Conference nyoss1::market_investing

    You didn't say what your current ARM is calculated... I assume
    your past the teaser rate and the 10% is the rate at which you
    would stay if the tbill rate doesn't move.  No offense intended,
    but let me digress a bit to mention that your timing ain't real good:
    if you knew you were going to be in the house for more than a few
    years, then the ARM wasn't the best thing to get.  Furthermore, when
    rates were down during the summer, you waited til they popped up half
    a point or so to consider refinancing.  Anyhow, now you're between a
    rock and a hard place: with a "mature" ARM rate isn't that great, but
    with fixed rates have come up to almost the same level.
    
    .02 follows: I don't see any of the usual sources for inflation (the
    fed, OPEC, wages, foreign rates, etc) rearing their ugly head anytime
    soon.  I'd stick with the ARM and eat the application fee.  Kratz

    My ARM rate is computed as 2% over the Tbill index. I've been waiting
    to get the house appraised since my kitchen is still not completed
    (haven't finished the floor nor the trim). Most banks won't look at the
    house.
    
    So I guess the view is the interest really isn't going up in the future
    (at least not til after next November...).
    
    Thanks.
    			Cindy
    

    
    Cindy,
    
       Forcasting interest rates is extremely difficult to do; even the
    best forecasters have spotty records.  Ed Yardini is considered one 
    of the best, and he recently forecast a temporary rise in interest
    rates until Springtime, and then settling back down again by the middle
    of next year.
    
       Unfortunately I can't tell you how reliable this information is, but
    it is probably at least as reliable as anything else you're likely to
    hear.  Good luck with your decision.
    
       /Jim
    

    
    	A good friend of mine, who also gave me a mortgage through his bank
    told me that the 'executive' consensus is that rates, (short term) will
    rise a little through spring due to Clintons tax and spend theory, but
    will settle back down by summer....
    
    John
    

  Over 9% seems high for right now.  Must be the 95% rate.  They are
right that you missed the window.  I just made my first payment on
7 3/8% 15 year  last week.

    Well, just to let everyone know - I decided to pass up refinancing the
    house (and blew $240 - so that's my fiance's Christmas gift....).
    First of all, with some more work on the house, even with this bad
    economy, we can bring the house up to 10% equity (putting new flooring in
    the kitchen - actually finishing the kitchen..., finish replacing the 
    windows...). Also, by finally putting the new flooring down in the
    kitchen, we're no longer locked into the in-house mortgage of Orange
    Savings Bank ( They have a secondary market mortgage but we didn't
    qualify because we didn't meet the flooring regulations - can't have
    exposed subflooring).
    
    So let's hope that the T-bill rate doesn't climb to 8%...
    		Cindy
    

    Interest rates should be going down into the first of the year, then
    up, possibly sharply, into late Feb.  Then broadly down for the rest 
    of 1993.

    What's your rationale,John? At what level do short term rates raise a
    red flag to the stock market?

>    What's your rationale,John? At what level do short term rates raise a
>    red flag to the stock market?
    
    My rationale is based on technical analysis.  (Some would object to using 
    "rationale" in the same sentence as "technical analysis", but not me. :-)
    
    The classic "short term rates are too high" signal is somewhere near
    double the SP500 dividend return.  We're nowhere near that and I don't
    expect us to get there for a while.  And when we DO, I expect it will
    be more because of SP500 yields dropping than T-bill rates rising. (!)
    
      John

I have read these questions with disdain in the past, but now I find that I
would like to ask.  With a mouthful of humble pie...

We have an option to convert to a fixed rate mortgage right now.  The rate is
the lowest in the two+ years we have have our loan, and have been tracking the
index.  They have also been at this point for over a month, with no signs of
going lower.  So I ask, is there any feeling that interest rates will drop any
further?  I think this is the bottom, but I'd be happy to be proven wrong.

Elaine

> going lower.  So I ask, is there any feeling that interest rates will drop any
> further?  I think this is the bottom, but I'd be happy to be proven wrong.
    
    This is the week for (quarterly) government bond auctions. 
    Historically rates dip even more the following week (i.e., next week)
    which *I* think is due to the Fed buying (more) bonds to help out the
    primary bond dealers who bid on the auction.  (And the anticipation of
    such "help" helps keep bidders in the auction, helping rates down).
    
