patrick.net

If oil is to have an upside breakout above 60, how high will it go? Or is oil forming a giant top?

FOMC will be held next week. I have a strange feeling that Greenspan is going to revise his language. This is just a feeling. Not even a guess.

Kiyosaki may not be someone we want to listen to. However, many real estate "investors" listened to him. Many homeowners know him. The fact that he is joining the bubble talk publicly will have some effect.

BTW, I never believed in 401(k) and IRA. I have a feeling that something is wrong there. But I am not going to convince you on this.

"Rich dad poor dad" is a great read. The best part is that he can get joe 6-packs to read it. If we want to project influence over ordinary people we need to learn from this guy. :)

My favorite finance book of all times is still The Alchemy of Finance. This housing bubble will is a textbook example of reflexivity and credit boom/bust cycle.

"If I knew my home would lose 20% of its value next month, I’d list it today."

It is nearly unknowable. In a down market liquidity will dry up. Unless you can find a buyer and close the deal there is no definite value assigned to your house. It reminds me of Schrodinger's cat. :)

Whether we like it or not we live in a zero-sum society. Going forward, a suscessful investment strategy may require us to profit from the demise of others.

I hold a very dim view of the future but not because I am a pessimist. I believe that any market scenario has a solution if we position ourselves for it.

"Back to the topic of contingencies, Kiyosaki suggests we should be buying gold and dumping USD. What do you guys think?"

I guess we can write up a trading system that does only on long trades. I am wary of simply going long on anything. We must have rules to bail out and mechanism to protect ourselves from losses in case we are wrong about gold.

For those who would like to monitor crude oil futures, here is the link:

http://www.futuresource.com/quotes/quotes.jsp?s=CL

Looks like crude is meeting quite a bit of resistence at 60. Support is at around 50. I will be on the sideline at least until a definite breakout from 60.

"...those of us who are wicked could profit through their demise."

I like that. :)

We do not even need to be wicked. It is a matter of survival.

I wonder if it is time to buy commodity options. I used to laugh at people who buy overpriced options outright. :(

On the other hand, volatility is cheap. Looks like VIX is at a very low point:

http://finance.yahoo.com/q/bc?s=%5EVIX&t=my

Do you guys think it is better to trade price or volatility at this turning point?

Fake P, I have been receiving those for a while. I usually try to take advantage of them. Buying yuan is not a bad idea at all because the downside is quite limited. Be careful about possible scams though.

"There is something quite Darwinian about this whole process.. isn’t there?"

Absolutely. I am not saying that I like this at all. But we are all in the game already and we must play to win.

:|

Scott, we can have asset deflation and commodity inflation at the same time. If prices for consumables go up without wage increases, real wage will actually plummet. We are competiting with emerging markets for both jobs and commodities. It is not difficult to see how this can happen. Globalization will redistribute wealth. Position yourselves accordingly.

I am not too sure about gold, but oil price can go up because of a reduction in supply even if economic growth slows (Hubbert's peak?). I am doing some research on grains. We need to eat and animals that we eat need to eat too. :)

I think the demand for grains will be less growth-dependent than the demand for timber and steel.

"Does anyone here want to admit that buying a house and taking out a big 30 year fixed loan to finance it might just be the best strategy in an inflationary scenario?"

Er... the government is actually flooding the market with *debt*. The hyper-inflation scenario is possible only if the government monetizes debt in large scale. This is realistic only as a reaction to massive debt deflation.

I firmly believe in the deflation scenario. Whether there will be "inflation" in commodity prices is definitely up for discussion.

Buying a house is a good hedge against wage inflation and debt inflation. Both unlikely scenarios going forward, right?

A sudden thought:

The housing bubble marks the end of debt inflation as buyers exhaust their income to participate in the debt exposure. With globalization exerting pressure on real wage growth, the giant credit bubble will burst and debt deflation will follow.

"Peter - Can you explain debt inflation vs debt deflation?"

One concept is that debt and asset value have mutual effect on each other.

Debt inflation occurs when asset values is rising, the increase in collateral values invites and allows more debt to chase after assets, which causes asset values to go up even higher.

Debt deflation is the reverse process. (The term was actually coined by Irving "High Plateau" Fisher.)

Jack, we need to first identify where inflation will occur. Without wage growth, all-out inflation is unlikely.

"If fixed interest rates go lower than 5 per cent, then what?"

Then it is a true indication of possible deflation. As we have discussed many time, fixed rate is having decreasing effect on the housing bubble because of the reliance on creative financing (Option ARM is already at 1.75%).

