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rseiser
ParticipantSince Ron Paul is the only person who keeps Congress and the Federal Reserve somewhat in check, I am happy to give this man a big reward for his service of the last 30 years. One single guy who has proven not to work just for himself but remind Congress constantly of serving the people’s interest.
Also, what I have learned from him about the Federal Reserve, inflation, gold, and macroeconomics has made me more profit than believing any other government propaganda.
Today is actually the day which can make Ron Paul the frontrunner (at least in fundraising).
http://www.usadaily.com/article.cfm?articleID=201346
http://www.ronpaulforpresident2008.comParticipantSince Ron Paul is the only person who keeps Congress and the Federal Reserve somewhat in check, I am happy to give this man a big reward for his service of the last 30 years. One single guy who has proven not to work just for himself but remind Congress constantly of serving the people’s interest.
Also, what I have learned from him about the Federal Reserve, inflation, gold, and macroeconomics has made me more profit than believing any other government propaganda.
Today is actually the day which can make Ron Paul the frontrunner (at least in fundraising).
http://www.usadaily.com/article.cfm?articleID=201346
http://www.ronpaulforpresident2008.comParticipantSince Ron Paul is the only person who keeps Congress and the Federal Reserve somewhat in check, I am happy to give this man a big reward for his service of the last 30 years. One single guy who has proven not to work just for himself but remind Congress constantly of serving the people’s interest.
Also, what I have learned from him about the Federal Reserve, inflation, gold, and macroeconomics has made me more profit than believing any other government propaganda.
Today is actually the day which can make Ron Paul the frontrunner (at least in fundraising).
http://www.usadaily.com/article.cfm?articleID=201346
http://www.ronpaulforpresident2008.comParticipantSince Ron Paul is the only person who keeps Congress and the Federal Reserve somewhat in check, I am happy to give this man a big reward for his service of the last 30 years. One single guy who has proven not to work just for himself but remind Congress constantly of serving the people’s interest.
Also, what I have learned from him about the Federal Reserve, inflation, gold, and macroeconomics has made me more profit than believing any other government propaganda.
Today is actually the day which can make Ron Paul the frontrunner (at least in fundraising).
http://www.usadaily.com/article.cfm?articleID=201346
http://www.ronpaulforpresident2008.comParticipantThat’s a very fine article with a pretty good summary I thought. I know it has already been discussed on other threads but here are my two cents.
Thanks to Bush’s “homeowner society”, the 70% owning homes will probably be for a bailout and 30% will be against. Maybe some who own their houses free and clear and have some cash in the bank might be against it too. But still, the majority probably rules.
The second thing is that all this might not stop housing prices from dropping. Most of these bailouts won’t encourage a new marginal buyer, because his “new” loan might not be that favorable with all the skeptical lenders and MBS buyers. And of course the “20%/year appreciation” crowd is now seriously silenced.
So if housing prices do indeed fall further, why would people underwater even want to be bailed out. If some of the people have a hard time affording their mortgage, a $200K negative equity will surely convince them to walk and rent.
So any bailout would have to be so massive (10% drop of $30 trillion real-estate market = $3 trillion) that this is going to be impossible to not have other negative consequences.
ParticipantHigher interest rates won’t change the calculation that much, since the expected appreciation (inflation) might also move in lockstep. I don’t think a 13% interest rate and 10% inflation is much different than a 6% interest and 3% inflation as far as the fair assessment of rent vs. buy. And probably, medium-term interest rates will be somewhat above medium-term inflation, as far as the latter can be forecast right.
I don’t see any cases where you would be completely off with your estimate.
Maybe in 1980 if you took a long-term loan at 17% and inflation dropped thereafter by 5-10%. But so did interest rates, and you could refinance.
Or maybe when recently the 10-year was at 3.5%, you might have a hard time guessing inflation. It probably wasn’t 1% but rather 5%. So you could have paid slightly more for a house, but there probably wasn’t one close to that price anyways.So these rent vs. buy calculations are probably a good guide. I emphasize “guide”, because ultimately history might be more accurate. If history shows that mortgage/rent was typically between 0.9 and 1.3, any calculation won’t change the fact that 0.9 was a good deal, and 1.3 wasn’t.
ParticipantStan,
I looked at your Excel file and it is very nicely made. You are pretty close to a good price/rent estimate when you assumed 0% appreciation.
You say that “it’s all very dependent on what you think will happen to appreciation/depreciation.” Yes, but not as much as your model shows. In your model, a change from 0% to 3% doubles the price what you can pay to be even with rent. This is too much. You got that large of an effect because you added the Equity Generated and Equity Appreciation/Depreciation as a monthly income. This is not correct since it is not a cash-flow. It is a future realization of a gain and has to be adjusted for net-present value (or opportunity cost if you will call it that way).I think a 4%-7% appreciation (=inflation) would be fair to assume from the point in time when mortgage equals rent.
