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Old 07-06-2008, 09:53   #31
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hey great minds? good links, I forgot about tax benefits and home maintenence.
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Old 07-06-2008, 11:43   #32
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this is a little related, but since you said "offset" the cost of owning, I thought I'd share a real life comparison. I always get aggravated by those junk mail postcards the realtors put out, saying "no money down!" "why throw money away renting?" for one, they are totally wasting paper on unrecyclable materials (I don't think you can recycle paper with those glossy surfaces). Two, they are straight up lying!

person A buys a new house for $120K (this is texas where house prices are somewhat sane), has a monthly payment of $1010, whereby on this 5% 30 yr loan, only $190 goes to principle. Person B rents for $710, thus pocketing the $300 difference. Eventually person B will save up a bunch of money, put that down on a house, and end up paying less interest on a smaller loan too. Obviously with no money down renting is the better solution. A smaller loan that would result in interest of $110 less would make more sense if you could do it. You all may know that, but seems like a lot of people think paying back a large loan is always better than renting.

To the other point, the $190 in "equity" really isn't necessarily $190 if no one wants the house. On the other hand, you might say the $300 is always $300, but in a fiat paper money system, $300 tomorrow won't necessarily buy you $300 worth of stuff today. In Zimbabwe, the minimum wage is Z$6 billion, and inflation is 300,000%. In the US, the government says CPI is 3-4% (but have a look at Shadow Government Statistics Home Page which will tell you it's more like 7.5% -- be sure to read John Williams' bio at the bottom of the page), but what will happen next year?

I guess the difference is you can do whatever you want with that $300, whereas the $190 is tied up in the house.
This assumes houses do not appreciate. Most people have made their money on land appreciation more than any other factor over time. The $190 on equity is nice but its hardly the major factor in gains in equity for most land owners.

The only place in the world I can think of where more land is being built is Kilauea, plus there are not fewer people on this planet than there were before. Over long periods of time...land will appreciate.
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Old 07-06-2008, 14:09   #33
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Dollar Sinking, Oil Rising

Since this post started the dollar has fallen even more, with no end in sight. Certainly there is no easy solution, political or otherwise, to stop the situation other than the OPEC increasing production and refining capacity increase in the US (has not happened in almost 30 years). Good Luck!

The problem for would be Catamaran buyers is that all of the components for many non-US made boats are being sold in Euros. I mean, Robertson Craine buys from Japan and Europe with European distributors, Lagoon is even worse as their labor is in Euros.

Robertson & Craine may be increasing capacity, but their US market (Moorings , Sunsail, etc) is going to be hard pressed with 20% price increases on 2009 boats. IMHO, the only way Lagoon and other Euro boats are going to be able to compete in the highest volume multihull market is to manufacture in the America's with the majority of their costs in dollars. Perhaps this could also be accomplished by making the hulls offshore, and doing all of the fitting out here, I don't know.

So, again IMHO, it looks to me like the Catamaran market will be very firm priced, but don't look for a whole bunch of new boats out there. The airlines are making the cost to get to many sailing destinations expensive, particularly if flying from a Euro area.
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Old 08-06-2008, 09:53   #34
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Since this post started the dollar has fallen even more, with no end in sight. Certainly there is no easy solution, political or otherwise, to stop the situation other than the OPEC increasing production and refining capacity increase in the US (has not happened in almost 30 years). Good Luck!
OPEC increasing production is not an "easy solution" either, because they don't have the ability to do so. All of the "easy" oil has already been pumped, refined and consumed. The stuff that comes out of the ground now, and hereafter, will increasingly be sour, heavy crude that is more difficult (read, expensive) to refine.

And, of course, while capacity is limited, demand is not. As more and more developing countries demand energy to fuel their development, the supply comes under even greater strain. That can only lead to higher prices.

Since oil is traded worldwide in US$, one should look at the relationship as a teeter-totter; As the dollar goes down, crude, necessarily, goes up. Those who produce crude for the world market are condemned to take US$ for their resource. For now, at least.

Maximizing the return on a depleting asset is Business 101. If payment for that resource is in a devaluing currency, the price must go up simply to maintain stasis. The alternative is to demand some currency other than the US$ for your product, and the movement to do so is already afoot. Even if the accepted exchange is for a basket of currencies which would include the US$, it would mark the beginning of the end for the US$ as the world's reserve currency, and the declination of the American Empire.

Sure, if you're an American, it hurts like hell to have your currency buy less and less, but being in high dudgeon toward OPEC because the price of crude oil is soaring is pointless. The weak dollar policy was generated right here at home to devalue the staggering deficits that have made the US the world's leading debtor nation.

As ever, in the vast history of empires on planet earth, they are destroyed not from without, but from within.