    So rates could dip even a tad more next week.  FWIW, I think this is
    a most excellent time to convert to a fixed rate mortgage.  In the not
    too distant future we're going to see less growth than expected, less
    revenue than expected, a huge jump in entitlements with all those new
    unemployed, etc.  This will result in a huge increase in Treasury
    borrowing which will raise rates even if the economy is in the dumps.
    
      John

    So John don't hold back, how do you really feel about the latest
    budget plan?
    
    Actually I wish I had a mortage to refinance right now.  The
    deduction of interest is one give-a-away I wish I could cash
    in on.
    
    Martin

re: .12

>     Actually I wish I had a mortage to refinance right now.  The
>     deduction of interest is one give-a-away I wish I could cash
>     in on.

If that's what you really wanted, you can refinance my mortgage.   :-)

But seriously, I can never figure out why people think getting a mortgage just 
for the sake of tax deduction is such a good deal. Think about it, for every 
dollar you pay out in interest, you'll get about 30 cents back from Uncle Sam. 
The rest of that dollar is "gone with the wind"! I'd much rather to keep that 
dollar all for myself. But, the cold reality is that for the most of us, we 
would not be able to afford a house if there is no mortgage. So, the bottom 
line is, is you can't pay for a house with cash and you *have to* get a 
mortgage. Then, the second best thing is to be able to deduct the interest 
you paid from your income. 

Mike

re: .13

Mike, that is true if your choice is

  A. Own a house free and clear
  B. Own a house with a mortgage

But if your choice is

  A. Pay rent (with small deduction on low Mass taxes)
  B. Pay mortgage (with bigger deduction on high Federal taxes)

Then deducting the interest is preferable, all things being equal

Elaine

    re .10
    
    All things considered, this is as good a time as any to refinance. 
    What do you lose if the rates go down?  Figure it out and then decide
    for yourself if the peace of mind is worth it.  By waiting, you will
    continue to worry about if it is time to refinance.  Since rates are at
    a 20+ year low, and government is about to start borrowing again (you
    don't really think they will contain spending?) a case could be made
    that rates will not go down substantially.  Of course, YOUR substantial
    may be different than mine.
    
    As Always, For What It's Worth...
    
    Dave

    Elaine,
    
    I took a slightly different path.  I refinance with an automatic
    refinance package.  Deal is, anytime the rate goes down .25% I
    refinance, no points, no closing costs, and not PMI premium.  I'm
    about to get 8.375%, from 8.875%....Regardless of the program, I'd 
    refinance now!
    
    /mtb

    Mike,
    
    You may also be over looking the fact that a home mortgage is the 
    cheapest money you can get.  Assume that after taxes you can get money
    on your house at 5% - and you have a 250k house.  I'd take a 100k and 
    put it in a municipal fund or a tax-free annuity and pay on the
    mortgage.  Now, at least in the North-East, this makes more sense then 
    ever.....  at least as long as real-estate continues to appreciate at 
    these stellar rates :*)
    
    -Brian

>     Mike,

>     You may also be over looking the fact that a home mortgage is the 
>     cheapest money you can get.  Assume that after taxes you can get money
>     on your house at 5% - and you have a 250k house.  I'd take a 100k and 
>     put it in a municipal fund or a tax-free annuity and pay on the
>     mortgage. 

Some other considerations:

1.  Municipal funds have yielded more than 5% after tax because of the
    interest rate drop. Should rates interest, you could very well
    see negative returns on the fund.

2.  Tax-free annuities are really tax deferred.  You gotta pay taxes
    later.  When tax time comes, the gains in the tax deferred annuities
    are taxed as ordinary income. Could the tax rate at that
    time be higher that today?

3.  10 year US Treasuries were sold with approximately a 5.78% yield. 
    That gives you a benchmark for a risk free return.

The decade of the 1980's produced gains in the SP500 of over 17% per
year. There's a school of thought that is saying the decade of the
1990's will be one of low inflation and with returns averaging around
8% or so.

I'm agreeing with Mike.

Gim

Thanks for the insight.  We are going to sign papers tonight.  The story is
we have just closed out a construction loan.  We have been paying P&I on
the adjustable for 17 months now.  We have the option to convert to a fixed
rate with our current balance and the same number of remaining months, at
no charge.  The rate just came down to 7.375, the lowest it's been since
we've had the loan.  The option doesn't expire until 1996, which is why I
asked the question.  Given the prevailing opinions, we have decided to
accept this offer.  If the rates ever drop lower, we will look at the
no-points no-closing costs route.  I think this way, we're covered.

