Sunday, August 17, 2008

fud (edited for accuracy)

I can't make any sense of anything anymore. Everything that I read says something different. Over at Rob Chipman's, there are some claiming that prices are down 15%, while The Financial Post says "The result was Vancouver home prices actually fell 1% in July from a year earlier...with an average price of $575,256.".

So, varying numbers, depending on what one reads. The only number I pay attention to is an MLS search for houses between $300K-$400K in all of East Vancouver. There is still only one, which I reported last week - V726309 - $335K on a 55 x 37.22 lot. Rented out at $945/month, an investor only stands to subsidise the rent by $1505/month (with 5% down). Wow! What a deal. I don't really plan on spending that much money when I do buy a place, but $400K was my drop-out level on the way up, and I won't be grabbing at any knives on the way down. When I can buy a renovated Craftsman bungalow in the Commercial Dr. area for $300K, I will be thinking we are near bottom. Unless, of course, there is a cataclysmic meltdown of some type, and then, none of us will be thinking much of buying anything.

I have been thinking of physical gold and silver lately, and that is kind of weird, as I am pretty leery of commodities. Maybe I'm just fatigued by it all. Gold is down some 20% since Rubberbladder was pumping it a while ago, and the US$ is inexplicably up. I read an interesting article on the subject of the US$,
Economists who now see American troubles spreading around the world are predicting that foreign central banks will ignore the gathering inflation threat and follow the Fed down the rate cutting path. Similarly, they argue that since the downturn began here, the U.S. recovery will likely be underway while the rest of world is still decelerating. These assumptions have prompted a rally in the dollar, a sell-off in gold, commodities and foreign stocks, and have cast doubts on the ability of foreign economies to “decouple” from the United States. Investors should not take the bait.
Read the whole thing if you are interested. This article on gold was interesting, stating that the US Mint has suspended gold coin sales. From the article;
The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.
I just can't make any sense of all of this gobbledy-gook. It is just FUD, to me.


markoz said...

Hi Solipsist! The CBC article is from 2007! Cheers.

solipsist said...

oops... Same day, just a year apart. No wonder I don't have any money.

I guess that I'm not helping to make things any more clear.

Anonymous said...

I'd be wary of anyone who says that the fact the world's largest economy is in trouble should not affect the economies of everyone who sells to them. Makes absolutely zero sense and it appears as though the market agrees. I'd stay clear of gold bugs trying to sell books too.

Will said...

Ohoh... gold? Casey Serin, is that you?

solipsist said...

I'd stay clear of gold bugs trying to sell books too.

Yeah, gold bugs. I just do not know what to think anymore. My only interest in gold or silver is to have a modest amount, at hand, in case of the shite really hitting the fan. I don't know that it would do much good even in such an event. My savings are succumbing to inflation, and that sucks. Mind you, my savings are ear-marked to buy a home, and that home will be paid for with the same Canadian dollars that are eroding in my bank account, so it ought to be a wash. Right?

Casey Serin, is that you?

Will, what does that clown have to do with the price of tea? Just wondering.

jesse said...

"My only interest in gold or silver is to have a modest amount, at hand, in case of the shite really hitting the fan."

Personally I'd store copious amounts of TV dinners, diesel fuel, and ammo. Gold and silver will only be useful as paperweights.

Anonymous said...

If you're worried about inflation then invest in a diversified portfolio of equity indexes through low cost funds or ETFs. Either that or use a diversified portfolio of money market funds. Buying any commodity as we're seeing right now is shaky at best.

One thing's for cetain if you have money in a GIC you are losing money. The banks and the government are the only winners in the GIC market.

solipsist said...

Gold and silver will only be useful as paperweights.

jesse - I have no room in my freezer for more TV dinners. The precious metals may be handy in dazzling threatening figures with our brilliance while the missus warms up a nice TV dinner for them, or maybe to make ammo in the event of an Invasion of the Body Snatchers, or packs of werewolves.

invest in a diversified portfolio of equity indexes through low cost funds or ETFs

anon - I wonder at all of that, but I am not a very astute investor (kind of reckless and dumb, actually), and I am entrenched in preserving my capital, even as it (relatively) shrinks. Would you care to expand on your thought? The banks and the government are the only winners in the GIC market. Yes, that just pisses me off.

Maybe I'll just buy a couple of hundred pounds of cocaine. I hear that there is good money in that.

jesse said...

Silver is no doubt useful against werewolves. I may keep a bit around just in case. I have yet to see literature indicating gold has the same properties. Maybe if I have to make a saving throw vs conductivity I get a bonus modifier?

