patrick.net

Busted,

Maybe not. We had a more formal devaluation by Nixon and Connally in Aug 71. Nikkei (and European markets) tanked, and NSYE zoomed up.

Something just doesn’t make sense.

I think the difference is due to lack of trust. It doesn't matter what the interest rate is if you can't trust the person you're lending to.

Can you trust the Fed anymore?

So, let me get this straight:

Average 30y mortgage is 6.24%.
Treasury 20y CMT is 4.37%.
The Fed Fund rate (interbank lending) is 3%, soon to be cut to 2.5%

Mortgage rates are going up.

T-Bond rates have to increase, because the world's buyers of T-Bonds know that the dollar is declining compared to world currency.

Freddie and Fannie turn mortgages into t-bonds.

Common consensus on inflation is that it is much higher than governments official reports.

How can the Fed pump up the yield on the t-bonds just by twiddling with the interbank rate knob?

Seems that an essential component of the magic house of cards is to keep mortgage rates propped up at all costs(lower dollar, higher inflation, etc, just don't matter)

Maybe it is what this thread's author alluded to - they have exploited the stock market, and then the housing market, the tax system (see stimulus package), and now they are strip mining the municipal bond market so they can continue pushing more debt onto every single person.

Administrator:

The way you worded it was a loaded question.

Did you really mean it that way? Or did you mean "can you count on the Fed anymore?".

Because I never did "trust" any "entity", though if I thought the entity's actions were predictable, I might "count on them". Trust some individuals whom I know very well, or at least think that I know them very well, of course. But not "entities".

Sort of the same sentiment expressed by President Reagan, "trust but verify".

I mean that the Fed has not only abandoned the fight against inflation, they seem positively determined to boost inflation. So I mean that you can't trust them when they say they have a "dual mandate" of price stability and full employment.

The reason the Fed is allowed to exist and control the money supply is because "we" taxpayers and voters supposedly trust them not to debase the currency.

And that trust seems misplaced.

The only people who trust the Fed are the clueless financial journalists and the financially illiterate majority. The entire blog world is making fun of the "strong dollar policy" of the President, the Fed, the treasury secretary. And the smart money managers are not aware of how Fed works ? Unlikely.

Everyone is trying to figure out what the Fed "will" do and how to profit from it. Some are trying to "make" Fed do something that will profit them.

What they Fed "should" do is is only a theoretical debate.

The Asian stock market movie is playing again. Wall Street drops, and then all Asian indexes bleed red. If this gathers momentum, will there be another "surprise" cut to stop the crash ? Abso-f*cking-lutely.

SP :

Regarding your comment in the previous thread. I haven't noticed any big drops in Zestimates in the areas I track. But a slow erosion has been going on for weeks.

I think something interesting is happening in the RE market in BA that hasn't hit the news yet. I keep a close watch on DQNews weekly stats at
http://www.dqnews.com/ZIPSJMN.shtm

I noticed that for resale in Santa Clara, the sqft rate has dropped to 436. This was always above 475 as much as I remember. And at the peak it was over 500. This is roughly 20% drop.

Yen advanced a lot, probably will break 103 tonight. This is a very important mark for gold, because eventually gold advanced *together with* Yen. Prior to that, Yen's advancement was responsible for every single pullback of gold.

Yen's advancement also means a tanking US stock index. I am wondering how much of the Yen carry trade is deposited in USD bonds. The bond market is in such a gigantic bubble that when it blows up, it may throw everything out of balance.

This might have been mentioned before, but I am discovering it right now.

Zillow doesn't seem to use Foreclosure data in coming up with Zestimate. I have noticed that the sale event is often times missing if it's a foreclosure and if it's present, Zillow puts an asterisk next to it and indicates that this price was NOT used in Zestimates.

Go to PropertyShark, check out a foreclosure listing in your area of interest and then see if Zillow has the sale information that PropertyShark has.

Here is an example of what I was saying.

http://www.zillow.com/HomeDetails.htm?zprop=19844083

Sale History
02/04/2008: $850,000 *
03/22/2000: $629,000 *
No other sale data is available
* Transaction not included in Zestimate. More info

This was in PropertyShark's foreclosure listing in Oct 2007. The original purchase price was 629K, and after serial refinancing the unpaid loan balance was over 1M.

