patrick.net

Both these bubbles will be part of standard economics curriculum. We witnessed them first hand.

I dont know about that... very few people can recall the other tech and housing bubble of 1991... IBM lost 50% of its value in one week. DEC and others in mainframe go belly up. Semiconductgor mfg go offshore from Silicon Valley. Unemployment skyrockets. End of SV mfg by 1995. The hype of UNIX and IBM OS2 never occurs. Only 10 percent of companies from the 80s make it the 90s. Japan destroys US chip production with DRAM Dumping..

Hot Condo Markets of the 80s in California fall due to speculation, forclosures skyrocket, mortgage companies go bust, interest rates and home prices both fall in tandem. Homes in Bay Area drop like a rock..

You talk to people about this back in 1999 or 2003 and they look stunned...

DS asked
"for instance, do other lenders offer to take on the loans, but adjust the interest rates upwards to allow for risk?"

the lenders receivable, your loan, is sold at discount to another lendor.
The difference is profit to new note holder.

thanks svcausguy. i guess it's possible to onsell a loan at discount mainly because there is so much fat in it to begin with, in terms of the (say) 8% interest over 25 years equation -- it's a huge sum of money paid by the mortgagor...

very cool UK site, well worth a look... (apologies if it's been cited before)

http://www.pricedout.org.uk/

They're even doing protests against the new PM with banners 'n'all...

I dont know about that… very few people can recall the other tech and housing bubble of 1991…

I certainly remember that. After working as a EE for defense contractors for 15 years, the USSR broke up and I was told, in essence: "Thank you for helping the West win the Cold War. Here's your pink slip. Get lost."

None of the commercial engineering firms would touch anyone with defense contractors on their resume. "Oh, you worked in defense. Obviously you can't be any good."

My escape was to cash out my 401(k) money and put myself through law school at age 40, becoming a patent attorney. But many engineers languished in low-paying technician jobs after the collapse of the defense industry in the early 1990's.

Dennis,

I worked in "tech" for few years in the 1980's. Then at the height of the Cold War I worked in Lockheed for a couple of years.

My project at Lockheed got AFR'd ("available for reassignment") in the height of the cold war. All my colleagues who wanted to were able to get a placement on something else. But it was clear to me that defense work was not the "Real World".

I thought that in the long run I'd be better off toughing it out in the "Real World" than becoming like one of them Cold Warriors who acted like they' be fishes out of water without the largesse of the American taxpayer and the patronage relation they thought the defense biz had with them. So I didn't try to find anything else to latch onto. Instead I began planning the vacation I was going to take after my AFR timed out.

I told HR that I'd just take the layoff. Since my manager found something for me (didn't even ask him to), they said it's not a layoff. They said it's a voluntary resignation. Well, they DID find something for me. So I guess that was fair.

My point is, back in the day, the "tainted" perception out in the Real World of those lifelong defense workers was not completely unfair.

Brand said:
"Isn’t Wachovia somewhat unstable compared to Wells Fargo."

I don't know about unstable. Wachovia has seen some ugly media stories in the last year or so. Still, they're massive enough (top 5 or 6? in market cap) that I don't worry they'll disappear overnight. It's the local bank with three branches, started by a local lawyer, dentist and insurance broker that give me the cold sweats. They pay 5.5% on a CD, but maybe you'll show up and find plywood over the windows. I may end up all in BofA and Wells Fargo. More likely, our accounts will be fine, but bread will cost $6 a loaf.

DS

I'm fairly sure TOS is a former IB. Too much of her jargon vocabulary, especially when she started arguing with us back some time ago, gives away finance industry speak. No argument that number-crunching gals isn't the norm, but there are plenty of smart quant women. I happen to be married to one myself.

The reason our locals thought she was a she, if I recall, was when she got into it with Surfer-X. She started, as they put it, "swearing like a girl". I tend to trust that measure. Similarly, I used swearing-abilities as my primary reason to declare that "GC" was feigning being an innocent immigrant without a grasp of Western/US/English culture. If you can swear like Surfer-X then you understand plenty.

