patrick.net

dear all
in central california, homebuilders are =giving 20,000 $ discount. still no takers. in my town there are 200 listings in the market up from a 125 or so last year.

I saw a 6 br house for salefor 585k built 2years ago by woodside homes. However thats not all more houses are going to be built. today i just went to see a new development, this development is around a golf course. sure its impressive. central california is a desert area. So getting water here is the problem. although the aqueduct runs down this area. One of the owners told me that he spent 20 million dollars getting the permits and the water supply . however he also added that the market is softening and that he is taking a risk developing this venture.

dont you think living in a golf community will be a nice selling point?

OK ok parking the wad, here’s something that might be better…. a stamp dealer told me yesterday that one very important thing to keep in mind in hoarding gold, is to get gold coins. No one wants bullion, since it has to be tested 6 ways to sunday to make sure it’s pure, it’s not just plated, etc etc. But coins are a known quantity, and with just a little training and a loupe, fakes are easy to spot.

Thats a very interesting observation. can you elaborate on that?
My question is how do you know what you are buying is one ounce gold? it looks like gold and it feels heavy.
i also think that old gold coins have more authenticity than the newer dated ones. my other way of diversifying is buying ms 62-63 gold coins. these are coins graded by pcgs or ngc. you can get them for 600-800$./ounce. also think about pre- 1933 coins. sovereigns,thebritish, the swiss franks
are pre1933 and may be worth a consideration.

Discretion: This is not investment advise.

i also think that old gold coins have more authenticity than the newer dated ones. my other way of diversifying is buying ms 62-63 gold coins.

I prefer Austro-Hungarian Ducats myself. But, are mine authentic? Well, uncle Zoltan said so! Seriously, why would old coins be more accepted than Maple Leafs? Is someone trafficking 24K gold-plated tungsten* bullion coins somewhere?

*same specific gravity, possibly less detectable.

Btw, I'd be sorta leery of buying old Vreneli, at least minted during WWII.
These are Swiss gold coins, and under analysis, mercury was turning up in some coins. Need I get too graphic here, but subtly put: dentists used mercury amalgam for gold fillings...connect the dots. :(

"I own Axel Merk’s fund (a little bit)." --Deo

Oh yeah, the Merk Hard Currency Fund. I don't own any shares but I actually subscribe to Merk's e-mail newsletter. I read one of Axel's write-ups on Financial Sense Online and liked it so much that I subscribed to get his newsletter sent to me via e-mail. He's an Econ major too, so I guess that's why I see eye-to-eye with his ideas. How's his fund doing for you?

These are Swiss gold coins, and under analysis, mercury was turning up in some coins. Need I get too graphic here, but subtly put: dentists used mercury amalgam for gold fillings…connect the dots.

I believe there are members of this blog that can answer this question.

same specific gravity, possibly less detectable.
w = 183.84
au = 196.96655

dude, come on now.

Surfer-X Ph.D.

Note: not CS, Materials.

same specific gravity, possibly less detectable.
w = 183.84
au = 196.96655

Damn, my mistake!...that's density
http://tinyurl.com/dv43a

The 2 yr. - 10 yr. briefly inverted on Friday (by 1 bp). It now stands at 1 bp, according to Bloomberg. Bloomberg is more reliable than Yahoo, IMO.

So the yield curve did invert before the end of the year. Too bad there will be no butterfish sushi. :(

http://tinyurl.com/bss3n

That's what I love about this blog, everyone is an expert in fucking shit they know nothing about.

Ok, Mr. McFucknob, here is how it goes, when I point a portable fucking XRD tool at say W or Au, the tool, you know tool, kind of like you, ahh fuck it, REAL ESTATE IS GREAT. COMPUTER SCIENCE RULES AND YOU ARE ALL FUCKED, BUY HIGH SELL HIGHER FUCK ALL YOU FUCK MARINA IS PRIME FUCK YOU! FACE REALITY CS ROCKS EVERYONE BUT YOU MAKE 299k A YEAR. EAT MY ASS

MARINA IS PRIME

That’s what I love about this blog, everyone is an expert in fucking shit they know nothing about.

