Back To Square One
Readers suggested a topic on central banking. “We have reached the end of a century of recurring panic-ridden financial management at the hands of the central banking oligopoly. I am curious whether any of the big minds in academia have considered whether some kind of perestroika of the current command-and-control central banking cartel could serve to restore competition to the banking sector? I realize oligarchs might not make as much money in the near term, but if we continue along our current trajectory, we run the risk of driving golden-egg laying geese who provide for the wealth of nations to the point of extinction.”
A reply, “Is the economy too chaotic to be centrally planned? Is picking winners and losers by a central planner, in direct opposition to market forces, a recipe for a durable recovery? With financial companies the world over, trying to play a game of poker and trying to obfuscate their operations, can a central planner ever reliably take the right steps to engineer a sustainable recovery?”
From KRNV Reno Nevada. “Last week, Federal Reserve Chairman Ben Bernahnke announced the Fed would not take action to hold interest rates down, and rates are now at their highest point since august of 2011, but the CEO of City National Bank told News 4 today he thinks that’s a positive sign that will help the housing market, and the economy, in the long run. ‘That’s actually a good thing because rates are getting up to more normal levels and that will kind of lace that boil,’ City National Bank CEO Russell Goldsmith says. ‘It’s not a bubble; it’s a boil. We shouldn’t be growing home prices 20 percent a year, even though it’s fun when you own a house.’”
From Forbes. “Krista Pape, a real estate agent in Boise, Idaho, says her method for flipping houses comes down to a formula spelled out on a spreadsheet. On the current home she hopes to sell, she plans to spend no more than $30,000 on repairs and expects a return on investment of about 40% based on her selling price. She just did a flip on a home she bought for $100,000 with $30,000 down and $10,000 in improvements. She sold it for $137,000. After paying back the mortgage for the house, she made $17,000 on the sale, which is a 43% return on her $40,000 investment.”
“She says the real estate market in Boise is going so well that houses are appreciating by 18% a year. What’s changed from the last housing boom is that most flippers are now unable to buy homes with 0% down. Banks will not finance a deal without 25% down, Pape says. She puts down 30% or more for her purchases. Pape plans to stick to her formula, using the earnings from one deal to fund the next. ‘If you’re going to flip in three months, you’re going to get such a good buy on it, you can make a nice profit in a short period of time,’ she says.”
From Mortgage Rates. “NZIER economist Shamubeel Eaqub said more than half the debt accumulation over the past 12 months in New Zealand had occurred in Auckland, and a lot of it had been mortgages taken out with low deposits. He said there were huge amounts of risk building up in Auckland as house prices increase from already elevated levels, on the back of a massive build-up of debt. He said it was not a supply of housing issue, because rents have only increased 2% in Auckland over the past year, compared to prices up 16%. ‘It’s not a physical shortage of housing but a bubble and we’re doing it with lots and lots of debt. It’s a big risk for New Zealand.’”
“Eaqub said there was no room to absorb a shock and the amount of money being borrowed was a mistake. ‘If there’s a recession in Australia tomorrow, we’re screwed.’”
“Macroprudential tools to cool the housing market would likely not work, Eaqub said, and the Reserve Bank would deploy an OCR hike that would hurt the whole economy.”
The Philippine Daily Inquirer. “The boom in the country’s real estate sector continues to be supported by real demand from consumers, the Bangko Sentral ng Pilipinas (BSP) said, playing down concerns of a possible price ‘bubble’ that could harm the economy if left unchecked. The BSP said it saw no need to restrict lending to fund the purchase or construction of new homes, noting that demand for property across all income levels remained robust.”
“BSP Governor Amando M. Tetangco Jr. noted the new trend being reported by home builders of more people wanting to buy homes in the middle of the country’s central business districts to avoid having to go back to their homes in the outskirts of the metropolis. This is further supported by rising income levels among workers in the business process outsourcing (BPO) companies. He said many BPO workers were buying condos on their own and taking four or five other colleagues as roommates to help shoulder amortization costs.”
“‘They buy condos and use them for the week, then they go back to their houses during weekends,’ Tetangco said. ‘Developers have actually calculated how much money people in this segment are willing to spend and use that as a basis for their prices.’”
From What Investment. “The new Bank of England governor encouraged reckless lending in Canada and is now poised to inflict the same damage on the UK, according to a financial adviser. Jonathan Davis, managing director of Jonathan Davis Wealth Management, has argued that Mark Carney kept Canada’s economy only superficially strong by bolstering it with debt. ‘Canadian banks lent just as recklessly into the property bubble as ours did,’ Davis said. The worrying practices he highlighted included the use of credit cards to finance mortgage deposits, and the ability of buyers to self-certify themselves for mortgages worth more than the value of their houses.”
“‘It now looks as if all Carney really did was keep the debt-fuelled boom running longer than anywhere else,’ commented Davis. ‘There are worrying signs that the Canadian economy is coming off the rails and it looks as if he is getting out before it crashes.’”
“For Davis, this is particularly alarming because Carney ‘inherited an economy that was in perfectly decent shape and he engineered a property bubble.’ Now, Davis cautioned, Carney has been appointed to the Bank of England as ‘one more desperate attempt to reflate the debt bubble.’”
