Beginner Financial Investing.

[SMASH]

(My version of) The Coffeehouse portfolio is currently down @ 5.5% from it's highs. I expect far more to come before it heads back up the mountain though...

Agreed. Still good so far. Nicely done.

I keep forgetting to metion the important factor of the exchange rate at work here for those in the US. I've said many times people should diversify out of the US dollar and that's in part why I'm almost exclusively choosing stocks on foreign exchanges here (mostly Canada, which anyone can buy in the US although some do cross-trade on US exchanges) - these give you a currency hedge.

When this sample portfolio started in early '06 $1 USD was worth $1.16 CDN (6 years ago it was $1.55). It's now down to $1.05

So when we started that $1000 would have cost $862 USD and with the gains posted and exchange rate changes that'd now total $2125 USD which is a gain of 147% in USD rather than the nominal gain of 121% mentioned yesterday.

In other words a US investor would have had to post pretty great gains just to break even with the collapsing USDollar, fees, and opportunity cost of interest rates for the past 6 years. In other words the US markets haven't gone up at all in that time, which is clear if you check a chart of the US indexes measured in gold or Euros.

That'll only get more true in the future IMO. Gold and foreign stocks is a good way to hedge - ideally foreign gold stocks I guess.

Here's another illustration of the above concepts. All those rocketing house prices the last few years? Measure it in a real form of money such as gold and ... ooops! The value was going down while the prices were going up. It's even worse if you measure in Euros or Kroner or whatever. Currency devaluation is theft and fraud by the Fed, and it's costing everyone no matter where they live or where they spend. Get hip to it.

 

[SMASH]

On Sept 3, I posted that I was getting back into uraniums and made some ticker suggestions for what I felt were good buys.

The ones I named are all up between 20% and 65% in the past couple weeks, so with the Fed meeting looming tomorrow with its potential impact on the markets I suggest anyone having taken "bottom fishing" positions on these speculations to consider selling half holdings to book some gains then perhaps re-enter once the stocks settle or pull back somewhat.

The sample portfolio itself is +130% in 18.5 months, and if measured in real terms for people in the States (factoring the slide in the US Dollar, since these holdings are in Canadian Dollars partly as a deliberate hedge against the falling US Dollar) it'd be +159% and at its all-time high.

The Fed monkeying constantly with interest rates and the anticipation/reaction to Fed commentary/activity is already way overdone for anyone who follows the financial press, so I won't comment or speculate on it here.

 

[SMASH]

The tone here is strident. I can't seem to make the points any other way. I'm honestly sorry if that bothers anyone who cares to understand this stuff, so don't miss or ignore the message because of it. It's the message that counts. Don't take my word for it - check for yourself in the financial news, start a dialogue with friends and family about it, etc. Get hip to it.


This thread is two years old now. Looking back on it, it's hard to imagine anyone reading it and not saying "damn, that guy was dead-on ... wish I had given this stuff more thought." History repeats. In two years people will read this and say the same. In my opinion.

Why do I bother? I think it's important to me as a self-check and in re: offering something of value, if not bass-related. Anyone can invest successfully on paper or in hindsight. With real-time calls and predictions months or years ahead, it's quite a bit tougher. I'll stand on my ongoing record in that regard, which in part is so good because of excercises such as this post.


With markets back near their highs on the bounce after Benanke cut the rates, and the fiscal 3rd quarter coming to an end today, I lightened-up after huge gains in the uraniums I mentioned buying back on Sept. 3rd in this thread. It is not uncommon for a slide in stocks to start on the 1st of a month, especially if that's a new fiscal quarter.

I'll keep medium to regular-sized positions in these stocks for the longer haul, but on a few of these I had bought tripled positions so I sold the excess holdings and might buy back lower if they slide in price. I mean personally, not in this thread's example portfolio which by the way is currently +140% in 19 months, or if factoring in US Dollars that'd be +178% ... no, that's not a typo).

1-month charts here for the specific stocks I mentioned buying on the 3rd:

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Markets are probably due for a slide in the near-term as I doubt the credit/mortgage woes are quite over (more on that below). Longer-term I expect new highs in the markets, mostly artifically due to the sliding dollar (more on that below too), but those are artifical gains when measured in terms of actual things like gas, oil, gold, a can of Coke, milk, etc. It is not uncommon for markets to appear to be going up in countries that are having tough times economically with a devaluing currency. However those holding shares in that economy are losing.

For example, I have some US stocks that are up 25% in the past 9 months but I am down thousands of dollars on those holdings due to the currency slide. Another way to look at it - the prices of houses in the US have not gone up *at all* in 30 years when measured in ounces of gold. That's very heavy. Think about it.


Currently I'm looking at shorting and buying puts (options - like shorting but with greater leverage and risk but potentially much greater rewards) on some US airline stocks and financial stocks as a hedge. With continuing pain for the average North American consumer and rising oil prices, which I expect, airlines will suffer as will financials.


The Canadian dollar is worth more than the US Dollar now. Yes, more. As it was 30 years ago and I've been predicting for about 5 years now. People used to laugh at me for doing so, and I'm reminded of an incident 2 years ago at one workplace where I discovered their province-wide major retail system, the biggest in the province, didn't work properly with an exchange rate over par (here it's not uncommon for retailers to take USDollars at the appropriate exchange rate). I insisted it be fixed, and some felt it was a waste of money to do so and a waste of time to even talk about it.

We fixed it, and in the past 3 months alone and without warning the USDollar lost almost 12% again the Canadian dollar. That kind of move is collossal in currencies, not to mention when it happens so quickly.

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Is that news in the States ... literally - does it make the news? It should be the lead story. Does the average person realize how much debt is piling up and how badly the USDollar continues to crash? Is that taught in schools? People need to know. It should be a major campaign issue. It's not the "Ay-rabs" gouging on the price of gas, it's the dollar that's collapsing. Very big difference.

That's not political, it's just economic fact.

“The Senate has given final approval to an $850 billion increase in the public debt,” reports Dave Gonigam. This hike marks the fifth since President Bush took office and will allow for a national debt of $9.8 trillion.

The fifth such adjustment in 7 years. To the debt "cap". What good is a cap if it just regularly gets adjusted upwards? How is that conservative? Economically I mean, not politically. *Everyone* in government is to blame, not just one side.

Well, on the bright side it makes US assets that much cheaper for foreigners to buy.



That's another thing I've long predicted when I rant that modern wars are fought economically not with bombs and guns, but we in the West didn't get the memo :

Invalid Link Removed Scary, eh?

"As an asset class, reports the Financial Times this morning, the SWFs have invested $35 billion in banks, securities houses and asset managers in less than two years.
Morgan Stanley analysts recently guessed that $26 billion of these investments were made in the last six months alone."

That means that "they" are buying "our" financial system. "They" are also buying major world assets such as oil fields and oil companies, uranium and gold deposits and producers, etc. etc. This is almost daily news in the financial press now.


How are "they" doing it? With dollars we gave them in exchange for big screen TVs, Hollywood schlockbusters on DVD, and other such junk. Can't blame "them". Why hold onto a collapsing currency - losing billion$ and billion$ each year as it devalues? Buy assets instead. Don't invade the countries of your "enemies". Just buy their countries instead. Same as "we" did to the Indians back when. Again, history repeats.

That's not xenophobia or any such thing. It's just the reality of what's going on in the world economically.


My view remains as it has been the past several years, repeated often, that people will come out way ahead by getting out of US Dollars and into other currencies or better yet gold or gold stocks. That said, we're due for a reversal in the near term and gold has run hard lately and the dollar has fallen fast, but strength in the dollar should it materialize is to be sold and weakness in gold bought in my opinion.

Same thing with the USD vs. the Euro, Pound Sterling, Aussie Dollar, etc. That's not an anti-US thing or pro-Canadian thing, please understand. It's a dispassionate observation of an extremely important thing that's happening which will only accelerate in pace if the US Fed continues to cut rates.

Ironically, this will not bail out mortgage holders as it has been suggested it would. It bails out big-time business and corporate borrowers and banks that were lending recklessly. It hurts Joe Sixpack because these cuts have the effect of causing long-term interest rates to go *up*, which is the rate that the majority of mortgage holders will end up paying.


