Advice for the Coming Reckoning
If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting you; If you can wait and not be tired by waiting, Or being lied about, don’t deal in lies, Or being hated, don’t give way to hating, And yet don’t look too good, nor talk too wise:... If you can talk with crowds and keep your virtue, Or walk with Kings—nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much; If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it, And—which is more—you’ll be a Man, my son!
Rudyard Kipling (1865–1936), Rewards and Fairies (1910).
BLS OER, Lions and Tigers and Bears Oh My!
Wishing everyone a solemn Alban Arthan as we honor the souls of the trees we sacrifice then deify in our living rooms. Hang the revered kerm-oak, drink the blessed wassail. "Yule" feel so much better. The Norse had the right idea taking 12 days for Jole. Oh and all the recent religion adherents that have since renamed these Christmas, Christmas Trees, holly, sacramental wine and the 12 days of Christmas as if changing the name makes a difference; Merry Christmas.
Wishing everyone Prop 13 protection.
Wishing everyone a secret decoder ring to translate Fedspeak into reality.
Wishing I understood inflation formulas. OER (owners equivalent rent) questions are tricky. I am going to try but I probably have this wrong so don't trust it. The BLS in computing the CPI realized that using actual housing costs was going to give false inflation indications. This because housing content was changing. The sad part is that they decided for seriously poor political reasons to err in the opposite direction. Just like the morally indefensible way they do not count all taxes. Anyway, they calculate what the fair market rent would be for any particular house which turns out to be the mother of all lagging indicators. I've posted extensively on this elsewhere. Market rents are reflecting purchase costs in some instances (mine) 18 years ago. Just going over my year end tax avoidance notes this one place cost me out of pocket a whopping $1100 in 2005 before deductions. I don't charge $90/month but neither do I charge as if I bought last year and was paying a $1300/month mortgage while trying to recover the original transaction costs. Like I said, talk about your lagging indicators. This is why everyone on the ground sees so very much inflation and the BLS doesn't see it in the data. They are acting as if the were the 1960s with one car and a 1200 sq ft house with 2.5 kids who walk to their fine neighborhood school and mom stays at home. What this does mean, and everyone already hates me for this, is that OER will rise and continue to rise "stubbornly" for a great many years even as housing prices tank. Everyone loves it here when I say the bubble popped Oct 6th '05 and cheer my labelling the next few months "The Silent Spring" but I'm a shill for the forces of darkness when I predict rising rents for the exact same reasons. There's a lot of inflation and that will show up in rents. There's very high costs for an increasing portion of the rental owners that perforce will affect median rental charges. The equlibrium of falling house prices and rising rents are what partly drive my prediction of 5% per year declines in prices as rents rise to reestablish some congruence in OER and purchase pricing.
Anyway, We got the Druids covered and I need to add Joyous Saturnalia so the pagans are taken care of as well so all that remains is;
Wealth Winners (aka behaving rich)
People who believe in passive income are also known as -former- trust fund babies. Money and asset -management- is a -management- function. Do the -managers- you know work for free? Same thing, you have to pay yourself.
Clip coupons. Earn $80-$100 per hour in your own home in front of the TV watching Suze Orman (sorry) and entertaining your cat with the detrius. Besides the $80-$100 being after tax, tax free money, by organizing your coupons the trip to the grocery store goes faster, smoother and is not as distracted by what they want to sell you as what you want to buy. You eat better too. Subsequent health benefits accrue. Tertiary, the forced planning/organization allows for less waste and taking advantage of sales, not only furthering savings but reducing dining expenses. How many times do you open the fridge at 6:15 only to say there's nothing good and then go out and blow $60 on dinner for two of angel hair pasta in a sundried tomato garden veggie and shrimp sauce? $8 worth of ingredients and a dozen dishes? You can whip this up in less time that it takes to find your cel phone and drive at $0.62 per mile to stand in line when you could instead be videotaping how your cat reacts to a piece of pasta on his back and filming it for the $10,000 prize on America's Funniest Animals. Oh and let's be clear here, you are not being propitious if you ever pay for deodorant, toothpaste or toothbrushes again.
Then there's that car you "deserve." Get over it. What is the true cost per mile? Most people can save lots of after tax, tax free money here but I'd ned to know the details before venturing an estimate.
Cable service? HBO & Showtime? Free money.
Regular lightbulbs? In the closets? What? are you crazy? We in SoCal pay some of the highest rates in the lower 48. Rite Aid occassionaly sells 4paks of 60w equivalent flourescents for a buck. ROI a month. Bag up the old bulbs and donate them to the Restore Store or Habitat. Laugh all the way to the bank, feel good about yourself, save the environment. What could be better? Well, screwingSoCalEdision but that ain't gonna happen. The energy you save increases their overhead ratios and they aren't gonna invest so you'll pay more and still have shortages in the future. Face it, we've done to utilities what we did to transit. Sad.
Nautical Frugality, Discard Rescue and Experienced Goods. Otherwise known as; Yard Sales, Dumpster Diving and Thrift Stores. Just last Wednesday I added to my polo shirt collection. Wed is 25% discount day at the rescue mission thrift store in Oxnard. I pick up 4 shirts, Large and Medium (manufacturers don't standardize their sizes) that I know will fit because these had already been washed at least a few times for $4.92. Top quality, preshrunk major labels.
Realtor Christmans Presents
Replacement rose colored glasses.
Realtime digital For Sale sign: $450k... $430k...
"The Money Pit" on DVD... er make that VHS.
Vaseline. [think about it]
Really thick paperbacks.
