June 13, 2006

‘For The Most Part, Those Crazy Days Are Gone’

MSNBC reports on the changes in the housing market. “There’s no denying it any longer. In most parts of the country, the sizzling house market has cooled. The people who make their living selling homes prefer to put a more positive spin on these numbers. They say the marketplace is just going back to normal.”

“‘It’s not normal to have 15 offers on a property,’ says Jim Warkentin, a Realtor in McLean, Va. ‘That’s just crazy.’ For the most part, those crazy days are gone.”

“That may be bad news for sellers, but it’s good news for buyers. In many markets, buyers have the luxury of being able to take their time and negotiate a deal for the first time in recent memory.”

“In Grass Valley, Calif., broker Laura Berman says sales in her Northern California region are down 30 percent from a year ago. The ‘inventory is huge,’ she says, and price reductions are common.”

“‘The buyer is clearly in the driver’s seat,’ says Bob Callahan, who is about to close on a house in McLean. ‘Houses are still expensive,’ he says, ‘but you can find deals now.’”

“The house Callahan wanted was originally listed at $629,000. After two weeks without an offer, the owners dropped the price to $599,000. Callahan got the house for $592,000. He says he could sense the sellers’ ‘willingness to negotiate about the price very early on.’”

“Callahan’s agent, Kate Ryan, says sellers need to understand that the price of a house is set by the market, which is now flat or dropping. ‘That’s hard for a lot of people to deal with,’ she says. Smart sellers need to realize that buyers can now take ‘the pick of the litter,’ and they need to set their asking price accordingly.”

“Laura Berman says the sellers she deals with in the Grass Valley region ‘are mostly in denial. ‘If you have comparable houses, it always comes down to price.’ And now that buyers may have dozens of houses to look at in their price range, they can determine the true value.”

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Comment by GetStucco
2006-06-13 05:33:15

“Callahan’s agent, Kate Ryan, says sellers need to understand that the price of a house is set by the market, which is now flat or dropping. ‘That’s hard for a lot of people to deal with,’ she says. Smart sellers need to realize that buyers can now take ‘the pick of the litter,’ and they need to set their asking price accordingly.”

Smart buyers need to realize that today’s `pick of the litter’ will be tomorrow’s falling knife. There may have never been a higher return to patience in the history of the US housing market as there is right at the moment.

Comment by arizonadude
2006-06-13 05:42:31

I lived in grass valley a few years back. Nice area with great tree coverage but very overpriced now. You have to go wack back in the hills to get a decent buy. It is next to nevada city, which is a tourist destination now.Both were booming gold mining towns at one time. Reminds me a little of flaggstaff.

Comment by Scorpion
2006-06-13 18:33:24

Grass Valley is a beautiful little town. I remember lots of people wanting to live there but the drive to work usually by Sacramento was long. Many moved there and ended up moving back to Sacramento because of the drive. If I had a choice though between Phoenix and Grass Valley I’ll take Grass Valley every day of the week

Comment by Don't Know Nothin About Buyin No House
2006-06-13 06:05:50

Stucco, what is your best guess on when market will be close to bottom? How long do you think it will stay there until trending up?

Comment by GetStucco
2006-06-13 06:30:31

Bottom — 2012. Up ???

Comment by Marc Authier
2006-06-13 06:31:43

No those crazy days are not gone. It’s just the direction that will change. The Boomm will turn into a big fat Bust. But don’t expect the official media to talk about the implosion and the bust up of the middle class and the mostly innocent and guillible victims of the most incompetent central banker in the world. No it’s not Bernanké. He is called Allan Greenspan. The world has not changed. I am sure it will be even more crazy on the downside.

Comment by UnRealtor
2006-06-13 07:07:16

Right, it’s all boogeyman Bush’s fault.

Get a grip.

What was your plan to get the economy moving in September/October 2001?

People who got in over their heads need to accept personal responsibility for their actions, and stop looking for scapegoats.

Comment by holgs
2006-06-13 07:55:26

>>Right, it’s all boogeyman Bush’s fault.

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Comment by SF Mechanist
2006-06-13 08:53:01

I can handle lowering interest rates in the wake of 2001, but the torrent of liquidity that hit the market with no lending standards that went straight to the finance industry and real estate is purely the result of bad policy from a bad administration. Compound that with the cash drain from a bad war, and unchecked corporate profiteering in the energy sector–which doesn’t seem to cause this administration to even blink–and you have an administration that is very much at fault for the mess we are in.

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Comment by HHH
2006-06-13 11:26:52

Bush has been begging to be given credit for the “roaring” economy of the past few years, so I find it only fair that he be asked to take a little personal responsibility of his own for the bust.

Horrible fiscal policy, an utter lack of concern for domestic policy and a failed foreign policy are all factors which have contribnuted to our current mess. We look to our leaders for guidance, and this administration certainly led the way on racking up debt and failing to prepare for disaster.

