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Monday, August 8, 2011
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80 comments:
Contrarian,
It's not that there's no potential impact, it's that your track record of correctly gauging the severity of an event is incredulous at best.
My $0.02
0.02
the problem is how the system is set up. 90% of all issues do little harm, but, when the system founders it really founders.
Imagine a barge, 300 foot long, ocean going. Now you put 10,000 people on the barge. It's riding low but tolerable. Someone from Coast Guard says it's overloaded, but some wiseass from Cato explains the cost of Coast Guard regulation and how it's pure trouble and pain.
So a little bit of a storm starts to blow and someone like Contrarian says "It's going to swamp and they will all die", and some wiseass pundit says "It's done well in all the other waves"....
Well a couple of people walk to the rail to watch the waves slap against the bow. The bow wave gets more exciting and more people walk forward, the bow dips more. The captain starts shouting at people but everyone wants a picture to show the kids.
Then the water comes over the bow and the bow starts sinking hard.
the system of risk management is used as 90% of cases. They ignore all extreme events.
That's sort of like deciding that the only time you should test a evacuation plan is daytime, in august. Real evacuations occur during hurricanes with power outages and wind blowing all over.
Ace says
"there are a lot of retirees in close in neighborhoods, with paid off houses (or low mortgages), and who are drawing as little income as they need from their tax-sheltered investment"
Ace, isnt' this more true of Phoenix, Scottsdale, Miami-Palm beach, Ca-Palm Springs?
Yet what have we seen? Phoenix is home to the implosion. Same with Miami. Oh, California?
what you need to do is show how household wealth is much higher not counting houses.
Ace
What i was getting at is that while most of the time, bad practices can be tolerated, when the storm happens it can really bite hard.
Watch what's happening today, 20% stock drop and the Fed is going to print another 4 Trillion to pump the market up.
Gold is at 1700, 10X what it was 5 years ago.
Heck, housing? People should have bought gold...
BTW, I hate Gold.
Pat, I didn't say it was the majority of households. I just said there are a lot of people here that fall in this category, and they are one more anecdotal example along the same lines as those others mentioned. All you have to do is look at the boomer #s and ages, and consider how many people in North Arlington are two career boomer households with federal pensions or many years as well paid lawyers, military types, World Bank economists, lobbyists, etc. It's not too hard for people in that category to pay off their houses bought 15 or more years ago and to save a lot of money. I personally know at least seven households that fall in this category, and I don't get around that much. All of them have one partner who has taken early retirement.
It's not necessary for any one factor to have a huge impact. But when you put together:
--the Arl. income surge CRT and mytwocents documented (relative to other neighborhoods),
--the greater willingness of more people these days to stretch their budgets to live close-in as traffic gets worse and worse,
--the number of people who have owned houses a long time and don't need as much income to afford to live there,
--the number of people with inheritances or other non-income wealth who maybe now see Arl./Alex./FFX as more desirable place to live than 10 years ago, and
--the early 60s and older folks who don't need to pull out much of their 401k and other investment income,
it's pretty easy to see why Arl., City of Alex., etc., prices have not come down nearly as much as those in some other areas (and in some areas have increased since 09). Whether that will continue depends on a lot of factors I don't claim to be able to predict.
Pat, if your question is why haven't those retiree-heavy communities kept up their prices, the answer is quite similar--a lot of factors determine whether prices go up in a given area, as you know. In No. Arl., and some other close-in areas, you have a confluence of a number of factors that you don't have in a lot of those areas. Further, the DC metro area bubble didn't escalate nearly as high as that in many of the areas you identified, and the bubble for the high third DC metro area shown in Case-Schiller, as documented at Redfin, wasn't nearly as big as the average for the DC metro area (in %-age terms). So there was much less distance to fall in Arl./Alex./close-in FFX.
Ace
"Arlington is Special" isn't much to hang your hat on.
Contrarian is annoying, but, his basic point is "Price/Rent/Income are sound metrics".
The thing you argue for can also be claimed in lots of wealthy neighborhoods. Wether that the Hamptons, Greenwich, Sanibel, Aspen, Scottsdale,,,,,
That we don't see that argues the problems are more severe.
Look, the Dow is taking a pounding, let's see what happens after Bernanke prints another 4 trillion.
