[4plexowner]

Here’s Adam Hamilton (www.zealllc.com) talking about real interest rates and gold:

http://www.zealllc.com/commentary/realgold.htm

[4plexowner]

Perhaps there is so much liquidity sloshing around the globe today that a large percentage of is HAS to flow into mortgage related securities.

The US isn’t the only country with the printing presses running 24/7.

Global liquidity is increasing at about a 10% per year rate.

This tremendous pumping of liquidity is starting to show up in the inflation numbers.

Last week’s inflation numbers show about a 7% yearly rate.

[4plexowner]

The manic phase* in this commodities / precious metals bull market will likely make the dot-com mania look tame by comparison.

There is no fever like GOLD FEVER!!!!!

We are still a few years away from the mania stage, IMO. I can tell by the reactions I get when I talk about silver and gold.

When everyone agrees with me that silver and gold is the place to be, I will be selling.

*Bull markets have three phases
1. accumulation by smart money
2. institutional investors recognize the new trend and start buying
3. mainstream investors / joe public recognize the “new” bull market and rush in – this is the mania phase – every stock with ‘gold’ or ‘silver’ in its name will be soaring

see http://www.zealllc.com – Adam Hamilton provides a wealth of information for free – he updated his “Gold Bull – Stage Two” analysis on 5/5/06

[4plexowner]

The boomers don’t have any money saved either.

The average 401K has $50K in it and about 33% of them have less than $35K.

One of the explanations for the lack of boomer savings is that they are relying on the equity in their real estate for retirement.

But if all the boomers are going to sell their houses when they retire, who will buy them?

Is there a demographic group large enough to buy all those homes? As anxvariety points out, it won’t be the 20-somethings who are living paycheck-to-paycheck.

Won’t a massive boomer selloff result in declining prices?

[4plexowner]

How does today’s economy compare to the past 2 tough times for RE. What are the time periods you are refering to?

Were incomes rising, flat, declining?

What was the job situation? Were decent paying jobs available?

What was the debt load at the consumer, municipal, state and federal levels like?

What was the condition of the US dollar? Did these ‘tough times’ for RE correspond to declines in the dollar? Did the dollar start the tough times from the 0.90 level or better?

I would like to consider some of these factors and look for similarities/differences to today.

If I understand what you are saying, Chris, no matter what happens with interest rates the Fed will continue to create new money/debt at a rate faster than the prevailing inflation rate – thereby keeping ‘real’ interest rates negative.

And, it is only by implementing positive real interest rates that the RE market could be affected significantly.

Several of the proponents of silver and gold as the only honest money believe that the prices of those metals will continue to rise for as long as real interest rates remain negative as they are today. They point to the precious metals bull market in the late 70’s and the fact that Paul Volker had to raise nominal interest rates into the 20’s to create the real interest rates that would halt and reverse the precious metals bull.

Lots of interesting stuff to think about.

[4plexowner]

The Fed is between a rock and a hard place.

The rock is a faltering housing market that needs lower interest rates and massive injections of liquidity.

The hard place is the US dollar (and the bonds/notes that back the dollar) which is being rejected by more and more international players.

Don’t forget that America is dependent on the kindness of foreigners to buy $2 billion of her debt EVERY DAY. Our fair country also needs the current holders (China, Japan, asia) of almost $2 trillion in US notes/bonds to CONTINUE HOLDING THEM.

Lowering interest rates and pumping money into the housing market will cause more international players to reject US denominated debt.

The only way to entice international buyers to buy and hold US denominated debt is to raise interest rates.

The Fed’s choice as I see it: sacrifice the US dollar and America’s place in the global economy or sacrifice the debt-ridden US citizens and the housing bubble that is currently sustaining them.

I’m guessing that the bunglers-in-charge will manage to do both – ie, sacrifice the dollar AND the US citizens.

[4plexowner]

I was in a real estate office yesterday. My realtor shares my view of the market but sits in an office with another realtor who doesn’t.

I was talking with the other realtor about several of the factors that hippmat and powayseller mention above.

Here’s a quote from her: “If people would stop reading that kind of stuff and talking about it, everything would be fine.”

OK! I couldn’t have stated the “got my head in the sand and everything’s fine” way of life any better than she did.

Then, I was in the break room reading the bulletin board (good way to get a feel for an office setting). Prominently displayed is a letter from the county tax assessor. Here are some quotes: “This isn’t Buffalo, it’s San Diego. First-time home buyers, move-up buyers, out-of-town buyers, everyone wants to live in San Diego.” He continues espousing the reasons why now is the time to buy a house and then finishes with: “… the best investment you can make.”

The “everyone wants to live in San Diego” line particularly amused me because I had just read about a high-rise condo buyer in Austin, Texas who stated that “everyone wants to live in Austin.”

