July 31, 2006

Incredible leverage: The reason this financial bubble was and will be the biggest in world history - we're in unchartered territory now



63 comments:

Anonymous said...

Let's remember to blame the true ultimate source of the bubble.

Central banks.

Even more than Ol'Senile Alan, this bubble is the fault of the Bank of Japan.

And indirectly, China's peg of yuan, which means that the Bank of Japan has to keep the yen down (competitors in exports), and doing that with very low interest rates.

That turns into a US dollar bubble.

Anonymous said...

As an unemployed carpenter, I was out applying for a job today and the place was full of unemployed carpenters applying for the same job. I got to talking with some of them while waiting for an interview and they all said the housing market stopped dead. And that the contractor they were working for has only sold 1 or 2 houses since february. I couldnt believe all the guys my age {4o's} coming in applying for that job! It reminded me of colorado springs in 1988. I just got my first taste of whats coming and it dont look good.

From minnesota

Anonymous said...

Has anyone ever thought this re the bubble: it was the governments sneaky way of increasing taxes without actually raising taxes. True you don't pay capital gains after owning for 2yrs but what the gov. did gain was increased property taxes on THOUSANDS of sales on hyperinflated homes caused by frenzied demand over too low rates for too long. In Ca property tax is 1.25% of the purchase price. Median price $520K = $6500/yr taxes.

great_boom_ahead said...

You gloom-and-doomers are a piece of work! The US central bank has been incredibly successful in reducing the boom-bust nature of capitalism. Floating currencies have given policy makers flexibility in smoothing out the business cycle.

What you losers call bubbles are evidence of our system's ability to create tremendous wealth and sustain a standard of living that is the envy of the world!

Why are Saudis, Japanese, Germans, Brits, Aussies, and now Chinese investing hundreds of billions of "worthless" dollars in the US?

Critics of this most successful system are nothing but whiners and losers. Get off you back sides, stop whining, and go out and create wealth!

borkafatty said...

I truly belive we are in the middle of a market manipulation, I mean come on the dow fell some 600 points a month or 2 ago and noe we are seeing gains..minimal at best but still positive. And there most certinly is manipulation of the dollar going on there has to be...plunge team must be working overtime these days...and the insider trading must be feverish..my opinions of course...but then again who am i right.

auto effex said...

Hey Keith -

How's your YHOO doing?
How you doing with your GM shorts?
How's your GLD doing?
Is the DOW below 8000 yet?
Is the median price of a home below 200k yet?
Have you gotten a clue yet?

HAHAHAHA!
AH HA AH HA AH!

borkafatty said...

What you losers call bubbles

When one seems stressed out comes the name calling...funny thing is great_boom_ahead you read this blog so welcome to the losers club ..loser

great_boom_ahead said...

"As an unemployed carpenter, I was out applying for a job today and the place was full of unemployed carpenters applying for the same job."


To the so-called "unemployed" carpenter, give me a break!!! With your presumed skills and experience, you SHOULD NEVER BE WITHOUT PAID WORK, unless you want to be!!!

You are looking for someone to "give" you a "job"!!! This is the typical loser's attitude! Do you know how many clueless housewives (and husbands) are out there who need a handyman around the house, even to the extent of needing help changing light bulbs?

You ought to be advertising your services to any and all who need your expertise for household jobs of any kind to pay the rent and fill the fridge with Bud (or the chilled beverage of your choice)!

And why not partner with some brick layers, sheet rock jockies, and electricians and start your own firm. Piss on unions and that BS! With a small business, you can get group insurance. And, you can make more and work when and if you want 6-9 months a year and take the winters off and fish in FL or Costa Rica.

Where's your initiative? Why focus on the fictitious slowdown in the housing market? Get out there and sell yourself to the marketplace!!!

If you want to be more than a carpenter with (or without) a "job", you have to begin behaving like it.

Stop whining, get off your butt, and go make it happen!!!

great_doom_ahead said...