An update on the housing market by Bill Bonner, co-author of Empire of Debt which I stress again as a must-read that couldn't be more timely. A coming housing price collapse another thing I've harped on about for a few years now. IMO, it has only just begun.

“ A fresh blow to the housing market ,” is how the Financial Times describes it.

The Daily Telegraph comes up with a more bodacious headline:

“US housing market in freefall as prices crash.”

And follows up with this:

“Sales of new homes in the US plunged in August at the fastest rate since modern records began, prompting fears the economy is sliding into a full-blown recession...

“Total sales dropped 8.3% on the month and are now down 21.2% during the past year, a sign that the credit crunch has cut off mortgage funding for large numbers of people.”

Both papers give us new data on house prices:

“The median home sale value fell 7.5% from $246,200 to $225,000, its lowest since January 2005,” says the FT.

Two and a half years of price increase – wiped out.

But in go-go areas, even bigger gains have gone-gone. Miami was one of the hottest housing areas in the nation. Now, its condos are being marked to market. Here’s the report:

“There are at least 50 buildings under construction or nearly completed in the downtown Miami area alone, consisting of about 20,000 units,” reports David Sutta from CBS4.com in Miami .

“To move inventories along, developers have gone to the auction block to get them sold.

“On Thursday evening, at the Miami Biscayne Bay Marriott Hotel the gavel struck as auctioneers sold about 20 units in the 119-unit Platinum development owned by Alex Redondo.

“When it was all over, [one bidder] walked away with a two bedroom unit on the 19th floor. To put the price in perspective, a one bedroom priced at $350,000 sold on average at auction for $176,000, almost half.

“A two bedroom unit that sold for about $600,000 last year, sold on average for $295,000.”

You might be thinking...well...one man’s loss is another man’s gain. But think again. While the bidders got apartments at half-price, the owners of other apartments saw their assets lose 50% of their value almost overnight. A week ago, they may have had an apartment worth $600,000. Now it is worth only $300,000 – and falling.

What happened to that $300,000? It vanished. Poof. That’s what put the ‘d’ in deflation. Money d-isappears. Wealth d-issipates. Values d-ecline. The economy d-egenerates. People get d-epressed.

http://www.dailyreckoning.com/

 

[Bassic83]

I agree with you that it SHOULD be a lead story- if not THE lead story. But, in America, most people think in terms of monthly payments to paycheck ratio. I've been harping on some of my coworkers, and my family, to PAY ATTENTION! But, alas, they don't understand, despite my explaining it to them. The monetary collapse of the US is imminent, and I've gone so far as to ask my employer if they would please pay me in Euros. They laughed at me, too.

I'm not in a total panic, but I am indeed worried (and rightfully so!)...a small blurb that I noticed a few weeks back, and I mean SMALL, said a worrying thing- when the market had a 300-point drop, and the mortgage market started to collapse, the Fed responded by "injecting $17 Bn. into the market to stimulate trading"...about two days later, when that had little effect on investor confidence, they did it again...$14 Bn "injection of capital". Where did that money come from? You mean to tell me that the Fed had $31 Bn in CASH just laying dormant in a vault??? NO- they just fired up the presses and printed up some bills. Which DEVALUED THE DOLLAR! Nobody I know and talk to noticed it but me! I've moved nearly all my 401k money into foreign stocks, and I didn't get hit as hard as a few of the people I know. But some of the people I work with have almost all of their money tied up in company stock, which I strenuously implored them NOT to do...they continue, and wonder why they aren't making the gains that I am.

Just the devaluation of the dollar is helping me achieve better gains than my coworkers. In a little over two years, I've seen my 401k go from $0 to $30k. My friend and coworker, who started the same time as me, and signed up for his 401k at the same time as me, with the same percentage, has $8k in his account...I've tried giving him advice on his portfolio, but he is a chaser, and doesn't have a clue about the markets. I don't claim to be a pro either, but I'm not COMPLETELY clueless...

Just wish the American people would wise up and quit over-spending, and take the time to learn some basics.

 

[SMASH]

I agree with you that it SHOULD be a lead story- if not THE lead story. But, in America, most people think in terms of monthly payments to paycheck ratio. I've been harping on some of my coworkers, and my family, to PAY ATTENTION! But, alas, they don't understand, despite my explaining it to them. The monetary collapse of the US is imminent, and I've gone so far as to ask my employer if they would please pay me in Euros. They laughed at me, too. ....

Sounds like you're aware of what's going on and trying to wake others up. Kudos. People will get hip, but far too late. History repeats.

You can protect yourself though. If you want to get paid in Euros, gold, or whatever, check out Everbank. You can have accounts in whatever money you please. http://www.everbank.com/

Whatever you do, don't be conned by the scam inflation figures the gov't puts out which make it seem like all is well. Check the real prices of gas, milk, gold, wheat, cars, etc. The DOW appears to be at an all-time high measured in crashing dollars, but it buys a lot less *real* assets than it did years ago when it was much lower in dollar terms.


Speaking of crashing, I never considered this scenario. It's both comical and tragic. Some sellers can't afford to pay the costs to sell their homes which they can't afford to keep because they can't afford the mortgage :

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Accelerating the housing crash
October 3rd, 2007

On top of the dreadful news that pending home sales tumbled 16.5% in just two months, we're now learning a lot of homes that are under contract might not get sold after all — and not because the buyer can't get financing in a suddenly-tighter credit market.

No, in a growing number of cases the problem lies with the seller.

It seems that for those homeowners on the margins — those with some but not much equity — the costs of a real estate transaction are turning into a kick in the pants.

The problem seems to start, she said, with those formerly easy-to-snatch mortgages that cover 95 or 100 percent — or more — of the purchase price.

Yep, thanks to Bubbles Greenspan's EZ Credit Emporium, more and more, the seller finds himself or herself writing a check on closing day… and in some cases, the seller just doesn't have the funds to cover it. Chicago Tribune real estate columnist Mary Umberger hears from an understandably anonymous source:

"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.

Going over a settlement sheet from a recent transaction that did close, it becomes very clear why others aren't. This home cost just under $600,000:

Reeling off a few of the line items, she notes that the seller had to cover $1,800 in title insurance, a $75 water-certification fee, nearly $900 in tax stamps to Chicago and Illinois; a $550 attorney's fee; a $40 "overnight processing" fee. Those and numerous other charges drove the closing costs to about $3,400.

And that didn't include the pro-rated property taxes for which the seller was liable and which weren't covered by the escrow account. In this case, the seller had to set aside $6,000 from the sale of the house to cover the taxes.

Then, ahem, there's the commission.

"If you're listing a house for $410,000 and the mortgage is $390,000, you've got a problem," she said, in a bit of an understatement.

Based on the 5 percent rate she says prevails among city real estate agents, a seller in her $410,000 example would pay a $20,500 commission.

Ouch. While there aren't any numbers that pin down how often sales are falling through because the seller is strapped for cash, the agent says the trend is strong enough to change the way her office does business:

My friend said her fellow agents had been admonished by management that they should delicately wrestle their sellers' finances to the ground before matters progress too far.

"There used to be a rule of thumb that you needed to be able to set aside 10 percent of your sales price," she said. "Five percent covered the commission, and another 5 percent covered the miscellaneous fees, the cardboard boxes and the movers."

Now, in our over-leveraged age, that number seems just too tight.

"All those fees, they don't seem so big when you're looking at a $50,000 check coming your way," she said, her voice trailing away. "But when you've spent all your equity on a new car …"



China has the right idea :

While home sales stagger and fall in the U.S., sales in China are entering their own bubble. From January-August, sales of homes increased a whopping 30.9% from the same period in 2006.

The Chinese government has installed some amazing regulations to cool the housing blaze. Buyers of second homes must produce a 40% down payment. Such purchases will also be charged 1.1 times the benchmark lending rate, up from 0.9. The government also now insists on a 50% down payment for all commercial real estate transactions.

But prices keep rising. Property prices in Beijing were up 12% in August, year over year -- 20% in Shenzhen, a booming city outside of Hong Kong.