From Firstpost. “What would Ludwig von Mises tell us about the recovery forecasts of Bernanke? Essentially the US Fed inflated one of the biggest housing bubbles ever witnessed through a combination of artificially low interest rates, lax lending standards and government guaranteed mortgages. When this bubble burst in 2008, as all bubbles eventually do, instead of allowing the liquidation of the malinvestment made during the bubble period, the US Fed stepped in to prop up the failing institutions as well as the overvalued assets through a combination of near zero interest rates as well as the unprecedented QE programme that created a market for these illiquid assets (they are illiquid because prices are inflated).”
“So what the Fed has managed is to blow some air back into the bubble to prevent a complete collapse of the housing market. And whatever the little ‘official’ improvements in employment, housing stats or consumption numbers, it is entirely on account of this reflated bubble. Or, in other words, QE is the basis of the current US economy and any withdrawal of the QE would take the US right back to 2008.”
“A valid question at this stage would be, if 2008 was the consequence of the original housing bubble, what is going to be the consequence of this current reflation? In the process of reflating, the US Fed has more than quadrupled it’s balance-sheet since 2008 and we have now in place a treasury bubble that is many times the size of the original housing bubble. So when Bernanke says he wants to taper off QE, it is with the intention of not allowing this treasury bubble to grow bigger.”
“The low interest rates and the accompanying QE are the reasons for the moderate levitation of housing prices and, if this is withdrawn, we are back to square one – and that too with US government finances in a rather precarious position this time around. Interest rates would skyrocket and prick the treasury bubble that will take down not only the housing market, but also the US economy along with it.”
“How does all this end? My guess is that the US Fed will keep up the QE till we have a bursting of the treasury bubble, which will almost immediately manifest in a full blown currency crisis. I think Bernanke well recognises the course he has put the US dollar on and does not want to be seen as the chairman who destroyed the US dollar. He wants to at least talk of an exit strategy. But Economics 101 tells us that once the route of easy money has been chosen, there really is no exit without a liquidation of the malinvestment – i.e. unless Bernanke comes clean and says he will withdraw the QE quite independent of the consequences for the US economy, there really cannot be an exit.”
‘I think Bernanke well recognises the course he has put the US dollar on and does not want to be seen as the chairman who destroyed the US dollar’
I don’t know about that. The Federal Reserve has driven the US dollar down 95% or more since it got in power, so I’m not sure they care one way or the other. I do agree with this:
‘Economics 101 tells us that once the route of easy money has been chosen, there really is no exit without a liquidation of the malinvestment’
Elsewhere in the piece he writes:
‘That’s a very big “if”. Especially if one were to go by the track-record of Bernanke’s economic forecasts. A couple of the elephant-in-the-room examples would be his refusal to acknowledge the housing bubble even after it had burst and his assessment of the impact of the housing burst on the US economy. So there’s no particular reason to believe that he is going to be correct this time around.’
‘But can he be right simply on account of the law of averages? Since the direction of future QEs would determine market movements, this merits a more serious consideration than a Bernanke-is-always-wrong response.’
IMO one of the mistakes often made with figuring out central banks is assuming their stated objectives are their real objectives. Oh, they want more jobs, they want a soft landing. I prefer to look at these people as a group with a lot of power. They don’t get elected, so they have to make everybody think they are doing something beneficial to keep the power. They have to have the help of media and politicians to pull this off, and it works pretty well for them. The Fed actually got more power after Greenspan screwed up. A crisis seems to work to their favor, so why worry about creating another one?
But within this viewpoint, some other things make more sense. They don’t care if you or I have a job. They don’t care if there will be a retirement for people or if the US debt is so large it will never be paid back, or house prices crash again. If upon examination, their policies seem dangerously reckless, it’s because they are.
IMO one of the mistakes often made with figuring out central banks is assuming their stated objectives are their real objectives.
i think it’s a mistake to even assume that they would know how to achieve their objectives. most people think that the bankers must ‘know’. they don’t. most bankers these days still believe that keynesianism works.
They don’t get elected, so they have to make everybody think they are doing something beneficial to keep the power.
agreed. they are like witchdoctors.
They have to have the help of media and politicians to pull this off,
and an ignorant public.
A crisis seems to work to their favor, so why worry about creating another one?
very true.
They don’t care if you or I have a job.
even worse, they don’t know what creates jobs.
They don’t care if there will be a retirement for people or if the US debt is so large it will never be paid back, or house prices crash again.
they believe that debt is ‘good’.
If upon examination, their policies seem dangerously reckless, it’s because they are.
as you said, they don’t worry about it.
Somebody gotta feed all those old people. And while a select few have money saved, the overwhelming rest do not. And that isn’t even considering the huge medical costs. The next 20 years is gonna be ugly. All else will pale in comparison as this mushroom cloud grows.
There is no lack of food to feed old folks. The only challenge is to create political support for policies to feed those who were either unable or failed to save for retirement. Our politicians will find a way, as the alternative of starving a huge swath of American citizens who didn’t save is politically unattractive.
It wasn’t a comment on food availability. It was a comment on the money that is going to be required. There’s gonna be plenty of political will for free cheese for the boomers. There always has been. Just not the money.
And by the way, they don’t want just bare sustenance levels of support living in group homes. They want the dream!
“It was a comment on the money that is going to be required.”
Money for what — distribution? I can’t imagine this would be that expensive, but then I don’t claim to be an expert on redistribution programs to meet subsistence needs.
