The above paragraph is not a legitimate mathematical proof. In fact, it’s nothing more than a groundless insult. I feel it’s time to take a closer look at your use of buzzwords and catch phrases, since you’re basing 100% of your mathematical hypotheses upon them. For instance your assertion that “Past performance does not predict future results.”

It’s not that I don’t understand the meaning of this statement. It’s that you’ve used the statement inappropriately. It’s true of flipping coins. However, we’re discussing the probability of timing market cycles with the aid of fundamental and technical indicators. Thus, using a statement that is true in a completely different context as proof, without offering support of your claim, is not a legitimate proof. It’s just an assertion without logical support.

When you follow up an assertion delivered in this manner with a demand that I use “sigma-field” in my proof, you can’t expect me to take it seriously.

I’ve put forth a proof. It’s apparent to me that you’re unable to break it. Otherwise, you would have done so by now.

RE: Jonness @ 67 –

Don’t sweat AMS’s confusing use of terminology. Most people call it a sigma-algebra, not sigma-field, and it escapes me how it could ever not be possible to define an additional random variable over any non-trivial sigma-algebra.

I don’t mean to confuse anyone with my choice or words or terminology. Yes, sigma-algebra and sigma-field may be used interchangeably in my posts. I brought it up only to understand the claim about the existence of only one Random Variable over his non-trivial sigma-field. I am still wondering about his notion of “pure luck.”

Also the more I think about this particular situation, and I really have not had that much time, it strikes me that those who know nothing could be aperiodic Markov and those who use trend analysis should be periodic. I am not suggesting what the period or intermediate wave pattern looks like, but if trend analysis were to hold, then there should be some periodic wave that is being followed into the future, and into the past. If I could somehow demonstrate that there is no possibility of the market being periodic, then I should be able to dismiss trend analysis. Demonstrating that there is no periodicity to the market is a daunting task, but proving it is period is equally as daunting.

I may have a problem with the aperiodic part of the guessing group. A period might exists, but not be predictive of the market (i.e. no way to match the period of the guessing group to the period, if it exists, of the market). Gah, I wish I were stronger with number theory.

I think it’s time for me to go take a Random Walk, and maybe I’ll see a Black Swan or two!

DJIA 3K or bust.

Don’t sweat AMS’s confusing use of terminology. Most people call it a sigma-algebra, not sigma-field, and it escapes me how it could ever not be possible to define an additional random variable over any non-trivial sigma-algebra.

Why not just admit you don’t know much about probability, and you know nothing about advanced probability. While we are at it you might as well admit that you have no clue how to properly construct a genuine mathematical proof.

It’s game over.

“Here is the crux of the problem. You assume that past knowledge actually have value, and that skill exists. I do not make that same assumption.”

Thank you, you have completed my proof. Simply look at the chart of stock market recessions in my last post. Since you assume past events have nothing to do with future occurences, you cannot argue that, given 10,000 guesses, you would not pick from a much bigger time window than me when predicting the market peak that occurred following the 2001 peak. Otherwise you would be a hippocrite who uses knowledge and skill (your knowledge of time between recessions) to aid your predictions, all the while knowing that such knowledge and skills are not useful.

Now lets take a look at the outcome. The market peak fell well within the pattern revealed by my chart (10 years or less). Meanwhile, you without the aid of using past events to make your pick are selecting 2120 an other such nonsensicle years that have no relevance to the problem. My proof is elegant. You on the other hand offer no mechanical model underlying your wild claims. They sound good in theory, especially if you present them with enough big buzzwords to cover up the lack of support presented with them. In truth, if you were to be asked to put the ideas you present here to a real world test, you would fall back on your knowledge of past occurrences to aid your guess, which would be an admission that you know I’m right.

You keep asking me to prove a bunch of wild non-sense that you would like to see proved, and then you somehow attempt to relate this lack of proof to the problem at hand. I already offerred an unbreakable proof that in at least one situation proves knowledge and skill of past events can aid in forecasting a more accurate future prediction. This is proper use of proof by counter-example. Now the burden is on you to prove my single counter-example is not correct. Otherwise, your claim that my prediction of the the market top being non-aided by any skill or knowledge is simply an empty claim.

