The Housing Bubble

Read that book twice when I was a kid!

Re: Lucifer’s Hammer - I loved it when I was a young ‘un.

However, once I read it again as an adult, I realized how hopelessly misogynistic it was, and it was ‘dead’ to me from then on.

Would love for someone to update it, so that the women characters are no longer trembling meat puppets, beholden to their manly men, for their very existence.

That would be good.

speeding,

Read “The Jehovah Contract” I think you will like the book.

Thanks for the tip SFBAGal!

I’ll add it to my reading list (along with some Kim Stanley Robinson books I saw at the Sci-Fi Museum in Seattle last month)

I was there a couple of years ago. Loved the museum.

From the looks of it his food bill is higher than the GDP of some small nations.

“Which hedge fund pays his dime?”

In addition to being a Harvard professor, Larry is now a managing director of The D.E. Shaw group. Check out this article he wrote about the bailout for the Financial Times:

http://tinyurl.com/3ooswq

They are terrorists. They should be hunted down like the American Kulaks they are.

“Katie Couric basically called the failure of the passage of the bill yesterday ‘the failure of Government’.”

The MSM has failed the American people. Where is the article that tells the real story: The American people let their Congressional representatives how they felt, and Congress responded accordingly. Our system of checks and balances is still intact, despite of the efforts of some to destroy it. Long live America! Viva la Constitution!!!

Maybe she meant to say it was, for one shining moment, democracy prevailing over tyranny? Somebody must have thought of saying that, right?

Yeah I heard that. Just as hubby came home from work, here I was yelling F*** you to the TV!

“The MSM has failed the American people. Where is the article that tells the real story: The American people let their Congressional representatives how they felt, and Congress responded accordingly. Our system of checks and balances is still intact, despite of the efforts of some to destroy it. Long live America! Viva la Constitution!!!”

An analyst on KNX radio (1070 AM, Los Angleles) was explaining that the “no” votes were because it was an election year and that if this had happened a year ago (non election year) the bill would have passed. What was left out was whether the bill had merit and whether it should have passed. A bad bill should never pass, even if it’s not an election year.

Any victory by the people is noteworthy and should be celebrated. Such victories shouldn’t be so rare as to be noteworthy, however.

“The MSM has failed the American people. Where is the article that tells the real story: The American people let their Congressional representatives how they felt, and Congress responded accordingly.”

I just heard exactly this from Greg Ip from the Economist. He added that the majority of people paying attention / caring are the ones worked up enough to call and write their representatives. I guess there are people who are sort of OK with it, but there’s no one strongly in favour. Based on what I hear around me, that seems about right.

Ceausescu’s fall was planned too, but not by him.

My water’s running, the electricity’s on, and KXCI’s playing on the Internet stream. Life is good.

My job was waiting for me this morning ( with lots of work to do ), my husband has an interview on Thursday, our daughter is still teaching in another state, and the dog was happy to see me when I got home ( actually so was my husband LOL ). Also my car started and it rained today. Also, I received 1 credit card offer today, 2 yesterday, both of us got packets of those tacky checks hitched to your credit card yesterday & today. One packet was from Kroger Visa, one from Discover. I ground them all up in the shredder. Gotta love it. And I don’t have to pay $11,000 more in taxes due to a rotten-to-the-core bailout plan.

Ron P@ul:
“Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention. �This lowering of prices (ie, home prices) brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however, that there are some winners - in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers - builders and other sectors connected to real estate that suffer setbacks.
The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was. I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: they seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.”

he has my vote!

We sold our stocks way back when also…

Not having a vested interest, makes events ongoing all the more interesting.

thanks to you alad, i sold mine off in feb. thankyou for that good advise!

Yeah, dumped my all stocks and stock mutual stock funds back in summer 2006 due to listening to the folks on this blog…kudos, Ben!

Real proud of all the congressional reps who held the line and stuck the bailout bat right up Bush, Bernake, and Paulson’s ass. Now, re-group to the fight the re-attack planned upon all the sheeple…sun’s still out, and old planet earth is still in rotation!!

I told my dad to sell all his stocks last year (spring 2007), and was under the impression he had done so. So I was shocked when I recently learned he lost almost everything on his WaMu stock investment. It is apparently very hard to get 80 year olds to follow sage financial advice.

