Bits Bucket And Craigslist Finds For March 17, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Ben, eternal thanks for your work.
Anecdotes:
I was in line getting lunch in NYC last week. The women in front of me were talking about how they had problems with their house. One said “I’ll just burn it down”. I hope I heard that out of context.
In honor of St. Pat’s day, limericks or haiku would be in order…
need arson link- bet it’s on the rise
The rotisserie plan! One of my enduring memories of this bubble
How about a rotisserie league?
We can do it on a city vs city basis.
Setting the ground rules, only single family houses, condos and mc mansions apply, not interested in your garden variety warehouse fire.
I thought of the game, so I get to pick first and i’m taking the inland empire, all of it.
Florida, Broward and Dade counties.
I get Northern New Jersey. Something tells me they have a lot of guys out there skilled on the art of “torching”.
the NJ blog has a cool game LOW BALL you see deals at 25% off listing price in decent areas
Dibs on Brooklyn.
Sorry NYCB, I think James bednar aka Grimm has first crack at mob country.
Okay, Bednar, let’s settle this matter “country style”. Here’s how we do it. I kick you in the nuts as hard as I can. Then you kick me in the nuts as hard as you can. The last one standing gets to have New Jersey.
NYCityBoy decides he gets to go first since the contest is taking place in New York City. Mr. Bednar thought this to be fair. CityBoy kicks Mr. Bednar in the nuts with the hardest shot he can muster. Bednar flops to the ground in obvious agony. Looking like a goldfish that has bounded out of its bowl Bednar writhes in pain.
Ten minutes pass and Mr. Bednar has finally recovered himself enough to stand. He says, “now, it’s my turn.”
CityBoy says, “ah, you can have Jersey” and walks away.
my kudos to grom aka james bednar his blog is excellent and it linked me here almost a year ago
he does a great job and there are some great regulars as well, a must read for any tri-state bubblehead
sorry jb “grim” not grom
btw i was patient homebuyer on your blog
Boys and girls:
I’m the comish I guess, so here’s my take:
NYCB got in first, under the wire and Bednar can have a piece, he get’s South Jersey.
Gentlemen and Women:
Start monitoring your fire dept’s activities.
Scoring:
SFH: 5 points
McMansion: 10 points
Condo: 25 (it’s like lighting off a pack of firecrackers)
What are some of the major fire fighting equipment companies? I think there may be some potential investment oportunities here.
I live in a rural area of Naples,, mostly working class homes starting around $350,000
I’ve NOTICED about 7 fire damaged homes over the last 2 years and just on the main roads that I travel
I’ve lived here a long time and typically 1 a year would be considered high
The builders probably put fireproof paint and insulation in these cracker-boxes to prevent the rotisserie plan.
Arson’s not gonna help these FBs. Most of these idiots (Inland Empire, San Joaquin valley) are paying 2/3+ of the price of their shack and lot for the lot. Insurance only gives the FoolishLender 1/3 of his money for the structure. Good luck on selling the dirt for the remaining balance on the loan. Go straight to foreclosure, 1099 to FB (FB’s who put down 20% without refinancing (purchase money) are safe in CA (non recourse loan) but in the VAST minority (I am in the minority but in Oregon) or directly to BK. But don’t tell them this.
Let’s enjoy the show. Hopefully felonies for all who lied on the credit apps…prison if caught on arson. (Me - I plan to live in my house until I die, $1,237 per month FIXED 5.75% 28 yrs to go, $100K household income + net rent received of $1,100 per mo currently; paid $265K borrowed $212K 1550 sq ft 1/4 acre).
Got silver and gold?
Maybe hiring for fire brigades can soften the unemployment rate among former real estate agents…
Once upon a time a renter burned down my house when he found out it was about to be sold underneath him. Beware renters.
In todays market, a renter who burns down your house will be considered a savior.
some Haiku
thread two five oh oh
information is power
thanks for arming us
Happy thread 2,500! Have a fun St. Pat’s Day, all. Just don’t get too drunk and run out and buy a house with 100% financing and a 1.25% teaser rate.
You would be amazed by the number of fires started by a dry mortgage rubbing against a dry insurance policy.
Ben and the other housing bloggers are on the OC Register on Lansner blog:
http://blogs.ocregister.com/lansner/
enjoy
So governments and college students analyze all our rants and tin foil hat thoughts besides the cool headed rationalizations?
A nod of acknowledgement to you all.
I’d be interested to see some representatives join in on the debate now that this has become more mainstream.
If a house in 2000 sold for $275,000 and then in May 2006 that same house sold for $725,000. I think that would qualify as bubble material right? Why then does no one talk about the other bubble we have right now?
What is that bubble? GOLD - is that bubble.
The house above is the gold price from 2000 - May of 2006 with 3 zeros added to it. Gold peaked with the California real estate peak - any correlation there? Gold was up over 160% in May of 2006 from 2000. Even though the price has come down it is still up over 100% from 2000.
In the past two days I have clicked on links from postings on this blog where people made claims of great disasters to come and that only by buying gold could one be saved.
I cannot see why one would want to own a large amount of gold. What can you do with it? Look at it, pay some one to store it for you, or maybe keep it at your house and worry about being robbed. I just don’t see it.
“Gold peaked with the California real estate peak - any correlation there? ”
There’s an assets bubble world-wide… The question is, will this fiasco end in hyper-inflation in US?
the US / CA peak is irrelevant - the housing bubble is still growing in Europe and many other parts of the anglosaxon ‘empire’. The capital value of these other housing stocks by far exceeds that of the US.
The crazy consequences of the bust in the US is that long term interest rates in Europe are declining again and because we don’t have tightening lender standards yet, this could give a last boost to prices, eventhough France, Ireland, Spain and Belgium are showing signs of sudden stagnation of the property market since Q4 2006.
Let’s hope that the losses of European banks in the US market, will force them to tighten in Europe too.
the already hugely overvalued UK and Dutch markets are still rising at a very healthy pace … and I agree that there is NO sign that the EU market is tightening credit.
Was talking with my wife and if I was a gambling man…
Gold has the possibility to have the buying power of as much as 100 times it’s current value, vs fiat Dollars, without the spot price even going up~
If this thing cascades out of control, (we are in strictly uncharted financial territory, as I type) and things start coming apart at the seams and thanks to computer programs that might just stick a fork in us, and exacerbate hyperinflation. And just maybe, the damage control teams and all the greenspans and bernankes of the world might not be able to put humpty dumpty back together again?
It’s a legitimate 100 to 1 longshot, that seems more like a 7 to 2 bet, with not much downside.
How would one profit from being perhaps in the 1% (that’s being generous) that have gold as the lion’s share of their portfolio?
If hyperinflation hits, nobody in this country will have a clue, as prices of most everything have been the same (except houses, ha)
for a long time and the first thing that will happen (if the rest of the 1st world doesn’t get whacked across the knuckles, financially) is you’ll see foreigners coming to our country to buy anything of vlaue that isn’t nailed down, as our fiat Dollars will be of little value and people here won’t be savy to the sudden bobbing and weaving of constant changing of prices, that is required of those that attempt to do business in the face of a cat 7 financial hurricane, that is hyperinflation.
We might see masses of Chinese immingrants that come and live in the nice (well not so nice, if you bought a house built in the past 6 years, I think a group action lawsuit for shoddy quality, was included with your purchase) little bubble communities, that none of you will be able to afford, if hyperinflation shows it’s ugly mug.
Take a few minutes to clue yourself in to the ravages of hyperinflation…
http://en.wikipedia.org/wiki/Hyperinflation
That is the only thing you goldbugs have is hyperinflation and I have to tell you it is not gonna happen here in the USA. If houses drop back to 2002 prices we will have deflation, not inflation. What is more likely is stagflation as some thing deflate and others inflate.
Deflation takes amazing skill and a strong government, to pull off. We did it with Reagan in the early 80’s.
Anybody have anything more than a scintilla of confidence in the current ineptministration saving our bacon?
putting 1% of your capital into gold will not help you a bit in case of hyperinflation. You really need to take a big bet to survive financially (and even then, financial survival is just a small part of the problem).
On the downside for gold there are issues like like government confiscation, outlawing gold using Patriot Act III etc. (most of Europe has similar laws by now), total central bank / investment banking control of the worlds gold mines (it’s a tiny sector and pocket change for criminal organisations like Goldman Sachs). And for those with a tinfoil hat, you might want to read up about transmutation of elements which is now researched for nuclear waste disposal by large companies like Hitachi. This could be used to turn lead or other cheap elements into gold, in theory - I think with some manipulation the FEDs could use this to scare the hell out of goldbugs and cover their position. On a shorter timescale there is the threat of the IMF dumping par of their gold on the market (I’m sure we will see that happening in the next 1-2 years when the goldprice gets out of control). So no, it is not an easy bet …
nhz,
The few people that could be persuaded to have gold in their portfolio, here in the states, typically have 5 to 10% of their assets in the yellow metal. aladinsane’s position is the other way around, i’ve got around 92% in the curiously attractive yellow metal.
A no frills goldfinger~
Oh, and once we goldbugs get a whiff of hyperinflation, we’ll not be real eager sellers, as hyperinflation can take years to sort out and of what use would it be for me to sell @ $3,000, on the way up to $65,000, per ounce?