This one I've been predicting for some time now, and when it happens it'll be a knife in the Dollar's cooked goose ... or something like that :

Yesterday we mentioned briefly that currency speculators in the Middle East have been predicting a revaluation of local dollar-pegged currencies. “Frenzied traders bid up the UAE dirham and the Saudi riyal to near record highs as a result,” reports Joel Bowman from Dubai. “Saudi British Bank did its best to calm the waters by saying, ahem, it would only dump the buck, ‘if the dollar weakens at an alarming rate.’"

Now it’s OPEC’s turn: “International banks and analysts have hinted at the possibility of the OPEC changing the price of oil to a currency basket, rather than the dollar,” says Joel. With Iran all but there… and Venezuela not far behind, we’re not surprised.

"If the dollar were to lose its luster as a reserve currency,” reads a note of concern released by Merrill Lynch, “this could prove disruptive to the global financial system."

 

[Bassic83]

Another little item that I've been following is that China seems to be rattling the sabre as far as dumping their dollars. If that happens, we're all screwed here in the US. And Canada. And a whole lot of other places. What's sick about it is that the US keeps selling debt to China! That is a quintessentially suicidal move, IMO. We need to get a little more leverage against world monetary threats, not play into them! It's unnerving, to say the least, but at least most "Joe Six-Pack" types aren't fazed by it.

On another note, my little portfolio is worth a little less today, I had $300 allocated in a variety of stocks and ETFs, even after selling a couple dogs for pennies last year, I'm still up to $360. That's 20% not counting my losses. The stocks I sold off were XMSR and SIRI. They both cratered soon after I had bought them at $25 a share. I think I sold them at 14 and 9.50, respectively, plus the trade fees made it a total loss. I cleared a penny on each. If you factor in the $50 I lost on those two, I've done even better. But it's still the same $300 I started with, plus some. $361 and a little change. Not too shabby. I've seen my whole portfolio swing as low as $240, ut it recovered nicely. It was just a little experimental account, nothing serious.

Anyway, thanks for all the advice in this thread, from all the contributors.

 

[SMASH]

Market way overbought, IMO, with a new leg down about to get underway.

Personally, I've sold out of most of anything I bought the past couple months as there've been fast sizeable gains to pocket and I think I can buy the ones I'd like to keep long-term soon at lower prices.

I've added considerably to shorts and puts. Pputs are leveraged options betting stocks will go down namely - Home Depot, Lowes, Countrywide Financial, US Airways, Continential Airlines, the Dow Jones Transportation Average, General Motors, MBIA, and Bankrate.com.

In the example portfolio, which is at its highs thus far, I'll lighten both speculative and value holdings to ensure there's less market exposure and some cash with which to buy any deals that emerge if markets do indeed sell off.

So I'll sell RH for 80% profit, FRP for 28% profit, and NEM for 18% profit. That'll leave :

ticker.exchange    # of shares held    price paid    current price   % gain

BAY.v                  100               1.61           1.08             (33)
HPS-A.to               100              11.90          14.59              22
ER.to                  200                .85            .67             (21)    
RSG.v                  400                .17            .31              88

Cash $688      

[b]Net Gain to date per the trades in this thread is 151% in 19 months, 
including a 30% gain in the past month alone.  Sweet.[/b]

If measured in real terms for people in the States (factoring the slide in the 
US Dollar, since these holdings are in Canadian Dollars partly as a deliberate 
hedge against my now-realized prediction of a falling US Dollar, which has gone 
down significantly again in the past month against most major currencies by the 
way) it'd be +199%

The major holding, HPS-A has their quarterly and annual numbers due later this month so that should be interesting. It is a great value holding in my book so I maintain that as an "anchor" holding along with some speculations for balance.


These are just examples of some of my trading. Could be yours, or not, but that's up to you to live and learn and not just copy what you see on a message board.

 

[dangnewt]

Awesome! Care to share?

Some have been putting their ideas and plays out here, and I'd love to read about some of yours.




Why'd you quit? Those that I know that are passionate for investing couldn't quit any more easily than they could quit breathing.




Maybe that explains it. I doubt the many people and "experts" who went broke recently in managed funds that were "too big to fail" would agree. Good customized portfolio management is never cheap or easy. However, learning what's really going on is - Invalid Link Removed , Link Removed , Link Removed



[EDIT] I guess the State of Maryland is an expert too. LOL. This will get sooo much worse before it's over. From Stansberry today :

Speaking of the insane... reading the local paper I found this:

"Nearly 4,000 homebuyers turned to the state [of Maryland] for their home loans last fiscal year, a record for Maryland's 28-year-old loan program... The state made about $767 million in low-interest loans to buyers." That's about three times more than the previous - 1995 - record of $250 million in loans. Why the huge jump in mortgage issuance by the State of Maryland? They're now offering 40-year, interest-only loans, loans equal to 99% of appraised value and 'down payment assistance,' which nine of our ten borrowers required to close. Stephen Silver, the CFO for Maryland's department of housing, says of last year's 4,000 borrowers: 'I'm sure we are picking up some people that were being steered toward subprime...'"

So... the State of Maryland... in all its infinite wisdom... has decided to use some of the 7.5% of my income it taxes each year to compete in the deadbeat mortgage market. Wonderful.

Smash,
Most of your posts are on the money and informative as well as entertaining. However, I have to defend the honor of the Maryland Department of Housing and Community Development from the slings and arrows of Stansberry.

There is nothing inherently wrong with a 40 year interest-only 99% LTV mortgage if the borrower has good credit and good verifiable income and the payment schedule doesn't readjust too rapidly. The state's program also requires borrowers to take homebuyer education classes which have proven to result lower the foreclosure rate. It all comes down to properly evaluating risk.

The subprime loans that are tanking were given to people with poor credit, no or shaky income, and were poised to readjust at high levels. That Wall Street was able to slice and dice these loans and sell them to well-heeled investors is proof that a sucker is born every minute.

The CFO's comments probably refered to the fact that some borrowers who would have qualified for better loan terms (that means they are not deadbeats) were talked into a crappy loan by a sleazeball mortgage rep. To the extent that the Maryland program is attractive enough that qualified borrowers are finding it and using it is a good thing and will likely spare a lot of Maryland residents from financial turmoil and will help preserve everyone's housing values by reducing the number of short sales and foreclosure sales in the future.

I'll apologize up front if my tone is a little strident. As a former state housing bureaucrat myself, one of my pet peeves is the shoot-from-the-hip commetn that "our (fill in the blank - local, county, state, federal) government can't do anything right. Blah, Blah, Blah." Well, in the area of mortgages to low and moderate income people - state housing agencies have been stellar and Wall Street gave us gave us the subprime mess.

 

[SMASH]

Smash,
Most of your posts are on the money and informative as well as entertaining.

Thanks very much !

However, I have to defend the honor of the Maryland Department of Housing and Community Development from the slings and arrows of Stansberry.

There is nothing inherently wrong with a 40 year interest-only 99% LTV mortgage if the borrower has good credit and good verifiable income and the payment schedule doesn't readjust too rapidly.

There's so much wrong with it I don't know where to begin, especially given how grossly overpriced and overvalued housing is currently, in particular in Maryland, and how fast prices are tanking, how extended these buyers are with a great liklihood of imminent recession along with costs of living skyrocketing including 50% increases in utility rates in Baltimore. Many will not be able to pay in the future, no matter how good their credit seems now.

Imminent recession? Don't take my word for it, here's what the Comptroller General of the United States has to say about it - [Invalid or Expired Link Removed] "I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility," Walker tells Kroft.

Prices have been coming down hard in many cities across the US and especially so in that area, which is very easy to verify if you care to, and was expected by anyone with a clue about investing and real estate. So, people with a 99% mortgage are possibly already underwater, meaning it'll cost them money - a lot of money they do not have - to sell, meaning they can't sell, and since many will not be able to pay their loans either then the State is stuck with it - now a defacto real estate investor at the top of a colossal bubble in prices. That is not good or responsible government.

The deadbeats bring down the house of cards even for those who have "good credit" as you say. And if you want to say that "well, house prices always go up" the fact is that they do not.

I've shown recently in this thread that housing prices in the States are at the same level as they were over 30 years ago if measured in real money such as gold rather than crashing US Dollars since those crashing dollars give the illusion that values are going up. Prices do not = values.