This hard evidence substantiates the accusation of REIC bias in Zillow. I hope more and more people use PropertyShark to get real information that REIC wants to desperately hide from us. And no I do not work for them and I have no financial interest in any of these sites.

I am wondering when propertyshark is going to come out with a monthly subscription plan. I am so willing to pay for unlimited access, yet it doesn't offer any standard pricing plan.

All we need is data, comprehensive data. Once you have the data, you can do your own computation, who needs the stupid zestimate?

Gold is up in Asia!

Yen advanced a lot, probably will break 103 tonight. This is a very important mark for gold, because eventually gold advanced *together with* Yen.

They have been advancing together recently.

I have both in my portfolio and both of them are up.

Do you smell burning hedge funds? :)

The bigger story is really SILVER.

Silver advanced from a gold:silver ratio of 55 to the ratio of 49 within 3 weeks.

Gold:silver has a historical average ratio of 40. Load up silver!

I thought quite a bit of Yen-carry trades are parking in high-yield currencies like GBP. Anyone tracking the sterling?

Ooh, the European housing bubble will be even messier.

I am looking for an entry point for silver. I do believe silver will outperform gold eventually. It is not even anywhere close to its NOMINAL high.

Speaking of ratios, historically the Dow-Gold ratio can be as low as 1.

What about palladium? Any good way to participate other than NYMEX contracts?

I think I will wait until silver retraces and then stabilizes, even if that means a higher price. I am always afraid to enter a trade when the price is shooting straight up.

StuckInBA Says:
Regarding your comment in the previous thread. I haven’t noticed any big drops in Zestimates in the areas I track.

Here is an example of the zestimate corrections I am talking about:
606 Nandell Ln, Los Altos
ZESTIMATE®: $1,533,000
30-day change: -$219,500

And this one is a real nose-bleeder...
1460 Club View Ter Los Altos
ZESTIMATE®: $2,222,500
30-day change: -$662,000

@OO
In the previous thread, you said:
unless you are a saver who only knows how to buy CDs denominated in USD

Any pointers on where and how to do otherwise? It has been a pain to diversify out of USD in non-trivial amounts.

It has been a pain to diversify out of USD in non-trivial amounts.

Can't you just fly somewhere and open an account? I believe it should be legal so long as you do all the reporting.

Not legal advice.

SP,

the powers are basically forcing you to take risks with commodities and be inflated away, it takes leap of faith to start at this point.

Right at this moment is a bad entry point for any commodities or PM because everything is heading up, but pullback always happens. If I were starting right now, I would aggressively load up silver first, because it is much cheaper compared to gold (silver's historical high was $40, while that of gold was already broken, numerically of course). This has a big psychological impact on investors who try to park their dough in a more stable store of value.

I'd start with natural gas for the same reason, it is lagging oil price. And since natural gas supply is very localized and weather dependent, any disruption will swing NG price more than oil.

Ag commodities have very solid fundamentals as long as our government is forcing everyone to feed food to our cars. It is actually a clean water play because importing food = importing water.

I wouldn't touch industrial metals right now because I believe that would be the first to go in a recessionary situation.

I started divesting out of USD in late 2003 / early 2004 with non-trivial amount as well, and when I first got into gold, I was under water for almost 8 months. Then when DBC, DBA hit the market and I jumped in, I was under water for about another 6-7 months before they started taking off. My natural gas play was in the toilet for most of 2006 until mid 2007. Now my nuclear play is again under water, but I believe it will just turn out alright like everything else in the end. All I am saying is, if you believe you are marching in the right direction, you have to be psychologically prepared to deal with paper loss for the short-term because this is a wild ride. There's just no easy way around it.

You don't need to fly anywhere to open a bank account.

I opened my bank accounts in Australia with merely a phone call, a couple of fax exchanges and signed forms mailed down so that I could buy Australian government bond. Then again, the government bond transactions were done completely electronically.

OO, SP, do you guys want to have a commodities trading blog party? :)

Then when DBC, DBA hit the market and I jumped in, I was under water for about another 6-7 months before they started taking off.