Thanks again.

Elaine

    I also agree with Mike.  Money Magazine did an analysis few years
    ago.  The conclusion is unless the house value appreciate more than
    5% per year, renting makes more sense than purchasing.  Although,
    we do get a tax break for mortgage interests, but there are
    a lot of extra expense for owning a home (ie, property tax,
    maintainance fees, etc..).
    
    Wendy

	I don't understand this.........


	When I got my mortgage 10 years ago, the repayments were about the 
	same as rent, they are now a third of what renting would be.

	Without taking into account the fact that I will eventually have an
	asset worth a reasonable amount, I save many times over
	on the difference in rent vs mortgage.	


	Or have I missed something?

	Heather

    Locking in your housing cost is a big benifit of home ownership.
    All the variable costs (water and sewer, taxes, and repairs) are
    passed onto the renter by the landlord.
    
    I rent becuase home ownership is usually to much for a single
    person (money and time) and a condo isn't really any better
    than an apartment.
    
    Martin

    re: .17
    
    I can not recommend that to anyone. Borrowing money to invest is a
    "no-no" for me in "almost" all cases. Like .18 pointed out, there is
    risk involved in buying bonds. The bond prices change with respect to
    interest rates. You pay off a 8% mortgage, the return is guaranteed at
    8%. But, you will not get that guarantee from bonds. So, invest with
    your "free money" only.
    
    Mike

Mike,

Help me out here. BTW, I wasn't suggesting everyone should mortgage their house 
and start trading pork-bellies... :*)  I'm 27, own a house worth about 200k 
with mortgage of about half that value. I've got a one year ARM with an option 
to convert to a fixed rate btw years 2 and 5 (the option is now exercisable).  
MY current rate is 5.8% If I drained most of my savings with the exception of 
my variable life policy, and 401k I could pay off the house.  These other
investments on average have been yielding 15.8% on over the past 3-4 years 
(that rate actually includes my VLP and 401K), but anyway, does it make sense 
for me to pay off my house? If I did...

1) I wouldn't have the diversification - most of my balance sheet would
be on one line!  Real Estate in the 495 belt in MA is highly dependent on 
the success of the high tech business, so is my ability to be gainfully 
employed (another asset), so sinking it all into the house doesn't seems 
wise to me, all things considered.

2) My house in not appreciating and the current money is costing me net of taxes
about 3-4%  This will be slightly higher when I lock in.  My total "other" 
investments portfolio is earning considerable more than that. If I were 
earning less than 8% on my money, I'd be critical of myself for mismanaging
my money.  My house seems like a "stink-o" place right now for more money.

All things considered, it just doesn't seem appropriate for me to sink all 
my eggs in one basket.  Perhaps I'm missing something??  Have I committed your
"no-no" :*)  

-Brian

    If someone who is an investment novice goes out and borrows money to
    invest in the stock market, my opinion would be that he/she is at
    extreme risk of being considered on the edge of sanity.  I remember a
    co-worker, who is no longer able to read VAX Notes, who borrowed $5000
    at approximately 12%/yr to buy Digital stock because it was about to
    spliut again and take off, again; he bought at - $199.  He borrowed
    against my advice and I refuse to be an I_told_you_so :-).
    
    However,  if someone has a home mortgage that is costing less than,
    say, 7%/year net tax deductions and is considering paying it off or
    using the same money to invest, I would have to ask a few questions. 
    
    	"Do you understand that `investing' is risk taking?".  
    
    	"If you lose the cash due to poor investment choices, will you be
    	able to safely continue your house martgage payments?"
    
    	"When the market swings down, will you still sleep at night not
    	upset that you did not pay off the mortgage?".  
    
    	"Are you considering investing the majority of that money in 
    	mutual funds that you have/will have researched extensively?"
    
    If you answer NO to any of the questions, then you should pay off the
    mortgage, smile at your fiscal responsibility and work on building up
    your net worth through savings accumulation.
    
