Why I dislike real estate as an investment
It's a sign of the times that we are now seeing articles like this on MSN Money's website. Better late than never I guess.
If you already have a lot invested in the stock market, perhaps real estate is the way to go.
That's some seriously messed up logic. Why would the amount of money you have in the stock market alter your opinion on what real estate is worth? Real estate is either a bargain or it isn't.
It’s just not the sure thing people always make it out to be.
Agreed. If real estate does not end up being the "sure thing" people always make it out to be, then the stock market won't be a "sure thing" either though. In my opinion, you can't have one without the other. In other words, I don't think it is a coincidence that the stock market fell apart when the housing market did.
There are times to be taking big risks in the stock market and housing markets and there are times not to be. Right or wrong, I'm still bracing for more deflation. Housing prices are certainly cheaper now, but are they actually cheap? As I look to Detroit's housing prices and our nation's ongoing unemployment nightmare, I tend to wonder.
If you "already have a lot invested in the stock market", then good luck to you. The stock market has gone nowhere in the last 10 years. Based on the massive and unprecedented rally during the last year just to get it back to that level of nothingness, I would argue that at least a few investors are convinced that it is a "sure thing" yet again. I wouldn't claim to know though. I'm certainly not one of them.
Bonus "sure thing" thoughts...
ReplyDeleteU.S. Engine of Growth Is No Longer Sure Thing: Syed Salim Raza
http://www.businessweek.com/news/2010-01-06/u-s-engine-of-growth-is-no-longer-sure-thing-syed-salim-raza.html
As we head into 2010 with thunderclouds of looming depression still scattered...
There's nothing green shoots like more than a fresh dose of liquidity from dumping thunderclouds. ;)
My "sure thing" thought for the day:
ReplyDeleteMoody's Puts $572.7 Billion In Alt-A RMBS On Watch For Downgrade
"Moody's said it now projects, on average, cumulative losses of 14% of the original balance for 2005 securitizations, 29% for 2006 securitizations and 35% for 2007 securitizations. The updated loss projections will have the greatest impact on senior securities issued in 2005, the firm said."
"Investors" in RE today are catching the proverbial falling knife.
Oh wait, it's Ben to the rescue :(
G.H.,
ReplyDeleteBen will need to borrow more prosperity from the taxpayers and shovel it into the banking system while simultaneously encouraging the banking system to lend the taxpayers more prosperity.
Prosperity = Deck Chairs (Titanic)
" The stock market has gone nowhere in the last 10 years. Based on the massive and unprecedented rally during the last year just to get it back to that level of nothingness.."
ReplyDeleteTruer words have never been spoken or written. Right on Mark.
"If you already have a lot invested in the stock market, perhaps real estate is the way to go."
ReplyDeleteWhat about this second wave of mortgage resets that I keep reading about?
Stag,
ReplyDeleteWhen are people going to realize that Wall Streeters are more interested in their year end bonuses than their clients' financial well being.
Risky assets deserve a higher risk premium. Bernanke is artificially depressing the risk premium on risky assets in order to paper over massive financial fraud. To make matters worse, all the wealth from the Fed's intervention is being siphoned off by Wall St.
The majority are screwed.
Stag,
ReplyDeleteI'm back in rant mode it seems. The $145 billion in Wall St. bonuses (> 1% of GDP) is the reason. Wall Street bonuses are gift from the Fed.
By offering trillions in actual cash as well as 0% federal reserve credit for crap assets, the Fed artificially and arbitrarily increased the value of trillions in assets that banks are holding.
Bank equity is ~ $1 trillion dollars. At 12 to 1 leverage, banks are sitting on ~ $12 trillion in assets. A 2% increae in the value of those assets is $240 billion. A 5% increase is $600 billion.
Wall Street's profits are NOT earned, rather, they are gifted by the Fed.
mab,
ReplyDelete"Risky assets deserve a higher risk premium. Bernanke is artificially depressing the risk premium on risky assets in order to paper over massive financial fraud. To make matters worse, all the wealth from the Fed's intervention is being siphoned off by Wall St."