Money required to support tens of millions of people who cannot work and who have no savings. The population of whom is also growing bigger than ever in history.
“The next 20 years is gonna be ugly.”
+1 Many young people are beginning to realize this reality, and they’re not eager to pull on both oars while 47% demand ramming speed.
and they’re not eager to pull on both oars while 47% demand ramming speed.
Beautiful imagery, rms.
47% of those on the boat are coxswain!
When robots are pulling the oars, the job of a rower might end up looking pretty sweet.
“…they are like witchdoctors.”
John Frum and Jesus Christ also come to mind.
Richard Dawkins rocks. I highly recommend listening to the entire Youtube video on cargo cults to anyone with a brain cell in their head.
On another note, I feel reassured after listening to Dawkins’ presentation on cargo cults (parts 1 and 2) that we need not fear that a sudden collapse of the U.S. housing market in the face of rising interest rates will drag down the entire economy. Cargo cult thinking by real estate investors will pretty much guarantee that their losses will be spread out over decades as they hold out hope for a return of record high prices, buffeting the economy against a sudden real-estate driven collapse.
Dawkins is his own cargo cult.
‘But can he be right simply on account of the law of averages? Since the direction of future QEs would determine market movements, this merits a more serious consideration than a Bernanke-is-always-wrong response.’
Clearly this writer has no idea of what the ‘law of averages’ means, as a few wrong calls have little to do with the long-run. But that’s OK, as he is nonetheless highly perceptive and entertaining.
I think it’s a mistake to assume that the Federal Reserve can control the direction of the US economy. As long as Congress has policies in place that force the US worker to directly compete with slave labor in Africa (the new China), then the standard of living in the US will continue to decline. We will continue to be unemployed for one or two years between three-year jobs, and our wages will continue to decline.
The United Nations has actually stated their GOAL to destroy the middle class around the world. According to their website, the middle class is evil because we consume too much, which is bad for the environment. The only way to save the environment is to make sure the entire world is third. A few unbelievably wealthy people can’t consume enough to destroy the environment. Hence, we need to turn almost everyone into a slave, with just enough masters to control the rest. If you don’t believe me, then look it up. Google “United Nations”, and then search for “Agenda 21″ on their website.
Until the people of the free world recognize and resist the tyrannic goals that have been set upon us, then the race to the bottom will continue, with or without the Federal Reserve.
The United Nations has actually stated their GOAL to destroy the middle class around the world.
link?
This somehow got posted under a different comment, but try this link. As stated in the other comment, I don’t open PDFs using the computer I’m on right now, so I can’t verify that this is the same document I read before:
sustainabledevelopment.un.org/content/documents/Agenda21.pdf
Here is the Democrats Against Agenda 21:
http://www.democratsagainstunagenda21.com/
Republicans are also against Agenda 21:
http://www.republicanassemblies.org/rnc-adopts-resolution-exposing-agenda-21/#.UdidhazLeP8
Libertarians are against Agenda 21:
https://www.facebook.com/ pages/ Libertarians-Against-UN-Agenda-21/ 235003399959646
Oh yeah, the Rothschild seed bank thingie. They better not!
These are VERY weak sources. The Democrat(s).com appears to be one disgruntled person named Rosa, and the Republicans are all Chamber of Commerce cheerleaders. I couldn’t find the Libertarian one, which appears to be a Facebook page. Moreover, California has already discontinued its Redevelopment Fund with other states following suit in the wake of the recession and massive corruption. And the plaintiff in the SCOTUS Kelo case has gone bankrupt and defaulted on the eminent domain property at the center of the issue.
I think Agenda 21’s recommendations for consolidating resources and making cities more livable and affordable while reducing greenhouse emissions and redundant services make a lot of sense in the coming century. What’s the big problem here? The suburbs are already dying; it’s the land pirates who build those gawd-awful tract houses who’ll be the big losers here.
One thing I have noticed is the difference between the policy makers tell us to live and the way they live.
“Zero carbon footprint and clothing made out of hemp? You first.”
I’ve got some clothes made out of hemp. It’s a very nice material. It’s kind of like linen, works best in a blend.
“One thing I have noticed is the difference between the policy makers tell us to live and the way they live.”
Al Gore and his massive carbon footprint comes to mind. The hubris and hypocrisy are astounding.
“A crisis seems to work to their favor, so why worry about creating another one?”
That is something I have learned in recent years by watching both CICs and Federal Reserve chairs in action. They don’t hesitate to pursue circumstances which are certain to result in widespread suffering, so long as they come out of the situation with more power than ever before.
To couch this point in religious (”cargo cult”) terms, “The Lord giveth, and the Lord taketh away.”
great post Ben!
The Fed is Keynesianism. By nature it’s all about the continued destruction of the dollar. Many people, including on HBB have awe of the Fed and the fallacious faith that the Fed is helping the economy get on track. Obfuscation is not a solution, but a postponement of the market’s natural correction.
including on HBB have awe of the Fed and the fallacious faith that the Fed is helping the economy get on track.
I’ve been generally assuming that they were doing harm, and preventing the economy from finding its own much-needed equilibrium.
However, the recent jobs report made me start to doubt. I would say that it is often valuable to question your own long-held thinking.
Probably just a moment of temporary insanity on my part, tho…
Greenspan didn’t screw up when he started to return the interest rates to market levels.It was Bernanke that screwed up when he tried to unwind what Greenspan was doing at the end of his term.