I really sympathize with you, Professor Bear. Both my husband’s recently widowed, 83-year old mother and my parents who are both in their late 70’s have sizeable amounts of money in the stock market. We’ve tried to suggest they reconsider their investments but they strongly believe in staying in for the long haul. It seems to be impossible to explain that people in their 80’s don’t have a “long haul.” We know it’s their money and ultimately their decision but we also know it is very stressful on them to see large chunks of their retirement evaporate when they really don’t have any hope of earning it back again. There has been a veritable parade of Schadenfreude moments in this whole debacle but watching our parents’ stock market investments just makes us frustrated and sad. (Watching other relatives make horrendous house buying decisions hasn’t been a picnic, either, and I know you’ve witnessed some of that, too.)

Sold ours last summer, put everything in my employer’s 403b plan into money market fund (short-term gov’t bond fund ) within the fund families. Recently turned part of it over to the famous ( but not named here ) university-system annuity fund ( 7 days ago ). It’s guaranteed 5.5 percent a year on my contribution, and 6.0 percent on the employer’s contribution. I’m loving it. Most of the changes were made 14 months ago. I’m very relieved.

Bully for you! I’m sure you’re loving it.

Thanks for ripping off the younger generation. You’ve got yours and the heck with everyone else, huh? Must be nice view from so high up in the Ponzi scheme.

Greed knows no bounds.

I am that younger generation, and I moved to the bond market in Jan. After my 10% loss that month I knew the party was over and took my beer home.

I still have 100% stocks in my 401ks and IRAs. I won’t tap them for 20 years. The biggest risk is when you miss the big bounce back up, like after the October 1987 crash it bounced back way up. I’ve been doing this stock mutual fund investing regulary for 20 years. I don’t care about one year 40% or 50% crashes.

You who are out of stocks are also saying house prices are coming down. So you recognize real estate has cycles. You refuse to recognize cycles in equities. Everything will be permanently down from now on. Not!

if there is any rigging in those polls, it their own. they are the ones doing the cheerleading for the bail-out not the taxpayer!

A Capitol Hill staffer was on late last night, he said they are getting hundreds of calls / emails and 90 % are against.

“The talking heads on CNBC are saying that the “popular uprising” is not really reflective of the American Taxpayer- and that it is just an isolated group.”

Americans are waking up to the fact that they have to start living within their means, and they’re now demanding that their government do the same. I wish the MSM would “get” that.

Thank goodness (sarcasm on) the MSM and PTB are blaming the dems
for the failure for this bailout to pass. Boy oh boy I didn’t know
who to blame. Whew.

I am getting so much sht in my email box from ‘friends’from my ol
hometown stating its all dems fault, and obama is responsible.
(Sarcasm OFF)

Doesn’t anyone think?

But doesn’t it make for great political drama?

The donkeys can’t be blamed for not trying to get the bill rammed through, as more of them voted for it, than elephants did.

bizarro animal tricks

If this is a real Main Street crisis, they need to stop campaigning, bring everyone back to Washington, hold real hearings and debates, and promise not to beat each other over the head with this crisis during the election.

But appearance is everything and substance not so much in our twisted vision of this American Life, version 2.008

My confidence in Congress would improve if a committee would have someone like Ben Jones testify about the Housing Bubble.

I think Paulson and Bernanke will make sure that NO real (independent) expert testifies about the Housing Bubble or the bailout plan.

Y2K was a very real threat that was blown so far out of proportion as to be made silly. It is one thing to have real threats, which we do from time to time. It is another thing to blow them far out of any proportion. Or did people buying guns, generators and building bomb shelters seem like appropriate preparation to Y2K to you?

Yeah, I remember not preparing for Y2K and sitting up watching the clock at midnight, waiting for the end. At 12:05 I smiled and went to bed. Having worked in high-tech, I thought it was unlikely things would go down that way.

The threat to me was all too real.

Existing trails for me to enjoy could have easily been wiped out by Y2K.

We dodged a bullet…

I agree Y2K was a non event because it was handled before it became an event. I am not sure the world would have ended, but there is a very real chance you would have been severly impacted.

Guys…as a techie, Y2K was a complete nonsense. Computer systems crash all the time. Do you really think, cooperations/goverments were unable to test their systems to identify and correct any potential Y2K issues well ahead of time. It was a beautiful opportunity for some to make a quick buck correcting all those issues and charging top-dollar for the privilage. Accenture springs to mind. Governmental parasites. No bullet was dodged.

The Y2K scare was very profitable for me.

Fundamentals? Just after 9/11, the DOW fell to 7800. October 2001 was a good time to accurately measure the true assets of the Dow:

1. It was a year after the tech bubble pop, so only quality companies were left over on the Nasdaq.

2. 9/11 was still fresh, so there was no optimism pumping the Dow,

3. It was before the interest rates dove, and before the credit market went frothy, so there was no inflationary mortgages or credit swaps pumping the price either.

