patrick.net

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.

New thread: "Authorities Cannot Shut Down ‘Fake Appraiser Operations’ in Chicago"

HARM,

I hear ya' with my BAD ear! The interest groups with a stake in this are mind boggling. What I should have said was BB seems to be finding some form of "inner guidance" and the conviction to follow it (to the degree that he can).

JH,

The Economist is very bullish on Germany's potential and strength, but very critical of its structural deficiencies and unwillingness to deal with them.

They just had an article about Merkel giving in on tax increases, and how Germany is going to raise taxes at just the point when consumer confidence was starting to show some recovery.

"Real" unemployment in the US is probably about as understated as it is in Germany because they use a very similar methodology. If anything, most Western European nations understate unemployment even more because of work-week limitations that apply to a much larger public sector employee base.

Germany is linked intrinsically to the US because we are the primary consumers of their export trade. This is whey further EUR/USD appreciation poses a very serious threat to stability.

Unemployment is probably the ONLY thing that matters from a practical, political reality viewpoint. People will generally endure a lot of crap up to the point where they have nothing to do with their days. At that point they find something else to do with their days, like working hard to change the government that cost them their job.

ITS A TRAP!

FRIFY hunts desperately for CB/Death Star analogy joke and finds nothing but used kleenix and costume jewerly...

No, BB won't be Volcker, and that's what I am betting on (god helps my portfolio if he turns out to be a Volcker).

The market is now fully priced in for the June 25-50bps raise. If the raise is 25 bps, the market will already be in a rejoice mode. Gold has held up quite well, still up from the beginning of the year under such distressing news (for gold), and significantly up from last year. Oil holding up nicely and we still have two critical points to pass, the hurricane season, and the winter (if it turns out to be normal rather than warmer than usual like last year, if it turns out to be colder, pay day for energy investors). US needs to raise to at least 8% at this point to break gold and oil. But US economy will already be in shambles if we go near 6%.

IMF already came out to say that Japan should rethink about stopping its ZIRP so fast, ECB is coming out to say they don't like Euro going above 1.3 (competitive currency devaluation anyone?), and BB will have no choice but to pause beyond June.

If things continue to get ugly, I predict no rate raise in June. Then gold and oil will be happily back on the rise again.

JH,

The government costs jobs because of what is called structural unemployment. Purely speaking, every single labor law and every single government job creates a degree of structural unemployment.

Much of this is good and necessary. We need to employ people to run the government. We need labor laws to keep from returning to the early Industrial era.

But it comes at the cost of labor flexibility. There is a balance; a trade-off. Most Western European countries, especially Germany, have traded a lot more "free market" caused unemployment for structural unemployment. This keeps people happier for a long time, but causes exaggerated economic strife during times of painful restructuring. So they suffer a lot of pain every few decades, we suffer constant pain but at a lower level.

The US has much less real unemployment than Germany. Their counter would be that the US has more underemployment, and that this is not any better. I don't have an opinion other than pointing to the US' dramatically more flexible labor, business, and market environment. It is this which will probably save us from the coming demographic crunch (by save us I mean the US won't fundamentally be changed politically by it), whereas Germany et. al. will likely be barely recognizable after they swallow the demographic pill -- probably a function of poorly planned, unwanted but necessary immigration. This is already ripping parts of France apart.

As to my politics: I am "into" politics the same way Teddy Roosevelt was.

This is already ripping parts of France apart.

France is always being ripped apart, it's what they do best. They love it.

DS

The French are a paradox unto themselves.