Tag Archives: real estate

David Stockman On Housing Market Recovery

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Steps to Financial Freedom

“The rich rules over the poor, And the borrower becomes the lender’s slave.” – Proverbs 22:7

For someone under age 30, I’ve been fortunate to receive good financial advice and learn from experience. None of what follows is new or original, and some may disagree with details or ordering. It will not maximize your net worth (although it should not prove detrimental). The goal is to maximize financial (and therefore personal) freedom by developing sound habits and maintaining liquidity.

  1. Buy less. iPads and Kindles are neat, but libraries will loan you books, CDs, and movies for free! Electronics have a very limited lifespan.
  2. If you must buy, buy used. Shop CraigsList, Good Will, thrift shops, hardware/building cooperatives, etc. Don’t shop for something unless you are prepared to purchase, there will always be a better deal later on commodity goods. Ask merchants if they provide discounts for cash transactions.
  3. Don’t buy stuff you cannot afford. If you pay for something in the present and promise to pay it back in the future; not only are you assuming your continued value to a rapidly changing global economy; you are also assuming certain benefits that may not materialize. This applies as much to education (student loans) and training costs as it does to a farmer financing heavy machinery.
  4. Only use a credit card if you can pay off your bill in full every month and are not motivated to spend more on plastic than you would in cash. To find a credit card that meets your needs, use nerdwallet.com.
  5. Live on no more than 70% of your net income, and preferably much less. You will NOT be able to move past this step if you are living at or above your means. For many, this could mean re-prioritizing purchases, selling non-productive assets, or committing yourself to a job search to increase your remuneration.
  6. Save 6 months of essential living expenses in cash or cash-equivalents. How you allocate discretionary income between this and the next goal depends on your job security, family status and general risk aversion.
  7. Pay the minimum payments on all your debts. If you can pay more than that while meeting the prior goals, put it towards the highest rate debt first (regardless of principal balance). As you pay off debts, lump the payments you were making in to the next highest rate debt.
  8. Start reading up on your finance, business and tax environment; you will want to be well informed before you ever put money at risk. I recommend realclearmarkets.com, zerohedge.com and the Wall Street Journal.
  9. Save 12 months of essential living expenses in cash or cash equivalents. Move 3+ months expenses in to physical precious metals (silver/gold) to combat potential inflation. You are now prepared to outlast business cycles and have more freedom to make career changes, etc.
  10. At this point many people consider buying a home; society having conditioned them to accept perpetual indebtedness. It might be as an “investment” or to “put down roots”; but regardless of your motive, housing is a unique asset class that is regional in performance and strongly correlated with government policy. Before purchasing housing, you should be able to prepare an amortization schedule and understand how long you will have to “stay put” to come out ahead of renting (ceteris paribus).
  11. Invest in various asset classes in keeping with your aptitudes. This includes owning/managing businesses, securities, actual investment property, etc. As an individual investor, don’t try picking stocks unless you understand modern markets and Benjamin Graham’s value investing philosophy. Otherwise, stick with low-cost indices (ex. Vanguard). In today’s world of highly correlated risk and where significant market manipulation does exist (ex. “Liebor“), individuals should be very cautious accessing securities.


  • Debt is slavery
  • If it’s too good to be true, it probably is
  • Be fearful when others are greedy and greedy when others are fearful
  • Don’t buy anything you don’t understand

Further Reading:


Filed under Consumer

Why Is A Raven Like A Writing Desk

Two recent Wall Street Journal articles point to similar problems in both the housing and stock markets: although prices are up relative to late 2008/2009, liquidity has suffered noticeable decreases.

It would seem that government policies aimed at propping up nominal prices in both markets have succeeded, in the short term. (Although not without consequence.)

Not coincidentally, IRS statistics on all top wealthholders show that 70% of the increases in wealth enjoyed by all top wealthholders between 1992 and 2004 (most recent data available, and prior to the market peaks) can be attributed to securities (55%) and real estate (15%). The data on real estate include all debts and mortgages (-5%), which partially masks the increase in nominal asset prices.

Consolidation of net wealth also occurred during this span, increasing from $1.34 billion to $3.74 billion per wealthholder. In other words, although the net worth increased 106%; this increase was shared by 26% fewer individuals.

Inflation and other policy-induced asset bubbles have clearly benefited the wealthy, and it should be clear to the layman that the Occupy Wall Street protests are misdirected. Instead they should be excoriating people like Paul Krugman, who continue to advocate for persistent inflation, eroding the value of their paychecks and savings.

WSJ: Traders Warn of Market Cracks (Oct 18, 2011)

Hedge-fund traders and mutual-fund managers say it has become increasingly tough to trade an individual stock without causing a big swing in its price. That’s led many large investors to step back from the market instead of risking being stung by the trading difficulties.

The problem is a lack of liquidity—a term that refers to the ease of getting a trade done at an acceptable price.

Markets depend on there being many offers to buy and sell a particular stock, across a range of prices. But as investors have gotten nervous, many of those offers have dried up.

WSJ: Slim Pickings Are Latest Headache for Home Sales (Oct 17, 2011)

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory…

The report is the latest sign of how the U.S. housing market can’t seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn’t the case right now.

Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today’s discounted prices.

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EPA + Ad Council Lead Scare

A few weeks back I noticed the following ad on a number of websites. Apparently, if your home was built before 1978, you’re pouring a can of leaded paint in to your child’s sippy cup.

Even if you live in a house with leaded paint (buried under several decades of less dangerous paint), there’s probably some slight difference between your child’s exposure and drinking leaded paint, but that’s not what this graphic wants you to think about.

Ad Council News Detail Jun 28, 2011

So I got curious and found the most easily accessible childhood lead statistics I could dig up.

Top 10 Lead(liest) States in the US

It would seem that by region, the northeast and the midwest are the most contaminated. However, many states surveyed reported drastic (~90%) decreases in Confirmed EBLL over the decade. EBLL = Elevated Blood Lead Levels (>= 10 micrograms/dL)
Source: CDC’s National Surveillance Data (1997-2008) [.xlsx]

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Koenen: The Bankster's Latest Tricks

According to Ken Koenen (author of the article linked below), banks foreclose on a home and report a relatively low “transfer value”, on which they are taxed at the state level (despite that they likely received market offers above the transfer value). They report the “fair market value”, a much higher amount, on a 1099-A to the previous owner. The banks show a capital loss equal to the difference between their final foreclosure sale price (often lower than the transfer price) and the fair market value, which they can use to offset other gains (ex. stock market transactions); and therefore federal taxes. Is he wrong? Comment!

BrokerAgentSocial.com: The Bankster’s Latest Tricks by Ken Koenen on June 14, 2011

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