Greenspan was clueless.. he dropped the discount rate while housing had raging inflation going on.. then, because he forgot, he had to raise them which fueled housing prices again because of the fear it created in the public of never being able to buy again.. sounds like this must be part of the Fed Chairman’s indoc training because we are seeing it again..
Greenspan knew he screwed up, thats why he started raising rates.
Bernanke is the guy who started to increase interest rates.
You are wrong. I sold my put my house on the market in Oct. 2004
when Greenspan was raising interest rates and I knew that it would have an effect on the market, just like the bubble of Bush ‘41 .Sold
at the top in July 05. New Hampshire.
I also bought again in Oct. 2012. Short sale. Original purchase price $185,000, my price, $110,000. So put that in your pipe and smoke it.
Also no loan Cash Sale,the only way to go. F the banks.
“Cash Sale”
Lil’ Sis has similar plans for unloading one of her three homes on the current tenant. It seems this tenant is somewhat of a scam artist…pulls all kinds of borderline illegal tricks to keep the household afloat. Lil’ Sis suspects shady means may be involved to raise funds for the all-cash purchase. She plans to play the “don’t ask, don’t tell” card at the time of purchase. Hopefully she herself will not fall victim to scam artistry.
Hopefully she herself will not fall victim to scam artistry.
If she leaves the closing table with cash in hand, I don’t see how she would be at risk…
“If she leaves the closing table with cash in hand, I don’t see how she would be at risk…”
I agree. It’s her current anticipation of leaving the closing table with cash in hand which concerns me.
Is the economy too chaotic to be centrally planned?
yes
Is picking winners and losers by a central planner, in direct opposition to market forces, a recipe for a durable recovery?
no
With financial companies the world over, trying to play a game of poker and trying to obfuscate their operations, can a central planner ever reliably take the right steps to engineer a sustainable recovery?
no, not even if there is no obfuscation.
What would Ludwig von Mises tell us about the recovery forecasts of Bernanke?
that ‘the bernank’ believes in myths and fairy tales no matter how high his IQ is.
Interest rates would skyrocket and prick the treasury bubble that will take down not only the housing market, but also the US economy along with it.
home prices would be crushed, but not the economy. borrowing would become much more difficult, but we would soon and adapt. saving would once again become worthwhile. car makers would be scrambling to find ways to lower car prices. much good with the ‘bad’.
‘that will take down not only the housing market, but also the US economy along with it’
Yeah, take down is over used and not very precise. When people say something like that, it implies, we must do anything and everything to keep it from happening. Central bankers and politicians love that, because it gives them a blank check. Remember George Bush saying ‘this suckers going down.’ Next thing you know wall street bankers are putting free billions in their accounts.
I would be more assertive than that writer in pointing out we aren’t going to get past this (I mean us, not the banks) until we get back to normal house prices, stock prices and bond prices, and everything that goes along with that. This QE stuff is making things worse, not better. What do we have to lose? A low paying part time job or a food stamp card while we wrestle with a $300k moprtgage?
agreed. we have much more to gain than to lose. but it will never be told that way with liberals in power. the general public is too ignorant to understand hardly any of this stuff.
Keep that Republican-Democrat rhetoric going. Pay no attention to what’s really going on.
Keep that Republican-Democrat rhetoric going.
where is the word ‘republican’ or ‘democrat’ in my post?
Pay no attention to what’s really going on.
psychobabble. why don’t you tell us what’s ‘really going on’?
It’s hard to stomach the notion that Bernanke is a stupid man but how can he be anything else?
In his zeal to avoid a deflationary spiral or a re-play of the “great depression” (intentionally lower cased), he’s put into place policies that will make the outcome more severe, more violent.
Is not a deflationary spiral the markets reaction to gross misallocation of capital?
‘In his zeal to avoid a deflationary spiral or a re-play of the “great depression” (intentionally lower cased), he’s put into place policies that will make the outcome more severe, more violent.’
Put yourself in his shoes for a moment. Would you prefer to see Armageddon play out before or after you leave office? Better yet, with enough creative reflexivity in your mix of policy interventions, perhaps Armageddon can be indefinitely postponed. A central banker can hope.
“Is not a deflationary spiral the markets reaction to gross misallocation of capital?”
It’s also the pathway to collapse for too-big-to-fail megabanks with highly-leveraged balance sheets.
Bernanke is Megabank, Inc. Why would a banker ever manage himself nto bankruptcy? And people wonder why Bernanke is doing what he is doing? These people have stolen our country. Bernanke and his economic terrorist buddies should be going to the gallows.
Hence my statement Keynesianism is crony capitalism.
“Is not a deflationary spiral the markets reaction to gross misallocation of capital?”
Yes, it absolutely is..
“Bernanke and his economic terrorist buddies should be going to the gallows.”
+1 Totally agree; the videos would go viral.
“Bernanke is Megabank, Inc. Why would a banker ever manage himself nto bankruptcy? And people wonder why Bernanke is doing what he is doing? These people have stolen our country. Bernanke and his economic terrorist buddies should be going to the gallows.
Damning truthful words.
“… with liberals in power.”
And tj’s comment just went in one ear and out the other. When will partisans realize that THEY are enabling the PTB to get away with all this? The divide-and-conquer strategy can only be successful as long as the majority of Americans remain blindly partisan. If anyone on this board thinks that the Republicans or the Democrats are not working directly for the global elite, then think again!
tj’s posts suggest he is either deluded or else a Republican troll, possibly both.