“Past performance does not predict future results.”

That’s laughable. So when is the next market top going to occur? Unless you use the history of time between recessions, you will be predicting 200 years from now. Do you hear how ridiculous your argument is? It is all twisted up in knots attempting to shove all the thoughts inside a box in order to hide the greater truth.

“Please define your sigma-field, and demonstrate that no other random variable is possible in your carefully defined sigma-field.”

See what I mean? Please stop with this attempt to use buzzwords in order to cover up your incorrect assertions. It’s simple. One group has no knowledge of time between recessions. The other group does. The group that does has effectively shrank its window. It’s like picking from a roullete wheel with 10 slots instead of 10,000. Which group will more accurately predict the number the ball lands on? This is simple logic, which you attempt to bully by using big words that simply confuse the simple logic of this simple argument. I suspect you do not care about who’s right and that you are more concerned with ending the day believing you are right. If so, go ahead and believe that. However, it won’t change the greater truth.

One more thing:

“As soon as you give your random picker any knowledge other than assigning a random future date, you are no longer dealing in pure luck. ”

Please define your sigma-field, and demonstrate that no other random variable is possible in your carefully defined sigma-field.

“It’s important that you admit knowledge and skill aides in market timing decisions. My proof of this fact is simple and eloquent.”

Here is the crux of the problem. You assume that past knowledge actually have value, and that skill exists. I do not make that same assumption. If we relax this assumption, your proof falls apart. To use the whole theory of trend analysis you must make this or a similar assumption.

I do agree, however, if we assume that there is some skill in predicting future events, and if we can somehow identify those that have such skill, then certainly that person can predict future events. However, if this were true, then the market would adjust to incorporate this newly found knowledge, and we would be right back to square one. Also we should not assume that just because someone is an economist that they can predict market peaks. If we assume that skill of predicting future events exists, then those with skill can obviously predict the future.

Here is what you really need to do: Prove that such skill of predicting future events exists, and demonstrate that such skill can be used to predict localized peaks and troughs (local peaks and troughs needs to be carefully defined). Finally prove that you can identify these skillful people in advance of the peak. Otherwise you are only “proving” your assumption.

If possible, please reconcile your proof with the statement: “Past performance does not predict future results.”

You are completely missing this simple and eloquent proof. Yes, the computer has been assigned a 20-year window. But you must keep in mind that provides it an advantage over real random. This is purely for the purposes of providing a simple to follow thought experiment. IOW, the only information real random has is that the date picked must be at some point in the future. Thus the window of time is either the average life span of human beings or infinity depending upon how you define the problem. Either way, my computer program has a way better chance than real random of picking the market top. Yet, my group of experts can still out-perform it because my experts have knowledge that allows them to pick from a smaller time window. In fact, the following chart is all the specialized knowledge they need to dramatically shrink their time window because they can easily see that cycles are never anywhere near 20 years apart:

History of U.S. Recessions
Sept. 1902-Aug. 1904
May 1907-June 1908
Jan. 1910-Jan. 1912
Jan. 1913-Dec. 1914
Aug. 1918-March 1919
Jan. 1920-July 1921
May 1923-July 1924
Oct. 1926-Nov. 1927
Aug. 1929-March 1933
May 1937-June 1938
Feb. 1945-Oct. 1945
Nov. 1948-Oct. 1949
July 1953-May 1954
Aug. 1957-April 1958
April 1960-Feb. 1961
Dec. 1969-Nov. 1970
Nov. 1973-March 1975
Jan. 1980-July 1980
July 1981-Nov. 1982
July 1990-March 1991
March 2001-Nov. 2001

Your counter-argument completely strays from the original assertions and attempts to answer a completely different question. The proof I’ve presented is proof of the original assertion. The key concept is that pure luck equates to absolutely no specialized knowledge of market timing. As soon as you give your random picker any knowledge other than assigning a random future date, you are no longer dealing in pure luck.