What can you buy with gold? NOTHING. Costco cannot take it. Safeway cannot take it.
Sounds like a greater fool and just why would he buy your gold? Who could afford to buy your gold at that price?
WRT nhz’s post above; is there some corrollary to Godwin’s law when alchemy is mentioned in a thread?
All the alchemy you need presently, is the ability to turn a cashier’s check, into gold.
The ancients would have never believed we’d succeeded in turning paper into gold.
WAman said
“What can you buy with gold? NOTHING. Costco cannot take it. Safeway cannot take it.”
“Paper money eventually goes down to its intrinsic value – zero.”
– Voltaire, 1729
You can’t eat paper money, stocks, bonds, art, housing, gemstones, or antiques, etc., - all of which have been in a bubble.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
– Alan Greenspan, Federal Reserve Chairman 1987-2006, from a 1966 article
In short, by placing blind trust in the US currency, stock and bond markets to survive this possible crisis is silly. “We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.”
Alan Greenspan, Feb. 15, 2005, to Democratic Senator Jack Reed of Rhode Island
The problem is the inability to see more than a glimpse of the world economic status. Congress reduces the crisis to “imports from China”, which is BS.
The crisis has been building for 75 years and was accelerated by short term thinking in 1994 by actions of the federal reserve which even they questioned as leading to future asset bubbles.
It was very disturbing to me to see Halliburton decide to leave the US, but it was even more disturbing to read that the Blackstone Group is going public. That is one stock I would not buy. It is a clear signal that all is not well and an opportunity for Schwarzman to cash out. Since this news broke yesterday morning there are now over 20 hedge funds exploring going public. In the immortal words of PT Barnum “Every crowd has a silver lining.”.
to Brooklynite:
transmutation sounds like alchemy, but it is more than that (transmutation is not ruled out by science anyway, it is just supposed to be a financially or practically unattractive process). The process, based on cold fusion research, is a bit speculative and not generally recognized yet by science - but apparently sound enough for big business to throw serious amount of money at it.
Are there no Engineers on this board. Changing one element into another is not impossible, it is not even improbable. It is a matter of adding appropriate number of neutrons and then waiting for them to decay to what you want. Thats how breeder reactors work. They produce nuclear fuel and energy. Also thats how we produce medicine for Cancer radiation treatment. It is nothing as exotic as cold fusion.
http://en.wikipedia.org/wiki/Breeder_reactor
RenterInLa: I’m a chemist so I know what I’m talking about. As mentioned above, it is possible with existing technology like a fast breeder (or in case of lead to gold probably some kind of particle beam system) but this is tedious and extremely expensive. Making gold that way will never threaten the gold price, nobody will try except maybe for proof of principle. The new technology based on cold fusion research could provide relatively cheap ways for transmutation on an industrial scale, and that would make all the difference in the world.
Someone posted the other day: Hyperinflation hurts the rich because it makes their money worthless, whereas deflation, leading to a depression, hurts the poor and middleclass.
Which one you think the Big Banks are going to choose: hyperinflation or deflation?
Nobody chooses hyperinflation…
It’s the nasty byproduct of failed economies~
”
Nobody chooses hyperinflation…
It’s the nasty byproduct of failed economies~”
With respect I would disagree, deflation is the natural result of failed economies. Hyperinflation is a result of a failed policy of printing money to avoid deflation. If you don’t print money you CAN’T have hyperinflation.
Printing that money is the interstate highway that will get you there, yes.
With the “free” money disappearing from the US (interest rates going from 1 % -> ~4.47%), the housing market slowly imploding, economic growth ramping downwards IMHO gold prices will fall. UNLESS helicopter Ben fires up his machine B-)
Gold will go down to $300/oz. when housing and stocks go down. Bonds will go down also, because I think interest rates may go up.
Gold and interest rates have quite often moved in tandem. Gold’s correlation is not with inflation but with commodities.
What makes Gold a potentially valuable place to position part of your “investment” holdings is simply that it is a bet against the value of the dollar. Let’s face it. Those charged with managing the economy here in the U.S. have not done a very good job. The buck doesn’t buy what it use to. Whether that is bubble gum or gold. Problem with investing in bubble gum as a hedge against a weakening dollar is its limited shelf life and cost of storage.
How about the CPU chip? Now that can be a wealth genarator. Just look at the money ebay has made because of the CPU chip. Oh yea they also make a lot of money from the GF’s that buy gold.
What is money?
a. Medium of exchange.
b. Store of value.
c. unit of measure.
d. All of the above.
What is a dollar?
Hint: A federal reserve note is something that you exchange for a dollar.
If you can answer those two questions, and you still think gold is in a bubble, fine.
If you don’t know the answer to those two questions, re-evaluate your position.
Currently, Gold is not used much as a medium of exchange; however, the Internet really makes gold a wonderful medium of exchange. Electronically, you can divide into whatever amount you want.
So gold (and silver) have traditionally best fulfilled the three characteristics of money. Our “dollar” on the other hand, only fulfills the first, a medium of exchange. Dollar has lost 97% of its value since the creation of the Fed, so it’s a lousy store of value. It really isn’t a unit of measure, either, since the only way to “measure” it is against a basket of similar paper currencies which are all floating in value against each other.
Here’s another question for you: Name one fiat currency that has ever survived, long-term?
Go out and buy your groceries with your gold today. I understand that the value of the dollar is subject to inflation. But I say again what can you do with gold?
Do you really think that we are heading to a time when the only thing that will matter is gold? What will gold buy then - a chicken, some vegetables, maybe some fresh fruit?
no, you grow those yourself.
Those folks in the condo tower in San Diego have no land. I do and I can grow those things. When hyperinflation hits I will bring chickens, vegetables, and fresh fruit to the people in the condo towers and trade it for GOLD.
WAman,
Have you ever sold some gold? How about a car or a stereo? If you have you know that there is a strict market for precious metals and it is very easy to convert metals into paper. If you are trying to sell your chickens or vegetables (or a car, etc), I doubt that you’ll receive what you think is a fair price. If you don’t believe me, ask the guy at the farmers market, or the folks with a used car for sale.
I can with great confidence, buy or sell any standard 1 oz Gold Coin on a $10 spread. Got a krugerrand you want to sell?
Today, i’d pay you $651 and would buy as many as you’d like to sell.
If you are a buyer today, (sorry, not selling my stash) i’d sell you as many as you’d like @ $661
Every consumer item i’ve ever bought, drops 75% in value, as I leave the store.
No, but I do have some Eagles - you can pay me via paypal. How many do you want at $651 each?
I’m mr. anonymous and shall remain so, but i’d buy any quantity, up to around 300 coins @ present. But it’s not going to happen, that mr. anonymous thing and all.
Why you would allow yourself to get whacked on the vig from paypal, on your coins, is a mystery that perhaps you can solve?
WAman, your ‘point’ is made, more than I’d like to hear. If you have nothing new to say, why not try repeating your opinion with your breath instead of the keyboard? In my book, you’ve become a troll, and not on just this gold hangup of yours.
consider chilling for a short while. Unfortunately WP does not have an “ignore” option.
Bullshit. Buy price at CNI is $665.00.
Not to worry, WaMan was just fishing.
He has no clue, otherwise, he’d have known that eagles are worth a lot more than kr’s or cmls.
Like 99% of the rest of the country, he’ll be receiving a crash course on what constitutes real wealth, real soon.
CNI who is that? I buy and sell on ebay - have done for 6 years now. That is also why I use PayPal. That’s why I can send eagles to Taiwan. I will be shipping two there to a buyer today.
May I respectively call you an idiot for selling bullion on ebay and shipping it overseas, adding more unneccessary risk?
Oh, and getting vigged for 2% by paypal in the bargain?
Don’t take it personally~
You truly are — insane.
CNI - California Numismatic Investments
http://www.golddealer.com
Free shipping on orders over $2000… I love this company!
The gold bugs sure are in attack mode this morning. Reminds me of a tv celeb I see sometimes… wish I could remember who. Oh well, buy up gold folks, bububuuubooyah!
Good people…
Deal with confidence, they’ve been around a long time.
Just don’t get switched into numismatic coins~
The straight bullion ticket is what you want.
“Go out and buy your groceries with your gold today. I understand that the value of the dollar is subject to inflation. But I say again what can you do with gold?”
Well since my favorite gold dealer is closed on weekends, I cannot do that. But I can assure you I will be able to do exactly that on Monday if I want to. And I have been buying gold and platinum bullion over the years. My basis is low so I’m ahead of the stinking dollar.
From reading the naysayers in this thread, I can tell that they do not know much about precious metals and the history of currency, nor about fiat money. For me, I am in the camp where 5 to 10% of my net worth is in precious metals. I don’t have all the answers and do not have the crystal ball that says we will have hyper inflation or deflation in the future. I put it this way: in 1979 it looked very bad for the U.S. Gold went up to $800 which is about $1900 per ounce, adjusted to inlation at today’s price. Then we got a great President who made us feel good for 8 years and the price of gold tumbled. I think gold and other metals are in a cycle and gold could go as high as $2500 per ounce. But I won’t alter my asset allocation plan due to this hunch. I have been wrong before.
