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My definition of speculation: Investment that seeks returns significantly higher than the going real interest rates. Sometimes I'm reading the financial news and reports and I see all the news detailing the excesses here and there, and then in the next sentence the commentator is offering an in on an 'amazing profit opportunity' offering returns of 100, 200 ... 900 percent! When are we ever going to learn? I mean we all know that the major problem of the real estate bubble is that people are seeking to gain 30 percent a year on their parabolic real estate market, always saying "I'm going to ride it for two more years and then get out..." or some such thing... I mean, we have to get out of this INCULCATED speculation mindset, which promises huge returns with little or no work, and then you are set for life... You know what the major problem of the US economy, and yes the world is? Its not this or that bubble. These bubbles are only a symptom of the real problem. The real problem is people's EXPECTATION of making speculation returns, that's the problem. How else would you explain people using adjustable mortgages (30 percent of all new mortgages now) even knowing that interest rates are rising! No, this adjustable rate mentality simply shows us that until people realize there is an immediate end to the real estate bubble they are going to crank that puppy right along. The real estate bubble is nothing more than the speculation mindset spilling into the average American's financial reality and coming to dominate it, because they have seen some great returns on PAPER... all of them thinking they will be able to sell out before the collapse, and being tempted to stay way too long in the process, and will most all of them be caught by a rapidly collapsing bubble with little or no liquidity in it.. (translate real estate deflation). Now, I want to give a little advice (for whatever you think that's worth): Get this SPECULATION mindset out of your skull right here and right now. If you can, you'll save yourself when all the collapses, real estate, stock market, etc etc come down on us all. And you have to simply ERADICATE this speculation impulse right now. This mentality isn't confined only to the real estate market either! This will take work, but if you apply this advice you will not regret it, and maybe be ahead of a collapsed bubble cascade by a year or two...and save your assets, (translate save your asses!). But the key to the problem is this: the speculation mindset must be identified in your own thinking as the enemy. In the United States we have grown accustomed to a fantastic lifestyle, but at what cost? First people use debt on homes to live more expensively than they can afford. Second, people aren't saving. The US savings rate formerly at about 4 pct of income is now at 0.2 percent, which means that if you make $100,000 you will save a mere 200 bucks! Third, people aren't doing the old save and invest mindset; it's now the don't save and SPECULATE mindset. Now, what are people doing to address this issue? They are SPECULATING on real estate, on the stock market... borrowing money out of their home and putting it into the stock market, thinking this grand party will go on for a long time... UH UH. It will NOT GO ON. "Oh I get it, I have to speculate to keep up with inflation, I have to speculate to have enough income for retirement, I have to speculate to retire soon..." IE SPECULATION BEGETS SPECULATION in the people's minds until the grand finale... and then most of them are left holding the bag. Lets look at some simple math: How can real estate appreciate at 30 percent per year, if people's incomes are rising at say only 2 percent a year? Do the math... the appreciation will very soon just simply outrun people's ability to make higher purchases and keep the real estate market liquid. So, come on friends, stop deluding yourselves, and planning on a continued 30 percent rise in real estate valuations. Get your speculation mindset out of your head! Maybe next year real estate will continue to go up. Ok, so are you thinking that you will just hang on until the final month? (rabid speculators think that way). Speculation! Jeepers Creepers! December 23, 2004 Chris Laird Email this Article to a Friend 363390123 |
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