And that was before housing prices tanked further and gold jumped significantly recently so average houses are now worth *less* than they were 30 years ago if measured in gold, oil/gas, milk, average wages, etc. Factor the massive interest costs of a 99% multi-decade mortgage into the price and it gets that much worse. And it'll get even worse than that going forward for quite some time - maybe a generation, and maybe forever as many learned and respectable scholars of economics and economic history can very convincingly argue that the sun is setting on the "American Century".

Back to pricing though, measure the DOW in gold or oil or milk or corn or average wages and see if it is at an all-time high and you'll find it's at roughly 50% of it's highs instead. Gotta adjust for inflation, otherwise the best "values" for investing in goods and housing would be in Zimbabwe. Invalid Link Removed

"How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.

No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.

The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill"

You can guess what housing prices there are like. Maybe the State should "invest" in buyers there too? Funny enough, at the start of the decade their inflation rates were the same as ours are now. Can't happen here? Probably not, but this extreme example illustrates the less obvious inflation that is already happening here and is getting worse, and people will suffer and too late will ask "how did this happen?"

For the State to be gambling on asset bubbles and funding speculators in same is unconscionable, especially in a Republic. The gov't has no business doing this, no expertise in doing this, no success in doing this, and is enabling people who, if they are such worthy borrowers as you say, should have no trouble getting loans via proper channels and letting the State get on with their actual role in society.

The State in this case is helping to inflate the housing price bubble, which costs potential buyers who can actually afford to buy a home rather than buying a loan by the fact that the prices are jacked-up by the irresponsbile and speculative buyers some of whom are bankrolled by the State. Now the current popping of said bubble will bring down the values of the homes of responsible buyers too.


What incentive is there to keep paying on a $500k mortgage when the house is now only worth $350k on the market and is assessed at $280k and prices are falling monthly? This is not an uncommon example, and credit card debt is at all-time highs to boot. Defaults, foreclosures, and the percentage of price drops will also soon be at all-time highs and headline news.

Why should the taxpayers be on the hook for the inevitable result of this? What right do people have to own a house (I mean own a mortgage) if they need 99% financing? You say they're sent to "homebuyer education classes", which sounds progressive, but any responsbile homebuyer education class should tell people thinking about 99% financing to "just say no" and get a clue along with a downpayment ... and maybe point out to them that currently renting is a *much* better deal.

The state's program also requires borrowers to take homebuyer education classes which have proven to result lower the foreclosure rate. It all comes down to properly evaluating risk.

Which the State clearly failed to do, and history will prove me quite right on this.

The subprime loans that are tanking were given to people with poor credit, no or shaky income, and were poised to readjust at high levels. That Wall Street was able to slice and dice these loans and sell them to well-heeled investors is proof that a sucker is born every minute. [...] Well, in the area of mortgages to low and moderate income people - state housing agencies have been stellar and Wall Street gave us gave us the subprime mess.

Practically all real estate and the entire economy is sliding along with the depreciating dollar these assets are nominally priced in. Check the prices in real money terms and then you'll see that it is hardly just CDOs that are tanking.

Wall Street might have given us this mess, though I'd argue it was the Fed and the White House via easy credit policies and rampant and irresponsible debt spending respectively (why are interest rates openly manipulated by the government in a supposedly free and capitalist society anyway?), but the State bought into it and the taxpayers will be left holding the bag as always. History repeats, as I like to say.

I'll apologize up front if my tone is a little strident. As a former state housing bureaucrat myself, one of my pet peeves is the shoot-from-the-hip commetn that "our (fill in the blank - local, county, state, federal) government can't do anything right. Blah, Blah, Blah." .

I thought the tone was good and clear, and a variety of informed views is vital. Kudos. Say what you mean and mean what you say.

Time will tell if Stansberry is correct (and obviously I agree with them) or not. I think that's beside the point of how well-meaning State housing agencies and their staffs are though.

The State simply has no business doing this, and will lose terribly funding speculators in 99% mortgages (anyone with a 99% mortgage is simply a speculator and nothing but, and a doomed one at that - doomed to have paid far too much in even the best-case scenario).

I'm comfortable continuing to short and buy put options on the lenders and homebuilders, and I'd short the State of Maryland if I could. I've no doubt the housing bureacrats are good people, but the State tself is nuts for doing this and arguably in abrogation of its responsbilities to the people and of its intended function.

IMO !

 

[joelb79]

I'm beginning to think that buying a house is a loosing battle where I'm sitting. Even with 20% of my rent payment going towards home equity, this is a loosing battle quick requiring me to purchase a home for $82,000 that might be worth 20% less than its current value when it comes time to close the deal. I've met tons of people who were flipping homes prior to the mortgage crash earlier this year and all of them have lost tens of thousands just trying to get out of the home.

Loosing money, thats all I hear about these days when it comes to Real Estate. This scares me enough to think its time to think differently about attaining wealth which might include renting for as cheap as possible and putting the rest that I would be paying into mortgage into a nice high yield investment account.

 

[dangnewt]

Smash,

We'll have to disagree about the definition of a speculator in real estate. A person buying a house that they intend to live in is not a speculator regardless of the amount they put down - they may be extremely leveraged and you are absolutely correct that in the event of an emergency they will be under water; but if they don't lose their job, they will pay their mortgage and life will be fine. You are right that they may be losing value in comparison to gold or you name it - but they will have locked in a good chunk of their monthly nut so that as their earnings rise, the percentage of their income that goes to housing will decline. All a homebuyer cares about is whether the value is going up or down when measured in dollars - you may think this is nuts, but it is the way I think about it as well. I lost $30,000 when I sold my first house as it was during a terrible economic recession - I am not consoled by the fact that I actually broke even when measured in grams of gold. Fortunately, my current house is worth double what I paid for it 11 years ago.

You are correct that the state's action does tend to prop up the prices in a market as it is bringing more buyers to marketplace. To people who are selling or really to anyone who owns a home; this would be considered a good thing.

When you look closely at the markets that have suffered the most - Southern California and Florida - I think you will find true speculation by investor-owners. The housing declines in those regions are a result of the market finding its equilibrium. In the Boston metro region, the biggest declines are in those markets that were fueled by the subprime NINJA loans "no income no jobs or assets" - the prices were artificially inflated because truly unqualified buyers were entering the market with adjustable rate mortgages that they had no prayer of ever being able to handle the first adjustment. The prices in those areas are going through a wretching readjustment. But in most of the region, the declines are more modest and IMO, more a function of giving back some of the unrealistic gains of the previous 8 years.

 

[SMASH]

Smash,

We'll have to disagree about the definition of a speculator in real estate. A person buying a house that they intend to live in is not a speculator regardless of the amount they put down

Actually we agree on that point. Big difference when you live in the place and intend to stay there, vs. hoping to flip it at profit. I meant they are speculating in their ability to pay, and to handle the stress of the payments.

I don't know them personally, but on average I do know such a heavy burden is a very bad bet when you factor the way the economy and wages are going, the divorce rate, a typical household's other debt and credit card debt, etc.

You seem very hip financially. Would you lend people money to finance 99% of a home these days? I sure wouldn't. Neither should the State.

they may be extremely leveraged and you are absolutely correct that in the event of an emergency they will be under water; but if they don't lose their job, they will pay their mortgage and life will be fine.

Sure, if by "fine" you mean paying more than the hyperinflated price of the home in interest charges alone over the course of a mortgage. That's how it works out with a 99% mortgage at even very conservative interest rates and lengths.

Factor that interest rates can go waaaay higher (and have in recent history), and all the taxes and maintenance costs (many houses are depreciating assets in fact - not the property but the house itself I mean) and the picture gets even darker.

In case of emergency? A 99% mortgage is itself a very clear sign of emergency.