Amen.. You got it right. Have patience for the ones who don’t know their history. Reading and studying history today is not as easy as watching the “experts/talkheads” on tv telling you what to do.
You’re just bitter you didn’t buy it in 2000. LOL
The simple truth is gold was undervalued on an inflation adjusted basis. do the math. In 1913 when the fed came into being gold was officially priced at about $20 an ounce. So fi you assume a dollar was really worth a dollar then (you could exchange paper for gold at that time) and now compare the current value of the dollar to a 1913 dollar you find, even by the fed’s official website calculations that the current dollar is worth 5% of its original value. So to inflation adjust the price of gold you simply divide the $20 price of 1913 by .05 and you arrive at $1,000. Now one can argue about the divisor or whether you should use the $20 price or the $35 one FDR induced when he tried to hyper inflate a dead economy with an overnight devaluation of 60% but by any reasonable metric you still come up with an inflation adjusted price of gold somewhere between $600 and $1,000.
Personally I’m not concerned with whether anyone “sees it” or not. Its really tough to argue with something that has a 5,000 year history of providing a safe haven store of purchasing power. Can you name anything else that has served that most useful function?
As to being robbed - today’s modern thieves are more likely to be interested in car jacking your Beemer, nabbing your Rolex, and getting your American Express card than they are spending hours rummaging through every nook and cranny in your house trying to locate a small stack of coins they aren’t even there to look for.
Not too many people in my hood have beemers - I do, but only one or two others. I live in a high poverty area.
Well you’re in luck then. High poverty areas aren’t normally targeted for burglary - unless you’re the only one on the block with a Beemer in the drive.
In the garage and ADT secures me.
“High poverty areas aren’t normally targeted for burgulary - unless you’re the only one on the block with a Beemer in the drive.”
That’s why all the folks living in Beverly Hills have bars on their windows and the folks living in Compton don’t.
er, have you been to compton lately?
Well the folks in Beverly HIlls would never put up with looking through bars of course, but they do live behind gates and employ a lot of private security as well as having a high police to population ratio.
The poverty areas probably have more value in the metal in their bars than what’s stored behind them.
High police to population ratio?
Drive through Compton some evening if you want to witness a high police to population ratio.
In BH, the would-be criminals stand out. Compton, not so much.
I was day hiking in South Lake Tahoe last month, killing time. Near the state line, I was hiking through a rather unoccupied set of vacation properties; police cruiser guy made 2 passes to check my identity.
We lived in Glendale, Ca. about 10 years ago and i’d go to the post office almost every day and got to know the friendliest, smartest black male postal clerk there and eventually we got around to talking about profiling and he told me he’d get stopped by police for no good reason 3 to 6 times a year in el lay.
A family man with 3 kids…
“In BH, the would-be criminals stand out. Compton, not so much.”
The crooks in Compton are stupid. They look like crooks, act like crooks, and steal from folks that don’t have much of anything of value, thus their risk/reward ratio sucks big time.
The well-dressed gentleman walking his dog in the evening hours in Beverly Hills is often a cat burgular who is quick, smart, and very dangerous. He’ll tie up his dog, sneak into your house while you and your family are asleep, and rob you of your expensive valuables. It’s a rare event that they ever get caught, thus their risk/reward ratio is much more favorable.
Watch all the Gold Bugs come out of the woodwork after that post….
I have been investing in gold stocks since 2000-2001 and have had very nice returns that have outpaced the regular stock market.
It is a confidence game WAMan, and the poster above who talked about gold as a inverse bet to the dollar was right. Take it one step further - all nations have taken a page out of Greenspan’s inflation bible, paper currencies are cheap, they are computer digits. Read what Russ Winter posts about how much foreign banks simply create money to buy our “old maid” cards.
Moral is: once this confidence game is lost, and it will be lost by those who simply manufacture funny money, people with REAL wealth need a store of value for their money, they seek the metals becuase they are something tangible.
Yep.
The Making of a Gold Bug Part I http://www.financialsense.com/fsu/editorials/cocalis/2006/1127.html
The Making of a Gold Bug Part II http://www.financialsense.com/fsu/editorials/cocalis/2006/1128.html
Aladinsane, 92%???!!! I thought I was overloaded at 40%, but have been thinking of upping my ante.
I could lie to you and tell you the rest of my wealth is in Yap Stones, but it’s really in the value of my house, so yes, in this curious world of gambling that we turrned into, you might say, i’m “All In”
Another HBB bits bucket hijacked by gold bugs. Ben does have a Money and Metals Blog, folks…
Yeah but read the subtitle of this column. It says “please post off-topic ideas.” Some of us happen to think a 50% haircut in RE prices by 2012 is inevitable. So the next idea is: what is the alternative asset to build so that we can buy a house at 50 cents on today’s dollar in 2012? Ergo, the precious metals topic. If we do get into a depression, the Bernanke solution is the helicopter to drop dollars. So metals will be good to accumulate even during deflation.
This off-topic idea has been posted to death already. I would almost go back to arguing with Gekko about the merits of dollar cost averaging, then get stuck in this “buy gold — hyperinflation versus deflation” infinite loop yet again.
Agreed GS, talk about beating a dead horse.
Wman : you may have a correlation to house prices but not causation. Cause to both may be cheap money.
I don’t view precious metals so much as investment - it has no dividends - but an insurance /hedge policy. It is speculation on the declining value of paper money.
If paper ‘money’ losses its value by devaluation or banking system shuts down (like Argentina), you have in your posession something that has a value. I personally prefer silver over gold as it has smaller demonations. Unlike RE, it is an asset that is mobile and liquid.
Other dynamics on gold demand are India and China. People wear their savings as they don’t trust their banks. (Seeing some of what their and our banks are doing, I don’t blame them).
Another thought on precious metals is ‘peak gold’. Like Peak oil, we have peaked on the economics of getting it out of the ground. Bottom line:-
1)It is getting harder to mine gold- new mines finding not reserves are not readilty happening
2)Mining is becoming politically difficult as it has terrible impact to the environment
3) Mining is exposed to economic of energy (energy intensive).
It has also suffered for severe underinvestment in past decades due to depressed commodity prices. Copper prices also impact miners.
At some time, supply and demand will put a premium on gold already above ground until demand catches up. There will be panic buying at some stage. It everyone who bought gold futures demanded delivery, there is not enough gold in the world to satisfy it.
Houstonian:
Good post.
Another important factor is that that Gold is fungible. A 24k Troy Ounce refined from Gold from the Ok Tedi Mine in Papua New Guinea or from Siberia, or anywhere else is exactly the same.
A True World Currency
Houstonstan
Thanks for some tangible points on why to own gold. Your the first one to explain it in a rational way!
The comparison of Peak oil and Peak Gold is flawed:
Oil is consumed, gold isn’t. All the gold taken from the earth is still in existence, not so regarding oil.
Combo the comparison is on extraction.
apropos to all the discussion of bailouts
http://www.itulip.com/forums/showthread.php?t=1087
TXChick, a good post. I never really thought of what to call this subprime bull$hit. It is “privatized welfare”. That makes it much simpler to understand. It’s also easier to understand why the government jackals allowed it. They hated welfare reform so they let the private sector continue their destructive programs.
on fox a few minutes ago it was suggested people just go back to 20% down and a mtg they can afford, yea sure
here is my 150k deposit and my nice fixed 30yr plus maint, now i can relax in my 600sq ft pos with granite and stainless steel appliances in the uppper east side aka harlem
why don’t they say lower the damn price so people can actually afford a place on a regular mtg.
This guy is totally on target. LBJ’s “Great Society” program was actually a better welfare program than this subprime scam; at least everyone in the middle class on up knew up front that their money was getting stolen and handed over to the poor. The subprime scam gives the poor the illusion that they are getting free money, in the form of manna from Heaven, but loans ultimately have do be repaid (doh!).
Middle men (esp. big NYC investment banks) were made richer than Croesus from the government-approved subprime lending racket. Now that this Ponzi finance scheme is in the process of collapsing, U.S. taxpayers have been instantaneously fingered (by some of our top Democratic Presidential Candidates, Senators Dodd and Clinton, no less!) to chip in and pony up for the damages. The whole scheme was foreseeable and preventable, and it is outrageous that those who tried to stay clear of this fraudulent credit scheme will (again!) be asked to pay for the damages. Let’s ask the big banks pay for the mess they created, and leave nonparties to the debacle out of it.
‘Sub-prime Loans and the Failure of Credit Welfare
Bad for the poor, bad for taxpayers
The big story since U.S. markets tanked yesterday, with Asian and European markets following suit this morning, is the “big surprise” in the U.S. sub-prime market: when a big chunk of your borrowers can’t pay back loans they should never have been offered in the first place, the lender’s business suffers.’
Exactly. Guess what NOBODY is saying what is the real problem?
It isn’t welfare, it isn’t credit.
It’s that tons of people aren’t making very much money. Why? Because the ultrarich are taking most of the productivity gains of the economy.
That’s what few really want to talk about, and when they do they are (ironically) accused of “class warfare”.