I share your frustration and disgust with the .gov/banking cartel. In my view Bernanke is telling prudent savers in this country "either risk your hard earned/saved money on artifically propped up stock market casino bets or you'll get nothing and like it."
mab again,
"By offering trillions in actual cash as well as 0% federal reserve credit for crap assets, the Fed artificially and arbitrarily increased the value of trillions in assets that banks are holding."
Keeping with the prudent saver perspective, I feel as if it's my lost interest on money markets, savings accounts, and CD's that has been transferred to the banks capital reserves to make it look as if they are healthy and able to withstand further shocks.
I consider this nothing less than a tax against myself to benefit the rich. I should be able to benefit from free market established interest rates and make money on my money while banks that made bad bets go down.
If this all seems like stating the obvious, well, it is. But I don't see enough people raising hell about it.
Everyone,
ReplyDeleteI'm game for a good old-fashioned rantfest. ;)
This is what I just got in the mail today.
Take More Time To Repay With Our NEW... 45 Day Payday Loans!
Mortgage loan offers turned me bearish in 2004. I'm fairly sure that payday loan offers should turn me even more bearish now. Just a hunch.
http://www.dfi.wa.gov/consumers/education/payday_loans.htm
What a crazy world we live in when the following is the only "frequently asked question" by borrowers at Washington State's DFI.
I currently have three payday loans pending with three different lenders. Loan #1 was just started on a payment plan, with payments scheduled for 12/18, 1/1, 1/15 and 1/29. Loan #2 is not eligible for payment plans until 1/1 and Loan #3 is not eligible for a payment plan until 1/29.
How will the new law affect me? According to your Web site, I cannot enter into a new loan if I have an outstanding payment plan.
While I was at the DFI's site I also browsed the following.
http://www.dfi.wa.gov/consumers/news/2008/informed-decisions.htm
DFI Cautions Investors: Make Sure Your Decisions Amid The Current Wall Street Crisis Are Informed And Researched
OLYMPIA – The Washington State Department of Financial Institution’s Securities Division urges Washington State investors to make informed decisions about their long-term financial holdings and to seek the advice of a trusted investment adviser or financial planner before making any sudden moves with their money, particularly during the ongoing market volatility and unprecedented turmoil on Wall Street. Director of Securities Michael Stevenson also reminds investors about the important safeguards protecting their brokerage account assets.
“We know from past experience that con artists follow the headlines to prey on the worries and fears of everyday investors,” Stevenson warns. “With the current economic situation, state securities regulators are concerned that scammers are gearing up to promote various investment schemes with promises of big returns. If history is any guide, these investments will be worth less than the paper on which they are printed.”
It would have to be "big returns" in order to lure people away from the dizzying stock market performance, dizzying copper performance, and dizzying oil performance over the past 10 months.
My sarcasm meter just popped. Picture placing a candy thermometer in a blast furnace. Sigh.
The Google Charts are pointing to a very tough year economically. I learned a long time ago to watch behavior and action above all else. I do the action test when out in the real world. Full Post here..
ReplyDeletehttp://thegreatloanblog.com/
Not Just[ Jumbo Loan](www.thegreatloan.com "Jumbo Loan") Talk Either.
Stag,
ReplyDeleteFrom the DFI link you posted:
The mission statement of the Securities Division is: "To protect the investing public and promote confidence in the capital markets."
The dual mandates of the Securities Division are CONtradictory imo. That seems to be a common problem with dual mandates including the Fed's. It's all by design no doubt. With CONflicting mandates, bad policy and behavior can always be excused.
Caveat emptor is the over-arching principle of our investment system. With that in mind, you have to wonder why the Government has a mandate to promote CONfidence in the capital markets.
Once we adopted a completely ficticious credit money system, it was only a matter time before the system devolved. At this point, it's all about the bonus.
CONtrary to popular belief, banks don't lend money. Rather, they create and extend credit. As long as obscenely large bonuses can be garnered from creating bogus and eCONomically senseless credit, the eCONomic stupidity will CONtinue.
Our futures are being determined by the increasingly idiotic and self serving actions of venal bonus seeking bankers. For some reason I'm CONcerned about the sytems' incentive structure.
The majority are screwed.
p.s.,
Can we make it an "Olde"-fashioned rant fest?
The Editor,
ReplyDeleteI read your blog a bit today. Nice.
mab,
Perhaps we're in The Dark(ening) Ages.