One of my cousin’s husbands is a self-proclaimed libertarian who enjoys needling family members he regards as too liberal. We had an enjoyable conversation last week. At first he accused me of being “a lib” based on his assumption that my politics line up with my father’s. After we chatted for a bit, he changed his tune; I guess he became convinced that my unconventional perspective doesn’t conveniently fit the conventional labels of Liberal, Conservative or Libertarian.
One of my sisters recently blurted out the “Obama is a muslim” meme. I did not even ask her where it came from. She is one of the impressionable types which are essentially foot soldiers for the wingnuts and their talking points. She got all the looks, but…
“She got all the looks, but…”
The older I get, the more forgiving I become of what good looking women have to say.
Liberals pulled up all the shrubbery around my house last night. Their depravity is limitless, and only republicans can save us from the certain doom the liberals have planned for our great nation.
Be afraid! Vote based on that fear! If you don’t vote republican, liberals will kill us all!
After they gay-rape your wimmins.
“When people say something like that, it implies, we must do anything and everything to keep it from happening. Central bankers and politicians love that, because it gives them a blank check.”
Claiming the world will end if a certain preferred course of action is not taken is standard operating procedure for politicians and central bankers alike.
Claiming the world will end if a certain preferred course of action is not taken is standard operating procedure for politicians and central bankers alike.
That’s right. And if we don’t quit drinking their koolaid, end the Fed, and get back on the gold standard, we’re gonna watch our whole country collapse!
Ending the Fed would certainly beat seeing the bastards who bear responsibility for causing the financial crisis getting their arses bailed out.
“When this bubble burst in 2008, as all bubbles eventually do, instead of allowing the liquidation of the malinvestment made during the bubble period, the US Fed stepped in to prop up the failing institutions as well as the overvalued assets through a combination of near zero interest rates as well as the unprecedented QE programme that created a market for these illiquid assets (they are illiquid because prices are inflated).”
‘end the Fed, and get back on the gold standard, we’re gonna watch our whole country collapse’
Hey Mussolini, how about you speak for yourself? I posted this about Smithers but it applies to you even more:
Monty Python - Argument Clinic
http://www.youtube.com/watch?v=hnTmBjk-M0c
but it applies to you even more
No it doesn’t.
Japan IS the model
but it applies to you even more
No it doesn’t.
Yes it does!
No it doesn’t.
You’re a big fat stupidhead!
No he’s not.
Not to worry Ben, we see reports brought to HBB. That QE is ending soon.
Funny that you mention car prices. The price of Japanese cars is, like, super low. I think it’s because of all their QE, which makes our own monetary policy look tight. Having a strong dollar means that we can buy foreign stuff with less money, or charge tariffs to make up the difference.
The dollar is strong compared to the yen, and is likely to continue strengthening if the Fed follows through with QE3 withdrawal. This could play into the hands of those currently buying Japanese automobiles if the dollar-yen exchange rate reverts in favor of a stronger yen over the period between now and when you sell your car.
P.S. We own three Japanese automobiles free-and-clear, which I view as a part of our household investment portfolio. Unlike houses, I don’t expect the value of our cars to go down by more in value than one would expect over the normal course of depreciation.
Unlike houses, I don’t expect the value of our cars to go down by more in value than one would expect over the normal course of depreciation.
Exactly. Even if you paid materials and labor (no profit) for a newly constructed house, it’s going to depreciate at a known rate.
Alternately;
If you have no idea what the value of materials, labor and profit is and you pay a massively inflated price, there is no ceiling to the rate of depreciation.
Another way to make my point is that what gets artificially inflated tends to eventually deflate, especially when the inflation is due to interest rate suppression which is already ending, even before the FOMC announced plans to end it. Even if cars and houses drop in value by comparable amounts, our unleveraged losses on three cars worth a total of less than $50K will be vastly exceeded in both absolute and percentage terms by the investment losses on recent leveraged purchases of homes at prices north of $500K.
We own three Japanese automobiles free-and-clear, which I view as a part of our household investment portfolio.
How can something that depreciates be considered an investment?
“How can something that depreciates be considered an investment?”
Like houses, bonds, gold and violins, Japanese automobiles are long-term stores of value, and hence investments, even though they all depreciate (except for gold!). If you don’t understand this basic point, please consult an undergraduate economics text book.
Wow I agree with you! The cow did jump over the moon!
P.S. As Andrew Tobias points out in his awesome book, “The Only Investment Guide You’ll Ever Need,” even canned tuna qualifies as an investment, provided you store it in a cool, safe location where it will only physically depreciate very gradually.
even though they all depreciate (except for gold!). If you don’t understand this basic point, please consult an undergraduate economics text book.
Oh, now I get it! Maybe you could elucidate some other posters who also have a misunderstanding about what depreciate means.
Houses depreciate? You don’t say!!!
depreciate = the real value (eventually!) declines with the passage of time. However, the rate of depreciation greatly varies by asset. Case in point: Stradivarius violins currently sell for millions of dollars, even though they were manufactured in the 17th and 18th centuries. They will be gone by the time of the next millenium (3000+), but for now, the increase in demand for their unsurpassed craftsmanship continues to eclipse the force of physical depreciation on their value.
houses…are long-term stores of value, and hence investments, even though they all depreciate
The key is understanding what depreciate means, too.
