Wednesday, July 08, 2009

How to hedge the value of your home

Robert Shiller has a new way to bet on housing prices:
On June 30, MacroMarkets launched the first products that let investors make a pure directional bet on home prices. Called MacroShares, they trade on the New York Stock Exchange; their value is derived from changes in the Case-Shiller 10-city home-price index. If you expect home prices to rise, you'd buy the Up Metro Market (UMM); bears can buy the Down Metro Market (DMM). On the first day of trading the bears held sway: Investors bought 14,756 DMM shares, vs. only 6,204 of UMM.

"UMM and DMM will be the indicators that people will turn to when they want a snapshot of home-price sentiment," says Masucci. Shiller thinks they will have real practical value for homeowners. If you buy the DMM and the price goes down, the money you make on the investment will offset your lost home value. If prices go up, you lose money on the DMM, but your house will be worth more.
These are ETPs (exchange traded products). There are fact sheets about them here and here. These seem more friendly to small investors than the housing futures because they require a smaller minimum investment and you can buy them just like stocks.

15 comments:

  1. This is repulsive. Exactly what I would expect from a self-important stuffed shirt.

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  2. It doesnt bother me. It cures an "asymmetry of information" in Econ terms. I know at one point they were considering a market for terrorism attacks. The idea being, if the market spiked, it would be a good indication to the feds that something is up, and its time to be extra vigilant.

    Unfortunately, when they heard about it, people had the same repulsion you did. Incrediulously asking, "How could they PROFIT from TERRORISM!!!!!". That was the end of that and they pulled the plug.

    Its a shame. Even if repulsive, id much rather know or have some idea than be in a state of unknowing. Had people thought this through, the next terrorist attack could have maybe been thwarted...

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  3. We need an index tied diseases and chronic health problems in the US.

    I'd invest heavily in an index tied to increases in the incidence of heart disease. The growth potential is obvious.

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  4. "We need an index tied diseases and chronic health problems in the US."

    Actually, I think there is one (very small) used to bet on outbreaks. It did hint at the swine flu in mexico, but being so thinly traded, it didnt do much

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  5. I'm interested primarily in heart disease, which is largely a self-inflicted (lifestyle choice) problem. It is the number 1 killer of both men and women in the US.

    http://www.cdc.gov/nchs/FASTATS/lcod.htm

    Type 2 Diabetes is a related disease; one which I beleive has a lot of upside. I'd put my money there, too.

    Infectious diseases are largely outide the control of individuals.

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  6. Why give more incentives to manipulate the market? I see no benefit from creating another speculative bubble.

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  7. "Why give more incentives to manipulate the market? I see no benefit from creating another speculative bubble."

    It benefits the guys doing the manipulating, thats why.

    They will make their quick buck while things swing up and down, and I will rent for another 4 or 5 years. So be it.

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  8. Tuskenrayder said...
    "Why give more incentives to manipulate the market? I see no benefit from creating another speculative bubble."

    I don't see how this manipulates the real estate market. It's not like you'd be investing in actual houses. You seem to be confusing cause and effect. MacroShares will be affected by housing prices, but housing prices won't be affected by MacroShares.

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  9. "MacroShares will be affected by housing prices, but housing prices won't be affected by MacroShares."

    well, unless the guy who owns lots of macroshares and houses effects the housing prices.

    I think this is what the guy meant.

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  10. Truly bizarre.
    But if the overwhelming majority bet on the DMM and prices go down who's responsible for the payoff???
    I have a feeling that this could be the shortest lived security in history.

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  11. I don't see what's so repulsive about this.

    I don't see how keeping real estate intentionally high is seen as a moral good by some. And even it were a positive thing, I don't see how making a bet on it one way or another would be "repulsive."

    Care to explain?

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  12. "But if the overwhelming majority bet on the DMM and prices go down who's responsible for the payoff???"

    AIG====>Bailout====>You

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  13. "MacroShares will be affected by housing prices, but housing prices won't be affected by MacroShares."

    Do you really think homeowners are going to purchase these macroshares to reduce their risk in home values? This will be used as an instrument by hedge fund managers and Goldman Suchs to make money from money rather than provide a benefit. You still seem to be stuck in the speculative bubble mentality.

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  14. But if the overwhelming majority bet on the DMM and prices go down who's responsible for the payoff???

    it trades like a stock. the dmm will go up in price if houses continue to fall. no one is responsible for the payoff.

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  15. Shiller has been attempting to do this in the last 20 years and the major problem is liquidity. I hope it works

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