[4plexowner]

In a falling market, powayseller and I are better off expecting a 40-60% decline EVEN IF IT DOESN’T HAPPEN.

With our expectations, we won’t be ‘catching a falling knife’ at the 15-20% correction level if the market continues down.

If we are wrong and the market only corrects 15-20%, the signs of a bottom will become obvious over the 6 – 18 months following that bottom.

So we miss 6 – 18 months of appreciation before buying. How much appreciation are we going to miss in the first 6 to 18 months coming off a significant correction? (not much – look at previous downturns – they aren’t ‘V’ shaped bottoms)

And, as powayseller points out, this correction has barely started and prices are down 5% (quoting powayseller) and 8.8% (quoting Will Careless) already. I think the bottom is a long way down from here – not just another 7-10%.

Summary of current market: record number (or close to) of listings available, rising interest rates, LOTS of media attention given to real estate market softness / decline, out of spring and into slow season for sales, hugely over-build condo market with additional units still be built, etc.

Not my idea of a market that is within 7-10% of a bottom but I’ve been wrong before.

[4plexowner]

Don’t overlook that Mr. Roach excluded the precious metals from his “bubble” comments.

The precious metals are rising because of the commodities bull market AND monetary concerns.

Even if the commodities bull dies today (which would be about 7 years too early based on the last 5 commodity bull markets), the precious metals will continue to rise because of monetary issues.

[4plexowner]

Amen, brother!

[4plexowner]

And what if I am one of those “holders of that debt”?

Am I supposed to just roll over and take it in the shorts because America is living beyond its means and wants to pay the world with freshly printed dollar bills?

You are very casual about subjecting the ‘widows and orphans’ who have invested in the US Treasury Notes and Bonds to a steady decline in the value of their investment.

I hope for your sake that your pension plan, if you have one, isn’t holding any of “that debt”.

[4plexowner]

I agree. Housing costs have to be considered relative to overall wealth.

If you can pay cash for a multi-million dollar house, go for it! Live large, baby, live large!

There have been several posts in these forums by people for whom “money is not an object” but they always mentioned that they would be getting a fixed rate mortgage that they could handle.

There’s something about this scenario that doesn’t make sense to me.

When someone claims that money is no object to them and they use that as part of their rationale for taking on debt, I have to assume that they haven’t heard the adage: “People who understand interest collect it while those who don’t pay it.”

There’s another adage that comes to mind: “A fool and his money are soon parted.”

[4plexowner]

I agree, to some extent, that the high end of the market has a demand factor that is fairly consistent. People with real money (and intelligence) do well in both good and bad economic times.

The question in my mind is where do we draw the line between “high end” and all the rest of the market?

That line, IMO, is at least $2.5 million and probably more like $4 mil.

And I’m referring to the people who buy these properties with cash – not the people who have to carry debt on them.

As the economy and real estate market continue to soften, there will be plenty of today’s $2.5 million houses sold in distress sales.

As you mentioned, taxes on 2.5 mil are significant. At 1.1% that is $27,500 per year or $2290/month. That’s a big nut to crack even without a mortgage on top of it!

I’m expecting a 40% decline in premium properties (views, prestige areas, etc). That would make the 2.5 mil house a 1.5 mil house.

In a distress sale, you might expect another 20-30% discount if you came in with cash. That’s $1.2 mil for today’s $2.5 mil house.

And since we’re talking about expensive real estate, when will we have enough Mediterranean style 3000+ SQFT houses? The last time I looked through one of those glossy ‘dream real estate’ magazines most of what I saw was different versions of the same basic theme. Why would I pay $5-30 mil for a rectangular box with Mediterranean features that looks like all the other Meditteranean styled boxes?

[4plexowner]

Correction: the rental guideline is that the prospective tenant must earn at least 2.5 to 3.0 times the rent that is being considered

[4plexowner]

Somehow when the Mogambo says we are all doomed I don’t get as depressed as when you say it, LookoutBelow.

Maybe you should try adding some acronyms!

On a serious note, I wish I could disagree with anything you posted.

[4plexowner]

I’m curious what jobs these ‘tons of professional families’ are filling?

I’m a software engineer at one of the largest single employers in San Diego and there isn’t any job growth here.

One of the guidelines I used when screening tenants was that their monthly income needed to be 2.5 or 3 times the rent.

2.5 times $2500 is $6250/mo or $75k/year.

How many new jobs are being created in San Diego that pay $75K/year?

I have heard the argument that demand for rental housing increases as a real estate market cools but I don’t buy it. As powayseller points out, the people who will be losing homes won’t have the finances to rent a $2500/month house. Not to mention the fact that many landlords aren’t going to rent to someone who has just been foreclosed or who just mailed the keys back to the bank.

You didn’t rag on me about my negative attitude but if powayseller has one then I must have one too.

But is it really a negative attitude or is it disgust and frustration at a country that is corrupt from top to bottom?

And then when we try to share with people that the country is headed for financial disaster they treat us like we have three heads or leprosy or something.

I won’t speak for powayseller, but personally, after almost 5 years of trying to educate people, I have lots of days where I say to myself, “F**k ’em, they’ll get exactly what they deserve.”

[4plexowner]

Are you familiar with Jesse Livermore?

He is considered one of the best market speculators of all time.

Here is a quote from him: “It never was my thinking that made the big money for me. It always was my sitting.”

What he was saying was that he made his big money by taking a position and sitting with that position until the trend completed. He didn’t try to trade in and out of the market.

