Bits Bucket for September 5, 2013
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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Regarding the links Ben posted late yesterday about the big email firms opening web links in email… that is to be expected. Not because they are reading the emails for nefarious purposes (though they may be), but because they will search email contents to filter out spam and phishing attacks.
One of the reasons a lot of people stick with GMail is because of their high quality spam filters. They’re going to request the contents of an occasional link if they see similar links being sent in bulk to a number of their users. They’ll also inspect the content of the web site to see if it contains spam-like terms. How they get around accidentally purchasing products for people or activating services I do not know.
Also, it was the Daily Fail.
It wasn’t just email. It was facebook and twitter too.
I filter posts for spam every day. I’ve eliminated many, many thousands of spam links, and I’ve never open up a single one. You don’t have to open a link to see that it’s spam; it completely obvious by the url and the message around it.
Wordpress also has a plug-in that helps with spam. Once I’ve identified a source as spam, it will learn and eventually delete those for me. Of course, Google has nowhere near the resources I do so they must go through each email, read it and open links to see if it’s spam. And the NSA is probably really concerned that we don’t see random web advertising too.
Golly, Google really dropped the ball. In this morning’s emails I have this:
“Dear purchasing manager ,
As a specialized China manufacturer of PP & PE tarpaulin, we have over 10 years of experience and have developed one of the best manufacturing techniques there is. Our products and service level have been highly appreciated by buyers around the world.
We welcome you to visit our website. If you have any questions please feel free to contact us and we look forward to conducting business with you sincerely.
Know more information about our productions,
please click website: (deleted by me)
Many thanks and kind regards!
Contact Person:jollyJiang”
So this email address was nothing but some numbers followed by .com. Do you suppose that is a tip it’s spam? Or the generalized dear purchasing manager? We all know somebody named jollyJiang, right? And I buy tarps all the time, over the internet.
I’m going to have to mention this to my buddy Mark; he has some friends at Google. (Have you ever noticed his face looks like a cartoon? I kid him about that when we play squash.) How could Google not open up this link and see these people weren’t corresponding with me. They were flogging tarps.
“…Contact Person:jollyJiang”
JollyJiang?!? Hell, that guy owes me money! Ben, forward me his e-mail address! He is one of those filthy-rich Chinese investors who bought several homes from me at 10x the asking price!
They would have to open the link sometimes to determine if it’s a phishing attempt. I’m assuming they’d only do this for bulk messages and not one-off links sent by a friend.
Either way, I’m not trying to defend Google. I hate their policies. I’m just suggesting a possible reason why the activity suggested in this report might happen.
Small wonder Snowden is such a wanted man.
NSA uses supercomputers to crack Web encryption, files show
Michael Winter, USA TODAY 10:44 p.m. EDT September 5, 2013
Snowden documents reveal spy agency campaign to compromise online privacy for national security.
(Photo: Patrick Semansky, AP)
Story Highlights
- Critics says NSA has turned Internet into “surveillance engine”
- NSA it’s the “price of admission for the U.S. to maintain unrestricted access to … cyberspace”
- British agents are focused on the “big four”: Google, Yahoo, Facebook and Microsoft’s Hotmail
U.S. and British intelligence agencies have cracked the encryption designed to provide online privacy and security, documents leaked by former intelligence analyst Edward Snowden show.
In a clandestine, decade-long effort to defeat digital scrambling, the National Security Agency, along with its British counterpart, the Government Communications Headquarters (GCHQ), have used supercomputers to crack encryption codes through “brute force” and have inserted secret “back doors” into software with the help of technology companies, The Guardian,The New York Times and ProPublica reported Thursday.
The NSA has also maintained control over international encryption standards.
As the Times points out, encryption “guards global commerce and banking systems, protects sensitive data like trade secrets and medical records, and automatically secures the e-mails, Web searches, Internet chats and phone calls of Americans and others around the world.”
The American Civil Liberties Union, which has filed a federal suit challenging the government’s collection of telephone communications data, called the NSA’s efforts to defeat encryption “recklessly shortsighted” and said they make the Internet less secure for all.
In a statement, the ACLU said the actions will “further erode not only the United States’ reputation as a global champion of civil liberties and privacy but the economic competitiveness of its largest companies.”
“The encryption technologies that the NSA has exploited to enable its secret dragnet surveillance are the same technologies that protect our most sensitive information, including medical records, financial transactions and commercial secrets,” said Christopher Soghoian, principal technologist of the ACLU’s Speech, Privacy and Technology Project. “Even as the NSA demands more powers to invade our privacy in the name of cybersecurity, it is making the Internet less secure and exposing us to criminal hacking, foreign espionage, and unlawful surveillance.”
…
Is it legal to hack global commerce and banking systems which protect sensitive data like trade secrets and medical records?
They’re the government, therefore what they do is legal.
You got a problem with that, citizen?
David Frost dies: Watch the broadcaster’s best interviews from Richard Nixon to Muhammad Ali
1 Sep 2013 19:48
In an illustrious career he interviewed eight serving British Prime Ministers and seven US Presidents, as well as a virtual who’s who of the great and the good
It was the exclusive that every journalist in the world wanted – the first interview with disgraced former US President Richard Nixon.
In 1974, the politician quit over the Watergate scandal and for two years he hid from view. But when he published his memoirs the time was deemed right for his first interview.
Frost had seen his American chat show axed and was desperate for the exclusive. He used his own money, and the help of other investors, to outbid other TV companies to secure the interview for a hefty $600,000.
But the American networks initially refused to buy it claiming it was chequebook journalism and many scoffed that a lightweight chat show host should not be conducting the most sought after interview in decades.
Yet he secured the deal for four exclusive interviews and he charmed and beguiled his subject into apologising for the affair which tarnished America.
He also extracted a confession when he pressed him about the legality of his actions in the Watergate affair.
“When the president does it, that means that it is not illegal,” Nixon replied.
…
It’s amazing to me how incredibly innocent our nation was back at the time of the Watergate revelations. The shock on learning of Nixon’s knowledge of the burglaries and other dirty tricks was palpable.
Since then we have become collectively old and jaded. The ever-breaking NSA story probably doesn’t even scratch the surface of the average American’s conscious awareness.
Are the journalists who developed this story safe from retaliation?
N.S.A. Foils Much Internet Encryption
By NICOLE PERLROTH, JEFF LARSON and SCOTT SHANE
Published: September 5, 2013 640 Comments
The National Security Agency is winning its long-running secret war on encryption, using supercomputers, technical trickery, court orders and behind-the-scenes persuasion to undermine the major tools protecting the privacy of everyday communications in the Internet age, according to newly disclosed documents.
This undated photo released by the United States government shows the National Security Agency campus in Fort Meade, Md.
This article has been reported in partnership among The New York Times, The Guardian and ProPublica based on documents obtained by The Guardian. For The Guardian: James Ball, Julian Borger, Glenn Greenwald. For The New York Times: Nicole Perlroth, Scott Shane. For ProPublica: Jeff Larson.
The agency has circumvented or cracked much of the encryption, or digital scrambling, that guards global commerce and banking systems, protects sensitive data like trade secrets and medical records, and automatically secures the e-mails, Web searches, Internet chats and phone calls of Americans and others around the world, the documents show.
Many users assume — or have been assured by Internet companies — that their data is safe from prying eyes, including those of the government, and the N.S.A. wants to keep it that way. The agency treats its recent successes in deciphering protected information as among its most closely guarded secrets, restricted to those cleared for a highly classified program code-named Bullrun, according to the documents, provided by Edward J. Snowden, the former N.S.A. contractor.
Beginning in 2000, as encryption tools were gradually blanketing the Web, the N.S.A. invested billions of dollars in a clandestine campaign to preserve its ability to eavesdrop. Having lost a public battle in the 1990s to insert its own “back door” in all encryption, it set out to accomplish the same goal by stealth.
The agency, according to the documents and interviews with industry officials, deployed custom-built, superfast computers to break codes, and began collaborating with technology companies in the United States and abroad to build entry points into their products. The documents do not identify which companies have participated.
The N.S.A. hacked into target computers to snare messages before they were encrypted. In some cases, companies say they were coerced by the government into handing over their master encryption keys or building in a back door. And the agency used its influence as the world’s most experienced code maker to covertly introduce weaknesses into the encryption standards followed by hardware and software developers around the world.
“For the past decade, N.S.A. has led an aggressive, multipronged effort to break widely used Internet encryption technologies,” said a 2010 memo describing a briefing about N.S.A. accomplishments for employees of its British counterpart, Government Communications Headquarters, or GCHQ. “Cryptanalytic capabilities are now coming online. Vast amounts of encrypted Internet data which have up till now been discarded are now exploitable.”
When the British analysts, who often work side by side with N.S.A. officers, were first told about the program, another memo said, “those not already briefed were gobsmacked!”
…
Google said that they read your email to better identify what ads to show you.
It’s about revenue, not better SPAM interception.
Google has never said that they click the links in your e-mail, or that humans read your e-mail. They match up the unread contents of your e-mail with keywords. A keyword is not a sentence or a paragraph or a link.
Some people are pizzed by the keyword thing, so they prefer to us a pay-for-service provider. A lot more people may be pizzed by the link-opening thing. I have to admit that I’m too cheap to pay for e-mail, but that might change. At least I don’t use Facebook or Twitter.
I think the problem with the law suit is the claim that Google “opens” the email. In email “Open” is just a flag showing they’ve shown it to you.
In reality, there is no sealed container that the information is in. It’s more like a postcard, and it is NOT illegal to read a postcard as it moves through the postal system.
You do not have a right to privacy on plain sight information, and email (as well as cell phone pings) are plain sight.
I can’t see the e-mails that are transmitted to you. I would need specialized equipment and knowledge in order to spy on that information. Same with Google. An employee who works there is not automatically bombarded with images of other peoples’ messages. They would have to purposely peek. It is not in plain sight.
If you open my mailbox and read a post card addressed to me, then you are breaking the law.
I’d pay for an e-mail account if it meant it was truly private. I have my doubts if that is even possible. Big brother is everywhere.
I have my own domain and mail server. It’s kind of private, but that doesn’t do me any good if the routers at the ISPs or on the backbones are sniffing everything I send and receive.
“sniffing everything”
Reminds me of the dog that somehow made its way into the church basement where a small orchestra I play with rehearsed yesterday evening. It actually belongs to the concertmaster. The dog kept nosing up to me and sniffing me, my violin case, my water bottle, etc. I asked the concertmaster whether her dog works for the NSA.
I don’t think that’s how they build their spam filters. How would their computer or employee know that a link is definitely spam anyway, as opposed to a legitimate (but spammy-looking) message? There is a link to “Report Spam” in G-mail’s console. All the e-mail providers have that.
“Do you want to lose a lifetime of earnings and wages? Just buy a house at current inflated asking prices and the losses will be guaranteed.”
And borrowing for it for 30 years doubles the losses.
leverage will make u a wealthy man.
Or a bankrupt one.
You gotta do it Donald Trump style: set up a corporation so that if there is profit, you reap it, but if there are losses then the corporation files for BK while you end up smelling like a rose. And don’t forget to get other people to fund the company, that way it’s their money that goes down the drain, not yours.
Privatize profits, socialize losses.
Good luck convincing a lender to give money to that corporation without a warm body standing behind the loan (personal guarantee), or a LOT of cash invested in whatever asset you want to borrow against.
They do it all the time, though you might need some sort of bond to back it up. And the word corporation shouldn’t be singular. If your lawyers know what they are doing, every single building/project/whatever has its own legal entity.
Yes, one LLC (or LP) for each real estate asset.
However, for real estate borrowing with such a single-purpose LLC, you generally need to either have lots of equity in the deal, or a personal guarantee. I suppose a “bond to back it up” would serve as that equity, but I’ve never seen such a thing.
A lever can deliver a smart thwack if it gets away from you.
Leverage a huge pile of OPM will make you a wealthy man if you can extract some hefty fees before the pile is yanked away from your grasp.
The longer you get to hold onto this pile of OPM the more fees you get to extract.
To be successful you will need to hone your lying skills: You will need to lie to suck them in and then you will need to lie to keep them sucked in.
No dollar should be allowed to escape.
What’s nifty about this is the same group of people that will fall for your lies that will suck them in is the same group of people that will fall for your lies that will keep them sucked in, hence you only have to spend most of your energy in capturing the group; After capturing the group (and capturing their money) then the group belongs to you.
Once the group is sucked in and sold it is difficult for an outsider (somebody outside the sucked-in group) to un-sell them. The sucked in are not only committed financially they are also commited psychologically and because of this they will not allow themselves to listen to anyone who bad-mouths the investment concept of which they committed so much of their money.
