Out at the peak

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2009-12-31T23:59:00.000-08:00

DISCLAIMER: NOTHING HEREIN SHOULD BE CONSTRUED AS INVESTMENT ADVICE OR SOLICITATIONS TO PURCHASE ANY OF THE PRODUCTS OR STOCKS DISCUSSED HEREIN.
The purpose of this blog is not to provide investment advice or to manage your money – THOSE ARE DECISIONS THAT YOU HAVE TO MAKE. If you do hold investments you should conduct your own research and evaluations taking into account other independent sources of information and commentary.

It's been a year for the Yeager Dr, SR listing

2009-03-24T15:03:00.000-07:00

This Santa Rosa house just cannot get sold. It's been following the market with price for over a year now and hasn't been able to close escrow. This is either the 3rd or 4th time that it has been in escrow. Will it pull through?

The price reduction has been 25% or nearly $100K since the 2008 listing. The price reduction has been 36.5% or $164K since the last sale in 2004.

Is it time to buy yet? In my opinion, no. Wait for all foreclosures from the Alt-A/Option-ARM resets to follow through. There are many people who haven't paid their mortgage for over 6 months and the bank hasn't filed for foreclosure yet.

Banks are also giving incentives (cash) to people who leave their property without damage. Banks are renting out their foreclosures so they don't have to realize their loss and/or waiting for a good time to sell. They could be renting those properties for awhile.

Won't the government force banks to renegotiate loans with delinquent borrowers? There has been little success with this. A large portion of those renegotiations just default again. Refinancing can only help a few people now. Even though rates are super low now, anyone who bought in California in the last 7 years (estimate; give or take) has no equity for traditional refinancing.

2012 seems to be the magic year of when a bottom might occur (in California). When we do hit the bottom, there is no rush. Housing should start tracking inflation at that time and not repeat the rocketship increases for the rest of our lifetimes.
A great read on why this is.

My old house's value has dropped nearly 40%

2008-05-07T18:43:00.000-07:00

This is another good day that I'm so glad I sold at the peak.

The house became an REO and sold for 34% below the peak price. I'm sure the buyer thought s/he was getting a great deal.

The same model (one year newer) on the next street that is better (AC, granite countertops) is listed for 8.4% lower than the REO price. (Or a 40% discount from peak price.) It's been on the market for 48 days. We'll see what happens with the purchase price. This listing is a short sale (not REO), and it's $110K less than its last purchase from 2004.

If I held on, I would have a little equity, but not much. It would be a <2% appreciation YoY. That's less than inflation.

My old house was a new construction neighborhood in 2001. If comps get much lower (46.5% total discount from peak), then even original owners will be in negative equity position. I think that could happen by the end of the year. Ouch.

36 cents a day, that's all it takes

2007-11-15T11:29:00.000-08:00

People of the world, we need your help. The USA runs a $811.5 billion annual deficit. We need foreign support to keep it going as is. With 6.6 billion people in the world and 300 million in the USA, we are looking at the other 6.3 billion people to finance this. We just need 36 cents a day ($128.80 a year). For 1/12th of a cup of coffee (at Starbucks), you can flourish the American dream for 300 million living in the good ol' USA.

Too easy to find properties in trouble in Santa Rosa, CA

2007-11-07T11:02:00.000-08:00

I was just browsing redfin.com and found that more than half of the houses listed in a few areas of Santa Rosa, CA were losing a lot of money. A chunk of them have been listed for over 90 days. Most of the ones that were not in trouble didn't have sales records, so who knows what the case is.