Housewarming gifts, say home heating oil.
Lots and lots of glycerine (makes bubbles last longer).
Botox to erase worry lines.
A new HP12c to replace the one that is obviously broken.
Tickets to the new TV show "Desperate Housesellers."
A -real- rolling doughnut.
"It's Only a Hobby" Tshirt.
Why Flip? Because it Pays
Let's try some numbers from another blog:
An investment house in Palm Springs. Purchase $475,000 in Jun '05. Tear out the kitchen, granite countertops, etc. Add a second sliding glass door to the pool. Minor landscaping, minor paint/patch. $75,000 improvements.
$550,000 total investment
- $40,000 commission, fees, opex
= $109,000 profit
What is wrong with this picture? First they didn't pay cash. For the sake of discussion let's assume 20% down 30yr fixed 6%. So for 6 months investment is not $550k but approx $210k. That's an amazing a 100% annualized return on your money.
But of course even this isn't true. Flippers don't put 20% down and take out 30yr fixed mortgages. And who-in-the-hell pays cash for $75,000 in home improvements? These things were all debt purchases so let's look at something closer to the real financing.
Bring $40k to the table in June. Finance interest/only or intro ARM $450k so the payments are $2300/month. A $75,000 HELOC would probably cost $3,000 to start so we are paying on $0 to start up to $78,000 by the 5th month. Call it $700 by he end. So, how much have we "invested" in the last six months?
$40,000 down plus the lost opportunity 6mos interest, $1,000
6mos taxes $2,300
6mos payments $13,800
HELOC repayments $2,300
Total+10% misc = $65,000 while carrying $528,000 in debt instruments.
Sales price to get out even? $640,000
At the $699,000 sales price $56,000 cleared on $67,000 invested in 6 months. A lot more than 100% returns. The theory of OPM strikes. OPM = other peoples' money.
Kalifornia Uber Alles
Random thoughts inspired by someone who claims to need to leave ca.
Koastal Kalifornia. Let's be clear. It is one of the very best places on the planet to live... except, it is expensive. Very, very expensive and even in the worst cases it will only crash to being very expensive.
Want to live in Koastal Kaliforina on the cheap? Easy, buy in 1965, '75, '85, '95 not 2005. Maybe buy in 2008? Sorry, won't know until 2010 or later.
I've never met the honest "never looked back" ex-californian. They've say they "made the right decision at the time," "done alright," all that but they can't get back in at the level they left.
There's a reason why California ends up with the majority of immigrants illegal and legal. Immigration is a huge social commitment, Kalifornia has been a good place to invest social capital.
Robert Kennedy was killed here. His assasination site has recently been razed for a new LAUSD High School. The title of this blog article is a song by the Dead Kennedys. Camera obscura my ass, we talkin' blogeria cultural obscura.
The Market Part of Housing Markets
In the last two weeks enough observations have come inm to confirm an ongoing gut wrenching price decline in the housing markets. I personally feel about $200k poorer but couldn't care less since I didn't care about the last $400k of increase. Anyway, what we are in now is best described as a freefall. We need to know what the market clearing price for housing may be. We won't know that number until houses start to sell again. I've called the next few months "the silent spring" because I don't think we'll see any sales.
Future History 2005-2012
Mortgage rates are low because of the velocity of money and the lack of risk premium built into the cost structure.
"Foreign investment" has always been around. If you were a rich capitalist pig Nouveau Riche ChiComm would you entrust your money to the mainland financial system? NFW. And balance of payments data are broken. No longer reliable. It isn't as bad as it seems.
What long term is gonna kill low interest rates is the necessity to inflate our way out of paying back all the SocSec money that isn't there but that's 8-10 years away.
In order of occurance:
1 Velocity of money slows down (M3 no longer reported, coincidence?)
2 MBSecs fall out of favor in the secondary markets.
3 Commodities pricing finally honestly shows up in the inflation data.
4 The Republicans (re)capitulate on taxes (again).
5 The Fed screws up one time too many.
6 The boomers start drawing down earlier than ever expected at the same time the extended lifespans of their parents so dearly bought both radicalize health care and push assetst onto the markets. Property and stocks, etc.
Welcome to a short history of 2005 through 2012.
CNU Charter Translated
The Congress for the New Urbanism advocates:
disproportionate government investment in central cities,
government restrictions on choice of home or neighborhood,
government mandated forced integration by race and income,
increased government protections of the environment by limiting choice and use of private property,
and the application of government policies to return to old city form and dominance.
Restore density in the old cities, increase density in the new suburbs and place prohibitions on any land use policies that result in either lower densities or investment outside the dense urban areas.
We recognize that intense limits on personal liberty and private property rights are necessary as physical solutions by themselves will not solve social and economic problems inherent in our prefered urban patterns, but neither can economic vitality, community stability, and environmental health be sustained without a coherent and supportive physical framework.
We advocate the restructuring of public policy and development practices to support the following principles: neighborhoods should be diverse in use and population; communities should be designed for the pedestrian and transit as well as the car; cities and towns should be shaped by physically defined and universally accessible public spaces and community institutions; urban places should be framed by architecture and landscape design that celebrate local history, climate, ecology, and building practice.
We seek to impose our extremeist and extreme minority views on the general population with force of government upon broad-based citizenry, composed of public and private sector leaders, community activists, and multidisciplinary professionals. We are committed to reestablishing the relationship between the art of building and the making of community, through citizen-based participatory planning and design. In short, we want to direct.
We dedicate ourselves to reclaiming our homes, blocks, streets, parks, neighborhoods, districts, towns, cities, regions, and environment.