And that’s why Ponzi schemes work so well. That’s also why the press covers things up about those that they have elevated when their “idol’s” behavior becomes Center focus.
I think this goes far beyond just OPM investments.
The current political parties have done a very good job of getting buy-in from large chunks of the population. People like my dad and father-in-law are so “invested” psychologically in the Republican dogma, that to question the propaganda is like risking death (of their personality that is so intertwined with the personality).
Because people can’t be wrong, no matter what. Even when they’re doing the most wrong thing ever, they have to justify it as being right somehow. And they will go to the most incredible lengths to do so. Hence, the definition of insanity as doing the same thing over and over expecting different results.
And that’s pretty much why we’ve got the situation with Syria. Having invented the bogus intelligence, it’s got to be defended at ANY cost. Thus, the insanity.
“Even when they’re doing the most wrong thing ever, they have to justify it as being right somehow. ”
… generally by pointing out how somebody else is doing something even MORE wrong.
Ignorance is oblivion.
Yet you went ahead and got suckered anyways.
What you call lying, others call merit.
Or salesmanship.
Yesterday I was having a conversation with a lady that works in our support team. She said that she’d suggested to customers that they NOT upgrade to the new version of our software.
Her boss jumped on her for that. She said “It’s my job to keep our customers happy, and the new version of the software will make them miserable.” The boss did not accept that answer very well.
I told her that she is wrong about what her job is. Her job is to generate revenue for the company. Sure, if you can do that while keeping the customer happy, great. If you have to make the customer unhappy to generate revenue, then that is okay too.
She says, but what about long-term revenue. An unhappy customer is not going to be a repeat customer.
I say that is wrong. Once they’ve spent millions of dollars on our software, we have them hooked. No one in the company would be willing to say that the purchase was a mistake, because it would be career ending. Instead, they’ll just give us more money to fix it.
Darrell: You are definitely wrong about that. A company can’t survive long without repeat business. How long have you been working?
It’s surprising how often you can get just enough repeat business to survive even as generation after generation of upper management enrich themselves at the expense of the customers, the employees, and the stockholders. At least in tech anyway, which I believe is what Darrell is referring to.
What I’d like to know is where do those generations of upper management come from? There’s this endless train of them, but they never come up through the ranks it seems like. Is there a factory under the quad at Harvard or something?
Yes, there is a factory. I’ve noticed that too. This factory produces executives with Corvettes attached to their rear ends, and no one can figure out how the H-E-double-hockeysticks they managed to get so much money. They certainly didn’t get it through earned profits, since the financials of the companies they “run” are never very good.
I work in “tech”, but it’s actually applied science. When you have fresh, relevant patents, you can get away with horrid quality. However, once your patents begin to age, competition sure is a bizniatch.
“…Yes, there is a factory. I’ve noticed that too. This factory produces executives with Corvettes attached to their rear ends, and no one can figure out how the H-E-double-hockeysticks they managed to get so much money. They certainly didn’t get it through earned profits, since the financials of the companies they “run” are never very good.”
I’ll support that 110%. Wharton has turned out some of the most phenomenal pinheads that I have ever seen. Obtuse, ineffective and horrible leadership skills. It is sad, really.
But when it’s Uncle Daddy’s company, all you really need is the diploma and the last name to get it past the BOD.
I can’t believe how few people get this, some smart ones too.
Can I be a wealthy cat instead? Cats have it better than men.
” Dogs have Masters. Cats have Staff”
- Someone Much Smarter Than Me
People own dogs.
Cats own people.
welfare for me, but not for thee:
’surrounded by corn and soybean farms — including one owned by the local republican congressman, representative stephen fincher — dyersburg, about 75 miles north of memphis, provides an eye-opening view into washington’s food stamp debate. mr. fincher, who was elected in 2010 on a tea party wave and collected nearly $3.5 million in farm subsidies from the government from 1999 to 2012, recently voted for a farm bill that omitted food stamps.
‘the role of citizens, of christianity, of humanity, is to take care of each other, not for washington to steal from those in the country and give to others in the country,’ mr. fincher, whose office did not respond to interview requests, said after his vote in may. in response to a democrat who invoked the bible during the food stamp debate in congress, mr. fincher cited his own biblical phrase. ‘the one who is unwilling to work shall not eat,’ he said.
http://mobile.nytimes.com/2013/09/05/us/as-debate-reopens-food-stamp-recipients-continue-to-squeeze.html
I’m sure that Mr. Fincher doesn’t consider the millions he received in taxpayer funded subsidies as “welfare”. No siree, that money was “earned”
mr. money mustache is a pimp:
‘if you’re looking for love, show your thrifty side. it will reassure that potential mate that you’re responsible, sensible and healthy. plus, they’ll find it sexy, new research suggests.
‘if you show people the exact same picture of a person who you identify as a saver and as a spender, the saver is seen as more sexually attractive and hot,’ says jenny olson, a ph.d. candidate at the ross school of business at the university of michigan.
‘there is no gender difference. males and females find savers more attractive,’ olson says. why is that? because saving involves a lot of self control, the researchers reported.
http://www.marketwatch.com/story/pinching-pennies-makes-you-look-hot-2013-09-04?link=mw_story_kiosk
I suspect this works better in theory than in practice.
Tell a woman you’re a saver, maybe it sounds sexy.
But show up in your 1995 Geo, take her to McDonalds for dinner, then the $2 Super Saver cinema to see the movie that was all the rage 4 months ago, sneaking in soda and popcorn in your satchel. Tell her that if you ever get engaged, it will be a cubic ring and a back-yard ceremony..
… suddenly a little less sexy.
Yeah, you’re right. It’s better to live like these @ssclowns:
http://www.urbandictionary.com/define.php?term=30k%20millionaire
YOLO!
Must it always be about extremes?
or you could borrow your friends convertible (offer to fill it as payment), see a free concert in the park, take her back to your place for a home cooked gourmet meal and sit down and watch a movie rented from redbox.
A very romantic night for only a few dollars.
You can do that occasionally, but if that is what every date is like, you will be labelled as a cheapskate.
A lumpy mattress stuffed with stacks of cash drives the ladies WILD!
Only if they believe that you will let them spend some of it.
Spend less….. ALOT less. Save more…. ALOT more.
Trust us on this…… You’re going to need it.
“Spend less….. ALOT less. Save more…. ALOT more.”
Great suggestion, other than the fact that it is mathematically impossible for everyone to spend less than they earn, accumulating money.
Your income is someone else’s spending. Everyone cuts spending, your income goes away, making it impossible to spend less than you earn.
For someone to be accumulating money, someone else has to be borrowing that money into existence.
If you are spending less than you earn, accumulating money, then you should be thankful for, not impudent toward, those that spend more than they earn by borrowing into existence, the money that you are accumulating.
So, Debt Donkeys are actually carousel horses?
“A lumpy mattress stuffed with stacks of cash drives the ladies WILD!”
IF, and ONLY IF, you extract that money from that mattress to spend on them.
It’s impossible to spend less that you earn huh Darryl?
tick.tock.tick.tock.
Great suggestion, other than the fact that it is mathematically impossible for everyone to spend less than they earn, accumulating money.
————-
No it is not, as long as you introduce a time variable.
I’m sure I could come up with some reasons why the elderly should continue stocking up on $$ indefinitely, but adding a time variable makes a lot more rational sense than silly oversimplifications.
“It’s impossible to spend less that you earn huh Darryl?
tick.tock.tick.tock.”
Again, you show your intentional ignorance. Why do you work so hard at having no credibility?
It is easy for ONE entity to spend less than they earn. It is impossible for EVERYONE to do it.
Answer the question Darryl. Don’t run from it.
Where does the money one earns come from?
Someone else spending it.
Pay attention and answer the question.
It’s impossible to spend less that you earn?
Oops, I got distracted. What was the question again?
Wake up Debt Donkey.
Debt Donkeys should only marry other debt donkeys.
If they marry a house horse, they can have some baby mortgage mules.
they can have some baby mortgage mules.
After the interview, Olson was heard nagging her boyfriend in buying that 25,000 diamond enagagement ring.
Jenny Olsen has obviously never lived in Los Angeles.
…or heard of Seeking Arrangement.
You know I agree with you on MMM’s overall message. But doesn’t he have 2 kids? 2 extra mouths to feed, 2 extra people to educate, 2 extra people to clothe, etc… much more expensive than having a _reasonably_ nice car. For some people it actually is more fulfilling to have a new(ish) car and go out to bars moreso than getting married, having a kid, and living in the suburbs like MMM. And if you want to get laid by desirable females in a city, actually spending some money here and there will facilitate it. The point is, at that point in life, not everyone even WANTS to settle down and many would rather enjoy their 20s and 30s. It doesn’t mean you have to blow every penny, of course.
Moreover, MMM’s calculations make other assumptions I don’t personally agree with. One such assumption is that the primary purpose of a car is to eat a lot of miles, he assumes like 12-15k miles driven per year. LOL, wut? If you’re driving that much in the first place, maybe you should examine that _before_ you advocate buying an 8 yr old car to “save money”. So while I like his overall lifestyle (and deemphasis on having lots of monthly expenses and long term debt) I can’t treat his word as Gospel.
At least not the same way as I’d treat “buy later for 65% off” as Gospel.
MMM only has one sprog (as of now). And I don’t agree with him 100%, but he is a refreshingly profane alternative to Dave Ramsey and other personal finance “gurus”.
Ramsey plays up the religious angles too much, IMO. What else do you dislike about him? I think that some of his ideas are a valuable “shock to the system” that can wake up some deluded debtors. For example, making envelopes of money to plan for expected purchases. Obviously not feasible for all life’s expenses, but just the physical act of setting cash money aside can be a “wake up call”.
i like dave ramsey, i just don’t like the commodification of his message. was just looking at his online ’store’ of assorted media he is selling.
mr. money mustache isn’t ’selling’ anything, at least not yet.
if you need to read ‘real simple’ magazine (owned by time warner, btw) to simplify your life or save money, you’re missing the point…
Ramsey is a housing believer. I don’t let that detract from his fundamental message because it is solid. Just beware when he discusses housing.
Real Simple is the biggest joke of a magazine.
Nothing simple at all except its message : buy, buy, buy.
Are houses not over priced by 250%?
Hint- you know the answer. And you also know a 65% adjustment puts prices at the long term trend.
I bought a condo for $48K ($48 a sqft). Are you saying the condo’s actual fundamental value is $19,200?
At $48K, cost of owning is less than renting. At $19K, cost of owning would be well under half the cost of renting.
Oh, right… I forgot. According to you, EVERY house in every segment of every market is exactly the same. NO market has already corrected to trend.
Because, for some reason, you like being ridiculously, obviously, laughably, incorrect.
Why do you want to have NO credibility in anything you say?
You paid a massively inflated price for a run down 20 year old condo in the desert worth $20k at best.
Start being truthful and we’ll treat you like an adult.
Get it?
I’m reminded of a segment on local radio that I heard on the commute to work.
The station had this “People’s Court” type thing where listener would send in a conflict they were having with a friend or family member. If selected, the audience members would call in and argue two sides of the issue, then the other listeners would txt in votes. Two parties doing the arguing would agree to abide by the vote of the audience.
The issue on this particular day was a lady complaining that her brother had set up a date with one of her friends. He was such a cheapskate that he would embarrass himself (and her by association) if he took the friend on one of his typical first dates.
The sister claimed that when he went on dates, he’d use 2-for-1 coupons at cheap restaurants or take them on a picnic in a public park, and basically, set a budget of like $20 for the date. Once, the lady wanted to do the picnic up in the mountains to avoid the 100+ degree hear, and he asked her to split the cost of gas for the drive.
The brother argued that he should be himself on a date. What is the point of having someone like you on a date, then find out the real you later and dump you.
The sister argued that people tend to put their best foot forward on a first date, so the women are likely to assume his normal evening is FAR less extravagant than even this meager entertainment budget of $20.
Long story short, the guy had been on dozens of first dates but no second dates in the previous couple years. He was fine with that as he was looking for that one special lady that actually found frugality very attractive.
The vote of the audience was pretty much split 50-50. I don’t even recall which side technically “won”. The guys agreed with the brother, that you should be yourself on a date. The women argued that if he acted that way on a date with them, they’d never go out with him on a second date.
I think this guy should by “BY” himslef on a first date, since he doesn’t understand the concept.
Why is it surprising that loans made to super-wealthy clients who don’t actually need to borrow money to buy a home but only do so to capture the tax benefit of the mortgage interest deduction would include a very low default risk premium?
