The Rally

Raystonn · Oct 17, 2006

He tapped his equity with a heloc. I neglected to mention that fact.

So what you are saying is that the $1 million in equity you initially claimed doesn't really exist. This person is walking away from a house that is worth less than the loans secured by it. That is hardly an economic crisis. In fact, it's not a bad option in the United States. (No, I don't condone ripping off creditors. But what this person is doing just makes common sense.)

The relevant portion of your original post:

Understand the severity of the situation: a guy making $250k minimum cannot meet basic obligations on his IO and revolvers, thereby walking away from $800k to a mil.

He walked away from debt, not from $800,000 - $1,000,000.

-Raystonn

S2007S · Oct 17, 2006

Quote from Maverick74:

Let me ask a serious question to everyone on this thread. Are you guys really trading off fundamentals are are you guys just bored and instead of talking about the great comeback win yesterday by the Bears over the Cards, you are bickering over economic data? LOL. Seriously, I have a hard time believing in this attention deficit order society of ours that lives minute to minute or second to second, you guys (both the bulls and the bears) are trading off of long far reaching economic data.

I do trade off of economic data, one day very soon the markets will drop like they did in May, June and July and the reason will be housing collapse leading to a possibile recession and loss of jobs.

For the last 5 years people have been borrowing against their houses like ATM machines. Once that stops where will the consumer, who makes up 2/3 of the GDP borrow money????

krazykarl · Oct 17, 2006

Quote from S2007S:

For the last 5 years people have been borrowing against their houses like ATM machines. Once that stops where will the consumer, who makes up 2/3 of the GDP borrow money????

you've been listening to the talking heads too much.....

it's actually SMART to suck cash out of your house if it's overvalued, as long as you move it into another appreciating instrument - the GBP is my fav

Raystonn · Oct 17, 2006

As long as the rate of inflation is higher than most can get in savings, especially after taxes, it is more efficient for the average person to spend rather than save. If you can't beat inflation in your savings vehicles, you are better off spending every penny. Your money will buy more now than it will if you leave it in your savings vehicles for a while.

-Raystonn

riskarb · Oct 17, 2006

Quote from Maverick74:

Let me ask a serious question to everyone on this thread. Are you guys really trading off fundamentals are are you guys just bored and instead of talking about the great comeback win yesterday by the Bears over the Cards, you are bickering over economic data? LOL. Seriously, I have a hard time believing in this attention deficit order society of ours that lives minute to minute or second to second, you guys (both the bulls and the bears) are trading off of long far reaching economic data.

No Mav, I am not selling AAPL 60 puts. =), but I am actually long a few deltas here. Edge from getting short yesterday, but nothing significant.

Maverick74 · Oct 17, 2006

Quote from S2007S:

I do trade off of economic data, one day very soon the markets will drop like they did in May, June and July and the reason will be housing collapse leading to a possible recession and loss of jobs.

For the last 5 years people have been borrowing against their houses like ATM machines. Once that stops where will the consumer, who makes up 2/3 of the GDP borrow money????

Dude, who cares. One day when the market rolls over, then get short. Trade what you see, not what you think. You are trying to rationalize a short position. Nothing wrong with being short, but don't be short because you think John Q Public is spending too much money. The cardinal sin in trading is trying to talk your book.

You may be right, the end of the world might be upon us. But we might rally first!

riskarb · Oct 17, 2006

Quote from Raystonn:

So what you are saying is that the $1 million in equity you initially claimed doesn't really exist. This person is walking away from a house that is worth less than the loans secured by it. That is hardly an economic crisis. In fact, it's not a bad option in the United States. (No, I don't condone ripping off creditors. But what this person is doing just makes common sense.)

The relevant portion of your original post:He walked away from debt, not from $800,000 - $1,000,000.

-Raystonn

Correct, but he invested the heloc into RE and continued the leverage-spiral. The same scenario was played-out with the $2.2mm foreclosure.

I wasn't concerned for the moron who leveraged his way into the FC. I mention it is a systemic risk.

S2007S · Oct 17, 2006

Quote from krazykarl:

you've been listening to the talking heads too much.....

it's actually SMART to suck cash out of your house if it's overvalued, as long as you move it into another appreciating instrument - the GBP is my fav

you really think people who suck cash from their house move it to another appreciating instrument???

you have to be foolish to think that, most people who have borrowed against their houses are using that money for vacations, new cars, clothes, electronics....
new investments like a 2nd house to flip!!!

I forgot to add that the savings in America is negative. If that doesnt tell you anything I feel sorry for you.

Maverick74 · Oct 17, 2006

Quote from riskarb:

No Mav, I am not selling AAPL 60 puts. =), but I am actually long a few deltas here. Edge from getting short yesterday, but nothing significant.

I'm not selling AAPL 60 puts either. LOL.

My comment was not directed at any anyone in particular on this thread. It just seems like a moot argument either way. I don't care who is long or short. I just find it hard to believe anyone on this thread is truly trading off long term economic trends.

DHOHHI · Oct 17, 2006

Quote from Raystonn:

As long as the rate of inflation is higher than most can get in savings, especially after taxes, it is more efficient for the average person to spend rather than save. If you can't beat inflation in your savings vehicles, you are better off spending every penny. Your money will buy more now than it will if you leave it in your savings vehicles for a while.

-Raystonn

This could be one of the most uninformed statements I've read here in a long time.
First, one can find CD's paying 5.6% or more on 6-8 month terms. Forgetting CD's ... money market accounts are paying as much as 5.3%. That more than beats inflation ... after taxes. Second, the savings rate in the US is NEGATIVE ... hardly something to get too upbeat about given that people seem to have no clue that they NEED to be putting $$$ away for retirement. Third, the ARM's coming due and needing to be refinanced will badly hurt those who will see their monthly mortgage payments rise even more ... further eroding any savings. Get a clue ... people are spending more than they make. If you can't see the negative longer term effects then you're blind.

Oh yeah ... educate yourself on compounding over the longer term.