Link	Peak Sale Date	Peak Sale Price	Current Asking Price	Money Lost
1347 Peterson Ln	08/11/2005	$615,000	$399,000	$216,000
4048 Match Point Ave	12/30/2005	$610,000	$395,000	$215,000
4036 Louis Krohn Dr	06/07/2005	$639,000	$435,000	$214,000
2955 Sunny Wood Cir	01/10/2006	$649,000	$450,000	$199,000
2613 Rosevine Ln	05/30/2006	$637,000	$449,900	$187,100
1232 Lombardi Ln	08/31/2005	$540,000	$359,000	$181,000
3915 Deuce Dr	11/30/2005	$625,000	$445,000	$180,000
4240 Quimby St	11/03/2005	$560,000	$389,000	$171,000
2545 Kally Ct	05/02/2006	$446,000	$279,000	$167,000
1516 Mayflower Pl	09/09/2005	$575,000	$415,000	$160,000
3916 Hogan Ave	05/24/2006	$650,000	$499,000	$151,000
3981 Louis Krohn Dr	07/26/2006	$577,000	$429,900	$147,100
4044 New Zealand Ave	05/31/2006	$675,000	$529,900	$145,100
2526 Edgewater Dr	03/23/2006	$680,000	$545,000	$135,000
1305 Lombardi Ln	06/30/2006	$465,000	$365,000	$100,000
4046 Louis Krohn Dr	11/14/2006	$565,000	$465,000	$100,000
4050 Louis Krohn Dr	01/25/2006	$585,000	$500,000	$85,000
1524 Pinebrook Pl	05/20/2005	$415,000	$325,000	$90,000
1551 Pinebrook Pl	06/30/2004	$350,000	$284,900	$65,100

Money is something most politicians don't understand

2007-09-28T10:47:00.000-07:00

$5000 Free Money

This is off topic, but it still addresses one of the root problems today. "Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 'baby bond' from the government to help pay for future costs of college or buying a home."

Let's look at the stupidest commentary. "I think it's a wonderful idea," said Rep. Stephanie Stubbs Jones, an Ohio Democrat who attended the event and has already endorsed Clinton. "Every child born in the United States today owes $27,000 on the national debt, why not let them come get $5,000 to grow until their 18?"

Where the hell will this magical $5000 come from? That's right, the national debt. We don't have a surplus $20 billion (4 million babies * $5000) to hand out to babies. The USD's value will continue to suffer as our debt grows more and more out of control.

The money is suppose to help the child get started on life when they become an adult. Guess what happens when you give everyone $14,271 ($5000 with a modest 6% compound interest over 18 years)? It levels the playing field. This will be priced into the educational system and houses relatively quickly. In about fives years after this program is paying out, the money will be a necessary evil. It will become "priced in."

The same phenomenon happened with real estate tax breaks. Real estate prices went up partly because the tax breaks allow the consumer to spend more. The tax breaks no longer make owning advantageous, but that was the initial intent.

When you "price in" "free money", this adds to the inflation problem. It helps no one. (Social Security is different since individuals/employers pay into the program.)

All the presidential candidates except for Ron Paul want to keep spending money we don't have and make situations worse in the long run. Ron Paul will be my choice.

Mortgage resets: the level will remain above $30 billion a month between October 2007-September 2008

2007-08-08T12:11:00.000-07:00

http://www.iht.com/articles/2007/08/01/business/leonhardt.php

"The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month."

I don't think we will see market effects starting in October 2007 and ending September 2008. There is going to be a 6-12 month lag per month. Some people will burn through savings to try to pay the new rate before defaulting (many refinance scenarios are impossible because of new LTV requirements and higher rates which doesn't lower the monthly payments). A lot of people won't be able to sell at market value because they will be overencumbered. Short sells will still be rejected because mortgage companies believe they can still do better with a foreclosure (they may realize this fault sometime in 2008). Foreclosures take a long time to become REOs. That's why 2009 is the absolute earliest time to buy if you can find a great deal. The bottom might not be seen until after.

David Lereah is crossing his fingers and toes

2007-01-25T10:18:00.000-08:00

Let's not rely on indicative data for the direction of the housing market. Let's just hope for a scenario and pray.

"David Lereah, chief economist for the Realtors, said that even with the December setback, he still believes that sales of existing homes have hit bottom and will start to gradually improve.

[...]

'With fingers and toes crossed, it appears that we have hit bottom in the existing home market,' he said."
http://www.breitbart.com/news/2007/01/25/D8MSCVBO0.html

How can we trust an "expert" if their prediction relies on hope?

Homebuilders promoting toxic loans

2006-09-06T13:31:00.000-07:00

Homebuilders are accumulating inventory. In order to move this inventory, they are willing to promote non-conforming loans to people who could not afford a conforming loan.

