough general world finance knowledge or source links for the topic (and you gentlemen do), I nominate that one of the following start this new thread:

To BA Or Not To BA
John Haverty

All you need to become a thread author is to:
1. Self-register http://patrick.net/wp/wp-register.php
2. Let me (or Patrick, Randy H, Peter P or SQT) know that you want authoring rights.

Once you have the rights, starting a thread is easy-peasy, lemon squeezy.

Germany is looking ok, they have a good trade surplus and lots of indicators look on the up and up. Merkel isn’t hurting things either. It should go up, it wore a heavy albatross for many years.

"The Economist", which I read religiously, has no shortage of in depth articles detailing the deep, structural problems with the German economy. Two of the many problems include chronic consumer lack of confidence which permanently dampens domestic demand and an enormous reliance on export trade which is highly exposed to further rises in the EUR. And then there's always the Hartz Vier reforms and the 20% unemployment in Berlin and Neu Laender.

But hey, that's down from 21% in 2005. Germany is looking OK. They just keep on building more Wolkenkratzere, even if there's no one to lease them but the gov't itself.

John Haverty Says:

Inflation Haiku:

The numbers are cooked
Inflation ravages all
The greenback is dead

_____

Sweetness! Music to my ears...

That was some beautiful art.

LiLLL,

Do you think I should buy my next CD in euros? Or is it too late for that?

You can certainly do that. You are fighting two forces that want to counteract the benefit you get from earning EUR interest:

1) Transaction costs. You'll pay slightly higher costs to open, close, xfer the acct.
2) Forward interest rates as related to covered interest rate parity (CIRP) and your exposure to spot-rate risk.

What that means more simply is that the guys who set the exchange rates aren't stupid. They don't just let you open accounts in one currency with another currency and then reap the profits in your home currency. They set the forward exchange rates based on ensuring that no-one can arbitrage interest rate differences. In fact, you won't find any ability to ever take advantage of earning higher rates in another currency (except in unstable emerging markets) without also bearing the full load of day-to-day spot market risk. To make your EUR CD work and be worth the risk you also have to buy some smaller portion of euros forward coinciding with the period when you want to exchange back to dollars, and that probably eats up your advantage unless there is a huge, _unexpected_ correction.

If you intend to keep a EUR account for a long time, then you are better off to just actually open a physical account in Europe and let that stock of money go forward separate from your USDs. This is what a lot of folks who travel to Europe alot do, especially those with some source of EUR denominated income.

I should also note that the US Gov't is quite tax unfriendly when it comes to earning any foreign income that isn't taxed locally. Even when you don't owe any additional US taxes, you have to pay a decent tax accountant because Turbotax won't handle this stuff. The folks I referred to above with EUR accounts also tend to have set up businesses to help them shelter taxes.

SFWoman,

I'm probably the last person to buy into cell phone induced cancer etc. (even though I don't have one) but my objection centers around the "appearance" of power lines. My wife and I looked at a home in the country and wondered why it was taking so long to sell. We finally got curious enough to get out of the car and low and behold your "view" of the valley was almost completely obscured by MAJOR power transmission lines! (Heavily treed area, wouldn't notice at a casual glance). I guess it's a form of nimbyism b/c everyone needs power I just don't want to wake up Sunday morning and find a hot air balloon's gondola dangling in my backyard.

George,

Are we to take it that unless you are serious about selling (and can at least come up with $500 bucks) kindly do not waste Mr. Morgan's time?

George,

Before I close out my short position on $, I have to ask myself, why is it that BB is so eager to show he's not bashful about raising rates. Rosenberg (over at Merrill) says a June rate hike "is already in the bag" to borrow from our bullish Orange County friend. I'll give it a few more days and re-evaluate. Btw, shorting the S+P 500 is going quite well though thank you.

George,

Btw, talk about an "illiquid investment!" Not only can I not get out of my flipper home at what I owe (never mind what I think it's worth) I can't even get a realtor to list it unless I come up with cash on the barrelhead?