And by "fine" you must also mean that it's fine that one is paying a 99% mortgage on a house on which the price (value?) just got slashed significantly months after you bought, http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-19752707.htm To me, paying an extra $100k and then another $100k in mortgage interest alone on top of it is not fine. Recently in Florida some condos that people paid $600k for within the past year sold for $300k or less at auction. And they couldn't even sell all the inventory. That means that if someone was fine with paying $600k plus interst on it then now they're fine with also having a value of only $300k since that's all they sell for on the open market ... if they can sell at all. That means if they have to sell due to hardship, divorce, or a new job elsewhere, if they're lucky enough to find a buyer then they still owe the bank $300k and they owe the realtor their fees and they owe taxes. This is actually happening to people. And the State is funding them in some cases. Not fine at all, IMO.

Like you said though, if they live there for the long haul and are OK with what they're paying it shouldn't matter. But they are fools for literally lining up overnight to buy homes that weren't even built yet, on 99% or similarly ridiculous financing, at the height of a price bubble.

You are right that they may be losing value in comparison to gold or you name it - but they will have locked in a good chunk of their monthly nut so that as their earnings rise, the percentage of their income that goes to housing will decline.

Earnings have not been rising in quite awhile. In fact they've been declining vs. inflation, and a major recession is arguably due thus making things worse.

All a homebuyer cares about is whether the value is going up or down when measured in dollars - you may think this is nuts, but it is the way I think about it as well.

Then that homeowner is not thinking clearly, I respectfully suggest. Dollars are a medium of exchange. They are not money, and they are not assets. They can be, and are, printed on printing presses thus have no real value whatsoever, especially the way the governments are currently printing and borrowing dollars and wasting them.

What you can actually get for those dollars has value, which changes from day-to-day. Let's all ask our fathers, who would surely choke if they heard about 99% mortgages, what gas, milk, a foreign vacation, a car, or a house cost in dollars when they were young.

So, what the homeowner has to care about is whether the *value* (not price) has gone up or down. In other words, if this homeowner bought 10 years ago and sells today, can he get as many Honda Civics, tanks of gas, bottles of beer, rounds of golf, root canals, Alaskan cruises, MIA P basses, boxes of cereal, etc. as he could get 10 years ago. That is a measure of "value", not crashing dollars.

I lost $30,000 when I sold my first house as it was during a terrible economic recession - I am not consoled by the fact that I actually broke even when measured in grams of gold.

You should be, I respectfully suggest. Here's why - it's likely that even at $30000 less, for the money you got you could get as many lawns mowed, tanks of gas, bottles of beer, etc. etc. for that money as you could when you bought the house.

Much more importantly, since you can't live in a bar of gold or box of milk, if you were living in that house and moved to a different house, all that matters is that for the price you received you can get the same kind of house/neighbourhood/safety in your new place. If so, then you broke even no matter what the nominal price difference in dollars was between when you bought and sold. Anything above that you paid in mortgage interest, lawn mowing, new roof, etc. was effectively money spent on rent in the old place, even if you "owned" it on paper.

The nominal value of my home has gone up a lot in recent years. If I sell it, then on paper I'll have a profit. Once I pay realtor fees, taxes, the new fridge, the cosmetic touches to pretty it for sale, etc. it won't be as big a profit as I might pretend when bragging at the office water cooler about being a real estate tycoon as people like to do these days, however it's a big profit even after those costs I listed.

But it's artifical, because the price of everything else has gone up in the meantime a commensurate amount ... including inevitably the price of the new home I must buy unless I plan to live in a box beside a dumpster. So to buy as nice a home in as nice an area, I will have to spend at least as much. Plus moving costs, hassle, etc. etc., so I don't come out ahead at all.

That is why, as you correctly stated, there's a big difference between a home someone lives in and a house someone "invests" in. A home is no more an investment than dollars are assets. So if you don't care about the amount of gold you can get, that's fine, but what you should care about is the amount of comperable home and neighbourhood and it's relative crime rate and good nearby schools you can get and that's usualy a 1:1 relationship so it's a wash.

Fortunately, my current house is worth double what I paid for it 11 years ago.

And everything you need to buy to live is pretty much double too, and rising. And God help you if you want to vacation in Europe, in which case you're falling behind. The difference in price between what you bought and sold is not a measure of worth. The difference in what you can buy between then and now, after factoring the real costs of ownership of that time, is a measure of the change in worth. It's all relative because while the numbers on the dollars remain the same, their actual value changes drastically - especially the way they're being wasted, or even gambled in the real estate markets as the State of Maryland appears to be doing. Those presidents pictured on the bills are surely weeping in their graves.

You are correct that the state's action does tend to prop up the prices in a market as it is bringing more buyers to marketplace. To people who are selling or really to anyone who owns a home; this would be considered a good thing.

Bubbles are a good thing until they burst. For many, including me, the tech bubble was a huge windfall. So was the tech crash. But for most people it was ruinous. Same thing with this housing bubble, which has only just begun to pop and already you can see a lot of wreckage. It'll get much worse, and I know this and will make (real) money betting accordingly because I know that history repeats.

Tomorrow the content at this link will change, but today it is relevant to this discussion and will be most days in the future : Invalid Link Removed

Same here : http://www.agorafinancial.com/5min/

"In a speech at the Des Moines, Iowa, Rotary Club that we captured for our documentary on the subject, David Walker, the U.S. comptroller general, pointed out that “38% percent of the federal budget today is deemed to be ‘discretionary spending.’ And it’s getting squeezed and going down every year.”

What is “discretionary spending”? It’s:

National Defense
Homeland Security
Foreign Policy
The Treasury Department
The Judicial System
The Executive Office of the President

“In fact,” says David, “all of the basic functions of government at the end of George Washington’s second term are now deemed to be discretionary.

“Sixty-two percent of government spending is either on interest on the debt or ‘mandatory spending’ like entitlement programs and other things that, quite frankly… did not exist at the founding of this republic.” "


EDIT :

". The government spent too much in the ’60s...and rather than own up and make good, the Nixon Administration defaulted. “The dollar is our currency, but your problem,” said Treasury Secretary John Connolly in a moment of spellbinding honesty. Then, in 1972, the U.S. trade deficit stood at $3 billion. Now, the trade deficit is nearly $3 billion every day!

[...]

In 1967, Henry Kaufman was made a full partner at Solomon Bros. in New York. His compensation: $25,000 a year.

Forty years later, the average hedge fund manager is taking home nearly $24,000 PER WEEK.

Meanwhile, the average U.S. weekly pay is only $841 - a figure that is about the same, in real terms, as the average 30 years ago.

And here is the question to which we keep returning, a question that is purely rhetorical:

How can people who don't earn more money still spend more?

Not only do we know the answer, we've given it to Dear Readers countless times:

They borrow.

Total U.S. credit debt rose during the Greenspan years alone from $9.8 trillion to $37.3 trillion - a 400% increase. That is the weight now pressing down on the U.S. economy. That is the burden that must be lightened.

And it is being lightened - in two ways. Many debts are going bad. House foreclosures in September doubled from the year before, for example.

The other way it is being lightened is by inflation. Every day, people add more debt…"

http://www.dailyreckoning.com/


EDIT : another good link in re: inflation. This expert's numbers are quite a bit higher than the "official" figures that omit things like food and gas - http://www.dailywealth.com/archive/2007/oct/2007_oct_15.asp

 

[SMASH]

I'm beginning to think that buying a house is a loosing battle where I'm sitting. Even with 20% of my rent payment going towards home equity, this is a loosing battle quick requiring me to purchase a home for $82,000 that might be worth 20% less than its current value when it comes time to close the deal. I've met tons of people who were flipping homes prior to the mortgage crash earlier this year and all of them have lost tens of thousands just trying to get out of the home.

Loosing money, thats all I hear about these days when it comes to Real Estate. This scares me enough to think its time to think differently about attaining wealth which might include renting for as cheap as possible and putting the rest that I would be paying into mortgage into a nice high yield investment account.

Friend, don't be pessimistic. Just be realistic. A lot of home buyers don't do as much research as they would to buy a bass. They know less about their mortgage than many of us might know about the woods on an MTD we don't even own or plan to buy.

Think it through, calculate the *real* costs in dollars and value over time, your real prospects in the future - not just based on fallacies about ever-increasing wages and housing prices but based in historical reality - and factor the opportunity cost of your down payment (if you pay cash for your home, well you could be earning a lot of money in interest on that cash if you put it in the bank instead - maybe more than it'd cost you in rent to live in a similar house and without the worry and cost of maintenance, for example) - and think about what life will really be like with that payment burden, and then lock in your interest costs for the duration and you can maybe live comfortably with whatever decision you make.

