You are welcome. Glad you can admit to having learned something. "I have learned silence from the talkative; tolerance from the intolerant and kindness from the unkind. I should not be ungrateful to those teachers." -- Kahlil Gibran You have a lot of good and interesting things to say and a lot more people would listen if you didn't state them as Gospel and defend opinions as fact. Let some of the rest of us have opinions different from yours, please.
Gee, where in my post(s) did I even hint at my home in Mexico being an investment? Between the amount of money I spent "improving" the property plus its original acquisition cost, it's not anything I ever considered as an investment. It's where I spend the majority of the year in peace and comfort. I'm not looking to sell it. For the foreseeable future any sale would result in a loss. I'm just glad I own it outright, so, at least technically, I am neither underwater nor upsidedown. We'll let our kids take care of making a profit on the joint after we're gone. Whatever they get will be pure profit since it will have cost them nothing. Had I used the same acumen and reasoning in managing my holdings as I did with this house, I'd be competing for window washing space on Bonompak with all the other financial geniuses.
I understand, Mixz1. It's easy to see where I went wrong, it was in combining two diverse thoughts in a single sentence, which left it unclear what I was referring to when I said, "well done". My, "well done", was in response to your backing the young people getting started in business in the U.S., not in reference to your owning property here: I also remember some of the things you've said about your home, and getting it set up, on this forum. Yet, I suspect it's a great place to live, in spite of being, in the early stages at least, a sinkhole for money. ________________________ Some people will not have considered buying here to represent a diversification away from dollar bound investments; but, as a piece of real estate which is, in fact, in a foreign country, it is a diversification, and its price will be influenced by local factors, including the value of the peso, as well as by what's happening back in the U.S. All else being equal, property here becomes more valuable to a person who calculates their wealth in dollars, every time the dollar weakens and the peso strengthens. Whether that works in a sellers favor depends on the time of sale, and the currency values then prevailing. ____________________
Not to further this elegant pissing match, but I just read an interesting article written by Christopher Hitchens about the longevity of the Euro: Is the euro doomed to be just one European currency among many? - By Christopher Hitchens - Slate Magazine
Euro Interesting article, RG, and it's really true that this latest crisis is a real challenge to the willingness of those countries that are trying to exercise fiscal restraint, within the Euro Zone, to bear the burden imposed on them by those who don't. As the article pointed out, Greece's sin- besides living beyond their means- was "cooking the books" to conceal the true depths of the problems, there. 145 billion has been suggested as the package needed to bail them out: the true number may not be yet known.... _____________________ As for a point of disagreement between between me and Mixz1, I don't see it. We both want the U.S. to succeed and prosper. In his most recent posts, I thought he was pointing out the risk of creating a self-fulfilling prophecy, and that there were good reasons for those who cared about what happened in the U.S. to continue to put their money into it, even at some personal financial risk, and that some sacrifice would be called for to solve the country's financial ills, all of which I can agree with. In my earlier responses, I tried to make it clear that I thought he was right, in the points he made, as I understood his points. If we had a point of difference, it was in how we were responding to the knowledge we both had, but I won't risk speaking further regarding what he thought, because there's a chance I missed something in what he said. "Flower power" is starting to take over this board, it seems. I do think that, although there is a risk of a self-fulfilling prophecy taking hold, that getting the American people on board the idea that sacrifices will be required in order to solve the problems is more important: I believe they will respond, if the message is presented soberly, and with sufficient detail for them to understand what is going to be required. It's been done before, it can be done again. ________________________
Good news? There was good economic news from the U.S. today: consumer spending had ticked up by the most in five months; but, in the fine print, it was revealed that half this increase had been fueled by credit. The U.S. economy has been built on consumer credit, but this is not the only way to drive a train. It is said that, in China, the average individual savings rate is 30%. This means the country is awash in cash, and money to be lent for major projects is never in short supply, without having to resort to any fancy bookkeeping, or borrowing from other governments, as we do/did in the U.S. (we now have only fancy bookkeeping left as an option when it comes to government spending, whether to provide money for the banks to lend, or to fund the federal budget). The other difference is enormous: in China, its citizens consistently saving large amounts of their income and with no banks to bail out, the government was able to put its stimulus money directly into building projects, such as China's new, ultra high speed rail network, scheduled for completion in 2012. Built on a German design at a cost of 108 billion dollars, the project directly employs over 100,000. Contrast that with what happened in the U.S. where virtually all of the money that could have been used to provide stimulus- and build/repair infrastructure- had to be used, instead, to bail out those who caused the crisis, the investment banks and those who insured the risky securities they were offering the public. To my mind, success in managing an economy is less about what kind of system you have, than about how well you manage the system you have: China is a pretty good illustration in point. One of the challenges now facing America is a financial system which no longer functions in the people's best interests: it is dominated by financial institutions that operate on no principle but the bottom line; and, as often as not, make their fortunes off others' misfortunes. ______________________
Another setback Just as the U.S. economy was rocked by a man made disaster in 2008- as a result of the invention of, trade in, and eventual failure of collateralized mortgaged backed securities- another man made disaster now looms, and threatens to upset the nascent economic recovery underway in the U.S.: I'm referring to that now very serious leak of crude oil from the floor of the Gulf of Mexico, caused by equipment failures at the site of an offshore drilling operation, at a depth of 5,000 feet. Projections of the ultimate cost to the economy are easy to come by, but vary widely, depending on how long the leak continues. If it's not stopped soon, it risks shutting down whole industries- fishing and tourism, mainly- along the Gulf Coast, and could trigger what's been feared by some, a double dip recession in the U.S. with additional loss of jobs, not only in those industries, but across the economy. _____________________ "Collateralized mortgage backed securities": investment banks bundled homeowners mortgages into packages, and offered them to investors with the suggestion that they were extremely secure, being backed as they were by home mortgages in a rising housing market. When the demand for houses, second houses, lake homes, and speculation in houses nobody intended to use finally peaked- demand exhausted- these investments collapsed, giving the investment banks that saw it coming yet another opportunity to profit, this time from the failure of the very thing they had touted as safe, by using complex financial instruments to place bets that the investment opportunities they had sold to others would ultimately fail.