—Finally you have also developed a system in time. It has been my basic experience that most people determine the peak by price.–

Once again, you are straying from the original assertions. Let’s focus on the original problem only. I told my GF the market topped on the day it occurred and predicted a downward movement in price from there. You claimed my timing the top of the market by date was nothing more than pure luck.

You are attempting to answer one problem with the solution to a completely different problem. We are not comparing experts picking stocks to monkeys throwing darts at a dartboard designed by experts. We are comparing experts’ market-timing decisions to the outcome of pure random chance that has no knowledge of the subject matter.

–Can you show any evidence that your small group of experts really is better at picking the top than a random group?–

Once again, you are changing the problem. The random group you just proposed has more knowledge and skill in market timing than pure random as defined in my first paragraph. It’s important that you admit knowledge and skill aides in market timing decisions. My proof of this fact is simple and eloquent. Once you realize this, you can begin to debate the class of problems you keep straying toward.

1. They assume that the recent rate of decline will continue at the same rate. But rather obviously, those things are affected by future events that have not occurred, and it’s difficult to predict if and when they will occur. They also assume no overshooting, which if you accept the theory that’s used, is almost certain to occur. Things do not correct to an exact point.

2. They assume that people will change their behaviors because of the economic events of the past two years. I’d agree that at some point this economic situation could become so severe and so lengthy that it will affect peoples’ behavior for years to come. I just don’t think we’re there yet. So if and when there’s an economic upturn, I don’t see the change from 100% financing to 96.5% financing (or 100%+ with the 8k credit) resulting in prolonged downturns in prices. If people wanted to spend $X,XXX.xx per month to live in a house before, they’ll want to do so again if they can, absent a lengthy and severe downturn that affects long term behavior.

3. Inflation/deflation could have more to do with the result than any other single factor. If say for example we end up with stagflation, and housing prices lag inflation, people five years from now will hardly remember the years housing prices declined. They’ll be focused on the then present problem, inflation.

4. As I mentioned in another thread, the government still has not figured out a way to make the new versions of mortgage backed securities more attractive/less risky than the old versions. That’s a huge problem with consequences as severe for housing prices as Sniglet’s deflation, but it’s a problem that is here today. If and when the government can no longer continue to collect these things, the effect will be severe, sort of like what it would have been like if Freddie and Fannie had failed without government intervention.

“While it may seem like skill, I had many people calling top along the way up. Just because you happened to call it when if finally did top out does not suggest you were more than lucky.

Given enough people calling the top at different points in time, some are apt to be right, but we should not ignore all those who were wrong.”

I’ll readdress my original argument in order to make my point. Let’s say you lived through the 2001 recession and in the year 2002 economic data showed a post-recession expansion was occurring. So you built a computer program to guess the peak of the stock market during the upcoming expansion. This program is nothing more than a random number generator that inputs the U.S. population and randomly generates a guess date within a 20-year window of the next market top for each U.S. resident. It does not keep track of any economic data. It simply randomly assigns one date to each person over the span of the next 20 years.

So all we have to show to disprove your assertion that my guess involved nothing more than luck is show that some people had specialized knowledge and/or skill that allowed them to be more correct than the random number generator above.

Take all the people in the U.S. that understand that house values have historically tracked median income to median price ratios and rent to own ratios. Take from that group those people who understand the principles of supply and demand. Now from that group take all the people who were passionately following the housing market realizing that the historical ratios were way out of line and the demand could not outstrip supply forever. Now take from that group the people who understand that markets typically don’t correct downward earlier than 6 years following the previous correction and typically will not peak prior to at least some dire form of economic news being stated (such as what we seen when house values went down in some states prior to the stock market peak). Now take from that group the people who understand that banks will not lend to unemployed strawberry pickers after home prices begin to fall because the banks can’t sustain the losses when prices are going down.

