[powayseller]

I bought RYTPX and RYCWX with 10% of our retirement portfolio (I used my entire account, as my husband has his own account through work; he is adding 10% of his account to the Rydex funds).

I called Rydex because of a bad experience with bear ProFunds. The Profunds prospectus did not say anywhere how they invest their money, i.e. options or shorting, etc., and I e-mailed back and forth with them multiple times and could never get a straight answer. I verified each of the Rydex funds since inception to ensure they do indeed track the inverse of the index, and after it all checked out, I made the move.

I do not claim to be a perfect market timer. When Chris congratulated me earlier this year for making some money in gold, I admitted it was pure luck. I got out of the stock market in March, and missed this last rally. Please don’t confuse my conviction about the direction of the economy and my long-term investment positioning, with any claim that I am a good short-term market timer. If you want good short-term market timing advice, you need to talk with Chris Johnston. He knows how to make money on a rally in the middle of a bear market; I do not.

This investment does have some risk. The stock market rally could go on for a few months longer. If the stock market sizzles out next week, it will be pure luck for me. I am very confident in the long term direction of the economy, but not of the short term moves. However, without risk there is no reward. I also convinced myself that someone who is in the stock market now, say in an index fund, is taking an even greater risk than I am. The stock market has a greater chance of going down, since we’re going into a recession, than it has a chance of rising. Also, the bear fund seems less risky than shorting or put options.

[powayseller]

I would like to make some realtor recommendations.

Foremost in the blogging world is Jim Klinge. I would definitely hire a guy like Jim Klinge. He’s got decades of exeperience in the field, a spreadsheet full of data, personal connections, and he’s a hard worker.

He makes sure his buyers get a home that will be easier to sell. How do we know what that is? Most people end up with a 2-story tract home. Bad idea.

one-stories are easier to sell

Why not pay a guy like Jim a few grand, to make sure you get a home that you’ll be able to sell for a lot more, faster? I’m sure there are many more things like this, that he knows, that I wouldn’t know, and neither would anybody else working off a database and a fact sheet.

He also explains why this town is so dependent on the 1st time home buyer; the types of loans people have, why some sellers are raising their prices, and much more.

I also recommend Bob Casagrand, a savvy buyer’s agent and retired businessman. He’s got a ton of buyers on the sidelines now, and they are waiting for the right house at the right price.

Also remember SD Realtor, Adam Rappaport, who charges only 1% commission and has a wealth of experience with all types of properties. He’s an engineer, and he’s made many good posts about what to look for in a realtor.

[powayseller]

Good job! This proves that fundamental value is 10-12x rent in San Diego. Housing prices are higher here, but the ratio is still the same here as anywhere else. After all, if it were more, investors would never invest here. Makes total sense.

[powayseller]

Bear funds buy put options, and I verified this by calling Rydex. If you look at “holdings” on Yahoo finance, it says cash,because put options are not one of the categories. If you are interested in this, just google “bear fund”. I can’t tell you the # of shares, because that is confidential. I did not check the intraday charts, and there is no need. Eric Janszen told me today that these bear funds should be held only for a few months, so you can profit from the dips and rises in the index. In 2000 – 2003, you could make a lot of money by holding the bear fund for 4 – 9 months. They are not long term investments; they are like put options, so they are for market timing.

[powayseller]

qcomer, I have laid out my predictions and my position. I took Zeal’s advice on the COP, and it bad advice, so I sold my COP, figuring I could make better returns on the inverse fund. Why now? Because I finally got around to it. It was pure luck that I didn’t buy the inverse funds this summer.

I still think that long term, oil will go up to $100, but in a recession, the demand for oil drops and so does its price. I had not considered this temporary drop in oil due to a recession, so I made a bad decision in buying COP right now. All the Zeal recommendations I followed have been duds.

We’ve got a stock market bubble today. The S&P P/E ratio has been around 14 since 1881, but in the last 25 years, has steadily risen to 45 in the .com boom, and now is still at 25. In the most productive years of our economy, from 1929 to 1982, the Dow increased 300%, but in the time of slower and stable economic growth the Dow increased 1000% in less than half that time (20 years vs. 54 years). So the price of the stocks has grown much much faster than the earnings, partially due to the inflow of foreign investment into the US. So we have a stock market bubble, a real estate bubble, a deficit bubble, etc. I am positioning myself to profit when they fall. Thankfully, there are plenty of people taking the other side of my bet, allowing me to profit handsomely.

