patrick.net

but I’d mention that the gains do not actually compound.

No they do not compound. But one can make a trade every quarter (or six months) that is equivalent to 60% annualized gains. That's a very good trade for most people.

I don't know whether I should be happy or not about the stock market moves - nothing I can do anyway as our administration of our 401k is being "transferred" at the minute and "Please note that there will be a blackout period from 2/26 through 3/2. This means that you will not be able to transfer funds during that period. If you want to make changes to your fund selections, please do so prior to 2/26 or you will have to wait till after the blackout period."

I just knew something would happen!

BOC will not raise rates. They are doing exactly the same as America, signaling without the action. Don't count on the central banks to clean up the liquidity, after all these are government officials, and we know their competency. Forget about rate hikes if we have another couple of days like today.

I am not saying that liquidity problem won't get resolved. It will just be incredibly slow, the whole thing is going to die a slow death, that's all.

We are still living in the same modest home in a decent location that I am happy with if I never have to move for the rest of my life. We refinanced into a 10-year ARM, because I see the interest rate dropping for the next few years, and we have enough to pay it off entirely should the interest rate move in the opposite direction. As I said before, I don't expect the housing market to get back to normalcy until after 2009 or 2010, so that would be the time when we perhaps start looking again.

In the meantime, I am more concerned about what the fallout situation will be. I just hope I get to keep and grow my savings amidst all the turmoil, not to be taxed away by government through massive bailouts or inflation, or not to be screwed by hedge fund failures which may hit me through some wicked butterfly effect.

The Asia/Pacific stock markets (Japan, Korea, Singapore, Malaysia and Aus/NZ) are tanking. Pacific Ocean = Red Sea.

OO,

How about raise rates and increase liquidity through purchases of treasuries. Delete M3 and prentend your fighting inflation while creating it! Rates and money supply are two different items - most people can not grasp this fact.

Paul

Paul,

if there is a recession going on, then the Fed cannot possibly raise rates. The no. 1 priority of any government (which the Fed supports) is social stability, fighting inflation is an after-thought. What the Fed has been doing under Greenspan is actually creating inflation to fight recession. The Americans are deep in debt, many are living from credit card to credit card. This is a democratic country, and if people are debtors, I am going with most people.

Most voters will vote for lower interest rate. I just have a hard time seeing the Fed raising rates to even 10%, that will bankrupt half the Americans.

PAR wrote,

"...hey, can we rewind the post from a couple of days ago for playback? who was it that was saying they were bored with investing in CDs and looking for more action?..."

I described my "boring" I bonds, then someone made a derisive comment about their sucky return.

PAR wrote,

"...hey, can we rewind the post from a couple of days ago for playback? who was it that was saying they were bored with investing in CDs and looking for more action?..."

I described my "boring" I bonds, then someone made a derisive comment about their sucky return.

OO,

I agree, what better way to help debtors than through inflation? My comments relate largely to the past than the future. I really have no idea where the FRB goes from here.

Paul

"Valuations look stretched, and given some softness in the housing market, now might be a great time to negotiate some bargains. It’s hard buying in a soft market, but heck, I don’t want to wait another 5 years until i start greying."

Then buy already! I can't even talk people I actually care about out of buying, I sure as hell am not going to spend the effort on a troll.

SP.

I think the Chinese are doing the same thing that Ben is doing, talking talking talking, if action can be delayed, they will try to delay it as much as possible. They have just as big, if not bigger, of a housing bubble as we do. Apartments with only 70 years or land lease rights are selling at at least 10X, 15X of median income in large cities.

On top of this, the Chinese problems are almost exactly the same as ours. They have a huge social security gap for the aging population, they have a huge medicare crisis (although the coverage is much less comprehensive than ours), and worse still, there are far more "group violence" mushrooming at a higher and higher frequency in different cities. For us, the worst possible may be another 1929-style depression, at least the US government won't be toppled. For China, if they are not careful, the communist regime may be at risk if they encounter a hard landing. I believe a hard landing for China is inevitable, but the government will do whatever it can do postpone it.

I share the opinions of a few China hands on pekingduck.org, some of them believe that the Chinese government never actually want the slow down the economy, what it has been doing is pure lip service. I tend to agree with that based on my observation and that of friends doing businesses there.

