Carrot on a string tied to a stick

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Submitted by moneymaker on July 7, 2017 - 12:47pm

I thought I had a good idea of what makes a healthy economy, now I'm having some doubts. I feel like the economy is having a midlife crisis. The markets seem stable enough right now. Looking back, using this site https://www.thebalance.com/gold-price-hi... I was wondering how gold did historically. To my surprise (I got side tracked) learned that even though we had a recession in the 90's the stock market was on a tear. Inflation now is the lowest it's ever been (even though many, myself included, predicted inflation around the corner). The Fed has raised rates 4 times and it seems to be having no effect on mortgage interest rates.
Most people here on this site are homeowners/landlords so I think they are looking through rose colored glasses when they think we are not in a housing bubble. Started my search with the idea of buying gold, but now even gold seems over priced. In fact everything seems over priced. Maybe I just have old man syndrome.

Submitted by no_such_reality on July 7, 2017 - 1:06pm.

Borrowed money used to be evaluated as something you paid back

Now borrowed money isn't paid back, it's perpetually financed at near zero real rates with the future transference of the bad debt to the central governments which is then perpetually financed

Submitted by moneymaker on July 7, 2017 - 1:19pm.

Tesla made a profit last year only because they sold a bunch of carbon credits, yet their stock is worth more than GM. Tesla should setup their car to act as a battery for the house when plugged in. I.E.- you could in theory run your house off the car in an emergency.

Submitted by Rich Toscano on July 7, 2017 - 1:26pm.

moneymaker wrote:

Most people here on this site are homeowners/landlords so I think they are looking through rose colored glasses when they think we are not in a housing bubble.

What evidence do you offer that housing is in a bubble?

I'm open to the argument, but you have to actually make an argument. (Pointing out that I own a home isn't one).

My argument that we aren't in a bubble is here: http://www.voiceofsandiego.org/topics/ec...

Submitted by no_such_reality on July 7, 2017 - 1:32pm.

The market isn't about investing, it's about speculation

Most fund managers only worry about making their monthly and quarterly numbers. They're flipping houses it doesn't matter if the house is over valued as long as someone else is willing to buy it.

Also most fund managers are more worried about being wrong than being right. If most fund managers are buying it, it doesn't matter how bad it is, it's save to buy because if all your competition has it and it's wrong it's all a wash. It's not their money. They still look okay and still get their bonus

Submitted by Rich Toscano on July 7, 2017 - 1:37pm.

PS Besides being ad hominem, I just don't get the idea that home owners would somehow rationalize away a bubble, if there was one.

As a home owner, from a purely self-interested standpoint, a bubble would be fantastic: I could sell my house, take the profit, wait for the bubble to burst, and buy back in at a lower valuation.

Why would I be in denial about that?

Then again, I suppose many home owners were in denial during the actual bubble. So that kind of shoots own my logic in the above paragraphs. But, I think the difference there wasn't that they were homeowners, but that they thought RE investing would make them rich.

In my case I see my house as a consumer good, not a path to riches. So if it gets bubbly, great... I'll take my equity out and wait. If not, then I guess that's fine too. (Though not as good).

I guess the point is that my status as a home owner doesn't make me disinclined to see bubbles -- if anything, it's the opposite.

Submitted by moneymaker on July 7, 2017 - 2:37pm.

http://www.governing.com/gov-data/econom...
Guess it depends on where you live, not too surprised to see Escondido as a rent is to high place but Temecula is a little surprising.

Whether we are in a bubble or not also makes no difference to me personally as my mortgage is lower than I can rent for and no I'm not going to sell just to make a little money. Now when the average person cannot even come close to affording the average house then something is wrong. I've said it before and I'm saying it again now, the average wages are not keeping up with the increased cost of goods. Everything is increasing faster in price than incomes which is why the rich get richer and the poor are getting poorer. Granted a lot of those things are not necessary like water, electricity, eating out, movies, cell phones, new cars, drinking beer at breweries. Sure gas, groceries,air,and sunlight are still cheap, which must be how the government measures inflation.
If or when you take your equity out Rich just make sure you use it for something better than jet skis. P.S.-if not for the wife I would probably have a pair of them already.
Is it just my eyes or is the font shrinking?

Submitted by harvey on July 7, 2017 - 2:33pm.

no_such_reality wrote:
The market isn't about investing, it's about speculation

The stock market is about liquidity.

But please tell us the difference between investing and speculation, and explain why the market is about one and not the other.

Quote:
Most fund managers only worry about making their monthly and quarterly numbers. [bunch of other trite generalizations about fund managers...]

Lol, do you know what Rich's day job is?

Submitted by harvey on July 7, 2017 - 2:44pm.

moneymaker wrote:
Now when the average person cannot even come close to affording the average house then something is wrong.

The meaning of "average house" is going to change as population and population density grows.

That's the reality of urban real estate markets.