Richard Russell (www.dowtheoryletters.com) has been writing a financial newsletter every market day since 1958. He uses the analogy of ‘riding a bull’ to make the same point.

Richard says the bull does everything he can to throw you off his back. The bull wants as few people as possible to reach the finish line. The big money is made by the people who ride the bull from start to finish without being thrown off.

Richard says the current bull market in gold is the strongest bull market he has seen in any asset class in the almost 50 years he has been watching the markets. Wow!

Anyway, I believe I am riding the right bull and I intend to hang on for years to come.

I also aspire to trade for a living but I separate that from my investing. So far, I would be better off using the money I spend on Tradestation and datafeeds to buy more silver and gold!

I agree that now is a risky entry point for the precious metals. Adam Hamilton (www.zealllc.com) says that all bull markets correct back to their 200 day moving averages from time-to-time. That has already occurred several times in the precious metals since 2001. I am waiting for the next such opportunity before deploying new funds.

Market geniouses:

> Richard Russell – local San Diegan lives in La Jolla – WWII vet – incredible insight – nearly 50 years of analyzing all types of markets – $250/year for his daily wisdom is cheap! – http://www.dowtheoryletters.com

> Adam Hamilton – Zeal, LLC – if there were a college for speculators and investors, Adam would be the star professor, IMO – go to http://www.zeallc.com and read some of his free essays – he offers both a monthly letter for investors and a more frequent service for speculators

[4plexowner]

Let’s back up now!!!

I get the impression from both powayseller’s and rich’s posts that they expect the US Fed to do what is best for the American citizens.

That is a bad assumption and it is, IMO, the root of your frustration, powayseller.

The US Federal Reserve is a private corporation. Its first and foremost duty is to its shareholders which are the member banks of the Federal Reserve system. Each of the member banks is also a private corporation.

Central banks make money via wars and welfare. Read Congressman Ron Paul’s recent missive on gold – he makes this point far more eloquently than I can: http://www.house.gov/paul/congrec/congrec2006/cr042506.htm

Perhaps Ron Paul can provide some answers for you, powayseller.

[4plexowner]

Trying to incorporate the effects of monetary debasement into financial discussions becomes mind-numbingly complicated.

When I say a 3/1 house in Clairemont will bottom at $225K I am talking about today’s dollar.

Who knows what that number will be in 5 or 7 years or if we will still be using today’s dollar at all.

America is on at least its third fiat currency already. I can’t say that we won’t be using an entirely different currency before housing bottoms. It actually wouldn’t surprise me if we were!

And if the government were still publishing the honest numbers for inflation perhaps I would use them. {I would get up on my soapbox and talk about hedonic adjustments and the substitution effect in the inflation calculations but it’s friday night and I’m not going to go there!}

[4plexowner]

Congressman Ron Paul is the only true statesman in America today, IMO.

He understands that a country can’t print its way to wealth and prosperity and he does his best to spread this truth.

Read his latest missive about gold:

http://www.house.gov/paul/congrec/congrec2006/cr042506.htm

[4plexowner]

Rents – Up or Down?

All of the projections for housing demand are based on long-term trends / demographics. Projections are useful because they allow us to plan.

Projections don’t, however, take into account what happens when the trend changes. I think we are in the midst of a significant trend change for housing demand.

IMO, we are headed into an economic decline that will cause people to double and triple up in existing housing. The kids will stay at home (or move back in) and the new wife or husband will move in with the rest of the family.

I have a hard time seeing rents rising unless we are talking about the very top end of the rental market. Perhaps view properties and Coronado properties – the kind of places that people with real money rent (they won’t be as significantly affected by the coming economic challenges).

But the single-family house in Clairemont? I can’t believe that rents will increase for basic housing. Why would I pay $2000 to rent a house in Clairemont if I can rent the same SQFT downtown for half that amount? (I’m assuming the downtown condo market will depress rental market in coming years.)

[4plexowner]

Timing is a tough question.

I have looked at some of the economic cycles for hints as to the timing of the collapse.

There are several cycle theories of interest to me: Elliott wave theory, Kondratieff theory, Kress 60 & 120 year cycles, etc.

A number of these cycle theories point to significant bottoms in the 2010-2012 timeframe.

In conjunction with these cycles I also like to consider timing factors in the US. Of particular interest, IMO, is when the baby boomers start to retire.

The leading edge of the boomers are eligible for early retirement bennies in 2008. Since there is not a “social security trust fund”, all of the money for the boomer retirement will come straight off the printing presses.

I believe this increased debasement of the money supply will help to drive the dollar to the point of universal rejection somewhere in the 2010-2012 timeframe (assuming it doesn’t happen before then!).

Yes, I am your traditional goldbug (although silver bug would be a better description). If it isn’t physical metal in a place where you can easily access it, you don’t own it (IMO). I store mine between my .45 and my 12 ga (LOL!). My one exception to this policy is the Perth Mint Certificate Program (Google search it). I hold some silver via the Perth Mint program.

I have a small portfolio of Canadian exploration and junior resource company stocks – mostly silver and gold but a few base metals and energy companies too. I don’t trade this portfolio – in fact, my accountant gets the statements so usually I don’t know what level the account is at. I happened to see the Feb statement and my 30K account had become a 50K acct in the last two months – then in Mar it was 64K and now it is 84K. That is tremendous leverage to the rising price of the metals and energy but it comes with the risk of all paper investments (as compared to physical metal in my possession).

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