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Comment by Bill
2006-06-13 20:05:02

“Bush has been begging to be given credit for the “roaring” economy of the past few years, so I find it only fair that he be asked to take a little personal responsibility of his own for the bust.”

Well certainly the practice of “compassionate conservatism” is what is bankrupting America. “Compassionate conservatism” is nothing other than faith based socialism (or, if you will faith-based Democrat Party big spendingism). The Repub voters got what they asked for: A spokesman to destroy capitalism and whatever respect for the old Republican line of fiscal conservatism there was. Bush destroyed the Republican Party. Repeat: Bush destroyed the Republican Party by talking the talk but not walking the walk. And so the typical American thinks the cure is to vote for the even trickier pickpocket - the Democrat politician. If you all think the Democrats will be fiscally more conservative. I only have to remind you of the $1.5 trillion lost war on poverty, brought to you by Democrat President Lyndon Baines Johnson and his Democrat majority congress from 1952 to 1992.

America is doomed because we are about to go from a wussy wishy washy failure of a Republican administration to a major pickpocket Democrat Congress / Executive branch.

How’ that?

Comment by Marc Authier
2006-06-13 16:28:33

Yes. To make a stupid war was a real good idea. Anyways it’s you the US taxpayer that is footing the bill. Military Keynesian does not work. Look who is really winning the war in manufacturing . China and India. You spell success a economic policy where 40% of the new jobs depend on real estate and financial bubbles. Negative savings and record budget deficits. What’s wrong with blaming Bush for policies that have destroyed 3 million jobs in manufacturing?

Ah yes I forgot. They are now all real estate brokers and in the Marines or private mercenaries in Irak. A mess is a mess is a mess.

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Comment by Paul Cooper
2006-06-13 06:52:35
Comment by Sunsetbeachguy
2006-06-13 06:56:59


The only notable thing about Kiyosaki is that he flopped from a dubious advisor to a RE bubble camp position.

This flop makes me nervous that the bears are wrong and big inflation is the way out for the Fed and Govt.

For more info see John T. Reed’s critique of Rich Dad Poor Dad.

Comment by GetStucco
2006-06-13 07:12:15

Warning: Going to this link requires you to look at a picture of a dick.

Comment by Neil
2006-06-13 07:32:12

Yes, a very good article. I recommended it on another thread not realizing you already had posted it.


Comment by oikonomikos
2006-06-13 08:05:02

i there are a lot of people who think this guy is just another spinner, similar to Suze, but i think what he’s saying makes perfect sense. there will be opportunities for well-financed buyers. is this going to be this fall, next year, or three years from now? personally, i would like this to happen tomorrow, but this is just my wishful thinking. so, let’s keep looking at properties, put out a low-ball offer or two and just stay calm. the wave has only begun to crest…

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Comment by Betamax
2006-06-13 08:58:44

There may have never been a higher return to patience in the history of the US housing market as there is right at the moment.

Well said.

Comment by bulwark
2006-06-14 17:49:19

It’s true–what looks good now won’t next year. I had this experience buying in a falling California market in 1991.

Comment by dukes
2006-06-13 05:37:11

Bob Callahan is the epitome of “catching a falling knife”, he will need stitches from the cuts he receives from this maneuver…

Comment by tonyb
2006-06-13 06:05:15

What a genius he is. Instead of overpaying by $400,000 he only overpaid by $360,000. Brilliant

Comment by miamirenter
2006-06-13 06:19:48

callahan: You are screwed.

Comment by Marc Authier
2006-06-13 06:35:40

No. It’s mostly you the taxpayer that will pay for the mess that Greenspan, that impostor, created. Greenspan is the ultimate responsible. Stop looking for ennemies outside of the USA. Most of them worked at the FED.

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Comment by Brandon
2006-06-13 05:38:09

I love how “…they need to set their asking price accordingly” is used as spin rather than just saying people need to lower their prices.

New article from USA Today: “Home Prices too High in 71 cities”

…as if this has be some sort of secret or unknown fact.

Comment by bobbymac
2006-06-13 05:38:44


sorry for the link folks…obviously everybody is not on board with us!!

Comment by Sunsetbeachguy
2006-06-13 05:53:14


Harvard’s JCHS was blogged here a couple of days ago.

They are a mouthpiece for the RE industrial complex.

Check out their policay advisory board members.


Comment by shel
2006-06-13 06:12:51

oh, thanks for that link…the policy advisory board members reads like a housing-industry directory…what does it mean to be a ‘policy advisory board’ for a research group that lives at a university? again, sorry for my ignorance, but i’m puzzled and appalled.
i’ve been away a while…was there a thread about the study or was it dealt with in a thread named elsewise?
I would just love to see the debunking.

Comment by bob the banker
2006-06-13 06:31:04

I had heard that the Harvard group was backed by the housing industry, but I was still shocked by the actual list of “policy advisory board members.” How does a homebuilding corporation serve as a “policy advisor” to an academic?

Comment by X-underwriter
2006-06-13 06:38:02

smells like conflict of interest to me

Comment by Sunsetbeachguy
2006-06-13 06:42:49

Nah, the report that the Yahoo article references clearly states who funded it.