So, all of us who have less-than-positive views of the San Diego real estate market need to do two things:

1. stop reading and talking about all the fundamental reasons why the market is headed down (in a big way)

2. adopt “Everyone wants to live in San Diego” as our mantra

[4plexowner]

Every campaign needs bumper stickers.

How about these for starters:

Support your city – buy a house!

Have you hugged your realtor today?

Visualize a stable housing market.

There’s no place like San Diego, there’s no place like San Diego, …

[4plexowner]

Jobs Program

To keep the housing market healthy we’ll need to create some jobs.

Let’s assume that we have unlimitted funds (or a printing press) and see what we can come up with.

The creation of ‘coffee barista’ jobs has been strong lately. Maybe we could create a ‘coffee stamp’ program so all Americans can afford the Banana Coconut Frappuccino that they deserve. Model the program along the lines of the food stamp program. (Note to self: tell cronies to buy stocks of coffee companies before this legislation is passed)

[4plexowner]

“Builders being spooked”

Check out the recent action in their stocks and it is easy to see why they would be spooked.

Look at these homebuilder stocks: CTX, DHI, TOL, KBH, PHM

[4plexowner]

Don’t get carried away with puts.

I lost about $8K in 2004/5 with puts that expired worthless.

I am confident that the equity markets are headed much lower. My target is 3000 on the Dow.

HOWEVER, we are living in a country where most if not all financial markets are controlled and manipulated.

The Plunge Protection Team (also known as the Working Group on Financial Markets which was authorized via Executive Order 12631), uses your tax dollars (and money hot off the printing presses) to “manage” the markets and keep them “orderly”.

Eventually this manipulation (oops, I mean “management”) will be overcome, but in the meantime – be careful!

[4plexowner]

My adage is aimed at the typical American who is using debt to maintain a lifestyle that they couldn’t afford otherwise. It obviously doesn’t apply to a savvy businessman such as yourself.

Leverage is a wonderful thing when used appropriately.

I used leverage in San Diego real estate to multiply my net worth significantly over the last 8 years.

But, as powayseller points out, now is not the time to use leverage in San Diego real estate.

Will I use debt to buy San Diego real estate again?

Absolutely!!!

When multi-unit properties are selling for 8-10 times rents I will be buying hand-over-fist and using as much leverage as possible.

[4plexowner]

“Buy when there is blood in the streets.”

Powayseller is right on in regards to the right time to buy.

When it is actually time to buy, her friends and associates will be trying to talk her OUT of buying. They will be telling her that real estate is DEAD and has nowhere to go but down.

In summary, check out what the crowd is doing and try to do the opposite.

[4plexowner]

Will inflation feed into rents?

If we keep demand constant, then yes, as inflation increases it is reasonable to expect that rents will increase too.

I’m not willing, however, to assume that demand will remain constant during the coming inflation.

I also want to point out that in previous inflations, WAGES were also inflating so the consumer could afford the inflated cost of goods and the increase in housing costs.

During the current round of inflation, we have wages that have been flat for several years (actually declining on an inflation adjusted basis) and I don’t see anything that will change that trend.

At some point the American consumer WILL be tapped out.

There IS a limit to how much debt a person can carry and to how much equity he can pull out of his house.

I’m assuming that the consumer is near that point now.

Consumer debt is at record highs and the percentage of income spent servicing debt is also at record highs. Retail sales are softening and the housing ATM (cash out refi’s) is nearly out of money.

Now we’re going to add more inflation on top of those factors. {And this inflation ought to be a doozy since the US Fed had to hide the M-3 numbers before they cranked up the printing presses. Look forward to gasoline at $5/gallon – bread at $5/loaf – etc, etc, etc.}

At some point, the consumer has to choose between eating and driving and other items. One of those other items is rent.

How can the consumer reduce rent? Downsize / downscale, double up with others in existing housing, move to less expensive part of the country, become homeless, move back in with the parents, etc.

All of the ways that the consumer can reduce his rent expenses result in REDUCED DEMAND FOR RENTAL HOUSING.

When demand declines prices decline.

Yes, I believe this time it WILL be different. (ie, inflation won’t be feeding into rents)

[4plexowner]

The downtown condo market is a huge variable in the rental market, IMO.

There is already a glut of downtown condos that aren’t selling and there are several thousand more that are planned (I doubt all of them will be built).

Housing that won’t sell becomes rentals so I am expecting a LOT of rental condos downtown. Enough of them to depress the rental market in the rest of San Diego.

I have gone from 22 to 0 rental units in the last three years. Partly to take advantage of ridiculously high prices and partly because of what I foresee in the rental market.

On a tangential subject: consider your situation and whether that house is an ‘investment’ or a ‘speculation’. If it doesn’t have positive cashflow it is a speculation in my opinion. I was fooling myself about being a ‘real estate investor’ when all I was really doing was speculating on higher prices (and taking money out of my pocket every month to do so).

[Author]

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