Economic "recovery" only for the rich

[blazerboy30]

Great news everybody! Obama's economic plan is working! Just keep printing money!

As I've said many times, this artificial propping of the economy has mostly helped the wealthy, and when it comes crashing down, the non-wealthy will be the ones to get hurt the most.

The financial crisis destroyed some $16 trillion in household wealth. Americans have only recovered 45 percent of that amount, according to the Fed report. But when you break down that wealth recovery by income level, it gets worse. The Fed estimates that 62 percent of that wealth people have regained since the depths of the recession has come in the form of higher stock prices. And 80 percent of stock wealth is held by people in the top 10 percent of the income distribution.

Link

 

[Denny Crane]

Since they stopped passing stimulus bills and the money's spent and the 99 weeks of unemployment benefits expired, the economy is turning around in ways I can feel it. But it's also clear that the damage Obama did will take a long time to recover from.

The mortgage on my rental property in Vegas is no longer underwater.

The homes in my neighborhood get multiple offers within minutes of going on the market.

High tech startups are doing fine. The whole industry seems to be doing well except for PC manufacturers.

But I walk down the main street in town and there are storefronts empty now that had businesses in them for years. Not just one here or there, but three in a row on a block and several across the street. In a 2 mile stretch I'd estimate 25 empty storefronts at least.

This is in a town that's a tourist destination. The vacation rentals are booked solid. It's also a college town (UCSD, USD) and the vacation rentals go 9 month rentals during the offseason with the kids. The stores should be able to make money.

 

[The_Lillard_King]

Hey I own stock . .. happy for stock owners, rich and poor alike.

 

[blazerboy30]

Hey I own stock . .. happy for stock owners, rich and poor alike.

Since most of the rebuilding of wealth has come through the stock market, how will you or others do when we have a bear market and stock prices drop by 30-40%?

 

[The_Lillard_King]

Since most of the rebuilding of wealth has come through the stock market, how will you or others do when we have a bear market and stock prices drop by 30-40%?

Probably take a pretty hard hit. Try to "diversify" since that is what is preached to me, but with high percentage of the portfolio in equities, it will hurt.

How about you, still happy you sold all your stocks right after the election? Market might drop but I think you pulled out way too early.

 

[EL PRESIDENTE]

Great news everybody! Obama's economic plan is working! Just keep printing money!

As I've said many times, this artificial propping of the economy has mostly helped the wealthy, and when it comes crashing down, the non-wealthy will be the ones to get hurt the most.

Link

Yup. This "stimulus" is a straight money grab for the wealthy. They'll all dump it FAST and crash the market when the outlook looks bleak and fuck everyone over hard. Like I said, you let bad behavior continue by bailing people out and they'll just come back and abuse the system more and you'll be more fucked when its all said and done.

 

[maxiep]

The middle class has been played. The people who choose not to educate themselves, develop skills or bust their ass have had a comparative field day since 2008. If you have one of those sweet government gigs, you've been living high on the hog. The crony capitalism that's occurred in that time period has enriched those with connections. And during the crash, those with capital had a field day picking up assets at pennies on the dollar.

In contrast, the debt that's been written in your name won't be able to be paid by the "rich". It will be paid by those people making $40-100K, those struggling to get ahead. The wealthy will always be able to avoid taxes; the middle class won't have those shelters. We've enabled an entire generation to not contribute and suckle the government teet. It won't be the rich that pay that bill. There's going to be enormous pain coming, and there will be those of us who have said so for the past seven years.

Suckers.

 

[maxiep]

And for those who are chuffed about the value of their real estate, understand the rise in value has been on the back of subsidized interest rates. When it comes time to let rates float, interest rates will skyrocket, depressing real estate values, even with the assumption that real estate equity is a hedge against inflation.

 

[EL PRESIDENTE]

And for those who are chuffed about the value of their real estate, understand the rise in value has been on the back of subsidized interest rates. When it comes time to let rates float, interest rates will skyrocket, depressing real estate values, even with the assumption that real estate equity is a hedge against inflation.

what is truly scary is the anemic growth versus the interest rates/government intervention. and there's still a shadow inventory. rates started creeping up this week unrelated to any FED policy.