That being said the Hack at Yahoo needs to cover that aspect of the story instead of putting lipstick on the pig.

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Comment by shel
2006-06-13 07:36:16

I know! It’s obscene to leave out that aspect of the story! I just hope that the MSM figures it out,
that just as with big Pharma it’s finally getting out that hmm…studies funded by drug companies find 97% of the time that their co’s drug beats the others in brand-to-brand tests, and that hmm…they don’t report what percentage of Ss
improves on their therapy over placebo
, just that it’s “statistically significant” etc…that there may be some dirt to dig on allegedly academy-issued reports, in reality funded by vested interests!

why indeed do Harvard researchers
need to get ‘guidance’ from HomeDepot execs?!
that’s a bigger scandal to me than whether larry summers thinks his daughter’s desire to play with dolls rather than trucks is genetic, goodness….

Comment by GetStucco
2006-06-13 09:07:46

“that’s a bigger scandal to me than whether larry summers thinks his daughter’s desire to play with dolls rather than trucks is genetic, goodness….”

Don’t confuse Summers with this industry-funded housing study. Summers’ problem was an obsession with academic honesty, no matter how politically incorrect, as your example illustrates. However, Summers stands for something at 180 degree odds with this type “research” which basically tells industry what they want to hear in exchange for grant funding. By the way, Summers is no longer at Hahvard…

Comment by shel
2006-06-15 06:48:24

well, while I am an advocate of academic honesty, truly, and admire someone willing to make controversial statements, as I understood the initial comments that got him into hot water, he was *purposely* stirring up controversy. He might well really believe that girls don’t do as well in science and engineering as boys because they are by nature not as well-endowed cognitively in that domain, but I think the problem for him came in a cavalier approach to the issue. From what I understand, it wasn’t as though he had reviewed the research, and in the spirit of free and open scholarly inquiry he addressed the possibility that there is a biological basis to gender-segregation in the academy lol! It reflected a poor ‘management style’ and rhetorical carelessness and obnoxiousness, imho.
And yes, that got the ball rolling on his ouster, as it was not an abherrent posturing from him, in the opinion of many faculty. I don’t buy the PC police conspiracy theory on his leaving frankly..
I would love to see a Harvard president commited enough to academic honesty to expose the dishonesty that is the Center on Housing…he had his chance ;-)

Comment by P'cola Popper
2006-06-13 13:07:19

Harvard involved in a conflict of interest ? No surprise for me.

As I recall Sommers and fella H boy named Hays (funded by the US government) advised the Russian government about privatization back in the early 90’s. As a side line to their advising they were scooping Russian shares. Anybody remember this little scandal?

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Comment by Subkommander Dred
2006-06-13 07:30:31

It’s very reassuring indeed that such an August institution as Harvard has become a mouthpiece for Centex, Countrywide, Home Depot and it would seem just about every other major corporation with it’s future riding on new home construction and purchases. What a sick joke indeed.

Subkommander Dred

Comment by GetStucco
2006-06-13 06:01:41

“Housing boom will not end in a crash, says Harvard”

And denial is a river in Egypt…

Comment by moqui
2006-06-13 06:02:12

The demand is driven by household fragmentation and immigration…WTH?
How on earth can a leading university flat ignore the speculation factor? They must have got their grant from NAR.

Comment by Sunsetbeachguy
2006-06-13 06:08:54

Check out their Policy Advisory Board and Mission Statement.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” — Upton Sinclair

Comment by shel
2006-06-13 06:21:58

wait, i just checked the link sunsetbeachguy gave above and found that their policy advisory board *does* fund their report! they make their annual report on housing, and I presume this study was that report and that therefore it seems to me it *is* funded by their board, who also ‘provides them with guidance and feedback’ on their work!
that’s bloody scandalous to me…is this out there in the ether? that the harvard center on housing is funded by builders, mortgage bankers, home-supply corporations and realtors?!
here’s their statement on their ‘board’…sorry if you guys already beat this horse elsewhere…
Policy Advisory Board

Established in 1971, the PAB has a longstanding history of supporting housing research at Harvard. The group also serves as a distinguished national forum for leading companies across all industries with interests in the future of housing, including homebuilding, building materials manufacturing and distribution, housing and mortgage finance, industry publishing, design, construction and renovation.
Members of the Policy Advisory Board are valued not only for their financial support, but also for their leadership and commitment to strengthening future housing research and for their participation in guiding and providing feedback on the Center’s ongoing research.

Comment by nnvmtgbrkr
2006-06-13 07:09:26

Dateline, 20/20, Primrtime, and the like are going to have no shortgage of material to cover in the years ahead when we’re sorting through the aftermath. Public deception, fraud, goernment manipulation, conspiracy,………ah yes, this is going to be interesting.

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Comment by Karen
2006-06-13 07:24:04

Oh, I’m sure they will. I’m also sure they wll ignore their lack of unbias info on the subject.