    If your answer is YES to all of the above, then I (and others) could
    recommend any number of investment vehicles, with varying degrees of
    risk, that have and are likely to continue to provide greater than
    12%/year ROI NET TAXES at the 31% bracket - as long as the market
    continues to gradually climb.  It all comes down to risk aversion and
    risk management.
    
    As always, For What It's Worth
    
    Dave

> MY current rate is 5.8% If I drained most of my savings with the exception of 
> my variable life policy, and 401k I could pay off the house.
    
    In addition to the excellent comments in .25 I would ask the following:
    
    - Are you planning to stay in your current house?
    
    - If the situation were reversed, i.e., your house were fully paid off,
      would you consider taking out a mortgage in order to have cash to invest?
      (I sincerely hope NOT, that would be like buying DEC at 199).
    
    If you are planning to stay in your house, then I advise paying off 
    the mortgage and not thinking of it as an investment.  Then you could 
    take what used to be mortgage payments and invest them in a no-load fund 
    or some similar diversified regular investment plan.  Getting out of
    debt -- all debt -- will be seen as the Smart Move of the '90s.
    
      John

Also, (since I at home taking a vacation day and this does not detract from my 
work :-})....

We have our house on the market (nice place off exit 5 in Nashua at a good
price if anyone is interested) and will be buying "up".  Our budget is based on
a 15 year mortgage so that it is paid off by retirement.  However, my plan is
to actually take out a 30 year mortgage and take the difference between the
monthly payment at the 15 year rate and the monthly payments at the 30 year
rate (net taxes in both directions) and invest them in "quality" stock mutual
funds.  Based on my relatively complicated analysis and projections, if the
market stays as booring as it is today (historically, it is relatively flat),
after 12 years I should be able to pay off the balance of the mortgage. 

I am will and technically able to manage the risk.  I would NEVER recommend 
this strategy to someone who is not so versed and of a risk taking temperment.

It beats the dickens out of playing roulette. :-)

Dave

.25's comments are excellent regarding when to invest. 

>     If your answer is YES to all of the above, then I (and others) could
>     recommend any number of investment vehicles, with varying degrees of
>     risk, that have and are likely to continue to provide greater than
>     12%/year ROI NET TAXES at the 31% bracket - as long as the market
>     continues to gradually climb. 

Even if the market continues to climb, I believe in the decade of the
90's, it well be very difficult to achieve gains >10% after tax. 
What investments vehicles could achieve a 10% gain after tax?

Most investors are looking at the 1980's when you could have thrown
darts and done fairly well. In the 80's passive investments vehicles
such as the SP500 went up. In 1991, 1992, and 1993, bond funds
went up because intereste rates dropped. In short, over the past
10 years, you couldn't loose.  It is very doubtfull that the decade
of the 1990's will be the same.
Vanguard did a nice write up on this in their quarterly newsletter.

The June Barron's Mutual fund edition also lists the returns 
various investment vehicles for each decade.  There have been
periods where the returns have be 3-5% per year.   

Gim

    In past 70(?) years, there have been more than 40 10% or greater
    corrections and 13-14 of them have been more than 33%. Still, the stock
    market has returned 10+% av. annual return - better than bonds, CDs etc. 
    Please don't forget that even in 80s, there were gloom and doom 
    predictions, especially after the 87 crash. Don't try to time the
    market. If you are looking at long term and bigger picture, continue to
    invest in good quality stocks and funds, diversify, and wait. Who are
    we to predict there will be just 10% return or 5% return in 1990s or
    gold will do better than stocks, or whatever. Expert comments should
    be listened to but take it with a grain of salt. If they were so great,
    how come most can't beat the S&P 500 index 99% of time or have not become
    billionairs?
    
    This may be a great time to convert to a fixed rate. But if you have
    enough savings/liquidity to pull you thru any emergency (loss of job
    etc.), I wouldn't pay off the mortgage and lose out on an opportunity to
    continue investing and also lose all the tax benefits. You wouldn't
    want to miss out on bargains when/if DOW drops to 1500, right ;-)
    
    - Rajesh

    re: .24
    
    Brian, When I said don't borrow money to invest, I meant in the case
    described by Dave in .25. Regarding your case... it's a tough call.
    Your mortgage at 5.?% is not that high at all. If I were you, I will 
    only use the cash portion of my portfolio (if you have that in yours,
    and this is NOT the cash reserve you are holding) to pay down/off the
    mortgage. I wouldn't push myself too hard in doing so. Because, the
    rate you have is quite low as is, there is not much gain by paying it
    off now. However, if the rate has jumped up in the future, I will be
    more willingly to pay it off quicker. 
    