Are those tax-efficient? I could be wrong, but I thought DBC is derivatives-backed.

I am looking into POT, what do you guys think?

Peter P,

All DB commodities ETFs are subject to PFIC tax.

Well, I don't want to encourage people to get into commodities because this is usually the last phase of the boom, and the wild swings do not suit the appetites of most investors. I am no commodity trading expert, I was just forced to play this game because devaluing the dollar is the path of least resistance for this country.

I don't like trading commodities. They add no value, and if we human beings are back to trading stuff that we've been digging out of the ground for the last thousands of years, it means our economy is running out of things to trade.

This is just a temporary parking place on the way to a total collapse - a full blown deflation. Unfortunately we have to get through the stagflation phase before we get to deflation, and if we take too little or too much risk during stagflation, we may end up with nothing when we reach deflation.

As soon as Bush was sworn in, I moved most of my 401k into foreign stocks. And after 9/11, I moved the rest into gold and energy stocks.

But I just sold a big chunk of my physical gold this week. I don't know about you guys, but when the talking heads start going on about what a great investment gold is, I know we are in at least in the 7th inning. I am sure it will go higher for a while, but I would rather sell too early than too late.

Noe Valley and Forest Hill (the two regions I track) have more homes than I have ever seen on the market right now. I went and looked at a couple in Forest Hill today. Both very nice, both priced very richly. Prices have not come down, but inventory is finally going up, so prices are sure to follow.

Jimbo,

I believe the gold will be near a top when Fed starts raising rate to a meaningful level, i.e. inflation-neutral. I actually see the Fed keeping the rate low for quite a few years. The moment Bernanke or his successor starts raising rates aggressively, I will be kissing all my commmodities goodbye.

That story about Warren Buffet on the main Patrick page has this gem:

Despite spending $32.51 billion on stocks and bonds in 2007, Buffett went another year without the big acquisition he said he wants, leaving Berkshire sitting on $44.33 billion of cash.

It's comforting to see that Buffet, like myself, is sitting on cash not knowing exactly where to put it.

A lot is going to change with a new President, especially if the Democrats win. If we pull out of Iraq, that is going to save the government a lot of money and relieve a lot of downward pressure on the dollar. It should lower inflation as well.

I expect gasoline to keep going up, but the dollar should finally reverse course, especially if the Europeans finally relent and start cutting rates in the EU.

The market tends to discount these effects, but I don't think the effect has been baked in yet, at least not in the price of gold.

It is a tough question as to what is going to hold its value in a moderately high (at least compared to recent history) inflationary environment. I am sticking to large cap foreign stocks, large cap American stocks that do most of their business overseas and the super-major oil companies. I wish I had held onto my iron and copper miners, but they are sure to come down sooner or later.

Oh, btw, where are the California Munis yielding 20%? I want to buy some of those!

What is Vallejo paying on city bonds these days? ;)

Jimbo,

I don't think the next one-term President will be able to do much, he will collide right on with the perfect storm. It doesn't matter who sits in the oval office, the severity of the problem simply cannot be dealt with by this new kid on the block.

I think things will change with the next President after this one.

I agree - Hillary should be greatful that it won't be her in the WH.

Buffet just completed three acquisitions in early 2008 that cost him close to $8B.

Marmon - $4B+
Kraft - $3B+
GlaxoSmithKline - $60M+

Something is fishy:

http://www.reuters.com/article/bondsNews/idUSN2923814520080229

" However, that relatively minor change masked far bigger revisions for individual country holdings.

The preliminary report showed that the United Kingdom's holdings in December were $142.3 billion lower than previously estimated at $157.4 billion.

They also showed China's holdings were $72.1 billion higher at $477.6 billion, and Japan's holdings were $10.0 billion higher at $581.2 billion."

UK's holding estimate can be off by more than 90%?

> Oh, btw, where are the California Munis yielding 20%? I want to buy some of those!

Me too. There are repeated stories in the press of failed Muni auctions, resulting in interest rates over 20%.

How do you get to be part of those auctions? And what are the odds of losing your money on a Muni?

With the dollar at a record low, where will it end the year?

Higher 30%
At current levels 16%
Lower 54%

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