There's been a shift in tone here - decidedly more bearish

I actually disagree with you stevejhx. petrfitz can't be dumb. why?

"I made several million dollars in 2007 and have a net worth of over $10 million."

steve, are you dressed in a pink, furry bunny suit with a drum on your lap? You just keep, going and going and going.......

stevejhx and petrfitz.... both of you, enough, you are both right and both wrong. While I see some very intelligent arguments from both of you, neither of you has one ounce of common sense. There comes a time that not replying is a much stronger argument than banter.

JuiceMan, this wasn't even what this thread is about. But your image is very funny!

wysiwyg, I can't see you so I don't know what I'm getting.

I've yet to see how petrfitz is correct. If his argument is that sometimes some asset classes outperform others, and some assets within the same class outperform others, then he's stating the obvious. If he's saying that Manhattan real estate always outperforms the S&P 500, it never does for long periods.

stevejhx, I can't see you either, but I do know what I'm getting. And I'll pass.

wysiwyg, what?

MMAfia you are the biggest jerk on this thread

houser, I thought that was me!

Re financial planners, petrfitz, read this, written by one:

http://money.cnn.com/2008/04/30/pf/ask_the_mole.moneymag/index.htm?postversion=2008050106

What you shouldn't be paying for

If you're expecting that a high-fee planner is going to beat the market, or generate superior returns, you're likely to be disappointed.

The market is nearly all professionally managed. So paying one expert a fee of 1% or 2% annually to outsmart another expert, with the expectation of achieving a return greater than the market, is a game that fewer than 1% of us will win in the long run. I don't feel that lucky, so I don't have my clients make this long-shot bet with their nest egg.

The argument is settled by simple arithmetic. If, for example, the market returns 10% and you pay a 2% fee for this planner's expertise, then the average dollar invested will yield only 8%. And if the market loses 20%, then your average dollar invested will lose 22%, once fees are added to the investment losses.

So that 2% fee may not seem like a lot, but it's adding to your losses and taking away from your gains. As a class, we financial advisers can't add any value here. Put another way, it's a zero-sum game - our gain is your loss.

AND YOU TAKE THEIR ADVICE!

You probably have a universal or whole life policy, as well.

Sucker!

"houser, I thought that was me!"

LOL stevejhx!

MMAfia, I advise getting out of gold (a pure dollar play) because now that spunky's been banned who else is here to advise you about these things?

Nonetheless, I don't mind being the biggest jerk on this thread, because I don't mind being the only one who can see the bubble.

Incomes and Leverage Down = Property Prices Down.

No escaping it.

stevejhx, thanks! was missing it =D go to boris chikvash's blog and meet me there. let's not discuss real investing here- as we know, it's great for entertainment but not for serious talk. you should see his blackbox MDS.

Technicals are great for some things, but I would be hesitant about gold only because it is an emotional commodity not one with any real underlying industrial use. I think technicals are extremely useful in short-term currency trading, for instance, as long as you know where the long-term is headed, and in testing resistance and support in a range, but I prefer value investing: you know what you're looking at and understand it, but just have to feel the potential in it.

Ergo Brazil: For the past 25 years I've been working in developing markets, be they Latin America, Asia, Europe (Spain, Portugal before they joined the EU) and I understand them. I know what happens when economies are deregulated. I know the desire these people have to work. (Otherwise, there wouldn't be so many illegal aliens here.) I am extremely bullish and, in fact, have nearly a million borrowed on margin invested there and elsewhere in the developing world. Not a dime in the US - our current economic policies are Stupid, Stupid, Stupid, as Suze Orman would say.

But gold? Honestly, given the risk of waking up one morning and finding it all wiped out, I'd rather give the upside a risk: I'm not a good timer. Candlestick charts make me dizzy!

And I have nothing against owner-occupied residential real estate, as long as I know what it is: a capitalized expense. Even "Rich Dad, Poor Dad" knows that, and he doesn't know very much else.

That said, if you know how to do it better than I do - go for it!

give the upside a risk = give the upside a "miss"

I do admit to having a considerable position in commodities, though I'll be scaling back in a month or so: the ride up was nice, but I'm getting nervous!

money flowing out of commodities and into equities recently due to strengthening dollar. same ol cash flow rotation that's been going on since the market shock from last year. but the proof is in the pudding with regards to boris' mds. it's so much more than your typical technical analysis. it's more similar to charles nenner's analysis. if u know who he is, you know what i'm talking about.

as far as gold goes, it's been the real currency backer of currencies of all economies until the fiat system and brettonwoods was introduced, hence the reason why all central banks still hold tons of it. the parabolic rise in gold was unsustainable and it needed to come down back to its normal bull market trend (target is around $800). it had a blow-off when it crossed $1k, at which point many realized their profits by cashing out. traders, in particular hedge funds have made excellent returns from the last parabolic rise. in particular, when i posted last december, it was an excellent play (as opposed to buying real estate in manhattan). in my original post, i said talk to me in jan, and during that time it did rise from $800 to $1000, at which point, the smart trader would have acknowledged the blow-off point and realized the gains by selling positions off.

brasil can be an excellent strategy/region play. many private equity and hedge funds that have come our way have peddled their strategies in that country to us, and some have been compelling enough for some of our asset allocation model to distribute to. in addition, certain parts of africa are also just as promising- enough to earn some of our allocation as well.

however, this kind of talk doesn't belong here. =D

this is the wacky, delusional manhattan real estate will never go down entertainment board! yay! =p

I agree medium-term gold $800, way down from recent values, however. LT - $300-$500, but I wouldn't want to hang around. Fillings are worth something, after all.

