The Housing Bubble

Indians absolutely love gold. I would guess they are buying up as much as they can and will continue to do so at any price. That is ingrained in their culture. The more expensive it is the more they will try to buy.

NYCB, we are not close friends, but you know me from our midtown lunch. Roughly 1/6 of my assets are in the sovereign debt of Australia. It’s a gold proxy, as Australia is a huge producer. Have to say I am jumpy, e.g., last July 27 I sold all my foreign bonds in 5 minutes or so. Bought them back over a period of a couple of months.

They say that the net worth in gold of Indians is greater than the cumulative wealth of the US. (No idea how true it is. I just heard it from an Indian friend.) However, of course if they ever tried to unload even a fraction of it the price would plummet so that would not longer be the case. It kind of gives me pause about wanting to own gold…

AZ, you are always welcome to drop by. Maybe you, my wife and I can meet up in Maine. With a little time to plan that would be good. If you are that nervous it makes me nervous.

RE: AZ, you are always welcome to drop by. Maybe you, my wife and I can meet up in Maine.

Hey NYCB~

Is your place located in the “real” Maine or below Saco which is now know as Mazzland North?

AZ has the Maine place. I have never been to that state.

“Are you comapring this to Beanie Babies? Just curious!”

There is a comparison in that these are manias driven by something other than fundamentals.
Once can argue that there is a great demand for gold, a demand much greater that the supply, and this argument has merit. But the demand for those dolls were much greater than their supply and thus that arguement also had merit.
But both demands are driven by psychology rather than by solid fundamental needs for the products. People do not need gold in the same sense as they need food or energy. The demand for for gold is mostly for jewelry, a human need far down on the list of fundamental human needs.

BTW, pawnshops are currently being flooded with gold jewelry brought in to be exchanged for cash. There seems to be a greater need for paper money than for gold in many places.

Unfortunately the biggest shortage on the planet right now is common sense. And no pawn shop has an extra supply of that.

There’s nothing wrong with trading a commodity who’s price is governed by fear, greed and other psychological factors as long as you never forget.. not for a moment.. what is really driving prices.

In some circles the shortage is for cash. Many people are in dire need for this cash stuff to make their mortgage payments, their car payments, to buy groceries with and so forth.

Nothing but cash will do. Nothing.

If one has an asset that can be converted to cash then converting it to cash is what he will do.
Many people suddenly discover the asset they thought was worth a lot of money really isn’t. But there is no doubt what the current value of cash is.

Many on this blog trash cash, talk of it becoming worthless - and someday they may be right!
But we are not there yet, not even close. Every day there are reports of billions of thin-air dollars disappearing from balance sheets. The vanishing of these dollars will make the remaining dollars that much more valuable. Thus, for now, cash is king.

“In some circles the shortage is for cash.”

Good point. Lenders aren’t taking gold coins or wheat futures as payment, yet.

billions of thin-air dollars disappearing..

..serious deflation is just around the corner.

az_lender would take gold coins as payment if the borrowers would deliver them in a manner that cost me no “money” (cash)…I guess that proves your point!

At my local gold dealer, i see lots of working class people selling whatever gold jewelry or other silver coins they have 1 or 2 ounces at a time. Meanwhile in the buyer room, the people with assets are buying gold $10,000 or more at a time. Another example of the rich getting poorer and the poor getting deeper into debt.

For those that think “cash is king”

6 months ago, a troy ounce of prevention ($640 @ that time) bought me 200 gallons of gasoline, now that troy ounce of prevention buys me 300 gallons. Your $640 in the bank from 6 months ago, now buys you 180 gallons of gas.

It’s not good to be the king…

Aladinsane, you are right.

It’s not good to be king. But I’ll bet you are having fun! That is what matters!

People have been using Beanie Babies as currency for thousands of years? I love this blog. I learn something new every day.

Gold is the old, present and (distant) future Beanie Baby.

I should have taken a photo of this fabulous illustration of bubble-think results. I always have my camera on me. I will next time, and I’m absolutely sure there will be a next time, at future church rummage sales.

