Profunds cannot be trusted

I am closing out on all Profunds because they have mismanaged my money. They refuse to even give me an explanation of what happened. SRPIX's goal is to be the inverse of the Dow Jones Home Builder's Index. Over the last 12 trading days, DJ_HOM dropped 10%. This should result in SRPIX being up 10% or close to it. Instead I'm down! What the f**k did the fund manager do? This person is obviously terrible with our money.

Watching Profunds lose money during a perfect opportunity for profit is torture and I'm not going to be subjected to it any longer. It's going to take me a year in other stable opportunities to regain those losses. I really hope they are subjected to a lawsuit over their failure. Too bad their prospectus underlines that it gives no guarantee for anything. So all I can do here is spread the f**king word that I no longer support them.

RRPIX did meet its goal, but I'm removing all money from their institution in protest.

Fannie Mae needs to be delisted

NYSE is not setting a good example. Fannie Mae keeps failing to restate earnings ordered by the SEC. They admit they are still months away from closing out the issue. NYSE shouldn't get pushed around by one of the big guys, and should delist this company. If they are going to let them slide, they'll have to let everyone slide.

I'm sure it is not Fannie Mae that is making sure NYSE doesn't delist them. I believe it is the investors pressuring NYSE to not let it happen.

Everbank is offering S&P 500 MarketSafe CD again!

This is great news. Everbank is offering the S&P 500 MarketSafe CD again with a 3.5 year term. With this CD, you are guaranteed to not lose money and it is FDIC insured. So if you think the stock market has a chance to do decent or great, but don't want to bet on it, this is the perfect solution! Hard to beat 100% principal protection (except it had 105% protection before).

They still have their Gold Bullion MarketSafe CD with 5 yr term available too.

Year over year national price decline!

December 2004 Median Price: 229.6K
December 2005 Median Price: 221.8K
Percent Change: -3.3%

December 2004 Average Price: 284.3K
December 2005 Average Price: 272.9K
Percent Change: -4.0%

Straight from the US Census

The future of bond yields (discussion)

People are talking about bonds more these days especially since 10-yr bond yields reflect mortgage rates. There are many factors to take into account. Some include demand for bonds from central banks. If they decide to diversify into commodities, bond prices will drop (yield will rise). The reissue of 30-yr bond will lower 10-yr bond demand as capital is diverted.

Historically, demand is high because it was considered a safe haven during times of recession. But fear of the USD decline might reduce demand this time around.

"With the 10-year Treasury trading around 4.45% yesterday it was still 40 BPS below the level it traded before the Fed began its rate hike parade 18-months ago! Of course, it will be interesting to see what happens in the next couple of months, as $169 Billion in debt is issued this quarter, 17% more than was issued in the first quarter of 2005. Of that $169 Billion, $85-88 Billion will be in the 10-year Treasury... So... I look for this yield to finally crack and go higher..."
- Chuck Butler, 1/26/06, The Daily Pfennig

Mr. Butler has a very good track record from my observation. He brings up a scary point of how much more America is going in debt. There is a limit of funds that can continue to support this behavior. Bush keeps running us into the ground and has false promises of turning around.

Anyway, I am trying to get a consolidated discussion/debate on where bond yields are going.

2005 House ATM: $600 Billion

"According to Federal Reserve estimates, equity extraction by US households topped $600 billion in 2005 -- more than enough to compensate for the shortfall of earned labor income. Comforted by this asset-based injection of purchasing power, consumers had little compunction in stretching traditional income-based constraints to the max. The personal saving rate fell deeper into negative territory that at any point since 1933, and outstanding household sector indebtedness -- as well as debt service burdens -- hit new record highs."
- Economist Stephen Roach, 1/20/06, Morgan Stanley

These people are gambling like stock traders with a 1:5 margin account.

Are you up 10%?

The Dow Jones Home Builders Index is down 10% in the last 10 trading days. Have you been shorting? I started shorting way too early in anticipation that insider knowledge would be known to investors before the gloomy reports came out. It looks like the market is closer to reactionary instead of proactive.