That 7800 sounds like the true floor of concrete company assets. With normal inflation, 8000 is not unreasonable now.

5000-6000 is the pendulum swinging the other way before it reaches equilibrium, just like we expect with housing prices. It will be a great time to buy — assuming we still have jobs by then.

What exactly would stop the bigger they are (10,300) from falling harder than we could imagine?

Foreigners aren’t going to be rushing in, and our hoi polloi are in the poorhouse, so where does market support come from?

I look at this chart.

http://finance.yahoo.com/echarts?s=^DJI#chart1:symbol=^dji;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

I don’t see 7,800. I see a massive bubble that began with the Reagan Era that has yet to be fully addressed. Or is it different this time. I don’t have a problem with that 5,000 number. I can’t say we get there but I wouldn’t be surprised if we did. The Age of Debt is dead and all of its children are also dying.

Don’t worry. They will pump it up on margin, once again. I guess that’s the hope.

Magical? 8k is a retest of intermediate trend low.

“October 2001 was a good time to accurately measure the true assets of the Dow”

At this point in time, things have been so mucked with I believe it’s impossible to measure the true value of the DOW w/o a deep recession/depression. Once rock bottom is hit, things can be measured by how well they weather that and recover. The truly viable companies will do just that, the dross will become jetsam and flotsam.

Yep. Cash is king.

In our 401k we have an option for an S&P index fund. I got out of it last year. A former co-worker thought I was dumb. He loved to call himself a “buy and hold” investor. I may have been speaking to Jim Cramer, or any other CNBC drone, when I talked to him. No matter how much sense I made he was still a staunch “buy and holder”. I asked about the buy and hold philosophy with Bear Stearns, Lehman, etc. There was no answer.

Let’s get back to my point. Where was it? Oh yeah, the 401k. Let’s say somebody was a buy and hold investor on the S&P and had their entire 401k in an S&P index fund yesterday. I’m sure there are more than a few of those. They just lost 9% of their 401k. That’s 9% of their retirement money gone. That “buy and hold” philosophy seems to leave you holding only one thing. Jumping out of the way of the biggest financial disaster in history seemed to make sense to me.

My 401k this year is down 7+ percent, because I kept some of my 401k in international money. I have co-workers down 30% this year and they still won’t listen to anything other than rosy predictions. The destruction of their 401k accounts will create a lot of opportunity because you know they will jump out at the absolute worst time and give one last downturn to the market. That will be the time to buy with everything I have sitting on the sidelines.

“That will be the time to buy with everything I have sitting on the sidelines.”

This is exactly my strategy. I look for this opportunity to happen in about a year from now.

While I certainly saw this comming, I’m never THAT confident in my prognistications, so only ~88% of my 401 is in treasuries, and the rest is spread around the other funds. I can’t complain considering how well my stake in the International fund did in 2006-2007. That’s what gets me about those who use everyone’s 401s as an excuse for the bailout. The idea that the crazy-great returns that we got for several years were somehow justified and inviolate is NOT part of the buy-and-hold strategy. You make really good returns some years, and negative returns other years. Rebalancing after either is part of the strategy, not whining to uncle Sam to save you from your speculation.

“No matter how much sense I made he was still a staunch ‘buy and holder’.”

Big sis and her hubby are the same. They didn’t leave the stock market (via 401-ks) when advised. Instead, my BIL bought CFC at 18 and Fannie sometime thereafter. Now, they are thinking about short-selling both of their buy and hold St. Lucie alligators. It’s hard to keep cool sometimes.

“This is exactly my strategy. I look for this opportunity to happen in about a year from now.”

+1. I’ve got a pile of treasuries that have been slowly losing to inflation, and they’re just itching to jump back in when this market bottoms out.

While I certainly saw this comming, I’m never THAT confident in my prognistications, I also saw this coming last year. The dotcom bust cost me a chunk of my savings (not nearly as much as it did for many people I knew). The pain of that loss somehow stiffened my backbone & made me confident enough to bail out completely when the time was almost right.

I was able to get out as well. There was a moment last fall where I looked at my 401K and thought “You’ll give me how much cash for this junk? Really? It’s yours!” so I sold it all and moved to treasuries. By no small amount of luck that occurred almost exactly at the market peak.