Comment by shel
2006-06-13 07:55:21

karen, you mean their inability and/or unwillingness to provide the public with unbiased info?

Yeah, maybe the Harvard school of education would like to investigate the dire problems that must exist at the columbia school of journalism such that advertising and reporting appears to be the same thing now, thusly saving face for the institution in at least a small way. But maybe then the anthro dept at u-chicago will have to come in and explain how the institutional culture at schools like harvard are dictated by their endowment fund managers ultimately anyway, so its all a load of crap in the end.
how depressing….

Comment by oikonomikos
2006-06-13 08:31:47

well, this just makes this “center” much less distinguished. they just sold the brand of Harvard to an industry group by listing the names of sponsors. shouldn’t the endowment fund a research like this?
participation in guiding? this must be an euphemism for bias…this is total discreditation. when is the industry going to fund a research like this by The Economist Intelligence Unit? i’m sure they are looking for some sponsorship dollars (pounds), eh?

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Comment by LinOrlando
2006-06-13 06:54:02

I hear a lot of experts saying it will take a crisis to bring about declines in real estate values ie. plant closures and large scale job losses….
Ok, so real estate slows down and places like Arizona and Florida whose number one industries are housing (and related sectors, mortgage, real estate, home furnishings ect…) would’nt this cause massive job losses & be a crisis enough to cause price declines?

Comment by Karen
2006-06-13 07:21:20

We are all ready seeing it with GM and Ford. No housing gains, no 50K SUVs. Tho I also believe gas prices have played a roll.

Comment by holgs
2006-06-13 08:04:45

LinOrlando… Absolutely right. It is dead obvious to anyone with half a brain. How the f*ck is the MSM so stupid? We are devolving, that is for sure.

Comment by Renterma
2006-06-13 05:39:17

“The house Callahan wanted was originally listed at $629,000. After two weeks without an offer, the owners dropped the price to $599,000. Callahan got the house for $592,000. He says he could sense the sellers’ ‘willingness to negotiate about the price very early on.’”

I don’t think this fellow got a good enough deal. Below 500K is what he should have tried to buy the house. If the prices continue to fall, what is the sense in buying at a high price?

Comment by Moopheus
2006-06-13 05:53:10

Five percent off the peak price isn’t good enough for you? He got it for 1% less than asking price—clearly a sign of a buyer’s market.

Comment by eastcoaster
2006-06-13 06:41:20

I agree. But you know what I’m finding? Realtors are hesitant (or flat-out refusing) to offer any substantially lower-than-asking-price bid. I honestly don’t think realtors are necessary (sorry for anyone on this blog who is one). I think real estate transactions should be negotiations between buyer and seller for price, and then bring in the “experts” (inspectors, attorneys) to handle the rest (including the contracts). I’m sick of not being able to search the MLS on my own. I’m sick of being told what offers I can or can’t make. It’s a big, ol’ fraternity/sorority between realtors. They don’t want to piss each other off so they tread ridiculously lightly. I need me a buyer agent shark!! Doubt one exists.

Comment by Sunsetbeachguy
2006-06-13 06:48:18

Write an offer yourself and depending on state law every offer needs to be presented and stipulate that rejections/acceptance be in writing.

Depends on your state law/practices.

Comment by cute_diva
2006-06-13 06:58:47

Try zip reality….you can see all the listings taken from the MLS….and I *think* you can also make offers on homes by clicking a few buttons….

Comment by eastcoaster
2006-06-13 07:09:54

I start at zip realty. End up in home gain (since I’m in PA). And that takes me to a local Prudential office website for a home search. I guess I can assume this is all MLS listings? Then I need to register with something called Home Pilot to view details about the properies (which I did ~ hope that doesn’t come back to bite me in the…).

Now, where’s that shark?…

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Comment by jp
2006-06-13 07:05:13

Realtors are hesitant (or flat-out refusing) to offer any substantially lower-than-asking-price bid

Anyone encountering such stupidity should immediately fire their realtor. A buyer is an idiot to tolerate such behavior.

Comment by eastcoaster
2006-06-13 07:11:55

Oh I’m done working with the one I had been, believe me.

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Comment by Karen
2006-06-13 07:12:18

Is that legal? For some reason I believed RE, legaly HAD to bring all offers to the seller. Tho they could, for example, say how it was insulting or giggle through it, etc.

Comment by optioned unarmed
2006-06-13 07:13:54

If your realtor is hesitant to put in your lowball offer, suggest to your realtor that you’ll just contact the seller’s agent yourself. Seller’s agent will be quite happy to get 6% of your extreme lowball offer.

Comment by Housing Wizard
2006-06-13 07:29:17

Let the real estate industry stonewall lower offers and the houses will just sit . As much positive as the media is trying to spin today about the market ,the cat is out of the bag already .Buyers have pulled back and they aren’t in a rush .
The affordability of buyers are at a all time low ,so let the houses just sit .