Did I ever say I was an expert? I just heard the two metals weighed the same...sigh. A friend joked about gold plating Tungsten bars and selling them to the unsuspecting.

Course, it's clear we have an expert at anger on this blog.

where do u buy the ducats?

SF Renter:

I try NOT to check my investments too often. I believe that it leads to over trading/emotional decisions. I have the fund as a hedge for dollars. As far as it goes, I did look a while ago and it was up a few % in a short period of time of ownership. I'll probably look again in Feb or March. I check Axel's newsletter too. Also John Hussman's and John Mauldin's. By the way, you gotta buy Ron Insana's book on how to ID a bubble, the stages of a bubble, the history of global bubbles, the history of American bubbles, and of course the tech bubble. He wrote it before the RE bubble, but gues what: The RE bubble tracks his explanation of causes, stages, and outcomes EXACTLY. Up next: The disillusion stage, and then the revulsion stage when NO ONE will want to own RE.

where do u buy the ducats?

hessesfan-
Really, I was just joking whether ducats would be more solvent than newer coins.
(We have some of those coins laying around, but I don't actually have an uncle named Zoltân)

Seasons Greetings --I've been OOT with the extended family, and just wanted to pop in & check up.

Nice to forget about the credit bubble once in a while and focus on the other important things in life --Merry Holikwanzabong, all!

SafeHaven is a major gold bug site. I tend to agree that we are overdue for a depression (soft or otherwise) and a currency crisis. Why? Because it is NEVER different. Take no comfort in the phrase "It hasn't happened since the great depression". Why? Because it's a cycle. We are overdue. Anyone interested in bubbles HAS GOT TO READ Trendwatching by Ron Insana. You bet, we're in a RE bubble. Gold next? Yes, I believe so. Why? Because according to Mr Insana, bubbles happen when there is too much liquidity (sound familiar?) often caused by the need to clean up after the last bubble (sound familiar?). What will "Helicopter" Ben Bernanke do? He will try to create another bubble by lowering interest rates and re-inlating the economy. (That's why they halted the publication of M3). That will stoke an energy bubble (if peakoil doesn't) and a gold bubble. If our creditors don't let him lower rates (because they sell our treasuries or just stop buying), wow. 20% prime rate here we come. Either way, the smart money is hedging their bets. Now is not the time for risk taking. Remember our dear fed chairman's warning, "History has not dealt kindly with investors who demanded lower risk premiums due to false sense of security created by prolonged periods of stability." Good times do not last. They never will. It's a cycle. BTW, Kondratieff was not a crack pot.

Moment of Zen For the esoteric minded:
Just look out the window at the mountains and ask yourself this question, "Is the mountain moving?" If you answer no, please understand that it is a scientific fact that the mountain IS moving. If you don't think so, it is because it doesn't appear to move from your perspective (time scale). But ask yourself this question, "Am I so important that the mountain has to be on MY SCHEDULE?" Global capital markets are that mountain. They have cycles that have exteremly long periods. You will be better off if you accept your own humbleness realtive to the global capital system. IT IS NOT ON YOUR SCHEDULE.

Deo Vindice.

JAck, Some of the topics being discussed are highly complicated. Abstractions are a useful approach to helping human beings understand complicated phenomenon. Trust me, global macroeconomics is a complicated subject. It effects you and me whether we try to understand what is going on or not. It does not make me (or anyone else) insane for trying to protect myself from the possible consequences of the bursting real esate buble. (Perhaps the voices in my head make me insane, but that is for another thread). There are a lot of very smart people who have modeled complex economic behaviour over the centuries. It pays to take the time to try to understand them. Feel free to tune it out, but do so at your own peril.

There has been a lot of talk about gold on this blog when people mention where they want to park their wad, which is why I wonder if there is a gold bubble in the making.