I appreciate all the charts provided above, but they do nothing to change my mind that this rally is built on a quicksand foundation. So I am firmly in the corner with Roubini and I find myself in good company.

[powayseller]

I saw your charts, and I said they were very good. However, the Dow rise excludes the transports, so it’s a bearish indicator. Ritholtz talks more about the divergence, “What I find so astonishing about these divergences is the Transports, depsite the 20% drop in oil and 30% drop in gasoline, cannot keep up with the Dow. Intriguing.” 10/11/06 How strong is the rally anyway? “While the Dow exceeded its January 14, 2000 high (11,722) last week, only 10 of the 30 stocks in the index are higher now than they were back then.” 10/10/06. “On Wednesday, we looked at the breakdown of Dow components, surprised to discover that only 10 of the 30 Dow components were above their 2006 2000 highs. Four stocks — Boeing, United Tech, Caterpillar and Altria — were the primary drivers, pulling the Dow higher despite the drag of so many other relatively weak components. 15 of the 20 Dow stocks still below their prior highs are down substantially, with GM and Intel off ~60%, and Microsoft still down by 51%, and Home Depot and Merck off ~ 40%.” 9/29/06

I’m also not impressed with the supposed Dow high. Peter Schiff wrote, “adjusted for the CPI the Dow’s January, 2000 peak would equate to over 14,000 in today’s dollars….n the second place, the Dow Jones consists of just thirty stocks. If you look at broader market averages, such as the S& P 500 or the NASDAQ Composite, the former is about 13% below its 2000 high, while the latter is 55% below.”

It seems like a few stocks are pulling up the indices. This is a weak rally, and is a bet that the economy is slowing enough that the Fed will cut interest rates, causing a second long boom. You already know my position. Again this is proof that the markets are not forward looking, they are inefficient, and whoever these investors are who are driving up the prices are obviously not aware we are a Bubble Economy ready to pop.

[powayseller]

The mortgage resets are a time bomb. Russ Winter did an analysis of Cagan’s Sept 2005 paper on mortgage resets.

“Conclusion: if we use a 10% drop in housing price combined with a trillion in new mortgage debt since the Sept. 2005 First American survey, we can easily visualize well over a trillion in mortgages showing serious negative equity, and nearly two trillion having no equity. All this, while rate resets keep going on like firecrackers.” link

Today I met a real estate investor who currently buys high end vacation homes near Palm Springs, FL. He’s cash flow positive, because he only needs to rent each house 4 months of the year for $10K/month to break even; I think he’s using I/O loans. He buys at least one home every year, and says this year is no exception. He believes prices may go down for 1-2 years, no more than a 5% drop, and then start going up again. This guy has been through both San Diego housing busts in the 80s and 90s, and says that the best investment from a tax standpoint is real estate.

[powayseller]

One more anecdote to show that people are expecting a spring rebound that will lead another a real estate run-up, and that we bubble believers are in the minority.

I’m holding my breath for the ARM resets. The next 2 years are going to see huge drops in real estate. One of my favorite writers is ocrenter; he has a great writing style and digs up the most interesting information. Just today he had a story about a guy who used his house as an ATM; the house cost in the $300s and the guy took another $300K out in cash over a 5 year period. Now the bank owns it. Multiply this story by tens of thousands of homes in the next 2 years, and we’re going to see huge inventory jumps and price increases.

Inventory always drops in the fall, but sales are falling too. Bob C. wrote that sales are down over 40% in September. Where is the bounce? A bounce would mean that the October price drop is less, if Oct 06 sales are down less than Sept 06 sales (i.e. only 20% down from Oct 05), then that would be a bounce.

We’ve got bubble denial. People think this price drop is real but temporary.

[powayseller]

How do you find an “agent”, and why do most agents become “Realtors”? What’s the difference to the customer?