I see piles of Beanies all the time at the summer flea markets around Chicago. The only people buying are six-year-old kids with a little extra cash. Even VHS tapes are more popular.

T-horn,
That was a little ahead of my time. But thanks for the info. I may have to take a look….

Professor…

You are rambling on about something you know little about, and sound as rabid as the clown that compared cheap Chinese plush toys to the real deal.

The bottom line is, when paper money fails, where are you going to turn to, for something honest and reliable?

Barter will work somewhat, but it’s a limited scope.

Aladin,

I was not rambling, and I submit that gold will crash to earth before a couple of years are out. Let’s drop the bantering till then and agree to compare notes this time in 2010.

P.S. Obvious ploys like continuing to buy gold when everyone believes the dollar is about to undergo hyperinflation don’t sound like a suggestion from someone who knows much about bubbles…

I’ve watched and learned from many bubbles, including kids bubbles (baseball cards, pogs, beanie babies, etc) and commodity bubbles (tin in the late 1980’s) and much more.

My timing isn’t too bad (sold my house in RPV in Aug 05′) and my ability to see the future is not too shabby either.

Your sentiments are those of somebody that is denial, because they aren’t along for the ride, nothing more.

The issue isn’t so much Gold at this point in the game, but confidence in the USA, and the Dollar in particular.

It’s eroding daily, and i’m sure you taken notice of it, surely?

“It’s eroding daily, and i’m sure you taken notice of it, surely?”

I am sure you have not taken notice of the reason for the steady decline in dollar confidence, or of the implications thereof. I will share this with you in 2010 when I explain what happened to the gold bubble.

Stay tuned, market experts

Sorry — wrong nation…this yield curve is very bizarre, in that it is flat and low for two years, then steeply rising. I guess the recovery will be in full swing three years from now?

http://www.bloomberg.com/markets/rates/index.html

I am definitely not a gold bug but I don’t think having a couple gold coins around will kill anybody. Most of us have thousands and thousands of these “dollar things” in our bank accounts, stocks, 401k plans. If metals go down it probably means the dollar has strengthened. A small hedge doesn’t seem like such a foolish thing to me.

“I am definitely not a gold bug but I don’t think having a couple gold coins around will kill anybody.”

I agree, to which I will add the time-tested advice: buy low, sell high.

I see gold going down when the US raises interest rates and gets their financial house in order. I won’t hold my breath waiting for that to happen.

The best informative gold site I’ve seen is http://www.gata.org (Gold anti trust action committee) Great articles and many about the gold and silver longs and shorts in the market and why prices are doing what they are doing.

It’s too late to buy gold.

Remember what happened to real estate when prices went to the moon (and beyond!)? Same applies to GOLD, due next week the cover of TIME, Love my gold bullion

I-Bob: Gold is different than real estate, because they aren’t making any more gold, and it lasts forever.

OK, Mike, what are you trying to sell us?

And who knows exactly which financial companies will survive? Some are certain to fail. That puts even more pressure on people wanting to own a physical asset.

BTW, I accidently posted the UK bond market yield curve a moment ago. But don’t you think the U.S. yield curve is signaling deflation for the next few years — not exactly bullish for commodities (but relatively bullish for dollar hoarders)?

http://www.bloomberg.com/markets/rates/index.html

“Once they cash out their commodities position what are they going to do with the money?”

not an attack…

…not a prognostication, but it wouldn’t surprise me is they rushed out of commodities and into US equites, once the equity market gets down to 20% - 30% off October’s highs…

The smart money leaves the party early (and somewhat quickly), while the rest of the folks chase the smart money’s returns (and rack up losses in the process).

How many times have we seen it? Hmm.. xyz stock dropped from 105 to 101, it must be a good buy, even better at 99 and so on. The smart money doesn’t mind the slow ride down at the beginning, because it gets out before the -10%, -15% and larger drops hit. They know that they can’t unwind the position all at once. Can you say dark pool trading?

BTW - the smart money isn’t so much smart, as it is well managed and it’s trades are well executed. I know this for sure. The markets are very manipulated, as we all know.