Comment by shel
2006-06-13 08:01:43

i feel the same way! but even the alleged buyer’s agents, especially in a down market, need to pay their own mortgages and so will ultimately act in the seller’s interests…just the nature of it all, since its the seller who needs to accept the offer in the end! You could, I suppose, if you have the means, offer an agent a bonus from your own pocket for every thousand dollars below X price they managed to get a property for you. I think I saw that suggested in some homebuying guide somewhere once…
that might be motivating!

Comment by Gadfly
2006-06-13 10:51:58

I was (saw the writing on the wall in `03 and bailed) a Realtor for about 10 years — both in the Chicago-area and Flagstaff, AZ — and it was always made pretty clear to us that ALL offers are to be presented to the seller. Repeat — ALL offers! To sit on an offer is a breach of one’s fiduciary responsibilty to the seller and liable to get the offending Realtor “bagged and tagged”, but then again, things are like the wild west these days.

I now live in a remote area where carpetbagger Realtors (with the ink still wet on their tickets) are trying to sell landlocked parcels to witless folks with pockets full of phoney-baloney-equity dollars and $#@% for brains.

When I “zillow” Flagstaff SF props these days, I can only shake my head and mutter something obscene. E.g. crappy, 35-year-old, 2-BR, 1BA, 900-1000sqft. “cabins” for $225-250K??!! Oh well . . . LOOK OUT BELOW!!!!!

Comment by Russell Walsh
2006-06-13 22:19:58

There are agents that advocate for their buyer/clients above commissions. Don’t look for a name brand. There is too much pressure on those people to close deals.There are honest people who can get you a loan too but mostly you have to go with whoever can best get you what you need at the time of buying . It’s best to get get your own license..its easy. It cost about a thousand a year to keep current with key and MLS and all. You can hang the License with a broker that doesn’t bother you. I pay mine 10% of my commission on a property for myself and 20% for someone else. I go to his office about once a year. We talk on the phone a lot and his 30 years in the business have been worth $100’s of thousands to me. He doesn’t care if I work for half commission or whatever. The only place to be in the Real Estate Market as far as I can see, is on the sidelines for now. I tell people in my “circle of influence” that too.
I think there should be enough time to get a license before its worth while to buy,in most markets. There is a form anyone can buy at the local realtor store called a letter of intent. Its one page non binding. When I am looking for a property I send out dozens of them and keep on looking. If I see something good I’ll write the puchase and reciept for deposit fast.

Comment by nnvmtgbrkr
2006-06-13 07:19:30

Actually, these sales at 5% under list price are a good thing. They’re the primer needed to break the dam. What I’ve seen in our area was a long period where nothing was selling and everyone just dug in their heels and looked at each other. A few months ago the dam sprung a leak when a handful of sellers started reducing and selling their homes by about 5%. Suddenly, you kind of sensed everyone saying “uh-oh”, and the reductions started picking up momentum. To date I say we’ve lost 5%-10% from our top.

It’s not realistic to expect this thing to dump in 10%-20% reductions. A 5% reduction every few months or so is just fine by me.

Comment by auger-inn
2006-06-13 07:29:59

I was expecting you to come back with the report you alluded to concerning the RE activity in your area (you were too busy in an earlier post). I assume you are in the RENO area (I sold a home in Incline Village summer 04) and I’m an interested observer. Thanks!

Comment by GetStucco
2006-06-13 07:31:48

Fine by me, too, so long as someone else is the buyer…

Comment by Housing Wizard
2006-06-13 07:38:23

I would like to see the correction go a little bit faster so less people are hurt by the inflated prices /bad loans .

Comment by Langley BC
2006-06-13 05:39:29

A few months ago I read an article of how this market crash will play out in the media and here it is. As the media starts to lose advertising income from the realtors, they will quickly sell them out for sensationalism. The new kids in town will be gloom and his friend doom.

Comment by Sunsetbeachguy
2006-06-13 05:57:17

Actually, in my neck of the woods, realtor TV ads are frequent.

In the boom they didn’t need to have soft focus warm and fuzzy ads to boost their image.

The NAR, REMAX, Caldwell Banker Realtwhore ads are a direct response to the slowing market and blogs like Ben’s.

Comment by optioned unarmed
2006-06-13 06:42:22

RE industry needs the newspapers and TV so badly right now that they do not have the luxury of being able to boycott venues that publish news about the bubble bust.

Comment by Salinasron
2006-06-13 05:45:48

“‘It’s not normal to have 15 offers on a property,’ says Jim Warkentin, a Realtor in McLean, Va. ‘That’s just crazy.’ For the most part, those crazy days are gone.”

And where was he and the news media on the way up? I hope he’s cleaning toilets at WalMart when this thing hits bottom. How many lives has he ruined by cheering people on to buy and filling his pockets with silver?

Comment by UnRealtor
2006-06-13 07:18:05

The term “parasite” fits realtors, who create nothing and simply mooch off the wealth of others.

Useles middlemen for the most part.