Hey, boom-boy

Do you homework and study the history of falling empires.

great_boom_ahead said...

"When one seems stressed out comes the name calling...funny thing is great_boom_ahead you read this blog so welcome to the losers club ..loser"

I was referred to this hyperbolic site by a realtor friend for a laugh. You guys have no idea what you are talking about. We are due a correction and flattening out of real estate prices, but a crash simply can't happen with floating currencies and central bank mandates. By early next year when the housing market and economy begin to take off again, you guys will eventually "get it" and just shut up. I won't hang around to witness it, as I have money to make; lots of it.

Anonymous said...

Great Boom Ahead,

LMFAO. You are one funny fella. I love it!
You're a housing bubble version of The Colbert Report. Right?

Right?

You can't possibly be serious.

No, you can't be. No one is that chock full o' nuts.

borkafatty said...

I was referred to this hyperbolic site by a realtor friend for a laugh. You guys have no idea what you are talking about. We are due a correction and flattening out of real estate prices, but a crash simply can't happen with floating currencies and central bank mandates. By early next year when the housing market and economy begin to take off again, you guys will eventually "get it" and just shut up. I won't hang around to witness it, as I have money to make; lots of it.


good to see you have money to make...funny thing is i already made mine so have fun and make it...and if you think this thing is going to take off again,,hahahahh..you better tell your realtor friend to start looking for a new job..the cureent market as well as everything tied to it ..the war on terror can not and will not be sustained for ever..it is imposible..my recomendation to you is go back to sleep then wake up in the real world..unsustainable

great_boom_ahead said...

"Do you homework and study the history of falling empires."

This is more BS! The US is not an empire, b/c we don't want to be! We just want to make money. Democracy? Who cares! Authoritarianism? Do they buy our stuff and let us repatriate profits? Good! Fascism? If it works, hell yeah!

History is dead!!! Donate the books to the Marxist college or university in your town/city, and let them spin their fanciful, delusional theories; they're all BS!

Better yet, have a Marxist-Leninist book-burning party and invite all your friends and family to contribute a book or two.

Anonymous said...

>>Has anyone ever thought this re the bubble: it was the governments sneaky way of increasing taxes without actually raising taxes. True you don't pay capital gains after owning for 2yrs but what the gov. did gain was increased property taxes on THOUSANDS of sales on hyperinflated homes caused by frenzied demand over too low rates for too long. In Ca property tax is 1.25% of the purchase price. Median price $520K = $6500/yr taxes.<<

shhhhhhhhhhshhhh. I work for local gov't. and we are working on huge raises right now via the added income from property taxes. I'm getting a 10% raise this year. You must pay those taxes or we take your house.

Anonymous said...

Hey, anyone calling this housing debacle "fictitous" is clearly trying to stir the pot here. Every idiot out there knows this thing has burst big time.
The guy sounds like one of those "motivational speakers" to me, all hat and no cattle type of guy. Not sure why he would think dozens of folks lining up to apply for a job are out of work by choice since they are showing motivation just by the act of applying. How are they supposed to find work without applying for it? WTF? Is this guy retarded or what? Then he wants everyone to start a business if they are unemployed? What a douchebag.
BTW, Central bankers suck. Who the fuck asked them to run the monetary world, which they have screwed up badly? All I want is a medium of exchange that isn't getting tinkered with and continually debased by the actions of the bankers so I can SAFELY store the value of my work. Is that too much to ask? Central bankers my ass! Shoot the whole lot of them. You are fu*king clueless, but then you knew that.

Anonymous said...

Great boom ahead

keep on yappin, your credibility goes down the toilet the more you post, keep on yappin, yap yap yap.

borkafatty said...

WTF? Is this guy retarded or what?

Ill second the retard factor..the poor fella was at least applying for the job..you think he called all the other poor souls out of work to say ..hey dont come to this job and apply its mine..moron..and just as a heads up..IT TAKES MONEY TO OPEN A BUSSINESS TROLL!!!!!!!!!

keith said...