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Old 08-06-2008, 10:58   #35
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The only help for the dollar is to raise interest rates. That in turn will bring the price of oil down, but as long as the Fed only works for the banks (they borrow at 2% and lend at 6%+) everything will remain the same. It appears that the Fed wants to "cattle call" everyones money into the "markets' (re: risky) instead of simple (re: secure) FDIC insured savings. Also, the crap about inflation and return on your money is only as important as your descresionary spending habits. 5% is fine if you aren't drawn in by the constant drum of spend, spend, spend. Often crusiers that have been out of the U.S. for extended periods are amazed at the screaming of the hawkers everywhere (print, radio, TV) when they do return, and find it the biggest turn off of their return.
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Old 08-06-2008, 11:13   #36
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Oh we know about it in the UK. Our incompetent government is trying to use it as an excuse for all the problems they have caused all by themselves.
In your opinion, of course.

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Old 08-06-2008, 14:28   #37
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The only help for the dollar is to raise interest rates. That in turn will bring the price of oil down, but as long as the Fed only works for the banks (they borrow at 2% and lend at 6%+) everything will remain the same.
If we enjoyed true, free-market capitalism, interest rates would be set by the markets, not some politically-appointed board. But since the Federal Reserve Board of Inflation ( ) is what we've got, and they do set short-term rates, let's look at their present choices: They can only do one of three things, as far as setting short-term interest rates goes, 1)Raise the discount rate, 2)Lower the discount rate, 3)Do nothing.

If short-term interest rates are raised in an attempt to strengthen the dollar, it will be the fatal blow from which our economy cannot recover, for it will profoundly exacerbate the current chaos in the credit markets. And it is those banks you mentioned - supposedly the smartest guys in the room - who will be crushed if the credit market meltdown isn't contained.

If short-term interest rates are lowered in an attempt to ease the pressure on those institutions that are buckling under the crushing weight of the derivatives meltdown, the devaluation of the American dollar will accelerate to the downside, and those who call it the American Peso will be proven correct.

If the Federal Reserve Board of Governors do nothing, because there really are no good options, then what we have is what we get. This is their current chosen path, because they are truly damned if they do and damned if they don't. They've provided liquidity to an unprecedented degree (over $300bn, so far), taking the worthless sub-prime mortgage-backed securities from their member-banks as collateral, but no one expects those loans to ever be repaid. There is no market for these worthless securities, and likely never will be.

Some suggest that the Fed just keep doing so (i.e. monetizing worthless debt) but the Fed cannot literally "print" money. Fed capitalization is approximately $800bn, but monetizing the sub-prime losses alone will cost more than $1000bn. That's one trillion dollars.

Then throw the derivatives bomb onto the sub-prime bonfire. These private contracts have a face value in excess of $500tn - that's $500 trillion dollars! Worldwide GDP is only $66 trillion dollars/year, presently, and derivatives are dependent on the financial viability of the loser in the transaction. It will only take one default to set off a cascading daisy-chain of economic destruction that will be breathtaking.

The Soviet Union proved beyond any doubt that centrally-planned economies don't work. Yet here we are - expecting the Federal Reserve Board (our Central Planners) to find the sweet spot in interest rate policy that will fix everything!

Got gold?

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Old 08-06-2008, 17:16   #38
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And the quick easy solution is to ...

... withdraw all troops from Iraq.

I put the real cost of the war there at between $1Tr and $3Tr p.a.
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Old 08-06-2008, 18:02   #39
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... withdraw all troops from Iraq.

I put the real cost of the war there at between $1Tr and $3Tr p.a.
I question stopping a war with the hope of improved economics at home. If anything the war is keeping American manufacturing rolling. It may be Robbing Peter to pay Paul... but its also a huge chunk of change that wouldn't exist otherwise. I think that without Katrina and the Wars we would be a lot hotter water than we are now. The play toys on the ground and in the air are what cost money... A new b52 = 1.3billion dollars. Lots of jobs, manufacturers, and suppliers are getting fed as this war machine cranks out the required supplies.

I've been bumping my head against GE selling off their appliance, and plastic divisions. Scares me to think that GE, can't compete anywhere against foreign manufacturers... when they themselves are a multi-national corporation. If anything the tanking of the dollar (if you believe it has purposefully been tanked to repay debt) should help sell American exports. If it is, I haven't found any news that shows it... perhaps all our exports are already made on other shores?

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Old 08-06-2008, 18:11   #40
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If we enjoyed true, free-market capitalism, interest rates would be set by the markets, not some politically-appointed board. But since the Federal Reserve Board of Inflation ( ) is what we've got, and they do set short-term rates, let's look at their present choices: They can only do one of three things, as far as setting short-term interest rates goes, 1)Raise the discount rate, 2)Lower the discount rate, 3)Do nothing.