The real factor that will force dry Chinese liquidity is the extreme polarization of wealth distribution due to its economic and political structure. You can only sprinkle money to a certain sector of the economy, while the other sectors enjoy none of the free money, which is a situation faced by China. So the liquidity will dry up, but it is an on-off, on-off process, with the government being the main culprit of adding liquidity, albeit secretly, to keep the economy afloat.

OpinionsPlease,

if you are chicken shit about the market, then put your $150K or whatever is left in two banks so each chunk will nudge just below the $100K FDIC insured amount. Buy a CD yielding 5%.

Isn't that easy?

OpnionsPlease,

I just find your argument very bizarre.

If the stock market is doing well, people who make $$$ in the stock market will plough it right back to the housing market, so housing value will go up.

If the stock market is NOT doing well, then people will be chicken shit about their money, so it is better to put it back into housing, so housing value will go up.

Excuse me, is there a scenario that housing value will go down?

Busted Says:

February 27th, 2007 at 5:06 am
10-year renter never owned. DINK. 230K saved. Today will serve to keep all you fence-sitters firmly rooted. Stock market bloodshed begins just in time to pre-empt any spring bounces. Moved 100K in 401K funds to money market on Friday in anticipation of the big drops ahead. Your patience will be rewarded.

Very nice call. Now I believe that it is possible to time the market. And there are many very smart people contributing on this blog.

Um,.. No. Its 15% discount, but its based on your contribution. Quarterly contribution is 1/4th annual contribution.

That's what I mean when I say most people do not recognize the real thing about how good ESPP trades are.

I am NOT trying to calculate the gain as a % of salary.

If you put in $X in a quarter in ESPP (either as X/3 per month or X/6 per pay period), and when you sale it all immediately you get 1.17 times X back. Your discount is 15%, hence your gain for that trade is 17%.

If you make a trade that gave you 17% return in a quarter that is equivalent to 68% annualized or APY. This is not even factoring in that not all the money was put in upfront and the possibility that stock is trading higher on the end date than the start date.

These do not compound, so I am not saying you are doubling your money in 1.5 years or so. You need to evaluate and compare trades by normalizing them. If you put $100 in a 3 month CD that has 5% APY you will get $1.25 interest. ESPP gives you $17. Keep that in mind. And you will see that ESPP gives an amazing return.

OpinionsPlease,

I don't think "money shifted into housing" in 2001 as a response to normalization of stock values.

Most of the money into housing after Greenspan opened the floodgates was after 2001, and it has been borrowed money. So most of the money shifted into housing is really shifted into housing debt, those securitized mortgages or whatever. And we are learning that much of that debt, is bad debt.

OO Says:

What the Fed has been doing under Greenspan is actually creating inflation to fight recession. The Americans are deep in debt, many are living from credit card to credit card. This is a democratic country, and if people are debtors, I am going with most people.

Agreed. Back in 2002 when the Feds started to cut rates drastically, I thought that was just a financial suicide and remained reluctant to join the liquidity party. Little I knew was how futile that was compared to the massive public desire to get into debts. This time around, my plan is just like yours, remain liquid and wait. But if the Feds will try to prolong the bubble with another stunt, I will go with the party this time.

OpinionsPlease,

Did you really just suggest moving out of a falling asset class into a falling asset class? You don't need opinions. Try therapy.

Opinionplease,

Dude ... I think we all agree now that your reasoning is perfect. Please buy a house.

I would like to know how many people moved 401K money from mutual fund to cash …

I do not attempt to time the market in my 401K. I used to try, but not anymore. I have now found out that dollar cost averaging is smarter than me.

OP

It's a problem I haven't solved to my satisfaction. I rent because my place is both inexpensive and just what I like - you may not have that option as it seems many renters here don't much like where they're living. Probably I've been lucky. As to others' attitudes about renters, why on earth would I care?

I moved out of equities late last year. Since my crystal ball is as cloudy as anyone else's, I can' tell you how commodities will respond to changing conditions or if we're in for inflation, deflation, or inflation followed by deflation. Whatever direction you take had better give you the ability to answer to either direction promptly.

All I can say is pay attention and learn to anticipate. This blog has been a tremendous help to me in that regard, both from comments here and from a general willingness to provide citations.

- can'
+can't

OpinionsPlease,

So your friends sold their stocks in 2001 and then paid cash for their properties, right? That's really good for them that they did that. If you have enough cash to pay cash for your property, then by definition it is never a bad time for you to buy.