MARKETS
Updated September 4, 2013, 7:43 p.m. ET
‘Jumbo’ Mortgage Rates Fall Below Traditional Ones
A Flip That Hasn’t Happened Before, Say Lending Executives
By NICK TIMIRAOS
CONNECT
Interest rates on mortgages for pricey homes have dropped below those on smaller mortgages, an event that lending executives say has never happened before.
Borrowing rates for so-called jumbo mortgages, which are too big for government backing, historically have been set higher than rates on what are known as conforming loans, which are backed by Fannie Mae, (FNMA +1.60%) Freddie Mac (FMCC +1.77%) or government agencies.
But in the past two weeks, the relationship has flipped, a combination of interest-rate volatility, government policy and banks flush with cash that are enjoying lower funding costs, making jumbo mortgages an attractive investment for them.
The average 30-year fixed-rate conforming mortgage was at 4.73% last week, according the Mortgage Bankers Association, compared with 4.71% for the average jumbo 30-year fixed-rate mortgage.
Executives say the inversion in the so-called spread, or difference, between jumbo and conforming loans is unprecedented. “In my 30-year career, I’ve never seen nonconforming loans priced below conforming loans,” said Brad Blackwell, executive vice president of Wells Fargo (WFC +0.27%) Home Mortgage, the nation’s largest mortgage company.
Jumbo mortgages are those that exceed the $417,000 limit for loans eligible for backing by mortgage companies Fannie Mae and Freddie Mac, though the limits rise to as high as $625,500 in more-expensive markets such as Los Angeles, New York and Washington.
Before the housing bubble burst six years ago, jumbo mortgages over the past two decades typically had rates at least 0.25 percentage point above conforming loans, but that widened sharply after 2007, reaching a peak of 1.8 percentage points in 2008, according to HSH.com, a financial publisher. The rate difference between the two stood at 0.5 percentage point as recently as last November.
For adjustable-rate mortgages, the disparity between jumbo and conforming loans is even starker. Rates on certain “hybrid” adjustable-rate jumbo mortgages that have a fixed rate for five or seven years are as low as 0.75 percentage point below conforming loans.
“I’ve had situations where I’ve told clients, ‘You don’t need to borrow within the [conforming] limit. I can get you a lower rate if you borrow a little more,’ ” said Rolan Shnayder, director of new-development lending at H.O.M.E. Mortgage Bankers in New York.
Conforming loans have become more expensive because federal officials, in a bid to reduce the outsize footprint of Fannie and Freddie, have raised the fees those companies charge to lenders, which translates into higher mortgage rates.
Meanwhile, interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors brace for a slowdown in the Federal Reserve’s bond-buying program, which has included those mortgage bonds. That has boosted rates on conforming loans.
Jumbo mortgages, meanwhile, are increasingly kept on banks’ balance sheets, which means prices aren’t usually set by bond markets. “Banks have more deposits than loans today, so the desire to put that money to work, as well as the fact that it’s at a very low cost, allows us to make [jumbo] loans at a very good interest rate,” said Mr. Blackwell.
Mark Cunningham, 39 years old, who works as a program manager for an aerospace company, received a fixed rate of around 4.6% for a 30-year jumbo mortgage in late July through Navy Federal Credit Union for a newly built four-bedroom home in Ashburn, Va. The loan required just a 10% down payment.
“We were very happy. We still haven’t seen anything that competes with what we’ve got,” said Mr. Cunningham.
Navy Federal, which said it is currently offering jumbo loans at the same rate as conforming loans, said jumbos account for around 3% of its mortgages.
Banks have long courted jumbo borrowers because they tend to have deeper pockets. Banks use their relationship with better-off clients to sell them other products, such as brokerage accounts and credit cards.
“These are superpremium borrowers. They represent great cross-sell opportunities,” said Keith Gumbinger, vice president of HSH.com.
But recent interest-rate turmoil is making it easier for large banks such as Wells Fargo & Co. and J.P. Morgan Chase & Co. to woo those borrowers. “We’re in a world where their cost of funds is still very, very low,” said Bob Walters, chief economist at Quicken Loans.
…
Bonds look like a worse investment and stocks a better one by the day!
Sept. 5, 2013, 9:16 a.m. EDT
10-year Treasury yields creep closer to 3%
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices cut back losses Thursday after mixed jobs data, but yields stayed higher on the day and the 10-year note remained poised to hit fresh two-year highs.
An ADP jobs report showed private-sector employment growth slowed to 176,000 in August, below consensus expectations of 185,000, and lower than July’s revised gain of 198,000. Weekly jobless claims, however, dropped to their lowest level since October 2007 last week, with the number of people applying for unemployment benefits down by 9,000 from the prior week at 323,000.
After that news, the 10-year Treasury note (10_YEAR +1.45%) yield, which moves inversely to price, traded 2 basis points higher on the day at 2.920%, on track to close at its highest level since July of 2011. The note yield climbed as high as 2.960% in morning trade.
The 30-year bond (30_YEAR +0.69%) yield rose 1.5 basis points to 3.815% and the 5-year note (5_YEAR +2.80%) yield rose 3 basis points to 1.778%.
The labor data serve as a warm-up of sorts for Friday’s jobs report, in which economists polled by MarketWatch expect nonfarm payroll gains of 170,000. That may play into the Federal Reserve’s decision on whether it will begin curbing its $85 billion in monthly bond buys.
Indications of an end to the U.S. central bank’s easy-money policies pushed yields sharply higher since the beginning of May. While the market largely expects the Fed to announce initial actions to begin winding down its stimulus this month, officials have said the decision hinges upon improvement in economic data.
…
Not just Bonds utilities and REITS will do badly in a rising interest rate world
tech is on fire have you noticed ?
APA has insider buying but I’n out probably way too early..
Income Investing
News, analysis and commentary on income-generating investments.
September 3, 2013, 11:37 A.M. ET
Bond Woes Could Continue Through The Fall
By Michael Aneiro
Before Tuesday’s latest bond rout had even started, Wall Street Journal led off its Money & Investing section today with a story about how Treasury yields were poised to keep marching higher this fall, which is pretty much exactly how they spent their summer and late spring. Carolyn Cui reports that bond-fund losses and and investor withdrawals could continue:
Still, the story points out that the worst may already be over and the pace of further losses should slow from what’s happened in recent months:
…
Will the 10-year T-bond yield cross the 3% threshold tomorrow?
CREDIT MARKETS
Updated September 5, 2013, 4:45 p.m. ET
Treasury Yields Climb in U.S., Europe
Ten-Year Note Nears 3% After Positive Economic Data
By MIN ZENG
Benchmark bond yields in three of the world’s major government bond markets all hit fresh multiyear highs, continuing their rise in recent months amid fresh signs of U.S. economic expansion.
The benchmark 10-year Treasury note’s yield touched 2.994%, poised to cross the 3% mark for the first time since July 2011. The 10-year German government bond yield rose above 2% for the first time since March 2012, and the 10-year U.K. government bond yield exceeded 3% for the first time since July 2011.
Thursday’s selloff that sent bond prices lower was driven mainly by a key gauge of the U.S. service sector that rose to the highest level since 2008.
Separately, U.S. businesses added jobs at a modest pace in August, according to a tally of private-sector hiring released Thursday, and the number of U.S. workers applying for jobless benefits fell last week, edging down to levels last consistently seen before the recession.
The releases boosted investor optimism that the pace of the U.S. economic growth is gradually gathering speed, potentially clearing the way for the Federal Reserve to start cutting back its monthly bond purchases as soon as this month.
Friday’s nonfarm jobs report is viewed in the market as an important driver of whether the Fed will announce at its policy meeting this month that it is reducing the pace of bond purchases, currently $85 billion monthly. Fed Chairman Ben Bernanke has signaled the central bank could start cutting back this year if the economy continues to strengthen.
The rise in bond yields is “like a warm knife through a stick of butter,” said Tom di Galoma, head of fixed income rates sales in New York at ED & F Man Capital Markets. “There are just too many sellers out there.”
In late-afternoon trade Thursday, the benchmark 10-year Treasury note fell 25/32 in price, yielding 2.992%, according to Tradeweb. The yield has soared from this year’s low of 1.61%, near a record low, on May 1.
In Germany, the 10-year government bond’s yield rose to 2.045% while the yield on 10-year U.K. government debt climbed to 3.011%.
The three yields are benchmarks for long-term consumer and business borrowings in the U.S. and Europe. The 10-year Treasury yield also affects the interest rate foreign government and companies pay to sell dollar-denominated bonds.
Recent data have suggested the euro zone is heading out of a recession, the U.K. economy has been improving and growth in China has bounced after a soft patch earlier this year.
Economists now expect Friday’s jobs data to show the U.S. economy added 175,000 jobs in August, up from 162,000 in July. The unemployment rate is forecast to stay unchanged at 7.4%, the lowest since 2008.
Bond yields could fall if the jobs data fall short of expectations, traders said, by possibly delaying the timeline for any Fed pullback. Conversely, a strong jobs report could send the 10-year yield higher, and a break of 3% would set the sight at 3.2% in coming weeks, they said.
Higher yields make bonds more attractive because interest payments will be better compared to owning a bond from ultra-low yields a year ago. Yet traders said buyers have been more cautious this time because they are worried that buying now could expose themselves to capital losses if yields keep rising.
“One can argue that yields are getting ahead of themselves, but with the data backdrop and bond-fund redemption, it’s tough to find the silver lining,” said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York.
Some traders argue bond yields need to rise further to prepare for the days when the Fed is no longer a buyer. Some analysts and traders argue a more normal level for the 10-year Treasury yield would be between 3.5% and 4%.
Despite the rise, bond yields remain historically low. The yield hit a post-crisis peak of 4.017% in April 2010. It traded above 5.5% back in 2007.
…
If you take on mortgage debt at current massively inflated housing prices, you’ll enslave yourself for the rest of your life.
“Debt is bondage.”~ Suze Orman, May 11, 2013
deals for dumb debt donkeys:
‘builders including lennar and pulte group inc that typically throw in concessions such as kitchen upgrades are also leaning on their financing units to boost orders as rising mortgage rates sap customer buying power. those incentives may become more widespread as housing companies seek to avoid cutting prices after the biggest sales drop in three years and a 27 percent stock decline from a may peak.
the median price of a new single-family home in the u.s. fell in the last three months to $257,200 after hitting an all-time high of $279,300 in april. that peak was 6.4 percent higher than the former record in 2007 and is up from $204,200 during the depths of the housing crisis in october 2010.’
http://www.bloomberg.com/news/2013-09-05/homebuilders-using-financing-perks-to-defy-price-cuts.html
In other words more shenanigans will be accepted to hold up the bottom line. Happens every time there is a downturn with any company that also offers financing.
This time it’s different though because they now know there will be no penalty.
Abolish the SEC, save the money.
Perhaps three is a charm for Greece?
Sept. 5, 2013, 5:33 a.m. EDT
Greece headed for third bailout: Eurogroup chief
By MarketWatch
BRUSSELS–Talks on a new aid package for Greece from the euro zone will be finalized in November, but it is too early to discuss how big the package will be or what strings will be attached to it, a top euro-zone official said Thursday.
Jeroen Dijsselbloem, the Dutch finance minister who also chairs the group of euro-zone finance ministers, said the discussion on Greece’s additional financing needs would start in the coming weeks and be finalized in November. The ministers have a meeting planned for Nov. 11.
He also said talks about cutting Greece’s too-high debt would kick off only in April 2014, when Eurostat, the European Union statistical service, announces the final debt figures for 2013. Easing Greece’s debt load through some form of debt forgiveness on the part of euro-zone governments has been a constant demand of the International Monetary Fund, which co-finances and oversees the country’s bailout.
Mr. Dijsselbloem, who was speaking at the European Parliament in Brussels, said it was “clear that despite recent progress” in Greece, the country wouldn’t be able to fully finance itself from borrowing in the capital markets at the end of its bailout, in late 2014. Based on existing plans, Greece would stop receiving aid from the euro zone at the end of next year, easing its way back into private-sector lending as of the second half of 2014.
“[It is] realistic to assume additional support will be needed beyond” that date, Mr. Dijsselbloem said.” Greece hasn’t been able to issue longer-term bonds since the spring of 2011.
…
More debt does not solve the problem of too much debt…
Maybe not to you, but it works great for the pay later crowd. What you pay later doesn’t matter, especially when later is never.
Yeah… The big deception is that later never comes…. but it does… and it’s directly in front of us.
You can’t run a trade imbalance without it, and the countries on the positive side of the imbalance really want the imbalance to continue. That means, making sure their customers can continue to buy on credit.
