bubble wealth

I'm not an economist, but whomever made up the term bubble for short term unsustainable appreciation of value must have been a clever person, such a harmless looking word. Easy come, easy go perhaps fits for the lucky ones who escape financial losses when it pops.

I read one (optimistic) projection that home values would depreciate 3% during 2007 and recover in 2008. A sneaky prediction, a harmless loss to most existing owners, and promises to buyers next year things will be cheaper, a sell-fulfilling prediction perhaps if believed. People who don't "have to" buy or sell are best off waiting, and by waiting they'll be rewarded.

It's not even a sort of problem that can be easily solved outside the market forces of supply and demand. Ideally all sellers are willing and all buyers are ready. Ideally speculators are not in the market driving up prices.

Really as cowardly as I am on personal risk, I'm fascinated by the crazy world of markets, how they work, how they don't work, and all.

The closest risk I took was buying a second house to rent out, not even as an intentional money making activity, although for the immediate future at least a place to sweep up "excess income" under an investment I have some control over. The prices were crazy when I bought it in 2003, $191k for a 4 bedroom house, and city assessed taxes for $233k for 2007, well "only" a 5% appreciation, covering my 4.75% mortgage interest rate at least, not that I expect it to continue to increase, or would cry if it dropped 3% or even 10% - I figure I'm up at least in my poker chips.

Overall investment property seems like a painful way to make money, I mean the best deals I see is duplexes where you live in half, and rent out the other half. But rental income however nice when you have it, is a FAST drain when your tenent moves out and it disappears. And for me, I rent out to a friend on Section-8 housing, and the chargable rent limit (comparable as a 3-bedroom apartment vs 4-bedroom house) hasn't increased in 4 years, while property taxes and heating costs have all gone up. The only benefit has been as a tax loss, offsetting some of my job income. Regular (predictible) expenses are a slight cost, and repairs and maintenance move it easily into a money losing investment, again largely because the rent I can charge is below what the property itself could be rented for for what it is - being a 4-bedroom house.

Anyway overall on housing prices, as much as I don't want to "lose money", my tenant hopefully will stay a long time, and no plans to sell, so I'd rather prices go down so houses can be more affordable. And this is in a relatively low "noncoastal" area prices - who can say how people live in California and New York City with prices there.

Myself I'm just glad I have good income to pay down my mortgage, and feels better than trying to play markets full of smarter people than me. I'll take my steady paycheck. As always easy to say when I have more income than expenses, and harder for those who bought in a rush trying to get into a market no longer appreciating and stuck with a 30year loan they can barely afford, or worse an ARM that they soon won't be able to afford.

I actually have a 5-year ARM myself, adjusts after August 2008, and could climb from 4.75% to 10.75% cap within 18 months worst case. At least with my 20% down, and ability to pay extra principle, I figure my monthly payments will stay below $900/month.

Scarier for me than all the crazy little things people do to gain wealth, is our entire system based on a "cheap energy bubble" that must fail whether quick or slow.

I try to imagine how we are "tricked" into complacency, and it seems basically things that happen slowly are hidden to us. And this happens on BOTH the rise and the decline. When a new resource is discovered it takes time to maximize exploitation of it, and so people get used to the idea of growth as normal. Then at some point limits are reached, and the pricing model turns on its head as the market changes from being demand limited to supply limited.

I expect we're on this transition at least now for world conventional oil supply, if not at peak production, at least clearly past the inflection point, where demand is spinning its wheels for supply that isn't there, and sellers start being able to charge premiums. Whether these new oil profits can generate new supply is uncertain in the short term, and to me, doomed in the long term.

We've created a sort of Monster called civilization that feeds on oil, and demands a constantly increasing supply to keep growing. Everything we've done has feed the monster, and someday we'll have to depend on something else, and that something else may not be as good as what we have now. Besides nuclear power, I see no scalable alternatives to fossil fuels.

Ideally we can "transition" ourselves smoothly to alternatives, but who is going to invest in alternatives while they are more expensive?

I suggested to my company CEO a couple years ago to participate in the Xcel "Windsource" program, to pay an extra $0.02/kwh for electricity to encourage wind power to expand. He laughed and called it a scam for free profits for Xcel for expanding wind power they would expand anyway.

Myself, I just sulk, see there's no incentive at all to conserve. In fact we pay a fixed rent in our building regardless of our electric bill, so leaving lights and computers, monitors, printers, etc on 24/7 is a nonissue for our bottom line.

For me the bubble of "cheap energy" has costs not accounted for now - both things like pollution/CO2, and future costs when we have to transition to alternative fuels that are more expensive.

It's sad. We're a privately held company, employee owned stock, no long term debt. I even appreciate our overall conservative approach to spending on new technology. But the environment just doesn't signify.

Well, off topic I suppose.