How's your YHOO doing?
How you doing with your GM shorts?
How's your GLD doing?
Is the DOW below 8000 yet?
Is the median price of a home below 200k yet?
Have you gotten a clue yet?

- regular readers of HP know that I hold COP, EWJ, EWC, AAPL, YHOO, EBAY and GLD longs. All are doing just fine - bought $25,000 of yahoo after the drop, COP up well over 100%, AAPL up 60%, EWJ and EWC up 6% each, GLD up 5% and EBAY sucking at -1%. After making 50% shorting GM I covered in January.

I hold shorts in HD, CC, FD, SOLD and today I bought January puts on CFC AND PSUN

And yes, I still think Dow 8800 is possible by end of year

Boy, that guy must have taken a few months off, maybe in a drug induced state, an unemployed realtor or something. weird.

cheers

peace out

Anonymous said...

As the unemployed carpenter, I just passed on what I witnessed today. Ive been out of work for 4 weeks now and I just started looking for another job. I should find another job soon, I was just shocked at all the carpenters that were already applying for that job.

p.s. I'll change lightbulbs if all else fails

Anonymous said...

Don't you think FED will print money before they let deflation take over? The more they print, the less the mortages will cost the owners...Values may go up slightly over the next couple years, but the true value of the $'s will be going down much faster. This will save many people's (owners) hide. The non owners will suffer in this model. Your cash will be losing value...I don't see any other solution.

Anonymous said...

It’s not going to bottom out immediately. ‘We’re going to see, I believe, what we saw in 1988: a flattening, a gradual downturn and then down and down until it hits bottom.

panicearly said...

Great boom ahead said
"History is dead!!! Donate the books to the Marxist college or university in your town/city, and let them spin their fanciful, delusional theories; they're all BS!"

looks like this guy fell for the Francis Fukuya kool aide.
Funny thing is Fukuyama, has changed his tune, publicly.
""The End of History," in other words, presented a kind of Marxist argument for the existence of a long-term process of social evolution, but one that terminates in liberal democracy rather than communism. In the formulation of the scholar Ken Jowitt, the neoconservative position articulated by people like Kristol and Kagan was, by contrast, Leninist; they believed that history can be pushed along with the right application of power and will. Leninism was a tragedy in its Bolshevik version, and it has returned as farce when practiced by the United States. Neoconservatism, as both a political symbol and a body of thought, has evolved into something I can no longer support."
http://tinyurl.com/ksp5v

Anonymous said...

I truly belive we are in the middle of a market manipulation, I mean come on the dow fell some 600 points a month or 2 ago and noe we are seeing gains..minimal at best but still positive. And there most certinly is manipulation of the dollar going on there has to be...plunge team must be working overtime these days...and the insider trading must be feverish..my opinions of course...but then again who am i right."

I agree. IMHO, the Bushites (the greedy Neoconservatives) will do ANYTHING in order to stay in power. And if they take the country down with them, well, they'll have grabbed all they could before the fall, so why should THEY worry???

Anonymous said...

“Recently, it was reported in the Phoenix market that the number of homes available had jumped from apx3400 homes January 05 to over 30,000 this January. As we watch some of the markets around the country, looking for signs of ‘the bubble,’ this number was astounding.”

“As a member of the ‘Arizona Regional Multiple Listing Service’ (ARMLS) I thought I would check for the accuracy of this claim. By the way ARMLS is known to the local realtors as ‘armless.’ In running some stats this morning, there are 33,270 active listings in the MLS. This covers greater Phoenix as well as a bit of outlying area. Another 1,225 are active/contingent. Under contract, but still being marketed for a buyer.”

“There has been a lot of talk of speculation in the Phoenix market, which made me wonder, how many of these homes are vacant. Of the 33,270 active listings, 14,601 are vacant. 14,601, almost half. Wow.”