Centex Homes: Affordability Days
Ryland Homes: 40% off mortgage payments
(Thanks Bubble Meter)

Home buyers: my suggestion is if you cannot afford to make payments on a 30 year fixed mortgage, then you simply cannot afford that house. Actual affordability is virtually gone, and once buyers stop risking their financial credibility with non-conforming loans, house prices will have to realign with reality.

Please link to other similar promotions you come across.

California Association of Realtors change the rules of affordability

2006-08-17T15:52:00.000-07:00

Actual housing affordability in some parts of California are in the single digit percentage range (such as about 7% of house holds in Sonoma County can afford a median priced house).

These numbers were not acceptable to California Association of Realtors (C.A.R.), so they redefined the Housing Affordability Index. Instead of taking the median price of a California house, they decide to take only 85% of that price because clearly, more people can afford that. And they believe first time home buyers will buy a house worth less than median.

They also use to assume people had 20% down payment to buy with a house. They are realistically throwing aside that possibility because the money that should be enough for 20% is now only 10% of today's purchase price.

They no longer use a fixed rate mortgage in their assumptions. Everybody loves adjustables!

Here is the kicker: They do not mention that they changed how much they assume a household will spend towards mortgage, property tax, and insurance. They have a spreadsheet with raw numbers, but if you do the math, you will see that they allow the household to spend 40% of their gross earnings (53.3% after taxes -- given a 25% tax bracket)! The old methodology only allowed 30% of gross earnings to go toward the housing expense. (1320 x 12 / 39600 = 40%)

This is their reasoning:
"The range of mortgage products available to buyers as well as underwriting criteria has changed. C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market."

Maybe we will have hit bottom when C.A.R. goes back to their original HAI.

The argument against "New Villages"

2006-07-08T10:18:00.000-07:00

CNNMoney is covering the latest RE trend: New Villages. These guys have 20+ dwellings per acre, do not have their own yards, and they are within walking distance to mass transit. They boast a local market and free WiFi.

This might sound like an interesting setup, but are they worth the 20%-25% premium over suburbs? A speculator might think that premium will be even more as traffic increases.

The problem is that one must sacrifice a good chunk of personal space, and I don't see the lure if there is a large premium. You are paying for the community and the close transit. Maybe the premium is that this idea is currently fashionable and it allows for its residents to be more smug about their lifestyle. I'm half joking here.

My hard argument against any RE investment now is think hard about the greater fool that you wish to flip your cracker box to. What mortgage payment can they afford? Think about what the interest rate will be in the year that you will sell. Now think about all of the other people who purchased dwellings for 'investments' and the competition they will impose on you.
What about all the suicide loans that will cause foreclosures in your area and drop the comparable sales?

Wake up, RE investments are currently passé. The smartest and richest RE investors are out of the market for good reason. They see a correction ahead.

What people really need are pricing cuts across the board. The speculator premium where all markets have been overbought by flippers, will have to be removed.

So even if people believe their New Village is worth 25% more than a nice suburbian house, both need the basis price reduced 30-50% over the next five years.

Disclaimer to bashers: I have not been calling for a market peak for years. I was very bullish on RE until Q3 2005. The current RE bull cycle is over.

Betting on Euros

2006-06-04T11:28:00.000-07:00

Ben's Money and Metals discussions have heated up. Below was my recent input.

I'm in the minority here with big bets on the Euro (however, my biggest bets are on CAD and CanRoys). I estimate my Euro bets are twice as big as my PM bets.

Here are my views on the Euro:
Most of us agree that the USD will faulter at some point. Serious PM bugs want all unbacked paper currencies to fail, and logic might conclude that is what should happen.

I believe the marketplace is setting the stage for the Euro to be the next world's [paper] reserve. Pre-war Iraq attempted to switch to Petroeuros. Syria switched their savings to Euros. The Middle East in general has large European accounts. Iran is trying to switch to Oil Bourse (which will result in higher demand for the Euro). Venezula is proposing Petroeuros too. I believe this is a beginning of a shift not to be taken lightly.

