Early 2004 memories

I posted part of this on Flip This:

I remember when I was considering to buy a second house for an investment in 2004. I was reading the "investor" books' examples, but then I was never able to apply similar numbers to the real world. Goal: Obtain properties for maximum of 12 GRM (Gross Rent Multiplier) or less. And many experts will not bother unless it is 9 or less.

The only stretch that was possible was if I took out a 2nd mortgage for a downpayment on a crappy condo in a bad area. I would hole up in the condo, and rent my primary residence since I might get $600 more per month for it than the condo. I would have negative cash flow of $500-$700 a month plus I would be taking on a bigger personal mortgage payment.

Needless to say, I gave up on that idea. I grew worried that prices might slip some day because we were disconnected from fundamentals.

My point is: My first house was purchased in Jan 2001 (under contract in July 2000), and a pre-boom investor could not get cash flow positive on the house (unless the downpayment was 40% or so). It was already 16 GRM at this point, and when I sold it in October 2005, it was 31 GRM since rents in the area have not changed.

If I bought that condo, I could have sold it too in Q3 2005 for a pretty penny except I'm not sure how I would have survived the carrying costs.

Trading woes

I sold the last of my SLW shares on Friday since it never broke through 12 by my deadline. It tanked nearly 13% Monday, so I'm glad to be out of the position. I did not escape the wrath of the sell off in general. I lost a month's worth of pay today, but sometimes I can get that back in 5-7 trading days. It's a slow climb up the mountain, but it's a quick jump off of the cliff.

My only green on Monday was my CTX short. Even FNM was up a little.

I'm still doing outstanding especially compared to my old house's performance.

$700 gold

My dad called me up to tell me the news that $700 gold is here. Of course, I already knew that, but it was interesting to hear what the radio told him. They are predicting gold will go to $1000 because the Chinese are trying to diversify away from USD.

This is old news, but having it repeated to Joe Sixpack is a remarkable event. This is the beginning of phase III as the everyday guy starts getting wind of the market movement and motivation behind it. Phase III could last years. As commercials come on late at night encouraging everyday people to buy into gold as an investment, we have to be aware of the time when greater fools are no longer found.

This phase III could be a combination of some fundamental central banks buying in as well as high speculative demand. The latter reason will get us into bubble prices.

Over the next few months, I think gold will be volatile and I'll be in and out of new positions along the way.