Well, the billionaire class has been waging class warfare for 20 years and they’re victorious.
Right on. And Dodd’s bailout proposal is a classic Democratic ploy: Help your rich investment banking constituents in the guise of helping the poor stay in their homes.
According to Forbes, there are 946 billionaires in the world, with a combined net worth of $3.5 trillion dollars. If you took all of their money and divided it up among the ~200 million citizens of the United States, each citizen would get about $17.50
If the ultrarich “are taking most of the productivity gains of the economy”, then the economy isn’t doing very well, IMHO. And maybe that’s the problem.
You’re joking, right? Surely your math isn’t that bad.
3.5 Trillion (sounds about right) divided by 200 million is
drum roll…..
…
15,000
not 17.50.
Thus (if we were only talking U.S.) $15,000 of what would otherwise be each person’s, or about $40,000 per household, have been siphoned off by “the men”.
That’s no small potatoes.
However that being said - the comparison is skewed some in that the 946 is a worldwide number - much of that $$ comes from people outside the U.S. However I venture that that’s also greatly offset by the fact that the bulk of that $3.5 trillion comes from the middle 40-50 million or so middle-class people in the U.S., not the lower class (not enough income to siphon off) or upper class (tax loopholes, etc).
Seriously - take a math class. Any mabye one in logic.
Oops, slip of the calculator - I should double-check my posts.
You are correct, 3.5 billion / 200 million = $17,500
But the point remains - you could take all of the money from all of the world’s billionaires, divide it up among *just* the population of the United States, and each person would get an amount less than a busboy makes in one single year. I would guess it took those billionaires at least 20 years to build up their fortunes, in most cases longer than that.
So getting back to the point made by DrChaos, my objection is that the accumulated wealth of all the world’s billionaires is not nearly enough to support the argument that they are extracting most of the productivity gains of the economy.
What I believe is happening is that U.S. workers have been (for the last 40 or so years) subsidizing the rebuilding of the post-war European economies and the build-out of the Asian economies. All of that capital came from somewhere. Much of this new infrastructure is owned by governments and corporations, not individuals. And quite a few of the corporations (e.g. Airbus, all Chinese corps) are majority-owned by governments worldwide.
Basically, the “lost” productivity went to build infrastructure, and a few people got rich along the way as well. The money was vacumed up by governments, and (inefficiently) spent on the things that governments do (e.g. wars, infrastructure, bribes, welfare, and monuments.)
Hopefully this post is free of math errors and typos.
Math check please.
Didn’t the population recently pass 300 million?
Using round numbers here. The working population of the U.S. is about 160 million. The total population ISTR is somewhere north of 300 million - can’t find a current number easily.
The housing bust should cause the dollar to stengthen because the current account deficit will shrink. Fewer mortgages will be issued, so aggregate debt will decrease. Consumers will spend less on discretionary goods, so the trade deficit will moderate. The dollar is still the reserve currency and the US is still the safest place to invest. The dollar bears make the mistake of thinking that currency should behave like the stock of a country.
if Bernanke and his FED think they can print themselves out of the mess (and every sign points in that direction) the dollar will tank, not because of a vote of non-confidence by traders but simply because the total money stock is growing far more than the economy. Of course, when the dollar tanks the euro and yen will tank along because of competitive currency devaluation, so J6P will not notice except after a few years of raging inflation. If Ben B decides to take the real medicine and let the system purge itself (extremely unlikely IMHO) then there will be a housing and economic bust and yes - the dollar might strengthen.
And since when is the US the safest place to invest? By many official standards the US is bankrupt; not only financially, but also in a political and social sense. It is just that the international financial commity does not yet want to see that the emperor is wearing no clothes; but sooner or later they will take notice.
For the dollar to tank, doensnt that mean it tanks against the EUR and YEN? So the yen and euro wouldnt tank then, right?
it depends on the definition. I think the dollar (and all the other fiat paper) will tank against gold and probably some other real assets. Just check recent history:
http://tinyurl.com/3chtsv
“Of course, when the dollar tanks the euro and yen will tank along because of competitive currency devaluation,…”
Beggar thy neighbor’s currency…
You make dollar bears sound like a bad thing. Count some of the sharpest guys in the world as dollar bears including Warren Buffet, Bill Gates, Soros and many others.
The problem is the amount of the dollars that have been created. Fiat currency has been allowed to expand into the hundred of trillions of dollars. When it would only take a mere fraction of that to buy up all the gold and silver in the world.
But that’s the real beauty of a fractional reserve fiat scheme. “Money” has to be borrowed into existence and the pool of money must constantly expand in order to pay the interest. The problem comes when you encounter debt creation exhaustion which is inevitable at some point. You simply run out of borrowers and lenders. Of course at any point on the way up the parabola, you can also run into a problem known as a debt collapse induced by something like a stock or RE mania running its course. We had a mini collapse in 2000 and the fed was able to keep the game afoot by blowing the RE bubble. The question at this point is what is left to bubblize that is large enough to offset the obvious RE implosion? Nothing readily comes to mind. IMO the debt collapse of all time is set to occur. There for the moment does not appear to be any thing out there on which to loan enough money to create the required expansion of the monetary pool to keep the game going.
Inflation is a monetary expansion. Price increases are an effect of that expansion.
rvdoc
Excellent post…
We are about to enter a twilight zone, financially.
Submitted for your approval:
A broke country, every adult citizen with a $8k credit card ballance that only gets bigger (like their wastelines) and what “wealth” people have, is in the value of their home.
If the value of those houses were to crash, say, a $700k house in an almost safe neighborhood in el lay, went down to $125k, people would have bubkis.
There’s a lot of confidence in past performance, financially. Far too much.
Havana - I’ve often wondered how dollar could reverse it’s downward trend. One scenario I see is a drying up of credit supply: The pool of Willing lenders and qualified borrowers contracting. Thus, any liquid money in supply will be higher quality and demand more return.
I don’t see it coming from the worthiness or strength of the US economy.
Another scenario for dollar appreciation could be free floating the Chinese Remnimbi. The consequences could be rush out of Chinese currency not the influx into China that many people think will happen. Their banks stink from mal-investments and overcapacity.
Gimme a break! Explain Japan…
I am a democrat, however I will not support any candidate who does any type of bailout. I could see some type of bailout of individual buyers, but on what basis? How do you separate the person who really wanted to have the house and got caught up in a mess. With the person who got caught up in the mess and wanted to flip the house. I live in a poor community and even here where houses sell for around $100 per square foot I have met a house flipper who is in trouble. The only way I can see this situation working out is that some people will feel pain. If we let anyone off they will think that they can do it again. Also prices have to drop if people are ever going to get into a house with 20% down and in a real fixed rate mortgage.
There will be no bailout. It’s too big to bail.
I hope that you are right!
There has only been cruel speculation of bailout. Thus far, however, there has been a lot of real action restricting housing trade. Some examples include: tighter lending standards and credit crunch, widespread crackdown on lender/borrower fraud, public exposure and discussion of subprime risks and predatory lending, exponential increase in housing doom media stories and housing blogs, mortgage broker licensing requirements, and on and on.
They didn’t bail out daytraders and retail schmucks when the stock market bubble burst. In fact, they made it more difficult to daytrader by changing the margin rules right after 9/11 to keep the ones with less money out (of course, creative ways around that were immediately formulated). Personally, I think any bailout would be in the form of an RTC type entity and targeted toward banks with the rationalization that this would allow them to ultimately lend again and individually “assist” their troubled borrowers. Who cares, there’s too much gridlock for anything more radical. I’ll be the Republicans though, are just loving it that all this misery will happen with the Democrats in charge of both houses of Congress. If the Dems can’t come up with something better than Hillary or that other idiot (Obama), hello GOP in ‘08
Exactly. All the public actions so far have made it more difficult to trade in this market. Future public policy actions are going to be even more restrictive. Currently, no one is being bailed. Everyone is being buried.
“If the Dems can’t come up with something better than Hillary or that other idiot (Obama), hello GOP in ‘08.”
I hope so. Unfortunately, not that many people vote AGAINST a candidate. Who can the Reps put up that would make a majority of people want to vote FOR him?
hey fox just said newt may throw his hat in the ring.
if he is elected im outta this country and headed for
st.marteen to sell shells on the roadside
I loved his mea culpa to the reverend dobson.
TX sorry to disagree with you, but the federal reserve did bail out the traders. Fed fund rates were dropped to 1% (that this accelerated other bubbles is beside the point) to fuel the stock market. There was no economic reason for the Federal Reserve to lower rates and for a tax cut. These were done to bail out the markets.
I disagree. I think there will be a bailout. I put it this way: Look at California. Most eligible voters in California receive some sort of government check, whether they are state workers, federal employees, living on social security, or on welfare. They have nothing to lose by voting for more more money from the taxpayers.
From the politicans’ perspective, they have a lot to gain and nothing to lose by agreeing with the largest blocs of voters in their district. Now, when the largest blocs of voters are FBs, as opposed to responsible savers, the politicians will pander to the big votes so that they could have more political power. The bloodsucking will commence.
“How do you separate the person who really wanted to have the house and got caught up in a mess. With the person who got caught up in the mess and wanted to flip the house.”