Gold is a tiny asset class. Price can be arbitrarily high because of the very small amount of gold out there.

at the risk of throwing a wrench in the bullion convo, here's some anecdotal bubble info:

I may have mentioned my sister placed their old SF Bay home for sale. They were expecting $830K, but the realtor knocked them down to $770K, and they had a solid offer within a week, closing in January. A huge relief for me :) --and somewhat surprising, given the tales of inventory and DOM. From what I heard over Christmas, people are still buying small homes in very marginal nabes like East Palo Alto for $700-800K. That was a real shocker to me--this "bubble" has longer legs than I imagined; will buyer-driven appreciation continue into 2006? Then again, I'm not too surprised, because this place experienced a head-snapping return to reality a little over 5 years ago. While I'm glad my sister managed to pull this off, will it be true for some of the Spring "sell at top" crowd?

"...and the real world is no more complicated than we make it."

The real world is complicated. However, our understanding of it is no more complicated than we are willing to make it.

Marek-
That Fisch device is brilliantly simple; I'm always impressed by elegant solutions!

I am having a horrible day…

Jack-
What's up...post-holiday burnout?
A bit of that here--but nothing a grande latté @ Peet's couldn't fix. :)

Jack--It is a pleasure to disagree with you. I think that the unprecedented rise in prices will result in an unprecedented crash. I believe that it will become cheaper to buy than to rent. That would imply an enormous crash. As an alternative, we may have tremendous price inflation for rents that keeps the nominal price of the asset constant, but guts the real price. This condition would only be possible through greatly increased inflation across the entire economy. I believe that Bernanke wants to engineer the least destablizing combination of both nominal declines and inflation driven decline in real prices.

I think the price of gold is saying to Ben Bernanke: "We know what you are up to, and you're not going to get away with it." It's a game of chicken, and I'm not sure who is going to win, because the future is not predetermined. Gold will decline if interest rates rise high enough. Conversely, Gold will soar if Bernanke tries to drop interest rates to prop up the housing market (and widen the spread to help banks repair their balance sheet in the wake of mortgage defaults). That has been my position. Gold should be used as a hedge, not a speculative vehicle. I'm still trying to sort out energy prices, but I plan to buy some(as of now) as insurance. I would welcome informed opinions about the direction of energy prices.

As for real estate as an investment, I'll say again, "It is not a home. It's a house." Have you measured your returns on housing in real terms? I'm sure that they have been quite good. Try measuring them with a 50% decline in the value. I'll bet it is probably still decent. That fact will be of little consolation to people who bought at the top and are forced to sell early when they can't meet the cash flow. I have been in this position before (despite being only 33). It sucks. I got lucky and got out with a profit. Many people will not be as lucky as me or you.

Also, I have my doubts on the medium term for CA in general. You owned during an explosion in the value of the CA economy. That may well have bailed you out. I think that communism will continue to chase away jobs. The fact that Blue states just built out the infrastructure for the low tax red states through this housing bubble will drastically harm CA's ability to compete for jobs. So, I'm saying that you may have gotten lucky with your prior purchases. I do not know whether or not that trend will continue for those who bought at the top of this bubble. Mind you, I'm not predicting the end of CA, just a long, slow period of decline that will force needed reforms. Those reforms will sow the seeds for a future boom, but it will be painful until then. Many will be hurt, regardless of your prior experience (or perhaps because of your prior experience--much room to fall).

Newsfreak: Ok, my mountain is a metaphor. I'm a big fan of patterns (because I can't do math). When I say complicated, it is not to insult anyone. It is because I view markets as a "Complex adaptive system". I look at the laws common to all complex systems (multiple interactive participants, governed and influenced by the same laws and forces, no single point of control, etc.) to try to model their behavior.

To quote the Nobel Laureate Jorge Luis Borges:

"Universal history is the history of a handful of metaphors". I have seen this to be true, and I believe that patterns (metaphors) are as close as we can come to seeing the face of God.

Best wishes to all,
Deo Vindice.

this housing bubble will drastically harm CA’s ability to compete for jobs.

That could very well happen. Meanwhile, people continue to buy up homes in the Bay Area, betting that future appreciation or a "robust economy" will keep them ahead of their sh!tbox payments. Yet, what will happen when their ballooning payments meet a downsloping economy? Don't take this as an "expert" predictive analysis, but does anyone foresee a "rustbelt" scenario for the bay area--or will the Next Big Idea somehow leapfrog our wages ahead of the cost-of living?...

