patrick.net

Regarless of what the Chinese peg their currency to, they will still accumulate dollars as a consequence of sales to us.

Suggestion - I can't keep up with all the blogs. How about we do a daily one that way we don't have to bounce between them. Call it out like:
Thursday July 21st blog - then a conversation starter if so inclined. We are really using blogging as a form of an archived chat room after all.

Warning to Trolls:
Post nonsensical trash and you and your comments go bye-bye.

Oh and if we all get saturated with the market I thought of a fun game at like 3am this morning when I couldn't sleep.

We could play the 'evil twin, devils advocate' game. Basically all bubble heads become RE bulls and all RE bulls become bubble heads. A prize goes to the most convincing player. (prize will be a cold beer at the TBD party in the future or the accolades of your blogging friends).

Scott - good point. You would expect that would further devalue the USD against ALL major currencies.

It's the top story in the economist today:
http://tinyurl.com/al7d9

Interesting they note the housing market is slowing there.

On a side note I spoke to my mother in NZ - the font of all knowledge and the RE market has completely flattened there. It happened pretty quickly, houses were staying on the market longer and not commanding the high prices. People are nervous about upcoming elections as National (equiv of the Libs here) might get in and they fear the economy will go down. Pretty typical cycle, the UK leads, Aus. follows them and NZ follows Aus.

Thanks for the link, gabby.

Sorry if the thread-switching is wearing you down ;-). It used to take a week or two before it was time to start a new thread. Now they fill up in a day or two, if not hours. Of course one alternative is to just keep thread-hopping and keep letting them all grow longer.

It's a bit too early to tell, but my guess is both moves ("basket" diversification & re-pegging) will both have a mildly bearish effect on U.S. mortgage/Treasury markets long-term.

I seriously doubt that RMB will appreciate significantly. I think we will soon hear that RMB is cheaper than pre-revalue level. After all, it is pegged to some secret basket and the Chinese central bank now has more variables to play with (or to manipulate).

It's funny I was on an email list from some financial type advisor a friend recommended for his sage advice. He sent out a thread about RE and it started with him saying it was a good growth opportunity and there were still some bargains around. I sent him a link to this site and the next email was the complete opposite. Today he sent out yet another mail that talked about what to do in a global depression! Gee I didn't think we were that down on the market.

Kate; what makes you so worried about the market forces in general? I agree things feel shaky but I don't (yet at least) subscribe to everything falling completely apart. We are a global market that seems to represent a membrane where it wobbles and the growth moves from one area to the next. M theory for the new global economy:) Diversification is probably the best strategy. Of course I haven't done this myself yet due to work craziness - my money is between here and Australia but they are pretty tied together so it's not much of a balance.

Has anyone read that new book about the move of wealth to Asia and commentary on what the US government should be doing to preserve the economy? Heard about it today on NPR but don't recall the name.

I’m moving my (non-RE) investments to concentrate more on bonds. It’s time again… tough days ahead, I think

Kate,

I'd be careful about which bond funds you choose --many of them are loaded with REITs (Real Estate Investement Trusts) and MBSs. And we know where those are probably headed. Plus it looks like short-term (and possibly long-term) rates are both heading up soon. Personally, I'd want to stick with AA-grade corporate bonds and/or short-term Treasuries.

As Peter always says, "not investment advice." ;-)

We could play the ‘evil twin, devils advocate’ game.

Great idea, gabby! Should we start a new thread for the game? ;)

Peter P - hmm I was about to go to bed, old nana that I am. How about tomorrow night? Or next week when I'm lost in translation in Tokyo and need my online pals to stop me being lonely. It will be fun I think.

You can start it tonight if you want - we can keep it going for a few days and I can catch up. I hope the trolls play too. Then again if they don't read the thread it will confuse them a lot and be all the more amusing:)

How about tomorrow night?

Sure. I will be PeterPrime. ;)

Hmmm isn't the latest theory a sort of M and String theory combined? So perhaps we are on a large membrane (large to us at least, not sure on the infinite level) with strings within it. This might represent the global economy on the membrane and local markets on the string part. That explains everything.