People might argue that the fundamentals of the Euro are worse than the USD, but right now the psychology of world markets point to a fear of USD. We have all witnessed psychology overriding most market factors.

When USD crashes, perhaps it will take the other major currencies with it. But what damage does that really do? Only then emerging market currencies will be worth more. No one would consider that a crash. I believe if we have a currency crash, there will be one faulter or different tiers. USD would be it or faulter more than others and so I shall win my bet.

If I'm wrong and USD prevails over CAD, EUR, and JPY, then I should have just sticked to T-Bills.

Russia is on the right track for trading in gold. I can understand other countries hesitating to do this because of the high volatility of PMs (not to mention oil itself).

Early 2004 memories

2006-05-28T00:09:00.000-07:00

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

2006-05-15T21:19:00.000-07:00

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

2006-05-09T17:09:00.000-07:00

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.

SLV has debuted

2006-04-29T19:48:00.000-07:00

The Barclays iShares silver ETF was revealed Friday morning for trading. There was much fanfare as there were over two million shares traded. I set the alarm at 6:30am PST to buy my shares at the 129 level.

Short disclosure

2006-04-18T11:38:00.000-07:00

I successfully shorted RYL from 70.98 down to 66.90; trade is complete. I had a feeling the HB's would have a bounce today, and they got it. RYL is back up to 67.64 now.

This was not an easy ride as RYL spiked to 73 before hitting my sub 68 target. I believe I also have to pay out a div which was only 0.12/share and barely affected profit.

Shorting is dangerous and should not be considered an investment ... only do it with play money.

Chron likes to think oil is dropping

2006-04-02T17:55:00.000-07:00

It seems like editor(s) at Chron.com/Associated Press are trying to spin oil stories so it looks like crude is falling. Yet it continues to climb. They report during slight price dips.

(Note: headlines are revised later after initial story)
March 31st: Crude Futures Fall Below $67 a Barrel
March 29th: Oil Prices Fall Below $66 a Barrel
March 24th: Oil Prices Slip to $63.80 a Barrel in Asia (link dead)
February 13th: Oil Prices Slip (link dead)
February 9th: Warm January saved crippled gas supply (link dead)
February 8th: Natural Gas Prices Drop, Stocks Follow (link dead)

The point is, I never see Chron.com report "higher oil prices" in headlines. Thanks to 321energy.com for old headlines. Who knows what the motivation is behind this irresponsible reporting, but I'm sure it's someone's money.

Silver is doing great

2006-03-29T14:14:00.000-08:00

Congratulations to silver longs. One ounce spot is now over $11.10. My physical holdings are at about a 17% increase. SLW stock is up 83% since I bought it. Also my gold is up 6.5%; I've taken profits from this.

This more than makes up for Icelandic CDs which analysts have said hit a bottom and will recover. I'm migrating all foreign currency to CAD, EUR, and JPY only as the outlook for those currencies are more stable and bullish.

Are your savings/proceeds beating the housing slump? I am up about $8K from the markets, and my old house has lost $20K in value. The deviation should grow.

ABC News starting to report the aftermath

2006-03-22T22:25:00.000-08:00

The housing bubble popped late last year and if you are reading this, it is not news to you. What is interesting is that the mainstream media is finally getting some stories out. They are more of historians than anything.

Thanks to bpl_200_mbps from a Housing Panic comment for this ARM victim video. We are not trying to ridicule people, but more so educate others so they don't make avoidable mistakes.

Iran Oil Bourse on hold

2006-03-21T16:45:00.000-08:00

The Iran Oil Bourse was suppose to be unveiled today, but it did not happen. There have been reports that it could be delayed for months; even a year. The Iranian Oil Ministry denied its existence. Sources

The USD will continue to be in demand.

Dodging bullets

2006-03-16T11:34:00.000-08:00

The Senate finally got around to bumping up the deficit ceiling to $9 trillion. Bush still needs to sign it, but US government was so close to defaulting on debt.

Senate Votes to Raise Debt Limit

Will we see the day that they can lower this ceiling??
Bush has been the biggest spender in US history. I think I read somewhere he spent more than the 2nd, 3rd, and 4th top spending presidents combined!!