Again, what happens to the price of that house is immaterial because if it goes down 20% as you say then so too will all other houses like it. There are variations in different markets of course, but generally that's how it works. Building wealth is different than needing a place to live. See the post above for more on that, if you care to.

The question is, to my mind anyway, are you paying a fair price per square foot historically speaking? Are you better off than someone renting (do the math and you'll see that many buyers would come out ahead if they were renting their same home instead)? If so, then buy. If not, then don't.

Same thing for basses, cars, whatever.

That's just the way I look at it. It's also the way people who have lived through different markets look at it too, such as our grandfathers who would never borrow 99% and then decorate the place via credit card, I'll bet (see today's content in the link at bottom of previous post). That's because they'd lived through some serious recessions and hardships. At some point, our generation will too. Once again, history repeats.

 

[dangnewt]

You seem very hip financially. Would you lend people money to finance 99% of a home these days? I sure wouldn't. Neither should the State.

Thanks, housing finance is my profession. If I wasn't hip, I wouldn't be able to afford my 25% mortgage.

I don't have the capital to be lending anyone any money; but I wouldn't be surprised if one of my bond funds owns state agency housing bonds that are rely on the repayment of mortgages just like the Maryland program.

What the Maryland DHCD (and the Massachusetts Housing Finance Agency, and the others like them) do is very safe. They have tons of data that will let them predict what their foreclosure rate is likely to be given a particular set of buyer characteristics and they underwrite accordingly. For example, MassHousing's deliquency rate is 1.45% compared to 4.33% nationally and 3.82% statewide for conventional loans. The other thing that bears saying is that I am talking about fixed rate mortgages - that also makes underwriting a lot easier.

There are some local markets that experienced overbuilding and there are some nationally-traded builders that got stuck with inventory that they are selling at or below their cost. But it is not the end of the world - the laws of supply and demand apply to real estate - and sooner or later the prices will reach an equillibrium.

I'm glad that you are making money shorting lenders (especially the subprime idiots) and builders. Be careful that you don't ride that particular idea too far. Many homebuilders are sitting on buildable land that they picked up fairly cheap. As long as the population of the US grows, this land has real value.

We are 100% in agreement that buying a home should be primarily driven by what is the best way to purchase a basket of goods that includes shelter and locally-provided goods. However, don't discount the fact that real estate tends to be a pretty good inflation hedge and is a hard good. Unlike the tech bubble which was fueled by the hope of geometric future earnings growth that fueled the tech bubble or the greater fool theory that fueled the market for Beany Babies.

 

[SMASH]

Thanks, housing finance is my profession. If I wasn't hip, I wouldn't be able to afford my 25% mortgage.

I didn't even need the smiley, I was already laughing hard as soon as my eyes landed on "25% mortgage". Thanks for that. I could count on one hand the number of times I've literally laughed out loud at something online, and this was one of them.

Then again, people had 25% mortgages not that long ago so let's not laugh too hard. They'll soon happen again at the rate we're going, so great point about the fixed rate - that's key.

You bring a good angle and personal experience to this thread, and I hope you and others that can contribute will participate to a greater degree which would serve to make it that much better an educational resource. The existing and potential value & scope of this thread is enormous IMO. If this (and that scam stock exposee thread "What would you do if you had $1000 to invest?") had been around to read for free & ask questions when I started out it'd have literally saved me more than enough to buy a nice new house even at today's prices. Then factor a variety of investment ideas which have been consistently trouncing the performance of the markets and of most "experts" and ... it's kinda neat that it's just hidden away on a bass site eh?

What the Maryland DHCD (and the Massachusetts Housing Finance Agency, and the others like them) do is very safe. They have tons of data that will let them predict what their foreclosure rate is likely to be given a particular set of buyer characteristics and they underwrite accordingly. For example, MassHousing's deliquency rate is 1.45% compared to 4.33% nationally and 3.82% statewide for conventional loans. The other thing that bears saying is that I am talking about fixed rate mortgages - that also makes underwriting a lot easier.

They apply numbers that work in normal conditions to a very abnormal situation. They'll get burned badly for doing so. Just like the "quant analysis experts" that lost hundreds of billions for the big banks recently by essentially doing the same thing.

My main point though, and that of Stansberry's, is that government has no business in this business. It is not their role, especially in a republic, and it has historically never worked. It's a(nother) form of market manipulation if anything.

Inflation reflects this. See links below for more on that, all daily must-reads that any responsbile home buyer's education class should insist on being read before signing for hundreds of thousand$ in debt in today's economy - especially if there's exposure to changing interest rates. Actually any responsbile voter should be reading this stuff, then the debate might elevate beyond "agggh ... look ! gays !!!" or as the Comptroller General of the United States has to say about it - [Invalid or Expired Link Removed] "I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility," Walker tells Kroft.

I know I posted that last link yesterday, but it bears repeating.

There are some local markets that experienced overbuilding and there are some nationally-traded builders that got stuck with inventory that they are selling at or below their cost. But it is not the end of the world - the laws of supply and demand apply to real estate - and sooner or later the prices will reach an equillibrium.

That's basically the problem. The demand was due to the supply of easy credit and ridiculous loans, including 99% 40-year mortgages, putting us waaaay above equilibrium, and if they're so good at number crunching then the State agencies should realize it.

I'm glad that you are making money shorting lenders (especially the subprime idiots) and builders. Be careful that you don't ride that particular idea too far. Many homebuilders are sitting on buildable land that they picked up fairly cheap. As long as the population of the US grows, this land has real value.

We are 100% in agreement that buying a home should be primarily driven by what is the best way to purchase a basket of goods that includes shelter and locally-provided goods. However, don't discount the fact that real estate tends to be a pretty good inflation hedge and is a hard good. Unlike the tech bubble which was fueled by the hope of geometric future earnings growth that fueled the tech bubble or the greater fool theory that fueled the market for Beany Babies.

Thanks, that's excellent advice. I have almost no actual lender shorts left other than puts on Countrywide, Bankrate, and MBIA. And those were all resets in the past couple weeks of positions I had previously closed for big gains. Otherwise I'm short stuff like Home Depot, Lowes, General Motors, the airlines, etc. Anything that's going to suffer now that so many are going broke and can't pay their bills (which includes GM for that matter), the number of which will be increasing massively in the next 6-12 months as per the mortgage reset graphs I've posted previously in this thread.

These links make for good important reading again today :

Invalid Link Removed

"All told, according to the report in The Times, McAnea's printing works had the capacity to produce $4 million worth of counterfeit notes per day, "enough, potentially, to destabilize the British economy."

But that $4 million per day would have been small beer compared with the money created by the U.K.'s private banking sector each day. It's been helping to grow the money supply by more than $1 billion — every 24 hours — for the last year and more.

[...] It's not just Britain, of course, where money has been piling up without the bother of taking physical form as notes, coins, or even a line in your banking deposit book."


http://www.agorafinancial.com/5min/

""The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year,” said Chairman Bernanke at a New York Economic Club dinner last night. [...]

“Someone needs to remind Ben Bernanke,” comments Dan Amoss, “that the credit bubble wouldn’t have gotten so large were it not for the Fed. The Fed guarantees the solvency of the credit markets like Fannie Mae guarantees the solvency of the mortgage-backed security market. Without Fannie Mae, mortgage-lending practices wouldn’t have gotten crazy. Without the Fed, CDO issuance wouldn’t have mushroomed."



Invalid Link Removed

"Who's going to pay for all this mess? Well, you'll pay a bit...then your children will pay a little more...then their children will pay a lot more...and so on down the line.

One of the taxes you will be forced to pay it through is called inflation tax. This insidious little tax is the result of an increase in the money supply. With each and every dollar pumped into the economy, every one that preceded it sheds a little of its weight.

The Romans used to clip gold coins to the same effect. Today the Fed, unabashed in its endeavors to send us all to the poorhouse, simply prints more green stuff. The more green stuff there is, the less it buys. The less it buys, the more of it is necessary to finance that ever-increasing debt.