“Why?? A lot of the ‘flippers’ that bought new homes did not want to put tenants in, so the homes could be marketed as new,never lived in. Move up buyers bought first for convenience/speculation, putting the old home on the market later. People buying 2nd/speculative homes. The high number of vacant homes appears to be the result of this speculative fever that has hit Phoenix, just like many markets.”

“This has led to the unsustainable increase in homevalues, as the investors no longer enter the market. And a 10 fold increase in inventory as the speculators decide its time to get out while the gettins’ still good. I have no year over year comparison for the vacant homes, or info on what is ‘normal,’ just a gut feeling that this doesn’t bode well for the market.”

An update: “Of the 33,000ish active the average price is $484,594. The total number of pending sales is 8,125. The average price of the total pendings is $378,573. Of the 16,000ish vacant homes, average asking price is $456,772. There are 3762 pending sale vacant homes(included in the 8,125), at an average price of $368,218. Looks like what is moving are the low end product.”

Anonymous said...

This "great_boom_ahead" character is making my eyes water from laughing so hard. He: "Why focus on the fictitious slowdown in the housing market?"

This guy is like "not buying the bubble". I suppose it takes all kinds but I suspect he will not be around very long under that name.

Anonymous said...

We need in the first instance to understand that promoting democracy and modernization in the Middle East is not a solution to the problem of jihadist terrorism; in all likelihood it will make the short-term problem worse, as we have seen in the case of the Palestinian election bringing Hamas to power.

Dear panicearly,

This quote from your posted link is the root of problem of democracy in the Global Jihad.
But it matters not because violence is their choice, not a Gov. by the people for the people, etc.
What a Giant unintended consequence.

Anonymous said...

I recommend a nationwide welfare state so that everyone's on the dole and we can sit around, sip on cider, listen to Led Zeppelin, and discuss philosophy, art, and science.

Anonymous said...

What makes this potentially worse than previous bubbles:

1. You used to have to qualify for a mortgage - now a pulse will bet a bartender a $250,000. I/O silly mortgage. So lots of people have lots of leverage on lots of properties. It used to be called a house of cards.

2. All of the metrics of real estate valuation are in uncharted territory even compared to past booms. Price to income / rental yields / number of 'investment' properties.

3. It's worldwide. Duff properties in formerly cheapo places like Thailand / Spain etc. are selling on parity with some of the 'non-boom' US markets. A lot of that cheap Refi money has been sent abroad never to be seen again. Hell I was in the UK last month and they were touting Estonia!! Great weather there.

4. Refi Stupidity: A lot of people will be paying off a car/furniture/holidays over the next 20-25 years even if they don't lose their homes. How stupid is it to finance short term consumption with a long term load against an asset? And what will that to to the economy?


All of the above are a direct result of lax lending practices leading to goofy leverage. Or more truthfully, it happened because your mortgage loan will be sold to an overseas sucker/pension fund so the 'lender' really doesn't give a rip if its not repaid.

Anonymous said...

Cramers comments today about housing is that he believes that housing values will not drop but just level off for a while. Don't worry because there is no panic and a house that is priced right will always sell. How can some of these people afford to drop the price below what they paid for it if they have no or negative equity?

Waiting to see prices get right said...

Minnesota construction slowing? From the viewpoint of a guy who was considering building a house on my lane just last year, but I could not get anyone out to the place to even discuss it - I am happy to see the slowdown. It still has not hit Huntsville, AL hard yet but when it does maybe I can get contractors to get real.

I read that OSB is way down. Hope there is no big hurricane this year. then materials and labor may be to the point that building is feasible again.

Fair priced, quality labor wanted said...

In 1991 a co-worker got his house framed by a guy who was working break-even just to keep his crew intact. Let's see that again.

Anonymous said...