I moved to cash equivalents in my 403b funds in July of 2007, when Dow was at 14130 or so. I remember it like it was yesterday. I was so happy at the time. Our Roths are in a fund which you can “lock” your profits in on, so we did that as well. We locked at the peak. It was great. Now, no matter how far everything else falls, they owe us what we had in the funds at the highest point, the day we locked in. Great timing. Thanks to our financial advisor. NOW, he wants us to go back into the market. NOPE ! I just tell him how happy we are with the good advice he gave us last year. He accused me of “trying to time the market”. I told him, “no, we just took our gains off of the table, because my 83-year old father figured that was a good move at the peak of the market. ” He just sighs. No more commish for awhile, I guess. LOL. I tell him he chose a difficult profession, and that this market will really weed out the weaklings. His wife has a good job and he’s a good guy. He just keeps hoping we’ll fork over some CD cash. NOPE !

They say pages tend to be sticky on the way down, but it may just be another Bushjism without merit?

RE: Like a feast of hindsaddle veal from the Hamptons?

LOL…Precisely, rms!

Their big problem through much of the last decade was similar to that of the big investment banks: they were way too overleveraged.

Love him or hate him, Krugman had it right when he wrote:

“But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.”

My understanding is that they didn’t BUY those loans whole, but they DID buy and hold MBSs based upon them. Hey, they’re NOT innocent, Raines should by all rights be vacationing in club fed IMHO. But for decades, the, the 30 year, fixed rate, sane underwriting, loan was there simply because Fannie and Freddy would buy them. Arguably, they CREATED the sane, boring mortgage market that existed pre bubble. Yes, they ate some stupid pie with everyone else, but proportionately it was a much smaller percentage of their diet than all the other pigmen at the table.

Actually it is the other way around. The GSE’s BUY loans originated by approved lenders, then “package” those into MBS’s and SELL them to investors.

ik99: Yes, they buy CONFORMING loans whole. Some they keep on their books, some they securitize. They keep some of the securities on their books, and sell the rest. But it is my (admittedly hazy) recolection that they they have also bought MBSs issued by others (some based upon subprime loans) and held them as part of their capital. Of course by holding some of their capital in the same asset class as they securitize their loans in they are effectively raising their leverage, not hedging their bets.

Only time will tell.

It is a critical point in time to get the facts straight before politicians on both sides of the aisle conspire to finish destroying the free market on which America’s prosperity rests.

Social engineers are bad bankers
John Montgomery | October 01, 2008
The Australian

IN 1772, the collapse of the Ayr Bank led to the Edinburgh banking crisis of that year. Only three of Edinburgh’s 30 private banks survived. Adam Smith commented that “the operations of this bank seem to have produced effects quite opposite from what was intended”. The Ayr Bank had been established in 1770 to provide long-term loans and provide credit to people who otherwise found it difficult to borrow, financing a speculative boom in housing, turnpikes and canals, the transport infrastructure of the time.

It borrowed from other banks in London and Edinburgh and, as borrowers began to default, it had to pay off its debts by securing greater loans. Smith’s final verdict on its collapse was that it only enabled borrowers “to get much deeper into debt, so that when ruin came, it fell so much the heavier”. The British economy struggled to recover until the 1780s.

The collapse of the Ayr Bank tells us much about the present crisis.

In 1999, then president Bill Clinton instructed the Fannie Mae Corporation to ease credit requirements on loans to ethnic minorities and low-income earners. In this nationwide scheme, the pilot program alone involved 24 banks. This was to include what became known as the sub-prime sector. Fannie Mae’s chairman and chief executive in 1999 said that in addition to “reducing down payment requirements” the corporation would underwrite loans in the sub-prime market. Fannie Mae’s board is largely made up of prominent Democrats.

Fannie Mae and its sister corporation Freddie Mac are government-sponsored enterprises, exempted from taxation and with any losses guaranteed by public monies, although shares of profits go overwhelmingly to investors, executives and board members with shares. This is a hangover from its foundation in 1938 as a means to provide liquidity in the mortgage market that had collapsed following the Wall Street crash of 1929. The idea was to provide federal money to local banks, which would then finance home loans at below market interest rates. Fannie Mae held a virtual monopoly of what became known as the US secondary mortgage market until 1968, when Lyndon B. Johnson converted it into a private corporation or, rather, a government-supported enterprise. A second GSE, Freddie Mac (the Federal Home Mortgage Corporation) was established in 1970.

It is important to note that Fannie Mae does not lend money directly to consumers, it purchases loans that banks make on the secondary market. This was made possible by Fannie Mae being allowed, uniquely, to borrow money from overseas at low interest rates backed by the US government. It passed this on to borrowers in low down payments and fixed rate mortgages. The parallels with the Ayr Bank are startling.

