[livinincali]

[quote=EconProf]To both the above posters, I was careful to say (like any CYA economist) that the positives outweigh the negatives, for a net benefit to society. While the scenario portrayed is not perfect, lets remember the horrendus job the government does at holding assets like boarded-up houses. That’s what we need to get away from, and it takes a private-sector, profit-motivated investor to do it.
And, livinincali, if they get burned going this route, as you suggest they will, hey…that’s capitalism. At least its the private sector, not the taxpayer as at present, who loses.[/quote]

The tax payer already lost. And selling these properties in bulk to investors at volume discount pricing means the taxpayers lost even more versus an open market auction.

[livinincali]

I personally view this as hot money chasing yield. The fed is giving money away at 0 interest and everybody is looking for a place to put that money. Investment real estate has become the primary choice due to fears of inflation and the expectation that real estate will perform well in that expected inflationary environment.

I think those assumptions will eventually turn out to be wrong. Housing will probably look good for the next couple of years as this hot money chase continues, but it’s going to end at some point and hot money liquidation tends to produce really bad volatility. These investors are inexperienced in tenant management and are going to get hammered by tenant friendly laws. My guess is that by the end these hot money investors will wish they never got involved in the first place. Most are going to end up with a bunch a illiquid assets and it will be difficult to liquidate those assets to their tenants just scrapping by. Ultimately that’s their buyer for higher prices later but they don’t seem to realize it.

[livinincali]

Yeah you should be able to get more than a grand if it passes smog. The reason I did it was because I failed the smog miserably and you can’t transfer title without a smog. A grand was better than the effort to try to get it to pass.

[livinincali]

I’ve done this program before with a 1985 prelude that had over 250,000 miles on it. It’s a gross polluter program so your car has to fail smog and still be drivable. You submit the paperwork and then they send you down to one of the car wreckers in Otay where you hand them the keys and they hand you a check for 1,000.

[livinincali]

If the government actually wanted reliable statistics on employment they would use income tax receipts. I know the potential flaws with people working under the table and self employed people under reporting but would those people even spend the time to answer a BLS telephone survey in the first place. Obviously there was a time before fast computers and huge databases that make using a survey justified but in today’s era you could tabulate income tax receipts in a night.

[livinincali]

Depends on what you’re trying to avoid. There’s currently a federal estate tax exemption up to $5,000,000 so your estate appears to be too small to go through the trouble of setting up an irrevocable trust to avoid estate taxes. I suppose that amount could change, or that tax law could change, but as of right now it doesn’t appear to make sense.

[livinincali]

Generally commercial loans are minimum of 30%, but you might be able to get a slightly lower down. They are almost always a variable rate based on something like LIBOR + some risk factor. Great credit and big down maybe 5% right now with a possible option to lock the first 3-10 years.

A lot of commercial loans will be based on a 30 year payment but a balloon payment at a 10 year term. They end up getting rolled a lot. So you pay a 30 year payment for 10 years and then have huge balloon 80-90% of the loan balance that you refinance. The pitfall is you still need a 30% LTV when you refinance so if the property goes down in value you might have to bring money to the table or let it go when the balloon comes due.

[livinincali]

INTC still makes a big profit and isn’t going to run out of cash anytime soon. I’d guess the dividend is safe going forward. I personally like MO better as a dividend play.

[livinincali]

[quote=CA renter]

We definitely need to encourage productivity and self-reliance, but we also have to realize that not everyone is as capable as the next, and it is a humane and just society that seeks to help everyone to become the best that they can be.

It’s also important to realize that there will always be an underclass. Even if one were to kill every single “freeloader” today, in ~10 years, we’d have a new crop of “freeloaders.” That’s what you get with heterogeneous societies and bell curves. Welfare isn’t for the poor, it’s for the rich. Without some way of providing for at least the basic necessities, if there is a tremendous amount of wealth at the top, the poor will rise up and take what they want, however they need to do it. There is ample historical evidence to show how this happens, almost without exception.
[/quote]

I agree that there will always be a bell shaped curve in which there’s a top 20% a bottom 20% and a range in between. That’s just always going to be the way it is with any size population. In your own social group you can probably identify the top 20% and the bottom 20% pretty easily, even if that social group contains mostly people in the top 20%. Providing the necessities of life is fairly cheap (Shelter, Food, Clothing). There’s billions of people that survive with basic necessities on less than a couple dollars a day. It’s trying to provide our increasing expectations of a middle class lifestyle for that bottom 20% that gets hard and more expensive.

[quote]

Again, I have very little problem with truly productive people making lots of money if they are the ones who personally created all the value and did so in a way that didn’t take advantage of, nor exploit, others. Very few rich people got there without stepping on others, and very few made it entirely on their own. I abhor when these people then try to frame the issue as “the lazy, freeloading poor” (usually those who’ve been stepped on) vs. “the deserving, productive, hard-working rich.” It’s very rarely that clear-cut.[/quote]

Well if you step on people and exploit them then you’ve likely committed some crime. Fraud is a crime that nearly all of the rich bankers should be prosecuted for. The one real problem with our version of capitalism is that those with the most money get to circumvent the laws in place. It’s not really capitalism that’s a problem it’s an inability to apply to laws equally depending on social status. There’s countless examples of celebrities and wealthy individuals getting off of crimes that any normal person would be locked up for. Equality under the rule of law is really the solution.