The answer is, you dont. The word “wants” is a little different than “needs.” The medicine for both is the same, tighten the belt and ride out the storm, or walk away and leave the keys on the granite countertops, not only to the “main” house, but the summer house, and the hummer, as well.
so…is it as simple as that? All the person has to do is leave the keys on the countertop and walk away? I know of someone who did that in Texas years ago. That individual did not go to jail, had a professional career and was well-respected years after that happened. Who lost? Maybe the bank. He had ruined credit, perhaps. Or perhaps he could have had enough money to pay off the rest of the mortgage but decided not to and did not care about what damage it did to his credit. I don’t know. Maybe this is how it’s going to be. The 1.5 million people about to lose their homes, perhaps a great deal of them will just walk away, making it the problem of the banks to recover their losses. But someone will have to pay. The ones who walk away won’t be able to take out a loan for anything for ten years or so. Big deal? I’m wondering who will then pay? Will the payment come in the form of higher lending rates independent of the prime rate? I don’t know enough about the bankruptcy laws or limits of statutes on credit rating to guess. But if your credit is bad for ten years, but you have plenty of investments to live on for ten years in case you cannot find work because of credit problems, walking away is no issue. Yet if you had all that money in the first place, you would not put yourself in a position where you would face foreclosure.
American law is biased toward the irresponsible and very punishing of the responsible.
Subprime is just the canary in the coal mine. Wait ’till the defaults start mounting in prime and Alt-A. That’s when the real carnage begins.
I think the idea that “prime” borrowers were somehow immune from overspending or overcommitting is particularly funny. They’re some of the worst. You even read about the truly rich (like Larry Ellison) getting into too much spending. Insane.
A 700+ fico score does not insulate you from stupidity. The worst is yet to come.
Oddly enough, Larry Ellison is not one of the truly rich, but one of the truly doomed. He spends money like a madman, much of that on depreciating fantasy properties and his primary business is in a consolidation phase expected to bring about lasting stagnance. Perhaps he will reinvent himself, but a demeaning dismantling of his empire over time seems most likely. This isn’t an overnight thing as the numbers are good now, but he and his trade are a yet another over the top ticking bomb.
Remember the Hunt brothers & how they tried to corner the silver market in the late ’70s ? Blew a big chunk of dough too. IMHO a box full of STUPID is not limited to Larry.
http://en.wikipedia.org/wiki/Hunt_brothers
They had a great game going…
I was 18 in 1979 when the sparks started flying~
They merely wanted physical delivery of silver, on the futures market, totally legal and a great scheme.
I think the moolah was theirs and some Saudi princeling and it was going great, call it the fractional precious metals dilemna.
Lots of precious metal gets paper shuffled in transactions, just a tiny percentage resulting in actual delivery and they caused a short squeeze on silver, but there was a catch~
To get the “spot” price, it had to be pure silver .999 fine comex deliverable and they took silver from like $5 to $48, in less than a year, so the refineries were backed up for months, so, as a result, if you had less than pure silver, it was discounted rather heavily, I remember buying less than pure silver for 3/4’s of melt, nobody could get it refined.
It took the U.S. Mint by surprise as well. They had been selling 1976 3 pc 40% Silver Bicentennial coin sets for $12.00, for years, at the Philadelphia Mint location and a sharpie I know went in and bought in excess of 100,000 sets (a little over 1/2 of a troy ounce in pure silver content) and they never knew what hit them. No clue.
Getting to the chase…
The government stepped in and put the kabosh to the regs about them getting physical delivery.
People think that gold was a “bubble” in 1980, but it mostly followed the coat tails of silver.
Gold went from like $280 in 1979 to $820 in 1980, bubbly?
Certainly a little bit…
Verses Silver going from $5 to $48 (way more bubbly)
I think the Hunts were very clever but they didn’t expect that the government would change the rules of the game. I have no doubt they will change the rules again these days if they need to (e.g. to keep gold down in case it goes ballistic).
Can’t~
They opened the floodgates in 1975 to ownership, free and clear of Gold in any form your heart desires…
Most of my countrymen misinterpeted the message and heard “God” and have placed their faith blindly in the 1st national bank of dubious returns~
But if you are an american citizen and you get a whiff of any funny business, think of a most excellent hiding place…
Just in case~
It sounds like people might repeat the efforts of Christopher Walken in “Pulp Fiction”. It brings a whole new meaning to, “paying through the a$$”.
got a visual…
It might start to really hurt @ around 33 ounces
I was on the CBOT as an independent trader- owned my own seat - mostly grains, but dabbling in silver, the government did not step in; the exchange did what it had to do for the best interest (of the exchange and its members?) and made silver futures liquidation only. This action killed the silver market in Chicago. Other exchanges NYSE, AMEX, CME, have done the same thing-LOL.
Hoz…
You know the score, my compadre~
Just wanted to comment of the number of Sherrif sales posted for April on my local PA county website. I’ve been checking the foreclosure notices every month for over a year now. Last night i knew Aprils would be up so i checked again and was shocked at how many were listed. Much more than I’ve ever seen before. And it wasn’t the “usual suspects ” so to speak. I expect to and usually see alot of lower income houses but this month had some very nice houses listed.
I have a feeling it’s only going to get worse.
What county in PA and what are the numbers?
Chester county and there are 94 listed so far. They always add more as it gets closer the date of the sale though.Last April there were 58 listed.
In the past 2 days NEWC.PK and LEND has gotten bubbly. I guess this is all the chatter about Morgan, Goldman, and Bear coming to the rescue. Can they save these companies? Do they have the assets to contain the problems in subprime? What do you guys think?
With NEW, I don’t see how they can do it without a bankruptcy first. If that happens, the current stockholders will be flushed.
Hey TX. You called the bounce in these earlier this week. Hope you banked some profits.
Just a little. Something tells me there’s one more spike up coming. May even take out the previous highs.
Sweet, then I can buy some more puts and do the brinks job all over again!
Look at these guys as you would GM. Without parts suppliers and distribution outlets GM will not function. Add a layer of complexity where GM insures all its outlets’ debt. Further, add another layer of complexity where GM warranties all its suppliers parts. Even further, allow GM to trade its suppliers’ and outlets’ securities. IOW, in addition to protecting the integrity of the final packaged product, GM has a lot of other interests to protect. What’s more, it has a lot of other opportunities to generate income.
This is interesting…
A bill to add state cap gains tax to flippers… up to 60%!
http://starbulletin.com/2007/03/17/business/story01.html
Outstanding. As someone who gets sliced and diced every year by the IRS while these fricking house idiots pay nothing, I’d be all for that.
More public policy restricting housing trades.
Ha ha, nice timing for a bear market. A flipper with a capital gain.
for the international view, check what Dutch journalists (NRC newspaper) have to say about the situation. After a few minor stories about US mortgage problems in the last weeks, today there is an article about subprime. No mentioning of a ‘housingbubble’ yet (that must be a dirty word in the Netherlands), the article explains a bit about subprime:
- the problem with subprime is that rates are now rising while US homeprises are rising just a little or not at all (don’t scare people by saying that they are actually declining!)
- about 1% of US homeowners are currently close to foreclosure; in the worst case about 3% could loose their home in the next years.
- subprime mortgages are mostly used in the southern states and among black people. White people hardly ever have subprime loans (really?)
- nowhere it is mentioned that this problem could spread to other types of mortgages or other areas (like Europe …)
- part of the risk will end up with Wall Street and the banks, two of them with big US RE exposure are Dutch banks ING (from ING Direct fame) and Aegon. They conveniently leave out the huge exposure of the Dutch pension funds …
Here’s an article from this morning’s Detroit Freep about the auto industry stinging from warm weather area housing downturn. Big declines in auto sales in California.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070317/BUSINESS01/703170375/1002/BUSINESS
How can people say there will be no spillage from housing? While home prices increased consumers were able to buy new cars and wrap them into their mortgages. Without home price increases sales of big ticket items are going to fall.
Not only big tickets will fall, little tickets will fall as well.
A three-dollar latte will seem awfully expensive when homeowner’s cash flow goes negative.
… and then the price of coffee falls and the folks in central and south america get hit and then…
Welcome to the new no frills amerika…
get used to it.
“get used to it.”
This, too, shall pass.
“This, too, shall pass.”
Like a turd filled with razor blades.
A three-dollar latte will seem awfully expensive when homeowner’s cash flow goes negative.
And then what happens to all these strip malls they’ve been building frickin’ everywhere in Las Vegas?
Take a critical look at some of these commercial properties. You will have a Nail Salon, a Smoke Shoppe, a StarBust, a Mortgage Loan Office, a CPA and maybe a restaurant, if they’re lucky.
These things are going to be homeless shelters in two years.
The thing is, too, that a lot of these people that are losing their homes have maxed out their credit cards to pay for life’s necessities as their house payments climbed. Now they won’t be able to buy anything on credit. Also, if they already have a foreclosure on their record, what the heck do they care if they default on their credit card payments as well. They’ll probably have to file BK to avoid getting stuck with the deficiency balance on their foreclosure, so why not include the credit cards? Banks might find themselves having a lot more bad debt than just home loans!
looks like the auto industry is burying their own grave with all their gas-guzzling climate changers
I agree. All those a/c installers, electricians, landscapers, drywallers, etc. who buy gas-guzzling pickup trucks should be forced to take public transportation. No reason why they can’t lug a 4 ton Trane heat pump onto a bus.
