patrick.net

Lulu,

Determining exactly when the yield curve "inverts" can be tricky to pinpoint because there's more than one way to measure it. In general, though, the MSM media (including Prat's CNN money article) seem to use the 2/10-year bond spread as the main benchmark.

For the little wager Peter P, myself and MarinaPrime had going back in August, I believe we settled on the 1/10 year spread, (mainly as a token/concession to MP). If you use the U.S. Treasury Dept's own yield curve data, it inverted on BOTH the 1/10 and 2/10-year spreads today: treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

Sure. You’ve got access to my email? I only check yahoo every few days, but I do check it.

Cool. Have you tried Kaygetsu (www.kaygetsu.com) yet? The owner used to run the famous Toshi Sushi in Menlo Park.

It is in the Sharon Height shopping mall, just be Santa Cruz and Sand Hill. Prime location for Palo Alto workers. :)

That’s what i’d do if i had one of those ‘exotic loans.’ Seems rational.

Too bad, sheeple are not as rational as you. Besides, if people could not afford 5% 30yr FRM last year, what makes you think that they can afford a 6.5% 10/1 ARM now?

Too bad they have been silly. Now many sheeple are stuck. Wolves are closing in on them.

Also, just wondering on this slight inversion… what does this mean for the economy? Is the bond market forecasting a recession? Or, is the bond market just saying that the inflationary outlook is benign and that the Fed is wrong?

Whatever you want to see it as.

peter p. this one is for you:

It requires registration. :(

@Lulu,

Yield curve inversion can signal a number of things. In general, the "standard' interpretation is that the bond market is expecting a weakening economy, which usually means falling future yields (interest rates) are on the way. An inverted yield curve has historically been a very reliable predictor of recessions, which usually follow with 6-12 months of the initial inversion.

peter p. this one is for you:
It requires registration.

Try BugMenot.com

There is no exterior distinction between affordable and market-rate housing.

How about interior distinctions? Perhaps one has pergraniteel and one does not. ;)

BTW, thanks primetroll.

I guess that makes sense. Is it possible that we can be in a recession, but still have rising home prices as investors shun stocks?

Or investors may shun housing and go to metals. It is all about prevailing expectations. Economic fundamentals are reactions to such expectations.

I guess investors can also shun everything, in which case liquidity rises tremendously as cash gets hoarded in money markets and savings, which results in a rightward shift in the LM Money Supply curve, which further pushes down real interest rates, which ultimately proves to be a catalyst for corporates and consumers to borrow and invest again?

Unlikely. You are describing a textbook economic utopia. The fact is that markets are 100% driven by psychology and that liquidity bubbles forms and disappears.

Read Soros.

Lulu,

The fact that so much money (and credit) has already been thrown at RE since 2000, and that housing prices have outpaced incomes, rents and overall inflation for so long tells me that much more appreciation is unlikely at this point. 2000 was really the point at which the current RE bubble took off, thanks to AG's negative real interest rates combined with relatively new speculator-friendly tax incentives and fleeing Dot.com "investors".

The odds of this trend-line continuing indefinitely, given the current sky-high price/rent ratios must be very low. Trees just don't grow to the sky. Of course, median prices (on falling inventory) can still go up a bit further, as the remaining few buyers can now "scale up" and cherry-pick among much greater inventories, but it's very likely that we're already at or near peak prices in most regions.

Whether or not the Fed can start another asset/credit bubble in another market is anyone's guess, but housing's day is done --you can stick a fork in it. :-)

thanks to AG’s negative real interest rates combined with relatively new speculator-friendly tax incentives and fleeing Dot.com “investors”.

Forgot to mention the massive role that GSE/MBS risk underwriting has played in this cycle. Fannie, Freddie & Ginnie have purchased (and guaranteed) around 50% of outstanding residential mortgages out there, allowing banks and sub-prime lenders to hand out I/O mortgages to minimum-wage earners, illegals and dead people.

Whether or not the Fed can start another asset/credit bubble in another market is anyone’s guess, but housing’s day is done –you can stick a fork in it.

I am wondering how much gold will go up in value if just a portion of the excess liquidity is going after it.

All gold ever surfaced in history can fit inside just a few McMansions.

I am not a gold bug.

Things are definitely cyclical, but i think in general, due to population growth, and inflation.. things tend to continue moving up in the long run.

Very true. However, one must be able to meet short-term obligations. How many "investors" can withstand a 10-year drawdown in real-estate on negative cashflow?

I don’t know about gold. It seems that everybody is chasing gold. Take a look at the chart.

