The Collected Works of Author and Blogger Larry Roberts

Archive for January, 2014

By encouraging asset bubbles and permitting Wall Street to extract undue gains from the volatility, policymakers in Washington encourage bad behavior on a large scale. I recently opined that quantitative easing and mortgage interest rate stimulus bail out Wall Street, not Main Street. Quantitative easing serves to inflate house prices, and although homeowners benefit from this policy, the banks benefit even more; in fact, it's necessary for their survival. However, inflating asset values through quantitative easing is not the only way decisions made in Washington help Wall Street over Main Street. No, the problem goes deeper than that. Who benefits from bubbles? In an ideal world, asset prices would rise and fall gently based on the productive value of the…[READ MORE]

Homebuilders bidding on the Marblehead property on the coast in San Clemente are overbidding in anticipation of another year of rapid appreciation. A prime piece of Coastal California real estate is for sale, and the homebuilders vying for the opportunity to erect sticks and bricks on the site are bidding heavenly sums. In any competitive bidding situation, the bidding party with the most aggressive assumptions wins the day. The large homebuilders all face the same basic cost challenges, so it's the one with the most aggressive assumptions on future home price revenues who will ultimately get this property. If those assumptions don't come to pass, they won't make any money, and they just might lose a bundle. Lehman Puts California…[READ MORE]

In our previous post we told of events at the COMEX and today we will discover a bit more about the COMEX.  By the end of this series you will have a bit more knoweldge, find the gold market a little less confusing, and realize just how little I know, about gold or anything else. The COMEX is a commodity exchange, one of five that comprise the CME, (Chicago Mercantile Exchange).  Forget the technical definitions of a commodity exchange.  They are confusing.  I like to think of the Comex as a market, (think outdoor open air where folks are yelling and haggling), where sellers and buyers meet to 'exchange' precious metals for federal reserve notes.  Rarely do they ever exchange the…[READ MORE]

Most proposed changes in government housing subsidies remove incentives for high wage earners to take on excessive debts to inflate house prices. Coastal California would be strongly impacted by any changes to the current tax regime. Congress considers changes in the mortgage subsidies in the United States. Most realize the current regime doesn't boost home ownership rates, but it does inflate house prices and exacerbate home price volatility, mostly through encouraging excessive debt -- and these subsidies are very expensive. The question is what should we replace the current incentives with? My preference is for total elimination. When a costly subsidy achieves none of the goals legislators desire, why keep the subsidy at all? The subsidies remain because those that…[READ MORE]

 Housing market stimulus must be removed before house prices cross the threshold from recovery to new housing bubble. [dfads params='groups=165&limit=1']Asset prices exhibit normal values established by historically tested and conceptual sound valuation metrics.  When asset prices differ from their normal values, either overvalued or undervalued, the market value of these assets generally reverts to the mean over time and reestablishes an equilibrium price at levels determined by fundamentals. The key characteristic of an asset bubble is an extremely overvalued condition ripe for a major decline. If analysts correctly identify and quantify the fundamentals, asset bubbles can be identified in advance of the price collapse; however, opinions differ on the soundness of even the most tried and true methods of valuation,…[READ MORE]

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