However, the strategy announced in 1999 was to spur the banks to make more loans to people with poor credit rating, and especially to blacks and Hispanics. This was done by offering mortgages at 1 per cent above the standard variable rate. Home ownership rates among these groups had in fact been growing rapidly during the period 1993-98, 87 per cent for Hispanics and 72 per cent for blacks, but this was considered insufficient to close the gap between these and other groups. As early as 1998, Fannie Mae was already making 44 per cent of its purchases from loans to these groups.

Not everyone was convinced this was a good idea. Peter Wallison of the American Enterprise Institute warned: “If they fail, the government will have to step up and bail them out.” The US Senate finance committee in 2005 considered a bill to increase scrutiny of Fannie Mae and its accountancy mechanisms. In 2003 it had been revealed that Freddie Mac’s accounting practices contained $4.5 billion worth of errors brought about by the removal of three of the company’s top executives. By this time, combined debt at Freddie Mac and Fannie Mae was equal to 46 per cent of then national debt. The then US Federal Reserve chairman, Alan Greenspan, warned of forthcoming financial collapse if Fannie Mae’s activities were not reined in.

Its hard to understand why the cheerleaders want to pretend Fre/FAN did have their hands deep in this. They kept buying toxic waste mortgages and WERE the market for about 1.5 years.

We are talking about several trillion dollars in MBS originated and insured by the GSE. Trillions guys. They were primary enablers of this.

Fed, GSEs are deep in on this. If you to go on some partisian rants. Fine. Still not changing the facts.

They really deviated from their mission getting involved with the bubble. It would have been better for everyone if they had survived but now, they are a boat anchor.

We are getting along later in this crisis. Time to start shooting the people not in the lifeboats.

(Fascinating conclusion to Montgomery article posted above):

The lesson of all of this is not that Wall Street is greedy, nor even that banks should be limited in selling debt, although periodically this is true. The main lesson is that banking and credit should be run on sound banking principles rather than as a political project. For where politicians become involved in banking, as in the case of the Democrats and Fannie Mae, only incompetence, pork-barrelling and corruption will follow.

As Smith put it: “I have never known much good done by those who affected to trade for the public good. The sober and frugal debtors of private persons would be more likely to employ the money borrowed in sober undertakings which, though they might have less of the grand and marvellous, would have more of the solid and the profitable.” The sooner we get back to this the better.

Bailing out bankrupt banks will only prolong the pain. It is likely markets will, left to their own devices, recover as growth in the real economy starts coming back. It is equally likely panic measures will be taken, just as they were in 1938, when the worst was over.

John Montgomery’s latest book is The New Wealth of Cities.

The lesson of all of this is not that Wall Street is greedy… Isn’t that their JOB? To some extant, in some places, greed IS good. The problem isn’t greed per se, it’s the fraud and willful stupidity that it can lead to if unchecked by proper incentives.

In many parts of Europe, serfs were bound to the land, and were not free to pull up stakes and move. They were obligated to give a portion of their labor to the local lord, and to fight in his wars whether they liked it or not. Serfdom was a form of slavery.

Could find no quick answer on da Web, so my bad, repeating old nostrums. Imagine protests over 10%! Our lives are a little more complicated, not to mention our weapons systems.

in Old Europe (France etc.) there were also revolts in the Middle Ages when people were forced to pay the 10% tax. I’m not sure to what people it applied, probably ordinary citizens and simple farmers. If I remember correctly, there were revolts in Biblical times as well regarding the 1/10th tax.

I think in Europe the cumulative tax rate is probably in the 80-90% range now.

Here is the pinnacle of Ancient Greek monetary artistry of 2,400 years ago…

A Silver Decadrachm struck in Syracuse, in modern-day Sicily.

http://www.moneymuseum.com/standard_etage_3_english/images/muenzen/25.jpg

By the Dark Ages, the artistry was gone and most coins resembled roundish lumps that looked more like washers, than coins.

Here’s the peak of American monetary history from just 101 years ago…

http://www.coinlink.com/CoinGuide/images/1907_High_Relief_Wire_Rim_20.jpg

Compare this $20 Gold Coin with the majestic Saint Gaudens design containing just under one troy ounce of Gold, to one of those ugly colored $20 Bills in your pocket, currently.

I believe the Black Plague helped equalize the playing field.