Oddly enough, the over-the-top swearing was what initially made me suspicious as well. It was clunky, as if from someone who wasn't used to it. Then the fear mongering pretty much sealed the deal.

Associated Press
Whistleblowers on Fraud Facing Penalties
By DEBORAH HASTINGS 08.24.07, 3:16 PM ET

http://www.forbes.com/feeds/ap/2007/08/24/ap4052736.html

One after another, the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted.

Or worse.

For daring to report illegal arms sales, Navy veteran Donald Vance says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods.

There were times, huddled on the floor in solitary confinement with that head-banging music blaring dawn to dusk and interrogators yelling the same questions over and over, that Vance began to wish he had just kept his mouth shut.

>. You guys might what to consider TOS (all inc.) being a possible trans-deviant, or some type of fem-male from the BA.

Besides being Piece-Of-Shit (POS), I belive POS is trans-deviant ....

TOS is POS
TOS is POS
TOS is POS
TOS is POS
.....

After the European Central Bank pumped another $50 billion or so into their banking system yesterday, the grand total of "liquidity injections" over the last two weeks by the Federal Reserve, ECB, Bank of Japan, and various other central banks around the world now stands at somewhere around $500 billion.

Half a trillion dollars.

I have no idea now, where to invest my cash .....

PermaRenter,

Don't invest cash. Save cash.

We stash cash for our consumption needs. What do you think is the best way to preserve the value of spending money?

We invest to build for our future, ie growth. What do you think are good growth investments for the future?

I am only providing info for those who are interested in hoarding physical gold, not to encourage. Gold price is very volatile, and it generates no income, no interest and holding gold is subject to 28% collectible tax. I hold a substantial position in GLD and IAU, primarily as trading instrument since I don't know whether such paper gold is backed by anything. This is a controversial issue and you can find arguments from both sides but I am not going to get into it.

Therefore, I have been moving my position from GLD into physical gold stored in Australia at Perth Mint, a wholly-owned entity of the Western Australian government. There are two programs: the Perth Mint Certificate or the Perth Mint Depository, the former with a min entry fee of $50K AUD and the latter with a min entry fee of $250K AUD. The difference between the two is, the former has a transaction fee of 2% for buying and 1% for selling while the latter has none. You can trade in and out just as on the US exchange, and the quotes are real-time. Annual storage fee is nil you go for the unallocated gold bar or gold coin route. However, as US citizen or PR, you still cannot escape the US collectible tax, however, you are exempt from Australia capital gains tax if you declare the holding as a personal collection. In general, Australia is also moving towards abolishing all capital gains tax for non-residents since 2006 to attract foreign capital investment.

I also store gold and silver at Canada through owning shares of CEF. This is a tax nightmare because of PFIC issues, but I dealt with it alright, as long as gold and silver kept inching up. I hoard the metal itself instead of buying shares of companies because for that part of my portfolio allocation, I only care about asset protection. Gold mining companies are certainly a better trading instrument but that encompass several new risk components: company management, reserve depletion, labor contracts, hedging contracts etc. I don't invest in gold to make a profit, I hoard gold to protect what I already have.

I don't store gold in the US because I don't trust the US government, and I have had enough assets in this country so I don't need to put all my eggs in one basket. I don't quite believe in buying shares of developing markets because in bad times, these markets will suffer much more than us. I am a commodity bull so I invest heavily in energy and food. However, when liquidity crunch hit just a couple of weeks ago, my stock portfolio went down almost as much as the rest, so it is not exactly a shelter if all the CBs in the world decide to let us slide into deflation. So my entire portfolio is a bet that come hell or high water, our CBs around the world will drown us with extra money supply.

OO:

I read your information, thank you for sharing, because like you I have some reservations about storing value in bullion or in those ETFs.