How much is your city overvalued?

2006-03-13T11:51:00.000-08:00

Santa Rosa, CA is overvalued 58.8% according to CNNMoney. This list of 299 metros is highly accurate in my opinion. Good job Les Christie!

The "fair market value" according to Zillow for my old house is $540K (if you are lucky to sell for that price now). I purchased it for $300K in 2001. The adjusted value would be $223K which I agree is a fair price.

Iran officially threatens oil distribution

2006-03-11T18:14:00.000-08:00

I was wondering when Iran was going to pull this card.
Iran Threatens to Use Oil as Weapon in Nuke Standoff
Bush/Cheney/Rice have vowed for the US that Iran cannot pursue nuclear ambitions. Iran desires to continue their interest in the technology. Russia has been trying to get the parties to compromise and to provide enriched uranium to Iran in a supervised fashion. No one is agreeing to anything and threats have been shot across the bow. US even declared a two week deadline.

That deadline comes right up right before the unveiling of Iran's Oil Bourse. The media doesn't ask the questions of this coincidence. The media seems to also dismiss the deficit ceiling.

Does anyone feel safe from political and monetary consequences?

Update: Here is a graphic showing Iran's options.

MTBE deadline could be a market driver

2006-03-07T15:14:00.000-08:00

From Bloomberg:
"Gasoline is pulling crude oil lower,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. "The speculators are dumping gasoline ahead of the switchover from MTBE. Basically nobody wants to deal with the MTBE liability.''

Let's celebrate $10+ silver

2006-03-02T11:02:00.000-08:00

Silver broke through $10 today. I don't know if this will be sustainable especially since it was such a large spike. But someone must have hoarded a ton on the open market.
On related news SLW spiked up 10% as well.

Support SLV (Silver ETF)

2006-02-27T08:45:00.000-08:00

SEC Form

Silver Association Petition

Too much bubble information!

2006-02-25T11:16:00.000-08:00

While I think this is a great thing, I can no longer keep up with all the bubble news and comments. I mentioned on Sacramento Land(ing) that there is just too much information going on in thriving blogs and their comments.

In October and November I was able to read every blog post, referring article, and comments from my links. I even got a word in once in awhile. There is no one that can keep up now unless they were unemployed. Triple digit comments on Ben's blog per article isn't uncommon. Is there anyone that still can? Now I have to be selective in what I read. Thank goodness for headlines. :)

I believe this means we have reached a critical mass of some sort, and perhaps there will be a bubble about bubble talk. ;-) (That's cheesy.) People will become bubbleheads whether they want to or not because affordability will be a real issue. As an asset continues to slide, people might think it's not the best thing in the world to put all your money in.

Economic Rot has pointed out that the housing bubble is only part of the story. It will be interesting and scary to see how this all unfolds.

JPY gets some hopeful news, ISK not so much

2006-02-22T22:52:00.000-08:00

Bloomberg reports that the bank of Japan might be ready to increase rates. We've seen this head fake before. One of these times, it will be real.

On another currency note, Icelandic Krona has been hit hard the last two days due to Fitch downgrading its outlook for the currency. Ouch!

More inventory keeping agents busy

2006-02-22T14:18:00.000-08:00

More lumps of for sale signs. (Nice picture)

I think we are inching towards seven months inventory in Orlando, FL. (Original story)

New CanRoy in town

2006-02-17T11:13:00.000-08:00

CNE is now available on the NYSE. Current monthly payout is $0.20 USD.
I think this would be a nice buy @ $20/share. After 15% Canadian tax, the yield would be 10%+. The question is if it will dip to $20. As always, please do your due diligence (DD).

To recap, I like the following CanRoys:
AAV, FDG, PGH, PTF, PVX, and PWI. (Other people like HTE too.)

More lending jobs lost (WM)

2006-02-16T01:30:00.000-08:00

Washington Mutual is cutting 2500 jobs after an acquistion/consolidation. Their stock is up! They are still hiring with 2340 job openings. Unsure if all positions will be filled.