Debt woes The fear of a chain reaction, sovereign debt collapse I spoke of some days ago has now caught up with markets around the world, causing a major sell off, today. U.S. markets have not been spared, in spite of generally favorable economic news from there in the last few weeks, as investors fear that important European nations will not be able to meet their obligations. [The U.S. has already passed the point where it could satisfy its creditors on existing obligations, but because the U.S. is free to print money to cover its debts, its own sovereign debt crisis has seemed less urgent.] The Euro has again hit a new twelve month low, today, at $1.30 the lowest it's been since April 2009. The USD is temporarily benefiting from the crisis, rising against most currencies as investors are forced to unwind their trades in response to the crisis, moving back into dollars, and U.S. Treasuries, as they do. [In spite of that, it wouldn't surprise me to see gold, which has been trending up in recent weeks to $1180, and usually responds inversely to dollar fluctuations, go even higher in the near term.] ____________________ "Unwind trades": this involves the process of pulling out of investments made, often under necessity to do so, when markets change direction; "U.S.Treasuries": one of the means the U.S. Government uses to borrow money, these are offered at auction in which investors "bid", saying how much they are willing to lend to the government, and at what rate of interest. The government picks the ones most favorable to it and issues U.S. Treasuries, in response to the "winning" bids. U.S. Treasuries can then be traded among investors, with investors paying more, or less, for them, depending on how badly they want them: when they have millions to move, like they did today, they need and want them badly. But, this does not mean the U.S. Government can now borrow more, because this process just involves investors passing around existing U.S. debt among themselves.
The burden Some of you may have read the article in USA Today, weekend edition, in which they spoke of Generation Y, the "Millennnials", who are coming of age this decade. The article suggested that they may be the first generation in a hundred years to earn less in their lifetimes than their parents did. Not only have their parents, and grandparents, had higher lifetime earnings but they have also enjoyed the somewhat higher standard of living that came with a "low tax, why pay now what you can put off till later" attitude and, in the process, amassed extraordinary levels of debt in every sector of the economy, governmental/private. Essentially, nothing from which money could be borrowed has been left untouched. The government was running a surplus, so taxes were cut. There were excess revenues in the Social Security System, so that was spent, with an IOU left in its place. Money was borrowed from foreign governments till they said, "enough already". The story of consumer borrowing via credit cards, refinancing of mortgages, and new mortgages to buy homes, second homes, and speculative properties no one would ever live in, over the previous decade, is well known. Many of today's Generation Y's parents are still paying on large student loans they undertook a number of years ago, with easy terms encouraging them not to bother to pay them off. Generation Y is coming of age at a time when the bill will begin to come due on all this debt, and at a time when there are very limited job opportunities. They are said to be more likely to be living with their parents, just as has been the case for a long time in other, less well to do countries. They are said to be graduating with student loan debt, and other debt, that will be hard- to impossible- to repay. (The USA Today article mentioned a young married couple who, between them, had $104,000 of debt, at the time they married, combined student loan and credit card debt.) How did the country end up in this situation? Political leaders, pandering to the voters with promises of more benefits and lower taxes; financial institutions that found it in their interest to encourage borrowing in every area of life, and investment banks that could make billions by arranging the funding for this grand extravagance, all had a hand. Behind all this we had the very wealthy who- not to be blamed as they were just doing what the very wealthy do- found many of these measures to work in their favor for a time, and encouraged it. The United States has suffered two massive financial meltdowns, and engaged in two wars, in a single decade. Not to be forgotten is the destruction of the twin towers and the huge blow to the economy and national psyche that caused. Now, the country is faced with recovering from all that with a weakened economy, while continuing to conduct operations in two theaters of war, struggling with massive- potentially unmanageable- debt, and watching and waiting for the environmental disaster which may yet unfold on its shores. ______________________
What to do.... I made this comment, two days ago, when there was a sell off in the markets, but the strength of gold, at this stage, when the dollar is also strengthening, is a little concerning, because it suggests people are getting worried, and buying more gold in response. (Gold has gone higher over the last two days, rather than lower, as the dollar has strengthened- something that in normal times would not be the case: I expected it, but not this soon.) I have to confess that I can write about these situations with a certain amount of detachment but genuine panic may be appearing in the markets, something we haven't seen since late 2008. There is a point beyond which even governments willing to go all out to stabilize economies can be overwhelmed by the pace of developments. With few economies going well outside of China, India and those who supply raw materials to either of them, such as Australia, the developments of the last few days are beginning to concern me. There is just little resiliency left in many economies in the world after the blows dealt them at the hands of the investment banks, reflected in the meltdown of 2008.