Gold is down from the top and is having some trouble heading back up. We will see.

Things are definitely cyclical, but i think in general, due to population growth, and inflation.. things tend to continue moving up in the long run.

Yes, the overall trend for housing (and most any asset class) is up. The question is, does housing historically go up much faster than inflation and incomes? Now that housing is completely unaffordable in bubble regions for anyone not rich (or using NAAVLPs), who is left to be the "greater fool"?

But, regarding non investors, those like me.. who just want to buy a house and live, i think most really don’t think about capital appreciation or depreciation. They/I just don’t want to pay someone else’s mortgage, they just want to pay the bank, who owns the majority of the house!

Yes. It is totally fine if you can afford the mortgage.

Many homeowners rely on NAAVLPs to afford. They will face reality.

I do not really care to whom I pay, but I need numbers that make sense. Paying $5000 a month for a condo that costs $2000 to rent does not make financial sense.

Joe smooo, I agree. :)

I go there every day.

"I don’t know about gold. It seems that everybody is chasing gold. Take a look at the chart."

The future is not predtermined. Investors use gold as a hedge against uncertain events. Big risks for 2006: Bernanke prints money, dollar drops, geopolitical events spiral out of control, derivatives collapse, banks become insolvent when housing tanks, Stock market reverts to mean P/E, Oil takes off due to supply disruptions, dollar loses reserve currency status, Iranian Euro oil exchange, inverted yield curve/recession. Much uncertainty. Few ways to protect your assets. All that liquidity goes somewhere. Some of it seeks the protection of gold. I haven't bought since $468. Not adding, but it will go higher. Fear will drive the market (herd) to perceived safety in 2006.

PeterP, I agree, investors over the past year who are cash flow negative (aren’t they all), are going to lose money if they try to sell within a one year, if not a two year time frame.

There are also investors who achieve "positive" cashflow using Option ARM minimum payments.

I really do not know how it is possible for them to stay in the game.

They/I just don’t want to pay someone else’s mortgage, they just want to pay the bank, who owns the majority of the house!

True enough if you are using a traditional 30 year fixed. If you are going I/O and paying significantly more than equivalent rent? That is the situation in most of the bay area right now.

Good? Bad?

_shrug_

I don't mind paying 1/4th of someone else's mortgage and making 12% long term on a highly diversified portfolio with the rest. But I'm a nut like that.

Of course, in three years when The Boss says we are getting a house, I'm afraid all the spreadsheets in the world won't make a difference. Viva la bubble!

Cheers,
prat

Of course, in three years when The Boss says we are getting a house, I’m afraid all the spreadsheets in the world won’t make a difference. Viva la bubble!

Perhaps we can convince The Boss over a nice meal of sushi?

PeterP - $5,000 vs. $2,000… is it really that out of whack right now? Perhaps more like $4K to own, and $2K to rent? I thought I read somewhere (Chronicle) that it’s 50% cheaper to rent. But, let’s say you pay $4k, isn’t that really $2,400 after tax ‘benefits’? Not too much more… but obviously too much if the property is going down!

It is probably 4K without HOA and property tax.

A typical condo will cost about $400 a month in HOA and another $700 in tax and insurance. If you factor in possible tax deduction, it may be closer to 4K, but there are serious talk about taking that tax benefit away.

So the difference is more like 4000 vs 2000 after tax.

"I don’t mind paying 1/4th of someone else’s mortgage and making 12% long term on a highly diversified portfolio with the rest."

John Mauldin believes that the pension crisis is far worse than people realize because people assume 12% equity returns over the next 10 years. He believes that equities will actually yield negative real returns due to the current PE and reversion to the mean. We are in a dangerous time with unusually high geopolitical risk, simultaneous asset bubbles, and gobal imbalances. IMO, the one who loses least over the next 10 years wins. Most investors will lose money. Few will get 12% quoted in Mutual fund marketing literature.

QUESTION: What Liability Would a Illigal Alien have in just walking away??? Whats to keep them from just heading back over the border if things dont work out here in the USA??

Liability is irrelevant. One cannot be forced to sell kidneys to repay debt.

NEXT QUESTION: what kind of income level are many of People that cross the Border from Mexico??
I just dont see how someone crossing the border is a good risk??

Usually not very good. However, some may run cash businesses who have "special tax treatment".

ANOTHER QUESTION: How are Illegals Qualifying for Homes.. apparently they are?? … … are People coming from mexico even in the average income bracket?? if people with decent jobs not able to qualify by traditional metheds..

They are qualified for the payment structure, not the principal amount. Someone who come in illegally are unlikely to be risk-adverse. They love the thrill of NAAVLPs.