They will be gone by the time of the next millenium (3000+),
Does wood stored under ideal conditions (e.g. good climate control, no UV, etc) really fall apart in 1200yrs? Serious question.
Considering the care they receive I assume they’ll still be around then unless they are destroyed in societal collapse.
“depreciate = the real value (eventually!) declines with the passage of time.”
Indeed….. and always. Houses depreciate ALWAYS.
Houses depreciate ALWAYS.
What do you mean by ‘depreciate’?
How many times must I or Stucco explain this to you?
One more time, please.
Learn to read please.
Where do I read your definition of depreciate?
You can read?
I’m writing this, aren’t I?
Why are you afraid to say what depreciate means?
Alwog,
How many times does it need to be posted? Clearly you can’t read or don’t like the definition.
My Toyota helps get me to work. I still don’t consider that an investment. I think it will continue to run well another ten years. The low maintenance aspect of it allows me the opportunity to invest more than if I had a show off car. I paid $72 for the 7,000 mile service recently. My buddy’s Infiniti G35 service would be easily triple that amount. His tire service is way expensive. All these flashy sensors to make the ride more luxurious is part of the deal. Allows me to buy more VEMAX!
0′12 Harley Davidson xl1200c is the best way to roll!
And its not a “chick” bike either. “Then Came Bronson”,”Eveil Kenieval”,etc.
It’s a chick bike. The fact that you feel the need to say it isn’t, proves it is.
No, just anticipating a stupid comment by someone like yourself. What do you ride? A greenmobile?
‘anticipating a stupid comment by someone like yourself’
Strike two. Three and you’re out.
Hey Dirk….. Do you dress up in drag like the Village People too?
WHYYYYYYEMMMMMMCEEEEAAAAAA!
(vroom vroom)
WHYYYYYYEMMMMMMCEEEEAAAAAA!
“The price of Japanese cars is, like, super low.”
+1 Just wait ’till this summer dead cat bounce ends.
We could use a fresh Honda or Toyota, and I know that Japan’s currency war means lower prices. The $20 question is: “Will our government impose a tariff in order to protect existing auto loans?”
“How does all this end? My guess is that the US Fed will keep up the QE till we have a bursting of the treasury bubble, which will almost immediately manifest in a full blown currency crisis.”
I am missing how burst Treasury and gold bubbles dovetail into a currency crisis. If anybody agrees with the writer that the circle of losers extends beyond investors in Treasurys and gold, please elaborate.
I was tempted to add U.S. residential real estate investors to my list of likely losers when QE3 ends, but I hesitated, as a rising dollar will serve to mitigate nominal investment losses to foreign investors.
will keep up the QE till we have a bursting of the treasury bubble
This one phrase convinced me that the author doesn’t know what they’re talking about.
It is the _continuation_ of QE that makes the Treasury bubble possible; it is the ending of QE that will burst it.
That sentence I quoted makes no sense.
He also obviously missed the fact that the Treasury bubble already popped starting on May 2, 2013. Since then 30-year Treasurys are off by over 15 percent, and still falling as of yesterday’s big interest rate spike.
For perspective, note that a 15 percent decline on the Dow Jones Industrial Average would knock it down from its current level of 15,136 to 0.85*15,136 = 12,865, a drop of 2,270 points which clearly would be reported as financial Armageddon.
How the Lame Stream Media continually misses this story, particularly in light of the far larger size of the bond market than the stock market, perpetually amazes me.
I predict treasuries will rise in price again.. too much money sloshing around that needs to be soaked up by something with a positive return… as soon as housing prices level off and that game is over (this fall or winter), then all that money in RE will need a new home.. stocks won’t rise with flat or falling housing prices.. bonds and treasuries will be the game again.. after all, it is a game played out by our masters..
Nobody understands bond terms, so it’s hard to get the point across.
“…but the CEO of City National Bank told News 4 today he thinks that’s a positive sign that will help the housing market, and the economy, in the long run.”
Are very many bank CEOs really this st00pid?
Yes they are dumb like a fox
After rereading what the guy said, I think his point was not so much that home owners are unlikely to lose a fortune as interest rates rise, as that huge housing price gains fueled by interest rate suppression are not indicative of economic stability.
So I guess I agree with him, even though I found his roundabout way of making his point confusing. (I never was very good at parsing CEO-speak…)
Try this link. I don’t open PDFs using the computer I’m on right now, so I can’t verify that it’s the same thing I read before.
sustainabledevelopment.un.org/content/documents/Agenda21.pdf
“• Is the economy too chaotic to be centrally planned?”
An excess of central planning naturally leads to economic decline.
“• Is picking winners and losers by a central planner, in direct opposition to market forces, a recipe for a durable recovery?”
It’s a perfect recipe for economic chaos.
“• With financial companies the world over, trying to play a game of poker and trying to obfuscate their operations, can a central planner ever reliably take the right steps to engineer a sustainable recovery?”
The best poker players in the international finance community recognize the central bankers’ standing commitment to bail out too-big-to-fail corporations. They exploit this by playing ‘heads-we win, tails-you’re-screwed’ high risk gambles, where they make out like bandits if the bets work out and they are showered with too-big-to-fail bailouts from the public purse in case of losing gambles.
