Posted on 11/20/2006 9:47:58 PM PST by GodGunsGuts
And no, rising prices of art and collectibles has NOTHING whatsoever to do with "fiat money"; too much of it or otherwise. Doubt that? Then let's talk about were "hot" collectibles" when gold and silver were the legal tender. Oh heck, we can even skip ahead a bit and talk about the same thing, when ALL of our money was gold and silver backed. ;^)
You are, are you? :-)
Figuratively.
LOL!
These buyers are in a position where they bought speculatively with poor financing (interest only loans, ARM's, 100% financing) assuming that the value of these "investments" would go up.
Okay, they're over leveraged.
That is leveraged money that puts them in an analogous position to the short seller with a margin call he can't pay because the stock price went in the wrong direction.
No. A short seller benefits when prices drop. These people lose money when prices drop.
With the value plunging and their inability to meet mortgage payments (the figurative margin call)
A margin call is intended to bring your capital up to a safe (for the brokerage firm) level, the mortgage payment is like the debit interest charge in your margin account. Completely different.
these "greater fools" now must default because the asset they have to sell is worth much less than what they owe on it.
Having negative equity is completely different than selling short.
Time to buy a beach house (well, let the prices fall some first).
There is a reason why mortgage in a pool is cheaper than the same mortgage taken individually. It's called prepayment risk. A stand-alone mortgage has more of that risk (defined as volatility.) More risk = more expensive.
The main reason mortgage pools and mortgage-backed secirities were created in the first place was to reduce that risk.
When I said "collectibles" I didn't mean Beanie Babies or the like. I meant things like rare coins.
Coins USED to be a collectible that NEVER went down in price/value ( as all other collectables do, due to fluctuations in taste ), until late 1989. Numismatics was forever changed thereafter; yet, it is a good hobby and somewhat of a good investment. But you REALLY have to know what you're doing and find a reliable and HONEST dealer.
Because of fluctuating tastes, ART ( paintings, lithos, sculpture ) and object d'art are fun to own, pretty good investment, but some things, no matter how old or new, can wind up losing even their original value.
Books ( FIRST EDITIONS ) are wonderful collectibles and don't lose their value, unless one doesn't take care of them.
Musical instruments are only for the MOST serious and knowledgeable collector!
Toys and now I'm not just talking about true collectibles/antiques, because many people are now collecting things less than 100 years old, but NOT anything like and including Beanie Babies, have skyrocketed in price and value. From American Flyer to Lionel to Marklin....the prices of rare, MINT trains, accssories, and their original boxes are in great demand. Stieff teddy bears fall into this category as well. But true antique toys are also great investments, but also only when their condition is very good and ALL of the original pieces are there.
OTOH, none of these things are easily, nor quickly convertible to hard cash.
There are people who collect barbed wire, beer bottles, and you name it. That doesn't mean that they are good investments.
As with homes, most collectors collect because they love the things they collect and while they might see them as investments, that usually isn't WHY they collect.
True and the same thing is true of people who borrow money on credit cards and then play around in goldbug circles. :-)
The speculators may have been scared away, but folks will always need houses to live in. Sales may be slow, and folks' houses may show some depreciation from what they THOUGHT they'd sell for, but they're still selling.
Incorrect. One pays less for lottery tickets (high risk, but high return potential) than for soveriegn debt (low risk, low return potential).
More risk means that you are willing to pay less, not more. More risk = cheaper, not "more expensive" as you claim.
Mortgage pools do reduce risk for the investor, you are correct, but the homeowner *knows* the risk of buying his/her own mortgage note back from investors (at least, he/she knows that risk better than the investors because he/she has a better idea if he/she is about to default on her mortgage payment).
So it is often a good deal for a homeowner to buy her own note back from an investor at a discount to the note's face value, even if the homeowner must pay the investor a premium for her note compared to the price being charged on average in the entire mortgage package.
I agree. A credit crunch and deflation will come with a housing bust- liquidity will be at a premium, and that's not a recipe for gold going up- or even staying even.
The housing/mortgage bust is going to shrink the quantity of credit sloshing around the economy. And that credit won't return quickly either- tighter lending standards are coming back to stay. We are going to see fraud exposed that will rival what happened in the S&L debacle. The next three years ought to be very interesting.
Good points. Happy Thanksgiving.
If you purchase a house for the purpose of living in it, what is the downside of its value decreasing? Property taxes should go down, your mortgage interest is still deductible, etc. UNLESS, you overbought, put little to nothing down, aren't paying down the principal, and will have to move because of job or other reasons. It looks like the people who fit in the latter are the ones who are going to be in trouble.
PS....Happy Thanksgiving!!!
I hope that you and yours had a lovely Thanksgiving.
This is only true if you mistakenly believe inflation has a homogenous effect on all prices in an economy. In reality credit expansion can be highly localized in its effects as can a credit bubble collapse.
Thank you. It was nice - which isn't the norm (no fighting)... Hope you and your family did too.
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