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August 21, 2006 at 10:10 PM in reply to: Latest offer from Centex Homes – 5K home only $304 per month! #32609
Jim Brubaker
ParticipantI think that we ought to view economists more akin to a doctor doing an autopsy. Trying to look forward into the future with a live patient, is like reading tea leaves.
Consider for a moment, that everyone that has an economic opinion could be right; the point to realize, is that even if they are right, its only at a certain point and time. It’s just that they can’t all be right at the same moment.
Another thing to look at, as an economist, there needs to be some lying to the general public when things are bad, to keep them from hopefully getting worse.
Reality is that Frys Electronics just sold a gazillion wide screen TV’s at $3,000 a clip (no payment due for one year) and the supermarket is selling lots of premium beer for the Sunday game. If your reading this blog, you know the economy is going to hell–the arrival date is the only item in question.
ParticipantDon’t buy bonds, if the interest rate doubles, bonds loose half their cash value unless you wait until the maturity date. The interest rate hasn’t been this low in 40 years, now is the time to sell 30 year bonds.
Plus if the bond holder files for bankruptcy, you’re behind the vendors who are first in line for payment.
A $20,000 thirty year bond paying 5% today, if the interest rate went to 20%, that bond would sell for $5,000, thats a $15,000 haircut. You could wait 30 years and get your principle back.
Short term T-bills are the way to go if you want to protect your assets with a non speculative investment. If the interest rate were to jump to 20% you would buy the 30 year bonds. Then if the interest rate went to 5% the bond price would quadruple in resale value. A $20,000 bond paying 20% interest is the equivilent of a $80,000 bond paying 5%.
The example is not totally correct, but it gives you the general drift. Plus if you take the “Rule of 72,” and divide that by the interest rate, it gives you the approximate time it would take to double your money.
ParticipantForclosure sales are not the best. You might want to try Trustee Sales.
Here is a link to a paper specializing in them.
http://www.sddt.com/RealEstate/
First you check for properties in an area your interested in, then you have a prelim title search done on the ones that show some promise, do the math and attend the auction (usually on the front steps of county court house).
It doesn’t cost anything to watch one, if you want to bid, you take a cashiers check to the auction. Before the bidding, you show the auctioner your check and its amount. When the bidding starts, you can bid up to your amount on your cashiers check. Naturally you don’t know what the amount the other bidders brought to auction. Sometimes you could be the only bidder besides the bank.
In a trustee auction all secondary liens and judgments drop off the note except some tax liens. Its not a bad way to buy rental property, but at the present time prices are a little dicey. You could still make a killing now and then. Say you have a house with a $100,000 first and a 300,000 second. If the second trust deed holder messes up and doen’t cure the loan, a bid of $100,001 would leave the banks automatic bid of $100,000 out of the loop. From there it would be a feeding frenzy among the bidders. And like I said, sometimes no one even shows up to bid on that property.
ParticipantIn San Marcos, I’ve noticed some higher rents, but the places remain vacant for two to three months. If you have the unit vacant for 2 months at say $2,000 ($4,000), and figure the rental return for 12 months that comes out to an effective rate of $1,666 per month. That about what we rent for 2400 sq ft.
The landlord can charge whatever he wants for rent. But when I comes time to do the books, the rental rate per month is determined by the money recieved in a year divided by 12.
As a landlord, raising the rental rate does not necessarily increase you income. It can reduce it.
I find it hard to come to the conclusion that rental rates are going up.
ParticipantDo they take Monopoly Money? $350 is a tad bit on the high side of never.
ParticipantIf you look at history, the last time that oil jumped like this, demand dropped and caused a world recession.
It costs $50 dollars to fill your tank. Any one going out for a Sunday drive?
Oil is at $70 per barrel today, ask yourself the question, “Did they raise the price of oil or did they devalue the dollar?”
If they devalued the dollar then I would agree that the price of oil will stay at $70/per barrel.
If thats not the case, I see a recession where no one wants to buy gas on the level they bought before.
Rememer when you use to put only $5 in the tank because you were short of funds, well you ain’t going far on 5 bucks today!
ParticipantThere is one effect that can’t be seen. Second trust deed holders could be discounting their notes to unload them. A 60,000 at 8% might be discounted to make it a 10% note. That would make it a $48,000 note at 10%.
Sadly some of the elderly looking for more interest income might bite on this one.
ParticipantI agree with Carlsbadliving and LookoutBelow.
But you have to remember one thing, a stock broker,investment analyst or a stock commentator, needs to look like they are on top of things with their clients. These clients want reassurance that the person they are doing business with is in the know.
Fortune telling has been with us for centuries and the pay can be quite good. The trick is having good plausible answers, that satisfy the listener.