As HARM always says, “not physics advice.” :)

GabbyMatador for me

..and of course a cameo by MarinaBubbleicious

Has anyone read that new book about the move of wealth to Asia and commentary on what the US government should be doing to preserve the economy? Heard about it today on NPR but don’t recall the name.

Haven't heard of it, but frankly I don't know if there's anything the government can or should do about it. Didn't government manipulation of/intervention in financial markets get us into this mess in the first place? Globalization seems to be a macroecomic shift that's too big even for this country to stop. About the only thing we can do is try to stimulate and grow new industries in areas where we still maintain a competitive advantage.

Removing incentives for speculation, and increasing them for people who save and for businesses that invest in domestic R&D might help, but I don't see that happening anytime soon.

..and of course a cameo by MarinaBubbleicious

With juicy tomato and fresh basil from his owned garden?

That his gardener grew and his personal chef prepared just that night? Yes that's the one;)

NapoV, China has an "advantage" because it is not a democracy yet.

Count me in for 'evil twins' -- I can be "Debtaholic".

Alright, I'm game. Here's the criticism:

All you housing bears say that there is going to be a massive correction, and that all the people who bought in the last year or two are going to be underwater when their mortgages adjust. But the Fed will be right there to bail them out. They will hold rates very low, by any means necessary. They have successfully talked China into revaluing, which will spark inflation, which will eat down the debt owed on housing. The only people who lose are people who are asset poor: namely, renters.

Have at it.

Cheers,
prat

This is off thread but.. There was an article in the Sac Bee today about how rents are going up. One of the main culprits, the article claimed, was that many apartments were being converted into condos reducing the inventory of apts availiable. Don't they say condo's are the last thing to take off in a hot market and the first to fall?

I can be Fake S. I can start by telling everyone that I don't like them. ;)

SactoQt, apartment conversions do not reduce housing supply because it gives one owned unit for each rental unit taken away. It takes a lot of time to proceed with a conversion and many of such projects are poorly timed - they tend to hit the market when there is already a glut of homes.

I suspect that those converted "condos" will be bought by smarter investors in the coming downturn and made into rentals again.

Prat, we are starting tomorrow night, no?

Arguably Malaysia, Singapore were (and still are) only quasi-democratic countries and very paternalistic just like China.

China is not even quasi-democratic. It is actually ruled by a communist part (which plays the game of capitalism reasonably well by bending some rules).

I agree that that size matters here. It is not easy to mobilize hundreds of billions of dollar into a country with currency control.

SactoQt: Condo conversions are happening in many cities around the country. Investors are looking to arbitrage the difference between the value as a rental and the price that people will pay for the condo. Apartments are valued by capitalizing the rental income. Condos are valued by whatever the market will bear. Right now in most places the condo price to rent ratio is higher than the apartment price to rent ratio. In other words, individual buyers will pay significantly more than income investors will pay.

As apartments are converted it reduces the supply of rentals and increases the supply of condos (unless the new buyers rent them out). The net effect should be some upward pressure on rents and downward pressure on prices.

Back to SactoQt's original point:
Don’t they say condo’s are the last thing to take off in a hot market and the first to fall?

Zephyr, you've experienced a lot of market ups and downs. Does this ring true to you?

Yes.

Generally, people prefer a house to a condo. Interest in buying condos goes up when houses become more expensive. Condos are to some degree a substitute good. They tend to catch the last froth of the market as first-time buyers struggle to buy something (anything?). When the music ends these buyers are the first to falter and condos decline more than homes.

Of course this pattern is not appropriately applied to markets where condos or co-ops are the norm, such as Manhattan.

On the supply side: Condos can be built in massive quantities and at the end of the cycle a glut can develop from overbuilding. Even in a market with strong and healthy real demand.

Zephyr, thanks for the insight. It makes a lot of sense now.

That's what I figured, too, but it's even better hearing it from a seasoned pro.

I would rather be young than seasoned. But I can't change that.

_nod_ to Zephyr.

Well, they've come up with negative-amortizing loan products. How about negative-aging health products?

Ponce de Leon never found it. But many continue to try. Actually, relative to most of history we live in a great time as far as health and longevity are concerned.

I think health is a lot more important than longevity. It is sad to be sick towards the later part of life.

Indeed.

Time for this night owl to get some sleep.