But see, here’s the thing. This paragraph doesn’t take into account all of her expenses. The total transaction cost to buy and sell a house is about 10% of the sale price, assuming the buy price and sell price were not hugely different. If she sold the house for $137,000, then she likely spent about $13,700 on brokerage fees, realtoR fees, and closing costs. So that $17,000 was probably closer to $3,300, which is actually an 8.25% return.
She implies in her statement that the turnover might be three months between houses, but she is not explicit, so I doubt that’s what she’s actually doing. It is much more likely that she bought the house more than a year before she sold it. My theory is backed by the fact that house prices in Boise have appreciated about 20% over the past year, and she sold for about 27% over the buy price, after factoring in repair costs.
When you consider the intense work and high risk involved with quick-flipping, I’m not sure it’s a good idea for a person to be putting so much capital into such activity at this time.
Interestingly, Idaho does not allow full disclosure of real-estate market statistics (why not)? However, based on the information available, it looks to me like Boise is following the same trend as the rest of the nation. Inventory is still down on a y-o-y basis, but is trending sharply up over the past few months. Not the normal cyclical uptrend that happens during summer, but a sharp reversal in the inventory trend. What happens to house prices when inventory increases?
Ummmm, they go up?
No, Big V. House prices do not go up when inventory increases. Try again. I know you are a smart member of the alphabet, so I think you can get it right.
Sideways.
Underwater.
No, Silly V. It is not up or sideways. I will give you one more try, grasshopper. Think hard!
OK, I know the answer now. This was a trick question. We have already covered up and sideways, so the only other possibility is “diagonal”.
Did I win?
No Big V, you did not win! The answer was “down”. House prices go down when inventory goes up. Sorry, but you must work harder on your reasoning skills. Your assignment is to meditate for 48 hours, then read a book.
I hate you! I hate you both!!! How DARE you say that house prices can go down? I want to be your enemy for life. You are just a couple of parade-rainers.
My house is appreciating at 50% per year. I am going to retire in five years with a million bucks, but I will never, ever, EVER sell my house. I can borrow against it and use the money to live like a potentate. The payments against the debt can just be ignored, ’cause I have Obamaloans for life.
You guys are just haters. HATERRRRRSSSSSSS.
Talking to yourself is bad, mmmkay? Some guy in Seattle was doing an awful lot of that until yesterday when he went suicide by cop.
Hmmm? Wha? Whatever do you mean?
“Some guy in Seattle was doing an awful lot of that until yesterday when he went suicide by cop.”
The man shot and killed by Seattle Police Friday morning was forbidden to have firearms by two court orders issued in Seattle and Everett according to Chief Jim Pugel. Seattle Police snipers killed 28-year-old Joel Reuter when he waved a gun out his apartment window and fired a shot in the direction of officers, according to a police spokesman.
“But see, here’s the thing. This paragraph doesn’t take into account all of her expenses.”
Damn those pesky facts.
Still, 8.25% nominal equals 33% annual.
Hello Robin:
I don’t think she flipped the house in only three months. I think it took her over a year.
Sure, on that one house. What about the others? People usually use their best investment as the example. I doubt it represents her overall return.
total transaction cost to buy and sell a house is about 10% of the sale price…brokerage fees, realtoR fees, and closing costs.
I’ve never heard of more than 6% brokerage fees, and I bet most flippers get a better deal than that, it’s not hard. I don’t know of any other realtor fees, and closing costs are on the buyer.
Not that I think this person made much money on the flip.
The brokerage fee goes to the mortgage broker.
There’s a brokerage fee beyond the 6% cut they take? The seller doesn’t pay the mortgage broker.
If you are flipping, then you are a buyer on the first house, and a seller on the second house.
If you flip a house, the seller pays the brokerage fee when you buy it, you pay the brokerage fee when you sell it (ie you pay it once).
Alpha sloth:
The realtoR charges a fee to sell the house. The mortgage broker charges a fee to make the loan.
The realtoR charges a fee to sell the house. The mortgage broker charges a fee to make the loan.
Oh, I gotcha. Indeed, in that case a flipper would be paying a commission when he buys and when he sells. Personally I don’t think you should be house flipping if you have to borrow the money, but I’m old-fashioned that way.
I’m glad we finally got that cleared up.
“She puts down 30% or more for her purchases. Pape plans to stick to her formula, using the earnings from one deal to fund the next. ‘If you’re going to flip in three months, you’re going to get such a good buy on it, you can make a nice profit in a short period of time,’ she says.”
I can’t wait to hear the wails of pain from these greater fools when they lose the shirts off their backs as the great housing bubble liquidity tsunami washes back out to sea.
I couldn’t have said it better myself.
The part which truly amazes me is that MSM writers so far have completely missed the obvious implication of rising mortgage rates for the army of come-lately real estate investing geniuses’ fortunes. This is yet another Wile E. Coyote-off-the-edge-of-the-cliff moment, but we won’t read about it in the press until after the coyote has landed splat on the desert floor below.
Math is hard. Interest rates involve decimals, which most people don’t understand.
Thank you for accepting my point. As an objective and critical thinker, however, the no-income phase before close-of-escrow diminishes the return. Accelerated escrows to other flippers -
Damn pesky flipper reality!
“She says the real estate market in Boise is going so well that houses are appreciating by 18% a year. What’s changed from the last housing boom is that most flippers are now unable to buy homes with 0% down. Banks will not finance a deal without 25% down, Pape says.