The sad thing is, if a meltdown is on the horizon, I can easily invision Bernanke being spurred on by retards like "Great Boom" slashing interest rates to "save" the US consumer from a massive recession. The thing is, history hasnt change its cycles, this has happened before and it'll only lead to hyperinflation and ruin. And then, even if you did sell your house at the appropriate time, you still lose everything. You'll have morons like him to blame for your ruin. And who is responsible for the creation of people like him? Conservatism. The whole "nothing can ever go wrong, we completely control the economy, wealth will forever go up for us" mentality that has been tried, tested, and failed repeatedly.

Anonymous said...

Sorry to burst your bubble Huntsville guy. But construction-materials costs have nowhere to go but sky-high from here.

Anonymous said...

Cramer?

I wouldn't look to him for prognostications. He was one of the clowns cheering DotBomb 'investments' even as they tanked.

He's a momentum trader (and probably very good), but he ain't no economist.

Anonymous said...

Up here in northern minnesota the osb plants have stopped buying timber from the loggers tempoarily. they have too many logs stacked up in the yards, because osb plywood sales have dropped considerably. osb is stacked up everywhere. this is the housing slowdown from the very beginning. too much supply, not enough demand.

Anonymous said...

That's music to my ears.

Anonymous said...

"This is more BS! The US is not an empire, b/c we don't want to be! We just want to make money. Democracy? Who cares! Authoritarianism? Do they buy our stuff and let us repatriate profits? Good! Fascism? If it works, hell yeah!

History is dead!!! Donate the books to the Marxist college or university in your town/city, and let them spin their fanciful, delusional theories; they're all BS!

Better yet, have a Marxist-Leninist book-burning party and invite all your friends and family to contribute a book or two."


You seem a bit confused about the reality that has been shoved down your throat.

Central Banking *is* a fundamental part of the Communist Manifesto. As a matter of fact, it is the 5th plank in the central platform of the Communist Manifesto.

Communism is socialism, and Fascism is national socialism. As such, they both two sides of the same totalitarian/tyrannical coin.

I want my Constitution back.

Anonymous said...

Why would prices continue to rise when demand falls way off? I'm seeing prices for lumber AND concrete falling so SOMETHING is going on. Any ideas on why some folks believe these wouldn't correct in a housing bust???

MMAfia said...

I've come to the conclusion that most of the remaining Housing Cheerleaders like 'BoomAhead' are very similar to those who fall in love with a stock or some other equity/derivative, and defend it to death on messageboards even when writing is not only on the wall, but singed into it!

They just focus all their energy into finding obscurities and exceptions to the general direction of the equity (in this case, while not as liquid, the housing market).

Instead of seeing the obvious, they concentrate obscurities and string them together to create quite interesting, albeit sadly misdirected assertations.

As evidenced by characters including "BoomAhead", there are still many who have not progressed to the "Anger" phase yet and are still in the "Denial" phase.

Interesting to note how recently, many have actually progressed to the "Anger" phase.

The sooner the cheerleaders go through the cycle, the better for all of us.

Regards,

MMAfia

grim_reaper said...

Debt is not a problem for US households because our net wealth is rising so much from the booming unreal estate market, right?

WRONG!!!

Deeper in Debt.

Anonymous said...

great_boom_ahead-


Please go back to the Sean Hand-jobitty blog!

Anonymous said...

You gloom-and-doomers are a piece of work! The US central bank has been incredibly successful in reducing the boom-bust nature of capitalism. Floating currencies have given policy makers flexibility in smoothing out the business cycle.

What you losers call bubbles are evidence of our system's ability to create tremendous wealth and sustain a standard of living that is the envy of the world!


I'm the first poster, and actually I sort of agree. I am not one of those nutters who go around frothing "fiat money fiat money we're gonna go to hell".

But there was a huge, ginormous, elaphantine, brobdingnagian, ruthian, gargantuan, colossal liquidity bubble

Three big mistakes by central banks:

1) Yuan peg. But China isn't capitalist, they are Leninist-mercantalist, and they are after strategic destruction of US industrial capacity.

