nirvinerealtor_IHB
New member
<p>ELS,</p>
<p>Last November was the lowest point for pricing. Would you agree with me?</p>
<p>Last November was the lowest point for pricing. Would you agree with me?</p>
Financial Bubbles: Common Sense or Sophisticated Concept
- Thread starter IrvineRenter_IHB
- Start date
NEW -> Contingent Buyer Assistance Program
EvaLSeraphim_IHB
New member
I can't really say. I think it was for new homes, as that was year end for many builders, but I haven't done a market analysis by any stretch. The home we were going to put the bid on had been for sale with a different listing agent/broker earlier, but we never got around to looking. When we did, we really liked it. A little background research revealed that the sellers were staring down a major rate reset on their adjustable. Once we really decided to go through with it (about a week later) and were getting ready to draw up an offer, we discovered that two other buyers were going to make an offer "close" to the asking price. We decided that we enjoyed the occasional vacation and restaurant visit, so the asking price was not an option. Later research revealed that the eventual buyers <em>paid the full asking price.</em> I really hope they like that house, as they will be there awhile, I think. That, or we will be picking it up on a short sale.
nirvinerealtor_IHB
New member
<p>ELS,</p>
<p>Would you give me the address of this home?. Just for the fun of it, I can tell you the probable selling price for this home in today market.</p>
<p>Would you give me the address of this home?. Just for the fun of it, I can tell you the probable selling price for this home in today market.</p>
graphrix_IHB
New member
<p>I think the condescension from the bears really comes from the condescension they received for the last four years from "owners". It is almost like payback. I met up with a friend of mine recently who had bought a place out in the desert area in early 2005. Before he closed on the home I warned him that it probably wasn't the best idea and he just looked at me like I was crazy even though he knows I have made money on RE. Anyway fast forward to our lunch and guess what he admitted he held the property too long and if he sells now he will be out about $40k. I had to ask did he regret drinking the kool-aid? He laughed and said he learned a lesson but since he hadn't decided to sell yet you could see in his eyes he was thinking he could hold on for a come back.</p>
<p>As for those who say you can't time the market are right to a point. There are plenty of other variables, facts, history, charts, psychology and trends that can show bullish or bearish signs. If you don't have the knowledge to take advantage of them then that is your loss and a gain for those that do. If you are losing more money than gaining in the stock market there are plenty of brokers who will put you in some funds and just let it sit there to slowly gain over time. Their are plenty of banks that have great CD rates too. </p>
<p>The full quote from Buffett is this:</p>
"Investors should remember that excitement and expenses are their enemies. And that if they insist on trying to time to their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."
He also said: "When the wise leave, only the fools are left."
For those who make snide remarks about a poster who just had one of the most well thought out, detailed and elaborately but brief posts on the yen carry trade, CDOs, derivatives and how extremely overleveraged they are proves you have no credibility. Let alone any respect and you really should think before you type. I wish you the best of luck because that is what you believe in and trust me you will need it. You don't have to agree with everyone and can and should have an opposite opinion but the whole foreign buyer market is the same crap I have been hearing for years from Realtors. If you buy that line of BS times two on your credibilty or obviously you haven't lived in OC for more than two years.
In conclusion it really is those of us who understand all the various complexities vs. those who only focus on the good things when there is so much more to see. They are also the ones who either are not aware of the past or have false negative illusions of the past.
<p>As for those who say you can't time the market are right to a point. There are plenty of other variables, facts, history, charts, psychology and trends that can show bullish or bearish signs. If you don't have the knowledge to take advantage of them then that is your loss and a gain for those that do. If you are losing more money than gaining in the stock market there are plenty of brokers who will put you in some funds and just let it sit there to slowly gain over time. Their are plenty of banks that have great CD rates too. </p>
<p>The full quote from Buffett is this:</p>
"Investors should remember that excitement and expenses are their enemies. And that if they insist on trying to time to their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."
He also said: "When the wise leave, only the fools are left."
For those who make snide remarks about a poster who just had one of the most well thought out, detailed and elaborately but brief posts on the yen carry trade, CDOs, derivatives and how extremely overleveraged they are proves you have no credibility. Let alone any respect and you really should think before you type. I wish you the best of luck because that is what you believe in and trust me you will need it. You don't have to agree with everyone and can and should have an opposite opinion but the whole foreign buyer market is the same crap I have been hearing for years from Realtors. If you buy that line of BS times two on your credibilty or obviously you haven't lived in OC for more than two years.