Now have the people in our specialized “in-the-know” comparison group predict the next market top over the course of the next 20 years. Keep in mind that picking after the top occurred is equal to the same numeric value as the same date difference picked prior to the correction.

What you have is a group of people who have shrunk the window of possibility of when to pick the top. Since the random computer program picks from a 20-year window, and the group we identified picks from perhaps a 4-year window, the probability of any one member of our group of specialists outpicking the computer program is 5x as great as any one member of the random group.

This disproves your assertion that there was nothing more than luck involved in my picking the market top. In fact, I had a way better chance than random luck of picking the date I did.

NO!

How do we know that “our group of specialists” has really “outpicked the computer program?” Here is the basic problem: I have had a group of “experts” all agree on the wrong window in time, but you ignore such chance. There is another problem with your model. You have fixed a 20 year cycle, and the market may not operate on this cycle. The random group may not agree to this cycle. If they do, is it really random?

What you need to do, if you want to prove this theory you have going on, is to demonstrate that the experts can indeed guess the correct window in time at a greater percentage than the random number generator. (This, by the way, gets into the who problem of randomness, but I’ll leave that alone for right now.)

Also I think we don’t need the “random number” group to be linear as you have contrived. It could be that the “random number” group follows some pattern, by chance. I would guess, without giving it too much thought, that the “random group” should follow some distribution that is Markov and aperiodic. The non-random group should follow a distribution that is not Markov, and possibly is periodic. It’s a little late at night; I’d really have to give this some more thought to be more certain.

Finally you have also developed a system in time. It has been my basic experience that most people determine the peak by price.

Example: What was the peak of the DJIA?
Answer: October 9, 2007

That seems a bit silly, as the index is not normally measured that way. I’d personally answer “14,164.53,” as the index is not date dependent. Of course when calculating rates of change on the index, dates follow quite quickly if we are given a boundary value. Ultimately a peak point should be in terms of both dates and times, to distinguish from a localized peak or trough. Someone is likely to upgrade their top prediction over a 20-year period–we need that Markov Chain defined clearly here.

Finally, before you get your experts at it again, do you know that well-over 50% of the managed mutual funds produce returns below an index fund? “The Vanguard S&P 500 fund has outperformed over 90% of all domestic equity mutual funds over the past three and five years (and a much higher number if you include bond and international equity funds). But S&P index funds certainly aren’t the only index funds — and in fact may not even be the best.”

http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm

Personally I think Peter Lynch had a great run, but was it simply chance? Was Peter Lynch on the winning side of the Gambler’s Ruin? There are a lot of fund managers, sooner or later one will be lucky for a long time. There are also those who are really bad too, but so many are beat by index funds.

Can you show any evidence that your small group of experts really is better at picking the top than a random group? Specifically you need to demonstrate that your selection of experts really did pick the right window more often than the random group, which may be linear, but not necessarily. It would be nice if you could prove their ability to select the correct window over many localized peaks and troughs statistically significantly better than the random group.

If you have any real evidence, I’d love to know.

Given enough people calling the top at different points in time, some are apt to be right, but we should not ignore all those who were wrong.”

I’ll readdress my original argument in order to make my point. Let’s say you lived through the 2001 recession and in the year 2002 economic data showed a post-recession expansion was occurring. So you built a computer program to guess the peak of the stock market during the upcoming expansion. This program is nothing more than a random number generator that inputs the U.S. population and randomly generates a guess date within a 20-year window of the next market top for each U.S. resident. It does not keep track of any economic data. It simply randomly assigns one date to each person over the span of the next 20 years.

So all we have to show to disprove your assertion that my guess involved nothing more than luck is show that some people had specialized knowledge and/or skill that allowed them to be more correct than the random number generator above.