These small-RE-contracting-bozos types don’t just buy work’n trucks, they get the $40,000-$50,000 kind. They like to work in style.
my cousin was having his siding replace on his home last fall. so he calls a few guys for bids in.
1st guy)shows up in one of the super duper 50k large gas guzzlers cherry red-his quote 30k
2nd guy)shows up in modest 5 year old truck decides due to slowdown of work he will do job for 13k and keephis crew employed as he is really breaking even on the job.
guess who he hired?
guess who he hired?
The $30K one since he got FREE money from his HELOC…..
And he didnt want his neighbors to think he was in any financial pain by hiring the cheap guys and the ratty truck.
Here in Sandy Eggo I see about maybe 10-15% of the full-size pickups actually being used for pickup-truck work.
You can usually tell these because they have less useless chrome, they might actually be a bit dirty from dirty work, and universally, they have standard wheels and tires as designed by the factory for standard pickup work duties, and of course standard exhaust systems.
Even the construction works often commute to job sites in empty pickup trucks, uselessly, since the materials come in on actual large scale heavy duty commercial trucks. I had an old roommate, journey carpenter, who went to all his jobs, with tools, in an old mid-size Buick. Worked perfectly fine.
I remember, back in the ’80’s during the SnL meltdown and the resulting pullback in building, that it was interesting to note the condition of the tires on the big pickups.
Watch and see. When you start seeing near-BALD off-road type gigantic tires on otherwise clean-looking giant pickups, you know the housing meltdown is in full force.
On second thought…
Buyer’s remorse is common, but here are five ways to beat it
By Amy Hoak, MarketWatch
Last Update: 8:01 PM ET Mar 14, 2007
CHICAGO (MarketWatch) — Most people have experienced buyer’s remorse in some form, whether it’s feeling guilty over the price paid for a new pair of shoes or a jab of regret after splurging on some unneeded tech gizmo.
But when it comes to one of the most expensive purchases in a consumer’s life, a home, feelings of remorse can be a lot more intense, easily rattling otherwise confident home buyers and causing them to second-guess what they liked about a house in the first place.
Luckily, many local real estate markets today are buyer’s markets; there’s lots of inventory to look at and often ample time to negotiate on price, said Eric Cunliffe, senior vice president of RealEstate.com. Those factors greatly decrease the chances of buyers completely changing their minds — and wishing they’d gone for a different house — after the fact.
…..
To me, the following is conclusive evidence that David Lereah trolls the real estate chat boards. You can just feel the vitril dripping over the writers keyboard (”hysteria”, “group think on the part of financial journlists” - no complaints about the media when this Time magazine cover story came out.). THis comes from a March 14, 2007 Washington Post chat with Economic columnist Steven Pearlstein on developments in the mortgage industry:
Washington, D.C.: Homeownership is the single most likely factor associated with future wealth. While I obviously think it’s unfortunate that the rate of sub-prime defaults is rising, the long term benefits to the sub-prime community may greatly outweigh the short term loss. The 4 percent rise in ownership should translate into millions of individuals with greater assets to be used for retirement, health care, or whatever.
When properly used, the loans in your article are highly effective tools to reduce costs. I think it would be a shame to return the old model of 20 percent down, 30 year fixed. The default rate increased when loans went from 100 percent down to 50 percent; and from 50 percent down to 20 percent. Overall society benefited. The focus should be on making the loan terms clear and reducing the overhead associated with loans (origination fees, etc). The current hysteria is group think on the part of financial journalists. Three months from now the TV talking head windbags will be twittering about yet another impending financial disaster.
Steven Pearlstein: Thanks.
CNN is all over the bubble today but way underplaying what’s to come.
One commentator said 7% price reduction.
Oh great, now another genius just said (paraphrase), “banks exposure to subprime will require them to tighten prime loans as well but eventually prices will rise again and banks will loosen standards again.”
WHAT? I shouldn’t be surprised I guess.
Interesting article on nytimes.com… perhaps home ownership isn’t for everyone. “Rising Trouble With Mortgages Clouds Dream of Owning Home”. Article reaffirms much of what is discussed here. Also discusses that perhaps mortgage interest deduction doesn’t make sense.
http://tinyurl.com/yspnqh
From the Times piece…
““I worry that people are overexposed to risk,” said Stuart S. Rosenthal, an economics professor at Syracuse University. “We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets?”…
Promoting homeownership has been a cornerstone of President Bush’s “ownership society.” He has declared June to be National Homeownership Month.
June? Now that’s a fiesta the white house might want to cancel.
For all the concerns about low-income families facing foreclosure, some economists believe that the development of the subprime credit market has, over all, been a boon for people with low income.
Harvey S. Rosen, a professor of economics at Princeton who was a former economic adviser to President Bush, put it this way: “Ultimately the public policy choice is going to be whether to make it harder for people to get these loans, and just shut people out, or let people make the choice and know that sometimes they will make mistakes.”
Well, gee Harvey, and in the same article, the Times notes….
“Almost 8 percent of subprime mortgages — more than 450,000 loans — were either in foreclosure or in arrears of more than three months in the fourth quarter of last year, according to the mortgage bankers.
Their unraveling means not only a string of failed lenders. Homeownership rates have slipped, and many low-income families, who dedicated meager savings toward a stake in their first homes, are facing foreclosure.
With people like Harvey on your team, who needs enemies?
oh, the irony
(lost on them, of course)
Because the talki’n heads at CNBC have been drilling the sheeple with “diversifying with different asset types.”
“…perhaps home ownership isn’t for everyone.”
What a concept! Robert Shiller suggested the same thing on a WBUR interview last week. In retrospect, maybe it was not such a great idea to hand out supersized home mortgages to everyone who could breath. I still cannot get my brain around this credit market nightmare, after having contemplated it for years.
Maybe in twenty years, but not in the next two or three years.
If you are a reader/hater of Casey’s blog, I saw this linked on someone elses site. But please take a minute to check out this guy’s site. A much more honest diary of someone who dug themselves a hole and is facing a tough climb out of it. http://www.my334442debt.com/
Kind of makes me sick. 23 years old and way too many loans.
So, we are up to over 150 of our advertising packages sold, so this is my current montly income: $9,000/mo
BUT,
Current Expenses (newly calculated to include some advertising costs I’m incurring with the new growth in the business) are at: $12,500/mo
This is a common misconception of small business owners who do not have a clue. They think that revenue is earnings. If this guy was still filling out aps for credit he would state that he has $9,000/mo of income, when in fact he has at least a monthly deficit of $3,500.
He says he is paying the creditors in his business that he has too. IOW, cain’t run his business without phones, electric, and web access. Everybody else gets screwed.
Got 10% down?
So, we are up to over 150 of our advertising packages sold, so this is my current montly income: $9,000/mo
BUT,
Current Expenses (newly calculated to include some advertising costs I’m incurring with the new growth in the business) are at: $12,500/mo
This is a common misconception of small business owners who do not have a clue. They think that revenue is earnings. If this guy was still filling out aps for credit he would state that he has $9,000/mo of income, when in fact he has at least a monthly deficit of $3,500.
He says he is paying the creditors in his business that he has to. IOW, cain’t run his business without phones, electric, and web access. Everybody else gets screwed.
Got 10% down?
Huh?? 3 roommates and he still can’t make his house mortgage???
$hit canned Ameriquest employees are having a group hug at the OC register chat room:
http://www.ocregister.com/ocregister/homepage/abox/article_1620584.php
See the reader comments after the article, does anyone have a tissue…
You should read in the next thread about the loan Ameirquest gave to a lady with cerebral palsy. After reading that story, you will not feel sorry for these rat bastards unemployed lenders.
I meant a tissue for them, I am LMAO, this is soo funny. These people are pissed off for being canned and at the same time slamming this company for being crooks. They don’t see the connection?
Bunch of freakin losers, they have no ethics, cry baby bastards.
LMFAO. They are slamming employees and using their names. talking about fraud and how crooked everyone was. I hope these pissed off fired people start talking to the government.
They will be hauled to the Congressional hearings. Send the link to CNN. Copy and Paste. Save that stuff.
“Good thing CitiGroup has only had a limited exposure to these guys thus far, as they will surely realize very soon, that their investment is going to tank. “
“They have armed guards here at the doors”
I like the picture of that tub of shxx drowning his sorrows in that giant beer mug. What a fxxkin loser, down that fcckin beer hit a couple of whiskeys like a real man and get on with your life you piece of crap.
Earning 56K @ 26 for a loan underwriter? Hard life, don’t imagine it require a 4Y degree to qualify for the position.
Don’t assume the US is toast because the AVERAGE household has a negative net worth. One of the features of capitalism is that some people are doing something different; in this case, saving money. If the economy stalls (and I think it will) big time, it is the fraction of people with savings to invest that will restart it.
