giofranchi

No, I don’t ever expect to have net cash flow from such a property. Therefore, the payment of any mortgage I might decide to get could not be covered by the rent. I understand I can always sell it later and redeploy the proceedings into the stocks I like… But Nate has said something interesting: no one knows the future about the markets… And that’s why I always like to keep great liquidity, meaning that I both like to always have lots of cash and easy to sell investments… To stay flexible and be ready to take advantage of any opportunity that might come our way… On the contrary, if I purchase that apartment now, I will consume a large part of my cash reserve, putting it into something hard to sell… The consequence is I will end up much more constrained than I am now. Gio

Thank you very much, Nate! Not because you agree with the purchasing of the apartment, but because of your clear reasoning! :) Cheers, Gio

What do you mean by “supportive responses”? Some responses were “Yes, I would do it!”, that is a “supportive response” to me. Other responses were “No way… You must be crazy!”, and that is a non-supportive response to me. They both are fine, and I accept them both and both make me think. You, instead, with an arrogant tone said that it is a waste of time to even ask the question I formulated in this thread… Well, I might respect your point of view, though of course I don’t share it, but still I don’t understand why you took the trouble of first reading this thread, then posting your thoughts… on a subject you have openly said to consider only a waste of time! Finally, I think I have put a decent amount of work into this board… If I have to make a decision, an investment decision, about which I still have some doubts, and I want to hear what other people on this board, whose judgment I respect a lot, have to say about it… Well, I think I have earned the right to share with them my doubts and listen to whichever good advice they might give! Not only: I would also add that it is precisely one of the most intelligent use of this board! ;) Gio

My own thoughts exactly! ;) Gio

MCN, 1) As I have said, I already own an apartment in that town. My family has been owning properties there since I was 3. Many friends of mine have bought, sold, then bought again flats in that same town. Some of them live there. The best hotel in town? Yes, you’ve got it, it is run by a friend of mine. Listen, I have been watching that market my whole life… If I say it is a great bargain, believe me… It is!! 2) My family has been renting properties in that town for more than 30 years now. If I say the rent will cover expenses but nothing more, it is out of experience and because I don’t have any reason to believe things in the future might differ much from the past. 3) Most of all, if you don’t like this thread, why did you waste your time writing such a long post? Why don’t you just leave it alone? ;) Gio

Ahahahahah!!!! Guess that’s the reason why all the supposedly women of my life have the very annoying habit of dumping me after a few months we stay together and they begin to be “intimately acquainted” with my stocks! ;) ;D ;D Gio

If by "my own thing" you mean my own business, I might agree with you (though not always... control imo has its burdens!). But here "my own thing" means my own apartment, when I don't really need it, and I like my stocks a lot... but it undoubtedly is a very good bargain... that's why I find it so hard to make up my mind! Gio

Yeah! But in my experience (and I already have another apartment in the same town!) it is just like MrB has said: Gio

This might be part of the equation, but surely it is not all that we are seeing… US public debt has gone up, hasn’t it? Two might be the causes: 1) the restructuring of the banking system, a one-time event in which private debt was transformed into public debt, 2009-2010; 2) the issuing of new debt, 2011-2012-2013. It is a very complex system… Very difficult to know with certainty… The risk I see is we might keep saying “for every borrower there must be a lender” and overlook the need for deleveraging, until we all get to a Total Debt / GDP of 655%... Then we will all look like Japan!... After all, even in Japan for every borrower there must be a lender, right? And their debt is practically all internal debt, therefore for every Japanese borrower there must be Japanese lender… So, there must be a lot of Japanese savers, right? Well, today Japanese personal savings rate is 0%. And the return they are able to get on their “past” savings is so low that could be accepted only in a deflationary environment… Just a little inflation would render a significant decrease in purchasing power unavoidable. Won’t you agree with me that is worrisome? Gio

Yeah… One thing I have omitted saying is we already own lots of real estate. Which is worth more than 50% our total assets… Gio

+1! :) Gio

Don't know exactly… These days it might be quite depressed… In my experience with the rent you can cover all the costs associated with owning such a luxury apartment with ease… but then not much money is left to put in your pockets! ;) Gio

Of course, I am no macro specialist either! I usually don’t trust macro specialists much! ;) What you say might be right as far as banks are concerned. In fact, the private sector in the US has deleveraged a little. Banks have been restructured and then have kept a low leverage. The public sector, instead, has increased leverage a lot. And QE1, QE2, QE3 have been outright purchases of government bonds, right? Anyway, this is not how I deal with such things. In a very complex system I don’t need to understand everything. When total debt to GDP has never been this high in the developed world + China… that’s enough to make me behave prudently! Also remember this is not a phenomenon that’s been going on only for the last 5 years… It is a much older thing: in 2000 Total Debt / GDP already was almost as high as at the peak of the Great Depression. Am I wrong? Probably… And I hope so!... My philosophy simply remains better safe than sorry! ;) Gio