But the problem with equities is that the metals market is a fraction of the equities market. Also, how many people are hearing and seeing tales of people pulling out 401k money due to this mess? I have one co-worker that is not putting into 401k because of a house anchor. I have many others that are over their heads in debt and are not contributing to their 401k accounts. I had another co-worker that cashed in his 401k last fall to buy a condo in NJ.

I would guess that the Wall Street thugs have become very reliant on a steady stream of 401k money to keep their gig going. I’m guessing that this stream is turning into a mere trickle. What impact will that have? I would guess the impact will be pretty large.

One other thing. How many Americans are now investing overseas? That wasn’t going on even 10 years ago. Wall Street has a lot of competition for the investment dollar and they are like a hamburger joint selling worm burgers with moldy buns.

“Also, how many people are hearing and seeing tales of people pulling out 401k money due to this mess?”

Sounds like these folks are either trying to create a knifecatching opportunity or a buying opportunity. Now if the Fed pumps in just enough money so the nominal value of the stock market does not drop by that much, I wonder which way the market will tilt? (I honestly cannot say — white noise generated by the interaction of traders and interventionists is quite unpredictable…)

One of the problems of the entire FIRE economy is when you have a speculative frenzy in X (pick your X, don’t care), you can then put up that “increase in price of X” as further collateral to buy more.

Sound familiar? Well, it should.

This is a well known problem. Well known as in well known 500 years ago. Of course, the end result is always the same.

Faster Pussycat, I hope Aladinsane paid attention to your post. Because it gets straight to my point about gold: A few folks who have the collateral are now in the panic stage of PM buying. Once the realization sinks in that this latest bubble (of all bubbles!) is driven by “capital gain chasing” rather than fundamentals, the bubble will pop.

What’s worse, gold bugs are fighting the Fed, whose own survival requires survival of Uncle Buck. If private decisions are insufficient to eventually help gold give up its bubble gains, the Fed may decide to step in and help, as lower gold prices imply a stronger (gold-denominated) dollar price.

Sorry to seem like I am rambling to those who don’t understand basic money and banking concepts (fiat currency is both a medium of exchange and a store of value, etc).

If your argument pertained to “gold futures”, I would actually buy it because you can leverage 20:1.

With the underlying physical, the best you can do is 2:1.

How much leverage you can employ is critical!

Please note we are talking legality here not “idiocy” because all leverage requires “lending to idiots”. Legality is different from country to country; idiocy, alas is quite universal.

Incidentally, your argument is wrong from a game-theoretic point of view. If the Fed stepped in, and tried to manipulate gold, they would reveal that they are shooting blanks, and the money would just flee into some other equivalent “hard asset” which they could not manipulate. (Please note the IMF sales had barely any effect. In the past, this would’ve just about crashed the gold market.)

I don’t care enough about the whole “gold bug” stuff. I just don’t care. It’s boring, and people are intellectually inflexible in a way that’s just stupid.

I am willing to argue about the stuff intellectually, even bet on it but I can’t be chuffed to be tied done one way or the other.

How many economists understand that the “stability of the underlying Indian social system” (as dysfunctional as it is) is a direct result of people hoarding gold across the millenia? They have taken everything thrown at them and nothing has changed. Eat your heart out, John Maynard Keynes!

I will also add a further comment that the economists never ask the basic question, “Why is there a speculative frenzy in X?”

Well, the answer is because the Fed f*cks with the short end of the curve.

In the absence of the Fed, you would have a flat to gently sloping upward curve, and the banks would actually have to work their @ss off, to both attract capital, and then channel it into the right long-term investments.

The culprit, as anyone who works in the financial world knows, and is not a total moron was never the absence of the “gold standard” nor the existence of “fractional reserve banking” but the combo of “fractional reserve” + “messing with the short rate”.

If banks were allowed to just fail, they could pick whatever “fraction” they wanted. They, and their investors might just lose everything if they got it wrong. That would be capitalism, and you don’t need a gold standard for it.

Professor…

You are infatuated with our government’s ability to do something regarding the price of Gold.

What exactly could they or any other government do?