In conclusion it really is those of us who understand all the various complexities vs. those who only focus on the good things when there is so much more to see. They are also the ones who either are not aware of the past or have false negative illusions of the past.
IR,
I have a slightly different take on this. Most of us are too rational/lazy to weigh the economic consequences:
Let me borrow an old example from micro economics textbooks, where someone is both the world's best lawyer and best gardener. Remember that one? Pretend she can make $250 per hour counseling, or $50 per hour gardening. The rational thing, of course, is for her to spend all her time doing law and hire a less competent gardener to tend to her garden. Now let's stick this superwoman into our housing bubble:
A) "Too rational" - she can wait a year before buying and save $50k-$100k on the house, but the trade-off is to live through the inconvenience of renting and not shake the feeling of not being in her own home. So instead of spending energy over the next 12 months on house hunting and tracking home prices, she buys a home now. She can then settle in and rationalize that she can now concentrate on work. What I'm trying to say is, for some people, it pays more to save the time spent on house hunting, and instead spend it on ways to maximize their wealth.
B) "Too lazy" - It takes energy to convince your family that it's in our best interest to remain in a crowded house, where my wife and I trip over toys and kids are constantly in your face. Why don't we just rent a bigger home, you ask? Well, I'm too lazy to pack and unpack!
Most educated people I know have known for years that we're in a housing bubble. Every time I asked myself why smart people willingly jump into bubbles, I am reminded of what a technical trader told me once: everyone who does technical analysis have the same tools, so in theory they should come to the same conclusion looking at the same stock. However, they differ in their investment horizon (time frames) and risk appetites. Bottom line, what I see as a lost cause may be a reasonable investment.
I work with portfolio managers and traders daily. My specialty is not on the investment side, but I've been a CFA for over 5 years. I asked one of our mortgage portfolio managers about 6 months ago on his view on the local markets. He was very pessimistic, but as soon as he heard that I have family reasons for buying, then he stopped trying to convince me otherwise.
Thoughts anyone?
I have a slightly different take on this. Most of us are too rational/lazy to weigh the economic consequences:
Let me borrow an old example from micro economics textbooks, where someone is both the world's best lawyer and best gardener. Remember that one? Pretend she can make $250 per hour counseling, or $50 per hour gardening. The rational thing, of course, is for her to spend all her time doing law and hire a less competent gardener to tend to her garden. Now let's stick this superwoman into our housing bubble:
A) "Too rational" - she can wait a year before buying and save $50k-$100k on the house, but the trade-off is to live through the inconvenience of renting and not shake the feeling of not being in her own home. So instead of spending energy over the next 12 months on house hunting and tracking home prices, she buys a home now. She can then settle in and rationalize that she can now concentrate on work. What I'm trying to say is, for some people, it pays more to save the time spent on house hunting, and instead spend it on ways to maximize their wealth.
B) "Too lazy" - It takes energy to convince your family that it's in our best interest to remain in a crowded house, where my wife and I trip over toys and kids are constantly in your face. Why don't we just rent a bigger home, you ask? Well, I'm too lazy to pack and unpack!
Most educated people I know have known for years that we're in a housing bubble. Every time I asked myself why smart people willingly jump into bubbles, I am reminded of what a technical trader told me once: everyone who does technical analysis have the same tools, so in theory they should come to the same conclusion looking at the same stock. However, they differ in their investment horizon (time frames) and risk appetites. Bottom line, what I see as a lost cause may be a reasonable investment.
I work with portfolio managers and traders daily. My specialty is not on the investment side, but I've been a CFA for over 5 years. I asked one of our mortgage portfolio managers about 6 months ago on his view on the local markets. He was very pessimistic, but as soon as he heard that I have family reasons for buying, then he stopped trying to convince me otherwise.