You think this is a sarcastic question but I don't mean it to be.

Suppose that you were NOT an immigrant who can just leave the USA and have somewhere else to go to during a global inflationary or deflationary meltdown. Suppose you'd hafta stay here in the USA and tough it out.

How would you repatriate the stored value of that overseas gold to buy food and pay for shelter back here in the Bay Area/

sybrib,

I don't mean to escape to these countries, I just cannot find a safe enough gold hoarding instrument which has a solid proof that the gold is there. Also, the US has a history of confiscating gold from the public.

I don't think in any situation our way of life will grind to a halt. Paper money will still be there as the major medium of exchange, and I don't believe for a moment that we will go back to gold standard. However, as we sail through the rough waters, I need to hang on to a few things more secure than say, US treasury, because after all it is denominated in USD, which I try very hard to get rid of after each paycheck.

All these instruments in foreign countries can be repatriated electronically, CEF is traded on Amex. Once I set up the account, I can move funds in and out freely, plus most of my portfolio is in the US stock market anyway. I don't think I will ever need to bring gold coins to Safeway to exchange for a loaf of bread or something. It is just a temporary safe haven (for me, maybe not for everyone) to park my "money" as the definition of money is in upheaval.

Did anyone read Kiyosaki's article on hoarding silver? I thought he made an interesting point that silver is a consumable element, whereas most gold mined in the last 1000 years is still around in various forms. Any comments on how much consumption it would really take to push up the price of silver? I assume the monthly expenditure would have to outstrip mining supply (and much like gas/oil, I see no reason to hold extraction supply constant in the calculation as price rises).

addendum: Somebody noted previously that Kiyosaki was pushing silver when we have basically stopped using it for film (DinOR perhaps?). What are the industrial applications driving silver consumption these days?

I think using gold as a store of value is reasonable, so long as you approach it form a commodity investment perspective. I'd argue that gold is not the best vehicle for this purpose, though, because of the fact gold has a whole set of "extra" market forces acting upon it. I was up early with my son this morning. I turned on the TV, which I'd left on CNBC on Friday. The infomercial I saw running is an example of one of those somewhat unsettling "extra" forces.

Implicit to the strategy is also the idea that your stored assets are not liquid or spendable in any practical manner. The premise is that after the dust settles, you're asset value will remain when other stores of value have deteriorated significantly. I'm not sure I buy into that logic, but it is consistent and reasonable. Especially if you have a very long time horizon, and you're willing to potentially bequeath that wealth to your descendants, never being able to realize it yourself.

Likely there would be confiscatory taxation of repatriated offshore, non-business assets for many years after a global meltdown event. And there's no guarantee you'll be able to withdraw it from the host country without source taxation either. When governments run out of money they become quite creative at finding new sources of revenue.

That's the basis of the counter-argument for global equities. They are much more exposed to risk of total loss (of value), but they also constitute a working asset in your portfolio whereas commodities are just piles of value sitting there on the supply&demand curve. And if I view gold from a commodity perspective then I'm concerned about falling demand during and after a global meltdown event. In essence, you're gamble is largely based upon the "extra" value of gold above and beyond its commodity value. Otherwise you'd invest in something more calculable like uranium, crude, copper or molybdenum.

Randy,

I started hoarding physical gold by dollar cost averaging when the ibond yields dropped in 2002 and stopped when the price spiked after the hurricane Katrina.

I used a very simple concept for deciding when to hoard gold: How many hours would an average earner, based on US census data, hafta work to purchase one ounce. Don't have the spread sheet in front of me right now, but as long as it was below the mean, OK for me. For much of the time, it was below a standard deviation. Actually, if you look at raw census data it's clear we've had a declining standard of living, so it would be reasonable to normalize for the declining standard of living for Americans (ie, the "norm" would be for Americans to hafta work longer for that ounce), but I don't t have the time to model that. And no, I didn't do sophisticated modeling with the taxes, etc., probably should have though.