It's true that here in the Bay Area, and probably in nicer parts of LA and Vancouver, there's a lot of wealthy immigrants from China and India who are doing that.

But outside of the Asian enclaves on the coast here, and aside from your five friends, probably most of the "stock money" that rotated into real estate either went into REIT funds, or the those securitized mortgages. If it went into a house purchase, it was probably a downpayment, the rest of the purchase capital coming from investors in those securitized mortgages. I'm acquainted with a few of these "investors", buying homes to rent out. They all got some financing.

As home values fall, is the US heading for the much-feared 'hard landing'?
By Rupert Cornwell in Washington
Published: 28 February 2007

"The latest figures yesterday from the National Association of Realtors if anything bear out this thesis. True, the median price of an existing home dropped to $210,600 (£107,500) last month, 3.1 per cent down on January 2006. But the number of sales jumped by a similar amount, suggesting buyers and sellers are adjusting to changed circumstances. "I've been hemming and hawing for the last few months on whether we've reached rock bottom," David Lereah, the NAR's chief economist, told the Associated Press.

Now, he believes, the nadir may have been five months ago. That too - at least until yesterday - was the mood of the markets..."

http://tinyurl.com/2l77y2

OpinionsPlease,

Asset bubbles do not always arise rationally nor do they always contract rationally. Several good books have been written on them. It is entirely possible for a bubble to run its course and simply have the zeitgeist change, even with favorable market conditions.
Do you know a Realtor named ConfusedRenter?

However, it is misleading to call it an APY of 60% since you will never be able to compound it because your company won’t let you :)

I used APY because I wanted to get the message across. It's not just that company won't let you compound, no matter how long the ESPP period is - quarter or six months - your gain is 17% (assuming 15% discount) for THAT period. If that period is 1 year, ESPP is not as great - as your return is 17% for 1 full year of investment.

So it's like a great CD which matures every X months. For that period it gives you 17% return - minimum, and almost guaranteed if you do a same day sale. How do you compare it with other CDs ? Either you divide that CD's APY by 12/X or multiply this ESPP return by 12/X to compare. That's what I meant.

"Wise in their own conceit, they imagined they could avoid his faults, carry on their schemes for ever, and stretch the cord of credit to its extremest tension, without causing it to snap asunder."

The South-Sea Bubble, chapter 2
Memoirs of Extrodinary Popular Delusions and the Madness of Crowds
Charles Mackay, 1841

Home Prices in Slide with 'No Sign of Bottom

The composite month-over-month Standard & Poor's/Case-Shiller Home Price Index of 10 metropolitan areas declined 0.8% to 222.01, unchanged year-over-year, S&P said on its Web site. The composite month-over-month Standard & Poor's/Case-Shiller Home Price Index of 20 metro areas showed a 0.7% drop in December, a 203.07 reading, and a 0.5% year-over-year gain.

"The slide at this point is a good deal steeper then we saw at the beginning of the decade and we don't see any sign of a bottom," David Blitzer, S&P Index committee chairman, told CNBC. "These are the worst numbers in at least ten years."

Blitzer also told CNBC that the impact of the subprime mortgage market could further depress home prices: "The damage from the subprime mortgage market probably hasn't shown up in home prices yet," Blitzer said. "That will take a lot of buyers out of the market, and fewer buyers probably means weaker prices and less hope of a turnaround."

"Annual changes in home prices are either in decline, flat or yielding negative returns across all markets," added Robert J. Shiller, chief economist at MacroMarkets LLC, in a release. "All metro areas are showing smaller annual returns than those reported for November...."

http://www.cnbc.com/id/17361391

1) Randall would you kindly delete the troll surfer-x comment above? "I dream of HARM and Peter P" While true, I didn't post it.

2) OpinionsPlease? I am of the opinion that your mother should eat less corn. I mean really fuckwad shouldn't you just go the fuck back to craigslist where you belong? Shooo Shooo little troll.