If you change your spreadsheet to account properly for the opportunity cost of the paid principal, you will see that even a slight appreciation does not impact your price that much.I am not sure what the 100% correct way is to do that, but you can try it with assuming that you take an interest only loan. (or even a neg-am loan with going negative by the amount of yearly appreciation). Then you never own the house (but do get a monthly appreciation discount), and that should be equal to renting. You will again see that a $1,000,000 home equals about $6,600 monthly rent. This is the rule of thumb I always use.
So let me know with what updated spreadsheet you come up with.
ParticipantJust a few notes on the gold ETFs. You should ask a tax professional, but as far as I know, one has to pay up to 28% collectible tax on the capital gains. So you might try to own these in your IRA. CEF is apparently the only one on which to pay regular capital gains taxes (but often trades at a 10% premium).
Also, the collectible tax might be necessary on coins, bullion, or storage programs. Some of these you might never sell and keep it for emergency only, or when the law changes, or you leave the country, etc.
Futures have advantages with taxes as far as the 60/40 long-term/short-term capital gains tax treatment, but I think one is taxed yearly on unrealized gains, or when rolling over to the next contract. These paid taxes are then not be able to be compounded any further. Contracts can go out a few years but might have higher premiums than just the inferred interest rate.
That leaves to discuss goldmoney.com which they claim is a currency, so maybe there is no capital gains tax if you use it to pay for something, use it abroad, or only import small amounts. I would like to know myself. It is fairly respected, but who knows what can happen.
From all this it follows why gold mining shares are so popular. You pay capital gains taxes on transaction, meaning long-term rates when you keep it longer than a year. You also own gold in the ground minus production cost. If you have an inefficient management that means it could be worth less, but if they produce consistently below the market price, you often get the gold at a discount compared to buying actual gold. And it is fairly safe as far as the legal instrument. Owning a share of a company has historically been honored even in bad times or wars.
This leads to the role of physical gold as insurance. Think about it as AAAA credit rating, because there is no counter-party owing you. You have the gold yourself. That’s what they mean when they say gold is nobody’s liability. The only second best instrument might be a AAA treasury bond where the government prints dollars to pay you.
The counter-party risk is substantial if a crisis arrives. It depends only on one little detail: Does the other party have the money (or gold) to pay? It doesn’t matter how good their reputation or intent, if they lose money on their own, they cannot pay! It can happen to anyone out there. Getting sued, speculate wrong, getting cheated, natural disaster, too many people to collect from, …
If banks, insurances, or companies fail, you will not get your money’s worth back, or your instrument will trade well below the spot price of gold.Just take a look at some of the instruments depending on bonds depending on derivatives depending on mortgages. If people’s houses drop in value, they don’t pay. Then the holder of the mortgage can’t pay. Then the fund owed the money can’t pay. Result: Somebody might not get paid! And hopefully it is not you!
ParticipantAll good points, I was only harping on your criticism that the real price of gold dropped ten times since 1980. Yes, that is true, and that’s why it is at a good price now.
I am not forcing you to buy it, but consider your own math. 7-8% annual increase because of inflation, I agree perfectly, that’s a double every decade. Of course, you have to use long time frames and not just a decade. $50 fair value in 1970 before the boom would be 16x$50=$800 in 2010. $850 in 1980 after the boom would be 8x$850=$6800 in 2010. So a range of reasonable historical assumption would be $800-$6800 for 2010. Or $1600-$13600 for 2020. For me gold is still cheap right now. For you maybe not. Maybe for you, bonds, stocks, or real-estate might seem cheap.
$350-$400 cost is not a correct number to look at. That might be an average cash cost for some mining companies but not when you include general and administrative expenses. Most mining companies at the margin (what counts in economics) are struggling to break even. It is also a production issue. If there is more investment demand, it will take years to up production, and gold can trade five times above the cash cost. Kind of like oil at $70, even though some oil companies get it out of the ground for $10.
ParticipantCan’t make money unless you buy when something dropped and sell it after it goes up. Has worked for 3000 years, but you probably think we are in a new era where gold is useless and will drop and drop and drop. Maybe you should check out the story about the Austrian economists and their gold prediction when gold became unlinked from the dollar in 1971.
Believing that the world has changed is the same like everyone telling that wheat prices should go down since it can always be produced more efficiently and because the prices have languished for years. Marc Faber pointed out two years ago that agricultural commodities were historically cheap and a good trade. Yes, nothing is guaranteed, but closing your eyes to what markets do is not a good risk/reward either. So he was definitely rewarded for his stance. See chart.
ParticipantOh, and by the way, my friend had a personal conversation with Warren Buffett. Buffett asked him how his investments were doing, and my friend answered: “I have a lot of investments outside the dollar, mostly precious metals”. And Buffett said “That’s very good, I also like them, and especially …”. That was about two years ago.
Sure, it’s true that using gold as a backing for liquid short-term money, or for preserving of long-term purchasing power, seems like a waste. But hey, using paper backed by nothing, and that is losing value faster than inflation is even more ridiculous.
Also, we wouldn’t have to talk about this if the politicians of the world were honest (umpf!).