 

[Denny Crane]

And for those who are chuffed about the value of their real estate, understand the rise in value has been on the back of subsidized interest rates. When it comes time to let rates float, interest rates will skyrocket, depressing real estate values, even with the assumption that real estate equity is a hedge against inflation.

The beauty of real estate is rents.

Even if the property value drops, the rents should be sustainable because everyone at least needs a place to live.

 

[The_Lillard_King]

Serious question:

If Obama is so favorable for the rich, why do they bitch about him so much?

 

[maxiep]

Serious question:

If Obama is so favorable for the rich, why do they bitch about him so much?

The barely rich ($5-$10MM in assets) bitch because the onerous tax rates and anemic growth combined with a reckless monetary policy threaten their wealth and lifestyle. Most of those people still make money from salary rather than capital gains and investment income.

Those that are truly wealthy ($50MM+ in assets) can't really be touched.

Note that the really, really, really wealthy mostly support Obama and the Democrats. They get to assuage any guilt they have for their wealth by voting for policies that won't really affect them.

It's the barely wealthy that fear sliding back into the middle class that have something to fear. It's that group that are the people who criticize the current Administration.

 

[blazerboy30]

Probably take a pretty hard hit. Try to "diversify" since that is what is preached to me, but with high percentage of the portfolio in equities, it will hurt.

How about you, still happy you sold all your stocks right after the election? Market might drop but I think you pulled out way too early.

I think I mentioned in another thread that I bought again with double leverage starting December 12th and I'm still holding. So, yeah, I'm OK with the decisions I made.

The trickier question is where to move money when this market starts to crumble. It used to be that a decent strategy was to move into treasury bonds for a bear market, but the Fed has created quite a bubble there that I'm not sure that is a safe move either. I may try shorting the market when the time comes, but that is more difficult to pull off.

 

[maxiep]

The beauty of real estate is rents.

Even if the property value drops, the rents should be sustainable because everyone at least needs a place to live.

If the value of properties fall, so do rents.

 

[donkiez]

If the value of properties fall, so do rents.

Unless people are kept out of the purchase market for some reason, like high interest rates.

 

[Denny Crane]

If the value of properties fall, so do rents.

That's simply not true. As the supply of rental properties available for rent decreases, the rent amount goes up.

The only reason I didn't walk from that rental in Vegas is the rent sent up $600 during the financial crisis and was enough to cover the mortgage.

 

[maxiep]

Unless people are kept out of the purchase market for some reason, like high interest rates.

Not enough to offset inflation. We're not talking absolute, but relative terms. Look at the rental market from 78-82. And that was with passive loss legislation in place. We don't have that padding now.

 

[maxiep]

That's simply not true. As the supply of rental properties available for rent decreases, the rent amount goes up.

The only reason I didn't walk from that rental in Vegas is the rent sent up $600 during the financial crisis and was enough to cover the mortgage.

Again, we're not talking absolute dollars, rather inflation adjusted dollars. Certainly, supply and demand come into play, but not enough to counteract the concomitant rise in inflation. As for your scenario, it's great you were able to "cover" your mortgage, but that's not good enough for professional real estate investors. They demand a decent cash rate of return as well as a good terminal cap rate.

 

[The_Lillard_King]

The barely rich ($5-$10MM in assets) bitch because the onerous tax rates and anemic growth combined with a reckless monetary policy threaten their wealth and lifestyle. Most of those people still make money from salary rather than capital gains and investment income.

Those that are truly wealthy ($50MM+ in assets) can't really be touched.

Note that the really, really, really wealthy mostly support Obama and the Democrats. They get to assuage any guilt they have for their wealth by voting for policies that won't really affect them.

It's the barely wealthy that fear sliding back into the middle class that have something to fear. It's that group that are the people who criticize the current Administration.

Thanks for the answer . . . makes a lot of sense

 

[Denny Crane]

Again, we're not talking absolute dollars, rather inflation adjusted dollars. Certainly, supply and demand come into play, but not enough to counteract the concomitant rise in inflation. As for your scenario, it's great you were able to "cover" your mortgage, but that's not good enough for professional real estate investors. They demand a decent cash rate of return as well as a good terminal cap rate.