Sunnyvale_Renter:

I'm certain of a gold bubble, too. I will begin to take profits at $800, and all the way up. I agree that we face the potential for a weimar style inflation. Bernanke must print money. That wipes out middle class savings and disproportiantely harms the poor. Historically, hyper-inflation has lead to dictatorships for this reason. When you look at US politics applying European Balance of power models, you see that we live in interesting times. I mention European BoP models because your allusion to the weimar republic is on the money. I'm working on keeping my comments short, but I've been modelling end-game scenarios for the break-up of the United states. Few people in blue states understand that the South's evangelical christianity is really resurgent Southern Nationalism with the ability to cross Southern borders. This may sound radical, but a student of history would say that it is inevitable.

Check out the history of Arlington Nat'l Cemetery. You will be ashamed to be an American.

While we're on Weimar doom and gloom:
Google yourself one of the many papers about the German currency and bank crisis of 1931. The consensus seems to be that the triggers were
- excessive amounts of risk taking for competitive reasons by banks that were considered "too big to fail", in particular: risky loan policies and small equity covers.
- large amounts of short term foreign debt that was withdrawn as the crisis played out and confidence in the stability of the currency was shattered.

Here's one:
http://www.sfb504.uni-mannheim.de/publications/dp02-48.pdf

Of course, many aspects of the crisis were totally different from the situation today, but it's an interesting case study nonetheless.

In case you're interested how the NSDAP did during these years of depression and economic crisis, here's a distillation of election data from Wikipedia:
1928: 12 of 491 seats (2.4%)
1930: 107 of 577 seats (18.5%)
1932 (July): 230 of 608 seats (37.8%)
1932 (November): 196 of 584 seats (33.5%)
1933 (March): 288 of 647 seats (44.5%)

Sunnyvale_Renter :

I'm working on shortening my posts, so I'll move on from this topic, except to say: We have an ideological and geographically polarized political climate for historical reasons. It will play out according to the pattern that these things always follow, as WWI and WWII did. History does not repeat, but it does rhyme. Bullish for gold, bad for Real estate.

RE: Fencing. My wife was saying that she wanted to take up fencing. She comes from a long line of people who were good with a sword. Apparently, she doesn't have enough useless aristocratic abilities already.

Where do you take lessons?

If there is a sushi party and it is in the Bay area, please invite everyone on the blog.

Of course. Any suggestion?

Perhaps a post about meaningless statistics would be in order.

Done.

Pointless? Resurgent South, collpapsing North good for Gold, Bad for Real Estate! Read "Empire of debt" from the folks at the Daily Reckonning for more on Lincoln's dictatorship.

This topic started with the comment that history is subversive. So either read the thread, or fuck off! I didn't start it! Don't take it out of context, fuck nut! Wipe the smug smirk off your face!

Why is this topic useful? Because it explains the conflicts that underly contemporary American politics, which are good for gold, bad for real estate. The bubble is political in nature. No? Also, many smart people look at history for clues to the future, incuding others on this board. Maybe you should go to your local public library and try the same.

What was my prior comment? I was relaying the tale of my visit to monticello to visit Mr Jefferson and kin barried in the cemetary. I was remarking on the confederate flags set out for memorial day to honor family members for their dedication to the cause and military service. That would include Mr. Jefferson's grandson, George Washington Randolph, the confederate secretary of war.

BTW, Thomas Jefferson was the founder of the anti-federalist party and a defender of states and regional rights. Those rights were guaranteed by the constitution, including the right of succession. Those rights still are guaranteed by the constitution. Thomas Jefferson is widely regarded as the spirtual founder of the confederacy. Our founding fathers are no doubt proud of their children and grandchildren who fought to defend their legacy.

Do you really believe that a transfer of power from one region of the country to another has no economic impact? Do you really belive that given that the red states control the house, senate, presidency, and are in the process of adding a second justice to the supreme court that they have "Failed to consolidate power"? Do you really belive that a change in regime from ultra-liberal to conservative will have no impact on the American economy? Are you wholly ignorant of demographics? Precisely how will this country succomb to the left wing revolution from New England when one in four people said that they would leave Mass if they could? Are you not looking ahead in your investment decisions?

Why did we have a war? Because the Northern industrialsts wanted access to Southern resources, same reason why Germany sought an empire in WWI and WWII. What would have avoided the war? Abraham Lincoln offered the South his blessing to secede if they agreed to pay a 50% tariff on all goods imported. The wealthy yankee industrialsts wanted to continue to benefit from slavery and use its proceeds to build its industrial economy. It was called the Crittenden compromise. Do you need more proof of Lincoln's intentions?

