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Discussion Starter #1
I heard an interesting theory on the radio this morning that cheap money has inflated the values of real estate, art and classic cars.

Paraphrasing here as I dont recall what show I heard this on.

The EU has had negative interest rates (not sure how that works) as a way to stimulate the economy. The EU economy is in the toilet because of excessive regulations and high taxes. Low interest rates will not fix that.

When rates are low more people can afford to borrow money, as a result demand and prices go up. When rates climb there is less demand and prices go down.

The time to buy is when rates are high, prices are low and you are a cash buyer, sell when rates are low and prices are high.

I never thought about money in this regard, but it makes sense.
 

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This isn't going to end well.
 

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This isn't going to end well.
Well, it felt a little politicized, but @bmcgc is actually pretty much correct. This is the cliff notes of any college level econ 101 class. I guess the question is this; now what? With this info, what are we supposed to do? I've learned that I am not a big enough fish in this game to really make much of a difference. I invest pretty conservatively for retirement, and keep enough money liquid to be able to get myself out of whatever trouble I might find myself in. I know I'm not saving enough for retirement, but I'm fairly certain I'll never fully retire.

I guess what it comes down to is this: I ride the ups for everything I can, and lay low in the downs.
 

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Discussion Starter #6
Not politicized at all.

Talk radio has plenty of experts with their expert opinions.

I have been scratching my head trying to figure out what drives the insane prices we see on real estate, cars and collectibles.

Look at the crazy prices for coins, cards, antiques, real estate and vehicles.

A picker pulls a rusty gas sign with a couple bullet holes in it out of a barn and all of a sudden its worth $1000. A "good" condition Indian head penny sells for between $2 and $900, Upper Deck sells a 1 of 1 sports card and it ends up on ebay with a asking price of 10-50k. A 900sf starter home in SF is now 600k +. I see lots of 66-77 Broncos advertised with the "usual rust" for 35k.

Its just crazy to me.
 

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I never thought about money in this regard, but it makes sense.
You’ve been being told that for a while every time you go off on on of your “use cash” rants. Using free or cheap money is an age old tactic with which to leverage assets. As said above, basic econ.

If you look at the indicators in Europe (and know how to grok them) you’ll see that using regs and taxes is a lazy way to see the situation. It’s much more complex than that. The sector has been weak for a while but it’s not “in the toilet”. In Q2 this year the EU had .5% slower growth rate. Q2 GDP growth was EU 1.5%, US 2%, China 6.3%. Around 2% is normal for a well developed nation. As China grows and settles in they’ll eventually settle in about there too.
 

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Discussion Starter #8
I take growth rate indicators tongue in cheek since each economy evaluates itself.

"Use cash rant", really? Dont be a D-bag, if you disagree, move on.
 

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Yes, absolutely having easy access to cheap funding drives growth/prices. I have never understood peoples' irrational fear of debt - used wisely, it allows people to obtain things they otherwise would be unable to. BUT...just like anything else, it can quickly become problematic if abused.

I just refinanced my house on a 30 year mortgage for 3.625%. My incentive to prepay that mortgage is drastically reduced at that rate, as it's relatively easy for me to exceed 4% returns on my investments. So why would I take money out of a higher-earning investment (or miss out on contributing further to that investment), only to pay down a lower-cost debt? On a net basis, I'm hurting myself by paying the mortgage early. On another note, even if I'd rather use some of that money to fund a hobby (let's say buy a boat or a new classic car), sub-4% interest is a very acceptable premium for me to pay to be able to enjoy that hobby 5-10 years sooner than I may be able to if I saved until I could buy 100% cash. But, that "premium" cost is different for everyone, and I recognize that not everyone feels the same way.

I do agree with the person above that says good luck waiting for higher interest rates. I wonder if we've gotten ourselves to a point where an entire generation (think anyone in their 20s or 30s) is used to only seeing prime rates of 3-4% and mortgages around the same level. They've never experienced a "normal" interest rate environment of prime somewhere in the 6-8% range. It seems like whenever rates try to tick up, the demand for credit (in other words, new home sales) drops, and we end right back where we were. I wonder if the 2006-2009 crisis changed our expectation for a normal interest rate environment for a much longer time period than we anticipated.
 

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Discussion Starter #10
So what you are saying PB is that you leverage your money and credit to fit your particular situation.

Same as what I do.
 

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I don't know how my parent's generation survived with double-digit interest rates on mortgages. And I really don't want to see inflation back at 6-8%, prices are high enough now, and I can't keep up.
 

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I prefer my money for nothing and my chicks for free.

YMMV.

John
 

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Here in Silicon Valley, real estate prices are a function of supply and demand. For many reasons, the tech economy continues to feed the demand and from my vantage point, there is no end in sight.
 