Thomas Jefferson remarked of this practice of bequeathing debt, "I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

In the column below, the Free Market Investor's Chris Hancock take a look at the mounting cost of living beyond our means and the many little Peters and Pauls who will find themselves footing the bill.

On Aug. 1, I-35W Mississippi River Bridge collapsed in Minneapolis…killing 13 and injuring 100 motorists.

According to the U.S. Department of Transportation, 756 steel deck truss bridges span America’s waterways, just like the one in Minnesota.

Built in the 1950s and 1960s… approximately 11% of these steel bridges have weaknesses much like the one that caused the I-35W bridge’s collapse.

80+ bridges at $250 million a pop?

But it gets even scarier, when you realize America’s infrastructure crisis involves roads, schools, dams, power grids, and water pipes too…

The American society of Civil Engineers now warns that the United States has fallen so far behind in maintaining its public infrastructure - roads, bridges, schools, dams - that it would take more than a trillion and a half dollars over five years just to bring it back up to standard." "

 

[SMASH]

Good articles today - how the mortgage debacle is unfolding (and it's just the very tip of the iceberg) and why I don't advocate letting others manage your money via mutual funds.

http://online.wsj.com/article/SB119258727851561561.html

http://www.dailywealth.com/ This one will change in a day or two, but it's always a good read. For this particular article however, search the archive for "Your Mutual Fund Is Swindling You".

 

[dangnewt]

I wish I was that clever - the 25% was a reference to my loan-to-value (actually its closer to 30-35%) than to interest rates - but I'm glad you got a chuckle out of it.

You are right about this thread and this site. There is something about bass players or at least those that frequent TB that is special. I have found intelligent, articulate fans of the New York Yankees on this site, so it is no surprise that there might be a few ace investors as well.

My own investing was influenced by Joshua and the coffeehouse approach. I am really about 50% coffeehouse at this point and 50% picking my own stocks and funds. I pay attention to asset allocation; but have always been a little deeper in real estate than most models would suggest. This is partly a result of keeping in mind Peter Lynch's dictum to buy what you know. I have a feeling for real estate so I have found some values in that part of the stock market.

I couldn't agree with you more about the need of individuals and countrys to live within their means.

This comment that you posted has things back-assward:

“Someone needs to remind Ben Bernanke,” comments Dan Amoss, “that the credit bubble wouldn’t have gotten so large were it not for the Fed. The Fed guarantees the solvency of the credit markets like Fannie Mae guarantees the solvency of the mortgage-backed security market. Without Fannie Mae, mortgage-lending practices wouldn’t have gotten crazy. Without the Fed, CDO issuance wouldn’t have mushroomed."

Almost by definition, the sub-prime market means loans that Fannie and Freddie won't buy. (They have dipped their toe in so called Alt-A loans but these are still loans that require people to have verifiable income.) Fannie and Freddie's portfolios are solid because they know how to properly recognize and price risk. The subprime folks (read: the largest most financially sophisticated banks in the world who provided lines of credit to these fools and/or bought their junk paper) didn't. The sub-prime debacle is a 100% free market private sector boys and girls gone wild affair. In 20/20 hindsight could the Fed have stopped it - taken away the punch bowl if you will - perhaps. But the current Congress and President haven't been too keen about government regulation of financial markets for awhile. Even in the aftermath, the calls for re-regulation have been pretty mild.

The wall street journal article was a good one.

I still maintain that the US housing finance system is the finest in the world and it is one that has it roots in direct government involvement. Roughly 2 out of every 3 Americans own their home. For 90-95% of them, it is the best financial move they have ever made. Some may have bought more than they needed; some may have bought at the top of a market; but for most it has been the best thing that they have ever done.

 

[GregC]

"Without Fannie Mae, mortgage-lending practices wouldn’t have gotten crazy."

I have to agree with dangnewt. The subprime debacle is capitalism run amuck, while Fannie and Freddie have been under regulators' scrutiny for several years. Unfortunately, such factors run counter to the laissez-faire, anti-government stance some of these "financial doom" sites tend to take, so they're not likely to acknowledge them.

 

[SMASH]

I wish I was that clever - the 25% was a reference to my loan-to-value (actually its closer to 30-35%) than to interest rates - but I'm glad you got a chuckle out of it.

My apologies. It shows where my mindset is.

I can recall grown people crying when I was kid (thankfully those people were not my parents) because they couldn't pay their mortgages. Young couples getting divorced over the stress, practically new luxury items like boats (and keep an eye out for very cheap "boutique" basses ... and houses) being sold for less than 50% what they cost new just months before ... all because of interest rates going up, on some mortgages to over 20% at the time.

I always remind myslef of it, and anyone who thinks to gamble on variable interest rates or to buy at the top of cycles.

You are right about this thread and this site. There is something about bass players or at least those that frequent TB that is special. I have found intelligent, articulate fans of the New York Yankees on this site, so it is no surprise that there might be a few ace investors as well.

Now you made me laugh on purpose. Thanks. I've been known to support the Yankees.

My own investing was influenced by Joshua and the coffeehouse approach. I am really about 50% coffeehouse at this point and 50% picking my own stocks and funds. I pay attention to asset allocation; but have always been a little deeper in real estate than most models would suggest. This is partly a result of keeping in mind Peter Lynch's dictum to buy what you know. I have a feeling for real estate so I have found some values in that part of the stock market.

That's awesome. A very good strategy, and one I've also touched on herein, and so too when I encourage the conspiracy nuts in the "Gas Price" threads to buy oil & gas stocks rather than complain about and invent imaginary reasons why the price goes up.

Speaking of which, oil has skyrocketed the past few months without significant increases at the pump. And the price at the pump went *down* in advance of the Memorial Day weekend. But the nutters don't start threads about that.

So it's refreshing when people who do have a clue and some perspective have something to say, even if they don't agree. I'd argue it's of more value if they don't agree. Either way, I give it serious thought if there's money to be made. To that end, if and when you do find value in whatever sector please let us know?

I couldn't agree with you more about the need of individuals and countrys to live within their means.

This comment that you posted has things back-assward:

“Someone needs to remind Ben Bernanke,” comments Dan Amoss, “that the credit bubble wouldn’t have gotten so large were it not for the Fed. The Fed guarantees the solvency of the credit markets like Fannie Mae guarantees the solvency of the mortgage-backed security market. Without Fannie Mae, mortgage-lending practices wouldn’t have gotten crazy. Without the Fed, CDO issuance wouldn’t have mushroomed."

Almost by definition, the sub-prime market means loans that Fannie and Freddie won't buy. (They have dipped their toe in so called Alt-A loans but these are still loans that require people to have verifiable income.) Fannie and Freddie's portfolios are solid because they know how to properly recognize and price risk. The subprime folks (read: the largest most financially sophisticated banks in the world who provided lines of credit to these fools and/or bought their junk paper) didn't. The sub-prime debacle is a 100% free market private sector boys and girls gone wild affair. In 20/20 hindsight could the Fed have stopped it - taken away the punch bowl if you will - perhaps. But the current Congress and President haven't been too keen about government regulation of financial markets for awhile. Even in the aftermath, the calls for re-regulation have been pretty mild.

Agreed about the comment seeming in error. My belief is that the argument being made is that if Fannie/Freddie weren't covering the supposedly good loans there wouldn't be as much speculation in the bad. They are holding up a corner of the market, and that along with the Fed's contant interest rate flip-flopping is significant market participation and manipulation and bubble-enabling. They're freely admitting that currency intervention is up for discussion at this weekend's G8 summit.

There can hardly be any greater market manipulation that that, and arguably to print more dollars and incur greater future debt on their whim - most politicians being totally and wilfully ignorant of true economics, and the history of these government interventions being very incomplete and unflattering at best - is nothing short of criminal fraud against the citizenry. If you and I were to do the same thing, it'd be called "counterfeiting" and "conspiracy" and "organized crime" and carry a hefty prison term.

