Is the real estate bubble about to burst?

Hi,

You wrote:
> Okay. Assume Inflation. What is your Plan Of
> Attack?

I'd better discuss this with you via email if you'd like.

One interesting thing is I recently saw a list of items that are said to be "objects of permanent value." Things like gold, stamps, rare books, silver, non-gold U.S. coins, masterpiece paintings, diamonds, farmland, etc. I said to myself "Hey, that's the kind of stuff richies buy!" Then I did a Homer Simpson-like 'D'oh!' See, I'd always felt that richies bought Rembrandt paintings just to get an ego-stroke when they say them hanging on their rainforest-mahogany walls. It occured to me that maybe the Rembrandt wasn't an expression of vanity but rather an exchange of paper money for an "object of permanent value."

You wrote:
> Now. Assume Deflation. What is your Plan of
> Attack?

Buying cool stuff when the price gets low enough.

You wrote:
> Which one, in your mind, is the worst case
> scenario?

Living in crude huts made of hundred dollar bills wouldn't be very fun.

You wrote:
> If you go with that plan and it turns out
> different, will you be worse off? Can you
> adapt to the other plan quickly?

This might be another email topic if you'd like.

You wrote:
> Economy. Is it "good" or
> "bad" in YOUR eyes? What evidence
> do YOU see? Now what are other people
> saying... what do you SEE? What does what
> you see mean?

That's a very good point! As are your observations of taking readings on the economy by observing what's actually going on around you.

You wrote:
> CPI and all that has always been a bunch of
> mumbo-jumbo in my opinion. The man on the
> street is informed of those rising or
> falling CPI figures as if that means
> something to him. When all he realy knows is
> that the price of his steak has risen while
> a can of baked beans has gone down. Gas
> prices are anyone's guess - and there is no
> collaberation between gas companies even
> though they all seem to raise and lower
> their prices by the exact same amount in the
> same hour on the same day.

The man on the street has been hit with so much strange stuff (weird diseases, terror alerts, the possibility of being attacked at any moment, all the stuff they show on the TV news) that he's adopted a weary "Whatever..." attitude. He's shell-shocked.

You wrote:
> These non-scientific indicators give me a
> better "take" than some $200,000+
> a year analyst on the 37th floor of downtown
> Manhattan, who plays golf three times a week
> at the $10,000 a year membership golf club.

Good point.

You wrote:
> So, Boyd... forgetting about what the
> "experts" say... what do your eyes
> and ears tell you?

I'm an internet recluse, I barely set foot outside my room, all I know is what I see on these three computer screens in front of me.

Thank you very much for your astute observations. You have tons of common sense, which is misnamed since it's getting so uncommon these days.

Best,

- Boyd

Hi Boyd,

> One interesting thing is I recently saw a
> list of items that are said to be
> "objects of permanent value."
> Things like gold, stamps, rare books,
> silver, non-gold U.S. coins, masterpiece
> paintings, diamonds, farmland, etc. I said
> to myself "Hey, that's the kind of
> stuff richies buy!" Then I did a Homer
> Simpson-like 'D'oh!' See, I'd always felt
> that richies bought Rembrandt paintings just
> to get an ego-stroke when they say them
> hanging on their rainforest-mahogany walls.
> It occured to me that maybe the Rembrandt
> wasn't an expression of vanity but rather an
> exchange of paper money for an "object
> of permanent value."

I think this is a great observation!

I remember reading that while J. Paul Getty made his first fortune in oil - he also made a second fortune, this time in art. (At one time, J. Paul Getty was the richest man in America.)

I don't remember the reason - maybe it was the depression? - but art had gone down in value by quite a bit. He paid someone to teach him how to recognize a good piece of art, then bought art all over the place at their low values. When the prices went up again (as he knew they would), J. Paul Getty had made a second fortune.

I'll have to re-look up the details one day - I have a feeling I read it in his book "How to be Rich" (which I have sitting on my shelves).

- Dien Rice

Hi,

Thanks for your message and kind words.

Man, the coming hard times are going to open up some kickass opportunities for those with a little knowledge or who are in the right spot at the right time.

I'm a fan of a particular set of rare pulp spy novels from the 1960s and now I've got a reason to tell my wife why collecting them is a good thing to do, despite their high cost per copy:

"But dear, they're objects of permanent value!"

Best,

- Boyd

> I'm a fan of a particular set of rare pulp
> spy novels from the 1960s and now I've got a
> reason to tell my wife why collecting them
> is a good thing to do, despite their high
> cost per copy:

> "But dear, they're objects of permanent
> value!"

