Greg Nowell wrote:
> Jordan is right, Liu's comments had nothing to do with
> my post, which is about what number I use to follow as
> an economic indicator.
>
He is being right about nothing. I was not answering your post. I was reacting to one sentence in your post abot 30-year fix martgage being the best "investment". That statement is not true. Residential mortgages are consumption items. Looking at them any other ways is simply being confused.
>
> Taking Liu's comments at face value as about the
> principles of mortgages in general, Jordan is also
> right, the post shows little knowledge of both leverage
> and the details of American financing.
>
This is amazing. My lack of "knowledge of both leverage and the details of American financing" has put me among the top percentage of the high net worth individuals in America. Risk management and investment is what I do for a living. I make decisions daily involving over US$1 billion of investments globally (which makes me small time among the big guys); and have been doing it for over 10 years, and I started out in real estate. I guess I am just lucky, but really its because I don't have a degree in economics (just kidding, some of my best friends are eonomists).
The point is: keeping a long term mortgage on one's residence, a non income producing asset, is the dumbest "investment" choice to make voluntarily. Most people do it only because they do not have a choice. The only justifiable debt is for financing income producing assets.
Hocking one's house to speculate in Amazon.com is not invvesting - it is gambling. No investor in his/her right mind should do a thing like that and any financial advisor who recommends that ought to be put in jail. A 30-yr mortgage at any fixed rate will cost the borrower all the potential gains from alternative investments of similar risk. It is mathematically determined. That is how the fixed rate is calculated. Any extraordinary gain or loss in specific cases at specific time is due to luck. One can go on arguing about meaningless details, mixing up organges and apples, or whether the right hand can count money faster than the left hand, the fact remains: risking one's home is the most costly risk.
Henry C.K. Liu