There is a lot wrong in the US. There is still a lot right. There are US companies that are quite competitive globally (Boeing, Applied Materials, Brookhaven Instruments, GE, Veeco). A general housecleaning with a weak dollar will make these companies stronger. That is already happening with Boeing (the Airbus manufacturing fiasco helps too).
I hope I survive the housecleaning (and get a house in the process).
A buddy (merely a cal tech grad, smarter than a whip) and many others were laid off by veeco, a few months ago…
My wife worked in the military industrial complex, (I refuse to call it the “defense industry”) and did the el lay shuffle, working for many of the different firms that ring the city of angels and she still keeps in touch and guess what?
The mic is pulling in their horns, projects are getting cancelled left and right, people are SCARED.
LA defense industry consultants are hurting. I’m trying to figure out why. Has enough business been transfered out of state?
Speaking of which, one of my coworkers confided that he will probably move out of state in 90 days.
His girlfriend and him look to be getting serious and one of her conditions is to buy a home in a decent neighborhood. Judging from the states he was mentioning and his savings, I kept quiet. (He would be happier buying and losing $50k or $100k and winning the girl.)
But as to people being SCARED? Not yet. Not even close. Its the normal time of the year when the contractors position themselves for new projects.
Got popcorn?
Neil
My wife was a genuine rocket scientist (still is, can’t stop her brain~ she’s building a full scale flying replica of a WW1 fighter plane) and worked in the upper echelon of the people that actually knew what they were doing, not the korporate lackeys that constitute 88% of the mic and long ago lost sight of any original thoughts or ideas, perish the thought.
She had to hire and fire many people over the years and she got to watch the steady decline of our education system, through the prism of newly minted engineers, she’d hire.
As a country, looking back, we peaked on July 20, 1969.
Right on, the day they faked the Moon landing.
I agree that there is some ‘decline’, but it sure is a more general problem with technology. Two examples:
- my country built the ‘Deltawerken’ in the sixties, the huge structures that had to keep out the sea when there is a storm surge (I guess you have seen it on Discovery channel or similar TV series). They were designed by a couple of guys, just like there were about 5 lead engineers for the whole Saturn five project. It seems that 40 years later, despite huge budgets, far more knowledge and 100x more engineers, they are no longer able to make reliable structures of this size.
- in the 1600’s my country was expanding rapidly and built huge numbers of ships for commerce and war. The biggest ones were built in two cities (the city where I live is one of them) and they needed about 3 months production time on average. Sometimes production had to be slowed down (my city was not allowed to built more ships than the other one). One of those ships is being reconstructed from scratch again, and it will take about 15 years (they have a bit less people working on the project, and probably a bit less money compared to the 1600’s but still…). Even then, it remains to be seen if the ship will be as good as those from 400 years ago.
As a country, looking back, we peaked on July 20, 1969.
Don’t you find it ironic that you posted that on the Internet, a post-1969 phenomenon?
Ever heard of the arpa net, predecessor to the internet?
Got rolling right around the same time.
http://www.dei.isep.ipp.pt/~acc/docs/arpa–2.html
Interesting post. I’m a defense consultant and worked in the defense industry my entire career. I’ve seen downturns, but have had only 6 weeks of downtime (between contracts) since August 2000. Prior to that, I was never unemployed. I have moved to the east coast in 2002 (when the local defense recession hit Phoenix hard). That is my key to not being affected by recessions: flexibility. As for real estate, I am not averse to buying a house far from where I work. I am used to that lifestyle. Northern New Hampshire is on my list of desirable spots to buy my house 5 years down the road. In 2002, with little financial cushion, I was kinda “SCARED.” Now I am not scared.
I didn’t say Veeco was doing well enough to keep everybody. To be specific, Veeco’s TurboDisc tools are competitive with those from Aixtron (a German company). The market for these tools is probably still toast (another bubble story). But, the technology/manufacturing skill is still world class.
Yeah, get rid of the deadweight, cal tech and mit grads… ha
Veeco Tucson?
Sorry, but the US is exporting technology faster than we can develop. When was the last nuclear reactor built in the US? What are the prospects for a new nuclear reactor being built in the US? How many PCs are being built in the US? How much Stem Cell research is going on in the US? Where is the stem cell research occurring? How long do you think Boeing will survive after China starts building its own jumbo planes (scheduled for del in 2020)? The list goes on and on…
There is a lot wrong in the US. There is still a lot right.
I remember when the Japanese were going to “own” America. I hope you’re right.
Just when you think stupid has hit a wall, here’s news from LA…
for illegals, a program that now counts their government issued meal vouchers as “income” for mortgage purposes.
“A number of community banks, meanwhile, have also begun to master the nuances of lending to those without long credit histories. They’ve learned to treat non-cash income (such as government meal vouchers) as a positive and to not necessarily consider a peripatetic employment pattern as a negative. They see regular payments sent to family members in Mexico or Central America as a sign of financial stability. And they appreciate that it may take multiple members of a household to meet a loan obligation.
While using similar criteria, HNMA claims to have gone even further: The company says it has devised an unorthodox mortgage underwriting system that’s more comprehensive and culturally sensitive than anything out there “…
http://www.latimes.com/business/la-fi-calco16mar16,1,341383.column?coll=la-utilities-business
Roman was sacked by the barbarians over a period of several centuries. We can watch in real time as California is overrun and looted by illegals.
It’ll sound weird, but I look at el lay as the romans must of thought of their northern border. The romans had huns to deal with and i’ve got the tortilla curtain, that is el lay, that will be ground zero for bad race ju ju.
In el lay at least, there are 2 worlds. The Hispanic world and everybody else. The only time both worlds interact, is when they drive.
I’ll be watching from the distance~
That is terribly silly at all kinds of levels. By our modern standards the Romans themselves were horriffic, slave trading barbarians. The Roman Empire itself was based on a system of conquest and tribute that was inherently programmed for self collapse. There are only illegals here to the extent we integrate them into our economy by hiring them. The looting charge is one of a number that go along with the usual immigration stuff, but economic analysis gets really messy and has prominent advocates for both net gain and loss. The demographics are also a complex mix when examined closely. Immigrants have contributed to significant growth in many regions on the US, and this growth turns out to mostly be a boon that helps compensate for our typical developed nation birth rate which is below replacement levels. Immigrants mostly come to this country with high birth rates, but many immigrants are from developed nations and Hispanic immigrants as a class are normalizing to low birth rates faster than any other group in history.
You don’t get it.
When the you know what hits the fan and neighbors need one another and neither side ever bothered to get to know each other…
Add in a contempt (undeserved, Hispanics work plenty hard. A few years ago when we lived in RPV, I watched in amazement as a Hispanic gent, scaled a 125 foot palm tree, to chainsaw off fronds) from mostly white folks with a “every mexican is so less of a person than I am” mentality and you have all the fixins for not so good race relations.
I really don’t see the difference here - we now have plenty of debt slaves (that is called financial innovation I guess) and instead of robbing other people’s salt, livestock and agricultural products a certain country now robs the world of its oil and other stuff. Big empires usually rot from the inside out; it happened to Rome (took some centuries for completion) and you can see it all over the place in the US (or maybe I should say in the anglosaxon empire). BTW, one of the factors in the fall of Rome was that centurions and consuls near the border of the empire started working for the locals (the ‘barbarians’) instead of their emperor - because of depreciation of the currency, corruption and all the other imperial troubles. I’m not sure there was a housing bubble in Rome in those days, but I wouldn’t be surprised about it.
If welfare or “entitlement” programs are the equivalent of tribute that Rome had to pay to the Goths and Huns, then there is similarity.
The US gets tribute from foreigners buying US Treasuries.
“We can watch in real time as California is overrun and looted by illegals.”
The pathetic thing is that government programs are encouraging the process in CA.
Gov’t. issued meal vouchers counted as income for purposes of obtaining a mortgage. Unbelievable.
This is how we KNOW beyond a shadow of a doubt that the way bailout talk is framed by Dodd, Clinton, etc. is a bunch of bull.
If those politicians cared about people at all, they’d get a handle on the insane lending FIRST.
Something they are apparently even loathe to mention.
Any Lou Dobbs fans out there? He’d love to hear about this one I bet. As would all his listeners.
http://www.mercurynews.com/breakingnews/ci_5454586
Subprime fallout strands some borrowers mid-loan
The easy money cycle appears to have finally ended:
“There will be some customers that qualified even a week ago, and this week there’s no place to go with that loan,” said Jim Svinth, chief operating officer and economist at LendingTree.com, an online loan shopping site.
Her real estate agent, Gema Smith of Gente Real Estate in San Jose, said Peña’s credit score is very good - 700 on an 850-point scale. But she said the lender denied the loan at the last minute because Peña works for a janitorial service and cleans houses as a side job. Smith said lenders are suddenly balking at making loans to workers who can’t easily document their income - people like house-cleaners and gardeners - even when they have good credit scores. Two other adults in her household will be contributing to the mortgage, but they lack income documents, too.
“I feel like I was discriminated against,” said Peña, who is a U.S. citizen. She spoke in Spanish, with Smith translating.
_____________________________________________
OMG.
Don’t you just love the comments about being descriminated against. Victims again.
Irony is they don’t realize they are being saved.
