Financial topics

[Higgenbotham]

I have no positions in anything except cash (over 90% treasury bills). Yesterday I canceled an appointment to look at houses. Seems to me that real estate can fall further.

This is a nice long term chart of the gold oil ratio. The ratio currently stands at 23 which either makes gold relatively expensive or oil relatively cheap. I don't plan to do anything with this yet as I believe it can probably widen further. At some point an equal dollar short gold and long oil trade might be worth looking at.

http://www.resourceinvestor.com/News/20 ... ld-Oil.jpg

[jdcpapa]

Yesterday I canceled an appointment to look at houses. Seems to me that real estate can fall further.

I continue to look for real estate. However, I am nagged by the Baby Boomer retirement and further erosion as a result. Who will buy their homes?

[Higgenbotham]

Yesterday I canceled an appointment to look at houses. Seems to me that real estate can fall further.

I continue to look for real estate. However, I am nagged by the Baby Boomer retirement and further erosion as a result. Who will buy their homes?

I was talking about this with a friend last night. Around the country I see many areas where home values have fallen 10% in the past year. Here's the further dynamic I see. Let's take the unlikely possibility that a young couple is employed well enough to save 20% to put down on a house. They see prices have fallen 10% in the past year and the bank sees it too. Both realize the down payment could be wiped out in 2 years if trends continue. Therefore, the bank may not want to make the loan at all, may tighten their standards further, or may require more down.

Also, if the stock market crashes I see almost no possibility that home prices can get out of their rut immediately. That's the main reason I canceled the appointment.

[MnMark]

Back in 2003 legendary investor John Templeton said that real estate was in a huge bubble and his advice on when to buy again was: "After home prices go down to one-tenth of the highest price homeowners paid, then buy." http://www.garynorth.com/public/4690.cfm

I remember mentioning that prediction of as much as a 90% drop from the highest prices to a successful businessman friend of mine. He scoffed, saying that house prices never really fall, they only stagnate for periods of time. He conceded it could be possible they might fall 5 or even 10% but never 90%. Well they've fallen nearly 40% already where I live.

The point about all the baby boomers looking to sell their houses is a good one. Also, we are at historic low mortgage rates right now. When those begin to reflect the actual risk of lending money for 30 years in these money-printing times, it will drive house prices much lower because it will be so expensive to get a mortgage. There was tremendous overbuilding of housing and we are entering, I believe, a time period where there will be vast amounts of poverty and hardship. Who will have the money to buy a house when they are struggling just to feed themselves?

I think Templeton's prediction of a 90% drop from the topmost high prices may turn out to be not far off.

[Higgenbotham]

Back in 2003 legendary investor John Templeton said that real estate was in a huge bubble and his advice on when to buy again was: "After home prices go down to one-tenth of the highest price homeowners paid, then buy." http://www.garynorth.com/public/4690.cfm

Another discussion of an interview with Templeton around that same time. These are the last interviews he did so far as I know.

http://www.heraldtribune.com/article/20 ... ?p=1&tc=pg

This one looks to be later:

http://chinese-school.netfirms.com/Sir- ... rview.html

Another even later interview:

http://www.newsmaxstore.com/newsletters ... pleton.htm

[vincecate]

Yesterday I canceled an appointment to look at houses. Seems to me that real estate can fall further.

I think inflation and interest rates will be going up. When they do the first thing housing prices will do is go down. At higher interest rates people with a fixed amount available each month can only afford cheaper houses. Eventually inflation will drive up the value of real estate but first I expect it to make the prices go down.

[jdcpapa]

Also, if the stock market crashes I see almost no possibility that home prices can get out of their rut immediately. That's the main reason I canceled the appointment.

Back in 2003 legendary investor John Templeton said that real estate was in a huge bubble and his advice on when to buy again was: "After home prices go down to one-tenth of the highest price homeowners paid, then buy." http://www.garynorth.com/public/4690.cfm

I think Templeton's prediction of a 90% drop from the topmost high prices may turn out to be not far off.

I bought a home in the early 80's when mortgage rates were 12%. The value remained flat for 15 years until the population shifted due to an act of God, a political event, and no doubt from a reduction in interest rates. The present issue of value has not been impacted inversely by the lowering of interest rates. There is too much downward pressure.

I think it depends on the location. Location, location, location! I am interested because the rental market is strong and it would be a nice hedge against the chance of a dollar problem. I met a gent that went through the crash in Argentina. Real estate held out well. By paying cash, one could earn about 10% net. If the value did decline you can catch up because of the premium over the "safe rate". The baby boomer issue looms. I continue to look.

[MnMark]

Another even later interview:

http://www.newsmaxstore.com/newsletters ... pleton.htm

Interesting that in that interview, Templeton says (with regard to real estate): "A 50% drop off in prices is quite possible. "

Perhaps he backed off his 90% drop prediction.

He also said (this was in 2004) that gold was overvalued. He really missed on that one.

[Higgenbotham]

Sir John Templeton’s Last Testament: Financial Chaos Will Last Many Years

The memo of Sir John Templeton follows, punctuation is his own:

John M. Templeton
Lyford Cay, Nassau, Bahamas

June 15, 2005

MEMORANDUM

http://www.newsmax.com/Ruddy/john-templ ... /id/352142

[Higgenbotham]

Interesting that in that interview, Templeton says (with regard to real estate): "A 50% drop off in prices is quite possible. "

Perhaps he backed off his 90% drop prediction.

He also said (this was in 2004) that gold was overvalued. He really missed on that one.

Reading through the Templeton articles reminds me of how incredibly difficult it is to predict investment outcomes, even for the world's best investors. In 2004, I had 30% of my assets in gold, silver, and gold mining stocks. And I can now recall reading that article where Templeton panned gold. I was scared but, at the same time, couldn't see his point of view. I agreed with him on real estate and sold the rest of my properties in 2004, then watched in surprise as the bubble continued to grow for another 2 years. Another thing that seems to come out of these articles is that Templeton doesn't have any hard and fast viewpoints. He has a general picture but the specifics seem to be ever changing. Maybe that kind of flexibility is what it takes to be a great investor.