2) *bad inflation measures used by the Fed*.

3) negligible banking regulations and capital reserves due to junk loans.


On the second: The Fed decided to exclude from the inflation measure that it used the ACTUAL HOUSE PRICES, as part of the "cost of shelter". They assumed (cough cough) that there had to be some equivalent equilibrium with rents and so they substituted "owner equivalent rents", what you could rent the house for, as the cost.

Yes, this foolish change happened sometime during the late 90's, I believe, but the disparity between prices and rents has exploded now obviously.

The Fed's idiotic reluctance to consider that asset price inflation is not "real" inflation is really indefensible, especially with housing.

So, during the huge boom---as people were buying buying buying, the rental market was of course stagnant as you had less and less demand. So despite the housing bubble, apparent """inflation""" was low since it saw only rents.

And now, as the boom collapses and people stay renting---or are forced to after forced sales/foreclosure---now rents go up and so apparent inflation in rents is exacerbated.

If they had measured housing prices correctly, i.e. actual housing prices as well as rentals, in proportion to actual ownership vs rentals, we would have felt that asset inflation earlier and raised rates, a little bit, earlier to cool off the bubble.

And now as the cycle turns, the inflation would be lower (and there wouldn't be as much to drop). But nooo, inflation is going to get jammed by the three horsemen of oil, war, and rental prices.

Anonymous said...

Roll the printing presses. We have some idiots on this website who don't know the difference between a business-cycle and a bi-cycle.

I got the same newletter put out by our local NVAR and it said the same thing. "...there is a flattening out of prices in 06 but housing will take off in 07." You all are starting to believe your own b.s. You are suppose to tell your customers (buyers) that line. You are not suppose to believe it yourselves. Get yourself an Ed-Ju-Ma-Ca-Tion.

If every realtors dream could come true the boom times in housing would go on forever and ever.

Anonymous said...

We are due a correction and flattening out of real estate prices, but a crash simply can't happen with floating currencies and central bank mandates.

no, no sirree, never mind that miniscule third world country known as JAPAN

Fact:

Property prices in Japan have declined nationwide for I believe seventeen years, and their interest rates were about 2% or less almost the whole time.

They have a modern central bank and paper (fiat) money and have been flooding it with liquidity, monetary and fiscal. Their government debt is now huge (though at negligible rates).

And yet, property went lower, and lower and lower, and lower and lower and lower.... And then for most people there, it kept on going lower, worse than they ever thought. And when they thought that, it still went lower.

I think this is finally the bottom in Japan.

Anonymous said...

How about someone listing all the Acronyms for a new commer to the blog world so they can get up to speed
what does GLD - LMFAO - WTF - BTW - IMHO Mean
clue me in on all the Acronyms you use so i can Participate too.

Budvarr said...

"Why are Saudis, Japanese, Germans, Brits, Aussies, and now Chinese investing hundreds of billions of "worthless" dollars in the US?"

Er..because they're worthless, and want rid of them?

Budvarr said...

"Do you know how many clueless housewives (and husbands) are out there who need a handyman around the house, even to the extent of needing help changing light bulbs?"

Oh yes, but how many want to or can pay the price?
They wont work for fuck all, but expect everyone else to.

Anonymous said...

GLD - gold, a fund to buy the yellow stuff

LMFAO - laughing my f'ing ass off

WTF - what the f*ck

BTW - by the way

IMHO - in my humble opinion

MSM - mainstream media

HP'er - someone addicted to this site, usually a renter who cashed in at the top

Anonymous said...

You forgot ROTFLMAO

Anonymous said...

PS I do that a lot on this blog!

Anonymous said...

Here'a story of builder scumbag screwing people over..... I wanted to eat the morning paper after reading this !!!!
http://www.azcentral.com/community/pinal/articles/0731TurnerDunn0731.html

Anonymous said...

"Has anyone ever thought this re the bubble: it was the governments sneaky way of increasing taxes without actually raising taxes."