...Someday, happily dwelling in our multi-million $ tract homes, toasting our good economic fortune (and equity), wondering how the rest of America ever makes do, being deprived of our high culture, fine food, and overall amazing Bay Area lifestyle? Poor, poor, dreary existence of America, cast into the outer economic darkness, beyond the persistent entrepreneurial glow that is our Bay Area. I pity them.

haven’t worked a day in their lives, and 99% of them black. So much for the dreams of Booker T. Washington to see a viable black working class and then from that a substantial middle class. Why work when you get paid to sit around?

I'd agree that handouts contribute to the problem. The same thing happens on "indian" reservations, but admittedly the problem is rather complex, no? These people have been exploited for centuries: Spanish, French, Anglo-American...and their outlook becomes limited by a master-servant mentality: "since you're to blame, you take care of us (forever). Let us build casinos, since we can't be productive otherwise." Admittedly I'm sarcastic here, but there's some truth to it.

That said, there remains bitter divisive attitudes towards both sides. Marginalized ethnic groups think "whitey" only wants to exploit them, ruin their way of life, and would never gainfully employ them. Then there's business owners, even in the Bay Area, who treat Blacks and Hispanics as unemployable losers, worthy of poverty heaped upon them. Both sides disgust me equally--because of their prejudicial, destructive attitudes. Yet, there's plenty of people who already prove these people wrong. Personally, I can only wonder what would became of my family if they never learned English, hid themselves in an ethnic enclave, and somehow scraped by on dairy farming forever. Oh yeah--I would be Amish.

I guess my point is that unless you have to have physical possession of gold to be “invested” in it, I think we can still see a gold bubble.

I think a gold bubble is 75% likely. They are really not making anymore gold. :)

PeeterP - they are “making” more gold as in mining it, from large industrial operations to your friendly local nugget shooter with the latest metal detectors.

They are discovering gold, not making gold. ;)

production will not rise with demand and that’s why we may see $800 gold again.

What happens if those stockpiles of gold are put back into the market: would that cause a quick correction? I was there when the Hunts pushed up silver as high as $54, followed by a steep decline-- if I'm not mistaken. It was my first speculative bubble, selling my silver off for $45 (when I was 15) :)

KurtS Says:

"...this place experienced a head-snapping return to reality a little over 5 years ago." (Nasdaq correction)

The next "head-snapping" return to reality's going to snap some heads clean off their shoulders. (housing correction)

What am I going to do?

Invest in Rice Crispies: snap, crackle...pop!

interesting stuff about human nature in tol message boards

by: amcrokos
Long-Term Sentiment: Strong Sell 12/26/05 09:53 pm
Msg: 58246 of 58257

THINK DIS TIME IS DIFFERENT (LOTE & CO.)

---

The New York Times has look back at the Japanese housing bubble. "With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain."

"To be sure, there are several major differences between Japan in the 1980's and the United States today. Still, for anyone wondering why even the possibility of a housing bubble in the United States preoccupies so many economists, it is worth looking at how the property crash in Japan helped to flatten that economy."

"At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time. Then came the crashes in both stocks and property. Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover."

"Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion."

"Professor Noguchi said he also saw parallels between Japan then and America now. Last year, as a visiting professor at Stanford, he said he read real estate articles in local newspapers that sounded eerily familiar. Houses were routinely selling for $10 million or more, he said, with buyers saying they felt that they had no choice but to buy now, before prices rose even further."

"'It was déjà vu,' Professor Yukio Noguchi, a finance professor at Waseda University in Tokyo who is perhaps the leading authority on the Japanese bubble. said. 'People were in a rush to buy, and at extraordinary prices. I saw this same haste psychology in Japan' in the 1980's. 'The classic definition of a bubble,' he added, 'is people buying on false expectations about future prices, and buying with the hope of selling in the future.'"

"Japan's experience teaches the need to be skeptical of that fundamental myth behind all asset bubbles: that prices will keep rising forever. Like their United States counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. When prices dropped, many buyers were financially battered or even wiped out."