Comment by salinasron
2006-06-13 05:49:41

“The house Callahan wanted was originally listed at $629,000. After two weeks without an offer, the owners dropped the price to $599,000. Callahan got the house for $592,000. He says he could sense the sellers’ ‘willingness to negotiate about the price very early on.’”

These people need to be flagged and revisited next year! I wonder how many family, friends and coworkers he’s told about his good fortune. I bet he’s even telling them how much dream equity he has and how this time next year the house will be up some 30%…..

Comment by ctz274
2006-06-13 06:13:30

My friend just bought a house in NoVa early this month. The seller asked for $699K, dropped to $649K, my friend negotiated for $600K and selled accepted. That’s about 14% less from the original asking price. Comps in similar condition are still asking for more than $650K.

No matter what, those people who are buying right now are contributing to lower the appraisal price of comps, it may not be a bad thing.

Comment by DinOR
2006-06-13 07:04:42

Good point! I just shudder everytime I hear of a friend, relative, client saying they “just closed” and got a pretty good deal! Many I had been able to talk out of buying in 2005 so they feel if it once sold for 699K, 620K must be a steal! My policy has been “friends don’t friends buy houses” but you can only talk until you are blue in the face. Given the light of what you’ve shared perhaps their “idiocy” has some use!

Comment by glorgau
2006-06-13 08:45:58

Buying a house now is going to be like buying a computer. You know it is going to be less next year, but if you need one now, you need one now.

Comment by GetStucco
2006-06-13 09:14:34

Nope, sorry, your analogy is just plain terrible, unless you are describing the housing purchase decision of Bill Gates or Warren Buffet. A 30% drop in the price of PCs means that I could have saved $300 by waiting a year; a 10% drop in the price of homes (at least where I live) means you could have saved $60,000 by waiting another year. If prices fell 10% YOY, around half of prospective San Diego buyers could “earn” themselves the equivalent of a year’s worth of income, TAX FREE, buy renting instead of buying.

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Comment by Sammy schadenfreude
2006-06-13 13:24:11

Ever hear of renting?

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Comment by shel
2006-06-13 05:53:21

thanks for posting that bobbymac,
I was about to bring that report up…the link you post was on the yahoo frontpage until a couple seconds ago, when it seemed to have been replaced by “polar bears will resort to cannibalism, study says”. I wonder about realtors…just kidding, sorry! ;-)

It’s very annoying how the piece falls into the general trend
on reportingabout whether there is the possibility of a ‘hard crash’ in RE. The article covers in pretty decent detail the Harvard study, which I have not actually read firsthand, and ends with the tiniest of paragraphs about how ‘not everyone agrees’ however.

Are there any good de-bunkings of this study out there, because it surely makes big we’ve-researched-this…at-harvard-standards-no-less-you-know…claims about how overbuilding isn’t a problem, mortgage-debt isn’t a problem, equity-in-homes isn’t a problem, and demand will just continue like mad, as new and recent immigrants consume all that supply, albeit perhaps over an extended slowed-appreciation period. They seem to ignore affordability, the regular old issues of supply and demand in a market, and human psychology…and I just am not familiar
enough with reasoning among housing-specialist economists to evaluate their arguments.

Would love to see some point-by-point countering to the report, because I think something that doesn’t come from the NAR or just some roundtable egofest on cnbc might actually affect people’s “thinking”.
cheers all!

Comment by GetStucco
2006-06-13 05:53:36

OT, but it seems very unfair to goldbugs that stocks get plunge protection while gold is allowed to crash…


Comment by shel
2006-06-13 06:07:40

just the nature of the beasts, no? I mean, believe in the PPT fairy or not, are there
as many
automatic or semi-automatic actions that happen depending on the going price of commodities like gold
as there are for stocks?
please excuse my ignorance…(gotta figure out if there’s a way to reproduce here that handy hiding-in-box emoticon I’ve used elsewhere ;-)

Comment by Mort
2006-06-13 06:08:02

Yeah, I noticed that. Market starts down and then a miraculous reversal. The markets are rigged.

Comment by Mort
2006-06-13 06:24:49

Oh, and the intraday chart for HOV matches the overall market to a tee.

Comment by GetStucco
2006-06-13 06:29:46

The most miraculous part is the level of correlation across asset classes — strong evidence of market manipulation from a big player. I jokingly say PPT, in the same way that religious folks say “God makes the sun rise each day”, but I honestly do not know whether it is the action of govt, hedgies, big Wall Street investment houses, or what, only that there is a very unhealthy high level of correlation across the US stock market which suggests the exercise of lopsided market power, and which will eventually lead to capitulation. If you don’t know what I mean by “correlation,” then look at the stock chart of Toll Brothers versus the NASDAQ, and try to think of any fundamental or technical reason why these two price charts should move like synchronized swimmers. Toll moves farther because it has a higher beta, but the direction of movement from moment-to-moment is remarkably in synch:


It is impossible to indefinitely prop up the world’s largest stock market in the face of eroding fundamentals.

Comment by jp
2006-06-13 06:35:41

you think avg beta is getting closer to one somehow?