[livinincali]

[quote=squat250]
I think you’d agree that excessive concentration of wealth, even if it was gotten with skill and brains and good old fashioned hard work, is not a good way to set up a society that has any chance ofbeing a decent fair, longlasting, good place tolive…

You don’t want all 99.9% of wealth with just one, or in a nation our size, two or ten or 50 or 1000 dudes.
[/quote]

Think about what wealth really is and what you hope to do with it and you’d realize that most wealth is indeed somebody’s obligation to provide goods and services. A slave owner on a plantation would have 99.9% of the wealth on the plantation. A King would have 99.9% of the wealth inside the walls of his castle. What they really have is control over a group of people to provide all the goods and services he desires. The owner/King gets to keep it all while the people providing the service get to keep basically nothing other than sustenance to keep providing goods and service.

These type arrangement usually end up in revolt at some point because nobody wants to work for nothing in return. Fairness depends on who defines it, but a general definition that everybody is relatively equal is a pretty common definition. The problem is that this idea flies straight in the face of evolution, natural selection, or Darwinism. Mother earth or nature doesn’t reward fairness/equality it rewards evolution/innovation. It’s why a solution to solve the problem of fairness in many peoples definition of fairness just doesn’t exist. The best you can probably do is practice true capitalism and allow those that make bad bets fail.

Throughout history many companies have come and gone. Many individuals have been poor, wealthy, and poor again. The problem now is we don’t allow those wealthy to fail anymore, if we did the wealth gap would shrink. The biggest shrinking of the wealth gap that ever occurred happened during the great depression. It will likely happen again, but this time because of our reliance on 401Ks and self funded retirement more than just the top 5% are going to get hit. Everybody is going to take a hit and it’s why we’ve become so desperate to find a solution that doesn’t really exist. Your wealth and your retirement really depend on another person’s debt.

[livinincali]

Apple maps was probably a dumb decision by Apple, but it will get better over time and their user base will just learn to accept the beta quality for now. Apple isn’t going to reinvent the way people use maps with it’s mapping solution so I really don’t see the point. Use one of the numerous other mature third party vendors if you hate Google that much. Of course we’ll probably see Apple file patents and claim it invented mapping for mobile devices so everybody needs to pay up.

[livinincali]

[quote=urbanrealtor][quote=CA renter]The fairest tax of all is one where ALL income is taxed at the same, progressive rates.

Everyone is taxed the same under this plan, and nobody can claim that there is any favoritism. If you have income that is high enough to be taxed at an unusually high rate, get on your knees and thank God/your higher power that you are more fortunate than all those other people.[/quote]

That was originally to be one of the key provisions of Reagan’s tax reform.

I don’t think that selling stocks or houses or whatever should ever be taxed at a rate below what a McDonald’s worker pays.

Its just plain wrong.[/quote]

Technically it’s not. Capital Gains is either 15 or 20%. A McDonalds worker is going to fall into the 10% tax bracket and after deductions won’t pay any federal tax.

The problem with tax policy is it’s used heavily to create social engineering. Capital Gains tax was designed to encourage productive investments which would be good for the economy unfortunately it encourages short term speculation just as much as productive investment. We encourage people to buy houses, to have children, to hand money to wall street 401K money managers, ant the real question is want to do we really get out of that. Does it even work to produce the expected result?

I think a simpler tax code would be great. I prefer a consumption based tax but a simple progressive tax on income without deductions would also work. Government isn’t free so everybody should have to pay something and I prefer that something to be obvious. I also want to see a balanced budget because money printing deficit spending is really just a hidden tax. The lose of purchasing power through currency debasement is really no different than an outright tax. I want people to see what it actually costs to fund various entitlements and spending. That’s the only way to figure out what’s really important.

[livinincali]

[quote=AN]Beating CPI during the 12 years where stock is basically flat and we saw one of the major stock market crash this side of the great depression is pretty impressive to me. Now, how would your number look if you extend it to 20 years instead of 12? Here’s a helpful link for you: http://www.moneychimp.com/features/market_cagr.htm
Based on their calculator, your inflation adjusted return for the S&P over the last 11 years is basically 0. However, if you extend that calculator back another 11 years to 1990, your annualized inflation adjusted return is 5.41%. If you extend that back another 10 years to 1980, your annualized inflation adjusted return would be 7.42%. So, the question is, will we see 20-30 more years of what we saw in the last 11 years, or will we see something like the 80s-90s?
[/quote]

I would bet that we’d continue to see what we have been seeing rather than a repeat of the 80’s and 90’s. The primary reason being that the 80 and 90’s were fueled by a large new group of stock investors (the boomers and their 401Ks). In the generation prior to the boomers maybe 10% of the population owned stocks as the boomers bought stocks through their 401Ks the ownership rate of stocks went up to probably 50%. Again a cycle of exponential growth that came to an end in 2000 or so. Honestly what’s the next driver of growth for stocks. You have all the boomers looking to collect dividends or sell principle and the next generation deeply indebted to college and wanting to buy homes that are still 5x median incomes. Where’s the left over productivity coming from to invest in stocks from the next generation.