Take all the people in the U.S. that understand that house values have historically tracked median income to median price ratios and rent to own ratios. Take from that group those people who understand the principles of supply and demand. Now from that group take all the people who were passionately following the housing market realizing that the historical ratios were way out of line and the demand could not outstrip supply forever. Now take from that group the people who understand that markets typically don’t correct downward earlier than 6 years following the previous correction and typically will not peak prior to at least some dire form of economic news being stated (such as what we seen when house values went down in some states prior to the stock market peak). Now take from that group the people who understand that banks will not lend to unemployed strawberry pickers after home prices begin to fall because the banks can’t sustain the losses when prices are going down.

Now have the people in our specialized “in-the-know” comparison group predict the next market top over the course of the next 20 years. Keep in mind that picking after the top occured is equal to the same numeric value as the same date difference picked prior to the correction.

What you have is a group of people who have shrunk the window of possibility of when to pick the top. Since the random computer program picks from a 20-year window, and the group we identified picks from perhaps a 4-year window, the probablility of any one member of our group of specialists outpicking the computer program is 5x as great as any one member of the random group.

This disproves your assertion that there was nothing more than luck involved in my picking the market top. In fact, I had a way better chance than random luck of picking the date I did.

So what would you do in my situation?

Im 30 baught a house in Snoqualmie for $450,000 in May of 2006. We put 10% down. Payments total $2,500 a month. My wife is a surgical nurse and I sell apparel. We have no other debt at all. Making the payment should never be a problem.

Do you just hold on to the houseand lose 100k to 250k on paper.

I’d sell as soon as possible, like today, if I thought the asset were going down in value like you suggest.

AMS @56:

Your argument appears to be that nobody can ever have any clue that markets are extremely overbought or oversold. If that is your assertion, I strongly disagree.

You disagree, but you offer nothing in return?

In any event, it is not my claim that “nobody can ever have any clue that the markets are extremely overbought or oversold,” but with a little adjustment to that statement, hopefully we can agree.

How about this:

“Nobody can ever have any clue that when the market’s participants will stop overbuying or overselling.”

In other words, it’s essentially impossible to guess when the last fool has bought on the way up, and it’s essentially impossible to know how little you can get away with paying on the way down. Oh, and one more point: “on the way up” and “on the way down” are measured on a historic basis. If we actually knew who the last fool was, then he would pass, and the another guy who already bought would be the last fool. But he would know that, so he would pass, and so on until we get back to a some fundamental price that isn’t based on the bigger fool theory.

Agree?

Your argument appears to be that nobody can ever have any clue that markets are extremely overbought or oversold. If that is your assertion, I strongly disagree.

Thanks to all for the MV=PQ input. I suspect Obama’s Keynesian economists have worked through this and have numbers that supposedly will bring back V. Or perhaps they don’t. Why aren’t these numbers being presented in a way the public can understan them? Simply saying, we are going to spend another 800 billion doesn’t allow me to understand the intended real-world impact of those that designed the package.

While it may seem like skill, I had many people calling top along the way up. Just because you happened to call it when if finally did top out does not suggest you were more than lucky.

Given enough people calling the top at different points in time, some are apt to be right, but we should not ignore all those who were wrong.

Keynes’ simplest insight is that overall real output (y) is not fixed, and that in periods of a rapid drop in private spending, gov’t spending may be all you have left to underpin aggregate demand. This has been amply validated.

More broadly, we *are* in a pickle, and responsible political leadership starts by acknowledging that!

Im 30 baught a house in Snoqualmie for $450,000 in May of 2006. We put 10% down. Payments total $2,500 a month. My wife is a surgical nurse and I sell apparel. We have no other debt at all. Making the payment should never be a problem.

Do you just hold on to the houseand lose 100k to 250k on paper.

Or stuff the IRA’s and stop making payments as soon as it get past the point of no return (end of year?)?

The Obama plan isn’t supposed to work. If they wanted a plan that worked they would have put an immediate end to all personal and investment related taxes for 6 months or so, whatever it takes to equal the size of the combined stimulus/rescue packages.

The Obama plan is supposed to crash the economy while building up interests tied to the idea of a more socialist government. As the economy continues to crash, more and more people will look to the government for salvation, a government flooded with resources from the recent rescue bills.