Right now it's slightly above the mean, but well within a standard deviation. Maybe around the 55th percentile, something like that.

On the other hand, silver is sitting right near the mean. So if I was going to insist on hoarding, silver might be slightly better priced. Also, there is no precedent for the government seizing or outlawing it. And, last time I looked, the customs form I hafta sign when I fly home doesn't ask me if I'm moving silver across the boder.

sybrib,

I think you've taken a more logical approach than any others I've seen to date. I wonder, given concerns about physical possession of an illiquid store of value and OO's discussion of Perth Mint, if those who are inclined to this route shouldn't consider diamonds, and not gold?

I dunno.

You might think I was logical, but I either didn't know. or had forgotten, what our government did with gold in 1933. Maybe logical. But maybe flawed logic. Time will tell.

I guess that if you have a very robust set of statistics that you trust, you could store your value on anything that's liquid.

Including, Bay Area residential real estate.

Real property is a great place to store value with the caveat that you're not trying to buy in during a bubble.

After the bubble values are burned off a good bit (not all the way for me), I'll put a large portion of our wealth back into that and sleep well at night.

If the Bay Area continues to be stubborn, then I'll rely upon my family back in the Midwest for local knowledge of those real estate markets, and I'll buy there and rent them out. In a way, it's a race to see which happens first: the BA bubble pops or the Midwest's secular employment cycle starts recovering.

Randy,

They're not making anymore land.

RIch immigrants are stampeding here from Asia. Poor immigrants from Latin America are hot-bunking here. These trends have been going on long before you immigrated here from the Middle West for our elite public business school.

Decades before there was ever a Silicon Valley this, or tech that, we had an entrepeneurial business environment. It came with the Gold Rush. It stayed with all kinds of horticultural innovations after that.

As was proven in 1906, natural disaster here is a different term for urban renewal investment in new infrastructure. In the long view, the earthquake faults are bullish for the continued vitality of our region.

I'm bullish on residential real estate in these parts.

Just not right now.

But soon.

long before you immigrated here from the Middle West for our elite public business school.

I moved here eight years before going back to b-school.

Eight years ! Practically a native for these parts (no sarcasim intended).

diamond is just carbon. If you are going to deal with illiquidity and hoard anything useful, gold and silver are far more superior choices than diamond. Industrial-use diamond can already be manufactured and is dirt cheap.

Actually buying BA real estate is not a bad idea as a store of value except:
1) the current price has already priced in the future high inflation
2) residential property has to be supported by wage growth which is obviously lagging. Real estate price growth usually precedes high inflation and stays stagnant before such inflationary phase is over, food price growth typically signifies the last phase of inflationary growth.
3) A house needs more maintenance than gold, and is even less liquid

It makes sense to buy a house and live in it, it is downright stupid to buy a house purely for the store of value in BA right at this moment.

I don't feel like a native. But I certainly seem to have been here longer than lots of folks. Most of the wave I moved in with have since moved "back home" or to OR, WA, CO, NV, TX.

My point was I didn't move here for school. Actually my wife got a new job in 96 and her firm paid to move us here. I was pretty comfortable in Chicago. The move was pretty hard on my business. If I'd known how hard it would be I'm not sure I would have been so agreeable. I went many years never earning a single dollar of Bay Area income; I still drew my income from my Chicago based company for many years.

Not to sound like I am doing advertisement for the Perth Mint program, you can sell your gold back to the Mint any time at the spot price. Of course the market price may fluctuate a lot and your timing may be completely screwed up.

I am not sure if you can sell your house any time even at the so-called "market price". Try selling it a week ago when jumbo loan was yanked in the BA market.