I am just guessing: what about all the money Bernanke and Draghi have printed and used to buy Treasury Bonds and German, French, Spanish, and Italian bonds? What about all the money they have given to banks, which in turn have lent to businesses and individuals? Gio

Simple but very good advice! ;D Gio

I agree. But Italy has never been like Spain or Ireland: we have never experienced a very large real-estate bubble. There are at least other two offers for the same price. But the owner prefers to sell his appartment to me, because we have known each other for a very long time. :) Gio

It will surely generate rental income. :) But also there will be a lot of expenses, maintenance, taxes, etc… Gio

No. It is just a wonderful apartment… what you might call a “beautiful object” ;)… But the fact still remains: its market price a few years ago was 13-14k Euros per square meter, and I could buy it now for 7k Euro per square meter… The location is almost unique, and it is difficult to imagine how this could be anything else than a distressed sale. Actually, I know the owner quite well, and I am aware of the fact he unfortunately needs money now… Gio

Not at all. Just look at the picture in attachment: personal savings have rarely been as low as today. Gio Personal-Saving-Rate-and-Private-Debt-to-GDP-1900-2013.bmp

I have the opportunity of purchasing a very fine piece of real estate for half the price it was worth a few years ago. It is located in a wonderful little tourist town in Liguria, northern Italy, not far from France, La Cote d’Azur. I am almost positive the price it will sell for might get back to normal, once economic conditions in Italy improve. The fact, though, is I will have to sell some productive assets (stocks) to buy an unproductive one… And usually I’d hate to do that (and I never do!). It seems a great bargain, but I’d hate to see my productive capacity diminished. What would you do if you were in my shoes? And for what reasons? Thank you, Gio

In the US: 1950s, 4.3% 1960s, 4.5% 1970s, 3.4% 1980s, 3.1% 1990s, 3.2% from 2000 to 2012 1.7% Gio That growth looks solid to me. Yet that was a period of very high debt load after WWII. So it refutes your point, doesn't it? US total debt as a percentage of GDP reached 300% in the mid 1930s and after WWII was back down to 130% in the early 1950s. Then it just kept climbing, until it reached 380% in 2009. Now the US has delevered a bit and US total debt as a percentage of GDP is at 330%… Still higher than before WWII and during the Great Depression. Europe and Japan (and probably China too) are even in a worse shape. Gio

In the US: 1950s, 4.3% 1960s, 4.5% 1970s, 3.4% 1980s, 3.1% 1990s, 3.2% from 2000 to 2012 1.7% Gio

What I meant is that humanity has already dealt with the problem of too much debt many and many times in the past. And though we all associate nowadays the printing of money and the increasing of public debt with Keynesian economics, it is actually how humanity has dealt with the problem of too much debt at least since the days of the Roman Empire (during which I know of many instances when debasement of the currency and the issuing of public debt were employed). And the outcome as always been the same: slow or no growth for many years, asset bubbles followed by sudden crashes, generally difficult economic environments. I simply don’t understand how, by repeating what has already done many times in the past, we should now expect a different outcome… ??? Gio

I don’t think I suffer from a “home bias pessimism” if I say: 1) The macro situation in Europe and Japan is very worrisome; 2) The macro situation in the US is difficult, but better than in Europe and Japan; 3) The macro situation in China is one of unprecedented excesses, and therefore at least as worrisome as 1 and 2; 4) I remain bullish on good businesses, purchased at good prices, and led by good entrepreneurs who will behave flexibly enough and deal successfully with any kind of storm that might come our way. I think I am being realistic. Neither too pessimistic, nor too optimistic. If 1, 2, 3, and 4 are not true, I welcome anyone to show me some contrary evidence. Gio

frommi, just read the latest by Hoisington: more debt is now decreasing GDP, not boosting it! And the only effect of printing money is to spread the pain over decades, instead of concentrating it in just a few years. It might be the right choice, I don’t know… If you concentrate the pain in a few years you get the Great Depression, if you spread it over some decades you get Japan… Which is better? Europe imo is getting the worst of both worlds because of the Euro. Europe cannot print and cannot default… Therefore, it is running the risk of suffering acute pain for decades! ::) Gio