Speculation!

[WendyBG]

Speculators have infested markets since they began.

What is the difference between an investor and a speculator?

https://www.linkedin.com/pulse/chapter-1-intelligent-investo…

**On investing versus speculating, Benjamin Graham gives the concluding definition, which reads as follows: “An investment operation is one which, on thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”**

“Manias, Panics and Crashes,” by Charles Kindleberger and R. Aliber, is a scholarly and entertaining account of the way that mismanagement of money and credit has led to financial explosions over the centuries.

Manias always have a great story, whether it is tulip bulbs, the Dutch East India Company, or dot-com stocks. As prices rise, greedy speculators bid for assets that don’t provide a safe return. Low interest rates and loose lending is rocket fuel for speculation as the speculators borrow to leverage their returns. This works great until the panic.

At this time, Treasury real (inflation-adjusted) yields are negative so borrowers are being paid to borrow money. It’s a recipe for speculation. There just aren’t enough real investments left.

https://home.treasury.gov/resource-center/data-chart-center/…

There just aren’t enough real investments left. Speculators with money burning holes in their pockets are getting manic.

Paul Solman did an amusing segment on last night’s PBS Newshour.

https://www.pbs.org/video/blockchain-bubble-1649451309/

Cryptocurrencies. Non-fungible tokens (NFTs) of incredible ugliness. Garbage “art” like a banana taped to a wall.

It’s amazing what speculators will bet on. It’s Macroeconomics because so much money is involved. But it’s not investing. It’s gambling that a greater fool will be willing to pay you a higher price when you try to sell.

Many crashes have resulted from the same speculative psychology.

Wendy

[captainccs]

Speculators have infested markets since they began.

Many crashes have resulted from the same speculative psychology.

There is a lot one can learn from speculators about treading carefully in markets. You might look at them as enemies but even so it’s good to know how they operate, Moshe Dayan is reputed to have said that had Gamal Abdel Nasser read his book about desert warfare Israel might have lost the Six Day War. There is one book about a legendary speculator that I highly recommend, I’ve read it at least three times. One quote I love says, “You cannot make the market do what it does not want to do.” Jesse Livermore, the speculator the book is about, said that investing was buying annuities. Crazy he was not! But he did commit suicide.

Reminiscences of a Stock Operator
by Edwin Lefèvre (Author), William J. O’Neil (Foreword)

Unknown to most modern-day investors and traders who cherish Reminiscences of a Stock Operator as one of the most important investment books ever written, the material first appeared in the 1920s as a series of articles and illustrations in the Saturday Evening Post. Now, for the first time ever, this beloved classic is being made available in its original, illustrated format.

You’ll track the exploits of Jesse Livermore as he won and lost tens of millions of dollars playing the stock and commodities markets during the early 1900s. At one point, he made the then astronomical sum of 10 million dollars in just one month of trading!

Originally published as a fictionalized account, the Illustrated Edition combines the Saturday Evening Post’s memorable illustrations with Edwin LeFevre’s timeless investment advice, recreating the look, feel, and message that was first published more than 80 years ago. Among the most compelling and enduring pieces ever written on trading, the new Illustrated Edition brings this story to life like never before.

https://www.amazon.com/Reminiscences-Stock-Operator-Marketpl…

Enjoy!

The Captain

[flyerboys]

You know a society is INSANE and STUPID and headed either for

– major unpredictable irrational political shifts that could possibly allowing for useful fundamental corrections of policy priorites via appropriate taxation, societal investments, and sane fiscal policy

or

– collapse

when

deathly perils are staring it in the face (e.g.

– GCC,
– Putinesque 20th century mentality wars based on extortion over the very energy sources causing major problems,
– decadently self righteous quasi religious crusades)

and

so much money sloshing around looking for “useful investments” that freaked out investors speculate on the future value of "the idea of a banana taped to a wall is in the same class as Rembrandt…

david fb

[iampops5]

Speculators are now distorting the entire housing market to the point that home prices look like another tulip mania.

The lady who bought our last house for 485K two years ago just flipped it for 625K. Son of a friend just bought his starter home for 100K over asking, waived inspection.

This cannot end well.

[inparadise]

Speculators are now distorting the entire housing market to the point that home prices look like another tulip mania.

The lady who bought our last house for 485K two years ago just flipped it for 625K. Son of a friend just bought his starter home for 100K over asking, waived inspection.

This cannot end well.

There will be some who get seriously hurt and others who make out very well. It will end when supply catches up with demand, or demand sinks down to supply. Corporate buying of SFH for rentals needs to have higher barriers to entry into this market via increased rate of taxation on property taxes and elimination of tax benefits for non-owner occupied properties. If neighborhoods can’t wait for that to happen they can set up a neighborhood association and vote in a deed restriction that insures a property must be owner occupied for X months before becoming a rental. This was recently done by a neighborhood in Charlotte, NC, which is one of the cities with the highest corporate purchases of homes to turn into rentals, escalating the price of rentals and increasing demand for homes while reducing supply.

It is time for action, preferably before the problem gets worse. We believe there is a bit more room to run in our area for housing, but have essentially sold our rental, with closing in a few weeks. Houses take time to sell and trying to sell at the very top is a much bigger unicorn than selling a stock at the top, which is already problematic without seeing the future.

IP

[FiddleFaddle]

Speculators are now distorting the entire housing market to the point that home prices look like another tulip mania.

The lady who bought our last house for 485K two years ago just flipped it for 625K. Son of a friend just bought his starter home for 100K over asking, waived inspection.