Art is really a greater fool item. Better to create art and sell to a list of obtained clients and buyers. How you get this list and get them interested in your art is not the point of this discussion.

Alan Bond now knows the truth about art. Bye bye $56 mil

As for your novels. I would class that as memorabilia. And according to Gary Henrickson - if my memory serves me correctly - memorabilia has a high price life between 25 and 45 years. That is... 25 to 45 years after it was made, in fashion, in vogue, etc.

The logic is... at this time period those who grew up with it now have the disposable income to buy back pieces of their "childhood."

After this time period, all the childhood buying back is done and the price falls - those who did not grow up with those items have no interest (or only little interest) in the items.

Assuming this logic is true... items which were made around 1978 should soon begin to fetch higher prices. And should continue to do so for another twenty years. After which time, demand will decline - and so will "value."

On a side note... I am amazed how people will pay $100 - $200 for a modern clock (or spend nearly that much on wood and clock works and then make their own) when for the same money they can get hold of a nice looking art deco clock. The art deco clock will hold its value more. And is usually not made of cheap MDF or other throw away materials.

Anyway. The 25 to 45 year age thing is something you might want to consider before you buy "modern" old things. It means you can get rid of old stuff you have before it declines in value. And buy stuff before it goes up in value.

Michael Ross


$35,550 a week. That's what the woman we just wrote about makes. Subscribe and you get to read how

I tend to agree with Michael that there is a difference between "Memorabilia" vs. "Art"....

However, I do think that certain pieces of art have cultural significance, and will retain and increase their value due to that. But - I ain't no expert!

I did re-read J. Paul Getty's essay on buying fine art (and using art as an investment) in his book, "How to Be Rich". My memory was right - he essentially bought many pieces of priceless art - often for lower than their owners paid for it - during the depression. These subsequently went up in value, many times what he paid for them.... Many of these art pieces he later donated to museums.

The main drawback of art as an investment, it seems to me, is that you have to be willing to wait. It can take time for the value of art to appreciate. Also, it helps to be rich already to even be "in the market" for many pieces of fine art.

- Dien Rice

dno
> I tend to agree with Michael that there is a
> difference between "Memorabilia"
> vs. "Art"....

> However, I do think that certain pieces of
> art have cultural significance, and will
> retain and increase their value due to that.
> But - I ain't no expert!

> I did re-read J. Paul Getty's essay on
> buying fine art (and using art as an
> investment) in his book, "How to Be
> Rich". My memory was right - he
> essentially bought many pieces of priceless
> art - often for lower than their owners paid
> for it - during the depression. These
> subsequently went up in value, many times
> what he paid for them.... Many of these art
> pieces he later donated to museums.

> The main drawback of art as an investment,
> it seems to me, is that you have to be
> willing to wait. It can take time for the
> value of art to appreciate. Also, it helps
> to be rich already to even be "in the
> market" for many pieces of fine art.

> - Dien Rice

> The main drawback of art as an investment,
> it seems to me, is that you have to be
> willing to wait. It can take time for the
> value of art to appreciate. Also, it helps
> to be rich already to even be "in the
> market" for many pieces of fine art.

When I think about valuation and an item's worth, I think about two main types of valuation an investment can have:

1. Value in Use
2. Value in Exchange

Value in Use is essentially the value derived from an investment from its ongoing use. From a purely financial viewpoint (that is, ignoring any personal or psychological benefits of owning an investment, such as the pleasure of looking at fine art if you're an art lover), the value in use is simply the present value of all of the future cash flows a particular investment will generate.

So if you're looking at an investment property, the Value in Use would be the present value of all of the expected future cash flows from the property -- so essentially your rent received minus costs forever.

When looking at listed companies, fundamental analysis and valuation is basically all about looking at their intrinsic Value in Use.

Value in Exchange, on the other hand, ignores any "inherent" value in the item due to future cash flows and simply looks at what other people are willing to pay for it.

When looking at listed companies, technical analysis and trading is more about Value in Exchange, in that it focuses on what others may pay for it in the near future, rather than any underlying fundamentals.

In other words, Value in Exchange is -- as Michael puts it -- a value based on the greater fool theory. And art definately does fall into this category.

And thus the main drawback of art as I see it is that you're really relying on others to pay more for it later, rather than counting on any cash flows arising from the art itself.

Items of this nature, in my view, are what I'd call speculative investments. :)

Hi,

All this talk of profitability and positive cash flow makes me mad. I want to start a company with a catchy idea, sell a bazillion dollars worth of stock and buy an island. Generating cash flow is too much frikkin' work! /satire

Best,

- Boyd