Market Currents
Despite nearly 11M borrowers being underwater on their mortgages, home equity lines of credit...
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Saturday, February 9, 10:15 AM ETDespite nearly 11M borrowers being underwater on their mortgages, home equity lines of credit are suddenly on the rise again. During the housing boom, Americans used their homes like an ATM, withdrawing over $1T in home equity before the bubble burst. JPMorgan Chase says they've already seen a 31% jump in HELOC's over last year, and with home prices up another 8% year-over-year in December, the trend appears likely to continue unabated.
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This news story has 28 comments:
The difference, now, is precisely because strict appraisal and credit underwriting is being applied to any new mortgage-related lending, unlike the lead-up to 2008, when loans were provided both well above(125% loans?) levels of collateral and to borrowers with neither ability nor intent to repay.
Those who keep waiting for 2008 to repeat itself -- and SA has been littered with many, who have mostly avoided the equity markets throughout their recovery -- will be disappointed, again.
Reading your post got me to thinking, generally, about investment strategy, and prompted me to comment, so please don't take the following as directed exclusively toward your specific suggestion or as merely related to this mortgage-lending discussion.
"Hedging" is one of the most popular words on SA, no doubt. It has such elan and sounds so sophisticated, as a strategy. However, without very specific details, the word, "hedging," doesn't mean much, and its effective employment probably occurs far less often than it is bandied about.
In the case at hand, the items you mention are likely on opposite sides of the hedge, i.e., inflation (to a degree) would likely benefit equities, while the market risk you mention is almost certainly deflationary and would work against any inflation hedges. The bottom line is that it's very difficult to make money hedging or even to protect a sizable position, because for the hedge to be effective it either has to be well leveraged (e.g., options) or so large that it compromises the ability of the portfolio to perform in normal circumstances. And, leveraging and options decay present their own non-negligible risks.
In the end, there's no substitute for having a durable investment approach that can sustain itself in a variety of market conditions. My own experience, over the years, has been that attempts to hedge become very expensive insurance policies that rarely pay off, when considered in aggregate. I have found that it's better to change allocations than it is to make specific options bets, which almost necessitate making timing guesses and which have no greater success than most other attempts at market timing.
One day your rose colored glasses are gonna break.
. I am at an age where I depend upon dividends and capital gains which necessitates some capital preservation strategies including holding cash to deploy as opportunities allow. I also keep some silver and gold bullion as insurance. I remain cautiously optimistic but try to guard against undue risk.
You don't seem to understand what I do and have been doing for almost twenty years, through all kinds of markets and related hysteria. It's not based on "rose-colored glasses" or being a "perma-bull," and it's definitely based on any attempts at market timing It's based on having a very disciplined system aimed at finding depressed value and harvesting above-average yields. I think you'd be more than pleased with the results it's produced.
Maybe, there's a reason why the vast majority of the supposed hedge-fund "geniuses" underperform the markets. hedging and market timing are gambling strategies that produces occasional notorious winners, like John Paulsen, but many more undistinguished underperformers or outright losers.
I, too, live off my investments. I have one simple rule. I never spend principal, or even capital gains, for that matter, which is all reinvested into producing those dividends and interest, which is what I spend. The secret to success, over time, is to find unloved, undervalued issues, accompanied by nice and sustainable dividends, then take the positions and wait. It works remarkably well.
Good luck with your own investing.
You are satisfied with a particular strategy so that is all that matters.
I still maintain that this market is rigged by the fed and is due for a major correction and position myself to not get hurt too badly and to hopefully profit long term. The global economy is not doing well and one day reality will once again be in vogue as concerns stock prices.
I probably am not as sophisticated an investor as you are but am satisfied with my results.
Good luck and keep on making money.
The only last tidbit I'll leave with you is that, contrary to your apprehensions, most all the news arriving lately from Australia, China, Japan, U.S. and even Europe, has been rather positive. Always waiting for the next bad thing to occur is a very tough strategy to make profitable.
When Bush was in office it was all gloom and doom from your crowd.
But now that the Messiah reigns (amazingly) everything is gonna be all right!
Funny how that works.
Now please read the report again about HELOCs and tell me that "Its Different This Time™".
I'm a Republican, fwiw.
I'm never gloom and doom, just a calm, focused investor. I've done very nicely. You want to believe the world's about to end because of HELOCs, feel free.
Please point out the post where I stated that the world's about to end because of HELOCs.
Go ahead...I'll wait...
Perhaps, you can stop being cryptic and tell us all what your point is, and I'm sure that referring to Bush doesn't add much illumination. I think my own views are rather lucid, whether or not you concur.
I remember how great the housing market was in August 2006...clear skies ahead as it were.
Having never looked into one, I didn't know that. It would appear then, that many of my childhood cohorts, who refinanced for money out instead of a lower payment, have really dug a hole for themselves.
Thanks!
No more so than people like you.
Not a good sign.
1.) $85 B/month printing by FED
2.) Demand driven by private equity paying for houses with cash
Slice it and dice it any way you want, it still fits the classic definition of a bubble that's beginning to form.
Big difference.
Not to mention, UVXY is optionable, providing the possibility for selling premium on UVXY calls, which has been about the most profitable of all strategies since the Fall of 2011