Do you notice how Obama has said nothing about the continuing market decline? Don’t you think that’s a bit odd? All he talks about is how bad it is, and how much worse it will get, driving the economy further into depression.

When historians reconstruct this 40 years from now with the benefit of 20/20 hindsight it will be seen as one of the most clever political ploys of all time.

On the day the stock market peaked, I told my GF we reached the peak and from here it would dramatically fall. Since I’m quite uneducated in economics, there was certainly a lot of luck involved in my prediction. But really, I felt like it was a no-brainer given the situation the country was in. I’m not sure calling a bottom will ultimately prove more difficult. In fact, it should be easy to get close given the sideways nature of the upcoming beast. But I should point out it is way easier to call the peak or bottom when you get there than it is a year or years previous. So it is important to keep watching and updating your model.

I think calling the absolute bottom is quite unecessary. All you have to do is hit any point in the long trough. The trickiest part will be judging where interest rates are most favorable in the trough. I’m thinking that will be toward the front half as eventually we’ll see inflation cut into price drops.

MV=P(Qc + Qi + Qg)

M = M2
V = Velocity
P= Price
Qc = consumption spending
Qi = investment spending
Qg = government spending

So we’ve seen Qc and Qi falling, which caused V to fall as people hoarded their money. But we’ve also seen V fall as P fell causing banks to refuse to lend. So if I get the Obama plan, it is to increase M and Qg. This will supposedly stimulate Qc, Qi, put a bottom under P, and ultimately drive up V.

I still don’t have a clear idea of what the real numbers are that should be input into the equation in order to better understand the real-world effect of Obamanomics. However, I can’t get past the fact that V can never get back to where it was in relationship to M, because nobody will ever be stupid enough to start lending million dollar loans to strawberry pickers with average credit scores who make only $30k per year.

I can’t see how the Obama plan is supposed to work in a numbers sense. If anybody can straighten me out or at least give me an idea of what MVPQ are in terms of real numbers so I can figure this out myself, I would appreciate it. BTW, I think having these numbers is crucial to understanding where the bottom will ultimately fall.

You are an articulate kind of guy. My question is and has been why consumers continue doing business as usual?

Paying back the money you borrow seems to be a hard concept for consumers. Fair lending also seems a hard concept for banks, lenders, and investors. The interest and fees seems to be the prize rather than getting a loan paid off or at least performing well.

Why do lenders think that by making it harder for consumers to pay off debt that it will add some how to thier own profitability? I would think Cogress would tell corporations to go clollect the money they have outstanding rather than giving them tax dollars.

It all comes down to the consumer because they are all effected. I would think the voters could figure out that it is the banks problem and vote for the people who hold the banks accountable.

This is easy to answer. There is no way to recognize when we are at bottom.

If the peak was known, then prices would have gone down earlier. The only thing that was supporting the price level was the thought that there would be higher prices in the future. It was a game of the last fool.

Not to say there isn’t skill involved, and I am not saying that trend analysis is for naught, but just because you called the peak doesn’t mean that it wasn’t just chance.

Then there is the question as to what point a continued prediction of doom becomes a self fulfilling prophesy. If I continually make some prediction, such as the failure of Microsoft, as some have done for the last 20 years, and it eventually happens, what’s the value of such prediction? There are plenty of people who have predicted the end of the world, and some day it might happen, but the past results of these predictions has not been good.

Excluding looking back in history, how will we recognize the bottom? (In other words, how will we know in the present moment when we are at the bottom?)

Thanks for citing my books, the newest being Contagion that just came out this month.

You are right, if Seattle returns to 1997 pricing as I predict it will mean a decline of about 50% in home prices from the peak. This is optimistic, not pessimistic, as this only brings homes back to where they were before all this crazy mortgage lending started. Banks are going to be lending 4 times your income for a home, not 8 times.