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Comment by GetStucco
2006-06-13 06:40:20

Beta is greater than one for Toll Bros and friends, but correlation is getting damn close to 1 for most stocks traded on Wall Street…

Comment by jp
2006-06-13 06:46:39

any ideas for the mechanism?

Comment by GetStucco
2006-06-13 06:54:20

Index options and computers are definitely involved, but I don’t claim to know who the actual players are…

Comment by auger-inn
2006-06-13 07:17:54

Here is an opinion that indicates Goldman Sachs is one of the players involved. http://www.lemetropolecafe.com/dospassos.cfm?pid=5452
I hope the link works OK.

Comment by auger-inn
2006-06-13 07:24:48

BTW, the article references a “currency stabilization fund” which supposedly exists at the FED. My understanding is that it is the “Exchange Stabilization Fund” which is utilized by the PPT. This fund has an interesting history but I understand it is an “off-budget, non reporting entity, with unknown funding directly reporting to the president (no oversight committee). But hey, I’m sure it wouldn’t be involved in anything illegal or shady. I mean we all trust big brother to do the right thing, right?

Comment by MazNJ
2006-06-13 08:31:13

If there were a tremendous amount of futures arbitrage/portfolio insurance or something similar, or various program trading/options stuff, or if enough pension funds or the investment banks managing there portfolios all attempting the same strategy, playing by the same rules, this could/would happen.

Comment by GetStucco
2006-06-13 09:20:34

Nope. Again, you offer a plausible explanation for why asset markets crash hard when they crash, as many like-minded fools employ the same investment strategy during the boom, and pat themselves on the back for their individual brilliance, up until the point when a black swan leads them to all rush for the exits at the same time. But your story does not explain the tight correlation in high frequency individual stock price movements, down to the minute-by-minute variation…

Comment by Mort
2006-06-13 06:35:53


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Comment by Mort
2006-06-13 06:37:38

The big boys are playing with fire, the little guys will get burned.

Comment by optioned unarmed
2006-06-13 06:47:15

correlation could have something to do with all asset classes being equally over-leveraged.

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Comment by GetStucco
2006-06-13 06:59:26

Agreed. One possible simple-minded explanation is that all the overvalued assets are correcting as central banks withdraw liquidity. I think this is the fundamental source of the correction. However, it does not explain the high frequency correlation across a broad swath of the US stock market…

Comment by deflation guy
2006-06-13 07:09:26

I think that the market’s coorelation is caused by all of the index funds. Billions go into these vis a vie 401(k) purchases; the herd loves them. Personally, I think it is a travesty for the economy. Why should a company be bought just because it belongs to an index? Companies ought to be bought based on the merits of their business.

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Comment by optioned unarmed
2006-06-13 07:21:33

One problem with index funds is they tend to be weighted by company asset size. So while somebody may think they are well-diversified by being in an S&P 500 index fund, a lot of their money may actually going to be in the largest couple of stocks in the index.

Comment by Marc Authier
2006-06-13 16:00:27

Yes they are. But you cannot rig everything. The sad fact is that if you want truth, don’t watch TV or any “official” media dependant on advertisers. And do not listen to politicians or these psychopaths from the FED.

Comment by Mort
2006-06-13 06:11:47

They are trying to fight inflation and protect asset prices at the same time. An effort doomed to failure in the long run, IMO.

Comment by jp
2006-06-13 06:49:50

They are trying to fight inflation and protect asset prices

Why does anybody have the impression that anybody gives a rat’s butt about asset prices? Why would Ben raise rates if he didn’t think some portion of the economy was going to get hammered?

Some prices will go up and some will go down with every rate movement. That has to be basic knowledge to them…

Comment by Mort
2006-06-13 06:53:52

Yes, but they have friends who must prosper in any event.

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Comment by Mort
2006-06-13 06:18:04

I especially love watching the Dow, the Nas, and the S&P march in lockstep.

Comment by arroyogrande
2006-06-13 06:40:08

Wait a minute. If you are assuming that the lockstep performance is due to manipulation when prices are dropping, then does that mean there is manipulation when prices are rising (Jump Protection Team)? Lockstep is lockstep, and so manipulation would have to go both ways…

Comment by Mort
2006-06-13 07:32:30

This is just a hunch but here goes. The big funds buy, the little guy buys too in order to follow the trend. Then the BF(s) sell first and the little guy gets squeezed. Then the lg thinks it’s a bear market and shorts the it, the BF then buys and squeezes him on the short side. I hear that the BF are taking lots of risk overseas with OPM because if they win they get huge bonuses, if they lose it’s not their money anyway. Kind of like a realtor, they don’t care who gets burned as long as they make money. Sooner or later the Asians will get tired of this crap and will take their chips off the table. When that happens, look out below. They won’t want to but the corrupt U.S. system will drag everyone down with them if they don’t cut the cord at some point. As to the JPT when you pull on a spring, then let go, it will automatically snap back to equilibrium, no need to help it in the direction it wants to go. They are just trying to trick the lg into buying with these “false rallies”, then they clean up.