Actually it was the aliens. They pumped up the bubble as a way of turning more humans into pod people who would go out into the fields, diusguised as construction workers, and make crop circles.

Anonymous said...

"I was referred to this hyperbolic site by a realtor friend for a laugh. You guys have no idea what you are talking about. We are due a correction and flattening out of real estate prices, but a crash simply can't happen with floating currencies and central bank mandates. By early next year when the housing market and economy begin to take off again, you guys will eventually "get it" and just shut up. I won't hang around to witness it, as I have money to make; lots of it."

They said the same thing back in '90.

little_green_man said...

"Actually it was the aliens. They pumped up the bubble as a way of turning more humans into pod people who would go out into the fields, diusguised as construction workers, and make crop circles."

I resent this remark. Are you anti-Alien? Do you have something against green and gray people? Are you envious of our large, bulbous brains, telepathic abilities, and superior intellect and sight?

If it were not for we beings from The Rings of Uranus combining our genetic materials with your DNA and various bacteriological life forms, you would not exist to enjoy life as you do on this lovely blue planetoid.

Please be advised that I am immediately reporting this incident to the High Council located in the deep recesses of Uranus. Further displays of disrespect will be considered highly inflammatory and subject to your immediate evacuation from this planetoid and permanent disposal.

Sincerely,

Eep-blitz-perp-bubba-flop-eeeahhh

Anonymous said...

great_boom goes away and we get anon sent here by his realtor. unfortunately they're both right- and it is just so obvious. ECON101
Last summer I asked my realtor why prices are going up so fast, he told me its simple: SUPPLY and DEMAND. This summer I asked...

Anonymous said...

"...there is a flattening out of prices in 06 but housing will take off in 07."

This is so true, just give it a little push and it will take off right down that hill...

Aaron Krowne said...

great_boom_ahead:

Here's your stability of central banks:

http://br.endernet.org/~akrowne/econ/charts/pe_vs_interestrates-fed.gif

http://br.endernet.org/~akrowne/econ/charts/cpi_and_the_fed.png

http://br.endernet.org/~akrowne/econ/charts/broad_money_vs_inflation.gif

http://br.endernet.org/~akrowne/econ/charts/income_gains_histogram.gif

http://br.endernet.org/~akrowne/econ/charts/m3_since_1969.gif

Lesson: all central banks do (at least, operating like the US does) is create massive quantities of money which foster instability (bubbles), inflation, and transfer wealth to the rich from everyone else.

I might enjoy this game if I was part of the top 1-10% that benefits from it, but apparently I lost the lottery when I was born. That and I have a conscience.

There will be a great bust before any great boom. And the great boom will be preceded by the elimination or more likely the drastic reworking of central banks, probably super-nationalizing them (as Europe has done).

Anonymous said...

Oops, I meant to post this here under Leverage...

http://www.bloodhoundrealty.com/BloodhoundBlog/?p=155

It is, I kid you not, and article by Greg Swann at Bloodhound entitled "How to turn $1.00 into $27,000. in eight years..."

A select quote....
"And paying ahead on your mortgage is just dumb no matter where you buy. With a 100% leveraged property, every penny of appreciation is 100% cash-on-cash profit to you. If you have any excess cash, you should be using it to buy more properties."


His advice - buy a $200K rental property with 100% financing and burn cash at a rate of $569. per month.

But it'll all be OK because appreciation of the property will give you a cash windfall of $27,000. AFTER 8 YEARS. Wow, a possible 13.5% return.

Oddly enough, there is no mention of the downside risks - like deadbeat tenants, maintenance, or the possiblity that Gregs optimistic scenario could go pear shaped.

I cannot believe any person would be advocating this risky investment behaviour in what is at the very least an uncertain market.

But I guess it's OK because Greg will be there when you buy and Greg will be there when you sell. And under Greg's scenario, RE commissions will be about $30K (at 6%) - so who really wins on this deal?

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