Djuro, do you at least agree with the deflation scenario?

I honestly do not know what will happen if the governement prints money massively in this scenario. Hyper-inflation is a possibility. It really depends on how they choose to inject liquidity. Lowering interest rate will not have the same result as paying bills with printed money.

hymie, how about renting a nice condo in the same area? I am sorry, but the debt-to-income ratio is crazy by any standard.

But this is a joke, right? :)

You almost got me.

Jack, lower FRM rates will be great for existing FRM holders (like you and Fake P) because it means lower payment after refinance. It is irrelevant to new buyers and speculators who stretch to get into homes.

"So you are saying that at NO point, substantially lower fixed rate mortgages would ever be a factor in softening the impact of the housing bubble? I do not agree."

It would have helped years ago when fixed mortgage was the popular choice. The impact of the housing bubble is mostly due to falling asset value AND tightening of credit because of lower collateral value.

"With all the bad press that IO is getting, and YOUR predicted softening of the market on our doorstep, many people will re-fi to protect themselves."

People resort to creative financing for affordability reasons. Some will refinance to fixed-rate, but most will not refinance to a much higher cost structure.

"You seem use the bubble as a given when talking about a lower interest rate scenario, but then deny that a soft landing could occurr in that same scenario."

Name one instance of soft landing among various credit boom/bust cycles in our history.

Scott, fixed mortgage rate is different because the borrower can refinance without prepayment penalty. This option-like property (similar to that in callable bonds) prevents FRM rate from dropping below ARM rate.

Or perhaps I am wrong. Anyone?

Scott, I would assume that a retiree would build a ladder of bonds with different maturity in order to match his monetary needs. This will lessen the effect on a particular maturity. I don't know.

Jack, the 1980's boom ended in a hard landing for much of the country. Question: did the Bay Area have more growth in rent than other areas over that boom?

"I have no idea how bay area rents behaved relative to the rest of the country during the mid to late 80’s boom. Sorry."

Places with high rental growth rate will weather busts better than others. I am just speculating. :)

Is it just me or the BA inventory is having a leap today. (Much more than other recent Fridays)

"Better give your speculator friends the heads up!"

Their heads are so too buried in sand and nothing I say will help anymore. Oh well, time will inevitably tell.

Anyone has experience in trading GSCI (Goldman Sachs Commodities Index)? I heard that it is quite heavy on energy.

This may not be a bad way to trade a basket of commodities but I am worried about liquidity though. (The CRB index is practically worthless as a trading vehicle)

Escape from DC, welcome back!

Lies can only go so far. It will not be long before reality asserts itself firmly over fairy tales.

The original article is CNN here . . .http://money.cnn.com/2005/06/24/news/economy/newhome_sales.reut/index.htm
And no, they didn't provide the methodology for the adjustment.

Yep,

100 + 27.3 = 127.3

127.3*.755=96.1, so the net loss is about 4% over the two months.

Boy, if you're in the Northeast and you see the number dive that much in one month, you've got to be thinking, Huh??? Again, I recall reading that 75% of high school seniors couldn't pick out the U.S. on a globe with no labels, so they probably are alright hoping that most people in the NE can't figure out the math.

T. Boone Pickens is big in the alt fuel/natural gas industry now so it is in his interest to say oil will be $120. When I worked for the City of LA, we hired his company to build us a natural gas refueling station. Not that he's necesarily wrong, but he is biased at least.

ptiemann, I do see something weird going on. Some homes are getting multiple bids and are going fast. Some homes are just sitting and are reducing prices. Some homes are back on the market.

On the other hand, the subset on the MLS that I monitor grew quite a bit just over the last week.

I suspect that something fishy is going on here...

BTW, has your gf sold her current place yet?

Forgive Surfer-X. :)

The alternative fuel debate is comical. There's so little science involved.

People get hysterical and want to talk about wind power and tide power and solar.

IMO, there is only one realistic energy source that will last through the next several centuries - dirty uranium. Hopefully within 300 years somebody will master cold fusion.

The best one yet is the "hydrogen car" theory. Not only do we all get to drive Uber-Pintos with H2 bombs strapped to our asses, but they're planning on generating the H2 by, get this, stripping petroleum products. So we pollute at the H2 production plant, not in the streets, and we end up using just as much oil. Great for Chevron.

Here's a thought - generate the H2 from uranium. The only pollution that you need to worry about then is the spent uranium. Granted, a significant issue, but certainly within the scope of science to corral.