[powayseller]

Raybyrnes, I bought inverse index funds a couple weeks ago. I only put 10% of our money in it. The rest is in cash. When our 3-month TBill expires, I plan to put some of that into alternative currencies (Merk fund, gold) and inverse index funds.

Zeal’s articles on the dollar bear are worrisome. US Dollar Bear 4: “From its peak in mid-2001 to its trough in late 2004, the US Dollar Index lost a staggering 33.3% of its value in the world currency markets! ” Zeal writes the US dollar is in a secular bear market, and the 7% rise off the low in December 2004 is just a short lived rally within a much longer secular bull. They say the dollar has a long way to fall.

One problem is that the Federal Reserve increases the dollars in circulation by 8% – 9% annually. This increased supply lowers the value of each dollar.

Add to that rising dissatisfaction among the international community with having so much of their money in the US dollar, and the start of diversification. Demand is falling, very slowly, but falling. Will this lowered demand turn around?

We have rising supply of dollars, falling demand… Not a good picture.

[powayseller]

renterclint, the state regulators are releasing their exotic lending guidelines on Nov 14. That will be the end of real estate as we know it, in my opinion.

After we remove stated income and qualifiying on teaser rates, will we have any buyers left? I think 1st time buyers cannot get into a house without these loans, and they will be completely shut out. Without the 1st time buyer, the entire chain breaks, and within 1-2 quarters, the move up market will come unglued as well. When will we see the big drop in sales resulting from these guidelines? If they take effect Nov 14, then offers made after Nov 14 are in trouble, and we will see the initial results in lower November sales. December sales will be the big test.

[powayseller]

Cagan is more optimistic than I am, but I wanted to show his viewpoint. I’m surprised by his comment that 13% of recent ARM buyers are likely to default. After home prices drop further and more equity is erased and the bulk of loan resets start, the 13% number is likely to rise very fast.

I did make a mistake. I thought he meant that 13% would default this year, and thus the other 87% would default later, but he means 13% are likely to default, ever. Sorry for not reading that properly, and thanks for pointing that out.

[powayseller]

BikeRider, excellent points on the folly of the interest deduction, and the value of having a paid off home.

surveyor, if your properties provide cash, then you are in a good situation. I doubt rents will go down, so if you like owning real estate and the tenant is paying the mortgage, good for you. Another option is to sell that property and put that cash to use in 3-5 years when prices are lower. You may end up with twice as many cash-flow properties.

[powayseller]

jg, where can I read more about the Krueger report? I didn’t find it in google.

[powayseller]

So much for the soft landing. It is kaput!

Calcuated Risk writes “The Conference of State Bank Supervisors (CSBS) hopes to release the State Nontraditional Mortgage Guidance on Tuesday November 14th.” Thanks, CR for keeping tabs on this.

Finally, the day I’ve been waiting for. About a month or two after this release, home sales should stall, falling by 75% in just a few months. And with lower sales, prices will come under serious pressure.

[powayseller]

Like your father, many people have borrowed against their homes to buy stocks and investment property, as well as consumption items. This is risky. Roubini’s historical review shows the S&P500 loses 28% on average in a recession, and this one is probably going to be much worse.

Borrowing against one’s home to invest in declining asset that is declining (stock and home) is not wise, in my opinion. If your dad’s house is worth $350K in 3 years, and his $250K in the stock market is worth $125K, he will be much worse off. Your idea seems a good one, but at the current economic time, it has a high probability of big losses. It may take 10 years or longer for our economy to recover from this housing bubble, which was a cover up for the tech stock bubble. We actually have two bubble fallouts whose results we have not yet absorbed. For that reason, I expect a long protracted recession. Why wouldn’t your dad just sell his house – then the profits are true profit, not just debt, and they cannot be cut in half.

[powayseller]

I know I’m real slow, but I’m going to have a Ventura County section on my website, including data/charts and a forum. Just a couple more weeks…

[powayseller]

surveyor, when you roll credit card debt, auto loans, or medical bills into your mortgage, your are converting a short term debt into a 30 year loan, and paying 2-3 x interest on the debt because you are amortizing it over such a long time. Personally, I think that’s a bad idea.

