CNBC Editor blames Obama's Stimulus for recent stock woes

We are arguing in circles mainly because we keep interchanging the words value and price. Price goes up over time. That is a fact. Value going up can be statistically debated. Property is historically a solid investment, there are investments with better returns but the current stock market makes most property investments look genius, even with the bubble.

The bottom line is I believe that the bubble was initiated by government influences on loaning money. You don't.

That's fine.

 

"Influence" is one thing "interference" is another.

 

We're not really arguing in circles- by price I should have said I meant real prices. If you mean nominal price goes up over time - you're right. A bottle of coca cola costs 100 times what it cost back in the 1920's. Of course that doesn't make it a good investment.

Not adjusting for inflation is not something that can be debated.

Further, the S&P Case Shiller index of home values which I posted is a very widely used indicator - what precisely do you find wrong with it or debatable?

Please stop repeating this. Look at the graph man, if you bought a house in 1950, it was worth the same, adjusted for inflation, in the year 2000 (I'm no statistician, but by glancing at the graph, it looks like in the post war period, the level of 110% of the 1890 value is the baseline for housing prices, as we are plummeting back towards it) Only when you factor in buying on a dip and selling on a spike (of which there are many, as you can see, property values are pretty volatile, and prone to decades long slumps.

Why is this "historically a solid investment"? An investment that returns the same as cash in a mattress after 50 years, that is underwater for a good portion of those years and not very liquid, does not seem historically solid to me. In fact it seems terrible.

We're in agreement in that you're doing a fine job of proving why the bubble started by repeating the imperfect information that caused it (the irrational assumption that housing is historically a good, sound, ever-appreciating asset - look at the graph, it's not. Plain as day).

 

The problem with your argument of "real prices" vs nominal price is that it is irrelevant when it comes to a home loan. The property price is fixed when you purchase the home so the nominal price going up is all that matters in terms of gaining equity. That and your ability to actually make the payments and pay down the principle. "Real Price" doesn't effect your ability to pay a loan or not. Unless your an idiot and get an ARM or an interest only loan because you can't afford the freakin payments or the property. I don't fault all of the buyers, most of em are just stupid and want more than they can afford.

The equity gained and the fact the most people feel like they ought to have somewhere to live still make owning a home a sound investment. Your probably not an idiot like me who owns his own home are you? I don't consider owning a home part of my investment portfolio but I do consider it sound money.

 

Re: Housing as an investment.

I think one of the most interesting studies is historical economics, because every "unprecedented financial situation" has been seen before, and often the leaders make the same mistakes in dealing with the same situations. Schiller took a very long (400-year) look at housing prices, and found that over the long-term, home values rise at an 0.2% annual rate.

http://www.nytimes.com/2006/03/05/magazine/305tulips_shorto.1.html?pagewanted=1&_r=1

 

Very good stuff.

Thanks

 

Yeah - this is the exact same article/data set that was used in the graphic I showed. 0.2 percent is almost a flat rate of return. If you invested $1000 for 10 years, in exchange for having no liquidity, you end up with $1020, - that is terrible. You are better off with the mattres strategy - not to mention that there's no guarantee you'll be lucky enough to not have bought on a climb.

 

Interesting, but still far from a controlled study. I know it was already a lot of work, but how about 20 different cities monitored over 400 years? And I'm not sure the starting point was a grossly inflated or average point (but maybe I didn't read closely enough.)

Very interesting read though -- thanks.

 

Quibble: 0.2% - Inflation adjusted. Unless you put gold bars in in your mattress, which would be uncomfortable, you're losing at the inflation rate with the mattress strategy.

 

OK then make it gold in your mattress, or a bank account with a very low inerest rate that essentially matches inflation - same difference.

 

I keep thinking I should buy an index fund. Have nothing in the market and haven't been hurt by this at all, at least not directly, but you have to think there's a bottom sometime soon. I sure would like to be able to look back and see I invested at the right time. Like a lot of people, I've looked at the markets climbing back up from "terrible" lows and wished I'd put in some dollars while they were near the bottom. Can we see the Dow at 5000? 2000? The S&P at 500? Lower?

It can't go on like this indefinitely. Am I going to miss another opportunity?

 

I, who no little about investing, had long been saying 7,000, based on the idea of a correction to the historical stock rise.

 

In the context of this discussion though, it does not matter. His graph was of existing home sales, yours was of new construction -- and there's obvious reason to believe that the price of new construction increases over time as sophistication increases etc. But even that aside -- his graph says that even expressed in real terms, the run up in prices of existing construction in the past decade is absolutely unprecedented. That graph is the very definition of a bubble.

 

Both graphs represent the bubble pretty well?

 

Yes, could the Dow be declining because the collective and amorphous "they" have no confidence in Obama, or because AIG, GM, Citi and Bank of America are on the verge of failing and GE is not too far behind? When 1/5 of the Dow has stocks under $5 a share and in imminent danger of bankruptcy, there isn't a government in the world that can make that index go up.

 

Bullsh*it. If/When we get out of this recession and the price of oil returns somewhere near its summer high and possibly beyond as China and India kick into top gear, there won't be a tax bracket high enough to be detrimental. They'll make their money while we'll get some extra funds to put toward alternative energy, not great, but better than previous efforts.

As an aside, if we are still at this level of economic desperation in 2011, I don't think there is a rational mind that would expect Obama's tax hikes to actually take place, that's obviously defendant on some form of recovery.

 

Sorry, but you don't have much knowledge of this topic and would be best served staying out of the discussion.

 

The Dow rose over 350 points today. Wall Street loves Obama!

 

Maybe it just responds each day to Obama's tie. It can't be his message, which has been consistent (love it or hate it.)

Must be the tie.