The psychology of the bubble

(I started wrote a comment in Marin Bubble, and thought it would make a good post.)
When I was selling my house (Oct 2005), my mailman was curious how much profit I made. The wheels just spun in his head thinking he too could make $60K-$70K appreciation per year if he buys in now. I warned him that the whole reason why I was selling was because the market was going to turn. He nodded that off and $$$ filled his head.

The momentum of the bubble is, of course, driven by greed. On top of that, the tools (lax lending, low rates) have allowed for this to get out of hand.

The new home owner's sanity must decrease further as affordability drops. They risk more and more of their monthly income for this dream that they'll be rich someday. Do they think through the exit strategy and who their next buyer needs to get 1) even more laxed loan 2) even more desperate for the same dream 3) someone who is actually downsizing 4) someone relocating and does not even check rent prices for houses.

Utah has been subjected to the bubble too

I feel bad for my friend who moved to Utah from California partly in hope that he could buy a nice house much cheaper. While a 2700sqft house might only cost $240K, this particular one was $180K last year.

There is a ton of speculation as all new constructions have waiting listings. The foreclosure business is tough because now upto 25 guys will bid on a single property. With plans of Intel creating some jobs there, speculators are banking they can sell to new employees with inflated prices. All of this feels like California in 2004.

However since the coast lines were an early indicator of a rising bubble, I believe they will also be an early indicator of the bust. When you have the major of NYC calling for a miracle, you know something is going down. I urge my friend to have patience and ride through the lagged downcycle. It can take a car 6 seconds to go 0 to 60MPH. It takes a fraction of a second to crash, and the aftermath feels like forever.

Year of the Bear?

Today the US Stock Market took the worst tumble in 3 years. All of the YTD gains have been wiped off the matt. Will this trend continue for some time as bad news unfolds? The housing bubble burst will continue to have ripping effects on the economy that will give bulls a hard time.

4.75% ING Direct promotion

ING Direct Winter Save Up Sale will give you 4.75% until April 15th with new deposits (minus withdrawls). If you want to open a new account send me an email regarding ING Direct, I can send you a referral link which will give you a bonus of $25 with a deposit of $250+. (In turn they give me $10, and everyone wins.)

During the promotion, I suspect Emigrant Direct (4.0%) is going to lose a lot of funds. After the ING (normally 3.8%) promotion is over, I predict HSBC (4.25%) will be seeing a lot of new funds. I hope this encourages more internet banking competition.

India real estate is hot

My coworker just got back from India, and it is a RE party over there. He bought one property three months ago, and it's already valued 80% higher. He got a new property one month ago and it's up 20%. In fact, non-resident Indians have been sending $20 billion a year to India (which mostly goes to buying up property). Software engineers' salaries have increased a lot (which is making them less competitive to American engineers) and they are also buying property.

I did a little googling:
"Are Indians consuming more housing than they can afford? No. In India, the ratio of the total value of mortgages to GDP is only 2%, whereas it is 52% in the United States."

They fancy gold (jewelry) more than most countries. So this increased wealth should also support the gold price.

It will be interesting to see how high and fast India can go before they hit their bust.

Energy, Iran, and Euro scare

Historically, energy will soar right before a recession (which we are in, but it can't be reported yet) and then taper off. However, more and more of the world is becoming reliant on energy so a demand basis should increase in some proportion to civilized populations. Imposed costs could force consumers to use less heat/cooling as well as more efficient transportation costs. In effect luxury demand could drop. I am hopeful for renewable energy to take place of traditional energy, but places like China are so behind in this movement.

I cannot foresee an event where demand drops low enough to ease supply channels. If demand does drop, the price will drop and governments will stock reserves. Plus consumers might feel free to use more of their heating/cooling or gas guzzling SUV as prices are reasonable again. Energy companies get to push supply in either case.

Iran (second largest OPEC oil supplier) is getting reported to the UN because of uranium refinement, and sanctions could be imposed. This would hurt many and demand will outstrip supply and non-Iran energy companies will profit nicely. It would hurt Euro's potential if PetroEuro trade does not happen. The Iran vs USA's Shadow Government wildcard really makes the outlook cloudy. This could cause a crisis that hurts everyone. China would be mad as they heavily rely on Iran supply. Do we want to upset China too? China could threaten to stop USD purchases, but that'd hurt their current holdings.