This cannot end well.

In addition to working for a new home builder, I also belong to a group that discusses HOA and condo association issues. Condo communities have been targets for investors for a while, but groups of investors are also targeting single family home HOAs now.

Bad things happen when you get too many investors owning property in HOAs. In addition to the usual issues with tenants and absentee landlords, the interests of landlords and owner-occupants do not coincide. Many buyers are unwilling to buy and banks are unwilling to lend if a community has too many rentals. Hard as it is to get homeowners willing to serve on the board, it gets worse if a chunk of the owners don’t live nearby and their only interest is cashing the rent checks.

Condo de-conversions are also a thing. A group of investors buys up units until they own enough to control the association (usually a super-majority depending on the covenants, conditions and restrictions). They then vote to turn the entire property into rentals. The remaining owner-occupants are given the choice of selling their homes to the new owners, often at an unattractive price, or paying rent to remain in the home. They can lose some or all of their equity, and yes this is perfectly legal.

Community associations have many challenges, some serious (remember Surfside?) - but investors taking them over may do them in altogether. At a minimum HOAs/COAs should have robust and strictly enforced rental restrictions in their governing documents - they’ll regret it if they don’t.

[SuisseBear]

This cannot end well.

Exactly my thoughts when I read the below.

Homes Earned More for Owners Than Their Jobs Last Year
Increase in value of typical U.S. home exceeded median worker income for first time, Zillow says

In this booming housing market, many homeowners earned more last year from home appreciation than from their jobs.

Zillow Group Inc.’s home value index, which estimates the value of the typical U.S. home, rose 19.6% in 2021 to $321,634, an increase of $52,667 from 2020. That figure was slightly higher than what the median U.S. full-time worker earned, which was about $50,000 last year before taxes, according to Census Bureau data cited by Zillow. That marked the first time that the annual nationwide dollar growth for the typical home value exceeded the inflation-adjusted median pretax income, according to a Zillow analysis, which goes back to 2000. …

https://www.wsj.com/articles/homes-earned-more-for-owners-th…

[cgrinder]

i have read “Reminiscences” several times…read it at about 18 the 1st time…

[MarkR]

There just aren’t enough real investments left.

Are treasury bills/notes/bonds “real”? If yes, then in addition to the tens, and sometimes reaching hundreds, of billions sold each week by the treasury, the fed will be selling about $95B a month (primarily treasuries and mortgage instruments).

The question I have is - who’s going to be buying them? I know I won’t!

[Notehound7]

…the fed will be selling about $95B a month (primarily treasuries and mortgage instruments).
The question I have is - who’s going to be buying them? I know I won’t!

MarkR,

I’ll gladly buy some of the treasuries and mortgage instruments the Fed is selling, but only at a price significantly discounted from the face amount.

Given the extreme inflation we are experiencing, I’d lose a lot of money if I bought them at par. For mortgage instruments, the discount should be huge. Property in my favorite market (Amelia Island, Florida) has seen price appreciation of more than 20% per annum over the last 5 years!

With politicians’ eager adoption of Modern Monetary Theory (thanks to Drs. Kelton and her ideological predecessors), they have been spending us into oblivion with no intention to ever remove the excess cash by taxation, as Modern Monetary Theory presumes.

https://en.wikipedia.org/wiki/Modern_Monetary_Theory

The lack of qualified workers (labor shortages), supply chain problems (cost-push inflation) and mob psychology (demand-pull inflation) together have cast us into a wage-price spiral we haven’t seen for half a century.

Maybe we’ll get some wage relief from the tens of thousands of unskilled, hungry, COVID-carrying throngs, crossing our southern border into the US every day - but not before they are fed and educated by beleaguered state taxpayers for an unknown number of unproductive years.

Dear Dr. Kelton, tell us again how we can print ourselves into prosperity!!!

The Deficit Myth
By Stephanie Kelton, Ph.D.

Stephanie Kelton is Professor of Economics and Public Policy at Stony Brook University. She was formerly Chief Economist on the U.S. Senate Budget Committee (D). In addition to her many academic publications, she has been a contributor at Bloomberg Opinion and has written for the New York Times, The Los Angeles Times, U.S. News & World Reports, CNN, and others.

https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy…

[Leap1]

…the fed will be selling about $95B a month (primarily treasuries and mortgage instruments).
The question I have is - who’s going to be buying them? I know I won’t!

Mark,

Just thinking this over this morning as well. The institutions meaning Bank of America and their ilk love this trade. The banks sold the bonds to the FED when interest rates were low for a slight premium. The banks now will buy these bonds as interest rates rise for a slight discount. Based on volume the banks make a few billion in these trades. The treasuries are risk free. Cant speak to the mortgage instruments individually but spreading out the risk over a portfolio a good deal for the major banks.

Do not worry none of the parties want to offload any of the bonds on us. We are not invited to this feast.

[MarkR]

Bank of America and their ilk love this trade. The banks sold the bonds to the FED when interest rates were low for a slight premium.

I don’t think it works this way. I think the vast majority of the fed purchases were directly from the treasury at issuance. And for the mortgage bonds that they buy, likewise, they are probably packaged by freddie and frannie and sold directly.

But it doesn’t matter exactly which bonds we are talking about. If you take them as a class, then the institutions that buy now after rates have gone up are getting a much better deal than last month or half a year ago.

Do not worry none of the parties want to offload any of the bonds on us. We are not invited to this feast.

But we are invited. You can buy bonds today at the higher yields. They even have a handy website to use to buy them - treasurydirect.gov