Thursday, July 15, 2010
Wednesday
So I remembered something from when you kissed me that night over two years ago. First of all it was on the cheek, but since we were in a bar we had to talk really close to each other's ear. After you abruptly snuck in a kiss, you apologized but said that you couldn't help it because I smelled so good and stuff. So you liked my smell even then.
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The fact is, having a mortgage, from a purely economic and risk standpoint, makes little sense unless future income is expected to rise and if one wants to quickly increase their standard of living today, in lieu of tomorrow. When you have a mortgage; you pay interest. The proper way to analyze a mortgage is to ask “can I get a better or worse rate of return after-tax, risk-free or not”? You must use the risk-free rate. Otherwise, you are assuming superfluous risk. But of course, Wall Street wants everyone to have a mortgage so that they have more money to buy stocks. When you have a mortgage and you own stocks, you are basically borrowing money in order to buy stocks. Just know, this is superfluous risk.
ReplyDeleteI have learned one thing over 35 years of studying markets (I started, in earnest, at 15 learning from my grandfather): I really don’t know anything. I only know that I am a trader who must exchange value for value.
--John Succo
At some point, John, Jim, Jesse, and Riley and everyone else need to decide whether or not they even believe in money or the state or anything not directly observed. When you die, you are a pair of dates only and might live on in a history book or some other work of nonfiction. The days you are alive should be heavily leveraged, because at the end you are bankrupt anyway.
ReplyDeleteLeverage only makes sense when inflation is present. Succo's point was that in the case of zero inflation or deflation only a fool would take out a loan.
ReplyDeleteCase in point: Current mortgage rates are high despite the claims that rates are at all-time lows. An expanding money supply (read: inflation) means a mortgage is paid off in cheaper dollars. A contracting money supply--our current situation--makes dollars more dear. Meaning you are paying back your mortgage in dollars that are increasingly worth more and more.
In other words, that 4.5% mortgage is actually 100+ basis points higher depending on your reading of deflation. And maybe even higher depending on whether your income is set to deflate.
A 7% mortgage rate with 3% inflation is better than a 4% mortgage rate with 1% deflation (4% effective rate vs. 5%)
But your bank won't tell you that.
Nor will your realtor.
Nor will the fucker who tells you to leverage up because that's the only way to live.
Only a scared-shitless-of-risk trader understands leverage properly. Anyone else using leverage is using it as a woman would--i.e. feminine. I.e. without any regard for the risk-free rate, yield curve, or deflation/inflation.
By getting out of all debt now (meaning unwinding all leverage) you will have a shot at buying the earth. Cheap.
Chrome needs to post more entries. More philosophy or photography. Even saintmaxipad is posting his shit.
ReplyDeleteAlcohol and exercise:
ReplyDeletehttp://exercisingwhileintoxicated.wordpress.com/2010/07/26/the-beer-every-mile-sf-half-marathon-13-beers-in-13-miles/#comments
When you are remaking your life as a philosophical example there is sometimes no time at all for writing.
ReplyDelete