It is no different than in the USA. For corporations to keep making huge profits, and hand those profits off to the 1%ers, the 99%ers need to be able to spend more than they earn. When the 99%ers hit the debt wall, the government had to step up as borrower and spender of last resort. Without that, the trade imbalances would go away… and we can’t have that.
Our entire economy is now about making sure the rich can get richer. That means more debt for everyone else.
No. More debt for suckers and donkeys like you Darryl.
The rest of us know better.
Logic is a wall that a debt donkey cannot break down by banging on it with his head.
You misunderstand.
Governments around the world chose to embrace trade imbalances. Once they did this, they figured out that the only way to fund those imbalances was through ever increasing debt.
Yes, debt is a bad thing at the individual level, but as the paradox of thrift shows, what is good for the individual is bad for the macro economy.
First we need to fix the imbalances, by ending free international trade and by reverting to a 1950s style tax code… THEN the need for unsustainable debt growth will go away.
Ending debt creation, while the imbalances still exist, is a sure way to kill the economy.
I want to carefully deconstruct the house-of-cards that is our economy, NOT cause it to come crashing down in a destructive mess of debt default into Greater Depression.
We all understand very well Darryl…. Its you that is on the Island Of Lie.
We’ll send a life raft when you ready…… But you’re not ready yet.
How do you say Mr. Money Mustache in Greek?
How do you say Mr. Money Mustache in Greek?
LOL…
(Though austerity hasn’t worked so well for them so far…)
“Remember, housing demand has fallen to 1997 levels as a result of massively inflated asking prices of resale housing.
And demand will continue to crater until prices roll back to the long term trend line or roughly 1996 levels.
Don’t you know it brother.
I sincerely believe you are too modest in this benchmarking. Demand for new houses is lower than it was in 1960, and that is not per capita, it is actual. House prices are around where they were in 2004, just before the moon shot peak. The credit expansion that has given us ridiculously high house prices can be seen to have gained an exponential trajectory since at least the early ’80s, not just back to ‘97. The prolonged credit expansion has shifted wealth to the top and raised taxes and everyday expenses for everyone else. There are fewer people that can afford a house by the day. Credit expansion will no longer save the housing market, regardless of the lag time to discovery. 1997 is not even a likely whistle stop in the path of this housing market.
Sept. 4, 2013, 8:30 a.m. EDT
You’re a sucker to believe Wall Street
Commentary: What were advisers saying five years ago?
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — You’re a sucker to believe Wall Street’s current mantra that another Lehman Brothers-like collapse is not in the cards.
I say that not because I think such a collapse is imminent, though I am less sanguine than many right now. The reason I say we shouldn’t believe Wall Street is that they were also telling us not to worry five years ago, right before Lehman declared bankruptcy.
Lehman Brothers filed for bankruptcy on Sept. 15, 2008. That, in turn, triggered the near collapse of the entire financial system: The stock market quickly entered into one of its worst two-month stretches in U.S. history.
If ever there were a time for Wall Street’s gurus to warn us of the impending doom, that would have been the time.
Marketwatch columnist Mark Hulbert explains that when investing in emerging market stocks, it pays to be choosy.
But that’s not what I found upon reviewing what the several hundred advisers I track were saying in those crucial weeks prior to that financial tsunami. On the contrary, with very few exceptions, they were remarkably complacent at that time — if not downright upbeat.
Consider the following sampling of comments from late August and early September of 2008:
“I am ready to be a bull again! … [T]he exact time is still difficult to tell, and we will in all likelihood be early to the game, but three crucial elements necessary for a new bull market are getting our attention. The housing market is beginning to show serious signs of a bottom… Quietly, the financial sector has been slowly healing.”
“The stock market and the economy continue to battle the same demons. They are not going away easily, though one would have to think the sub-prime mess is largely behind us… I think a 75% invested posture is about right at this juncture.”
“For the next few weeks at least, the sun seems destined to shine on the stock market.”
“With oil and gas and ag commodity prices coming down, consumers are eventually going to get some much needed breathing room. This will also allow the economy to regain its footing and begin a recovery, especially once the 6-year cycle bottoms in September. The bear market in crude oil will help to improve consumer spending and should also bolster the stock market from here.”
I could go on and on, but you get the point.
…
“Make it a matter of personal policy; Don’t. Borrow. Money.”
You got that right!
Borrowing money for things you don’t need is like sex on a first date and marriage the next morning, followed by kids in the spring.
You’ll never know what you’re missing.
Coastal Oregon Housing Prices Crumble 20% In a Year
http://picpaste.com/pics/0deec04c021ff73ea1f998e172562746.1377448652.png
Don’t such programs normally require twelve steps?
This is the Fed’s 4-step path to exiting QE and raising rates: SocGen
September 4, 2013, 1:23 PM
The Fed’s “tapering” of its asset purchases is a question of when, not if. But while investors are focused on when the Fed will begin to slow the flow of stimulus, the longer-term worry is when the central bank will actually begin to tighten monetary policy and raise interest rates, as well as what it will do to shrink a balance sheet that now exceeds $3 trillion — more than triple its usual size.
Societe Generale chief U.S. economist Aneta Markowska and top U.S. rates strategist Mary-Beth Fisher take a stab at it in a Wednesday note, laying out a 4-step process. Here’s how they see it playing out:
…
as soon as stocks have a 5% correction the printing presses will fire back up again.
There is no inflation though.
Has anyone bought tires, batteries, antifreeze or ac refrigerant lately?
That’s not inflation. *Learn* the difference.
http://en.wikipedia.org/wiki/Inflation
“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.”
Your wiki junk can’t help you either.
Inflation is the symptom - rising prices. There are different causes of inflation. Just like there are different causes of a fever:
1) Cost-push inflation: When prices of supplies go up. Like a jump in oil prices pushes the prices of everything up.
2) Demand-pull inflation: When demand goes up, more dollars chasing limited output.
3) International sanctions attacking a currency: Sanctions against Iran involved trying to prevent people from taking their currency, causing an extreme inflationary event as their currency lost value.
4) Zimbabwe: Money printing and vastly increasing the amount of dollars, reducing the value of each dollar. This can result in hyperinflation. The Zimbabwe bosses made the connection that people value the piece of paper. More paper means more wealth right? Everybody win!
What I find interesting is how inflation can be sparked in certain sectors, what spillover effects it can have in other sectors. Also, the effects of Fed debt buying. That debt buying pays back lenders immediately, as the Fed takes on the debt, and increases the amount of money the big financial institutions have to speculate. Remember: Glass Steagall is gone. That Fed money is being given to the Wall Street casino. And all the implications that has. There’s a case to be made that in a world that should be deflationary from so much debt, and bad debt, that you have skyrocketing fuel, food, medical, education, housing prices, that this is a result of concerted central bank money printing.
Look….. You don’t get inflation without rising wages. Unaffordable and increasing prices of any item in the absence of rising income is price fixing…… Not inflation.
Your wiki junk can’t help you either.
Unlike you, they provide links to back up their stuff.
Oh… it’s the link that’s important to your charade. Not the truth.
Gotcha.
Defining inflation as rising prices isn’t very useful in understanding how things work. If prices go up because of hoarding or shortages, it makes no sense to call that inflation. A more useful context for inflation is expansion of the money supply, of which there are two types.
Toying with the money supply is akin to price fixing. If the price of an item is rising and demand is flat or falling OR there is adequate and uninterrupted supply, watch your wallet.
You don’t get inflation without rising wages
—-
Businesses could simplify processes to hire more people at the same wages, or cut hours, use cheaper inputs, or in a cheaper location, or weaken employee power vs mgmt and none of those would lead to higher wages yet you still could have more expensive outputs due to rising input costs (or none of those efficiencies are passed on to the customer but rather passed into profit margin) without price fixing. None of those involve any toying with the money supply.
Saying inflation has to involve rising wages makes it pretty valueless for most industries in a world economy.
You don’t get inflation without rising wages.
You don’t get demand-pull inflation without rising wages.
You certainly can get all of the other types, though.
That’s not inflation.
Tell that to the people who took a wheelbarrow full of paper bills to go buy bread at the bakery toward the end of the 1921-23 Weimar hyperinflation.
Oh, that wasn’t inflation, you say? What was it, then?
“On 1st November 1923 1 pound of bread cost 3 billion, 1 pound of meat: 36 billion, 1 glass of beer: 4 billion.”
Because wages inflated.
Don’t switch the topic mid-course.
as soon as stocks have a 5% correction the printing presses will fire back up again.
Especially in an election year.
Consider the possibility that the stock market may be elevated because of the simple inflation by the Fed, but may not have been the primary reason that the Fed has been creating money to buy (not lend) crappy assets from the banks. With no honest accounting at the banks, how would we know when the Fed has accomplished its objective?
It is hard for Debt Donkeys to do maintenance on their leveraged possessions.
And what a burden that is! It gives new meaning to the expression, “throw good money after bad”.
I don’t get it….
We all know that there are about $1.5T in trade imbalances. That is $600B a year international and $900B a year additional annual accumulation by those that already have more money than they can spend.
We fund those imbalances by borrowing some $1.5T new money into existence every year. 10% of GDP for 30 years, and total debt has increased from $4T to $40T over the last 33 years.
A quick look at the Z.1 shows household debt is still near zero growth… flat to slightly down as existing debt is written off as fast or faster than new debt is created.
Business debt has been picking up recently, but is creating less than half the debt we need to fund our imbalances.
This very meager new net private sector debt generation is happening despite VERY low interest rates. This is why the federal government has been forced to continue to run $1T+ deficits. $6.5T new net fed government debt in the last 5 years….
So, what do they expect to happen? The trade imbalances to disappear? Households and business to return to the hay day of debt creation? Government to keep on spending $1T+ a year more than it takes in?
How is an economy that is dependent on $1.5T new debt a year about to have a “self-sustaining recovery” with rising interest rates, reduced government spending, and households still not creating any of the new net debt?
Take away the low interest rates OR the massive fed government deficit spending, and this fragile economy will return to full crash mode last seen in 2008.
Take away the low interest rates OR the massive fed government deficit spending, and this fragile economy will return to full crash mode last seen in 2008.”
yes do you read Gary Shilling ?
Anyway thats why they won’t take it away.
“If you buy a house right now in the current environment, you will be scammed out of hundereds of thousands of dollars.”
You better believe it mister.
“Housing is never an investment. Housing is a depreciating asset and a loss, always.”
Exactly. Houses depreciating just like automobiles. The difference is that losses on housing are crushing and last a lifetime at current grossly inflated asking prices.
Bay Area Housing Demand Collapses A Whopping 32% YoY
http://picpaste.com/pics/e8cea4626f00e76bf4b20ef426f0adae.1376499796.png
“Just for the record; there is no shortage of housing. Not in California, not in Tokyo, not anywhere. And there will come a day (again) when the media will tell us, ‘there’s a glut of houses for sale in….’, and regale us with sob stories, ‘I was doing great until the economy went south and my income went away and I can’t get rid of this damned house!’”
~Ben Jones, August 8, 2013
This false notion…. this lie….. that there is a shortage of housing in the US is laughable considering there are tens of millions of excess empty houses out there. A sea of them. And it’s growing. Day by day.
The American lifestyle:
Become indebted to obtain a worthless degree, which provides no practical training you will ever use, to work a job you hate, which demands most of your waking hours, to become further indebted in the 80% financing of a home with a 30 year mortgage, so you can pay interest to the bank for the rest of your life, while literally empowering your boss/company with absolute control over your entire financial destiny all the while having zero geographic mobility and little say over your already limited free time (including the length of your vacations, if you are lucky enough to have any).
USA! USA! USA!
And keep voting for bigger and bigger government, more and more regulations and higher and higher taxes….
Because one day that will lead America to prosperity.
^^ What I described above applies equally to supporters of both parties and many independents as well. Take your partisan hackery elsewhere, 2brony.
When I graduated from undergrad, my cousin who is 20 years older than me and an attorney in Boston, sarcastically said “now you’re ready to move on to higher stages of consumption”.
Idiotic. Your cousin bought the ‘boomer Book of Life, it seems.
Raising consumption slowly over time could be shrewd. Like a one-way deal, never raising it beyond what you really want or beyond what is easily sustainable. Trading money to save time or save manual labor seems like an easy upgrade that is justifiable by the time someone is in their 40s. (Of course, if you really enjoy doing certain things, like gardening, that’s different.)
If you work things out early on, you can make trade-offs later. The average American seems to do this precisely in reverse and only when absolutely necessary. Living large early, no idea where their money or time goes… and then - BOOM - they end up scraping by later on.