Thoughts anyone?
marty mcfly_IHB
New member
<p>I'd like to amend my above comment: If you don't agree with awgee or graphrix, you lose credibility. So profound.</p>
Trooper_IHB
New member
As I recall, Marty McFly was a geek.
awgee_IHB
New member
No_vas, check this out, from May of 2007:
[quote author="awgee" date=1179374995]Hi IrvineRenter - Will others get upset if financial bubbles from the title includes stock or other asset class markets? I am a newbie here and am feeling my way around.<p>
Agreed DIA is extremely overbought and I had to sell some DIA puts for a slight loss; part of being a short seller I guess. Even it if takes a breather, it could take off again. The liquidity is coming from Treasury Dept t-bill sales and Fed repos and yen carry trade and Swiss Franc carry trade. And the second tier borrowers are using these funds to leverage up on "investments". The second tier looks to me to be hedge funds, those labeled as private equity, and some of the larger banks, even though they are also first tier. I see no reason for the yen carry trade to stop as the Japanese central bank is giving no signs of seriously increasing their interest rates. The biggest chink I see is the Shanghai stock market. The Chinese central bank is concerned and they may put a kibash on the outrageous speculation there or the Shanghai market could just exhaust itself. If either happens, my short orders will be in before US markets open that day. Actually, I see the exhaustion of the Shanghai market as inevitable, but there is no way that I know of to know when that will be. If the world markets crumble as a result of Shanghai, which I see as entirely possible and maybe even likely, the de-leveraging of the derivatives and stock markets and the unwinding of the yen carry trade will create a rush for cash that I think none of us can comprehend. The highly leveraged over the counter derivatives market is three times the size of the US GDP and as large as the world GDP; something like 400 trillion dollars. There is no way to know what effect a meltdown of this size could have. Buffett refers to over the counter derivatives as financial WMD. And for some Irvine housing blog pertinent info, the present mortgage market was built from the supposed risk reduction provided by the derivatives market. I say supposed, because at $400 trillion dollars, it seems logical to me that if anything, another layer of risk has been added instead of subtracted. I speculate that if the holders of CDSs and everything else written against the CDOs and MBSs cannot fulfill their obligations, which to my thinking is very probable because the holders used their payments as capital to leverage, the derivatives market will meltdown, and the mortgage market will literally dissappear. Yeah, it all sounds a bit nutty, but when I say dissappear, I mean dissappear. There will be no money to lend. How long would it take the Fed to get liquidity pumped into the financial system? I have not a clue. Normal channels, lending to member banks, might not work because they might not want to lend and there may be no takers of loans if they did. Wow! I just went back and read this, and it seems like a nut job wrote this, but oh well, it is really what I think.</blockquote>
[quote author="awgee" date=1179374995]Hi IrvineRenter - Will others get upset if financial bubbles from the title includes stock or other asset class markets? I am a newbie here and am feeling my way around.<p>
Agreed DIA is extremely overbought and I had to sell some DIA puts for a slight loss; part of being a short seller I guess. Even it if takes a breather, it could take off again. The liquidity is coming from Treasury Dept t-bill sales and Fed repos and yen carry trade and Swiss Franc carry trade. And the second tier borrowers are using these funds to leverage up on "investments". The second tier looks to me to be hedge funds, those labeled as private equity, and some of the larger banks, even though they are also first tier. I see no reason for the yen carry trade to stop as the Japanese central bank is giving no signs of seriously increasing their interest rates. The biggest chink I see is the Shanghai stock market. The Chinese central bank is concerned and they may put a kibash on the outrageous speculation there or the Shanghai market could just exhaust itself. If either happens, my short orders will be in before US markets open that day. Actually, I see the exhaustion of the Shanghai market as inevitable, but there is no way that I know of to know when that will be. If the world markets crumble as a result of Shanghai, which I see as entirely possible and maybe even likely, the de-leveraging of the derivatives and stock markets and the unwinding of the yen carry trade will create a rush for cash that I think none of us can comprehend. The highly leveraged over the counter derivatives market is three times the size of the US GDP and as large as the world GDP; something like 400 trillion dollars. There is no way to know what effect a meltdown of this size could have. Buffett refers to over the counter derivatives as financial WMD. And for some Irvine housing blog pertinent info, the present mortgage market was built from the supposed risk reduction provided by the derivatives market. I say supposed, because at $400 trillion dollars, it seems logical to me that if anything, another layer of risk has been added instead of subtracted. I speculate that if the holders of CDSs and everything else written against the CDOs and MBSs cannot fulfill their obligations, which to my thinking is very probable because the holders used their payments as capital to leverage, the derivatives market will meltdown, and the mortgage market will literally dissappear. Yeah, it all sounds a bit nutty, but when I say dissappear, I mean dissappear. There will be no money to lend. How long would it take the Fed to get liquidity pumped into the financial system? I have not a clue. Normal channels, lending to member banks, might not work because they might not want to lend and there may be no takers of loans if they did. Wow! I just went back and read this, and it seems like a nut job wrote this, but oh well, it is really what I think.</blockquote>