Having some stable medium of exchange or storage is certainly useful for greasing the wheels. Nobody said it has to be the wheels, and that all your savings have to be in gold.But it is a nice speculation if you look how ridiculous the money-supply gets handled, and how everyone is fooled to take the inflation for “prosperity” (and even pay capital gains tax on that). It’s a simple calculation if you believe in history. Crises come and go, and in the last one gold went to $850 ($6000 in today’s dollars if the dollar loses half its value every decade). Sure, we don’t have a crisis (except liquidity, credit, housing, derivatives) yet, but maybe we get one again. At a tenth of that theoretical peak value I take the risk/reward. (The risk that gold goes down to its mining cost or even below?) I don’t see any other investment where you could make 10x your money if a crisis comes.
I just decided to search for a few junior/intermediate gold producers (also as speculation if you want). I hope I will find some that have really good reserves, and are well leveraged to the price of gold. I will double check them with Doody, Moriarty, Puplava if they have honest guys at the helm…
Will report back if I find some.ParticipantRegarding the shorting, good point with the currency possibly going up. You rather short or buy puts in an account demoninated in RMB or maybe in Singapore dollars. Otherwise, if their market goes down and their currency up, you would still lose on being short a Chinese fund here.
Regarding the overall merit, I have no clue. I don’t even know the price-to-earnings in China. Anectotally, it certainly seems ripe for a correction. My friend is dissapointed with the 17% annual returns he made in the U.S. for the last years, because his China fund went up 60% in 1.5 years. He wants to keep his investment in China because he has a good gut feeling…
Hey, China might grow by 15% and have a few percent in earnings. But that wouldn’t justify any stock returns in excess of 20% annually. So the least I would do is stay out.
ParticipantSince this thread talks about monetizing the coming real-estate mess and bailing out reckless borrowers and lenders…
I agree that Ron Paul is the only guy in Congress who has some backbone, and he is one of the few who would always stand up against such nonsensical ideas. He is always asking critical questions when Bernanke speaks, and without him I suspect the Fed would get away with even more deception.
Just look at the issue of inflation. Ron Paul correctly points out that only the continuous creation of money and credit leads to inflation, and which is way higher than 2-3%. That quotes rate is however what many retirees’ and other people’s pay is tied to, so they are continuously getting squeezed. Talk about disgust, at the same time members of Congress vote themselves a much higher pay raise for their own retirement. A program Ron Paul abstains from.Like him or not for president (which obviously he has hardly a chance of winning), I appreciate his honesty so much that I gave him the maximum contribution for his campaign. I seriously hope he will stick around, or that more politicians like him emerge.
They incidentally called me back and invited me to a small dinner group where he will show up. So I can ask him what he thinks about housing bailouts etc.
He might also show up in Irvine if we can keep a high standing in his competition.
I really think this guy deserves support for everything he taught me and what he has stood up for.ParticipantYes, I also have been doing very well on LEND, NEW, PHM, CFC, etc. So, this year I am doing better on my shorts than on my longs. But instead of blowing my horn on these few winners, I want to be honest and say that the short side is extremely tough, and it is not like it sounds, putting all the portfolio into some short positions and striking it rich.
Here are many aspects in the way of my success.
-Counting my losers. I started shorting mostly after the runup in 2003. Since 2004, the market has gone only up, up, and up, and who would have known that it can go on that long. I had many put options expire, and I even had a few bad picks that went quite against me. I have maybe more winners than losers now, but it is far from a home run.
-Timing. I shorted my first batch of TOL in 2004 in the $20s. Then again at $30, at $40, and at $50. Talk about insane. But with Piggington I knew how ridiculous it all was. Now it looks like I made all money back, with TOL at the initial price. But it was very very hard to hold on.
-Covered early. I occasionally took profits, sometimes I had to because of written puts. So I was out of NEW and LEND at about 2/3 of the way, and didn’t make the last 1/3.
-Getting too big. If I count all the underlying value controlled by options and short positions, I was short more than my net-worth. But options also lower risk and reward a bit, so it was not that extreme. Obviously, I was also long with the amount of my net-worth with other stocks which helped in the up market. But I couldn’t have shorted any more, and feeling maxed out is not a good feeling.
-Margin interest and dividends paid. My broker didn’t offset longs with shorts, and I still had to pay margin interest. Also, some of the loser companies actually paid dividends that I had to pay.
-Shrinking premiums on puts. No matter if time passes or stock prices drop, the premium shrinks in both cases. So it makes way less than a short position for the same dollar drop.After analyzing all this, I did realize the need to cut down my shorts, and I used written puts for this. I was even lucky, since I often collected extra premium. Or if I covered, I was sometimes able to short again a few dollars higher.
Still, it shows me my limitations even though I often got in at high prices. But when prices drop enough, I am forced to cover. I never want a short going against me again, which it could when stocks are down 80%.So I am again out of PHM, CFC, TOL, ACF. They might go lower or even bankrupt. But the risk is too high for me to press the last dollar. I rather hope for the opportunity to re-short them 10% higher, which I will if they bounce. I will also short a few more stocks that haven’t dropped but will if they eventually follow housing.
Maybe there are more talented or lucky traders than me, but I found that I cannot gamble but have to go for smaller but sure profits.
I updated a few lines in my shorting primer, which I wrote last year.Continue to be careful when shorting!
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