On the verge of becoming a bubble sitter -
Hey all - we’re going for it. We’re listing our house April 1st. We have a “starter house” 3 bed/1 bath in need of some work but we’ve done major improvements in the last few years. We homeschool and run a business, everything is aligning for us to get out of the home improvement business.
Right now in VT there’s 0 inventory under $200K which is where our house prices out. We seems to one of the few Americans who attempted to pay down our mortgage so we have plenty of equity. I’m hoping there’s enough market moment left for the next few months to get out of this house with a healthy profit.
I’m looking forward to renting - this post is a break from it seems like my 100th work weekend in a row.
So Ben, please stop the blog for a few months so we can prop up the market while we get out.
And any tips on how often to change the price (if needed) to move the house by the end of summer is much appreciated.
I really am tired - first, sorry for all those typos. I realized after that I forgot to add my thanks, which was the point of this post.
I don’t think I would have ever would have ever run the numbers or did the soul searching we needed to do to figure out if this was the house that we really wanted long term without my semi-regular reading here. So thanks everyone and especially to Ben for this great blog.
A credit observation:
I have a two friends, one is a QA analyst (income is low six figures, wife works as well, excellent credit) and the other is a Project Manager (again, comparable income, substantial 401K savings, FICO in the 800s). Both guys told me recently that their credit card companies bumped their card rates from low 7% to 14%. They are both baffled by this as they are excellent customers, pay on time, and more importantly they use the cards. Both canceled the cards.
I was suspicous of both stories as a credit card company would NEVER do that to a good customer. Just last week though. my credit card company said my rate would rise from 5.9% to 14%. I have an 825 FICO, two credit cards (combined total of $1200 charges). We always pay 4x the required payment.
Why would they do this this to good customers?
desperate men do desperate deeds
If that is common in the industry…
its going to really put a squeeze on those who carry a balance.
I’ll be curious if this is a pattern…
Got popcorn?
Neil
Because you are a deadbeat to them - you don’t make them any money. Sometime ago someone here had a link to a credit card quiz and there was a question on what a deadbeat was - I got it wrong. I thought a deadbeat was someone who did not pay on time. They say a deadbeat is someone who pays more than the amount asked for or pays it off every month.
Q: Why does a dog lick it’s own balls ?
A: Because it can.
You may be a good customer but they are not making enough money from you. 5.9% is not enough of a margin above short term borrowing rates. Besides it is a poor premium to offset the risk of a previos good customer going postal by maxing out their credit card and leaving them in the lurch.
If they could get you to not balk at 14%, they would be happy. They are hoping not many people notice or that only a small amount of people cancel.
My first thought is if you and your buddies are so well off with fabulous incomes, FICO scores off the chart and 401 balances to die for, why are you carrying any charges on credit cards at all? I mean a $1,200 balance? That should be pocket change. Sounds more like a case of consumption more than equaling income.
Other income streams are failing to generate enough cash flow to keep the internal operations engine humming. Moreover, they need the cash. A lot of large financial institutions need to up their allowance for doubtful accounts reserves.
Over and above all of that, regulators allow them to increase rates whenever they please and the same regulators are mandating that minimum payments increase. As a result, these lenders are rejiggering the numbers to maintain the appearance of growth within this income stream.
Pawpaw, you need to go and watch this Frontline special. It will let you know what a deadbeat is and how the CC industry really works. Be prepared to hurl.
http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/
From Europe:
Spain is definitly toast…
http://www.spanishpropertyinsight.com/spanish-property-market-2006.htm
well, it looks like the Spanish market is cooling and getting more difficult for sellers (and flippers), but with 10% pricegains over the last year the bubble is still expanding. It also shows that much of what happens is local, some regions are still cheap and will probably continue to appreciate for some time (because of equity locusts, speculators from other regions etc.). The same is happening on a transnational scale, e.g. the former foreign buyers at the Spanish Costas are now looking for property in the Balkan countries, Turkey, etc. because prices are still a lot cheaper there. But they are not massively cashing out at this time.
This weekend there is the yearly ‘Second Home Fair’ in the Netherlands, where Dutch speculators compete to buy up every property that is available outside Netherlands (last year everything in Spain and Italy was sold out before the show opened). In a news message the tradeshow mentions that the average age of second home buyers has been strongly DEclining over the last years - while the average age of first home buyers in Netherlands has been strongly INcreasing over the last 10 years. Makes you wonder …
Ben features in the latest thread on Jon Lansner’s OC Register Housing Blog, along with Patrick Killelea and Rich Toscano (who are not total unknowns in CA Housing Blog circles).
http://blogs.ocregister.com/lansner/archives/2007/03/insider_qa_chats.html
A REIC member’s comment left on Lansner’s blog:
‘I have found most of the real estate bubble blogs to be EXTREMELY biased and they seem to take a perverse sense of glee at “predicting” the demise of real estate prices.’
How can you be extremely biased and right at the same time?
BwaHaHaHaHAAA!
These 3 guys saved me from committing financial stupidity. I read about anything I could find to try to help me when I was considering buying, but no one wanted to talk about anything but endless double digit gains forever and ever. Now THAT’S bias.
“…they seem to take a perverse sense of glee at “predicting” the demise of real estate prices.”
From what I have read in the past 2 years on their sites, I think that Patrick, Rich and Ben have a much better track record than I’ve seen in RE industry expert “predictions” elsewhere. The education I’ve received on these blogs has been invaluable. I’ll take fundamentals over fluff, anyday.
Oh the blasphemy in suggesting that prices are going down!
My Sequoia Gigantium friends are calling me…
Taking a walk~
aladinsane,
I’d like to continue the discussion of the decline of engineering talent observed by your wife. In short, I studied engineering and I’m miserable. I think that people who are smarter than me have already figured this out and left the field. You can contact me at JeffreyTheGeek2000 at yahoo dot com.
from NYT–
The mortgage interest deduction alone is worth about $21,000 to a taxpayer in the highest bracket of income with a $1 million mortgage. But for a typical family that bought, say, a $220,000 house with 20 percent down, the break is worth about $1,600.
Before I go…
My father (rip 1924-2002) got to know nazism and the soviets on a first name basis, growing up in Czechoslovakia and “nobody” thought anything would happen and few prepared for what was coming at them,
Except a precious few~
One, whose name escaped me, was a German of some wealth and standing and a bit of a nazi antagonist, back in the “good” nazi days of 33-pre 9/1/39, when one could get away with a bit.
He reasoned that Switzerland would be the neutral country he should relocate to, as the nazis would need banking and in ww1, there were many neutrals, (Holland, All of Scandanavia, Spain, etc.) but none of them had the banking capabilities that the Swiss have always had…
So he took his wealth (his gold) and 100 cases of Chateau Lafite 1929, over the border into the Alps and sat out the war.
Almost like I ripped it out of Atlas Shrugged, my wife and I quietly went away to our mountain redoubt, to hang with cool like minded people that know the score. The only difference being that the cigarettes we smoke, that have the Dollar sign in green printed on them, contain no tobacco~
Be safe…
cool post. Careful though, there are plenty of A.S. (and A.R.) haters on this board.
I long ago stopped worrying what others think of me…
Why does this not strike me as an heroic story…sat around drinking while the vulnerable were hunted down and exterminated? Never occured to this guy that his money or his wine collection could be used to buy the lives of a few unfortunates? It’s that underlying narcicissm, almost infantile in dimension,in Rand’s worldview that I find both repellent and morally empty.
Sorry if this is a repost …
MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.
“You can’t believe how bad it’s going to get before it gets any better,” the prominent U.S. fund manager told Reuters by telephone from New York.
More at …
http://tinyurl.com/34dw4x
If the “Investment Biker” is getting out of emerging markets, that’s good enough for me. I’ve got a bit more selling to do on Monday.
Used to be you’d find a piece of land and build a house that you could afford and your neighbors would show up to help you raise the roof and you didnt know or care about wall street and vice versa.
Now the Wall Street financial wizards have invaded the housing markets and taken over a huge chunk of the business. Plus they’ve teamed up the shadiest, sleaziest group of ex-cons, jailbirds, and street hustlers to sell these suicidal mortgages. So everything has become a financial game and of course Wall Street always wins even if they have to go to Washington and change the rules in the middle of the game.
So projecting this out a couple decades, Wall Street takes over the entire financial industry, Credit Unions and normal Banks are gone. Most people become indentured servants and the wealth of the nation is transferred to the hedge fund managers in NY/Connecticut and their fraudulent mortgage broker hustler associates.
China’s Central Bank Raises Rate
http://www.nytimes.com/2007/03/18/business/18chinabank.html
Yea! Finally. The Yuan should rise in value, dollar should drop. Anyone with stocks in China should see an increase in their dollar value.
Events like this may be why credit card companies are raising their rates… they want to make the same real return as before from debt interest, and in effect the dollar is inflating (buys less), so up go the nominal rates. Question is whether these higher rates can be sustained, or will we actually cut back on our spending?
So both Japan and China have raised rates 0.25% in the last month. Both their currencies should start to creep up against the dollar.
You guys have to see this - Veridian homes is giving away a free garage door opener if you buy one of there boxes before April!!!
http://madisonhousingbubble.blogspot.com/
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