I said “sarcastically”, he rejected his parents spendy lifestyle (Onwentsia Golf Club, Social Register, blah blah blah) and was working at a record store in his 20’s before going to law school just to shut my aunt and uncle up about “what are you going to do with your life?” nagging.
He and the wife are DINKs who live comfortably and spend little except for spoiling their “family” of dog babies.
Oopsies, point taken then.
Whaaaat? He didn’t want to follow in his parents’ footsteps and join the Onwentsia Club when he would have had an automatic ‘in’?
I like your cousin. But-do ya think his parents could write lil ole me a recommendation?
When I graduated from undergrad, my cousin who is 20 years older than me and an attorney in Boston, sarcastically said “now you’re ready to move on to higher stages of consumption”.
A friend of mine called it “beer progression”: As you climb the ladder you trade up to pricier beer.
One of my anti-mustachian weaknesses, I could never live without Durango Brewing’s Modus Hoperandi IPA. After moving here from the Midwest I could never go back to drinking Duff.
One of my anti-mustachian weaknesses, I could never live without Durango Brewing’s Modus Hoperandi IPA.
You could learn to brew your own equivalent, perhaps even improved to your tastes… That would be fairly Mustachian…
“The American lifestyle:”
Did you purposely omit the lack of sex after the wedding cake?
Breeders breed more sprogs in the Recovery®
“The nation’s fertility rate stabilized last year for the first time in five years, according to early data from the Centers for Disease Control and Prevention. That follows four years of big declines during the economic downturn that pushed the rate — the number of births per 1,000 women aged 15 to 44 — to the lowest levels on record.
Stabilization in the fertility rate would be the latest evidence the U.S. is gradually shaking off the effects of the 2007-2009 recession. Americans are paying off debts, freeing up cash for spending. As property prices rebound, more people are regaining equity in their homes.”
http://online.wsj.com/article/SB10001424127887324324404579043321640414270.html
Or people are running out of money to pay for birth control.
“Breeders breed more sprogs in the Recovery”
You know what would be great for the economy? If no one had ANY babies.
THAT would fix everything!
“If no one had ANY babies.
THAT would fix everything!”
Sure it would…for about two decades, until the point there would be no new college students, followed by no new entrants to the workforce, accompanied by a steady stream of new retirees with no young people available to either care for them or even provide the basic means of economic sustenance.
The popping higher-ed bubble:
“Maintaining strong enrollment is becoming a bigger worry for college administrators as cash-strapped families begin to balk at rising tuition bills, according to a survey by audit, tax and advisory firm KPMG LLP.
The annual survey found that 37% of 103 higher-education leaders said they are “very concerned” about their ability to maintain current enrollment levels, up from 23% last year.
The school leaders said families’ finances were a growing challenge in maintaining enrollment, with 58% calling it the top factor, compared with 49% last year.”
http://online.wsj.com/article/SB10001424127887323893004579055332692755074.html
Friends with college bound kids must get 5-6 unsolicited college sales letters in the mail a day.
Some with offers of financial aid.
It is as bad or worse as when people used to get 4-5 credit card letters a day.
$1.1 trillion (and growing) of outstanding student loan debt is too big an elephant in the room to ignore. There will be bailouts, you better believe it!
As long as the government keeps loaning these unsuspecting kids an unlimited amount of money, colleges will continue to charge as much as they want. A college much like any institution of learning should be a plain, basic building. Go to any college campus and have a look at what your tuition dollars buy you.
WIth a 19-year-old in community college, and a 15-year-old honors student in a college prep academy, I get 4-5 letters a day from various colleges AND I’m back to getting 4-5 credit card offers a day.
The difference between the credit card offers of 6 years ago and today is the terms.
It used to be 3-4% until paid off. They knew that a huge chunk of people would pay a day late (even if they had to sit on the payments for a week to cause the late payments) and they’d be able to push those rates to 30%.
Now that they can’t jack up the rates on one late payment, the offers are 0% for 12-18 months, then jump to 12-15%.
Home Depot had been POUNDING me with offers, like a coupe a week…. for a card with a 22% interest rate. Yeah, right.
Those balance transfer checks are now junk too. They used to raise your credit limit $1000 if you transferred. Then they raised it only by the amount that you transferred. Now you’re lucky to get 6% on what you transfer.
Friends with college bound kids must get 5-6 unsolicited college sales letters in the mail a day.
Some with offers of financial aid.
Oh yes. But the financial aid offers are a joke. A 50% scholarship sounds good, until you find out that “full freight” tuition is 40K per year. So it was still 4X what the local State U charged.
all the Engineers I work with are footing 40K per year tuitions for their kids.
UCLA, UCSB, UC Irving, all UC schools are 40k per year. USC a private school is 60K
My kids are 12 and 14 and I don’t know what I’m going to do ? Come on basketball scholarship.
I live right next to a Junior College maybe thats the ticket for the first 2 years ?
University of Akron to hire ‘encouragers’ to help at-risk students
The University of Akron is hiring part-time staffers in a new job called academic encourager.
They will make $8 an hour to oversee students who are “emergent,” which to UA means they might need a little extra hand-holding to do university work.
UA vice president Jim Tressel developed the job in his role as head of student success. He said encouragers will help to buttress the efforts of the university’s 20-or-so academic advisers.
Tressel said he started similar programs when he coached football at Ohio State and Youngstown State. He said he thinks he can duplicate their success with the 4,000 UA students who have been classified as emergent.
These students scored 18 to 21 on the ACT and posted high school grade-point averages of 2.5 to 3.0, which UA says puts them at greater risk of dropping out.
The program is part of a larger UA effort to raise its graduation rate — one of the lowest in the state — of 40 percent for first-time, full-time students.
Potential ‘encouragers’ must have a bachelor’s degree and, ideally, a master’s degree, plus at least 10 years in education, possibly, for example, as a high school teacher.
Applicants must have “interest in working with college-level students and the ability to establish rapport with students and motivate student learning,” according to the job description on UA’s website.
UCLA, UCSB, UC Irving, all UC schools are 40k per year
They must be non residents. A quick looksie at the UCSD website shows annual undergrad resident tuition of 15K.
At San Diego State it’s about 7K per year.
“They must be non residents. A quick looksie at the UCSD website shows annual undergrad resident tuition of 15K.”
I bet the $40K includes room, board, books, fees, etc.
I bet the $40K includes room, board, books, fees, etc.
That would be another 10K at most. On the other hand, according to the UCSD website, non resident tuition is about 40K. And what do you get for that? Instruction halls the size of a small cinema, divided into sections which are led by TAs (incomprehensible foreign grad students). Want to see the prof? Good luck with that.
It includes everything. I had a flyer from UCSB that put total cost at 32K per student per year for a CA resident.
Cal State San Luis Opisbo is 18K for CA residents which makes it a bargin EXCEPT they mostly accept out of state applicants, more money for the school.
ASU is about the same for a CA resident which is why so many CA kids go there.
I’ll drill down into exact numbers as time goes by right now its numbers off University fliers and co-workers. estimates.
I had a flyer from UCSB that put total cost at 32K per student per year for a CA resident.
I think that number includes nebulous categories such as “transportation” and “health insurance”. Unless the dorms cost 17K per year at UCSB.
But yeah, UC is very pricey by State U standards. Cal State is much more affordable.
The future’s so bright, I gotta wear shades:
“We’re seeing more evidence that U.S. consumers are splashing out on big ticket items. U.S. auto sales shot up 17% in August, with nearly all major makers reporting double-digit sales gains … And the Fed’s latest Beige Book business survey also highlighted this trend, Bloomberg notes: “Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods.”
http://blogs.wsj.com/cfo/2013/09/05/the-morning-ledger-consumers-splash-out-on-big-ticket-items/
The question is; does anyone actually believe it?
The kool-aid tastes sweet (although it was actually Flavor-Aid that they served at Jonestown) to many.
This “recovery” is some kind of hallucinogenic dead cat bounce, delirious debt donkeys flying on HELOC speedballs oblivious to the pus-oozing scabs and abcesses on their tracked-out debt junkie arms.
lmao…. now that is some of the best Howmuchamonther poetry you’ve penned in a while.
Beautiful.
They might be selling more cars, but I’ll bet that the mix has switch to a higher percentage of cheaper compact cars.
I bought a new vehicle because my old Chevy wasn’t worth repairing. Maybe just a cyclical thing?
According to the pundits, the average age of American cars currently in service is 11 years. Add to that sub-prime lending shifted to the auto sector and average term duration is increasing, it seems pretty obvious:
a cyclical shift in auto purchase due to an older fleet combined with cheap credit terms…
Like houses, debt repayment is all good until jobs start becoming scarce.
Except that the bank won’t let you keep your car for 2-3 years if you don’t make payments.
I read an article today that suggested that the percentage of sales that are actually leases is sky high and that leasing is becoming more popular even with cheaper cars.
Nothin’ more productive than an elderly junkies.
Drug use among America’s youth is dropping, but it’s booming among people over 50, a U.S. government survey released Wednesday shows.
http://news.yahoo.com/drug-drops-americas-youth-rises-over-50-crowd-202408530–abc-news-topstories.html
Funny how she is not on NBC, ABC, CBS, CNN and MSNBC every night like she was in the good old days…
——————–
Cindy Sheehan Blasts Democrats,Media Hypocrites On Syria
newstalk1130.com | 09/05/2013
The famed Bush era anti-war protester has all but disappeared now that President Obama is in power, so WISN’s Dan O’Donnell tracked her down to see what she had to say about intervention in Syria and the utter hypocrisy of the supposedly peace-loving media and Democratic Party.
Do not question the actions of Bathhouse Barry the Chicago Jesus!
http://westernrifleshooters.files.wordpress.com/2013/09/obamawarsareawesome.jpg?w=876
so the arab states are willing to finance the war.
So the US Military is bigger and badder blackwater?
Let them fight it, too.
Or even buy their own damn Tomahawks…
I hear this term “debt donkey” used a lot.
Yeah, there is WAY too much household debt.
But, what happened when household debt stopped going up? Right, the crash of 2008.
If you’re telling people to stop borrowing, then what is it that you are looking for, on a macro-economic level? Economic collapse? The government to continue doing the 10% of GDP new debt creation?
Or do you think the trade imbalances that made the unsustainable debt growth necessary in the first place, are magically going to go away, without an economic collapse?
What is the outcome that you envision, now that households have stopped added net new debt?
If you use the term “debt donkey”, and tell people to stop borrowing, then what is it that you expect will follow? What is it that you WANT to happen?
Smarten up Drama Queen.
“Smarten up” from the guy that spews data that is so laughably incorrect on a daily basis.
Please answer this question. Why do you work so hard at ensuring that you have no credibility?
Extermination of the parasite class.
Restoration of usury laws.
End the Federal Reserve.
“Extermination of the parasite class.”
So, my parents and grand-parents?
“Restoration of usury laws.”
These generally set maximum interest rates, which we have here in AZ. Doesn’t keep people from borrowing.
“End the Federal Reserve.”
So, return to the boom and bust cycle of the 1800s, with its 7 major recessions and depressions, that consumed more than half the century?
We had fractional reserve banking before the Fed, it was just WAY less stable than the horridly unstable banking system we have now.
This is a post hoc ergo propter hoc fallacy (”Because of this, that”).
What caused the financial system wobble? Bets upon bets all on bad debt.
The de-regulated financial system built by Wall Street and politicians had vampirically become addicted to debt and derivatives. The system collapsed because it had grown out of control, not because of some innate, holy property of debt.
Peak debt had been reached well before the bubble. People’s ability to actually pay currency back to those who owned the debt had been maxed out well before the collapse. Serial refinancing went on for a short time after that. There was still money to be made, still forward momentum, for some time after the flameout.
It was not the people not dutifully going into debt slavery that caused the collapse, it was a house of cards financial system which was making bet upon bet (derivatives) on bad debt.
The economy is driven by human wants, not debt. Debt is bad for the standard of living. People work because they have wants. They go into debt because of those wants. Those wants will always exist.
There are powerful organizations that make money off of debt. The central bank drives economic policy as Congress is derelict in its duty. Thus the central bank naturally has a debt-centric view of the world. It is a bank.
References:
1) The Economist cover story, “House of Cards”, from 2003: http://www.economist.com/node/1794873
2) Fabrice Tourre describing the financial system: http://money.cnn.com/2010/04/26/news/companies/Tourre_Goldman/index.htm
I agree trade imbalances are a problem. I agree that debt funds the current lifestyle. It’s called living beyond one’s means.
The answer is for Congress to deal with this issue, not to keep having policies which continue to plunge the consumer and the government and the country ever deeper into debt.