[powayseller]

I doubt part-time cashiers get health insurance. If you think they do, then substitute any of the other millions of employed who work without health insurance into my example.

[powayseller]

I think a good realtor will help a client get a better house, and probably a better price. I spoke with the realtor who sold a house listed for 270 days on Iron Mountain Road in Poway, where the client overpaid IMO, and she didn’t even know about any of the comps or recent sales, saying, “I’m not familiar with the area”.

Another story: my realtor friend checks the tax assessor records to see the seller’s loan and purchase info that is not on the MLS. This helps to see how motivated the seller is. This info is available to the realtors, but not to the general public I think.

The HelpUSell model is working just fine. I don’t know what iPayOne did wrong…

However, I think the realtor commission system is highly inefficient. The realtor expects to make a living off the 5-10% of his time that is actually serving customers. The 95% of his time that he is marketing for new customers is completely paid for by the few clients he actually gets. If the average sale takes 20 hours, and the avg realtor has 10 sales, then he is working 200 hours per year. He has to bill at a high commission rate, because he must earn his annual salary in those 200 hours. The other 2200 hours each year are “free” work, spent marketing. For this reason, a fee-for-service is what I prefer. Let a realtor charge me hourly or by the job, just like my CPA.

Also, health insurance is not a business expense. The Target cashier doesn’t subtract health insurance from his salary, and say that “Well, I make $10K a year and after health insurance and taxes I make $0 per year, so I basically work for nothing”.

[powayseller]

REad the just published book America’s Bubble Economy. One of the authors is ERic Janszen, founder of iTulip.com. He lays out a good case for the bursting bubbles in housing and the dollar, making gold the ultimate winner.

[powayseller]

I’m thrilled that the stock market is going up, making my inverse fund go down and its purchase very cheap right now. In essence, I bought at the bottom. I am so happy that these funds are now available, just in time for our stock market crash. The inverse fund works exactly as it should: as the market is rallying, the fund is going down. That’s what it’s supposed to do, and unlike the Profunds inverse funds, the Rydex inverse funds do track the inverse of the index they are supposed to correlate. By next spring, when the Dow is down 30%, my 2005 inverse Dow fund will be up 60%. I have a running bet with Steve Beebo to compare our portfolios in March 07, and I’m happy to have cabinboy and privatebanker join the contest. Winner buys lunch for the other guys, want to join?

Just now, I read Roubini is saying oil prices are down because the economy is slowing, so lower oil prices are a result of a slower economy and not to be mistaken as fuel for growth, i.e. now consumers have more money to spend.

He also writes about this sucker’s rally in the stock market. The market participants are betting on a Fed rate cut, hoping that will stimulate company profits.

“Indeed, in typical suckers’ rally mode the S&P index rallied a whopping 18% in April and May 2001. It was only in June 2001 when even more severe signs of a recession clearly emerged that the stock market started to rapidly tank into a free fall. So, such stock markets suckers’ rallies are very common at the outset of the recession. The reality is that stock markets are often wrong: sometimes they predict recessions that do not occur but, at times like in 2001, they fail to predict recessions that are already ongoing. ” – Roubini

[powayseller]

I’ve been given the “I must charge 6% to cover the high cost of errors and omissions insurance” line. My agent told me her broker said she could not lower her commission, because the E&O insurance was too high and they must charge enough money to cover that fee. Sounds convincing, right? But it’s not true.

When an environmental consulting firm (very high legal and professional risk) can buy a $10 mil E&O policy for a few grand a year, I am sure a realtor pays less than that. When my husband heard her claim that they need thousands of dollars per house to pay the insurance, he said he wouldn’t list his house with a liar. So we didn’t use ReMax, and listed with HelpUSell. The HelpUSell broker confirmed that the true cost of E&O is a few hundred bucks a year, and they’ve never been sued.

[powayseller]

Great stuff. I just put my entire Vanguard retirement account into Rydex 200% inverse Dow and S&500 funds (RYCWX, RYTPX). Steve Beebo, these trades will be included in my total return when we compare our performance next spring. Maybe I should have added the NASDAQ inverse fund too, as it is more volatile.

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