EvaLSeraphim_IHB
New member
[quote author="IrvineRenter" date=1170110361]On several of the other blogs, late buyers (many of whom are getting burned) are ridiculed as lacking in common sense. There is condescension among the bears that anyone should be able to see a financial bubble for what it is. I am not so sure. These things are always easy to see in hindsight, but they are difficult for most to see while they are happening. Does it take a fair degree of sophistication in one's understanding of financial markets to see financial bubbles, or is it just common sense?</blockquote>
May I suggest reading the first section of <a href="http://www.amazon.com/Worst-Hard-Time-Survived-American/dp/0618773479/">"The Worst Hard Time?"</a> It's available at the library and discusses the wheat and, tangentially, the stock bubble of the 1920s. Honestly, the thinking that is relayed in the book ("This is Progress," absentee (or "suitcase") farmers, etc.) struck me as oddly similar to some of the things I was hearing in the last three to four years.
May I suggest reading the first section of <a href="http://www.amazon.com/Worst-Hard-Time-Survived-American/dp/0618773479/">"The Worst Hard Time?"</a> It's available at the library and discusses the wheat and, tangentially, the stock bubble of the 1920s. Honestly, the thinking that is relayed in the book ("This is Progress," absentee (or "suitcase") farmers, etc.) struck me as oddly similar to some of the things I was hearing in the last three to four years.
no_vaseline_IHB
New member
<img src="http://larrythemodel.homestead.com/files/russian350.gif" alt="" />
<a href="http://larrythemodel.homestead.com/russianroulettechamp.html">http://larrythemodel.homestead.com/russianroulettechamp.html</a>
<a href="http://larrythemodel.homestead.com/russianroulettechamp.html">http://larrythemodel.homestead.com/russianroulettechamp.html</a>
awgee_IHB
New member
[quote author="awgee" date=1179374995]Hi IrvineRenter - Will others get upset if financial bubbles from the title includes stock or other asset class markets? I am a newbie here and am feeling my way around.<p>
Agreed DIA is extremely overbought and I had to sell some DIA puts for a slight loss; part of being a short seller I guess. Even it if takes a breather, it could take off again. The liquidity is coming from Treasury Dept t-bill sales and Fed repos and yen carry trade and Swiss Franc carry trade. And the second tier borrowers are using these funds to leverage up on "investments". The second tier looks to me to be hedge funds, those labeled as private equity, and some of the larger banks, even though they are also first tier. I see no reason for the yen carry trade to stop as the Japanese central bank is giving no signs of seriously increasing their interest rates. The biggest chink I see is the Shanghai stock market. The Chinese central bank is concerned and they may put a kibash on the outrageous speculation there or the Shanghai market could just exhaust itself. If either happens, my short orders will be in before US markets open that day. Actually, I see the exhaustion of the Shanghai market as inevitable, but there is no way that I know of to know when that will be. If the world markets crumble as a result of Shanghai, which I see as entirely possible and maybe even likely, the de-leveraging of the derivatives and stock markets and the unwinding of the yen carry trade will create a rush for cash that I think none of us can comprehend. The highly leveraged over the counter derivatives market is three times the size of the US GDP and as large as the world GDP; something like 400 trillion dollars. There is no way to know what effect a meltdown of this size could have. Buffett refers to over the counter derivatives as financial WMD. And for some Irvine housing blog pertinent info, the present mortgage market was built from the supposed risk reduction provided by the derivatives market. I say supposed, because at $400 trillion dollars, it seems logical to me that if anything, another layer of risk has been added instead of subtracted. I speculate that if the holders of CDSs and everything else written against the CDOs and MBSs cannot fulfill their obligations, which to my thinking is very probable because the holders used their payments as capital to leverage, the derivatives market will meltdown, and the mortgage market will literally dissappear. Yeah, it all sounds a bit nutty, but when I say dissappear, I mean dissappear. There will be no money to lend. How long would it take the Fed to get liquidity pumped into the financial system? I have not a clue. Normal channels, lending to member banks, might not work because they might not want to lend and there may be no takers of loans if they did. Wow! I just went back and read this, and it seems like a nut job wrote this, but oh well, it is really what I think.</blockquote>
Check out the second to the last sentence.