Vegas real estate was an awesome investment for investors after the crash. You could buy a condo for cash, rent it out, and make 15% return on your investment. That's before depreciation, and including taxes and association dues, etc.

And there's no way there was so rapid an inflation in 6-24 months of the fiscal crisis to have made the kind of difference you're talking about.

 

[blazerboy30]

Vegas real estate was an awesome investment for investors after the crash. You could buy a condo for cash, rent it out, and make 15% return on your investment. That's before depreciation, and including taxes and association dues, etc.

And there's no way there was so rapid an inflation in 6-24 months of the fiscal crisis to have made the kind of difference you're talking about.

It's a faulty assumption to assume rent rates won't decrease with a weak economy.

 

[maxiep]

Vegas real estate was an awesome investment for investors after the crash. You could buy a condo for cash, rent it out, and make 15% return on your investment. That's before depreciation, and including taxes and association dues, etc.

And there's no way there was so rapid an inflation in 6-24 months of the fiscal crisis to have made the kind of difference you're talking about.

I'm not talking about what happened, when The Fed began to monetize our debt, artificially keeping interest rates low. I'm talking about what happens when we can no longer monetize our debt. You're old enough to remember the Carter era and the recession of 81. To wring inflation out of the system, Volcker let interest rates rise, which caused a deep and painful recession. However, it also got us the boom of the mid-80s through the dot.com bust. We're going to have to do it again, as there's no way around the math.

 

[Denny Crane]

It's a faulty assumption to assume rent rates won't decrease with a weak economy.

We had a weak economy and they increased.

Supply and Demand.

All the people foreclosed on needed to move _somewhere_.

 

[maxiep]

It's a faulty assumption to assume rent rates won't decrease with a weak economy.

Precisely. I wasn't even going to discuss weak economic conditions, simply the history of rental increases compared to interest rates on an inflation-adjusted basis.

 

[Denny Crane]

I'm not talking about what happened, when The Fed began to monetize our debt, artificially keeping interest rates low. I'm talking about what happens when we can no longer monetize our debt. You're old enough to remember the Carter era and the recession of 81. To wring inflation out of the system, Volcker let interest rates rise, which caused a deep and painful recession. However, it also got us the boom of the mid-80s through the dot.com bust. We're going to have to do it again, as there's no way around the math.

Here's the math.

$60K cash to buy the condo.
$1500/month rent.
40 months (less than 4 years) and you're playing with the house's money.

WHO CARES IF THE PRICE GOES TO $0 ?

 

[EL PRESIDENTE]

I believe rents can rise in a weak real estate market, simply because of the increased demand. Less people being able to afford housing = landlords are able to charge more than usual since there will be a bigger pool of potential renters. There will be an increased number of rental options too, but I don't think the rental prices and housing prices rise and fall together. Rental prices for an area are more or less set...you know how much a 2 bedroom in "X" neighborhood is going to run...however, the price of a house in that same neighborhood will fluctuate greatly based on the market conditions.

 

[blazerboy30]

We had a weak economy and they increased.

Supply and Demand.

All the people foreclosed on needed to move _somewhere_.

Awesome. There are lots of things wrong with that assumption, but let's look at a simple one:

You're just assuming that people will be forced to move to the location of your rental. Good luck with that.

 

[blazerboy30]

I believe rents can rise in a weak real estate market, simply because of the increased demand. Less people being able to afford housing = landlords are able to charge more than usual since there will be a bigger pool of potential renters.

They CAN rise, but there is risk associated with that assumption, which Denny ignores.

 

[blazerboy30]

Here's the math.

$60K cash to buy the condo.
$1500/month rent.
40 months (less than 4 years) and you're playing with the house's money.

WHO CARES IF THE PRICE GOES TO $0 ?

AGNC (reit) pays a 18% dividend.

Buy all you can with leverage.

WHO CARES IF THE PRICE GOES TO $0?

 

[maxiep]

Here's the math.

$60K cash to buy the condo.
$1500/month rent.
40 months (less than 4 years) and you're playing with the house's money.

WHO CARES IF THE PRICE GOES TO $0 ?

$1500/mo on a $60K purchase? Please, tell me more about how common 30% cap rates are. Markets for even Class C properties are 15-17%, and you're not charging $1,500/mo. They're out there, but they're temporary.