Most countries sold off quite a bit of their strategic stockpiles of it in the past 30 years, and much of it is in the hands of individual investors or China, Russia and Arab Countries.

Those that have the Gold, make the rules…

Pussycat, you are an economist. ‘Fess up, pal.

Not an economist, thank god. Never hired one either.

Too stupid and intellectually inflexible. Come to conclusions first, and look for data later.

Oh right — you can’t eat gold! But you can trade it for food, after you have paid the dealer his cut.

I posted before under some other name. Watcher and I exchanged thoughts about Dow and Gold being almost 1:1 at some point. Guys, you are smart. Think about it. An ounce of gold is not worth a fancy suit. An ounce of gold is not worth ten pairs of shoes. It is worth much more…. It is the cheapest thing money can buy you. And mark my words, it will go to 3,000. Also, these are large trends - we are talking 30 year trends. We are very much in the beginning… Remember of me one day when all this comes true.

Depreciating gold is an even worse “store of value,” because you have to make a trip to the PM dealer and pay a transaction cost to unload your infestment — kind of like having to pay a Used Home Sales person to unload your devalued home. At least with dollars, you can park them into a short-term T-bond fund, thereby mitigating the effects of falling real value. Gold pays no return aside from speculative gains (or losses).

Enjoy your gold rush fantasy while it lasts, but don’t forget the fate of the Californians who entered the mining biz post-1849…

PB sounds kind of upset, even swearing. Could he be short and losing, like Jas Jain? Probably not, as the biggest bashers usually don’t take a position. Perhaps it is because he has been calling for a commodity crash for a long time on this blog. I’m long and strong, PB. Keep posting.

Here’s another plug for the Australian govt bonds (a gold proxy, as mentioned above). They pay interest (close to 6% for a medium term). You can buy them on the phone through Merrill Lynch and probably any other full-service broker. No need to take delivery until you believe the demise of your brokerage house will create chaos. PB’s objections to private individuals’ holding the physical metal seem valid.

PB - just buy GLD, IAU or SLV and put a stop order in somewhere below. No mess, no fuss, no maintenance fees. Now if the whole financial system goes belly up, your out of luck but then it is Mad Max time anyway…

Saying gold has to decline from here seems a bit like trying to talk the Dow down from 4000 in 1990 (or thereabouts) after its 7-year run from 1000.

Gold bugs are sounding more and more like 2005-vintage housing bulls. A crash cannot be far off (no more than a couple of years from here). But don’t worry, as I know you guys are all savvy enough to jump off the gold bandwagon before crash day

In a world of floating exchange rates it shouldn’t be too hard to work out that there is no store of absolute value. Nor can there be one, nor is it even desirable that there should be one. (ok that last one isn’t quite so obvious.)

But still people thinking that there is (gold), and that there should be.

The last two people alive on earth have respectively a lump of gold, and the last viable corn seeds. How much in gold are the corn seeds worth? (and yes, the farmer is heavily armed

I need an update on the Seal Beach Oil Tanker index. Why do the so-called experts on this blog never mention their track record on prognostication?

The U.S. consumption of oil is declining. Gasoline stocks are at six year highs. The empty tankers anchored off of Seal Beach reflect this fact.

Why are gas prices rising then? Shouldn’t they be falling?

“Why are gas prices rising then? Shouldn’t they be falling?”

Gasoline prices are rising because the raw material gasoline is distilled from (crude oil) is rising. This rise in price contributes, in part, to the decline in gasoline consumption.
Another contributing factor to the decline in consumption is the economic recession we are moving into.

It’s more like they’re trying to catch air with their hands. Good luck with that. Even Inland Empire air isn’t that bad.

You just gave the best reason to buy gold at this point that I have seen so far on this blog. But I still would not do it, as I know that the group you mention has to choose food as a matter of survival. I just don’t think there are enough speculators with bank out there to keep pushing the price of yellow metal skyward.

Well back when there was a gold standard, that was a tautology. If prices were going down then gold was getting more valuable because the price of gold was fixed in dollar terms. Like the US around 1890 or so.