It sounds like the specu-vestors got themselves locked into riding a depreciating asset to the bottom.
This quote can’t be read any other way.
“psychobabble”
One of my favorite neologisms…
“…the US Fed will keep up the QE till we have a bursting of the treasury bubble…”
In what world does this prediction make sense, given that (1) the Treasury bubble has already been steadily bursting since May 2, 2013, and (2) the Fed has so far stuck to its guns on plans to withdraw from QE3 bond purchases once employment falls from its current 7.6% level down to 7.0%?
Between 2004 and 2007 also the treasury bubble burst.
“We have reached the end of a century of recurring panic-ridden financial management at the hands of the central banking oligopoly.
Might I point out that we had NO serious recession/depression/panics when the Fed was following Keynesian theory? Just a half-century of shared economic progress.
We say the problem is that Wall Street can take excessive risks, enjoy the profits when they work, and get bailed out when they fail. Well, guess what? That’s a nice summary of monetarism- which is what we’ve been following since we gave up on Keynes (thank you, Ronnie Reagan and Greenspan). In monetarism, the most important thing is to keep the banking system working no matter what. The banksters know that, act accordingly, and here we are.
If logic and experience have any place in economic theory, shouldn’t we go back to some form of Keynesian economics? I mean, it did work, and for a long time. We quit it, and went right back to the bubble/bust economy we had been ‘enjoying’ since the beginning of the industrial revolution, with or without a central bank.
What is non-Keynesian about massive stimulus out of the public purse to prop up a collapsed banking system?
Cheap money for the rich to loan to the rest of us is anything but Keynesian.
Fair enough. It is more like crony capitalism.
Why can’t it be crony Keynesianism?
There is no ideology or economic system that can’t be destroyed by greed and stupidity.
Keynesianism is not about helping the poor. It IS crony capitalism. Surprised at PB for agreeing with drivel.
When Mark Carney was boss of Canada’s banking he did a superlative job. Mr Davis is just trying to get some free publicity for his failing company.
I don’t know why everyone is so afraid of gov debt when interest rates go up because resulting inflation will devalue that debt. Increased revenues should neutralize cash flow requirements.
Although I am not a Keynesian fan gov investments during slow periods do help the economy.
Monetarism - can only work in a linear fashion. At best it is a high end tactical response - I cannot imagine anyone considering it a strategic thrust. Throw off benefits are fleeting and long term they are called “wishful thinking”.
Dumb. Borrowed. Money.
Friday’s “Catastrophic Surge” in Mortgage Rates
If you’re thinking about buying a home, then you’re probably not going to like what I’m about to say. On Friday, while you were busy nursing yourself back to life following the previous night’s celebrations, mortgage rates exploded
http://www.fool.com/investing/general/2013/07/06/fridays-catastrophic-surge-in-mortgage-rates.aspx
Feral pigs are destroying Wall Street!
I smell a great opportunity here for anyone who can figure out how to profitably harvest and market these critters to consumers (e.g. “free range pork”).
They’re smart, dangerous, and hard to hunt. Would be a tough way to make a living.
Perhaps the way to go would be as follows:
1) Create a recreational harvest opportunity to provide access for those who are interested in hunting for feral hogs (aka free labor).
2) Give the hunters who are willing to contribute their kill to the proprietor a discount on the hunting experience.
3) Set up a food processing business to transform the hunters’ kill into marketable “free range pork.”
P.S. Kauai has a feral hog population, and offers hunters permission to target it.
Feral hogs are a problem across the US. It’s pretty much open season/no limit on them in a lot of states. (Not in Manhattan.)
Tom Saler | Historical Perspectives
Federal Reserve’s power has never been greater
July 6, 2013
Centenarians aren’t supposed to be so powerful. Or so chatty.
But the authority and verbosity of the century-old Federal Reserve never has been greater, as evidenced by the “taper tantrum” thrown by financial markets following intimations that the central bank’s third round of bond buying could be wound down from its current pace of $85 billion a month.
Stock and bond prices have been bouncing off the walls since Chairman Ben Bernanke in mid-May seemed anxious to notify investors that the Fed’s massive stimulus program, known by the technical name of quantitative easing, might end sooner than most had been expecting.
Dazed and confused
The subsequent kerfuffle in the equity and fixed-income markets applied some serious hurt to many portfolios, most notably those holding longer-dated Treasury debt and sub-investment grade corporate bonds. All manner of emerging market assets also were hammered.
The yield on 10-year Treasury notes and 30-year fixed-rate mortgages each jumped about 1 percentage point since Bernanke broke the news. Higher long-term borrowing costs threaten the fragile recovery, which certainly wasn’t what policy-makers had in mind.
Their frustration over the market’s skittish reaction was reflected in Dallas Fed President Richard Fisher’s remark that some investors were behaving like “feral hogs” by testing the central bank’s resolve to dampen speculation and avoid inflating asset bubbles.
Market volatility since Bernanke’s initial comments — made during the extemporaneous portion of congressional testimony — was given another boost by seemingly contradictory remarks by other Fed officials. Confusion was further amplified by economic data that hinted at improving labor market conditions, but also at falling inflation and sagging growth.
All of which played out against a backdrop of recession in Europe, a slowdown in emerging markets, a credit squeeze in China and fiscal drag in the United States that is shaving at least 1.5 percentage points off economic growth.
…