And my numbers assume that Microsoft, Boeing and high tech in Seattle all remain vibrant growing industries, a bad assumption if we head into depression, Small high tech is dead as venture capital is gone now that there are no IPO exit strategies, MS is acting more and more like a staid old bureaucracy (have you tried to run Vista – a complete nightmare) and will be attacked by i-phone apps and declining international sales and I don’t know anyone who is going to buy an airplane in the next ten years.

The situation is really much worse than you hear on the news because the guys that got us into this mess, big corporations and banks and Wall Street, continue to bribe your Congressmen to be bailed out now and prevent real meaningful reform necessary to turn around the system.

The Tim-

Now to be fair, you should do a main entry suggesting that calling the peak might be just as difficult as calling the bottom. Next you could talk about chance and luck of calling the bottom. Even if someone does call the bottom correctly, is it just plain luck?

I will say it again. Forget the rates. Keep them under 6%. The only thing that will work is principle reduction. If this occurs there will be anarchy which we have already found from just lowering rates for “certain” home owners.

http://www.youtube.com/watch?v=jiCOb49vVVM

The real answer is that ALL these homes are coming back over the next decade. Some later then others. Take your time and FIND THAT GEM!

We need to sell that place quick before the bottom falls out of the housing market. There are easier ways to make money than dealing with renters.

I’m saying that I like to work on houses. The best times I spent with my dad were working on the house and on another house he bought. It’s what I like to do.

Your not involved the same as many people who comment here. People buy a house, live there, move on, or do something else. I lament my loss of business. That’s why I come here.

Tim has the makings of a great business model here that involves my chosen profession. I’ll say it again: “there is no money in selling real estate, the money is made by buying it.”

What’s happened in the world of buying real estate is that the really smart guys are now trading in housing units. That’s what you have and what you all wanted. You want corporations to take care of you.

Let’s separate out the “greedy” people from the people who want to make a living doing what they like to do. There are good builders out there. The problem in our corporate society is that it’s hard to compete against free money.

Stock holders hand money over to huge corporate interests every day. Corporations invest the money the smart way, the easy way. They want to show profits to the stock holders so they can get more investment dollars.

In the builders world most of the money, the value, is behind the sheet rock. We say that it’s in the foundation, “in the pour.” A larger corporate builder can build a thousand units at a reduced cost, but also waters the concrete “pour” for added profit.

The lender, the bank, doesn’t care about the quality of the product, they care about the add on services they get by working with the corporate builder. They can bundle title, escrow, and mortgage.

The small builder can compete, but the consumer is only seeing the price, and the paint on the walls. Remember, people here say price is everything.

So, I need to find another business to go into. The smart guys are taking over, it makes my skin crawl. They will ruin the rehab business the same as the ruin everything else.

The easy money guys, and they are guys, white guys, usually frat brothers, will be making cheapy repairs for the masses to pay way too much for.

Exactly.

That is why I look at the present.

One must look no further to the relationship of home prices to rent and income. Around 2003 home priced detached from reality. That is why the current price deflation is as severe as it is. For now I will continue to rent my meticulously restored home at 35 cents on the dollar until prices fall back (an most likely overcorrect) to reality.

The banks were giving me money/loans –
But I didnt buy lots of books and read
But I didnt buy lots of ipods,laptops
I buy only what I need.

For homes – Its not just the fault of banks but greedy Govt rules (which have lots of rules for letting out lands-making land un-affordable,greedy real estate agent, builders who build for 10k and sell for 100k,greedy home owners). All these factors contributed to the mess – dont just blame the banks!

I am not involved in this mess. So I patiently wait till everything falls.

The Tim, this has been an excellent series, keep up the good work. Now that you’ve made your prediction, maybe its time to start a separate post where each poster has to make their prediction for the record.

Mr. Kismer, I appreciate your expertise, etc, but you’re becoming overexposed.

Well you don’t need to worry about me making a prediction. I don’t believe in any of this. I view all five models as what Tim called “Entertainment.” I think even Ardell once called one of her predictions a game.

People like to pretend that they can predict the future, but they can’t even determine what happened in the past. For example, Washington’s Distressed Property Law had a negative effect on the market, but no one can determine how big of an effect that was. If you can’t determine what happened, how can you determine what will happen.