Here’s the peak of American notaphilic artistry from 112 years ago…

http://www.coinfutures.com/Currency%20Images/10-18-07/Ed_Front-LARGE.jpg

http://www.coinfutures.com/Currency%20Images/10-18-07/Ed%20Back-LARGE.jpg
===============================================

Compare it to a current $5 Banknote (with garish oversized “5″ in one corner)

“few spare tankers”…

There are indeed fundamentals associated with its pricing, such as animal spirits (e.g. balance of greed and fear), fiat currency stability factors (e.g. inflation expectations, devaluation fears, fiscal and monetary discipline, etc), availability of close substitutes (Yen, Euro, Krona, Pound Sterling, etc), political stability, and others I can’t think of off the top of my head.

One more comes to mind: Interest rates. If interest rates shot up like they did in the early 1980s, gold would likely get crushed, as money in high-yield deposit accounts (which include an inflation risk premium as part of the interest rate) are a substitute inflation hedge to gold.

“…If interest rates shot up like they did in the early 1980s”

Now that the fish has stop “flipping” & “flopping”…time to take the fillet knife and chop off it’s head…14+% mortgage interest rates!

Kill the beast!

Well said GS. Others fundamentals might include: transportability, historical moneyness, rarity, fungibility, trade/exchange-ability, liquidity (exchangeable for any currency), as finally, easily hideable if you’re inclined to value financial privacy. Finally, it’s pretty!

“If interest rates shot up like they did in the early 1980s, gold would likely get crushed,”

Chicken or the egg? I think you have it reversed. Wasn’t the upward pressure on rates in response to the gold rally? And why haven’t we seen this same response or is that a yet question?

Oh combo you crack me up.

“There is no reason it cannot be priced at any price since there are no fundamentals associated with its pricing.”

Ditto with the implied value of the ‘dollar’. But gold has a limited quantity. Not so with Mr. Buck. It’s now you Vs. The central banks printing press. Who do you think is gonna win?

“Chicken or the egg? I think you have it reversed. Wasn’t the upward pressure on rates in response to the gold rally? And why haven’t we seen this same response or is that a yet question?”

Gold prices and interest rates are both endogenous consequences of monetary policy, due to the confounding factor of rising inflation expectations. Rising inflation expectations (potentially) puts upward pressure on both gold prices and interest rates.

If there are fundamentals associated with the price of gold then what do these fundamentals say the price of gold should be? Six months ago folks here were saying gold would soon be $1,500. Others said it was going to $3,000. What fundamentals say any of these prices, including the current price, is wrong?

Fundamentally, most people think Dollars are sacrosanct and the cat’s meow, because they don’t know any better.

King, you and I are very similar…

We are both savers, but you choose to believe in promise-sorry notes instead of the final financial redoubt.

“King, you and I are very similar…”

That thought should keep you up at nights. I know it will me.

If promise-sorry notes are so meaningless to you, why do you go all rabid on us when the $ price goes up….Gonna rule the world, buy all our houses for 2c on the dollar stuff?

I am surprised the yellow goddess can’t get any loft amid the supposed TEOTWAWKI drama. Ag is sure getting slapped.

i’m the Jester that points out the obvious, and you’re the King that’s oblivious to the obvious.

If money is so hard to come by, why can’t I get better that 4 or 5%?

I have some money (ok, some, no central bank here) to lend. You can have a bunch of it at 10% - all of it at 15%. (Only the credit worthy need apply)

the action has been more in euro gold lately …
climbing at the fastest rate ever over the last weeks.

if gold breaks out in euro (very close now, few % to go) it might go ballistic in all currencies.

nhz…

Please do not rouse my countrymen from their slumber party, on dude.

You bought paper but expect it to behave like the physical metal. It won’t. Also, you bought expecting to make a huge speculative profit in a short period of time. That’s not what gold is good for, so you bought the wrong thing.

You are right that I am not sure what gold is good for ;-). In this market (all markets I follow, stock, bond, commodities) I am not sure what to think other then that momentum trades are the only thing working. I won’t hold any physical gold as the transaction costs in my rural area are too high and I am unconvinced that it remains the safety and inflation hedge it was once was. Look at the dollar today v. the Euro. Is the Eurozone really in that much trouble? As I have mentioned previously on other days, these trades are all with relatively small amounts of $$ that won’t hurt me of they go to $0.00 so don’t think I am the total fool my posts might otherwise lead you to believe.

The truth is, you just picked the easiest way possible to acquire an ersatz trading future computer blip.

Your protestations about transaction costs are just a red herring for not doing enough research and ending up with just another Wall Street vehicle of mass deception…

NHZ, is gold a currency play? A month or so ago is was the weak dollar that was driving up Oil and Gold, and GOld v. the Euro was fairly stable. Now the dollar is slamming the Euro, but now Gold has decoupled from the dollar and hitched its ride to the Euro?