However, I challenge you to find an example of where gold became more valuable in real terms (i.e. what an ounce of it buys) during a fiat currency deflation (1990’s Japan) or disinflation (1980’s USA).

More precisely the above should read “where gold gained more value than fiat money”, i.e. the point being were you better off holding gold or fiat money.

Yogurt,

Don’t expect these new-aged geniuses, who have discovered the New Era in gold, to come up with historic examples of gold outperforming fiat currency in deflations.

IT’S DIFFERENT THIS TIME.

What does real wage inflation have to do with tax cuts, tariffs, transfer payments? Real wage inflation means making paychecks for the lower level workers larger, and that is not going to happen.

anything that puts more purchasing/mortgage-paying power in the hands of the FB.

Not sure if margin calls, true unwinding of the carry trade, or just plain stupidity - but the AUD has been weakening this past week when fundamentals are all in favor. Their economy should boom the next 2 quarters due to commodity prices.

Yes, they have a housing bubble going on, but still seems in the upward cycle.

For the next 9 months (minimum), looks like their fundamentals are very sound. At least compared to the USA or Japan. And their central bank does all the right things, they will likely raise interest rates AGAIN soon.

This should be a flight to quality - yet price moved against. Buy on the dips. One more round of that up/down cycle, but this may be toward the end of that game.

“BTW, what if ‘elsewhere’ turns out to be in other countries?”

I think it will be other countries. The merchants of debt are realizing that the U.S. is played out. There are a lot of emerging and undeveloped countries full of sheep to be sheared. The U.S. consumer has been tapped out, it’s time to move on to fresh victims.

And I thought “vampires” only existed in Horror Movies!

Australia has a balance of payments deficit right now.

Yes, their economy is booming. So are imports.

Exactly right Ron. If he stands back he will have a future. If he joins in he risks becoming a part of the most mocked adminstration since the submariner from GA.

I haven’t cared about any election since 1988 but I do about this one. If that witch is nominated, I’m going to throw the trading aside for the rest of the year and work full time for the McCain campaign.

If she becomes president will Bill become the first man?
We have had first ladies but what about a first man?

First gentleman. Snicker snicker.

Bill’s ex bimbos would probably refer to him as “First Ladies Man.”

PAUL IN JAX,
And if you believe without any documented evidence at all that Vince Foster’s death was because of the Clinton’s culpability, I would like to see the evidence. While the assassination of JFK may have been caused by the Mafia or the Cubans, no valid document evidence has been provided. Its all conjecture.

While I agree, that the explanations provided do not jive, your conclusion is not definitive.

Look it, some mysteries will never have an answer. That’s just history in real life. Its not clean or absolute. Answers are provided even if they are less than accurate (or truthful). But because society’s answer to an important issue in less than adequate (read total or partially untruthful), does not necessarily mean that the answer is an outlandish explanation. In life, not all things are known absolutely. Sometimes, humans because of their failures, have to operate on what can be proven, whether it is the truth or not.

I didn’t say it was because of the Clinton’s culpability. I am only saying that (as you point out) because it likely didn’t happen the way it was claimed to have happened that the Clintons are likely hiding something (here as many other elsewheres), which was in keeping with the theme of the thread.

Just to clarify further (and the original post is below, not above) - I think Foster probably committed suicide in Washington, and I think it was an unwelcome surprise to everyone, and my guess is that the Clintons and perhaps others felt that (for whatever reasons) the impact could be mitigated if the suicide were made to appear as if it occurred in a place like Fort Marcy Park, making it look more like a personal matter and less like a business matter. No big conspiracy alleged by me - I have no evidence of a tryst between Foster and HRC, as some alleged at the time - just reminding bloggers of issues which may arise.

imho, we all drag up any candidates past, but I have got to ask you, “he who lives in a glass house, better not throw stones.” I guess what I am saying, at least in my case, that things/situations that have occurred in my life would not reflect favorable on the image that I have in the past in present about myself to the public (private face vs. public face).

I guess all I am saying (and by the way I am not HRC fan), that if everyone’s life was totally open to public scrutiny, no one would run for office.

