Sunday, October 01, 2006

Housing Bubble Myth – Don’t Panic!

The pendulum of fashionable conversation has swung. Cocktail conversation now favors talk of bubble bursting and the fate of your newly moved in neighbors. I find all this bubble talk quite amusing. Apparently, I bought into two previous Washington DC metro area bubbles, 1981 and 1989. I did just fine, thank you very much.

From exactly what point in American housing history do we measure the great Housing Bubble? If a man purchased a house in Fells Point, Baltimore in 1966 he might have paid $8,000. Did he pay too much? With or without proper maintenance, despite surging inflation, that same house might have sold for a mere $4,000 by 1976 during the era of Baltimore’s give away Dollar Houses. Ouch, he had a 50% loss! He must have paid too much! Was it a time to panic? Surely only a fool would pay $4,000 in a descending market to buy a house in Fells Point at that point in time. Would that serve as proof in 1976 of a previous 1966 Fells Point peak housing bubble? That poor foolish owner had lost 50% of his equity in just 10 years, but only if he sold in 1976. Of course, if he didn’t actually sell, it was just grim cocktail conversation, a paper loss.

By 1989, that same house, with or without proper maintenance would sell for $160,000. Wow, a gain of 2,000% (or perhaps 4,000%) in just 13 years! Was the owner a genius to have bought or held back in 1976? Surely that would now represent a peak Baltimore real estate bubble in need of an explosive bursting.

But wait, fast forward to 2005, that same house sold for $485,000. Another 300% gain. The total 40 year gain on that same Fells Point house purchased in 1966 for $8,000 is over 6,000%.

I guess that this time it must really, absolutely, positively be the real estate bubble that must be popped. Nobody will ever again pay that kind of money for a house in Fells Point, or will they…

Trying to spot a bubble from within a market is next to impossible. Over any given period, prices can go up and down more than once, but the general direction in many desirable markets has been inexorably upward. Perhaps the criteria for spotting a bubble is whether or not a place is a desirable place to live over the long run.

If we see prices fall 30% over the next 5 years does that spell the end of long-term property values in desirable locations? No! You must keep your eye on the distant horizon. A house bought in 2005 for $500,000 may well fall to $350,000 in 2010, but so what? Stock also rise and fall, but you can live in and enjoy your house, not so your stocks. If 50 years of past history are any guide, that same house will likely turn upwards and hit $1,500,000 by 2020.

If you believe that America will be a long term successful international player, then property prices in America must continue to climb, and probably climb to ever lofty more unimaginable heights over the long run. To believe otherwise would be to place a bet against America.

Monday, September 25, 2006

Hey America – Don’t Pay That Bill!

As an American taxpayer do you really want your government to pay creditors around the world top dollar with your hard earned money? Shouldn’t your government be negotiating the very best deal for the American taxpayer? Of course they should. But they didn’t. Instead your government was so hungry to provide both guns and butter that they borrowed hundreds upon hundreds of billions of dollars at whatever market interest rate the world saw fit to charge. I never asked my government to borrow money from the world so that we could turn around and save the world from itself using those same borrowed dollars.

If we are going to save the world from itself, making it safe for democracy and whatnot, then we need to charge a ‘world safety’ tax for performing this great and noble service. The question to date has been how do we make the world pay tribute? I suppose we could go to the UN and plead our logical case but the UN is notoriously illogical and in any event they don’t seem to appreciate America as much as they should. We need a way to make the world pay without arousing their suspicions.

I know of a wily woman who has just the solution we so desperately need. It’s time to set the temptress free. Right now she is kept locked up in deplorable conditions in the US Treasury basement. She’s basically a good girl. She was good to us in the 70’s and 80’s. Most people who brag at cocktail parties about their six figure incomes have only her to thank. The temptress was called inflation and she made the average Joe a six-figure giant. Look how we thanked her. Oh, the shame of it. We partied hardy with her and then in a fit of self-righteous indignation we locked her up and threw away the key. But our redemption may be near, there may still be time to set her free. The question is will she forgive us our trespasses and work her magic yet again.

Saturday, September 23, 2006

Iran – Please, No Nukes

There is no need for a broad war with Iran. All that is required is the surgical elimination of a few of their nuclear power plants. There is no need to destroy their underground research labs. Just a quick bombing of perhaps two of their surface nuclear power facilities would be enough to end this conflict. A nuclear plant costs billions to build but can be heavily damaged or ruined with million dollar cruise missiles by remote control. After America destroys one or two of Iran's nuclear plants the game will end and they will negotiate. If America fails to act aggressively we will live to regret it.

Friday, September 22, 2006

Inflation – Your Best Friend

A best friend is always there for you, year after year. Currency inflation can be there for you to, year after year, your constant companion in the fight against unreasonable creditors. Right now the Fed has your erstwhile best friend locked in the pokey. Ask congress to set her free from Fed bondage. The way the Fed treats her you’d think she was public enemy number one.

Wednesday, September 20, 2006

The Cold War in Public Schools

When I was a student in the Baltimore Public School System in the 60’s and 70’s we had a clear idea of who the enemy was and where they lived. We were taught in social studies and geography that we were the world’s greatest nation. Students of the era were taught that Russia and China were our sworn enemies and a threat to be reckoned with. We were taught that capitalism was the greatest system ever devised by and for a free people and that communism was an atrocity against God and humanity.

Imagine that, declaring an enemy in public schools, actually pointing the finger. Just thirty years later and the politically correct liberals have taken control of our public education system. Students are not taught who our enemies are or even if there is such a concept as an enemy. They are taught that all people and forms of government have merit worth considering. They are taught that every person is basically good. This is because they fear offending the obvious parties. Our public schools have gone PC. The American Empire crumbles from within. Liberal teachers, armed with politically correct textbooks, teach that the USA is less than perfect and hardly in a position to righteously declare an enemy.

Modern teachers equivocate. They refuse to take a stand and declare America for what she truly is, the greatest nation and civilization ever to grace planet Earth. An entire generation is being taught that America is not all that hot. This new generation of Americans will not recognize evil when they see it. Their future dithering will bring about the collapse of America and global devastation.

Tuesday, September 19, 2006

Globalization – Better for America?

Globalization brings you cheap goods from China. Globalization brings America unemployment and lower wages courtesy of China's slave labor. Globalization continues to destroy America's manufacturing base. Globalization teaches Americans to think smarter not work harder, leave the hard work to the Mexicans. Globalization is converting black and white America to a nation of paper pushers. Ten years ago globalization was making us a nation of burger flippers. That era ended five years ago, now the Mexicans flip our burgers. We just eat them, growing fat and lazy and more liberal every day.

Monday, September 18, 2006

Inflation – Meet the Temptress

Currency inflation is so very tempting. As currency inflation heats up it makes pesky debt problems vanish in a puff of greenback smoke. If you could pay off your debts in half the time why wouldn’t you? If you currently make $100,000 per year and have a $400,000 no money down, no questions asked adjustable rate mortgage at 4% with a mortgage reset looming, by any means possible, yield to the inflationary temptress. She will dab the sweat from your forehead with newly minted designer currency. Within the blink of an eye she can give you a 10% raise this year and next. In three years you will be making over $125,000 without having to work any harder. It is monetary magic. She will save your lifestyle. She will save America. Inflation can be wonderfully soothing to man and nation alike.