Will said...

sol: That clown is all about gold and silver these days... yes, he's baaaack... and living in his parents basement? Housing Panic alerted me to his return. Now telling people how to live their lives on

mohican said...

A personal insurance policy for the SHTF (shit hits the fan) scenario should consist of (in this order of priority) a way to purify water, one month worth of non-perishable food for your entire family, first aid supplies, a gun with ammo, batteries, flashlights, and some tradeable goods (booze, chocolate, cigarettes, silver coins, etc).

In a SHTF scenario, most people will just want something to drink, eat, and to stay out of trouble. There may be law enforcement issues and home safety is a major concern so the gun and ammo is important. All other goods can be obtained with the prodigous use of the other goods (if bartering doesn't work then the gun should as a last resort). If the problems persist for longer than one month then we've got bigger issues that can't be solved with good preparation aside from knowing how to hunt, fish, and farm.

solipsist said...

jesse - I believe that conductivity is conductivity, but the silver can be anodized to purify water. Thus, I believe that mohican's maxim of a water purification set-up, and a handful of silver go hand-in-hand. or Goldfinger in Golden Glove, if you will (hand-to-hand combat skills are always useful too).

will - thanks for the update on Mr. Serin; or is that Mr. Sarin? He certainly gets on my nerves...

mohican - I fully agree with your SHTF kit. I've got that covered, other than the silver.

Something I took note of a long time ago: when I was in university, I had a Vietnamese friend who had escaped from Vietnam with his family. The only way that they got on one of the last boats was that his father had physical gold (he was a wealthy fabrics merchant). The family arrived in Canada impoverished, but alive. The father took work as a tailor to finance his kids' university education(s).

That story has always stuck with me.

I am not paranoid, but history is rife with stable states that went, rather quickly, to anarchy, and worse. I feel that it is prudent to be prepared for extreme eventualities, especially when there is so much extremism all around.

Sir Baden-Powell had a rather good motto, what was that now? Ah yes, Be Prepared.

mohican said...

solopsist - have your read 'The Black Swan' - I highly recommend it if you are thinking about extreme unpredictable eventualities.

The story (your vietnamese friend) does bring to mind a need for compact and valuable tradeable items during times of severe distress. Gold and silver work really well in that respect.

I am not a doom and gloomer or paranoid in any stretch of the imagination but I do also feel it is prudent to be prepared for things that seem highly unlikely but probably are more likely than we think.

arit said...

Same here. I am saving for some gold coins as well, already have the veggies garden, and also I haven't decided if it is best to import my own existing gun or get a new one.

You never know.
Best regards

Ken Simpson said...

I have a question for you braniacs.

I currently rent for $1325/month, a 1960s-era two-level house in East Vancouver on a nice tree-lined street. The landlord rents the garage out for $250/month as a workshop to a carpenter, so total rent from the place is $1575/month.

The place is assessed at $629K, and property taxes are $2500/year.

So net of taxes (which are obviously a total loss), the revenue from the property is $1366/month.

How much would (should) the landlord allocate to maintenance expenses? For example, in simple terms I suppose the roof needs to be done every 20 years at a cost of about $20K. And every year, something like the fridge or washer goes, costing about $500.

How much should a home owner budget for maintenance? $200/month?

Let's say it was $100/month saving for the roof, $50 for appliances (repair and replacement), and $50 for other miscellaneous things. Insurance on this place runs about $1000 (but it's probably more than that because of the rental situation). So that adds another $100/month roughly.

Adding this all up, we have:

INCOME $1575
TAXES -$ 208
MAINT -$ 200
INSUR -$ 100
NET $1067 per month

WTF, folks? So these people are earning a cap rate of 2%. If they just simply sold the damn thing and stuck the money into a 5yr GIC, they'd earn 4.65% - more than twice the return!

At what point would it make sense for us to buy this property? I'm gonna use mohican's formula:

FAIR VALUE = 100 / (5yr mortgage rate) * (annual rent - taxes - maintenance)

FAIR VALUE = 100 / 5.35 * (18900 - 2500 - 2400)

FAIR VALUE = $262,682

But let's say you can rent it for $2K/month. That would be pushing it, folks, but I know the rental market's hot these days. At $2K/month, our fair value would pop out at a whopping $357,000.

To get to fair value, the price of our house would have to drop by at least 43%. Are we in for the show of a lifetime or what!

solipsist said...

At $2K/month, our fair value would pop out at a whopping $357,000.

To get to fair value, the price of our house would have to drop by at least 43%.

Stay away from the kool-aid, and sugar plum fairies.

That 43% drop is well on it's way. Keep yer powder dry, and wait for 1988 prices.