“not that i love bush…”

Heh, so you’re putting the blame for the mortgage crisis on ‘ol Bill, eh…? Sure sounds to like one of those crazy “I’d walk through fire” kind of loves to me, lilmarlene…

If you think the Dems admin was bad, at least they did not shred the constitution, instigate two land wars(still ongoing with no end in sight) and double the debt!

Stop it. You are going to make David Cee cry and tell us, once again (millionth time), how he wishes he could contribute more money.

Not to mention Vince Foster, who showed up dead in a park he’d never been to in a position he couldn’t possibly have assumed by himself if he’d killed himself there, and who was even witnessed being placed there by a man who later became strangely quiet.

(Not to suggest that he was murdered, mind you, only that he almost assuredly did not kill himself in the park and that the most likely scenario from anyone who followed the case was that he killed himself in his office and was moved so as not to compromise the Clintons, which may in fact have been what he was trying to do in the first place.)

As a ” LOST ” republican, the sense I get from OB, is that for the first time since John Kennedy, we have a generational change coming. Its time for the boomers to get out! Being a boomer, I can see it coming. HC doesn’t hve the delegate count and there is no way she can catch the number, so she would have to steal the party. Watch closely on the Florida vote and the way it plays out. She will do anything to win. Again, the younger generations want a definite change in leadership. OB is going to be our next pres.

Hillary is a skank. Besides withholding her tax records and the list of donors to the clinton library, she has now taken to smearing Obama by calling him a Muslim, ridiculing any notion of hope or change, and fear-mongering. It’s her personal ambition over the welfare of the country, the party or of her fellow citizens.
If she gets the nomination, I will have to vote for McCain, a man I loathe.

I agree. What I don’t like about McCain is his kissing up to the Religious Right. Eisenhower Conservatives are fine with me. I like Jerry Ford as a strong President. I hated Cater because he was a weak one. I’m looking for a good, pragmatic, level headed, politician. So far, BO or HC seem to fit the criteria. McCain? He is the one that will do anything to get elected.
Roidy
P.S. I believe that I must pay taxes. I also believe that I must be involved in government at all levels to ensure that my taxes and policies are well spent and crafted. It doesn’t take a lot of effort to send my gov’t representatives an email. I served my country, and I firmly believe that gov’t is not evil or bad. It is a lack to strong leadership and oversight that leads to bad gov’t.

Does anyone know the meaning of “fire in the belly”. That expression is repeated when someone is not totally committed to winning!

Do you really know what that expression means? Imho, that means you are willing to do whatever it takes to win! Why do you think they call politics “a blood sport”, except in a civilized society you do not lose your life, but your reputation!

No one that I am aware of will contribute money to someone who will stand on values or principles. The contribute money for the winning candidate so that they will have access and influence.

I can not prove it, however, I have heard that presidential election will cost around $1 billion.

Now tell me, who would spend one-half of a billion dollars to win an election that maybe pays only $250,000 per year. You calculate the numbers. Does this sound like a good investment?

Buddy you’re a boy make a big noise
Playin on wall street gonna be a big man some day
You got mud on yo face
You big disgrace
Kickin your margin call all over the place
http://www.youtube.com/watch?v=iikKzQwgBJc&feature=related

Yup, you think it was a coincidence that the decision to go to war in Iraq was gonna be a boon to Cheney’s pals over at Haliburton…

In fact, the last time something like this happened was the S&L crisis and the bail out that followed.

By the way, I’m not a democrat. I’m an independent. I just see both sides pandering to their constituents instead of looking for a way out of problems. Sometimes it takes a bit of pain to achieve pleasure.

‘Sometimes it takes a bit of pain to achieve pleasure.’

Ain’t that the truth. Ahawhawhaw!
Oh, wait…what did you mean by that?
Never mind.

But I thought Dick Cheney once said, “Reagan taught us that deficits don’t matter.”

Cheney also announced publicly that he had gone over to “the dark side”. I think it’s interesting that Christian fundamentalists have no problem supporting a guy who’s publicly announced himself a satanic agent.