If short-term interest rates are raised in an attempt to strengthen the dollar, it will be the fatal blow from which our economy cannot recover, for it will profoundly exacerbate the current chaos in the credit markets. And it is those banks you mentioned - supposedly the smartest guys in the room - who will be crushed if the credit market meltdown isn't contained.

If short-term interest rates are lowered in an attempt to ease the pressure on those institutions that are buckling under the crushing weight of the derivatives meltdown, the devaluation of the American dollar will accelerate to the downside, and those who call it the American Peso will be proven correct.

If the Federal Reserve Board of Governors do nothing, because there really are no good options, then what we have is what we get. This is their current chosen path, because they are truly damned if they do and damned if they don't. They've provided liquidity to an unprecedented degree (over $300bn, so far), taking the worthless sub-prime mortgage-backed securities from their member-banks as collateral, but no one expects those loans to ever be repaid. There is no market for these worthless securities, and likely never will be.

Some suggest that the Fed just keep doing so (i.e. monetizing worthless debt) but the Fed cannot literally "print" money. Fed capitalization is approximately $800bn, but monetizing the sub-prime losses alone will cost more than $1000bn. That's one trillion dollars.

Then throw the derivatives bomb onto the sub-prime bonfire. These private contracts have a face value in excess of $500tn - that's $500 trillion dollars! Worldwide GDP is only $66 trillion dollars/year, presently, and derivatives are dependent on the financial viability of the loser in the transaction. It will only take one default to set off a cascading daisy-chain of economic destruction that will be breathtaking.

The Soviet Union proved beyond any doubt that centrally-planned economies don't work. Yet here we are - expecting the Federal Reserve Board (our Central Planners) to find the sweet spot in interest rate policy that will fix everything!

Got gold?

TaoJones

Fascinating, and for what it is worth, I largely agree! IMHO I would disagree only with the fact that the OPEC countries can increase production short term, if they are willing. China (who have reserves also) has no reason to, as they are afloat in dollars they will continue to buy rather than pump. Russia will pump from their huge reserves, but actually getting the oil on the market has always been a Russian problem. Venezuela is building a pipeline through Columbia so they can ship oil directly across the Pacific to China.

So yes, gold not unlike good sailboats, is a good thing. If we believe that the dollar will continue to fall then the manufacturers who depend on sales to our markets will be forced to either exit, or manufacture here. A primary issue is, just as you pointed out, that we Americans have disposable
income and have fueled the world economy by our consumerism. In this century, that must decline or end. So, IMHO and QED, sailboats are a good investment in the short to medium term as new boats will only be more expensive (in dollars).
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Old 08-06-2008, 18:29   #41
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, sailboats are a good investment in the short to medium term as new boats will only be more expensive (in dollars).
I know this is a cruising forum and all but it gets me all excited to read that.

It gets me closer and closer to making the big mistake....errr....jump.

The wife won't read this stuff.
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Old 08-06-2008, 19:40   #42
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no no!! boats need to be cheaper!!
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Old 09-06-2008, 16:33   #43
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I don't know anything about finance, but I do know that if you take an ARM and the initial rate is the maximum you can afford, then you just bought a house you cannot afford, and you deserve to lose it.

I also know that American preeminence is not only unsustainable, it's also undesirable. We are (on average) profiting hansomly by the rise of the rest of the world. Sure, we lose a measure of power by our relative decline, but a relative decline should not be confused with an absolute decline.
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Old 09-06-2008, 16:51   #44
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my understanding is that we're going further into debt in many ways.

What do y'all think about this:
Grasping At Straws - Dr Baltin
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Old 09-06-2008, 17:48   #45
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TaoJones,

I don't know anything about economics, but it seems to me that the sub-prime bust and accompanying credit crunch are simply market corrections to the spree of spending from the real estate bubble. In other words, they don't represent anything wrong with the countries' fundamentals.

If people were foolish enough to take a sub-prime loan, while calculating that the initial rate was the maximum that they could afford, then they bought a house they couldn't afford, and now deserve to lose it. As long as the fundamentals are good (large professional well-educated workforce) there should be great deals to be had by folks who weren't quite so foolish.
The model you describe is, indeed, fundamentally sound: Local banker loans you the money to buy a house, you make your payments you keep your house, you stop making your payments you lose your house, bank repossesses the house and sells it to someone who makes the payments and keeps the house, etc. The problem is that that model went out the window over the last 20-30 years, and especially in the last ten.

The new model looks like this: House prices accelerate upwards, so when you buy you don't have 20% to put down, bank says "No problem!" and lends you 85%, 90%, 95%, 100%, even 100+% so you can "buy" the house with no skin in the game and actually get money back at closing - is this a great country, or what!?