Ya keep hearing that the banks won't lend.
Has anybody considered that maybe folks and organizations are not borrowing?
Agreed DIA is extremely overbought and I had to sell some DIA puts for a slight loss; part of being a short seller I guess. Even it if takes a breather, it could take off again. The liquidity is coming from Treasury Dept t-bill sales and Fed repos and yen carry trade and Swiss Franc carry trade. And the second tier borrowers are using these funds to leverage up on "investments". The second tier looks to me to be hedge funds, those labeled as private equity, and some of the larger banks, even though they are also first tier. I see no reason for the yen carry trade to stop as the Japanese central bank is giving no signs of seriously increasing their interest rates. The biggest chink I see is the Shanghai stock market. The Chinese central bank is concerned and they may put a kibash on the outrageous speculation there or the Shanghai market could just exhaust itself. If either happens, my short orders will be in before US markets open that day. Actually, I see the exhaustion of the Shanghai market as inevitable, but there is no way that I know of to know when that will be. If the world markets crumble as a result of Shanghai, which I see as entirely possible and maybe even likely, the de-leveraging of the derivatives and stock markets and the unwinding of the yen carry trade will create a rush for cash that I think none of us can comprehend. The highly leveraged over the counter derivatives market is three times the size of the US GDP and as large as the world GDP; something like 400 trillion dollars. There is no way to know what effect a meltdown of this size could have. Buffett refers to over the counter derivatives as financial WMD. And for some Irvine housing blog pertinent info, the present mortgage market was built from the supposed risk reduction provided by the derivatives market. I say supposed, because at $400 trillion dollars, it seems logical to me that if anything, another layer of risk has been added instead of subtracted. I speculate that if the holders of CDSs and everything else written against the CDOs and MBSs cannot fulfill their obligations, which to my thinking is very probable because the holders used their payments as capital to leverage, the derivatives market will meltdown, and the mortgage market will literally dissappear. Yeah, it all sounds a bit nutty, but when I say dissappear, I mean dissappear. There will be no money to lend. How long would it take the Fed to get liquidity pumped into the financial system? I have not a clue. Normal channels, lending to member banks, might not work because they might not want to lend and there may be no takers of loans if they did. Wow! I just went back and read this, and it seems like a nut job wrote this, but oh well, it is really what I think.</blockquote>
Check out the second to the last sentence.
Ya keep hearing that the banks won't lend.
Has anybody considered that maybe folks and organizations are not borrowing?
WestparkRenter_IHB
New member
I wish I saw this thread earlier.
Here is another contrary opinion back in 2006.
<a href="http://www.youtube.com/watch?v=2I0QN-FYkpw">http://www.youtube.com/watch?v=2I0QN-FYkpw</a>
Here is another contrary opinion back in 2006.
<a href="http://www.youtube.com/watch?v=2I0QN-FYkpw">http://www.youtube.com/watch?v=2I0QN-FYkpw</a>
IrvineRenter_IHB
New member
That really is the essence of a deflationary spiral. Credit contracts and the total amount of money in circulation declines. Lenders do not want to lend, and borrowers to not want to borrow. Lending makes little sense because interest rates are so low, and borrowing makes little sense because the money you will be paying back will have greater buying power in the future as asset values continue to fall. Until the FED can print money faster than the banks can lose it, we will have deflation. Once the FEDs printing outpaces the rate of credit destruction, we will probably have enough inflation to get people borrowing again and break out of the deflationary spiral. Of course, then the velocity of money may pick up so fast that we have hyperinflation and the FED will have to turn off the printing presses and raise interest rates. It is going to be a rocky road back to a stable financial system.
