That's right! It's a twofer!
September 30, 2015
Why You Should Buy a Home Right Now
If you’re considering buying a house to act as rental income, doing so when rates are low is one of the most important factors to the success of your investment. We don’t know where interest rates will go in the future. They could fall even lower or rebound to pre-recession figures, but right now is a good time to bet on the housing market.
Indeed! Those who bought rental properties in 1981 when the 10-year treasury yield was north of 15% are probably still kicking themselves for making the purchase. But who could have guessed they'd be given so many decades to refinance at lower rates? And who would have guessed the 1980s and 1990s would be so prosperous? Oh, wait. Never mind. I think my logic is all messed up.
September 30, 2015
Four reasons the market won't crash
As for stock prices, I remain troubled by near record-high corporate profit margins, which create the illusion of a market that is cheaper than it really is. As margins revert closer to the long-term average, stock prices may indeed need to come down more to reflect the slowdown in earnings growth. However, the S&P 500 has now retreated about 12 percent from its all-time high, with certain sectors like energy and materials getting hit harder.
As the front of the car's bumper wraps around the telephone pole, the passenger has to ask, "Are we going to crash?" The driver replies, "Going to crash? Well, technically no. The telephone pole has lowered our speed considerably. Hell, I'm not even sure the car will be drivable in the future. Hey, great news! The airbags are finally deploying!"
Change in velocity/change in time. If we can get the time interval down to zero (an instantaneous stop!) the force will be infinite!!!!! Now that's some force multiplier!
ReplyDeleteCan we apply this force multiplier "science" to our eCONomy? Absolutely! Levererage baby! Infinite leverage! Zirp on!
ceteris paribus, it's of course better to buy when rates are sky-high, since prices are set, ceteris paribus, by the interest rate, low makes houses more 'affordable' hence they rise in price since you can't make something so scarce in supply as housing 'affordable'.
ReplyDeleteThe issue is interest rates are used as policy to stimulate or squelch the economy, and are also indicators of inflation moods. Buying an asset with 0 to 5% down in a period of 10-20% inflation is a no-brainer.
I didn't understand the lack of inflation in our current economic picture until well after 2008.
If I had, I'd have been loading up on those 5% 30 years!
https://research.stlouisfed.org/fred2/series/DGS30
Manufactured goods, which includes our food now, is a smaller piece of the spending pie than it was 30 years ago.
Housing & health care costs/profits have risen to fill the vacuum.
mab,
ReplyDeleteInfinite leverage and zero time! Genius!
I think I tried this concept on a weedwhacker once. The line was jammed. Ended up with a scrwedriver in my hand. Yes, I do mean in. But hey, doesn't mean that it can't do for the economy what it did for me. "Life blood" was squirting all over the place, lol. Sigh.
Troy,
ReplyDeleteIf I had, I'd have been loading up on those 5% 30 years!
It's not just inflation that has been low. Inflation adjusted yields are too.
They can pry the 30-year 3.4% inflation indexed I-Bonds I bought in 2000 from my cold, dead fingers in 2030.
Further the EE Savings bonds currently guaranteed to double in price in 20 years aren't looking too bad either. Am thinking about buying more before November 1st (terms might change). Works out to a 3.53% yield if held the full 20 years. They are also tax deferred which is nice. Puts me in a low tax bracket and therefore makes my health insurance cheaper (subsidized).