Congress is derelict in its duty. And there are powerful political contributors which make money off of this system.
“The answer is for Congress to deal with this issue, not to keep having policies which continue to plunge the consumer and the government and the country ever deeper into debt.”
I SOOOOOO agree!!!!! And that is kind-a my point.
Compare the number of posts complaining about “debt donkeys” or telling people “don’t go into debt” to the number of posts talking about the underlying economic issues that have caused us to rely on unsustainable debt for the last 30+ years.
There are FAR too many people focused on the symptom (debt) not the cause (trade imbalance).
No one wants to hear about solutions to the trade imbalances, because they tend to love the imbalances. All they want to talk about is the debt that makes those imbalances possible.
MONEY is borrowed into existence. We love that there is more money to fuel corporate profits and further widen the wealth gap. We just hate the debt, that makes the money possible!
I’m trying to point out the ignorance of that mindset.
People would rather just sit on a high horse and complain about “debt donkeys” than examine the deeper issues in the economy that made the debt necessary.
“The answer is for Congress to deal with this issue, not to keep having policies which continue to plunge the consumer and the government and the country ever deeper into debt.”
They are waiting for a new technology to bail them out or at least kick the problem down the road. Get everyone working on it.
1. A deep and hard recession.
2. A wipe-out of debt on all levels
3. A wipe-out of companies with way too much debt
4. Then the economy starts growing again (within 1-2 years). With real growth. With sane fiscal policies.
What has happened in America for the last 5 years? Massive debt and no growth.
What has happened to Japan for the last 20 years? Massive debt and no growth.
You do realize that it was largely Republican economic policies, and Democrats going along with those polices, that has lead to the creation of most of the total debt (public and private) right?
An unregulated economy is a doomed economy.
Investors See 10-Year Treasury Yield Headed for 3 Percent
Bond yields have soared since May, and many investors think they have a bit further to go, though they don’t anticipate a rout.
The 10-year Treasury yield could reach 3 percent by year-end, a level that hasn’t been breached since July 2011, investors tell The Wall Street Journal. At that point Treasurys will start to look attractive, some of them say.
The 10-year yield stood at 2.9 percent late Wednesday, up from 1.66 percent May
http://www.moneynews.com/Markets/Treasury-yield-10-year-rate/2013/09/05/id/523932
The bond market has crashed almost uninterrupted since early May 2013. After four months of crashing, how much longer can it last until it is over?
What is the total drop in price over those 4 months?
What % drop is required, over what period of time, to qualify as a “crash”?
“Crash” is in the eye of the beholder, I suppose.
For instance, suppose the Dow Jones Industrial Average had dropped from its level around 15,000 reached in early May 2013 by 2,800 points to a current level of 12,200, a drop of 18.7%? Would that constitute a crash in your book?
Some analysts use the rule of thumb that a 10% drop in market prices is a “correction” and a 20% drop is a “bear market”.
By that standard, the drop in the value of 30-year Treasurys since early May 2013 is somewhere between a “correction” and a “bear market.”
STOP CONSUMING!!!!
In a mass production economy, where very little human labor can produce large amount of output goods and services, mass consumption is the only way to maintain high employment.
So, if you are one of those people yelling “STOP CONSUMING!”, you may as well be screaming “HIGH UNEMPLOYMENT IS GOOD!”.
I’d bet you’re one of the people that is also bitching about all the people on UI and food stamps too.
Don’t be silly Darryl.
Spend less. Save more. You’re going to need the cash in ways you can’t imagine.
‘very little human labor can produce large amount of output goods and services, mass consumption is the only way to maintain high employment’
If little labor is needed, what difference does mass consumption make? And if the labor is in China, how does buying their stuff increase US employment?
“If little labor is needed, what difference does mass consumption make?”
If a little labor is needed to produce a large amount of goods, then a large amount of goods is not sufficient to create full employment. We need to produce a MASSIVE amount of goods and services.
That, or (and we’ve done this in the past) reduce everyone’s work hours, without reducing their wage a proportional amount.
“And if the labor is in China, how does buying their stuff increase US employment?”
By now you should be fully aware of my thoughts on that subject. Tax money as it leaves the country.
Want to move the call center to India to service your USA customers? Fine. Now buy goods and services produced in the USA, ship them to India, sell them for Rupees, and use the Rupees to pay those India workers.
What we can’t allow to continue is for your USA consumers to go deeper into debt to create dollars, then you ship those dollars to India to be used to pay your India employees.
(well, okay, you convert the dollars to rupees, but that would adjust exchange rates, so the government and few rich people in India that benefit from favorable exchange rate buy up the dollars, then loan them back to the USA, to maintain the exchange rates. The point remains that we need to address the international, as well as domestic, trade imbalances.)
Infinite growth in a finite ecosystem (or economy) is a myth and a lie.
Of course, which is why I think an economy that embraces trade imbalances is doomed in the long run. Funding the trade imbalance requires unsustainable debt growth on the entity with the deficit. Interest on the debt further widens the imbalance until eventually, the person on the debt side of the trade defaults, and the money on the positive side of the trade poofs out of existence.
BUT, infinite growth is not necessary to maintain a high level of consumption, IF there are not imbalances. Our embracing of imbalances is what has created the need for unsustainable growth.
‘Funding the trade imbalance requires unsustainable debt growth on the entity with the deficit’
So getting off the debt wagon might be good for an individual if the economy is unsustainable, right? BTW, I take peoples junk to the dump all the time. Apparently they have a lot more than they need because they leave it behind. And have you noticed how many cars are parked outside the garage because the garage itself is full of stuff?
“China to complete one skyscraper every five days for the next decade”
http://shanghaiist.com/2013/09/04/china_to_complete_one_skyscraper_ev.php
‘New analysis by the China National Coal Association through the first 7-months of this year is pointing to overcapacity still remaining a serious problem in this country’s coal industry. The CNCA showed that the country’s total coal reserve currently exceeds 200 million tonnes the highest amount in the past ten years. The revenue of the coal enterprises has dropped by about 50% on average compared to the same period last year.’
‘Mr Jiang Zhimin vice chairman of CNCA said that “24 of the 90 large-sized coal enterprises in our survey are operating in a deficit. This accounts for one third of the enterprises in the survey. Plus, all the enterprises in the provinces and municipalities of Heilongjiang, Jilin, Yunnan, Chongqing, Anhui and Jiangxi are experiencing losses.”
http://www.energytribune.com/78935/overcapacity-a-serious-problem-in-coal-industry#sthash.QCy6ezGp.dpuf
‘Mr Chen Bin an official from the National Development and Reform Commission the country’s top economic planner said that shipbuilding industry faces a severe situation after the financial crisis in 2008, due to the dwindling global shipping market, declining prices and overcapacity, and the industry needs to urgently conduct restructuring and technology upgrade.’
‘Mr Chen said that China’s shipbuilding industry depends too much on external demand, as 80 percent of the ships are made for exports. Figures from the NDRC show that currently there are about 1,600 shipbuilding firms and the annual industrial output is nearly CNY 800 billion (USD130.56 billion). However, the new orders have been shrinking since the fourth quarter of 2008.’
http://www.steelguru.com/chinese_news/Chinese_shipbuilding_industry_suffering_from_overcapacity_as_orders_shrink/323571.html
“So getting off the debt wagon might be good for an individual if the economy is unsustainable, right? ”
Getting off the debt wagon is ALWAYS good for the individual, IF others stay on it, keeping the economy functioning and their income flowing. (Your income is someone else’s spending, so if everyone stops spending, it’s bad for you. So, it is good for you to stop spending as long as everyone else keeps spending.)
My #1 concern has always been the unsustainabilityof our current trade imbalance plagued economy. This post was not intended to be focused on the imbalances, simply on the effect of low consumption on a mass production economy.
“BTW, I take peoples junk to the dump all the time. Apparently they have a lot more than they need because they leave it behind. And have you noticed how many cars are parked outside the garage because the garage itself is full of stuff?”
Too bad too much of the stuff is imported. We don’t know if current consumption level would be sufficient to maintain full employment. We do know that with massive importation, we’re not maintaining anything close to full employment.
The point remains, if people buy only what they need, and we can produce those basic necessities with a fraction of the available labor, then that level of consumption would result in high unemployment (unless we drastically cut work hours without cutting take home pay).
Who is the “we” you’re talking about Darryl?
Oddly, I’ve never seen anyone named Darryl post at HBB…. I’m forced to assume that you are still talking to yourself, as you do with your dozen daily reposts of your old posts.
You have it completely backwards. The money you continue to borrow drives down the spending power of my saved money.
My posts are too important for you to ignore. I encourage you to install the JT extension.
“You have it completely backwards. The money you continue to borrow drives down the spending power of my saved money.”
And there would not have been any money for you to save, had someone not first borrowed it into existence.
You are supposed to invest your saved money in something with a return that at least keeps up with inflation, there by maintaining the purchasing power of your money.
“invest your saved money…”
That right there is one of the several key pieces missing from the tower of Jenga illogic. It wouldn’t be my FRNs then would it?
The Debt Donkey Clan raises the price of everything by borrowing to pull demand forward. You want to solve the problem? Stop buying stuff you cannot pay for.
“They” (politicians, media, corporate interests) keep telling us what’s bad for the consumer - more debt, more government dependence, less savings, living on the edge - is good for the economy.
That just means the economy is poorly structured. It has grown to become dependent on destructive systems. And destructive leaders.
Also these recommendations don’t apply to the 1-percenters who fight not to live like this. The 1-percenters actually have net worth.
“That just means the economy is poorly structured.”
I so, so, so, so AGREE!
And what is it that we did in the ’60s and ’70s that caused us to be dependent on unsustainable debt growth?
Correct. Free international trade, and a WAY too flat (and in many ways regressive) tax code.
If we want to return to a strong, sustainable economy that create the middle class, like the 1950s, we need to return to the trade and tax policies of the 1950s!
How ’bout we start making stuff again? Stuff actually worth consuming?
Heck, even if it’s throwaway junk, at least it wouldn’t be imported.
But we aren’t producing our own stuff. China is.
Separate issue.
I’m addressing the people that complain about all the consumption, not those that think free trade is the solution to all the world’s ills.
WE need a multiple step solution to our economic troubles.
1) Tax on money as it leaves the country, sufficiently large to bring the international trade imbalance down to no more than 1% of GDP (currently 3.5%-4% of GDP). Attack the imbalance in trade, not the volume of trade.
2) Return to a 1950s style tax code with: 1) low to no payroll tax 2) very steep income tax with 90%+ top marginal rate, 3) HUGE deductions for people that actually spend their money creating jobs for others.
The point of the high rate is not to take money from the high income people. It is to encourage them to spend/invest that large income rather than hoard/bank/loan out that income.
If you produce 1000x the value of the average person, GREAT for you. Now spend most of your income employing those 1000 other people. We can’t allow you to keep selling to them on credit, loaning your income back to them, so they can buy on credit from you again.
3) Treat ALL income as regular income, capital gains, inheritance, etc. Allow non-wage income (capital gains, inheritance) income to be placed into IRA type accounts, but require annual withdraws of your average life expectancy from this point. I.E. if you are 30, and have a life expectancy of 45 more years, then you have to take out at least 1/45th from that, and pay income tax on it, as regular income. If you are 60 and have a life expectancy of 20 more years, you have to take out 1/20th that year.
Inherit $1 million when you are 30 years old, then you can take that as $25K per year for the next 40 years, paying virtually no income tax.
Inherit $1 billion, doesn’t matter how old you are, it is going to be tough to spend enough to avoid the confiscatory tax rates.
Stocks or other equity (starting a business or investing in an existing one) is spending and therefore fully deductible. Buying bonds is loaning money, and NOT deductible.
4) Adjust the minimum wage up to be a “living wage”, and then set Social Security to also be that living wage. Set the tax brackets as multiples of this living wage.
If it is $10 an hour ($20K a year), then have the first $20K be tax free ($40K for a couple). Each bracket would then be $20K, increasing by x% per bracket. By the time you’re income is 100x the minimum wage ($2 million a year), you’re going to have to look hard for ways to spend/invest it to avoid the confiscatory income taxes.
5) Non-profit national health care funds where the covered services are set by a panel that operates the fund. Most basic fund would cover catastrophic care (life threatening: hospitalization, long-term life extending cancer treatments, trauma, emergency surgery, heart attack, stroke, etc.).
The government would fund that level of coverage, and you or your employer could pay to upgrade to a fund that covers a higher level of coverage.
I hate the idea of single payer, where it is illegal to buy services ala cart.