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I don't know how my parent's generation survived with double-digit interest rates on mortgages. And I really don't want to see inflation back at 6-8%, prices are high enough now, and I can't keep up.
They survived because they didn't have classic cars (probably only one car for the family), cellphones, cable tv, internet, didn't eat at restaurants 3-4 times/week, a night out was cards at friends house. Much simpler times.

Hell, our cellphones, cable/internet/phone bill is more than our mortgage was.

I'm 54 and I'm amazed at how many of my friends have no money, or very little, saved for retirement. One buddy just retired at 62 and they have 2 homes, both with mortgages!! I wouldn't sleep at night.
 

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So what you are saying PB is that you leverage your money and credit to fit your particular situation.

Same as what I do.
Yes, I think I agree with what you're saying. Everyone is in a different situation and has to make decisions that work for them.
 

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Hell, our cellphones, cable/internet/phone bill is more than our mortgage was.
I just added it up in my head and my house payments really were a few dollars less a month than I am paying for that exact same stuff. Good grief!
 

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The level of debt in this country is sky high, both public and private. Eventually something will blow up. Look for higher values of real tangible assets and lower interest rates with a weaker dollar. China slowing is a major macro concern as they were pulling everyone else up, no more.
 

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I heard an interesting theory on the radio this morning that cheap money has inflated the values of real estate, art and classic cars.

Paraphrasing here as I dont recall what show I heard this on.

The EU has had negative interest rates (not sure how that works) as a way to stimulate the economy. The EU economy is in the toilet because of excessive regulations and high taxes. Low interest rates will not fix that.

When rates are low more people can afford to borrow money, as a result demand and prices go up. When rates climb there is less demand and prices go down.

The time to buy is when rates are high, prices are low and you are a cash buyer, sell when rates are low and prices are high.

I never thought about money in this regard, but it makes sense.

The only problem with is strategy is that rates are NEVER high any more and likely never will be again...they dont like it when people save money...but yes, inflation(in this case asset inflation) is one of the main reasons you cant make money on cars as anything other than short term flipping
 

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They survived because they didn't have classic cars (probably only one car for the family), cellphones, cable tv, internet, didn't eat at restaurants 3-4 times/week, a night out was cards at friends house. Much simpler times.

Hell, our cellphones, cable/internet/phone bill is more than our mortgage was.

I'm 54 and I'm amazed at how many of my friends have no money, or very little, saved for retirement. One buddy just retired at 62 and they have 2 homes, both with mortgages!! I wouldn't sleep at night.
In 1982 our mortgage interest rate went from 14% to 21%. Inflation was 12%. People were walking away from their homes. The company I worked for laid off huge numbers of employees. I was one of 12 that continued to work through 1983 with hundreds on lay off.

Back then people generally did not go out to restaurants anyway. We always had friends in or we went to their homes.

Those times were a riveting experience. My wife and I paid off our mortgage in 5 years and have continued mortgage free on our home to this day. It became ingrained to save money. We weren't living a subsistence life. I had my toys like my 1968 Mustang GT convertible and my 1983 Honda 550 Nighthawk but we have also always been cautious. My wife and I both managed to keep our jobs when unemployment was higher than 10%.

When cheap money started happening 10 years ago I leapt at the opportunity. I bought 7 rental properties in 4 years before the price boom happened to add to the 2 I had bought in 2005 and 2007. I was leveraged 100% for a few years. It was a once in a life time period. We will likely never again experience cheap housing with cheap money. The cheap money, imo, has caused the boom in housing pricing. The problem with investing in real estate now is that the high prices offset the cheap money making it a challenge to make money. When I bought our rentals the cap rate was 10%. Today rental properties generally sell here for a cap rate of 4%. There is way too much money in the economy right now.
 

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I'm 37, paid off our mortgage in 7 years and did a complete remodel of the house during that time so have huge equity now, but don't have a penny of debt in our name. Cheap money was when we bought our acreage in 2011, when MI housing market was reeling. I've considered buying the house next to me when the owner (who has tenant in it) sells it in a few years, mainly so I can split the land off behind it and add it to my own 11 acre parcel, then sell it eventually. There's also a separate 3 car brick garage with its own driveway next to the house that would be handy for storing cars. But with the price of real estate NOW and all the more you can get for rent (not enough), I'm having a hard time getting it to pencil out. My brother who plays in commercial real estate tells me residential real estate isn't worth it.

Now with our retirement savings contributions maxed out for the year, extra money goes to investments in high growth/moderate to high risk funds. These funds are starting to lose their glimmer as we look to be churning increasingly towards another recession. My strategy is to be a hard charger and continue the investment, weather the hit when the recession makes landfall and continue the investments while prices are low, then watch it grow as the economy recovers. I'm counting on the long game. Foolish, ballsy, brilliant, or all of the above???
 
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