    And also, please remember that having a mortgage paid off is not only
    for pure financial reasons. It also gives you the peace of mind, the
    sense of security and etc. - like have been mentioned by others in this 
    Notes file. But, that depends your onw personallities and how you feel
    about those things. That is a personal decision only yourself can make.
    
    Mike
                                           

    re .26
    
    
    John H., why is getting out of debt such a smart move?  I fail to see
    why a loan at five or seven percent would be a bad idea, unless you
    expect either 
    
    o	loan interest rates to drop to the two to three percent area,
    	in which case the house-owner can refinance, so there's no big
        loss, or
    
    o	the house-owner's income is about to become more volatile (i.e.
    	stop for periods), in which case the owner might prefer a cash
    	cushion from which to pay mortgage over a paid-off house and
    	less cash.
    
    The only scenario where getting rid of debt is good is one where the
    payments are fixed with respect to changes in interest rates and the
    supporting income disappears, and the assets dissappear, and prices
    for houses go down dramatically (a 1930's scenario).  Then a debt was
    a disaster: you couldn't pay, you couldn't sell the house to repay,
    you lost the house and wound up still deep in debt.  Is this your
    near-term prediction?
    
    		-John Bishop

    Forecasting exactly what's going to happen is less important than
    forecasting how one should best arrange one's affairs.
    
>    supporting income disappears, and the assets dissappear, and prices
>    for houses go down dramatically (a 1930's scenario).  Then a debt was
>    a disaster: you couldn't pay, you couldn't sell the house to repay,
    
    This is a possibility and one should be prepared for it.
    
    Another possibiity is rising interest rates and an adjustable mortgage
    that rises with rates, possibly much faster than one's income rises.
    One should be prepared for this, too.
    
    Basically my forecast is that the '90s will not be like any recent
    previous decade.  In past decades, leveraged home ownership has been
    a win.  If the '90s are radically different from the past, I don't
    quite know what that implies but it tells me that being out of debt
    is the smartest maneuver.  Having a cash cushion is a wise idea, too,
    but I prefer to have no debt and a smaller cushion than large debt and
    a large cushion.  Better to build one's cushion with savings from home
    mortgage payments.
    
      John

Regarding .31

There are other advantages. 

1. If you consider equity of the house as part of your portfolio, having no
   mortgage will allow you to have a more agressive investment
   portfolio. You can think of the house as a fixed income fund paying
   exactly the mortgage rate.  The worst you can do is to loose
   everything yet keep the house.

2. You can borrow at lower rates. Some banks are offering home equity credit
   lines to home owners with no mortgage at prime + 0%.

3. Flexibility in cash flow. 

Can the decade of the 90's offer the same return in the stock market
as the 1980's?  Implicit in .31 statement is the fact that returns
on investments will beat the mortgage rate.

Consider the following:

For 10 year periods, the equity market (Ibbotson) provided the following 
returns (per annum, compounded annually):

From           	
Beginning       To                Average
of              End of            Annual Return
--------        -------           -------------
1960            1969              3.9%
1961            1970              4.3%
1962            1971              4.6%
1963            1972              5.0%
1964            1973              5.4%
1965            1974              5.6%
1966            1975              5.6%
1967            1976              5.6%
1968            1977              5.7%
1969            1978              5.9%
1970            1979              6.3%
1971            1980              6.8%
1972            1981              7.8%
    				  
10 year return in the 80's were in the double digits. 


Gim

re .31

Regarding you "average annual return", is this based on the S&P500, DOW 30, or
some other index (I'm not disputing the numbers, just want to know which it is)?

Mutual Funds haven't been popular for a long time, but they did exist as far
back as the 1920's. Do you have numbers for the average rate of return for them?
The reason I bring this up is that one assumes that when you buy into a managed
mutual fund you are in essence paying for professional stock selection.  Doesn't
this improve your rate of return?  It has mine.  I guess I just dispute
comparing an unmanaged rate of return to anything.

Michael

    It's true that paying off a loan is like making an investment
    at the loan rate, in the asset sense.  But not in the cash-flow
    sense, as the money shows up at a different time.
    