India might invest $1 billion in oil sands

2006-02-15T08:41:00.000-08:00

From The Daily Pfennig:
"India may invest as much as $1 Billion to develop oil-sands projects in Canada within the next 12 months, the Wall Street Journal said, citing an Indian government official it didn't identify. India and Japan sent delegations to Alberta to study the area and visit scientists researching extraction of heavy oil, known as bitumen."

India must see the excellent business case that the oil sands provide.

You have a 1 in 5 chance...

2006-02-15T00:43:00.000-08:00

Diane Cohn says you have a 1 in 5 chance to sell your house in Reno. She's not a doom and gloomer. She's a Realtor(tm)! Her long term outlook is still optimistic (because Reno is special). Although I like her usages of "flood" and "TONS".

Syria beats Iran to Euros

2006-02-13T09:35:00.000-08:00

Syria is now switching their transactions to Euros. This definitely does not help the USD, and should give Euros a boost.

It's different this time

2006-02-10T15:27:00.000-08:00

I liked this Craigslist post:
1922: An acre of Florida swamp sells for $4 million. No worries. Experts proclaim "It's different this time."
1929: The Dow quadruples in just a few years. No worries. Experts proclaim "It's different this time."
1980: California real estate prices are way out of wack. No worries. Experts proclaim "It's different this time."
1988: Nikkei reaches 30,000. No worries. Experts proclaim "It's different this time."
1989: California real estate prices are way out of wack. No worries. Experts proclaim "It's different this time."
2000: Nasdaq resides at absurd levels. No worries. Experts proclaim "It's different this time."
2005: California real estate prices are way out of wack. No worries. Experts proclaim "It's different this time."

Bush policy asking for trouble

2006-02-10T11:37:00.000-08:00

From today's Daily Pfennig:
"When Bush talks about cutting the deficit in half, he's not talking about dollar amounts. Instead, the plan calls for a reduction in the deficit to half of the current percentage of the nation's GDP."

"That means the deficit doesn't actually have to decline for the president to declare he met his goal of cutting it in half. "To hit their target," says Wiggin, "the economy just has to grow by 3.3% a year for the next 4 years."

"Instead of truly solving the budget deficit, Washington is trying to mask it. They will focus on keeping the GDP up with tax cuts and other incentives instead of trying to control debt by keeping government spending under control."

This thinking is going to get us into big trouble depending how bad the housing market downturn is. A modest downturn (less volume, some reductions) could decrease the GDP by 5%. Then the deficit will look really, really bad. This could be a trigger for USD decline.

Investors reaching

2006-02-09T00:43:00.000-08:00

The following was said on SDCIA:
"I agree that with 600k new people and only 200k new homes the market in SD is probably going to be strong. The problem as I see it in CA is because of the higher house prices the property taxes are killing everyone. Since you can't do much about the greedy bureaucraps with the politicians in their pockets what CA needs is another prop 13!"

The problem with those thoughts is that 1) each house is going to hold three+ people average 2) Prop 13 is still enforced, you cannot re-enforce it. So demand will balance with supply, and I don't know what he means with another Prop 13. Perhaps he is suggesting that assessments should be artificially surpressed or transferable statewide. Assessment transfers are available for some counties already.

When you are calling for adjustments in the law to make something affordable, something is wrong. And since the law is very forgiving in CA (Prop 13 saved me and my family a bunch of money), something else has to give.

Corporations actually tell us what we can do

2006-02-08T14:13:00.000-08:00

Earlier, we saw Bush had a proposal to ease off of foreign oil. However, Exxon had to step in and tell the president that it's not going to happen. The real chain of command is exposed.

Great Britian and Australia: Crystal Ball

2006-02-07T00:33:00.000-08:00

I'm surprised the phrase 'bankruptcy bubble' made the press. This is all due to people not being able to make their mortgage payments. This is Great Britian where they were one year ahead of the US housing bubble.

The popping of the Australian housing bubble is going to hurt people on the sidelines. Australia is now faced with a shortfall of property taxes. They have to cut programs in order to maintain a balanced budget.