George,

Agreed! In fact had his mentor done 50 bps. hikes instead of 1/4 point hikes maybe people would've thought they were half way serious about putting an end to the insanity! In the past the general rule of thumb was that it takes about 9 months (3 qtrs.) for a hike (or reduction) to be felt. But back to the original question, how is it that consumers and realtors consider a 30 yr. FRM under 7% punitive? I think that for DL to plead with BB tells us that real estate is in real trouble. If we've created a market scenario that can't sustain itself with 7% money we've got problems! One of traders on the "Merc" yesterday said that now the "real" debate on the cost of money begins. Was he wrong?

Speaking of high voltage transmission lines, I grew up very close to an enormous power plant. There are actually a lot of power generation systems in the TN valley. over 15 hydroelectric dams, one nuclear plant, and numerous hard coal fired turbine plants. There are power lines that zig-zag all over the place, often over houses. There hasn't been any noticeable increases in cancer, etc, and these have been in place since the 1930's.

What really irks me is that JUST NOW, the mainstream media sorta-kinda' admits that there is a "softening" in the RE market. The cover of Money magazine says: " What's next for RE?" followed by a few smattering of articles ALL targeted towards homeowners like:" How to sell in a "soft" market.", and- " The fastest ways to add value to your home."
These articles sounded like flipper/investor jargain. Why do these publications NEVER publish anything that's useful to people that are locked out? My best guess is that these publications get HUGE sums of money from RE companies. Any nasty bashing would result in less advertising dollars.

Hellboy.
Nope. " Gorgeous!" isn't a word that comes to mind when I see it either.

hellboy,

That place is "homely" at best. Notice the 1970's "peel and stick" Armstrong flooring did ya'? 1.1 mil? Me thinks not. Would have been a great contribution to the overvalued blogspot!

Is it just possible that BB is his own man? Is it possible that while giving the nod to AG's policies and posture that he held convictions of his own? Is there any chance that he saw a bubble when Greenspan could not? Is it entirely possible that he has no interest in "continuing the good work" started by AG?

WW2,

I take exception to the notion of being "locked out!" That would tend to imply that I WANT IN! We have all at one point tired of our parents saying "everything happens for a reason" but this is ridiculous!

Speaking of mlslistings.com, I figure it's worth getting the SFH inventory supply on record. I wish I'd been doing this more regularly as I recall San Mateo at 900 in October:

San Mateo (all price ranges): 1363
San Jose (all price ranges): 3669

Has anyone has been logging this more regularly.

Re: Market Tanking, Financial times had an article about how the average investor underperform the S+P 500 because they try to time the market and are usually swayed by emotion to do the wrong thing, thus I wouldn't do anything drastic to 401K/IRA money. For the record, your house downpayment fund is better off in something liquid anyway (see Randy's post). I'd add I-bonds to the mix but they were hammered by some bogus CPI reassessment this last 6 month round (funny how that was right before Bernanke starts harping about inflation...)

Frify,

Maybe this site will give you waht you are looking for.

http://www.benengebreth.org/housingtracker/location/California/SanJose/

HARM,

Yes, I will register to become thread author. Thanks.

FRIFY,

Funny indeed! Where you referring to the "TIPS" ticker TIP? They're down about 8% over the last 52 weeks. What (other than shorting) IS working out there?

RE: BB and his "tough talk," my personal theory is that he is setting himself up to be able to only raise another 25bp this month (rather than the needed 50bp) and still appear tough on inflation. I'm sure he and the rest of the Fed are acutely aware of what's been happening to the markets this week as a result of these speeches. 3-4 speeches by Fed people all basically saying the same thing in 1 week - sounds like a preplanned, concerted effort to me.

TBAONTBA,

Thanks for the pointer. I wish it extended for more than 9 months. It's hard to factor out the seasonal variation in the current format.

DinOR,

This chart is what I was referring to:

http://www.publicdebt.treas.gov/sav/sbirate2.htm

My 2000-2002 Ibonds were performing sweetly until May. Hopefully they'll reassess well this November. The current fixed rate for new I-bonds is pretty pathetic unfortunately and they come with a 1 year wait (unlike the old 3 month one...)

hellboy,
That house is pretty run-of-the-mill. It's in an overall pretty good area, but looks like it abuts 85, just north of 280. That's a heinous location - does anyone know offhand if that's where 85 is 5-6 lanes each way? At least it's an easy commute in terms of getting on/off the freeway...