Or similarly, which of these models told you Seattle would peak in July 2007? If they didn’t tell you the peak, what makes you think they would tell you the bottom?

Thanks

Mr. Kismer, I appreciate your expertise, etc, but you’re becoming overexposed.

Nice work, Tim.

. . ..

I think it’s newsworthy, and superior to the bottom-calling analysis recently published on the Rain City blog.

I wouldn’t call either newsworthy. But clearly Tim put a bunch more work and a lot more thought into what he put out there for people to read.

I really like Tim’s work and the careful tracing through of assumptions but I have to go with Scotsman here — all housing-specific analyses seem myopic in that they don’t include labor markets, changes in aggregate output, and the damage that the financial system has suffered.

My first house i bought for $34K, $6K down and owner financed. It was paid off within seven years. I gutted and rebuilt the interior for cash, made a studio apartment in the out building for cash. That was 1984, twenty five years ago near Carkeek Park. We sold it July 2007 for $405K.

This is my business. I have been working on houses since i was eight.

The diference between today and twenty five years ago is the bank. The easy credit rip off is everywhere, houses included, but not exclusively.

Every time you use a credit card you push up the price of goods. It’s the debt cycle that needs to end.

I’d like to see the local papers publish *this* on the front page.

I think it’s newsworthy, and superior to the bottom-calling analysis recently published on the Rain City blog.

Yeah, gotta go w/ Scotsman. The buying and selling of each others’ houses has changed for good. The good news is heloc Jimmy isn’t going to get 200k clear cash from me, David L will be back to scrubbing dishes, and Kary …he’s a clever one – he’ll be debating the merits of hair tonic via late night infomercials (… or be the next president).

Force banks to buy out all the equity from mortgage holders that have any equity and THEN rent every property out. If the family does not have any equity because they are underwater, rent the house FOREVER as a landlord to recoup the payments. The banks will eventually turn a profit on rentals as time goes by and could effectively set the market rate WITHOUT the moral hazard of principal reduction. The same basic concept applies of “more affordable payments” however you won’t be a home owner any more.

Home ownership should ONLY be for those that are able to pay 100% cash up front.

Wipe out the entire mortgage industry / foreclosures and all the atrocious leverage associated with it and we’ll all be at square one with no need for any more government bailouts.

By AMS @ 6:Doesn’t every home have a unique location?

Not really. Sure, in the strictest terms this is true, but that’s like saying don’t two bags of grain contain a different number of kernels? People usually speak in terms of what neighborhoods they like, not which lots they like. E.g. the discussion on the forum regarding Beacon Hill.

This is exactly what the salesman said… Both units are identical. Until the clear day came, and then he realized that Rainier was only visible from the other unit. There was a house blocking his view. Sure they were side-by-side. Sure they were essentially the same floor plans. But the view of Rainier was much different. Then there is the way the sun enters the two units.

Then there are those who think addresses have meaning. Condo #13, even if equivalent in every other way, might be worth a little less, and so on.

Then there are subdivisions where all the properties seems the same, but some are closer to the front. This means more traffic, yet it’s not as far out.

Each place is unique to location.

I love this kind of analysis and discussion. But I think the choices offered all miss the mark, and for the same reason. I don’t mean to sound critical of Tim or any other prognosticator, but all have the same weakness. They start from the assumption that the current and coming events will in many ways mirror a past event that can be used for comparison, or at least a starting point when building a new model. I don’t think that will work this time.

A better approach is to back up and build from a clean sheet of paper, taking into account as many relevant factors as one can, and go from there. The current world economic situation, the sheer size of the bubble, the political process and dominant thought in place to effect corrections, all have to be considered. Unfortunately, the scope of the problem, the lack of a coherent corrective approach, the expectations of divergent interest groups, all combine to make it worse than it needs to be.

I’m by nature and discipline an optimist. But I’m voting for total reset. And the bottom is probably further out, and deeper, than we can envision at this time.