usctrojanman29_IHB
New member
[quote author="IrvineRenter" date=1226800448]That really is the essence of a deflationary spiral. Credit contracts and the total amount of money in circulation declines. Lenders do not want to lend, and borrowers to not want to borrow. Lending makes little sense because interest rates are so low, and borrowing makes little sense because the money you will be paying back will have greater buying power in the future as asset values continue to fall. Until the FED can print money faster than the banks can lose it, we will have deflation. Once the FEDs printing outpaces the rate of credit destruction, we will probably have enough inflation to get people borrowing again and break out of the deflationary spiral. Of course, then the velocity of money may pick up so fast that we have hyperinflation and the FED will have to turn off the printing presses and raise interest rates. It is going to be a rocky road back to a stable financial system.</blockquote>
Actually IR, my bank along with other ones that still lend (at least in the commercial real estate sector) have been increasing their interest rates as Fed funds has been coming down. So the average margin on loans that we made last year has increased from about 2-3% to 4-5% currently.
Actually IR, my bank along with other ones that still lend (at least in the commercial real estate sector) have been increasing their interest rates as Fed funds has been coming down. So the average margin on loans that we made last year has increased from about 2-3% to 4-5% currently.
MalibuRenter_IHB
New member
[quote author="IrvineRenter" date=1170110361]On several of the other blogs, late buyers (many of whom are getting burned) are ridiculed as lacking in common sense. There is condescension among the bears that anyone should be able to see a financial bubble for what it is. I am not so sure. These things are always easy to see in hindsight, but they are difficult for most to see while they are happening. Does it take a fair degree of sophistication in one's understanding of financial markets to see financial bubbles, or is it just common sense?</blockquote>
People with a little background in econ can easily make a mistake of generalizing from investments like stocks and bonds to housing markets. Market timing for stocks is remarkably difficult to do successfully in most markets, unless you have inside information. Those who dug into the housing bubble before 2007 had very poorly disbursed public information. It was almost like having inside information. An academic might even be able to study whether certain types of information do not propagate well to investors because of the financial interests of the media, traders, regulators, etc.
In the stock market, prices don't decline monotonically for years at at time, or rise for years at a time. That certainly happens with houses.
Even among academics, there is dispute about whether a bubble can be spotted while still forming. I am definitely in the camp with Prof Shiller, who believes you typically can spot them. In most bubbles, certain beliefs become widespread. In the bubble unwind, other beliefs occur in a typical sequence.
I think there is also a substantial group of people who don't understand economics, don't know who to ask for good unbiased advice, and don't have the patience or disposition to do a lot of research themselves. They say either "I can afford it" or "prices are 35% off, what a discount". I have substantial tolerance for people who actually can afford what they are buying, realize prices will probably go down further, and do it anyhow. They have made an informed decision. It's just a different one than I would make.
People who just look at the discount from the peak are, in my experience, usually stupid. They commonly don't even know what questions to ask about how to know whether or when to buy.
People with a little background in econ can easily make a mistake of generalizing from investments like stocks and bonds to housing markets. Market timing for stocks is remarkably difficult to do successfully in most markets, unless you have inside information. Those who dug into the housing bubble before 2007 had very poorly disbursed public information. It was almost like having inside information. An academic might even be able to study whether certain types of information do not propagate well to investors because of the financial interests of the media, traders, regulators, etc.
In the stock market, prices don't decline monotonically for years at at time, or rise for years at a time. That certainly happens with houses.
Even among academics, there is dispute about whether a bubble can be spotted while still forming. I am definitely in the camp with Prof Shiller, who believes you typically can spot them. In most bubbles, certain beliefs become widespread. In the bubble unwind, other beliefs occur in a typical sequence.
I think there is also a substantial group of people who don't understand economics, don't know who to ask for good unbiased advice, and don't have the patience or disposition to do a lot of research themselves. They say either "I can afford it" or "prices are 35% off, what a discount". I have substantial tolerance for people who actually can afford what they are buying, realize prices will probably go down further, and do it anyhow. They have made an informed decision. It's just a different one than I would make.
People who just look at the discount from the peak are, in my experience, usually stupid. They commonly don't even know what questions to ask about how to know whether or when to buy.