In any case, I am confident in my PVX and FDG positions. I expect the 10% and 15% dividends to continue for the foreseeable future. The question is: will I get scared out of my earlier Euro position?

JPY to do well this year?

From what I can gather at The Daily Pfennig, JPY looks to be on course to break below 100 this year. I will throw a few bones on this thinking. I will use a World Currency Account (Everbank) to do so. It makes no sense to get a JPY CD because it pays no interest.

BTW: A EUR bet might be best done with a World Currency Account or FOREX account as the CDs only pay 1%. Both of these currencies need to be closely managed as timing is very important. Bounces, profit takings, and world [crisis?] events probably only give investors a coin flip of a chance of reaching goals this year.

Real estate transactions are overpriced

Why should a seller get hit with a 5%-6% commission when selling real estate? That really digs into the net result.

There are many ways to reduce this down to a flat fee (sometimes less than 1%) or at least get the commission rate down.

Help-U-Sell -- Low flat fee broker (I personally had a pleasant experience with them)
Assist-2-Sale -- Low flat fee broker
Hungry Agents -- Like LendingTree but with agents bidding down for business
Zip Realty -- "25% discount"
House Rebate -- Get part of the commission back

In the future, low flat fees should be normal to the business. High commissions should be considered robbery avocated by NAR, CAR, and other realty groups.

Think back when trading stocks on the stock market was a very pricy venture. The rates would be considered obsurd. One business really has the flat fee idea nailed down. That is Scottrade. Help-U-Sell and/or Assist-2-Sale are leading the way to acceptable fee levels in the housing market.

Huge flaw in Housing Heads' minds

Housing Heads continue to argue that, "Many families will not live serenely in an apartment waiting for a bubble burst. Families need houses." This leads to a conclusion that housing prices will always go up.

The fundamental flaw in that assumption is that they forget families can rent a house (with a yard and everything). There are more speculators than ever so there are even more houses to rent than before. Rent is going for a fraction of the actual mortgage+tax.

My original house purchased in mid 2000 had expenses of $1939/mo. In 2005, the buyers have $4001/mo expense. Now in 2006, I am renting a house that overall is almost as good as my old house, but I'm only paying $1300. Even after tax deductions, I'm saving $222/mo. This makes sense because even in 2000, house prices were already at a high index.

Playing with metals

I re-read my blog and realized I haven't covered metals. Any investment guru will suggest to keep 5% of your holdings in precious metals. Since several will say we are on a brink of a recession, metal prices should rise during that time. I am debating about getting some 24K first lady gold coins from the US mint when they come out this year.

However, I like to keep things more liquid and have an ETF position on gold (GLD, IAU).

I also own SLW (Silver Wheaton Corp) for my silver play. Barclays Global Investors are trying to get an silver ETF approved by the SEC. If they are successful, they will buy up 130 million ounces of silver which will put silver prices on a rocket. However, Silver Users Association is trying to get that blocked. I expect either a flat/moderate return or jackpot. Does anyone think there is a better silver stock?

I have read on some forums that individuals are shorting GLD. Then again these people are also shorting GOOG (oooops!). I cannot get an answer to the reason why. It is at an historical high, but under current outlook conditions, it is bound to continue hold value.

Is it time for Euros to shine?

My latest speculative move is Euro currency as Iran switches from Petrodollars to Petroeuros in March. This obviously means less demand for USD and EUR rises. However, this is what Iraq did and some would believe is the main reason for the invasion. First thing we did after taking control was to switch them back to Petrodollars.

Will US play the nuclear card and invade Iran? Hope not. This would spoil the EUR play. ;) (Just joking, I ******* hate war in any case.) Update: CNN/FoxNews have been reporting more Iran tension between US, Germany, and Russia. However, Iran is willing to negociate further.

On a side note, The Daily Pfennig is basically putting out a warning flag for NZD (due to their deficit). Their interest rate is very attractive, and I will still hold some, but 75% of my NZD will be traded in for EUR (either 3mo CD or world currency account @ Everbank) for the above strategy.