A few questions, why are those particular states at risk of downgrade when other states are far worse in debt? Are Il, NY, and CA already downgraded??
Why is he fed going to print more money, didn't they see it hasn't worked the last 2 times they tried this?? They are all starting to ruin our country quicker now...
Pat, identifying concrete factors that anyone can verify as being present or absent in several close in neighborhoods is nothing like a making a vague claim that "Arlington is special." Why aren't you or others with similar views coming forward with similarly concrete factors or better data explaining why most of those areas are at or near 2005 /6 prices?
sehrwunderbar said...
"A few questions, why are those particular states at risk of downgrade when other states are far worse in debt? Are Il, NY, and CA already downgraded??
Why is he fed going to print more money, didn't they see it hasn't worked the last 2 times they tried this?? They are all starting to ruin our country quicker now..."
Per your first question, the states listed for downgrade by the rating agencies have a higher perponderance of Federal treasuries in their debt profile, which is why they are being singled out.
When you say "it hasn't worked" what were you expecting? Who are they?
Why Arlington? Not just Arlington, but N. Arlington. Not just N. Arlington, but walk to Ballston/Courthouse and Clarendon.
My kid, 22, wants to live in the Ballston Corridor. Not S. Arlington, not Shirlington, not on the other side of 66. Certainly, absolutely not Reston, Tysons, Falls Church or anywhere else.
He and his best friend can afford a modest 2bd at 2K per month. They are willing to pay it to live there. They will make sacrifices in other areas. They will share one bathroom and use a pay laundry. They will forsake central air for window units.
Simple supply and demand.
VA_I,
And to your point, a mortgage of about $2500 will buy a $450k house. There are plenty of small homes within 1 mile of the Ballston or EFC metros. And likely VA Square as well that can be had from $450-$525. If someone can squeeze a third or fourth bedroom in, has some money from their parents, or is willing to roll the dice from a risk perspective, they can get an old home and rent out a couple of rooms for $800-1000 per month and make that mortgage.
The numbers pencil out on the low end for someone who desires this area more than they desire cash flow.
My $0.02
sherwunderbar-
First buying bonds is not printing money. Perhaps in the future they will print money, but as of yet they are not just printing the money contrary to what some news sources say.
Second I strongly disagree with you that buying assets did not work. QE1 in particular was extremely beneficial in stopping the market collapse, improving confidence, lowering mortgage rates (putting money in peoples pockets), and fighting deflation. If the entire banking system had collapsed (which was very close) we would be in a dramatically worse situation than in the past. It would have been like the depression except for worse, because there are fewer farmers and other self sufficient people in today's economy.
I know some news sources make deflation sound good and make moderate inflation (1-3%) sound terrible, but that is because they don't understand the consequences of deflation. Historically there has never been an example of an economy going through deflation and being prosperous at the same time.
housebuyer,
I did not say they are currently printing money or that QE3 has started, but that some are calling for it. SOME want another stimulus and I do posit that neither have worked.
If anything would have worked, we would not be where we are today...
wunderbar-
I guess that's just a difference of opinions we have. You and many people think that the economy has not improved, because unemployment has not improved. I think the economy has improved, because instead of losing 600K jobs/month we are now gaining 100-200k. So although the economy is still very week I think the fed helped us get from total free fall into a more sustained economy even though it is still very weak.
I do admit that the fed does not have a silver bullet. With rates at zero anything they do will only help/hurt slightly at the margin.
housebuyer,
I am not speaking about unemployment numbers, I am specifically pointing to our nation's debt. I have long been a proponent of cutting spending and downsizing gov. Living beyond one's means is not acceptable of individuals and should NOT be acceptable of governments.
I should also comment I don't think anything can be done in the short term to fix our problems. We have way to many houses and way too much leverage at the household level. It will take time for households to improve their health and to work through the excess houses before we can truly have a strong economy again. It also probably does not help that banks are trying to improve their balance sheets so they are making more stringent loan requirements. This is the right thing to do long term, but it does hurt the current growth
The problem about trying to shrink the government is it will cause unemployment to rise, the economy to weaken, and in the end the deficits will not fall people tax revenue will fall.
It is much more important to try and fix the economy than worry about the government rather than doing it in the reverse order.
At least 2 more years of extremely low rates. Good news for debt holders. Bad new for the retired and elderly that depend on treasuries and cd's.