One year from now, the US will be faced with these same issues and more. As a culture, America is prone to be unstable. Fear and greed seem to be magnified thanks to religious conservatives addicted to FoxNews.

Mess with money

2006-02-07T00:08:00.000-08:00

An REIT in Germany had to close down transactions because too much money was being pulled out at once. Do you have any risky investments that could become illiquid? Hopefully you've considered getting out of them before you are left holding the bag.

Ben Stein's latest blog is extremely telling of the average American Idiot. How can a renter burn through $75K a year without a dime in savings? How can she honestly believe that Social Security will be there for her? Even if it does, she's ignorant to the fact that it doesn't start until much later than she thought. Even with full confrontation, she proceeded to go to Nordstrom's!

Honeymay is straight up

2006-02-06T23:54:00.000-08:00

While driving home listening to the radio, an ad came on with a woman pretending to be talking to her phone. (Paraphrased)
Phone: "I've been listening to your problems. Your financial problems."
Lady: "Who is this? You have?"
Phone: "This is your phone. I listen to everything you say. What you need to do is call Honeymay, and they'll help you out."
Lady: "How is this possible?"
Phone: "They offer mortgage services to get money out of your home to pay off debts and bills. They basically turn your house into a bank." (The bold statement is an actual quote!)
All these mortgage companies seem to tout that people are just 'unlocking' their 'trapped' equity. This would be like credit card companies multiplying your credit limit and saying you've discovered a new debt ceiling. It couldn't be that illegal since the government is going to do it to itself.

Everyone needs to start being calm and become financially responsible.

Silver Bug

2006-02-05T03:29:00.000-08:00

Precious metals have been heating up for awhile now. Everybody has been getting in on the action to some extent. However, it can feel really expensive. You can spend $10K on 17.5 ounces of gold. If you look at silver, you get much more quantity for your money. $10K will get you about 1000 ounces of silver.

I almost feel that silver has more room for upward movement especially if the silver ETF is approved. As a kid, I felt like four silver coins would be equivalent to one gold coin. Silver was like a quarter to me as gold was a dollar. There are definitely reasons why there is a discrepancy today, but that could change.

The Silver User Association avocates inexpensive silver so everyone can use it. They are trying to stop the silver ETF because a purchase of 130 million ounces in silver would drive up the prices and possibly expose supply shortages. This would be bad for future silver purchases, but is great for past purchases.

The above is my basis for attraction to silver. However, when I look at my options, I love it more and more. My favorite coin has got to be the Canadian Maple Leaf Silver 1oz. It has a $5 (loon) face value, and it's diversified from USD at the same time. I don't see any other precious metal coin with a better face/trading value ratio (except for some 100 peso silver coins I was able to buy for much less than $9.8 USD, but I think that is a fluke). I still have dozens of silver American Eagles (Proofs), but they are less impressive because of the $1 face value. I guess all that really matters is the trade value, but it makes me sleep better when looking at all factors.

I think I'll turn into a silver bug and end up collecting many different forms of it. I still have my single ounces of gold and palladium, but making that a hobby is relatively too expensive.

It's 1989 all over again

2006-02-02T11:37:00.000-08:00

Well, an oil tanker is leaking product in Alaska right now. It feels like 1989 again with oil headaches and the housing market on a cliff.

Bush's six year plan

2006-02-01T16:45:00.000-08:00

Even though Bush only has two years left in office, he is touting a six year plan. Over that time, he is confident that America will reduce their dependence on Middle East oil by 75%.

Bush has said a lot of things that never come true. Iraq possesses WMDs, US government will reduce its deficit, the war will only cost $2 billion, etc. His credibility is so bad that you can almost assume the opposite will happen. In six years when our dependence on foreign oil has never been higher, he will just blame the current presidence's actions as he has never accepted personal responsibility.

If the plan is successful, it presents a new problem. One of the few reasons why USD is the world's reserve currency is because Middle East oil can only be purchased with PetroDollar (excluding oil for food). If USD loses it stance as the world's reserve currency, ... everything will change.

However, Bush's new plan is the first policy I have agreed with.