I enjoyed the metaphoric paragraph on the Puplava website today. (http://www.financialsense.com/Market/wrapup.htm)

Like a plate of Rice Krispies, the theme of the day is Snap, Crackle, Pop, as in “Snap” goes China, “Crackle” goes Freddie Mac, and “Pop” goes the Sub-Prime Market. The end result will be a messy brew of another breakfast cereal, this one a soggy bowl of Captain “Credit” Crunch. Within the Credit Markets, we see a contagion well underway. Just look at the destruction on New Century and Novastar Financial. Piloted straight into an asteroid belt, in both cases, we see the proverbial “wrecked” ship with a dead crew. Yet, the ripple affects reverberate up the quality chain, as Wall Street is loathe to mount a brave front in the face of invading hordes.

I'm late to the party, but I figure it's not too late to chime into the Bubblehead roll call.

I'm 30, single, debt free and work as an engineer. My current position is heavily cash and money market (I haven't liked the stock market lately), but I do have an overweight position in tech. I rent an apartment. The housing bubble is hard to read here--prices never went through the roof in Northern Colorado, but jobs are stagnant and the area is teetering with so many foreclosures. Prices have to come down. If they don't in two or three years, then maybe I'll buy anyway ($100-120/sq.ft. for a nice SFH is still reasonable to me). I don't currently need the space so there's no pressure, although my own job situation has stabilized a lot in the past year.

If I had $3M, I sure as heck wouldn't buy a McMansion in california, I would buy this: http://www.luxuryrealestate.com/565677 :)

Oooch ya wee b----rds, get off me firth afore ah fetch me claymore!

pack up the house and sell the children. We are headed for recession.
If you didn't see it coming the last few weeks, you were slapped upside the head today.
I'd put the 401k in the money market fund. It's not great but it may be the best damn thing available.

Surfer-X dreamed of me?

I miss Sir Surfer. :(

His mac-n-cheese with prosciutto from the last blog party was excellent.

What do hedge fund managers drive?

My wife was arguing with me about that on the way home.

jt: As with anything else, it does take some interest to get good at money. I rather enjoy math, psychology and money, so I spent hours each day reading about the stock market and other finance. If you don't like managing money, you should consider hiring someone like DinOR to run your books and make good decisions (on a fee basis, not a percent).

Not investment or legal advice.

I recommend random walk down wallstreet as a good place to start.

Every college grad should be forced to accept the random walk theory.

Looks like the China Slide isn't over yet. More fun to come!

jt in sf Says:

> How do people learn about finance? I should learn too.
> I’m a scientist, we don’t earn jack. People look at us as
> if we must be smart, but I could earn more in HR, or
> almost any other field. It’s really lame. People talking
> about puts and stays? Did you study in school, get MBAs,
> read Wall Street Journal? It all seems so boring.

Everyone with a MBA does not make enough to buy $10mm homes in Pacific Heights (like the Biotech MBA that bought the place in SF Woman’s neighborhood last year). The guys that make the big money are usually the guys that are able to raise the big money (not necessarily the smartest guys). There is a small group of guys who can pull together $300mm to try and develop a new cancer drug.

Before commercial landlords allow a firm that is not making money (like most Biotech firms) to sign a lease they will get a full package (with Resumes, CVs and salary information of all employees) from the firm to calculate the “burn rate”. I am always amazed when I see that the IT guy with an AA degree from a JC will make more than a brilliant scientist with an undergrad degree from Harvard, a MD from Stanford and a PhD from UCSD…

P.S. You might want to try reading the WSJ again since the new format (and new size) is designed to make it appeal to women and guys who are not “finance guys”…

jt in sf

Thank you for sharing. Your lack of formal education is in finance is an asset: it means that you haven't been dumbed down in Business School, nor brainwashed by the mainstream finance media.

Just use your scientific inquiry and skepticism as you read up on stuff, and don't lose sight of the experience of the common working stiffs as you make your own assessments of the big picture.

SP Says:

> Beyond that, there are educational sections of sites…

This reminded me that Bob Brinker (who is on AM radio all over the US every weekend talking about finance and investing) has a good list of finance books on his site. Take a look at the list and go to Amazon and read the reviews and pick out a couple that may interest you.

http://www.bobbrinker.com/books.asp

sfbubblebuyer mentioned on here that the China Slide continues, but I just looked on Yahoo finance, the Shanghai composite index was up as of about 10 PM California time. So was the Taiwan index, a province of China.

But it is interesting, all of the other asian-pacific indices are down. I don't really trust Communist dictatorships, so I wonder if there's some manipulation in the Chinese market today.