"contrarian said...
I always said since March 2009 we were in a counter-trend rally, but I said the bear market would re-assert itself."
Yes, a two year bull run where the S&P rallied from 666 to 1370, and many stocks had 1,000% or greater returns. Now we get a 20% correction and it's proof that you were right and we're all doomed.
Hilarious.
So, what is your plan to profit from the pending collapse? I would like to see you go on record with your strategy.
"housebuyer said...
I should also comment I don't think anything can be done in the short term to fix our problems. We have way to many houses and way too much leverage at the household level. It will take time for households to improve their health and to work through the excess houses before we can truly have a strong economy again. It also probably does not help that banks are trying to improve their balance sheets so they are making more stringent loan requirements. This is the right thing to do long term, but it does hurt the current growth"
And I agree with you on this. We need to look to long-term solutions, even though they may have a negative short-term result.
This is what happens to anyone in massive debt, live below your means and pay it off. Sucks for the immediate time, but then all there is is time to prosper.
The eyesore of Boulevard Manor in N. Arlington is back on the market again. It's a 4bd/2ba SFH short sale with 2 lenders and is going for $455k. Has anyone been inside? Is it trashed?
Also, is it really that hard as realtor to run spell check on your listing description?
Jewel - agree, and what does "shows well" mean given all the other info on the listing? :-)
Looks as though the price is approaching tear down territory.
Ace,
I think the whole neighborhood would be extremely pleased if the house was demolished and a new house was built. Although that's wishful thinking on my part ;-)
The land has got to be worth $455k by itself. The house is bordering on blight - at least from the outside.
wunderbar-
I think we just have fundamentally different views of the world. I believe Kaynes paradox of thrift has been proven correct many times. This basically says that if everyone tries to cut back their spending to save more money, what actually happens is the economy shrinks and everyone ends up saving more.
It sounds like you believe more in Hayek's work, which says that if the government cuts back its spending private citizens will become more confident and will start spending more. There are almost no examples of this happening in the real world (currently the theory is failing miserably in Europe). The only times this has worked is when the countries Fed dramatically eased its policy. Seeing that are Fed is already at 0% interest rates they really can't do very much more.
I fully agree that we need to balance our budgets. I would have loved to do this through less spending and more taxes when the economy was good in the 90s and mid 2000s, but I just don't think now is a good time to worry about spending less.
The unexpected effects of MERS
Cheryl
this report was written by a California real estate attorney and Land surveyor, they think that MERS may destory 400 years of title work.
You are an attorney, what do you think?
http://harbingerag.com/Papers/MERS%20Report%20Exhibits%20Combined.pdf?source=patrick.net
Hey all
I have an offer in play for a decent income property. Yield of 12%, Cap rate of 9.
So Bulls, Good News, I'm trying to buy.
Bears, Good news to. I'm buying at a good cap rate.
contrarian said...
"David,
You speak about this "bull run" from 666 to 1376.
Are you talking about the "bull run" for people who left their money in the market when the S&P collapsed from 1576 to 666????
You suggest people made a profit when the S&P went from a high of 1576 before the 666 low, to a high of 1370 after the 666 low?
Is that the NEWER math they teach these days?
And, as I type this the S&P is now at 1,135.
David, you might want to consider taking some remedial math classes. Or, better yet, talk to Anon and see if you can get on the same meds he is on. You clearly need them."
Yes, contrarian, I do consider an over 100% gain in the market over a two year period a bull market. I’m sure that many people suffered through the 2008-2008 bear market without selling, but I was not one of them. I know this might sound like a foreign concept to you, but some folks understand that markets are dynamic and to be successful in investing you need to be flexible and admit when you’re wrong. When trading stocks you have a buy button and a sell button (you do realize that, right?). I might have a strong conviction about an investment, but if the market tells me I'm wrong I can sell to limit my losses and wait until the next opportunity comes along. The people who lose money (or miss out on big gains) are people like you who look into their crystal ball and try to predict the future, and then have unwavering conviction in their prediction.
Also, you might be right in a prediction, but wrong in the projecting the consequences. A perfect example is your prediction about the collapse of banks. You were right, hundreds of banks folded and even Freddie and Fannie are only around due to government intervention. However, even with a huge banking mess, mortgage rates are near all-time lows, which make housing much more affordable. Surely that wasn't what you saw in your crystal ball in 2008-2009.
