patrick.net

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...

Dinor,
I suppose my comments are for the current state of things. I'm not at all in a financial state of being even close to affording anything here. Seriously, the MOST I might afford would be in the upper 300's, lower 400's. I think that's why out of most of the posters here, I feel a little more hopeless concerning the situation. That means housing would have to dip almost 45%. I don't see that happening soon, and if it did, the economy would be in the shitter as a result.
And for Boxta, I know people who did the same thing as you're possible able to do, and they seemed pretty happy with the situation even though the amount of appreciation allowed is minumal, yet still double the traditional average. I think it is a max of 7% appreiciation, which isn't bad. That said if you HATE the area, then nothing is cheap enough to be worthy to live in.

LILLL,

I am not an expert in currency trading etc. I looked at the Eurobank CDs for myself and decided against them, precisely because I cannot evaluate a currency.

I chose mutual funds instead. There are funds that invest in foreign bonds. See if they fit your need. There is no guarantee of principal. But there is diverification across multiple currencies. Yield is acceptable.

I have MERKX. They invest in Euro AND Gold. Intersting combination.

Boxta,
My thoughts on what you described - if you're not happy with the actually home, in terms of location, the house itself, and all that outside of any financial considerations, it doesn't seem worth it to me. Add on top of that the restrictions on resale that you mentioned, then it would only make sense if you and your fiance would be psyched to live exactly there for many years. Finally, you mentioned briefly comparing interest/tax vs current rent - unless you're just using shorthand, are you considering an interest only loan (bad idea)? And don't forget insurance, HOA fees, maintenance, added commute costs, etc.

FRIFY,

I hear you. I was going to invest in I-bonds myself. So I waited till the anounce the new rate. 2.45% ?? Who wants to invest for that kind of rate ? And inflation adjustment is 0.5% ? This is worse than the fabricated CPI.

I am glad there are so many better and equally safe alternatives. Recently Citibank came up with their online only account. They give 4.75% ! No minimums and all the standard stuff.

George,

The liquidity crunch you mentioned was also the topic of 2 recent Jubak articles on MSN investor. Of recent, I have likeed his articles on general economy and global analysis. He made a lot of sense, and the articles were very easy to follow.

"middle class neighborhood..."
@ 1.1 million bucks for a Brady Bunch house, I can't imagine it'll stay middle class much longer.

I don't know. My wife can point out the nearest cellphone tower blindfolded.

We can literally hear powerlines.

You can also cause a flourescent light to glow simply by dragging the tip over carpet or rubbing it quickly with a cotton rag. I'm not sure if the theory of holding a flourescent tube in the dark under powerlines is proof that there exsists a health hazard.

RE: The Fed, how about all this bear-a-licious news today! Dow down over 100pts so far, Fed #2 nominee Kohn with yet another anti-inflation talking point, and ECB, India, and Korea CB's all raising their interest rates. What's going on?

I’m not sure if the theory of holding a flourescent tube in the dark under powerlines is proof that there exsists a health hazard.

I do not need proof. I can feel it.

Science is overrated.

Gold is down though.

Affluent Americans sour on real estate:

http://money.cnn.com/2006/06/05/pf/affluent_attitudes/index.htm

What’s going on?

The trap is closing on the ARM crowd who listened to Greenspan's financial advice. Bwahahahahaha!

FRIFY,
In all seriousness though, I doubt it's the ARM crowd driving the markets down. There may have been early sell-off due to rate hike concerns, but it seems like there's a bit of a snowball effect building, as everyone's getting the idea that it's time to sell??

DinOR Said:

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?

Boy, would I love for this to be true! Before we start getting all worked up about BB becoming the next Volcker, though, may want to consider all the powerful forces/interests currently aligning against him and a strong-dollar policy:

--NAR/MBA cartels and their $bazillions in lobbyist & "consultant" mony in Washington.
--Congressmen up for re-election this year (100% of House, 33% Senate), who don't want a recession to mar this wonderful "Goldilocks economy" we're enjoying.
--An administration that proudly touts it's "ownership" society/record homedebtorship stats at every stump speech.
--A massive entrenched Federal bureaucracy that does not want to its Twin Monster entitlement program obligations (S.S. & Medicare) to grow any bigger in real terms, not to mention the interest paid on the National Debt, thanks to a rising dollar.

In the X-Files parlance, "I want to believe", however, "actions speak louder than words". We shall see...

DINOR,

Yeah, well their combined yield from Nov-May on new I-bonds was 6.7%. If you buy them now and the new inflation rate hits 3% (Bernanke's number) in Nov, their yield might spike even higher. Only a new house will convince me to cash in my early I-bonds with 3% fixed. With an anticipated X% leveraged drop in the house price that won't be happening anytime soon.

Don't forget, no state taxes on these guys (more important down here in Cali).

FYI - Etrade CDs (6mo) are at 5.21% I'm sure there's better out there if you shop around.

HARM,
I agree with you on this. There are many forces aligned against a BB inflation fighting/strong dollar stance. However, I'd be extremely interested in knowing how, if at all, the NAR/Corporate America and the like would be able to directly influence BB. Basically, I'm asking how truly independent is the Fed chairman? On the one hand, he can be fired relatively easily, it seems. And look at the (mostly Republican, ironically) pro-loose money types in the Senate banking committee, who have a large impact on who gets to be on the Fed board. On the other hand, BB has his own legacy to protect, and if he has any cajones, he wouldn't want to be remembered as the guy who let the inflation cat out of the bag under his watch. All very fascinating, imo.

Skibum,

I‘m not suggesting the ARM crowd is driving it. I'm suggesting that they're screwed.

I hope it's a coordinated effort by the world CBs to restrain the global housing bubble, but that's probably crazy-think.

FRIFY,
The world CB's may not be be targeting housing bubble per se, but it seems very plausible that they are coordinating an effort to terminate the credit bubble.