A variant is that you do put something down, but take out a HELOC at the same time, and to the extent that you tap into the HELOC for an amount greater than the equity in the home, you are upside-down, and need an appreciation in price above the negative equity plus selling costs just to break even.

Well, we had phenomenal price appreciation, for awhile, so the lenders (who should have known better) kept lending to anyone with the ability to fog a mirror. Why not? They quickly moved the loans off their own books to the geniuses at the big money-center banks who were packaging them into SIVs (structured investment vehicles), thus securitizing the various tranches of debt, and selling these to "investors" around the world.

Problem: Most of the people who wanted to buy a house had already done so, and housing had essentially become a "move-up" market. That is, until you sold your house to someone for X amount, you couldn't move up to a grander manse, and this was stifling the turnover.

What to do: Well, there were still plenty of people out there who didn't own a home, but wanted to. The only problem was that they were hopelessly unqualified to do so. But in the new lending model, where the lenders only made money by successfully processing loans, the temptation to bring these otherwise unqualified folks into the game was just too strong.

And what was the danger, after all? The loans were quickly bundled into SIVs and sold off to unsuspecting "investors" around the world anyway. And why would those investors question the validity of the model? The ratings agencies were rating the SIVs as AAA (never mind that they were being paid by the sellers of the SIVs for their rating opinions, nor that they relied on the "mark-to-model" supposed value of the SIVs - supplied by the sellers - as a measure of their alleged worth.)

What could go wrong? Didn't real estate always go up?

Well, any child could tell that this farcical concoction was bound to implode, eventually. All it would take was enough non-performing sub-prime loans in these SIVs that were larded with the crap to start the whole thing unraveling. And since the borrowers who were forced into the sub-prime trap were often completely unqualified in the first place, unravel it inevitably did!

So it wasn't the local banker who ended up with his neighbor's house back on the bank's books. While that might be a problem, locally, this was a PROBLEM that had metastasized into every corner of the globe. And it isn't one or two large money-center banks that are in danger, it's virtually every such entity.

And how did this become a credit market lock-up? Because they all knew what they had been doing, they suspected (or knew) that their competitors had been doing likewise, so any trust in the marketplace quickly evaporated. As a result, every one of these titans of business is stuck with worthless crap on its books and no illusions whatsoever that there will ever be a real market for it.

So they must mark the stuff down to its supposed worth, which, not surprisingly, approaches zero. That wipes out their entire capitalization, in many instances, and because no one trusts anyone else, it is the lender of last resort who is now taking this stuff onto its books and issuing "loans" to the major banks, and even brokerages, to get their capital requirements back up.

In the US, that entity, of course, is the Federal Reserve Board, so it isn't your friendly, local banker who's left with a couple of undesirable properties on his books, looking for a responsible fellow citizen to buy them, fix them up, sell them to someone just starting out at a reasonable price and thus, improving the community.

When the unqualified sub-prime buyers lose their properties, it's like sawing off the bottom rung on the ladder of move-up buyers. All of the pressure at the lower end of the scale has been lost, so home prices are no longer appreciating as they had from, say, 2002-2006. In many markets, prices are, in fact, depreciating.

Most of the shakiest sub-prime loans were added to the equation in '05-'07, and were headed for re-set to prevailing rates beginning in the last quarter of last year. That's why the Fed began lowering rates like there was no tomorrow last September - because if millions of sub-prime borrowers stopped making payments at the same time because the re-sets would make it impossible to keep up, then the backbone of our economy, home ownership, could easily have broken and the whole economy collapsed.

By lowering rates ahead of the massive re-sets, a great deal of the threat was delayed. It was not, however, ended.

The geniuses who bundled the sub-prime crap into structured investment vehicles thought if a little was good, a lot would be better, so they bundled auto loans, student loans, credit card balances, anything of a revolving nature into a securitized debt obligation, and sold it into the worldwide investment market to easily fooled managers mindlessly chasing yield.

That is where we find ourselves today. The credit markets have seized up. Virtually every large financial entity in the world is saddled with non-performing junk on its books and no market in which to sell it - at any price. As a result, billions of dollars of charges must be taken by each of these entities - i.e. written off.

The market price of commodities continues to soar as individual central banks adopt the time-tested tactic of "Beggar-thy-neighbor" in a race to the bottom. As the prices of commodities climb, people everywhere are forced to cut back other spending just to put increasingly expensive food on the table.

You'll know the end is near when food riots are happening in the most unexpected places.

The question everyone will have to ask him/herself is: Will this all end in a crushing deflationary depression, or will it be mind-boggling hyper-inflation?

Either way, it will be most unpleasant.

TaoJones
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