A while back there was a video posted about some gal who grew up in Silicon Valley and was lamenting that she couldn't afford to live in a house like the one she grew up in. Because, yeah, there's other people in the world who want the same things.

Submitted by Rich Toscano on July 7, 2017 - 2:44pm.

harvey wrote:
no_such_reality wrote:
The market isn't about investing, it's about speculation

The stock market is about liquidity.

But please tell us the difference between investing and speculation, and explain why the market is about one and not the other.

Quote:
Most fund managers only worry about making their monthly and quarterly numbers. [bunch of other trite generalizations about fund managers...]

Lol, do you know what Rich's day job is?

I think he was referring to real estate fund managers? In that case, I don't see them making that big a difference... if they are flipping then they just have to sell it to someone else, so that doesn't increase overall demand. Maybe some are buying and holding but I doubt that's a significant portion of the market.

Submitted by Rich Toscano on July 7, 2017 - 2:53pm.

moneymaker wrote:
http://www.governing.com/gov-data/economy-finance/housing-affordability-by-city-income-rental-costs.html
Guess it depends on where you live, not too surprised to see Escondido as a rent is to high place but Temecula is a little surprising.

Whether we are in a bubble or not also makes no difference to me personally as my mortgage is lower than I can rent for and no I'm not going to sell just to make a little money. Now when the average person cannot even come close to affording the average house then something is wrong. I've said it before and I'm saying it again now, the average wages are not keeping up with the increased cost of goods. Everything is increasing faster in price than incomes which is why the rich get richer and the poor are getting poorer. Granted a lot of those things are not necessary like water, electricity, eating out, movies, cell phones, new cars, drinking beer at breweries. Sure gas, groceries,air,and sunlight are still cheap, which must be how the government measures inflation.
If or when you take your equity out Rich just make sure you use it for something better than jet skis. P.S.-if not for the wife I would probably have a pair of them already.
Is it just my eyes or is the font shrinking?

No, the font is not shrinking. It will be bigger after the upgrade, if that helps?

You are right to look at things in terms of income, but that's what I addressed in the article I linked to. And I agree that housing is quite expensive in those terms. It doesn't seem to be at "bubble" level though, especially when you consider that the monthly payment is still below the historical San Diego average, in terms of incomes and rents.

Now, I'm off to price some jet skis... ;-)

Submitted by harvey on July 7, 2017 - 3:18pm.

Rich Toscano wrote:
I think he was referring to real estate fund managers? In that case, I don't see them making that big a difference... if they are flipping then they just have to sell it to someone else, so that doesn't increase overall demand. Maybe some are buying and holding but I doubt that's a significant portion of the market.

Are residential real estate funds really a significant part of the market?

Most of the big real-estate funds hold commercial properties. And they definitely buy and hold for the simple reason that transaction costs are extremely high in real-estate.

Residential real estate fund managers who are flipping properties in order to make their quarterly numbers for some financial report? ... there's no such animal.

Submitted by Rich Toscano on July 7, 2017 - 3:34pm.

Yeah, that's how I understand it as well.

Submitted by SK in CV on July 7, 2017 - 3:51pm.

harvey wrote:

Residential real estate fund managers who are flipping properties in order to make their quarterly numbers for some financial report? ... there's no such animal.

Concur also.

Blackstone"s Invitation Homes is one the biggest. I think they purchased around 50,000 SFH in relatively few markets. They've sold quite a few, but for the most part they've held on to much of what they bought in the years after the collapse. Flipping was expected, they didn't do it. They're mostly landlords. Now that they're public, they may start selling more.

Submitted by no_such_reality on July 7, 2017 - 4:26pm.

Rich Toscano wrote:

I think he was referring to real estate fund managers? In that case, I don't see them making that big a difference... if they are flipping then they just have to sell it to someone else, so that doesn't increase overall demand. Maybe some are buying and holding but I doubt that's a significant portion of the market.

No, I meant stock/bond fund managers in gross generalized terms, not every single one of them. That same group where 95% of them don't beat the market even though what they're selling is investing in the market.

In general, the stock market, I should have been clear given my mixing of examples with the house flipping displays pretty solid group think. Not to mention the added bonus that so much trading is now just computer algorithm.

I'm old and distinguish between investing and speculating according the older amount of risk involved and the fundamental supports of the underlying 'investment'.

i.e. Most rental property investments locally, recently are more driven by speculation on further price appreciation than fundamental evaluations of value. I say this not through detailed aggregate analysis, but through anecdotal review of properties while looking for additional properties where properties are listed and sell for prices where the gross rent without vacancy or expenses can't cover the P&I on a 70% LTV at 4%.

I define that as speculating.

For the stock market, technical analysis, i lump into speculating, fundamental analysis I lump towards investing.

Or super nutshell, buying it because it's a good company that will beat it's competition versus buying it because people are buying it and it's going to go up.

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