"'The biggest lesson from Japan is not to fall into the same state of denial that existed here,' said Noguchi. 'During a bubble, people don't believe that prices will fall,' he said. 'This has been proven wrong so many times in the past. But there's something in human nature that makes us unable to learn from history.'

DiNor:

I have a prospect that decided to move his company to Portland because he couldn't hire people and get them to move to CA (Bastard--I was hoping for a deal). It is an enormous trend that companies that can not outsource to China (my company helps them with that) outsource to NV, AZ, TX, and OR. I see it all the time in my business. I think that the communists in OR will prevent you from picking up your fair share of jobs, but I still expect the trend to continue. Until it reverses of course. Why would it slow or reverse?

1. What you said about quality of life not really being higher. There is no heaven earth, just frustrated people from CA.
2. The Bay Area (CA) is going to crash and bring costs back into line.
3. The communists, despite the stalemate with the governator, will ultimately lose and a favorable business climate will re-establish itself.

WHy? Because trends revert to the mean. That which is unsustainable will stop. Once people lose their jobs, they drop the idealistic bullshit and examine the facts. Crisis breeds pragmatism. BA Liberals are really just hipocrites/Fair weather liberals. They don't care about other people, they just want to project an image of being liberal because they want to be seen by other people as is hip/cool/against the establishment. Its called Pride and Hubris.

Eventually, they will come to recognize that they ARE the establishment, and that they are just fucking themselves. When the trend changes and it is no longer fashionable to be a liberal, they will distance themselves from the true communists. They will eventually come to accept that you can't fix every problem with a hammer and sicle.

It is really just a byproduct of having so many Ivy League educated white trash yankee Peasants (like the heretics that came over on the Mayflower). They think that the Kennedys are upper-class, for fucks sake. Those people are incapable of handling power without being corrupted by it. But, they can be counted on to do what is in their best interest in the long run.

--Deo Vindice

P.S. I hope that people will have the wisdom to stay put, advance in their careers, take advantage of the crash when it happens, and then work to build a sustainable CA economy for future generations.

Though I prefer gold to diamonds, I plan to invest in apple trees, strawberry plants, blueberry bushes, and seeds this spring. I’ll eat my wad, and sell others the excess.

Good move. ;)

If I am rich one day, I will probably invest in an abalone farm. Edible investment. Yummy.

Wouldnt the fact that so many recent buyers are clueless about the bubble be a good argument AGAINST a crash?

After all, if MOST of the buyers have no fear of a bubble, then they wont be jumping ship anytime soon, and that would go a long way to mitigate the all important “herd mentality” that is so crucial to a true crash.

LOL... Jack, you're killing me --thanks for the belly-laugh!

After all, if MOST of the buyers have no fear of a bubble, then they wont be jumping ship anytime soon, and that would go a long way to mitigate the all important “herd mentality” that is so crucial to a true crash.

But many will be forced to walk the plank when their ARM adjusts. Serial refinancers will also find themselves thrown overboard when they are unable to reset their NAAVLPs and their payments go up at least 7.5% a year.

After all, if MOST of the buyers have no fear of a bubble, then they wont be jumping ship anytime soon, and that would go a long way to mitigate the all important “herd mentality” that is so crucial to a true crash.

I somehow watched Brokeback Mountain and saw the sheeps. I said to my wife: look at the sheeple!

Most people do not do what-if analysis, which is extremely important with a highly-leveraged investment like a mortgaged house.

Does a 2-yr rental agreeement even exist? Does it yield a decent discount? I’d like to lock in the low rents, and not risk having to move or pay higher rents after 1 year. Would a slowdown in housing mean higher or lower rents in the 1-3 year window?

I think real rent will be firm with the slowdown in housing. In many places, there is so much vacancy that it will take a lot more tenants to bring up the price.

What do you mean by “real” rent? Adjusted vs. ‘real; inflation? Or adjusted vs some kind of mortgage numbers?

Inflation.

I think rent may still rise according to inflation in the post bust world.

Now, if only I could figure out where to park the wad

You need to negotiate wad parking space with your landlord. :)