Wednesday, May 30, 2007

Wednesday Dog's Breakfast

So many things to post about and I don't have time to look at them closely.

1. China's in a huge bubble and the government is trying to stop it.

2. Mortgage rates are going up for the second time in two weeks and Bank of Canada prime rate is likely to rise soon. Watch out variable rate mortgage holders.

3. Median price data has its faults when looking at a falling real estate market

Talk about what you want.


VREB said...

"Private economists and bank watchers have speculated that bank governor David Dodge would not raise interest rates without first preparing the markets for change in policy."

That, of course, is just what he's done. WHY is it now the policy of central banks to tell the market of their intentions way in advance of the fact? It's like the BC Lottery Commission releasing the winning 6/49 numbers prior to the draw. Seems that the "Greenspan put" is also the "Dodge put.

patriotz said...

Landlords look to sell as rates rise

Holy opportunity cost, Batman!

rentah said...

China down 6.5% last night.
No follow-through in US markets today, perhaps a bit of a pullback in China was expected.
What now?
Well, the next 2 days in China will 'interesting': If this is the beginning of 'the' correction, there will be accelerated selling (all those funds wanting to lock in massive profits) and a related substantial drop in the US markets.

Note that the US Dollar Index has been rallying since May 1st, and, in the event of a stock market correction, will likely still be seen as a vehicle for flight-to-safety, even though its fundamentals are so poor.
This may also mean 93c is a medium term peak for the loonie.

the pope said...

rentah: There was an interesting article in yesterdays globe about the chinese stock market. The 'no correction before the 08 olympics' is a strong belief in china so it may be a while before they see a painfull pullback.

People seem incapable of taking those beliefs to their logical conclusion though: if markets are overvalued and they won't correct until 'X' date what happens after that date? Or better yet if everyone tries to cash out just before that date what happens?


rentah said...

pope: precisely, it's a bit paradoxical.
Markets discount the future, thus, for instance, the 2010 Olympics is already priced into vanc RE.
I suspect we'll see a Chinese stock crash before 2008, and a vanc RE crash before 2010.

rentah said...

The phenomenon you've highlighted reminds me of an old conundrum about the impossibility of 'unexpected' events.

If I tell you I'll give you a gift on one day next month, on a day that you don't expect, you could go through the following logical process:
Well, the gifting day can't be the last day of the month, because, if I get to the second last day of the month and I haven't been given the gift, I'll KNOW the last day is the gifting day and thus it won't be unexpected, so the last day of the month can't be the day I'll receive the gift.
So, knowing that I can't possibly get the gift on the last day of the month, could I get it on the second last day?
No, because if i were to get to the third last day and not be given the gift, I'd KNOW the second last day would have to be the gifting day...etc etc.
Thus, there are no days next month where I could receive the described unexpected gift.


freako said...

I just ran the median benchmarked SFH into ING's mortgage calculator. I get $3,178.95 in monthly payments with 25% down, ignoring taxes, repairs, and maintenance.

mohican said...

freako - 25% down is so passe! 20 is the new 25!

rentah - that was funny - unexpectedly funny.

freako said...

"Well, the gifting day can't be the last day of the month, because, if I get to the second last day of the month and I haven't been given the gift, ..."

What it reminds me of is the classic game theory situation where two or more individuals "bid" on a contract.

The payoffs are such that if they cooperate, the both do ok. But if one cooperates and the other doesn't, the uncooperative person wins big and the cooperative person loses big. If neither cooperates, the lose a little Thus, in any given round, you have nothing to lose by not cooperating. But since the game is played over many rounds, the players are better off cooperating. Since the bidding is sealed, that takes trust.

It gets interesting towards the end. Trust is meaningless in the last round, so you can expect both parties to be uncooperative. But since that is expected, trust doesn't really matter in the second to last round either. And if it doesn't matter in that round, does it matter in the round before that? And so on.

On a similar note here is an interesting experiment. Have 20 or so people sit down in chairs. Start a timer. Let them know that for every minute they sit down get money (say 2 dollars). You can get up anytime you want. The first 10 to get up get to keep their money, the last 10 don't. What do you think the average take would be among typical people? $20? $100? $1000?

AndrewJ said...

Here's and interesting Game Theory article on the "Travellers Dilemma" that uses exactly the same reasoning. But people make tend to make suboptimal (according to game theory) choices and do better in the long run by quite a bit.

patriotz said...

Markets discount the future, thus, for instance, the 2010 Olympics is already priced into vanc RE

"Priced in" refers to fundamentals like interest rates and incomes. The Olympics - I mean the event itself, not the debt-financed infrastructure spending today - don't have anything to do with the fundamentals of Vancouver RE. It's just hype.

Unknown said...

"Priced in" refers to fundamentals like interest rates and incomes.

Idiosyncratic definitions are irrelevant. It's commonly accepted that the term refers to market adjustments to information, regardless of 'fundamental' or 'speculative' distinctions (which, as fundamentals change, are not always readily evident).

Costas Piliotis said...

My mortgage broker sends me rate updates ( even though I've locked in now ), and he's saying that later this week(?) we should see 5 year rates soon hit 5.75%...

Glad I locked in at 4.5%... I think historically variable rate mortgages have performed better, I just don't think We'll be seeing 4.5% again in the next three years...

I'm actually thinking I should have locked in at 5% for 10 years at that time...

panmail said...

With which financial institution can you lock in @ 4.5% for 5 years?

Jim said...

The reason your well thought out blog gets 1/5 the posts that Rob's blog gets is your are a censor.

mohican said...

I don't know what you are talking about jim. I have never deleted a post - not once - ever since I started the blog in January.

I would only ever delete a post if that post was vulgar.

Why do you think I censor posts?

freako said...

"The reason your well thought out blog gets 1/5 the posts that Rob's blog gets is your are a censor. "

I'll take quality over quantity any time.

I have never had a post censored, nor seen anybody complain about it. Premature accusation?

exvancouverite said...

"Why do you think I censor posts?"

You don't, Mohican.

Some guy is getting paranoid for absolutely no good reason.

freako said...

OT Bubbletracking just released the latest inventory (today) and foreclosure data (yesterday) for the markets they track.


Los Angeles is really picking up, added 6,000 in inventory last month. Of course, they are 5 times bigger than us.

Phoenix slowed down, but will reach 61,000 any day.

All but three markets are at record levels.

mohican said...

Quality over quantity - amen brother!

There isn't a week that goes by that I don't learn something from a commenter and I am grateful. I also figure that because I don't allow anonymous comments we avoid a lot of junk from appearing here.

freako - those inventory numbers are crazy.