    If you pay off part of a mortgage, it only shortens the loan
    term, so no cash-flow appears in your hands; further if the
    loan rate is not the current rate the current value of that
    term reduction may not be the same as if you had invested that
    money (thus you should not pay off loans at below market rates
    and pay off those at above market rates).
    
    Given the tax advantage of mortgage interest, you can compare
    raw rates (which is a bit of a surprise and not true for other
    loans):
    
    	Have one dollar:
    
    	1.  Pay off mortgage principal at 8%, saves 8 cents per	
    	    year pre-tax, for a post-tax savings of about 6 cents.
    	    (In reality shortens loan, but if loan is at market
    	    rate then the current value of that reduction is 6 cents.
    	    Or you could re-finance a lower amount (with transaction
    	    costs)).
    
    	2.  Invest at 8% for interest of 8 cents pre-tax, post-tax
    	    6 ditto.
    
    I was questioning John H.'s assertion, as he seemed to be saying
    that everyone should have a large, ill-liquid real estate holding
    as the dominating core of their portfolio.
    
    As for the raw rates of the sixties, etc.: what were the mortgage
    rates at the same time?
    
    		-John Bishop

Re: .33,

The returns were for the SP500.

The latest issue of Forbes states that 40 of 290 diversified
mutual funds beat the SP500. Most mutual funds fail to beat the index.
One major reason is the expense ratios. Some index funds have expense
ratios of 0.09% (Vanguard Institutional Index - SAVE plan E). Given
that there are more mutual funds than stocks on the NYSE, picking the
right mutual fund is now more difficult than picking the right stock.

Given an average return, some funds beat the average and some underperform.

Re: .34

>     If you pay off part of a mortgage, it only shortens the loan
>     term, so no cash-flow appears in your hands; further if the
>     loan rate is not the current rate the current value of that
>     term reduction may not be the same as if you had invested that
>     money (thus you should not pay off loans at below market rates
>     and pay off those at above market rates).

I was  referring to having a mortgage or none at all. Your point
is well taken.

>     I was questioning John H.'s assertion, as he seemed to be saying
>     that everyone should have a large, ill-liquid real estate holding
>     as the dominating core of their portfolio.

Real estate holding is fairly liquid if you have a home equity line
of credit. You can tap up to 60-70% of the value. Current rate is
6.0%

>     As for the raw rates of the sixties, etc.: what were the mortgage
>     rates at the same time?

Mortgage rates were in 5-6% range.  (Barrons - 4/13/92)


Gim

    re -1
    
    Your point about most mutual funds not beating the SP500 are well
    taken, but remember that if you opt for stocks instead, you have to pay
    fees for buying and selling that are not part of the SP500 averages.

I guess I'm not trying to argue a point.  Has anyone ever seen a report that say
dealt with the top (largest, not returns) 10 funds for a given year and project
their average out for the next ten years.  Or how about a weighted average of
returns based on size?  I say it's interesting because I've owned CGM Capital
Development for about 10 years.  The fund started in 1967.  I did a ten year
average starting from 1967 (like the original note)...after the first three ten
year chunks the averages where well over 15% and headed towards 29% (I know this
includes some of the 80's, but the fund just didn't go back that far).  I would
be interested in looking at Magellan or some of the older funds that have a
longer history.  The problem I have with the "average of mutual funds" is that
it includes some real small asset based funds, is not weighted, and so I like
to think we can do better.  When we invest in a Mutual Fund we are paying for
a service.  Some funds have better "service" than others (and I don't mean 
phone redemptions and switching).  The market has ups and downs and I have 
faith that I get good "service" during both periods.  I've been through '87 and
'90 (with profits in both years), and I've been through '91 (a year I'll never
forget, 99.08% return) and I look forward to the year 2000! 

The problem with averages is it includes things like "The Steadman Family of
Funds" (look that one up in some old Moringstars) as well as the Magellans and
the CGM Captial Developments.  Don't play the "hot fund syndrome", look for 
established management with good track records, and forget about the average
(you're better than average)!

michael

    Also remember that many funds are managed for income and low
    volatility, as that's what many buyers want.  So you'd expect
    a lower return than the SP500, which includes the volatile but
    potentially profitable stocks.
    