Profunds cannot be trusted

2006-01-31T15:16:00.000-08:00

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

2006-01-30T18:34:00.000-08:00

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!

2006-01-27T18:28:00.000-08:00

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!

2006-01-27T10:03:00.000-08:00

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)

2006-01-26T17:34:00.000-08:00

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

2006-01-26T17:24:00.000-08:00

"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%?

2006-01-25T11:18:00.000-08:00

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

2006-01-24T18:00:00.000-08:00

(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

2006-01-23T22:57:00.000-08:00

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?

2006-01-20T15:18:00.000-08:00

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

2006-01-20T00:24:00.000-08:00

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

2006-01-18T17:58:00.000-08:00

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

2006-01-14T15:19:00.000-08:00

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?

2006-01-14T15:06:00.000-08:00

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

2006-01-13T17:48:00.000-08:00

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

2006-01-13T14:38:00.000-08:00

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

2006-01-13T13:49:00.000-08:00

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?

2006-01-07T15:23:00.000-08:00

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.

Predictions for 2006

2005-12-31T11:31:00.000-08:00

Ben Jones had a post on future predictions. This is what I put down.

House prices 2006 [national, bubbles]
Q1: +1%, -3% ("little air")
Q2: -1%, -5% ("> normal inventory")
Q3: -3%, -6% ("ARMs, affordability")
Q4: -4%, -7% ("Seasonal")

US Dollar 2006
Q1: +2% (needless rally) I'm glad I'm wrong so far, USD has been weak thus far
Q2: -4% (Euro oil trade)
Q3: -2% (foreign money pouring)
Q4: -5% (foreign can't fund enough)

I believe 2007 will be a scary and true panic year especially with many more ARMs resetting. 2006 will be considered uncomfortable, and 2005 and before will be the good ol' times.

Where to stash your money

2005-12-09T18:40:00.000-08:00

So you are out of the housing market. Perhaps you sold in time to realize gain and are now renting. You have cash that you are sitting on and want to invest, but you are scared of the stock market and real estate.

Here are some options:

6.73% I Bond from TreasuryDirect (minimum 12mo commitment, maximum $60K)
4.25% Savings Account from HSBC (type in 'start' for $25 promo!)
4.0% Savings Account from Emigrant Direct

And several options from Everbank:

Gold MarketSafe 5yr CD (100% protection, 100% upside)
S&P 500 MarketSafe 3.5yr CD (100% protection, 100% upside)
8.24% Icelandic Korna 3mo CD
5.88% New Zealand Dollar 3mo CD (Warning: The Daily Pfennig and interview on MarketWatch believe this currency will weaken later on in 2006)
5.88% South African Rand 3mo CD
6.66% Mexican Peso 3mo CD

(Warning: World Currency CDs are subject to exchange rate increases and decreases. If USD goes down, then you benefit.)

These are somewhat low yield investments if you are use to 12%-24% returns. However, it might be time to be cautious and just hope that your nest egg doesn't decrease in nominal value.

Here are some high risk opportunities to consider:

PVX, PGH, PTF -- Canadian oil trusts that have about a 10% dividend (taken from another blog comment)
FDG (Fording Canadian Coal Trust) -- 15% dividend (taken from another blog comment)

Good bye September 2005

2005-11-12T17:22:00.000-08:00

History will show that the peak of the 21st century Housing Bubble ended in September 2005.
I am putting my money where my mouth is. I sold my house and am now shorting real estate stocks. I also am acquiring foreign currencies to hedge against the USD when it starts to decline. None of this will start to be profitable until sometime in the first half of 2006 so my position is a little early, but at least it is set.

The debate rages on between House Heads and Bubble Heads. House Heads usually refer to Bubble Heads as bitter renters that could never afford their lifestyle (of debt). At least in my case, I can say I've been on both sides of story.

Bubble Heads have been around for years calling for the decline in real estate prices. However, the market pressures for a downward spiral have been absent until of late.

These have been my past positions:

1998-Q2 2004 buy
Q3 2004-Q2 2005 hold
Q3 2005-present sell

I know prices started going up in 1995, but I was young and naive. So I missed the boat the first three years. It only really mattered over the last five years.