Of course, another consequence of the Fed keep rates at zero is inflation in commodities, which went against your prediction that we'd have massive deflation.
(btw…I’m still waiting to hear your plan on how you intend to profit from the coming collapse.)
DC7451049 - WASHINGTON
Giggle...
Good luck, Pat, hope you get it.
"Contrarian said...CRT thought Bernanke could throw trillions from a helicopter and prevent the stock market and economy from collapsing. He refused to accept the fact I told him deflation was inevitable no matter what the federal government did."
Actually Contrarian, I thought Bernanke could throw trillions from a helicopter and prevent deflation... and thats exactly what happened.
If you havent noticed, deflation (which was present during 4 months in late 2008) turned back into inflation, and CPI is now at its highest point in all of recorded human history.
http://www.inflationdata.com/inflation/Consumer_Price_Index/CurrentCPI.asp
"Contrarian said...What part of deflation is it you are still denying?"
CPI - which measures not just housing, but energy, durable goods, food, etc. the broadest measure of inflation/deflation possible.
http://www.inflationdata.com/inflation/Consumer_Price_Index/CurrentCPI.asp
Also, the same one you used to post during the 4 months it showed deflation.
Thank you Contrarian! I finally understand.
When tapes got replaced by CDs it wasn't superior/easier/longer lasting technology replacing outdated technology. Rather, it was deflation in the tape manufacturing industry.
Phew! I'm so glad you finally helped me clear that up.
My $0.02
I figured Anon was a lawyer. Smart people tend to be very funny, quick and dry.
Contrarian-
I fully agree with you the hyperinflationist are clearly wrong and we will not have hyperinflation and sky high interest rates. I have never bought into that theory, because we are in a liquidity trap, but I do think we will continue to have positive core inflation albeit at a slow rate. There is some chance we will have a couple of negative months due to the unwind of some events like the Japanese supply chain disruption and airline prices due to fule increases, but in general I think there is little reason so expect YoY core will go negative.
If we go back into a recession (which we may already be in a minor one growth is probably between 0-1%) headline inflation will fall with oil, but what really matters is core, because it is a much better predictor of future and long run inflation
Core is very low now at ~1% YoY, but this is a stable metric and will likely persist.
Contrarian-
I agree with a lot of those although there are a couple of things I would change.
1:) consumer credit has been increasing for ~6 months now.
2:) you should look at breakeven inflation curves (the difference between treasuries and TIIPS). The main reason treasuries have been falling is real yields are falling quickly. Expected inflation is ~1.8%/year for the next 5 years
8:) unemployment is still very high, but it has been pretty flat for ~2 years now.
14:) I personally don't think gold is a useful metric of anything, but in theory gold is supposed to be constant in price. So if its price has gone up in dollars that means there is inflation not deflation
WTI is a terrible metric for oil prices. There are supply reasons WTI doesn't represent oil prices. Brent is a much better metric. You will also notice that Brent tracks gasoline prices much better
basically your biggest argument is that housing prices came down. We all accept they were way to high and have hit more reasonable metrics, but if you look at things like rents they have been going up not down.
"Contrarian said...As far as CRT's claim about energy prices, oil ($WTIC) was fallen from $145 a barrel to $80 a barrel, but he doesn't see that as a drop in price, I guess?"
145 down to 80 is a drop. Still, its nothing when in late 2008 we really had deflation and it hit $45-$50 a barrel.
In any event, looking at just a few metrics is pointless. The deflationist points at crude as proof of imminent deflation, likewise, the hyperinflationist points to the currently skyrocketing price of gold as proof of imminent hyperinflation. Neither of which are accurate.
Meanwhile, the rest of us look at CPI which measures the entire basket of goods we buy, some of which are up, some of which are down, and which are (on the whole) moving slowly upward and are now at an all time peak price in recorded human history.
Also, as to the source of that link, (inflationdata.com) perhaps you dont remember, but it did come from you. Given that it has numberous links to prechter and is "provided by" Elliott wave international, I think it is pretty obvious where it came from.
Contrarian-
Yes we admit that gasoline has come down some. I was just pointing out that it has not come down nearly as much as you would think knowing how much WTI has fallen.
