John Paulson says to buy a house RIGHT NOW, do you agree?

[retaildaytrader]

I know that the business of residential real estate is a geographical thing. I also know there is some negotiation and strategy involved when buying a house and the many other variables.

So, with that said, John Paulson specifically stated that NOW is the time to buy a house. Do you agree or disagree with this?

http://www.reuters.com/article/idUSTRE6495JR20100510

"If you don't own a home today, now is the time to buy one," Paulson said, adding that people may want to consider buying a second house or helping relatives buy one.

 

[SomeYoungGuy]

Yes, but I think we have some time.

I do think inflation is coming, ~10% smells right. Not enough to kill an economy, but enough to help out those who locked in today's low interest rates.

Real estate is coming back to right-priced. Fluctuations will always be with us, but if we do have the inflation I see coming, it won't matter if you got a sweet deal or just a fair deal. You won't care if you paid $200k or $220k when interest rates / inflation ease their way up and your house is worth $5 million by the time you make your final payment.

Real estate also has intrinsic value, even more so than gold. You can[/] live in it, you can[/] eat it (by planting a few veggies out back), you can[/] earn an income directly from it (by taking in a boarder or storing somebody else's crap out back in your shed, etc..)

 

[Alexandre]

Paulson is talking up is book. He is long gold and therefore bets on inflation.

By stating it's time to buy a house, he is just parading the specter of inflation. It's another way to say "buy gold".

The truth is: there is no inflation and there will not be inflation for a while.

Capacity utilization is still around 75%
Unemployment is very high
commodity prices are correcting (crude down, copper down,...)
Europe is pursuing deflationary policies
China is on the verge of experiencing lower growth (Shangai in a bear trend)

So all this talk of inflation, not sure where it comes from.

Inflation cannot be engineered in the current environment.

 

[achilles28]

Quote from Alexandre:


Capacity utilization is still around 75%
Unemployment is very high
commodity prices are correcting (crude down, copper down,...)
Europe is pursuing deflationary policies
China is on the verge of experiencing lower growth (Shangai in a bear trend)

So all this talk of inflation, not sure where it comes from.

Inflation cannot be engineered in the current environment.

The inflation argument stems from the fact the US and European economies will take a 25% GDP "haircut" if deflation is allowed to take hold. Europe can't cut deficits whilst propping banks. If massive bank failures are allowed to occur, it'll quickly turn into the next Big D. The only alternative is massive quantitative easing via the ECB, FED, IMF to save banks and credit markets which is largely inflationary. I see Europe as 18 months behind the US in terms of it's credit crisis which is just starting to take hold via deficit cuts.

 

[ChrisDragonKni]

Quote from SomeYoungGuy:

Real estate also has intrinsic value, even more so than gold. You can[/] live in it, you can[/] eat it (by planting a few veggies out back), you can[/] earn an income directly from it (by taking in a boarder or storing somebody else's crap out back in your shed, etc..)

Yes I do agree with you that real estate has intrinsic value but what you cannot do is take it somewhere else if a government should decide to levy a wealth or land tax (or confiscate it all together). With gold these things are possible. Having said that I would prefer to invest in real estate than gold as precious metals have already risen so much in value.

 

[Alexandre]

Quote from achilles28:

The inflation argument stems from the fact the US and European economies will take a 25% GDP "haircut" if deflation is allowed to take hold. Europe can't cut deficits whilst propping banks. If massive bank failures are allowed to occur, it'll quickly turn into the next Big D. The only alternative is massive quantitative easing via the ECB, FED, IMF to save banks and credit markets which is largely inflationary. I see Europe as 18 months behind the US in terms of it's credit crisis which is just starting to take hold via deficit cuts.

thinking that QE policies will result in inflation is a myth disproved by the current contraction in monetary aggregates and current velocity of money.

governemts have failed in their attempts at kickstarting inflation. The more debt they contract, the more deflationary the result and time is working against them.

The problems Europe is facing will not be solved through QE.
Europe cannot implement QE policies, the markets would not allow it.

In fact, governments are now enacting austerity policies to placate markets otherwise it's hasta la vista baby. If interest rate rise, it's game over.

 

[Alexandre]

Quote from achilles28:

IMF to save banks and credit markets which is largely inflationary.