BTW, Do you know who built that house? George Washington's grandson, George Washington Park Custis. For what reason? As a monument to George Washington. Who lived in that house with Gen Lee? His wife, George Washington's great grand daughter. Do you know who Gen Lee's father was? Henry Lee was one of four VA delegates to the continental congress (along with Thomas Jefferson, Carter Braxton, and Edmund Randolph).

Remember John Hancock signing the declaration so large because the others were afraid that they would be hung if their name was legible? Henry Lee SPONSORED the motion to declare independence from England. How's that for patriotism. Henry Lee and Gerge W were so tight, that George W traveled to Westmoreland county to publicly cast a vote for him for governor--getting him elected. Sam Adams said "The family of Lee has more men of merit than any other family in the country".

Did you know that Gen Lee turned downed Lincoln's offer to command the Union forces, even though it would have guaranteed him the presidency after the war? "A union that must be maintained by bayonnets holds no charm for me". Did you know that the only command that Lee ever disobeyed in his entire life was Davis' order NOT TO surrender? Lee, Johnston, Grant and Sherman conspired to end the war--On Lees part to prevent the suffering that guerilla war would entail. Lee was instrumental to reuniting the Union, publicly calling for the Armies West of the Mississippi to lay down their arms to reunite the country. Lee was so popular in the North as well as South that the democrats at the New York Herald started an editorial campaign to try to get him to run for President in 1868. They believed that he was the only man who could be Grant in an election.

The historical fact is that anyone with any breeding or class in America is Epsicopalean and related to Robert E. Lee. That most definitely excludes the white trash Kennedys and the heretic peasants who came over on the Mayflower. Fortunately, that white trash will soon be out of power--a development that is good forgold, bad for real estate.

Finally, you smug fucker, it is very unpatriotic of you to call a great American who represents the gold standard for integrity in leadership a traitor when you have no facts. Not only was he admired throughout America, but he was widely regarded throughout the world for his courage integrity and competence. Jerkoff!

Sunnyvale_Renter : Please scroll up and read my lengthy post. I am a great admirer of Lee and I am looking forward to the white trash yankees getting their due. Which is good for gold, bad for real estate. I hate lincoln's dictatorship. If we ever meet in person, I will tell you some things that will blow your mind if you are a fan of Lee.

BTW, DEO VINDICE is the official motto of the confederate government.

Sunnyvale Renter: Time Will Inevitably Tell called Lee a traitor and said he should be hung. He called the northern boys patriotic. I think we should send him to the Berkely womyn's studies department so that they can un-gender him. Then he will what yankee paradise would actually be like. BTW, long live George Bush, American Capitalism, and real men.

I hope that the “sitting pretty financially chick’ will really take it in the A$$. THat qualifies for handing out financial advice

She will. Mark my words.

Long term investment? Right. It is going to be a competition of staying power. Those who rely on serial refinancing will face reality.

I personally do not condone bashing. But I would love to see some bashing there. You know what I mean. ;)

Looks like the new motto of RE agents is:

If people are looking for a bubble burst, it's not going to happen.

I cannot wait for their demise. :twisted:

TWIT: Please explain SPECIFICALLY my misinterpretation of history. Facts only, please.

Anger at you, sure. By the way, fete accompli means "Party over". You met to say Faites Accompli--done deal (loosely)

I am just trying to put our current political environment into historical context so that current economic policy can be understood, and future policy can predicted. I use the models that have been used in diplomacy for strategic analysis for centuries. where are my mistakes? For example, based on my interpretation of history, it is possible that the Bush administration will:

--Oppose a National healthcare system (duh)
--Allow PBGC (Pension Benefit Guaranty Corp) to go under.
--Allow FNMA, Freddie to go under.
--Allow Ford, GM to go under.
--Keep AMT where it is.
--Cap the mortgage deduction.

These are all SERIOUS potential outcomes.

Why? It will help consolidate red state power. Please answer SPECIFICALLY how the red states have failed to consolidate power considering that they control the house, the senate, presidency, and are in the process of remaking the supreme court. Demographic shifts favor the Red States, and the success of evangelical christianity consolidates republican power in both the red states and blue states.

Given these facts, please explain your suggestions as to how the red states might further consolidate power. What will it take for you to see the dramatic reversal in power that has ocurred in the last 30 years? Tanks rolling through the streets of Boston? I look forward to your infinite wisdom, and remain your obediant servant.

--Deo Vindice