Although my point was that you should look at core not headline inflation because commodities are volatile. I know lots of people will argue this particularly when commodities are going up, but core really is a much smoother and better estimate of future inflation.
contrarian said...
Plus, when you look at what $1,000, or $2,000 or $3,000 buys in a PC today versus two years ago, five years ago, etc., you get a lot more for your money so in that sense PC prices have dropped - as have other items.
This statement has been true for every time period since the early 80's. So are you saying we've had deflation all that time? Do you even think about what you post, or do you just repost dumb things you get in your email from all the crazy people you follow on twitter?
Jeremy & Contrarian-
I agree with Jeremy & CRT. Computers always go down in price and this is why you need to look at the whole basket. I could just as easily say that medical care and education always go up in price. So thus if you look at core you get a much better picture.
Contrarian,
Simple question...
What are you going to do to profit from your economic predictions?
Who cares if you end up being right if you don't profit from it. What is your advice for the rest of us who just don't get it?
contrarian,
If you're going to call someone "simple minded" you should at least learn to make a working hyperlink. The link you posted goes to http://www.blogger.com/mywebpage.html which is not a valid url.
If you can't understand why a five year old computer isn't worth as much as a new one, I don't think I want to have this conversation. Actually, I don't think anyone wants to have a conversation with you, other than to refute the constant nonsense and spam you post on this board. I don't have Anon's patience and OCD to clean it all up, so I'll just go back to ignoring all your posts. They are one of the few problems on this planet that actually will disappear if you ignore them long enough!
"contrarian said...
Fine with me if you ignore them Jeremy.
Try having a civil discussion rather than criticizing about something that is completely baseless, as shown by the video."
Why won't you answer my question? I've asked you how you plan to profit from the ongoing economic collapse at least six times.
Surely you have a plan? Is your crystal ball broken?
contrarian
the real issue is how the basket of goods leads to an impact to consumers.
The use of equivalent rent rather then 30 YR mortgages was a huge fraud on the numbers.
but we have schiz flation. commodities are spiking while housing and services are falling.
I don't visit this blog that often, so I missed your plan. Please repeat if you don't mind.
I'm not looking for advice. I'm just interested to hear it, for the record.
I'll tell you my plan. To invest in high quality growth stocks, especially those with dividend yields higher than 2.50%. I also think real estate is a good place to put your money.
"contrarian said...
David,
Read Prechter's book to understand my position."
Ah, I see. You mean the guy who has been predicting DOW 1,000 for the last 10 years? The guy who ranks dead last in Hulbert Financial Digest's ranking of financial newsletters?
Here is an interview from August 2009 where Prechter suggests shorting the stock market (50% position that he later increased to 200% short in November), buying the dollar and said that gold (under $1,000/oz. at the time) and other commodities had topped.
LOL.
http://www.zerohedge.com/article/robert-prechter-dollar
You never posted your strategy. You just said to read his book, which leads me to believe that you follow his advice. My "agenda" was just to have you share specific strategies to profit from the doom that you predict. As for being open-mindedness, that is hilarious coming from you. You have been bearish for years and only post articles that support your bearishness. Other than keeping you money is t-bills, what other asset classes have you suggested buying?
Finally, comparing Prechter to Buffett because they both own t-bills is a stretch to say the least. Buffett hasn't made his money by being a perma-bear.
Contrarian,
You should go into politics since you're so adept at not answering a question. I wasn't asking for advice, but rather wanted to engage in a debate over investment strategies.
Let me ask a simple question, why would you keep your money in treasuries yielding .1% instead of a stock like Walmart which trades at a P/E of 10 and yields 2.90%?
"I HAVE answered that question. I answered it above in more than one way."
Yes, in many ways with the exception of clearly.
Wow -- I take a week off and Contrarian erupts in a 79 post fountain of glug, glug, glug idiocy. Thanks to Mytwocents, David, CRT, HB & Jeremy for holding down the fort.
"David said...The guy who ranks dead last in Hulbert Financial Digest's ranking of financial newsletters?"
Yep. Hurlbert indicates that 100K invested according to Prechter's advice in 1990 would be worth a mere $2,500 today.
Just think about that for a second -- listening to prechter would yeild you a 97.5% LOSS on your investments. Simply astounding.
But hey, as long as he keeps on selling books right Contrarian? Glug, glug, glug, glug, glug...
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