BikeRider is correct. We never really own our homes. sdrealtor, try not paying your mortgage for a few months, or skipping out on next year’s tax bill, and you will realize the bank owns your home and the County owns the right to the land. Unless you paid off your home, it isn’t yours at all.
The closest we can come to owning a home or car is when it is completely paid off. Anyone with a mortgage holds a deed to the home, but does not own the house itself.

In the upcoming recession, many of us on this forum could lose our jobs and our homes. We will then realize the transient nature of houses and material things.

In Switzerland, people don’t usually own their homes either. It is customary to pay interest only, around 1-2%. I need to ask my family there on further details.

[powayseller]

bubba, you’re making so much sense, it is scary. I wonder if the dollar decline will be orderly or sudden. Could the dollar plunge in one day, just like the stock market?

Where did you buy your German government bond? I have been wanting to buy one for a long time, but cannot find anyone who sells them.

Has anyone considered investing in the Merk Hard Currency Fund , MERKX?

“The Merk Hard Currency Fund is a portfolio that invests in a basket of hard currencies from countries with strong monetary policies assembled to seek protection against a decline in the dollar while mitigating stock market, credit and interest risks. The Fund normally invests mainly in high-quality, short-term money market instruments of countries pursuing sound monetary policy, as well as in gold.”

Euro 46.2%
Swiss Franc 6.2%
British Pound 3.4%
Swedish Krona 4.5%
Norwegian Krone 3.2%
Australian Dollar 12.1%
New Zealand Dollar 2.0%
Canadian Dollar 13.4%
US Dollar, net * 0.1%
Gold * 9.0%

[powayseller]

Very interesting, and thanks for the article. I am anxiously awaiting the stock market drop, but it is taking its sweet time. Bubbles and euphoria can go on much longer than seems reasonable. Let’s check back with folks in the market during the recession next year, and see how many got out in time. It kind of reminds me of people who had doubled their portfolio in the tech stock bubble, and then lost all that profit plus more. How many people will get caught once again in this overvalued stock market and lose their money?

gold-dregder-phd, what are your exit plans? Do you have stop losses?

[powayseller]

sdcellar, I noticed the spike between 1999 and 2000. We looked at homes in Feb and March 2000 in Gatewood Hills in Rancho Bernardo, in the mid 300’s, which had sold in the mid to high 200s just a few months earlier in the summer of 1999. These were 1800 sq ft homes with backyards only 5-10′ wide. I was really surprised about the sudden jump in price, and didn’t know why it was happening. The realtor kept saying we had low inventory, but I didn’t know why we had low inventory.

I have inventory data for San Diego going back several years, and when you look at the chart, you can see that we had one or two cooling-off periods. Then, something happened to reinvigorate the market. So Robert Campbell was right in some of his incorrect market reversal calls; he really had no way of knowing that the downturn would be reversed by a lower Fed funds rate and the popularity of exotic loans.

[powayseller]

sdrealtor, in jg’s first graph, OFHEO index, my simple ruler test puts the mean at the years 1976 – 2000. I align my ruler between the first data point and 2000, and only the data points of the bubble years are off the ruler line. I’m curious how you lined up your ruler. BTW, it’s nice to have you back.

mls, Please try a little civility in your future posts. My recession prediction for fall 2006 was early. Roubini and Merrill Lynch’s David Rosenberg are predicting a recession in Q1 or Q2 2007. It is like watching paint dry; the economy moves so slow. The dollar’s strength is questioned even by Greenspan and the IMF; a couple years ago, Warren Buffett and George Soros lost billions of dollars betting against the dollar. It is only a matter of when, not if, the dollar falls. I still believe WaMu stock will decline substantially, but we just don’t know when, so it’s hard to short it. Are you a realtor / homeowner? Do you predict a recession too, or a depression as some others on this forum, or continued growth?

[powayseller]

sdrealtor, would you say we’re back at 2004 prices?

[powayseller]

Perhaps off topic, but fitting reply to the two posters above who tried to berate me.

Dr. Roubini defended me today on his blog. “Aviram,good you enjoy my blog; most appreciated. But no reason to make fun of names of commentators. Shahrzad is a thoughtful lady who is a frequent and lively and insightful commentator on this blog. … ”

I am posting this here only to balance the increasingly negative comments directed at me over the last few weeks.

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