This will cut most of the the profit out of health care as the funds negotiate with providers to slash costs. We should be able to provide basic care to EVERYONE, for about the same cost that we’re currently providing care to half the population (medicare, medicaid, CHIP, VA, DoD, gov employees, prisoners) at today’s bloated prices.
6) Once the above has created conditions where you can’t walk out your front door without tripping over a “now hiring” sign, ween most people off government subsidy programs. Drastic reductions to elimination of food stamps, SNAP, housing assistance, disability (the new welfare), job training, income security, student loan programs, FHA, etc.
EIC and child tax credits go away with the rework of the tax code.
7) Massive reduction in military spending. As an ex Navy guy myself, I think we can slash the Navy in half. Mothball the Ballistic Missile sub fleet. Not buy any more carriers and allow most of them in active service to be be phased out. Transfer the planes to the Air Force or retire them. In-air refueling and auto-pilot have largely removed the need for large, slow, floating targets that are impossible to defend in the era of cheap anti-ship missiles. (not to mention drones) Keep little but the gator freighters and amphibious fleet support ships.
I think we could slash total federal government spending by about 1/3rd.
Anyway, I know it won’t happen, because it would help create a strong economy for the middle class, which is NOT what the modern economy has become about. The economy is about ensuring the rich can get ever richer.
Bravo, Darrell. I may not agree with all this, but much appreciate the thought and care that went into it.
+1. Most of that, I could definitely get behind!
Marc Faber: Three reasons a plunge is coming
Producer Marc Faber: Why a correction is coming soon Tuesday, 3 Sep 2013 | 1:12 PM ET Find out why Marc Faber thinks the S&P is about to correct, with CNBC’s Jackie DeAngelis and the “Futures Now” traders.
http://www.cnbc.com/id/101005964
“Find out why Marc Faber thinks the S&P is about to correct,…”
Can you please post an article from when he didn’t think the S&P was about to correct so we can know for sure he doesn’t always say this?
LoL
That was my thought exactly. He’s been publishing Gloom, Boom and Doom since, what 1995? Oddly, about the same time he became an investment advisor for precious metals dealers.
I remember reading someone say about Roubini (similar outlooks to Faber) that he predicted 10 of the last 2 recessions.
Faber has predicted 20 of the last 2 market crashes.
Then step right up Debt Donkeys.
Speaking of eduction, and combining it with real estate (since this is HBB)….
To increase economic activity (and property values for current owners), the state government created an Arizona State University downtown campus.
Last year construction on a new building downtown caught my attention, so I looked into what it is. Answer, up scale, hip and edgy apartments for students at the downtown campus.
http://www.rooseveltpoint.com/index.php/prop/home
Kind of dorm style with up to 4 bedrooms, each with a private bath, sharing a common living room/kitchen.
Looking at the prices they planned on charging, I was floored….
$700 a month.
Again, that is not for a full apartment. That is for a bedroom, bathroom and access to a shared living room and kitchen.
A true private 1-bedroom apartment, they’re asking $1000 a month.
Insane. You can rent a house near here for less than that.
Oh right… then you won’t get the granite counters, stainless appliances and up-scale lifestyle….. My bad. Nothing sells a college kid on a dorm more than granite and stainless.
They rushed to get it completed before this school year began. It’s covered in “now leasing” signs.
And the parking lot a month after school started? EMPTY!!!!
I mean literally. This is right across from my daughter’s high school, so I drive past it at 7:30am and 3:30pm every day. At 7:30, I’ve yet to see a single person in or near this apartment complex. Other than the sames person sitting in the leasing office hoping someone will walk in, 3:30 in the afternoon is equally desolate.
I think they’re going to have to cut the rent by a good 30-40% if they want to actually get people living in this thing.
At least it is only like 7 stores. Could be worse… like this monstrosity:
http://www.bizjournals.com/phoenix/news/2011/02/18/deal-for-centerpoint-condos-finally.html?page=all
That is trying to lease 1-bedroom apartments for $1500 a month.
I wonder what happened to all those Radical Bunny investors that financed that deal through Mortgages Inc. I mean, we know the CEO of Mortgages Inc took the honorable way out and killed himself. It’s the rank and file investor I wonder about.
What a joke. The cheapest rent I ever paid at Football Factory State University was $131.25/month ($525 for 4BR house). And this was less than 15 years ago, I could pay for that working 20 hours a week at the library.
Go to the Roosevelt Point link and in the lower left you get to the core of that charade…. EDr and Concord Eastridge. Go to those links and take a look at the two dozen or so slimeballs running those organizations.
Would you buy a used car from any of them? Even one of them?
Broke @ss LOOSERS
“Nationwide, 10.7 million homeowners remain “deeply underwater,” which means they owe at least 25 percent more on their mortgages than their properties are worth, RealtyTrac said in a report Thursday.
In Colorado, 158,753 homeowners, or 13 percent, are deeply underwater, according to the report.”
http://www.denverpost.com/breakingnews/ci_24023107/13-percent-colorado-homeowners-deeply-underwater-september
And that’s what they’re admitting to. You know it’s far more than that.
Besides, many millions more can barely break even.
I’m surprised there are that many people that didn’t strategic default.
Makes me think of the lyrics to the Jane’s Addiction song ‘Jane Says’.
“I’m gonna kick tomorrow
I’m gonna kick tomorrow”
These underwater debt donkey mortgage albatross loosers are so strung out on that National Association of Realtors dope, nose running, puking and shaking and sh*tting themselves, re-boiling their old cottons trying to milk out one last high, anything to stave off the endless days and nights of shivering and sweating simultaneously, spiders under the skin, all of which suffering could be avoided if they would
just
walk
away…
Lay off the symphonies Liberace….This ones for you….
http://www.youtube.com/watch?v=8lVbe0inZ7Q
latest mmm post, this quote says it all:
‘i am not buying a flowery pillowcase of emotions or a future of warm memories. i am conducting a business transaction to purchase a piece of land and an assembled collection of construction materials.’
http://www.mrmoneymustache.com/2013/09/04/how-and-how-not-to-buy-a-house/
I think a lot of home buyers make their purchase based on how “impressed their friends will be” when they host a large gathering… then end up hosting a large gathering about one time over the next decade.
http://www.nahb.org/news_details.aspx?newsID=16444
You can either believe that this data is real, or not, but it is consistent with the CNBC article that I posted yesterday where they were noting land values increasing rapidly.
You can believe one of two things:
1. The NAHB article is a lie and there is an abundance of lots approved and available to build upon, because land developers continued to process entitlements throughout the downturn, and despite that, land values are rising in the face of very weak demand from ultimate homeowners (which is why more of all those available lots aren’t being built upon, but doesn’t explain the higher lot prices)–or perhaps the CNBC article is also a lie.
Or
2. There is NOT an abundance of lots available to build upon, because land entitlements essentially came to a halt during the downturn, and that land values are rising because there are lots of builders trying to buy the relatively few approved lots in an effort to meet the growing demand from ultimate homebuyers. The lack of available lots is constraining new home development (making the recovery look weaker than actual demand would otherwise indicate) and causing lot prices to rise.
3. Price for ready to build lots fell below the cost of getting a lot ready to build on, so builders quit preparing new lots. It has taken 5 years of weak demand to work of the glut of lots that existed at the crash. Demand for new houses is falling, but there are not enough lots ready to build on for even that low demand, so the price of ready to build lots is creeping back toward the cost of preparing them. Prices will soon reach break even, so builders will return to preparing lots, putting a cap on future price increases of ready to build lots.
New housing demand is weak, and will remain weak for the next few decades as Baby Boomer die off slows population gains from 3% a year to 1% a year.
I agree with #3, and I’m glad you fixed your flub on population growth.
You don’t seem to be considering the number of housing units that need to be torn down each year…that number ISTR reading was in the range of 250k-400k per year, which makes sense. As HA comments incessantly, houses deteriorate over time…with 130 million existing housing units, you would expect many hundred thousand needing to be replaced each year–and if they deteriorated as fast and as extremely as HA touts, we should be replacing more than a million per year…minimum.
Even with demographics, we should get to between 1MM and 1.5MM new housing units per year for a long time. The biggest bubble of babies born past WWII occurred in the mid-50’s (peak was 4.3MM live births in 1957; vs. 3.96MM in 2012–during a baby bust). People born in 1957 turn(ed) 56 years old this year. If you are 56 years old, your life expectancy is for another 24 years (male) and 27 years (female). Those born in the front edge of the baby boom (1946) turned 67 this year…their life expectancy is to live another 16 years or so, but that cohort was only 3.4 million births (below current levels).
In other words, To get from your 3MM population growth to 1MM (I don’t know where you got your numbers, I’m taking as given that US population growth will slow), will take a long time, it’s not happening quickly. The Census estimates that population growth (including immigration) will be no less than approximatley 2MM people per year through 2060…this projection was updated in May 2013.
BTW, lot values are not “creeping back up”, they have rocketed back up to values that support the development of additional lots. At least in the Greater Sacramento region, there are developers grading and finishing lots again.
I’m also curious as to why you say “new housing demand is weak”. The median new home price is up 8% year on year to July 2013 (Census data), and the average new home price is up 14% year on year to July 2013 (Census as well). If there was weak new housing demand, how do builders have the ability to raise prices so significantly? I think that supply constraining sales has to be part of the picture.
I am taking replacement into account.
We’ve been adding 3 million people, (1 million households), and needed 1.5 million houses, on average, to maintain occupancy levels.
This gives me a replacement rate of about half a million a year.
Also, assuming an average life expectancy of 100 years, with 50 million housing units over 50 years old, we hit that same number, half a million a year. It would be WIDELY misleading to take the 100+ million housing units that exist now, and divide that by 100, as the houses build in the last 50 years, are NOT going to be serious candidates for tear-down until well after boomer die off.
So, I think a number for 400K-500K replacement with an additional 300-400K new household formation during the boomer die off, and I’d say our sustainable housing demand will fall from the 1.5 million a year that we’ve needed for the last 20 years, to something close to our current construction rate of 700K-800K for the next 30 years.
Today, we have approximately 314MM population and 114MM households. That is 2.75 people per household.
The Census projection is for population growth to be over 2.3MM per year until about 2030, then it trends down quickly to 2MM per year until the end of the projection in 2060.
The low end immigration projection is for the growth to be over 2 million until about 2027, and then trend down to 1.4MM until 2060.
Both projections show population increasing by 2.2MM+ for the next decade.
Replacement: 500k
New households per year near term (next decade): 800k at 2.75 people per household…using even the low end of the immigration projections.
New households long-term (through 2060): 500k per year.
Also note that the 500k replacement number will trend upwards over time as more and more homes move into the 50+ year old category (more moving into the 50 year category than being destroyed, since more than 1MM homes have been built each year for many decades). In fact, this number should trend up to 1MM+ homes per year over time.
Ignoring that, we should be seeing 1.3MM homes minimum demand over the next decade, trending down to 1MM homes per year through at least 2050…and higher if you assume the replacement rate of 500k homes per year goes up with the aging of the housing supply.
OOOPs… not 3% to 1%… 3 million to 1 million. That should be 1% a year to 0.3% per year.
My bad. That is what I get for texting while posting while eves dropping on a conversation through the cube wall.
Quite a charade huh Ben?
“That is what I get for texting while posting while eves dropping on a conversation through the cube wall.”
The NSA eves drops through decryption. No need to listen through cubicle walls…
any local observations?
still tight inventory in 22151 S of DC
inwestors buying
After the crash, the Phoenix market was flooded with low end houses and condos.
These low end units would have sold for $50K-75K pre-bubble, jumped to above $150K in the bubble, then crashed to below $45K.
Those crap-shacks bottomed about 2 years ago as foreclosure rates plummeted and investors jumped into the market to “snap up” these houses that could cash-flow positive as slum-lord rentals.
Momentum of that rebound is now done. Prices are back at or above rent equivalent, and will be pushed to cash-flow negative at current prices should interest rates continue to climb.
There are no more condos on the market for $35K, or small old houses for $45K as there were 2 years ago.
There is a GLUT of houses and condos for rent which should (unless the investors are content to let them sit empty) be pushing down rents. I’ve seen no evidence of rent drops yet, but assume they are coming.
Falling rents, higher interest rates, and a still weak economy (likely to get weaker with increasing interest rates, cooling housing market and government spending cuts) should conspire to turn home prices negative again.
the party is still going strong. Join the club.
Gold miners near Chicken cry foul over ‘heavy-handed’ EPA raids
Sean Doogan|
September 3, 2013
When agents with the Alaska Environmental Crimes Task Force surged out of the wilderness around the remote community of Chicken wearing body armor and jackets emblazoned with POLICE in big, bold letters, local placer miners didn’t quite know what to think.