There's a Plunge Protection Team, whose sole purpose is to intervene in the "free" markets when it suits them. Also look into the recent selling/lending of gold despite the Fed's claims they never do so. There's "Social Security" (effectviely bankrupt, and a significant factor in the housing bubble and coming governemnt bust/inflation). Bernanke is on record as saying they'll do whatever it takes to avoid any recession, meaning they'll keep devaluing our wages, savings, buying power, and security of our domestic land, resources, businesses, and markets since these become ever cheaper for foreigners to buy, and they are buying hard and fast to get rid of their tanking us dollar reserves (see blurb at bottom). In light of all that, which is just a fraction of the ways governments intervene in the markets and collude to intervene - often contrary to what a rebublic stands for and oddly contrary to future financial health, sense, and security - to say that the gov't is hands-off strikes me as absurd.

The record of governemnts (here and abroad, current and past) on this stuff is simply abysmal, so we need no "financial doom sites" to paint it any bleaker than it is. Though most economists and governments in their vanity won't admit it, when we have had prosperity in the past century or two it's been largely due to cheap and plentiful fuels (no North Sea oil = no "Thatcher miracle" for example, with similar examples here in North America) rather than due to government policy and action, and it's important to bear in mind that the era of cheap and plentiful fuels is ending. History repeats and history will repeat. Simple as that. Check out "Empire of Debt" for an excellent illustration of what I mean.

The wall street journal article was a good one.

I still maintain that the US housing finance system is the finest in the world and it is one that has it roots in direct government involvement. Roughly 2 out of every 3 Americans own their home. For 90-95% of them, it is the best financial move they have ever made. Some may have bought more than they needed; some may have bought at the top of a market; but for most it has been the best thing that they have ever done.

It is a great system, but not because it enables people with no clue or qualifaction to "own" a home. In fact that argues for it being a corrupt system.

If we're talking about people who actually do own their home (or at least most of it), then I agree with you. If we're talking about hapless people who own debt/mortgage (must be the case, if you're saying 2/3), then I disagree.

Some of them will be pleased and *maybe* come out ahead in their lifetime after costs and inflation (though I doubt it), while far too many will be very sorry when their dream turns to nightmare. Invalid Link Removed And the fallout will cost most of us.

Congrats to you on having a reasonable mortgage, by the way.


An important blurb :

In August, the central banks of Japan, China and Taiwan sold U.S. Treasuries at the fastest rate in as many as seven years. Taiwan cut nearly 9% of its Treasury holdings, its biggest sell-off since 2000. China shed more than 2%, their biggest move since 2002. And Japan dumped 4% of their U.S. Treasures… their largest reduction since 2002.

In all, Asian banks dumped about $52 billion in U.S. Treasures in the final weeks of summer. Not a gigantic sum, considering they own about $1 trillion more, but indicative of a trend.

Globally, central banks dumped about $163 billion in U.S. Treasuries. Not since Russia’s 1998 default have U.S. Treasures been sold at such a pace. And these numbers are from August -- before the Fed cut the overnight rate by 50 points. We won’t be surprised if next month’s TIC looks as frightening, or worse.

 

[SMASH]

Closing Q3 2007 numbers for my version of the coffeehouse portfolio:

Q3 2007: + 3.1%
Year ending 9/30/07: +15.4%
4 year annual return ending 9/30/07: Just a hair > 16%

Nice Q# and 1y trailing gain ! The 4-yr looks anemic to me, even given sticking to "safe" investments. Whatever lets you sleep at night is what counts though, and a gain's a gain.

My personal trailing 1y is circa 72%. Don't have the other figures handy. And of course the sample portfolio here is currently circa +150% in CAD or +200% in USD whereas last November it was +36% from the February '06 inception ...

My hopeful goal in participating in this thread is not to tell people how to invest (although I'm pleased to help if I am able), nor to convince them to go the coffeehouse route (although it's my preferred method). My true goal is to get folks to start taking an active role in their finances.

Same here. People I hope will understand that the example portfolio is not a suggestion of what to do.

Though I'm glad some of the ideas have been profitable for a few readers, it is more so just to keep some thread of this discussion going and to illustrate how easy it can be in the sense of what little trading needs be done to attain such gains consistently.

Of course a lot of work goes into finding these stocks and chosing the entry points, but that too is something people can have done for them rather than do themselves. This illustration, I believe, strips away a lot of the excuses I hear centered on people believing it's too difficult or esoteric for them to do.



People might hear on the news that today is a very bad day in the markets. I'll digress here into making examples of how markets can be profitable when they go *down*.

By now I've hopefully established how well I can time market and stock swings, often calling the moves even well in advance as evidenced in this thread, and when it's a downward move I feel coming I usually load up on puts and shorts and sell longs and do well despite the "bad" markets.

By contrast, a portfolio such as the example one can only be "long" meaning making money if stocks go up and losing money if they go down.

I believe the sample portfolio is woefully incomplete in the sense that it has no short element (making money while stocks go down). I can best explain that by illustrating with charts (I'm speaking to a general audience here, not to you personally Joshua).

On Oct 11 I wrote "Market way overbought, IMO, with a new leg down about to get underway.

Personally, I've sold out of most of anything I bought the past couple months as there've been fast sizeable gains to pocket and I think I can buy the ones I'd like to keep long-term soon at lower prices.

I've added considerably to shorts and puts. Puts are leveraged options betting stocks will go down namely - Home Depot, Lowes, Countrywide Financial, US Airways, Continential Airlines, the Dow Jones Transportation Average, General Motors, MBIA, and Bankrate.com"


Now just 5 market days later (for those reading this in the future or those not wishing to view the charts, they illustrate tankings in what I said in my above-quoted post was about to tank) :

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Some of these moves are colossal for such a short period, and with the leverage of options there's much money to be made in such moves. A 10% slide can easily become a 100% gain using options and in fact I scored over 100% gains on Bankrate.com, MBI, and SA options in October alone which I held for no longer than 2 weeks. Had I held the MBI puts just a few hours longer, it'd have been over a 400% gain. Had I held the RATE puts 2 days longer I'd be up over 200% on those. That's what leverage can do.

Yowza! Of course the downside is that options can expire worthless, which is why I take my gains when I can, so there's huge risk for those who can't manage the size of their portions and the swings in their positions.

I do have one set of options expiring worthless today that I could have booked 100% gains on earlier this week. Selah. I'm still up more than a new NYC Sadowsky just on the options I've closed out this month so I can't cry over that one that got away.

I've thought of adding a shorting or options component to the sample portfolio to better illustrate the profitability in stocks going down, but I fear even suggesting exposure to these techniques to any "n00bs" who are reading this. In fact, options trading seems to be attracting a lot of "n00bs" currently and that's awesome because their slaughter will be my gains.

Sorry if that sounds cold, but history repeats and when lemmings charge I'm going to watch them run off the edge of the cliff and have a laugh. I can do more good with the money of fools than they can, and with efforts such as this thread and other similar endeavors elsewhere my conscience is clean and the lemmings have no excuses. BS online "daytrade your way to riches" seminar or similar late-night infomercial and 99% mortgages at variable rates, or something like this thread or the Coffeehouse approach - it's their choice.

So perhaps I'll just let my posts serve as examples of that without introdcuing these techniques to the example portfolio, but it bears mentioning repeatedly IMO, and so I do, that these techniques exist so that people know not everyone is losing when stocks are going down.

Bottom line is that's very important to understand !

To this day, it churns my stomach that the school systems don't (or at least didn't) offer courses in personal finance, yet folks have to use it in one form or another each and every day of their lives! As I always say, " I learned how to disect a fetal pig in school, but not how to mind my own $".

So to any reading this thread seeking this kind of wisdom, don't read this with the simple goal of copying what you've seen someone do here (bad idea on a lot of levels). Read and digest, and develop your own plan(s). Ask questions, question what you've been told, and make moves with a goal in sight.

If you don't know where you're going, how can you hope to get there?

As always, good luck to all. And ask questions!

+1 over and over to asking questions. I try to strip it down as best I can, but the result is long and perhaps imposing/alienating posts. It takes time but it's a healthy self-check for me and the occasional note I get along the lines of "thanks, you've really made me think about this and helped me understand/profit..." makes it very worthwhile. Over time, even if people reading don't "get" it at first or 2nd try, the ideas will at least start to sound familiar and eventually make sense. But do ask questions whenever, preferably publicly so everyone can benefit or add their views.

Keep on rockin' in the free world.