    Judging by the ads I see and the funds available, the US is full
    of people in their 50's and over who have around 200K$ and want
    high, stable income from it.  They buy bond funds of various
    flavors and income or growth-and-income stock funds.  Their desire
    for growth or aggressive growth is small (but non-zero).  
    
    Market pull of this sort shows up in the statistics for the universe
    of funds offered.  If the typical investor were 30 and gung-ho for
    risk, you'd see different results.
    
    That said, the record for most funds is dismal (particularly the
    "tied" bank/trust/insurance funds).  They seem to charge high loads,
    high management fees and then deliver nugatory profits or actual
    losses--consistently year after year.  (It's interesting that while
    the "random walk" hypothesis implies that beating the market is 
    impossible, it allows underperformance--it requires competence to
    not do worse than randomly!)
    
    Even the best funds are not well placed to argue that their management
    doesn't cost more (in transactions and taxes) than it's worth.
    
    	-John Bishop

>    I was questioning John H.'s assertion, as he seemed to be saying
>    that everyone should have a large, ill-liquid real estate holding
>    as the dominating core of their portfolio.
    
    No, I didn't say that.  I said getting out of debt was the thing to do.
    From which one can infer the partial ordering:
    
    	<NoMortgage> is better than <Mortgage + Cash>
    and
    	<Renting + Cash> is better than <Mortgage + Cash> for comparable
        quantities of <Cash>
    
    The worst situation is to have a large, ill-liquid real estate holding
    AND be in debt AND have one's liquid assets in stocks.  It may not seem 
    that way today, but viewed from the next decade it will be seen as having 
    been The Wrong Way to arrange one's finances.  That's my forecast.
    I for one am concerned about the enormous levels of confidence, almost
    contempt, expressed by those who believe stocks have nowhere to go 
    but up -- even "long term".  This is as clear a bell as the street 
    will ring.
    
      John

    Yes, I mis-read John H.'s notes.  That's why I said "seemed to be",
    sorry.
    
    As you know from previous notes of mine, the "enormous levels of
    confidence" bother me, too.
    
    John H., where would you recommend putting one's assets for the 
    '90s?
    		-John Bishop

>    John H., where would you recommend putting one's assets for the '90s?
    
    * Pay down debt
    
    * 5%-10% gold bullion coins
    
    * Contrarian plays, such as defense stocks
    
    * Long-term index put options
    
    * Short sales, particularly closed-end equity mutual funds or SPDRs
    
    * Market timing (the next bear market whipping boy)
    
    You can get people to do the last two if you don't want to be bothered
    with management of your assets.  Even after paying a management fee
    you'll likely do better than the overall market (which will be DOWN).
    
    Look for a market top Mon/Tue of next week and seasonal weakness into Oct.
    
      John

No one knows which way they are going, but is there any concensus among the 
watchers? We have a closing coming in September and I have to decide whether or
not to pay an extra half point for a 90 day lock.

Tim

    Prevailing wisdom says that interest rates will drift downward, with a
    few sharp up-spikes every so often (like occurred last Friday).
    
    Prevailing wisdom is not always correct -- very few seers predicted the
    dramatic fall in interest rates that has occurred since November 1994.
    
    However, mortgage rates are not tightly coupled to long-term interest 
    rates, in my experience.  When long-term rates fall, mortgage rates
    fall begrudgingly; when long-term rates rise, mortgage rates rise the
    very same day. 

> We have a closing coming in September and I have to decide whether or
> not to pay an extra half point for a 90 day lock.

	Isn't that money you put up for the rate lock credited toward
	your closing costs?  Ie. you're not paying an *extra* .5 pt,
	but putting up part of your down payment .....

	(at least this is how it was for 30 day locks in '87 :-)

re        <<< Note 316.45 by NETRIX::michaud "Jeff Michaud, That Group" >>>

>	Isn't that money you put up for the rate lock credited toward
.	your closing costs?  Ie. you're not paying an *extra* .5 pt,
>	but putting up part of your down payment .....


it really depends on the company you deal with.  i got a 90-day lock
at 4 7/8 and it cost 1/4 pt on the rate - i could have had 60 day at
4 3/4.  i still paid 2 pts on the princ.  we closed on the LAST day
of our rate lock, talk about a nail-biting experience!

    For the company we are using a 90 day lock is an extra .25 (not .5) pt.
    A 45 day lock would be as you describe with a point just paid early.
    
    Tim