Why Own When You Can Rent?

About two and a half years ago Trina and I sold our house and we've been renting ever since. Renting was not the original plan but it became the obvious one shortly after selling. I worked for a home builder at the time and by early 2007 I had predicted that my employer would be gone by the end of 2007 and I'd be looking for a job. I was right, but they lasted a little longer than I thought. The Bank foreclosed sometime in May or June of 2008, just six months after I had already left.

Today I am always asked why I have not bought a home yet. So many people say this is the best time to buy and that I won't see a better time ever. "Better not be greedy" they say. They think if you look for the bottom of the market you'll loose out because by the time you recognize the bottom it will have already passed us by.

I think not. We have a ways to go in my opinion. I think once we hit "bottom" we will be there for a looooooong time. Plenty of time to recognize it and take advantage, if you can. Why buy right now anyway? I can still rent for less than I can buy and in fact where I live there is downward pressure on rents due the large number of homes people are trying to hold on to and rent. While renting I am able to save more money than I could ever save by owning.

I am keeping my eye on things though. Once the cost of renting is greater than owning, that is when I begin looking to buy. I would likely buy even if market values continued to fall as long as the cost of ownership was less than renting. Of course there are other factors to consider as well. I am in no hurry to buy right now since there is an opportunity cost to buying. Once I buy I've thrown an anchor overboard that will be difficult to heave back on board if I need the flexibility to sail off after another opportunity. Flexibility is important under current economic circumstances.

For now, I'm sticking with the current game plan - wait it out. All signs indicate that this is the best way to go for now. The 60 Minutes video and the commentary below are a couple of the many sources that support this conclusion.






http://www.moneyandmarkets.com/your-2009-real-estate-outlook-2-28990

Here Come the "Chuppies"

Its been a while since I've posted anything on this blog. I believe I became a little exasperated with saying the same thing over and over again, even if it was ten different ways. I don't know that anyone reads this, at least not regularly. If anyone does let me know. Otherwise I'll just keep talking to myself.

For anyone out there that thinks that the world will hurt when the US hurts that may not be so true. Those countries that have high savings rates are sitting pretty. While the US will have to cope with a drastic reduction in our standard of living other parts of the world will increase their standard of living. It's possible that we are witnessing the beginning of a shift of producing economies like China becoming consumers of their own production. No longer will we be able send IOU's abroad in return for goods that we will never fully pay for. Nope, time to start to rebuild America. Let's get some factories here so we can provide for ourselves. Much of the rest of the world has not forfeited their purchasing power as we have so profligately done.

Check out what's happening in China right now. As we spend less there is a new breed of yuppie emerging in China - the "Chuppie":

http://www.moneyandmarkets.com/miracle-on-nanjing-road-2-28925

Did Fed Chief Ben Bernanke and his peers do right by cutting rates?

No. The Fed did not do the right thing.

The “liquidity” the Fed has been pumping into the market will eventually find it’s way into consumer prices unless Fed policy changes, and it’s doubtful it will. The political winds simply won’t allow it. True inflation is much higher. Asset prices are deflating after a decade, or more, of poor policy decision by the Fed that encouraged asset inflation including real estate.

The Fed is trying to change a normal free market collapse of the bubble the Fed itself created. It’s trying to cure a disease with the same medication that caused it. It won’t work. The Fed needs to back off before it makes the inevitable even worse.

The dollar is inhaling it’s last breath. Whether it exhales quickly or slowly won’t matter. The end result will be massive inflation, perhaps hyperinflation, caused by the very agency that is supposedly commissioned to protect against it.

See other comments by following this link:
http://onassignment.blogs.foxbusiness.com/2008/10/29/weigh-in-did-the-fomc-make-the-right-decision/

Straight Talk

I had this video posted in an earlier blog but the video source disappeared on me. Found a better source any way.

This is by far the best televised discussion of the real problems we face. Debt, consumption, real estate, depression, college tuitions, and more all discussed...

http://www.europac.net/Schiff-CNN-10-6-08_lg.asp

Greenspan's Extra Terrestrial Interview

It's always fun to read economic analysis wrapped in an amusing story. ET explains a huge problem to former Fed Chairman Alan Greenspan:

"Debt levels are central to the safety and soundness of a financial system. Left unchecked, they grow to a point when the debt service burden starts squeezing disposable income, which in turn curtails spending and what you call economic growth. If the ‘squeeze’ becomes a ‘shock’, as in rate resets of your Adjustable Rate Mortgages, the consumer defaults. If enough defaults occur, lenders get scared, pull in their horns and curtail credit. This sets off a chain reaction … lower spending, leading to lower business profit, leading to lay-offs. Now you have consumers experiencing painful shocks to both incomes and obligations … leading to more debt defaults … which repeats the cycle in a downward spiral."
Read more...

More on Inflation

Here are a couple of video clips that I thought were very poignant with regards to inflation and monetary policy.

The first is a clip of Ron Paul questioning Fed Chairman Bernanke who agreed with Ron on the subject of inflation but then in typical government fashion pushed it aside and diverted attention to price issues which have nothing to do with inflation.

Remember, inflation is simply an increase in the money supply NOT an increase in prices per se although inflation will cause prices to rise. Absent inflation prices are a function of demand and supply. This is high school economics but listen to how hard it is to understand Bernanke who is so revered by the main stream media and most politicians as the maestro that will lead the class to the promised land. Then contrast to Ron Paul's common sense comments.



I think that someday we'll look back on the Federal Reserve Act of 1913 that created the Federal Reserve with disdain. In that act congress delegated it's constitutional authority to "coin money and regulate the value thereof" (Article 1, Section 8 of the US Constitution).

This second clip is Ron Paul commenting on the discussion in the first clip.


Under our current circumstances the Fed is already pumping "liquidity", short for printing money or creating inflation, into the market place. In the short run it will benefit big financial institutions. Current Fed policies will erode the value of the US dollar and US denominated assets.

You Really Should Read This

Everyone that has read anything on this blog should really read this book - "Crash Proof: How to Profit From the Coming Eceonomic Collapse". This book gave me a framework that I was able to use to put all the Wall Street hype in perspective. Everything that is happening today was addressed in this book when it was published in 2006. I wish I had this to read years ago! If you're not interested in reading it at least listen to the author talk about it.

The author, Peter Schiff, hosts a weekly radio broadcast and talked about the bail out bill and many of the things in his book in this week's show. To listen to the show click here. I usually download to my phone and listen to it while driving.

If you you're interested, and I hope you are as much as I am, check out his firm's website at www.europac.net and click "Resources" for a number of great video interviews, commentaries and other useful sources.

Unfortunately I know that not everyone can take the invesment advice given but the economic perspective is crucial to understand regardless.