Watcher, for the time being the ETF’s are behaving just like physical gold, that’s the point. As far as I can tell, physical gold prices are the COMEX price and the ETF’s track them, almost exactly. Unless and until we have a black swan event and the need to have physical gold (and not paper) in my possession occurs, and unlocks the “intrinsic” value of gold, I am all set. If that does happen, we are so screwed anyway it won’t matter. But I guess that is the essence of the debate.

Lad, Honestly I looked around. Without driving more than 60 miles I can not get a fair deal on physical Gold (losing about 10% on each side of the deal). I can buy a sleeve of rands and have them delivered, say for $10,000. OK. I believe that the only way GLD and GOLD decouple is if there is a major black swan event. If so, I will need to drive 60 miles or more to cash them in for dollars to buy the things I need (food, heat, fuel, necessities) and risk there being no gasoline available or being killed redeeming them or carrying cash after I redeem them. I sure as heck am not going to try to mail them somewhere to redeem them. There will be very little barter or Gold for food in this area if that should come to pass either. If I hold the cash for any period of time in this environment, it looses significant value everyday after I redeem it. Let me say that if, like you, I was willing to store my gold oversees, and flee the country in the event of a complete financial collapse (we aren’t close…yet) then I would agree with you wholeheartedly.

Skeptik,

The EFT tracks the price of spot, but not the price of physical metal; paper tracks paper. Metal premiums have increased markedly lately due to scarcity of metal. Compare the spot/EFT price to physical price chart and you will see the divergence.

Everything you say held true in the world we knew, but winds of change are coming.

Clinging to old ways of thinking is the most dangerous thing one can do in a world gone wrong…

realestateskeptic:
I think gold is decoupling from both dollar and euro at the moment (over the lasts months or so). Daily swings have more to do with mood changes in the stock and FX markets than with future prospects for euro or dollar regions. Take a look at longer term charts of gold in dollar, euro or whatever currency and you see where this is heading. All countries are trying to debase their currency in order to be ‘competitive’. I don’t think gold is just a panic indicator (in that case it should have been much higher lately …).

I can buy/sell physical gold for 2% transaction cost (or 1% if I buy big chunks), plus 1-2% for physical delivery which I’m not considering now. That 2% is acceptable if you take the long term view, 10% transaction cost would not be acceptable to me. I put just a part of my capital in gold, mostly as a ‘fire insurance’, and am gradually increasing lately, trying to have a good base before gold breaks out.

The bank that stores my gold is an old and reliable institution, with long experience in physical gold trading. As long as things don’t get out of hand I trust them; I don’t expect gold confiscation in Europe, but in case things get a lot worse it is something I keep in mind and I would consider physical delivery then.

NHZ, If I were in your country, with those spreads, I would certainly hold some physical gold. Too much of a spread and too many handguns here in the US for me to consider it as a substantial investment.

Watcher,

I think this is remarkably balanced article from a physical gold guy. I read it before investing and wonder if it meshes with your thoughts or not?

http://www.safehaven.com/article-8844.htm

Thanks, off to soccer practice with the kids. Maybe I can get a cheap Escalade from one of the soccer moms dropping off their kids?

Banks are short of cash because of the enormous writedowns they have been forced to endure.

These writedowns depleted their balance sheets.

That means they need cash to replenish these depleted balance sheets.

But they don’t the cash.

That’s why we have the crunch.

A postor in the Globe and Mail stated he thinks the banks already spent and lost 500 of the $700 billion bail-out fund which is why it’s an emergency to pass the bill.

That would be called Letting the Free Market Work Its Magic. It would make interest rates on saving viable again, among other things.

Ha ha. Yes.

People don’t seem to understand that Bush isn’t actually smart enough to be the hitler many make him out to be. In reality he’s just a puppet.

So on the surface he looks dumb *and* villainous, when in reality he’s just dumb.

that tells me that he was coached by paulson on what to say. His lips were moving to make sure bush dident leave anything out.

I believe they have killed the idea of privatization for several generations to come. Wall Street has proven that it is not filled with geniuses. It is filled with thieves.

Wall Street is a not so cleverly disguised Perp Walk strutting around in matching $5,000 fitted Italian suits…

“Just think of how big Wall Street’s bully pulpit would become if social security accounts were privatized and sunk into the stock market?”

