Real Estate/Mortgage Loan/Stock Market

[squiffy]

I actually tried selling short Countrywide CFC and lost about 10K. I am glad to see Adios is still here. I kept predicting the demise of homebuilders and mortgage lenders and he kept telling me I just didn't understand CFC and its business model.

Short selling is pretty tricky. If you buy and hold, you can theoretically wait 5 years if necessary for the stock to go up.

With short selling, a stock can take 6 months or a year to go down. And the natural direction of the American stock market, over time, seems to be up.

So betting against a stock is a lot trickier than betting on a stock.

I think if it were easy and profitable to short, Buffett would probably do it.

It's easier to buy and hold undervalued stocks or to buy entire businesses when they are cheap.

[imported_bingobazza]

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I read recently that the real estate bubble is currently hndreds of times bigger than the dot com bubble and that the world has never seen a bubble so large when measured in USD.

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I don't have a link handy but compare real estate prices in Tennessee and Southern California then tell me there's a real estate bubble in Tennessee. Mentioned many times on this forum real estate markets are localized and not ubiquotous.

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You are ofcourse right, the bubbles exist mainly where there are major pockets of speculative excess...and the US in general qualifies, even thought there are still pockets of value, as there always will be, much like the stock market.

During a property price slump, however, much like the dot com bust, when many unconnected companies got dragged down as well as the Hi tech companies, places like Tennesee could well see slips if the wider market goes down....the delusions of crowd behaviour takes over at stressful times like these...and no where is totally safe. Rental income levels, like dividends, provide a floor for prices, as does smart buying, in both property and stocks.

Nevertheless, this global property bubble is truly gargantuan. The warning signs are scattered throughout this thread...ignore them at your peril.

Bingo

[MonarchDon]

Would you consider obtaining a 40 year mortgage ? Many banks are starting to offer 40 year terms. And what about when they come up with 50 terms would you go for that ?

I'm not being a smartA.. I'm seriously asking for your opinion.

[squiffy]

In Japan in the 1980's they started doing 100 year mortgages. And typically a renter would pay his rent 100% one year in advance. Very scary stuff.

I have heard American 40 year mortgages are very unfavorable, not because the idea is bad, but because few lenders offer them and the terms are bad for the borrower.

But in theory, with a properly structured 40 year and with a highly liquid market for 40 year mortgages, a 40 year mortgage would be a great deal.

If you can borrow at 6% and invest the difference at 10% in the stock market and pay back in inflated dollars, why not?

If I can find a 40 year mortgage link I will post it. If all banks were forced to offer 40 year mortgages so that they became as standard and liquid as 30 year mortgages, then they would be fine.

But banks will want a higher interest rate to compensate them for the higher long-term risk of inflation, I would think.

[adios]

Hey squiffy did you notice my recent post about my predicting a bear market for bonds especially on the long end? You and Ray were just a little early [img]/images/graemlins/smile.gif[/img].

[squiffy]

You have heard the saying a day late and a dollar short.

Well I was about a year early and I am now short 10K.

I tried short selling and also buying puts on CFC. But got in way too early.

It's just hard trying to get the timing right.

If you are going long and hold the stock, you theoretically have an infinite time to be right. You can collect dividends and wait 10 years if it is a solid company.

But waiting for the bubble to burst can be a long and difficult experience.

I knew long rates would start climbing and I knew home sales and auto sales would eventually slow down, but I cannot figure out a safe cheap way to profit from it.

Shorting is just downright dangerous. And puts go out only 2 years at the longest and often cost too much.

[Sniper]

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If you are going long and hold the stock, you theoretically have an infinite time to be right. You can collect dividends and wait 10 years if it is a solid company.

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This is a horrible way to look at the market. By waiting out a bad stock you lose TIME. There is also the possibility that the stock will never be profitable.

[squiffy]

Glad to see you are still around!!!
I haven't been back in about a year. After losing money on CFC, I couldn't show my face until I made it back on NOK.

Still. Homebuilders look like they are declining now. But cannot figure out a safe way to profit from it. Maybe puts on Hovanian. But they look very very expensive now.

[laserboy]

What you just described is what I call a credit bubble.

Only you forgot the part about the banking system collapsing and the deflationary Depression (with a capital D).

Periods of prolonged credit expansion and inflation are followed by periods of credit contraction and deflation.

Total Credit Market Debt as % of GDP

Bingobazza does a good job explaining it.

To play devil's advocate, if borrowing money to chase 20% returns is so easy, then why is the most successful investor of all time Warren Buffett sitting on 50 Billion in cash?

Of course, I could be mistaken. You may have discovered the perpetual money making machine.

[squiffy]

For one thing, he has too much money to invest. Peter Lynch writes about it in his books. Once a fund gets too large, it's hard to find enough undervalued stocks to invest in. And it's not easy to trade in and out of the market without affecting the stock price. Not to mention trading in and out leads to paying lots of short term tax gains.

There are some advantages to only having 200 or 300K to invest.

To me, making a few hundred or a few thousand on a trade is good money. If you have billions, it's a lot tougher.

My point is that it's not that hard to beat 4% a year. Heck, some stocks pay 2% in dividends and also appreciate.