I can honestly think of 2 possibilities that could drive our stock market through 1 more exponential growth cycle from these levels. A significant foreign middle class forming and choosing to invest in US based stocks (i.e. a China, Brazil of India middle class that quickly catches up to our standard of living). Or some kind of forced medical savings plan that puts the remaining 50% of the relatively poor into the stock market. Neither seems likely to me so I expect at best a sideways choppy market and at worst a declining market at least inflation adjusted.

My expected scenario would be a significant collapse in the stock market and a significant deleveraging that results in a depression before we see another growth cycle, but I could be wrong about that. Obviously you have a vested interest in it playing out how you’re positioned but really think about what kind of things need to happen for it to play out that way.

Exponential economic growth is going to come from a new cheap energy source (i.e. thorium nuclear, hydrogen fusion) or a population increase. So far we have neither. We have some new expensive energy sources in renewables, and population growth is only slightly positive.

[livinincali]

[quote=AN]
Stocks didn’t drift lower over after the .com crash. It crashed, then “drift” higher, until 2008. Today, the NASDAQ is at a 12 years high. If you bought in January 2000, yes, you’re still under, but if you bought in 2001-2002, you’re probably up over 100% over 10-11 years. That’s not too shabby and I wouldn’t call that as drifting lower.
[/quote]

But nobody bought all of their assets at the absolute low. Most 401K investors have been buying every month or twice a month. They bought both at the highs, the lows, and everything in between. They’ve seen their portfolio go up and they’ve seen their portfolio go down. If you we’re to take all of your contributions over the years and compared it to the value of your portfolio now it would be highly unlikely that you’d be ahead by over 100%, unless you successfully timed the market or focused on a narrow set of investments.

If you were to make some assumptions about 401K investing this is what I come up with.

Jan 2001 you have a starting salary of 40K and you contribute 20% of you income every month to SPY. You assume a 7% per year raise. So year 2 you’re making 42,800 and contributing 713 per month.

At the end of the first year
Contrib Acc Value % return
8000 7762.891702 -2.96%

At the peak of the bubble Dec 2007
69232.16874 91796.81951 32.59%

At the end of 2008
82078.42055 67930.22094 -17.24%

At the end of 2010
110531.5837 133925.4934 21.16%

Right now
138897.9063 193025.8715 38.97%

So over the past 12 years you’ve been up almost 40% and down almost 20%. As of right now it look pretty good but if you look at 2001 to 2011 your stock portfolio went up 20.45% yet CPI went from 174 to 226 or 29.8%. So those 10 years of diligent investing in a balanced portfolio left you 10% behind CPI. As of right now CPI is 31.6% so your stock portfolio has performed 7% better than CPI. Have you really successfully done well against inflation if you’re only up 7% versus CPI right now. You’ve barely won and it wouldn’t take much of a stock market correction to have you back in a losing position again.

[quote=AN]
I see our housing behave similar to our stock market instead of like the Japanese housing market. Japan have problems we don’t have. Such as an aging population and low birth rate that can’t even keep up w/ the death rate. There are others, but because your demographics are different, it’s hard to draw a link.
[/quote]

Our population is aging as well. Maybe we’re a little further back in the curve, but pretty much everyone agrees that the aging boomer population is the huge problem for Medicare and Social Security. Japan learned that it’s hard to grow when you have an aging population that needs to be supported and we’re going to have the same problems here if not yet, soon. It’s just a numbers game Japan might be 1.8 workers for every retiree, we might be 2.2 workers, but that a far cry from the 5 to 1 that we had just 10 years ago.

The bottom line is all exponential growth must come to an end at some point. Whether it’s bacteria in a petri dish, or decades of debt.

[livinincali]

[quote=AN]
Also, you pointed out that in order to win the fed’s money printing game, I’d need to invest in the next bubble. I totally agree. Housing is one of those assets that will take full advantage of inflation. Even after this crash, many places are still higher than where they were in the mid 90s, much less 80s.[/quote]

I tend to disagree with this statement. Look at the stock market bubble in 2000. If you invested in stocks back in 1980’s or 1990’s you were still way up after the crash but new investors to the market in 2000 going forward would be extremely lucky to be beating CPI over the years even now when we’re approaching the 2008 highs. I think housing will follow that same pattern (it did play out in Japan that way where housing prices and stock prices have drifted lower over the past 20-30 years after those bubbles popped). The next bubble will likely not show up in the previous bubble.

I personally think we’re already seeing the next bubble in Treasury bonds/total debt, but I don’t know when it will end and I don’t know how it will end. I see hyperinflation or a deflationary depression as the end game but depending on how it plays out there might be a way to take advantage. Of course it’s certainly possible that even if you win the government will confiscate the winnings in the name of fairness.

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