Country risk, government risk, tax risk, these are all kinds of risks one needs to tackle when dealing financial assets internationally. I just don't think Canada and Australia have that high of a country risk, if any. Australia government became entirely debt free last year, and is in no hurry to raise money. It is moving towards lower taxation to encourage businesses and economic development, and such tax cuts are not funded by budgetary deficit, how refreshing. The biggest risks facing such countries endowed with rich resources will be the end of the commodity run.

I do not take pleasure in resorting to gold to store part of my "money". I am not a gold bug who believes that we should operate on a gold standard. However, with endless rounds of liquidity injection in sight (half a trillion to date), and our financial elites' reckless speculation style guaranteed almost no chance of failure, what else can I do to protect my savings from being diluted? As a responsible saver, should I be punished for being fiscally conservative?

If you can swear like Surfer-X then you understand plenty.

LOL.

Didn't someone earlier in this thread (or another) state that the problem with diamonds is that value is greatly depedent upon quality (color, clarity, et al.) and therefore you almost need a qualified appraiser at the time of exchange. This makes them hard to use in a "road warrior" scenario.

If we are faced with Road Warrior, it's too late. Bullion will only be good to use for shims when things start to fall apart.

OO

I agree, and a few years ago, voted with USD, that bullion can be a useful store of value for SAVINGS.

But who said you oughta be punished?

If we're in a Road Warrior scenario, the best thing to have is arable farmland with water rights, knowledge of old-school skills like carpentry and animal husbandry, and a talent for hunting. I doubt the U.S. would ever get violent like that (the military's weapons are far too good and we have way too much farmland to starve), but the Amish lifestyle might look pretty good at that point.

Brand, if it comes to that, what good will "water rights" be?

I'd say, water access, and an arsenal.

Like I said, the government isn't going to collapse, even in the mightiest calamity. I consider the arsenal to be highly optional.

Brand, just curious: are you a native (or "Native") American?

Why I am asking?

From that perspective, you might recognize that our federal system is chartered by the states. If Al Queda or others makes a decapitation, it only takes three fourths of the state legislatures to dissolve and/or reconstitute our national government.

It's not a whole lot different from what happened to another federal system with a seemingly invincable national government (USSR).

The irrigation water system here in Boise (built around 1900) is almost exclusively gravity-fed so it will still work if the power isn't there. One issue to consider is not just water rights but how that water gets to you.

sybrib: The U.S.S.R. was not a government of the people, by the people, for the people. If the United States populace was so dissatisfied with its form of government, people could pressure the Senate into amending the Constitution to provide the desired changes. Al Queda isn't going to change our opinion of our system of government. Al Queda could certainly cause a backlash against the politicians in charge (which is a proper functioning of a democratic republic).

We've had a civil war. It was ugly and I doubt that people want to repeat it. The country isn't divided like it used to be. I do believe a day is approaching when we will have a real third political party formed by moderates from the Democrats and Republicans. People won't put up with Republican imperialism or Democratic financial mismanagement for long.

But states moving to dissolve the federal government? I doubt it.

Brand,

the War of the Rebellion was different than a decapitation.

In the War of the Rebellion, some state militias were directed by their state governments to defy the rule of law and attack federal property. State governments ignored the tariffs. All the while the federal government, with all its resources and all the lobbyists of those days (and yes there were in those days), was mightily ensconced in the nation's capital, gearing up politically and economically and military to put down the Rebellion.

Do you really think our Mighty federal government is going to keep renegade nukes, probably by well financed terrorists, out of our country? It cannot even keep dirt poor Mexicans out of our country. Nor tons of contraband narcotics. Nor whole boatloads of tainted toys and tainted foods.

In a decapitation, much of the federal government would be vaporized in a few moments. There will not be a federal government to defy nor to rebel against.

But the state systems may very well be functional and intact. After getting down to the business of restoring order, (which unfortunately because of Bush's adventures in Iraq would be more difficult under the current circumstances of having many of our state militias isolated in Iraq), the states would have to do something about what it means to be a nation. Reconsitute the federal system, or rearrange it (like the USSR).