Gyroscopic Investing

Here are the 99% declarations with "Mr. Grumpypant's" comments. (I believe it was MT who referred to Karl as a "grumpy clown". Anyways....this post serves two purposes:

1. It gives an idea of what the 99% wants.

2. It starts a discussion about whether what they want is actually feasible...and a good idea.

Here we go:  http://market-ticker.org/akcs-www?post=196201

I totally agree with "Mr. Grumpypant's" when he says:

"The solution to the housing crisis is to stop trying to prevent home prices from collapsing to where they should be.  Houses are not investments if you're living in them as a primary residence: They're a consumer durable good.  Ask anyone who's owned one - the roof needs fixing, the water heater needs to be replaced, furnaces wear out and electrical work is needed from time to time. Absent that routine addition of more capital eventually your "house" will crumble into dust!  In addition this "more price always" game has enabled the municipal governments in making promises they know they can't keep either by jacking real-estate taxes at astronomical rates of growth.  That has to end as well.
We all want cheap cell phones, cheap DVD players and cheap televisions.  Why would you not want cheap houses as well?  You've gotten both better quality and lower prices in these other items you consume.  I understand that there's this mental block when it comes to houses but you have been intentionally deceived by those in the housing and lending industry in this regard - a home is no different than any other large and expensive consumer "thing", and you are best-served by the highest quality at the cheapest price, just as with your television, refrigerator or car."

I can't say I disagree.  I think if you look at rents and home prices they seem to be about balanced out now.  There's no more homebuyers credit.  The fact that there are loans being held by the government makes me wonder what would happen if they dumped them on the private sector.  It probably would 1) make those mortgage values go to crap, 2) make new mortgages more expensive, and 3) end up bringing down housing more as a result.

I'm not sure how much more housing has to go down, but I think we have to mentally take ourselves through the deleveraging process and what it will mean in the short-to-medium term.

Part of me thinks that a great idea (for how much it would cost) to bring balance sheets back into alignment would be to allow penalty and maybe even tax-free distributions from retirement accounts if the proceeds are used to refinance or pay down principal.  Yes, this is simply taking from one bucket and putting it into another, but it'd be a way of letting people that are in the worst spot (underwater with 5.75%-6.5% mortgages) do much better with their money than what the market is offering now (simply paying down 6% debt is a good financial move) and possibly/probably even refinance, which would definitely improve their cash flow going forward with money they weren't going to touch anyway.

Think about it... someone has a $180k house with a $220k mortgage at 6.5%.  Take $60k out of their 401(k) penalty free (and maybe with some exemption amount or tax-credit attached to make it more bearable), pay the mortgage down to $160k, refinance to 4.5%, and significantly reduce their payments going forward and improve their financial position.

This seems to be a way to soften the blow for those in a financial postion to want to do this as opposed to go through some kind of bankruptcy process.

It seems like there should be ways of greasing the wheels of deleveraging without causing moral hazards or driving up asset prices.  this will make the entire mortage market subject to less systemic risk, and those without ANY retirement savings, or without enough to make this move, are probably in no position to own an underwater home and their debt should be liquidated anyway.  I think this could smooth out what could otherwise be a very disruptive deleveraging and mass-bankruptcy process. 

Peter Schiff answers the "takeover Wall St" crowd:

http://www.youtube.com/watch?v=Hp0fNA_r ... re=related

He says that the problem is too much govt and not enough capitalism, the opposite of what many of the protesters are protesting.

Peter Schiff's hyperinflation ramblings make me sick, but most of his points are relatively valid in that video.

moda0306 wrote: I can't say I disagree.  I think if you look at rents and home prices they seem to be about balanced out now.  There's no more homebuyers credit.  The fact that there are loans being held by the government makes me wonder what would happen if they dumped them on the private sector.  It probably would 1) make those mortgage values go to crap, 2) make new mortgages more expensive, and 3) end up bringing down housing more as a result.

Moda, I have to respectfully disagree that house prices are balanced compared to rents.  Even without the homebuyers tax credit, there are still billions of dollars of government subsidies being spent to keep prices artificially high through Fed programs to purchase MBS, operation Twist keeping the long term interest rates artificially low, and the mortgage interest tax subsidy.  All of these programs have the express goal of levitating house prices to artificially high levels.

If we truly want things to return to normal, we would remove all government assistance from the housing market.  You would see median house prices drop to 2.5x the median salary.  That is what they have been historically for hundreds of years.  It is only a recent phenomenon that people think house prices 10x the annual salary of a person are normal.

Reub, I totally agree with much of what Peter Schiff says in that video. I think the occupy wall street movement initially made a point of not asking for any specifics but rather simply protesting against crony "capitalism" (it would be better to call it crony corporatism or something). I think it would be wise for them to stick to that. The left/right division does disempower both the Tparty and occupy wall street whilst as Peter Schiff says they are protesting against the same thing.
I think the problem is pinning down what Peter Schiff means by free market capitalism. I suppose he supports anti-trust regulations? The thorny issue is that keeping things free seems to entail government regulation but that government regulation can and does get captured and used to make things less free. My mixed up views are because I see wealth equality as the only robust way to ensure effective free market capitalism but government intervention to reduce wealth inequality is most peoples antithesis of freedom.

I have participated in an "Occupy" demonstration and will again this weekend. Both the Tea Party (before it was co-opted and corrupted) and the Occupy protests find their core message to center around the corrupting influence of corporate money in politics and the distortions that this causes to our economic, political, and justice systems. For the most part the "Occupy" movement has chosen to focus on this message.

There are fringe elements (that the media loves to latch onto...especially FOX) that have more revolutionary or extremist views that fall outside of what the majority of protestors are demanding. While this group is free to express its opinions, they are somewhat counterproductive and in a way serve to undermine the more serious demands made by the majority. Such as these: http://www.cnbc.com/id/44989010/

By the way, I read an interesting analysis of the current events in which the author (one of my favorite bloggers) theorized that the unrest we are experiencing is attributable to our position in the winter of the Kondratiev cycle. Below is a section of what he wrote regarding this. To read the rest see this: http://earlyretirementextreme.com/peak- ... d-ere.html

The current Kondratiev cycle began in 1949 and will likely end sometime between now and 2020, maybe 2025. We can call this “the cheap oil era”?. The previous era was built on the chemical industry (plastic fantastic, war gas) and electricity (domestic lights, motors). The one before that on steel and railways. The one before that on steam power. The one before that on timber (which pretty much deforested many countries).

Each Kondratiev cycle lasts about 60 years plus minus a decade. There’s a generational theory behind this too. The winter season is the end of the cycle. This is the time when the system collapses under its own weight. We currently see the collapse of the financial system. The political system is also in dire straights. Traditional means of understanding no longer works but it takes some time for the old generations to realize that. They’re too calcified in their understanding because they believe that since it’s been this way since they were born, it’s the only way. In particular, the young generation (Millenials) no longer see politics and red vs blue or left vs right. They see the two as essentially being the same thing (which it actually now is). The financial system has the same problem. Before the crash, the financials comprised 20%+ of the entire US economy. There you have an industry which essentially produces nothing but a governing system that determines where your money goes alongside with a government which by definition only makes things which the private market refuses to suply because the ROI is negative comprising over 50% of the entire. It’s bound to collapse.