Did it really take eight armed men and a squad-size display of paramilitary force to check for dirty water? Some of the miners, who run small businesses, say they felt intimidated.
Others wonder if the actions of the agents put everyone at risk. When your family business involves collecting gold far from nowhere, unusual behavior can be taken as a sign someone might be trying to stage a robbery. How is a remote placer miner to know the people in the jackets saying POLICE really are police?
Miners suggest it might have been better all around if officials had just shown up at the door — as they used to do — and said they wanted to check the water.
Rampant drug and human trafficking?
The EPA has refused to publicly explain why it used armed officers as part of what it called a “multi-jurisdictional” investigation of possible Clean Water Act violations in the area.
A conference call was held last week to address the investigation. On the line were members of the Alaska Congressional delegation, their staff, state officers, and the EPA. According to one Senate staffer, the federal agency said it decided to send in the task force armed and wearing body armor because of information it received from the Alaska State Troopers about “rampant drug and human trafficking going on in the area.”
The miners contacted by the task force were working in the area of the Fortymile National Wild and Scenic River. The federal designation, made in 1980 as part of the Alaska National Interest Lands Conservation Act, protects 32 miles between Chicken and Eagle, Alaska. It is a remote area, close to the Canadian border and the town of Boundary. The nearest city of any real size is Fairbanks, 140 miles to the northwest. It was unknown to everyone in the area that there is a rampant problem with drug and human traffickers.
This also came as news to the Alaska State Troopers, whom the EPA said supplied the information about drugs and human trafficking, and at least one U.S. senator.
“Their explanation — that there are concerns within the area of rampant drug trafficking and human trafficking going on — sounds wholly concocted to me,” said Murkowski, R-Alaska.
“The Alaska State Troopers did not advise the EPA that there was dangerous drug activity. We do not have evidence to suggest that is occurring,” said Trooper spokesperson Megan Peters.
The Alaska Department of Law said it knew of the task force’s investigation but that it did not advise the group about any ongoing problems or dangers in the Fortymile River area.
‘Heavy-handed, heavy-armor approach’
“This seems to have been a heavy-handed, and heavy-armor approach,” said Murkowski. “Why was it so confrontational? The EPA really didn’t have any good answers for this.”
According to the Alaska Department of Environmental Conservation, one of its compliance officers went along with the task force, but only to look for potential state violations at the mine sites.
The DEC officer was armed.
The task force is made up of members of the EPA, the FBI, Coast Guard, Department of Defense, the Alaska Department of Public Safety and the DEC. The chief investigator, Matt Goers, said he could not discuss the details of the recent Fortymile River investigations. So far, no charges, state or federal, have resulted from the group’s work last month.
Miners in the area are not waiting for the results of the investigation. They have met in Chicken and are demanding a Sept. 14 meeting with the EPA, the state, and the members of the Alaska federal delegation to discuss the task force’s tactics.
“Compliance exams are a normal thing for miners. Usually (Bureau of Land Management) or DEC points out a problem and you correct it. This (the task force’s action) was way over the top and uncalled for. It was a massive show of intimidation,” said David Likins, a gold miner in the Fortymile Mining District.
Most of the mines in the area are small, family-run placer operations. They are like the mines seen on on the Reality TV show “Gold Rush: Alaska.” They search for gold by digging up ground and running it through a sluice box, using water to wash away the rocks and leave the valuable gold behind.
The water they use must be allowed to settle in ponds before it’s discharged back into streams or creeks, so that mud and rocks don’t pollute clean, nearby waterways. Water turned turbid (cloudy or muddy) can kill fish.
Likins said the task force may have found one possible clean water violation at a mine near Boundary, very close to the Canadian border.
Likins said he believes the aggressive actions of the task force made their investigation much more dangerous for everyone, including the miners and the agents.
“If it were my mine, and I was sitting on some gold, and people came storming out of the woods, I would probably meet them on the porch, with my shotgun,” he said.
http://www.alaskadispatch.com/article/20130903/gold-miners-near-chicken-cry-foul-over-heavy-handed-epa-raids - 135k -
When your family business involves putting large amounts of arsenic into the area’s aquifer against numerous cease and desist orders, and threatening to continue doing so while heavily armed, then yes, maybe they should expect the EPA to come calling.
“Miners suggest it might have been better all around if officials had just shown up at the door — as they used to do — and said they wanted to check the water.”
Seismic Retrofitting - Ca Building Codes
Granted, I am sure cities have their requirements, but does anyone know when the retrofitting codes came to be?
Our home is in Ventura County, a circa 1967 rancher. The insurance guy said we’re in the era of retrofitting, and believe we are pre-retrofit building codes. I prefer not to call the city (yet).
I don’t want to stimulate any ideas. lol
Anyone can read the code online. Apparently it is voluntary and unregulated, so if you have a question ask your local code officer. Assuming that your house is already insured, is your insurance agent trying to change your policy or get you to hire his brother in law? Unregulated remediation contractors have a high probability of scam.
I want to say 1995, after the Northridge quake.
What’s really going on with housing in California
California imposed a new law on banks innocuously called “Homeowners Bill of Rights” which forces banks to switch over to a judicial foreclosure process, which they can opt to do on their own, but takes a year or more to renegotiate contracts and compensation structures for the foreclosure law firms who do all the leg work for the banks. And while those changes are being made… it makes it appear that foreclosures have slowed down dramatically in the state.
The reality?
Defaults (undeclared) are spiraling upward that yet have to pass through the foreclosure pipeline.
The truth?
California is still the highest foreclosure state in sheer volume and percentage.
The low-down?
Resale housing is still massively overpriced as a result of unprecedented interference by individual states and the federal government. The market distortions will be removed and the down draft will continue allowing the market to correct.
With 25 MILLION excess empty houses and housing demand at 1 year lows, housing prices have a long way to fall. A very long way to fall.
missing a digit or two there HA, but we get your point.
Phoenix Housing Demand Collapsing 14% Year over Year
http://picpaste.com/pics/5cd3cd264b00f4cd8b062a10c8c7e008.1378433728.png
Demand collapses when prices are grossly inflated.
SF Bay Area Housing Demand at 5 Year Lows and Falling
http://picpaste.com/pics/ba9c69c9f88bbd75802ae2c80c8ff1b9.1378434043.png
Opponents of Summers Must Overcome His Bond With Obama
Jim Young/Reuters
President Obama in 2009 with Lawrence H. Summers, said to be the president’s preferred candidate to lead the Fed.
By JACKIE CALMES
Published: September 4, 2013
WASHINGTON — As President Obama turned to second-term job openings soon after his re-election, the topic one day in the Oval Office was probably the most important economic decision he would make: Who should succeed the Federal Reserve chairman, Ben S. Bernanke, after 2013?
The president’s preference: His former economic adviser, Lawrence H. Summers.
Mr. Obama, well aware of Mr. Summers’s love-him-or-hate-him reputation and the trouble he could face winning Senate confirmation, reasoned that it was hardly too soon to think about courting senators, even if a final decision on a nominee was nearly a year off. Shifting from his confidants — Treasury Secretary Timothy F. Geithner and the man who soon would succeed him, the White House chief of staff, Jacob J. Lew — the president gave Rob Nabors, then his liaison to Congress, the Summers project.
“He needs to do some work on the Hill,” Mr. Obama said, according to people with knowledge of the meeting. “You need to work with him, Rob.”
Months later, decision time is here, and Mr. Obama still has not settled on Mr. Summers or Janet L. Yellen, the economist he named to be Fed vice chairwoman in 2010.
Yet as that Oval Office exchange shows, the president has long had Mr. Summers in mind — and still has him in mind — to become the world’s most powerful central banker. The relationship is based on an intellectual partnership that dates to the 2008 campaign and was “forged in the crucible of the financial crisis,” as the longtime Obama strategist David Axelrod put it.
A former administration official, who like most others did not want to be identified speaking of such a sensitive matter, said, “It’s like the attachment you feel for your heart surgeon after he performs a quadruple bypass.”
But as that Oval Office meeting last year also suggests, Mr. Obama’s one concern about nominating Mr. Summers has been the potential for a Senate battle — not only from Republicans spoiling for fights, but also from Democrats who view Mr. Summers as having been too friendly toward deregulating big banks when he was Treasury secretary in the Clinton administration.
That concern about confirmation has been affirmed in recent weeks as bloggers and groups on the left have mobilized, either to oppose Mr. Summers outright or to urge Mr. Obama to pick Ms. Yellen to be the first female Fed chairman. Mr. Summers declined to comment for this article.
The president has already interviewed Mr. Summers and Ms. Yellen for the job, as well as Donald L. Kohn, a former Fed vice chairman, aides say. But administration insiders say they believe Mr. Obama remains inclined to nominate the man who, as his chief economic adviser through 2009 and 2010, helped him through the worst global financial crisis since the Depression.
Mr. Summers’s edge, the insiders say, reflects that relationship and not any arguments against Ms. Yellen, whom Mr. Obama does not know well. And they do not rule out another candidate, though no other names are known to be in the mix.
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Summer is Popular; Lawrence Summers Isn’t
Written by Kathleen Packard
Wednesday, August 21, 2013
It’s getting nasty among Washington money folk. Former Harvard President and Treasury Secretary Lawrence H. Summers has his supporters to succeed Ben S. Bernanke as Federal Reserve chair. In Congress, however, not so much – as some told President Barack Obama when he visited with Democrats in the House of Representatives.
President Obama defended Summers – and then others came to his defense. “With vigorous attacks on Mr. Summers that have erupted in recent days, now his supporters are engaged in a more public campaign to smooth his knotty reputation as being not just brilliant but also bullheaded and brusque,” wrote the New York Times Annie Lowrey. It is generally believed that Summers, Fed Vice Chair Janet Yellen, and former Fed vice chairman Donald I. Kohn are the three candidates for the post.
Inside the White House and Treasury Department, Summers is said to be favored although reports of his irascibility persist. Outside those circles, Yellen has a great deal of support. Although generally considered brilliant, Summers is also thought to be occasionally wrongheaded as well.
Meanwhile, the attacks and defenses continued. New York Times columnist Paul Krugman accused Summers backers of an unjustified, misogynist attack on Yellen. American Enterprise Institute’s Katharine Cook defended Summers’ 2005 statements at the National Bureau of Economic Research luncheon that got him booted from Harvard’s presidency: “Summers’s comments demonstrated his dependence on hard data, propensity for problem-solving and willingness to voice unpopular views. All of these are important qualities in a leader. For the most part, however, Summers’s 2005 comments don’t shed much light - positive or negative – on his preparedness to serve as Fed chair.”
New York Times columnist James B. Stewart has written: “Everyone I spoke to agreed that President Obama was likely to appoint someone more ‘dovish’ on monetary policy than Mr. Bernanke – that is, someone who favors an easy monetary policy to raise unemployment worries less about inflation. That would seemingly include the Fed vice chairwoman, Janet L. Yellen, widely viewed as the front-runner to succeed Mr. Bernanke.” Yellen’s advantage may be less about policy and more about personality. She is seen as more collegial than the sometimes abrasive Summers. A survey of leading economists by USA Today found that they expected Yellen to be named – by a 32-4 margin over Summers.
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June 24, 2013
The 10 most dangerous cities in America
After falling for five consecutive years, the number of violent crimes across the U.S. rose 1.2% in 2012. Based on data published by the FBI, the increase was even greater in some of America’s largest cities.
According to the FBI, violent crime includes murder, nonnegligent manslaughter, rape, robbery and aggravated assault. In some cases, the cities with the highest violent crime rate, including Flint, Mich., and Oakland, Calif., had high rates in all four categories. However, most of the most violent cities tend to do very poorly only in a few categories.
From 24/7 Wall St., based on the FBI Uniform Crime Report, the cities on the following pages are the 10 most dangerous cities in America.
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How $50,000 bet on VIX spike could pay $27 million in two weeks
September 5, 2013, 3:48 PM
Russell Rhoads blogs Thursday at CBOE Options Hub that traders are still abuzz over a position taken earlier this week. The “1 by 8 Call Backspread” cost $50,000 to put on but won’t pay off unless the VIX shoots above 28.43 by Sept. 17.
The VIX (VIX -0.69%), affectionately known as the “fear index,” is in the midteens at the moment.
However, if volatility increases sharply — say, from U.S. military action in Syria or Congress’s refusing to raise the debt limit — the trade pays off big time, adding $175,000 for each 0.01-point gain in the index above the break-even point.
If the VIX hits 30 before the options expire, the trader will be up more than $27 million.
The VIX’s 52-week high is 23.23. It last traded above 30 in late 2011.
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