Who wants to do that silly “maverick” idea?…

McSame = Busch Lite

An engineer once told me that as fast as they can make something foolproof, Mother Nature comes up with a better fool.
Wall Street is filled with ingenious thieves. As soon as a species of Wall Street theft is outlawed, the ingenious can be relied on to dream up yet another cunning plan… What will they come up with next?

Cunning linguists loaning credence?

People under 30 don’t expect social security to be there for them at all. They know it’s a ponzi scheme. The comptroller used to say it on 60 minutes. We all know it’s a failed social program and know that the baby booomers just want to the next generation dry first…

Hey,

Reality check over here.

I’m one of those Baby Boomers that paid into the scheme almost longer than you’ve been alive, but must wait 16 years for my first crack at it, and you know and I know that dog won’t hunt…

This clustermess is multi-generational.

….and $700,000,000,000 would fund the damn thing for approx 40 years…..

Hey Blue, you’ve just dissed all those “happy campers” that helped Cheney-Shrub “win” that second 4 year term. The money was “all in”…it was time that was lacking.

please tell us the details, i couldent stomach watching him last night.

I don’t remember all of it, but I was rather repulsed myself.

“Steel should have known better, Steel must have believed there was only 10 billion in bad loans (actual number 42 billion or something like that), Steel looked me in the eye and said all was fine, he stood right here, I believed him, I’ve known him for x years, he bought 16 million in stock in the open market (ouch), he failed me, I failed you, I shouldn’t have believed, I’m sorry, yada yada yada………”

Lol!!! i wonder how many more times he will have to give that speech!!!

“which would make the recession the longest since 1981-82.”

are we in a recession? i dident think that call was made yet? or are they finally giving up on that if “we dont say were in one there wont be one” agenda?

The WH is setting up Congress as a recession scapegoat in case they don’t pass the rescue plan.

I see a potential for surviving banks on Wall Street to pocket billions and billions worth of Fed special facilities loans at below market rates, hoarding massive war chests to buy up assets at fire sale prices, which they will resell to households at a premium.

I could use some low-interest loans myself, as I am trying to save up for a down payment to buy a home when prices bottom out. Does the Fed have a special below-market lending facility for households to tap into?

“for surviving banks on Wall Street to pocket billions and billions worth of Fed special facilities loans at below market rates, hoarding massive war chests to buy up assets at fire sale prices, which they will resell to households at a premium.”

This will have no effect on how Wall Street has been “educating” American citizens for the last 38 years…to win in this “game” you simply have to: Buy & Hold!

Now the rest of the world, follow Wall Street & get your citizens to place their “life savings” & their “retirement funds” into “equities”…then all you have to do is wait until 10 years after you retire to start withdrawing all that wonderful “appreciation”

PS, the Amish are exempt from this regulation.

Be it ever so humble , there`s no place like it.

You know , where Dorothy wanted to go.

Oh. You mean a house. Why didn’t you say?

OK

Be it ever so humble , there`s no place like house.

Adn you don’t have to pay taxes. And you use the actual current payout (not the 20-year payout).

I once read (somewhere) an analysis of the odds of winning, odds of splitting jackpots, and the payout elimination option.

The net effect was if the odds of winning are 1:130,000,000, you need to get back a published payout of roughly (ginoring multiple winners):

$1.00 (initial investment)
$1.00 (since you only get roughly half of the published amount if you take a lump sum)
$0.80 (federal and state taxes)

So for a $1.00 ticket with 1:130,000,000 odds, you need to win a published figure of 2.80*$1.30m = $364..

Since most jackpots get split at least two ways, you need to double the figure: $728m. Which has never been met, so lottery tickets are still a negative bet.

I disagree completely. One of the problems for banks is that depositors have been fleeing them in droves, moving to treasuries for safety. I personally know a number of small businesses who are at supposedly safe banks (Wells Fargo, BofA, etc.) and have been reducing their cash in those banks to be below FDIC levels.

No one that I know is afraid of the FDIC being unable to pay the $100k. That is the one US institution that I know will not be allowed to fail.

I am not suggesting to raise the limits WITHOUT raising the premiums. Far from it, I think premiums should be raised, and the requirement to shore up FDIC in times of trouble should be the responsibility of the participating banks.

The FDIC shift puts more power in the hands of local and regional banks, and concurrently less in the hands of entities like hedge funds, etc. Deposits are the cheapest form of finance for the banks.

The recovery will need to come from local and regional banks, not Wall Street. For all of our sakes, that’s where financial stability should be, spread throughout the industry, not concentrated in the hands of a few mega-institutions. That’s what got us into this mess…