ParticipantThere are two perspectives here that are as different as oil and water. The speculator and investor who are in the market to make a dollar and then there is the person who buys it for its store of value. Either perspective works for the individual.
If you want to flap bed sheets at the moon and claim that thats what made gold drop, its OK with me. The M3 money supply probably has just as much effect as bed sheets. The reason–the market is driven human psychology. Common sense and logic don’t even stand a chance. Remember the Bunker Hunt corner of the silver market in the 70’s when it went to $50? The only guy I ever knew that shot the moon and lost.
Now, if you purchase gold as a store of value, you’re looking down the road 20, 30 years. This is an insurance policy against the government pissing in the whiskey.
A few of you mentioned to go with a currency backed with gold. That sort of system protects people saving for retirement and the banks that loan out money. That works fine until you want to increase the money supply, say to finance a war or some sort of government sponsored health care.
Roosevelt during the depression had to ban gold ownership, people knew what was real and wanted gold. Nixon in 1972 had to take us off of the gold standard, because foreigners wanted to redeem their dollars for gold.
There is some post script to this on my blog
To add to the confusion, there are two different viewer profiles, those that have had an economics course and those that haven’t. If you have the chance, take just one course, I guarantee you will take all they offer, it’s the best path to a successful future.
ParticipantYou’ll find that most people are too busy working to ever tinker with investing their hard earned savings.
The most important part of working is taking the time to make the investments. It kind of like playing poker, it will cost you to learn, and then it becomes fun and you get skillful.
If you take the time and choose a field of investment and have a plan, you won’t have to work the rest of your life. The guy investing your money takes his cut off of the top, and thats true even if your investment lost money.
The trick is not earning money, the trick is holding onto it, and making it work for you.
ParticipantGold is universally accepted as cash money. How many countries have had the same government for 75 years–not a lot. When you change governments, you change currency. Poof there go your savings. Most of the big countries hold large amounts of gold. All they have to do is print paper to own it. Not a bad trade.
99% of the worlds gold is still with us. That doesn’t really sound like a commodity. In my world commodities get used up. Don’t quote jewelry consumption, that usually quoted as a percentage of the current years production and that gets recycled eventually.
An ounce of gold can be hammered into a sheet of foil measuring 70 square feet. Then there is electroplating.
Ever wonder why the US government went off of the gold standard? You can’t print more money unless you back it up with gold. Without the gold standard, there is no restriction on printing money.
Inflation is a way the government can tax everyone. Free health care, social security for everyone, free home ownership. Gold doesn’t have to buy this pipe dream. Gold could hit $3,000 per ounce, that doesn’t mean you’ll be rich, it means that you had better ask your employer for $3,000 a week as your salary.
In 1964 my dad made $7,000 dollars a year and our house cost $25,000 brand new. My mother didn’t have to work. Gold was $32 an ounce. The school lunch was 25 cents
If you think of gold as an investment or commodity, keep away from it. Gold is an insurance policy, it will buy just as much today as it will in 30 years.
There is another saying, “bad money chases out good money.” Have you seen any real silver coins lately? The government didn’t melt them down. How about a $5 dollar gold piece? FDR passed a law making it illegal for US citizens to own gold–they repealed that in the 60’s (I might be wrong on the date).
ParticipantBe careful on short selling. There is another game played out there. An investment pool will pick a stock that doesn’t have a lot of shares, say under 60 million, that is being shorted quite a bit. Then they start buying the stock, forcing the price up, the shorts have to meet their margin calls (daily). In fear, they buy the stock back to cancel their short position. That buy order makes the price of the stock climb even higher. This starts a vicious cycle upwards
The entity performing the short squeeze also has the advance knowledge to sell puts in the money and buy calls out of the money.
This is what can take common sense out of the market.
Another thing to bear in mind with options. They are thinly traded in some areas, just recommending them for others to buy, can triple the price you’re going to have to pay for them.
ParticipantChris it sounds like you enjoy living on the edge. I used to short the market, and I had to quit, I couldn’t sleep at nights. Way too much stress.
I’ve heard that the “burn” time on CBOT traders is about two years–its a rough job, but it can pay well.
Thanks for your blog linkParticipantBasically in 1929 the Fed did nothing and the market crashed. What the Fed is trying to do is raise the interest rate for money that is to be borrowed. So far this hasn’t been working too well, 16 raises and only 3/4 of a point on home loan interest rates. It kind of looks like they are pushing on a string. 16 raises would be an increase of 4%, didn’t happen did it.
There is an invisible problem here. The BOJ (bank of japan) is only paying about .025% interest. So every astute banker in Japan is buying our T-Bills.
I wonder why! -
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