I disagree. The debt doesn't go away. New debt is created to buy debt that would have defaulted but the obligation to pay remains and the debtor is not better off.

It is a myth to believe that the distress goes away. It is just hidden in the books and it will resurface at maturity.

What has been achieved is stabilization through kicking the can down the road. The increase in indebtness is highly deflationary down the road. The more time passes, the closer we get to the moment of reckoning.

 

[achilles28]

Quote from Alexandre:

thinking that QE policies will result in inflation is a myth disproved by the current contraction in monetary aggregates and current velocity of money.

governemts have failed in their attempts at kickstarting inflation. The more debt they contract, the more deflationary the result and time is working against them.

The problems Europe is facing will not be solved through QE.
Europe cannot implement QE policies, the markets would not allow it.

In fact, governments are now enacting austerity policies to placate markets otherwise it's hasta la vista baby. If interest rate rise, it's game over.

Oil at 90$, Gold at $1200 and food up by 50% is no myth.

Even if the principle driver of money growth (commercial lending) is sidelined, massive quantitative easing via outright purchase/backstop of the private-debt market is possible and doable. That's what Paulson is betting on, I think. Otherwise, deflation takes hold, and bank balance sheets, consumers and Governments get absolutely crushed. In my opinion, there is no way out from the next Great Depression. It's either massive inflation via QE or massive deflation. Like you said, the markets won't allow endless deficit spending (which is deflationary). But, on the other hand, the Central Bankers of the world won't allow a massive deflationary depression, which necessitates unprecedented quantitative easing. Basically, a wholesale backstop of the financial markets and private debt markets. That's what I'm betting on and many others like Faber, Schiff and maybe Paulson. A deflationary crash means debts are magnified. The largest geared players in todays markets are Banks and Governments - quintessentially the same thing, as the FED is owned by commercial banks, and bankers openly run Capital Hill. Both Governments and Bankers face insolvency if a deflationary crash is allowed to take root. For Governments, revenues drop by half or more, effectively doubling the national debt and interest payments.! It's inflate or die for the guys with all the power. Then again, anything can happen. The powers-that-be could let it all go to sh*t now, in a deflationary blackhole. I say it's 70% chance they inflate it away, and 30% they don't. What's your take?

 

[achilles28]

Quote from Alexandre:

I disagree. The debt doesn't go away. New debt is created to buy debt that would have defaulted but the obligation to pay remains and the debtor is not better off.

It is a myth to believe that the distress goes away. It is just hidden in the books and it will resurface at maturity.

What has been achieved is stabilization through kicking the can down the road. The increase in indebtness is highly deflationary down the road. The more time passes, the closer we get to the moment of reckoning.

I agree the 1 Trillion EU bailout (and FED-Treasury ~6 Trillion backstop) just kicked the can down the road.

At the end of the day, it's all extremely deflationary if the Central Bankers decide to pay that debt back, legitimately.

My guess is they won't. They'll do a Zimbabwe. Print the hell out of the currency for everything and anything and it'll be a hyperinflationary Depression. Something not quite as bad as Zimbabwe or the Weirmarch Republic.

Real output plunges, real prices (in gold) plunge, but nominal prices go off the charts.

After that, then the real deflationary depression kicks in. But by then, we'll have a new currency, everyone will take a 50% haircut off their dollar holdings, which is a defacto deflation. Just looks a bit different.

 

[Alexandre]

Quote from achilles28:

I agree the 1 Trillion EU bailout (and FED-Treasury ~6 Trillion backstop) just kicked the can down the road.

At the end of the day, it's all extremely deflationary if the Central Bankers decide to pay that debt back, legitimately.

My guess is they won't. They'll do a Zimbabwe. Print the hell out of the currency for everything and anything and it'll be a hyperinflationary Depression. Something not quite as bad as Zimbabwe or the Weirmarch Republic.

Real output plunges, real prices (in gold) plunge, but nominal prices go off the charts.

After that, then the real deflationary depression kicks in. But by then, we'll have a new currency, everyone will take a 50% haircut off their dollar holdings, which is a defacto deflation. Just looks a bit different.

I don't think the Germans will let that happen. Or to put it differently, if that happens, Germany will not be part of it, ie they will have exited the Euro before it happens.