My new bet is Ultra China Pro fund, Profunds, 2x China. Taken a beating recently, I'm selling a losing position (on a tax-lot basis: still a huge winner on a financial basis) on Monday & investing it there. 2 billion people, Cuba is liberalizing, China can't last Communist forever. Only losers - Venezuela, Bolivia, Argentina - think that import substitution, pure commodity plays work. China knows better. You can have all to coal in the world (we have most of it - like 80% of the world's coal) or gas (like Argentina) - they do not produce wealth. Wealth is produced by value-added: innovation, crack spread.

BTW I've known people @ Exxon for YEARS - since the 80's - there's lots more oil in the world than anybody knows. They don't declare it all @ once b/c they get taxed on proven reserves. Do not invest in windfarms or anything silly: there's another 100 years of oil out there, & I prefer warm weather.

But yes, petrfitz doesn't know what he's talking about. Owner-occupied real estate does NOT appreciate dramatically b/c it can't: it's constrained by incomes. You need to invest in a) what you know (you gold, me EM); and b) what produces value-added. There is no value added in owner-occupied real estate.

Sorry. There never has been, never will be: it's a capitalized expense. Ignore that at your peril.

My oh my MMAfia I just voted you to for the biggest Bull Sh*t artist to ever walk the face of this planet award. Your investment in Aluminum or whatever worthless metal you own has confirmed to everyone just how stupid you really are.

No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

jhxsteve, weren't you banned? along w' spunky?

ok, here's my 2 cents. IMHO petrfitz is a dumb-ass douche that has zero critical thinking skills. he is the worst type of dumb-ass because he actually thinks he's smart. i agree with wysiwyg that stevehjx should not waste his time. what's the saying? when you mud-wrestle with pigs, you both get dirty. i don't agree with stevehjx's points 100%, but he clearly is a logical thinker -- FYI "financial advisers" don't have a monopoly on logical thinking. ...but i must confess that after a bit, i just started skimming because, man, after a while, it's just banter banter banter. (kinda like what i'm doing now, silly!)

steverhjx, one quick thought: for the moving average comparisons, wouldn't it depend on how many years the moving average was for? was it a 10-year MA, or a 2-year MA? (you may have mentioned, but like i said, i was skimming) ....... if you WERE using something silly like a 2 or 3-year moving average, then i think it's totally possible that renting could be worse than buying/occupying. but i do understand the tenor of your argument. and more importantly, the steps in your logic allow me to give you the benefit of the doubt, unlike some of these other morons.

"Your investment in Aluminum or whatever worthless metal you own has confirmed to everyone just how stupid you really are."

Aluminum? houser, are you trying to give petrfitz a run for his/her/its money for the dumb-ass award? as paul10003 says, not worth "mud-wrestling" with you.

"You need to invest in a) what you know (you gold, me EM); and b) what produces value-added. There is no value added in owner-occupied real estate."

exactly stevejhx. not in owner-occupied.

paul10003, yes the moving average period matters, for both they are moving averages from the end of WWII, taken in 12-month segments.

I don't think we can do better than the end of WWII, since that's pretty much modern times, and the Depression and the 20's skew everything else, not to mention that the world is a far different place, if the movies are any indication.

I thought I would resurrect this thread after 10 months. I especially like it where petrfitz says he's "Extremely Bullish" on Manhattan real estate.

And of course my impostors!

"I especially like it where petrfitz says he's "Extremely Bullish" on Manhattan real estate."

That still cracks me up...

I just flipped thorugh this long thread and have a question or stevejhx -- in my case when I buy I plan to pay cash of say 500 to 800k, but i would not buy if i could invest the case in something fixed income actually yielding say 8% a year but no such thing exists that is not extremely risky. (Paying cash is not because I am rich, but because I have a modest net worth, and am not working anymore, and have cash which is yielding nothing, and i do not want to increase my modest exposure to s and p 500, about 15% of my assets, where I lost 12% of my life's net worth last year)....

so my question is: if youre comparing yield on cash to avoiding paying rent, might it not be better to buy?...I don't know. I am thinking about this.

If you only lost 12% of your life's net worth last year then you're doing better than I am!

The question is how much do you think real estate still has to go down, and what's your time horizon. If you think we're at the bottom (I don't) and your horizon is 10+ years, then it's better to buy. But if you think we have a lot yet to fall (I do) and you might want to sell in under 10 years, how much principal are you willing to lose?