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Comment by Mort
2006-06-13 06:45:48

If I was going to short someone I would probably short the big boys, Merril Lynch, Goldman Sachs, et al. No way they can keep this up.

Comment by jp
2006-06-13 06:21:41

unfair to goldbugs

gimme a break. As soon as Ben B made it clear that the “Heliben” reputation was undeserved (ie, he was going to earn his stripes as an inflation fighter) the only thing holding up gold against the dollar went away.

And it’s going to continue.

Comment by GetStucco
2006-06-13 06:35:22

Then what holds up stocks? How come the morning after Japan has its worst selloff since 2001, our stocks start out by dropping straight down, only to see a remarkably broad-based recovery on absolutely no news?

Comment by jp
2006-06-13 06:45:54

Then what holds up stocks?

First off, stocks are getting hit too. Won’t be as bad as gold, because there’s actual earnings underneath the stocks that will continue (albeit at a lesser number). The earnings will be in “nominal” dollars, of course, so the value is slightly decoupled from the yen-based securities markets. Moreover, if trouble hits Japan and their exports decrease, that will be good for the US.

And that’s just for starters. Asset shifts, the generally poor state of labor, the dumping of the american pensions, etc etc etc will contribute to corporate profit. Bad time to be an employee, but it’s approaching a good time to be a shareholder.

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Comment by GetStucco
2006-06-13 06:52:25

I am sure you meant “approaching a good time to become a shareholder.” Who enjoys holding on to an asset when its value is dropping like a rock?

And I know stocks are getting hit — you can only fight gravity for so long before gravity wins. I was merely commenting on the frequent points when stock prices look as though they are “propped up” across the board, while gold keeps plummeting, which seems unfair. Why would you want to protect one class of investors and let another one take their lumps?

Comment by GetStucco
2006-06-13 07:03:54

“Won’t be as bad as gold, because there’s actual earnings underneath the stocks that will continue (albeit at a lesser number).”

Could be worse for stocks (e.g., homebuilders). With gold, you have a physical asset whose value has withstood the test of time. With stock, you have a piece of paper (or some electronic version thereof) which depends on the earnings of the company. If the company happens to build houses, and it comes to light that there is a record number of vacant houses on the market, and no more need to be built, guess what could happen to the earnings stream which gives the stock its value? That’s right, earnings can go negative, and companies can go bankrupt.

Comment by Moopheus
2006-06-13 07:16:42

With gold you have a physical asset whose value is almost entirely psychological, since it has so little practical value. The speechifying of gold market analysts has little more substance than astrologers. Yeah, sure, gold will likely always be worth something to somebody, but that doesn’t make it smart to buy when the price is high.

Comment by jp
2006-06-13 07:17:22

GetStucco: I am sure you meant “approaching a good time to become a shareholder.”

Exactly. My trigger finger is getting itchy, but I’ll probably wait until Aug and reassess. Right now I see noone, and I mean not a single person, recommending equities. That’s a big flag.

Regarding home builders stocks: won’t touch them with a ten foot pole. My guess is that there’s going to be a bloody shakeout, M and A, etc before it’s done, and I’m just not that good at predicting/evaluating their businesses.

Regarding test-of-time value of gold: That’s good enough for those looking for protection, but the vast number of $$ that are looking for appreciation won’t bother. The metals bubble was driven by those looking for appreciation (how many posts did we see about how well the gold prices were performing eg. “I’m up 40%!” ), but that segment is running for the exits now.

PS. Love the handle.

Comment by Moopheus
2006-06-13 07:32:42

“Regarding test-of-time value of gold: That’s good enough for those looking for protection, but the vast number of $$ that are looking for appreciation won’t bother. The metals bubble was driven by those looking for appreciation (how many posts did we see about how well the gold prices were performing eg. “I’m up 40%!” )”

Hmmm…completely unlike investors in a certain other asset class we’ve been discussing here.

Comment by Moopheus
2006-06-13 06:35:37

Despite all the goldbug rhetoric, this appears to be a short-lived speculative bubble. All the gold market “experts” quoted in the news sound remarkably like the NAR—it’s a “correction” and the market “will rebound later in the year”. Really. Because we say so!

Comment by GetStucco
2006-06-13 06:49:10

Goldbugs are getting squashed in this selloff…


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Comment by Bill
2006-06-13 20:21:51

Would you then prefer to keep all your assets in paper money if you had to choose between that and gold?

Not me. I would choose gold. Check what the U.S. currency is backed by. Hint: Nixon’s worst crime was NOT Watergate.

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Comment by tweedle-dee (not dumb...)
2006-06-13 06:38:29

I agree gold is going to continue to fall. I held a bunch and sold. If BB is going to attack inflation, then gold is pretty much useless, right now at least.

Comment by hoz
2006-06-13 08:29:59

…”The Times understands that the increased volatility of markets has unsettled officials at the Fed, where there is some disquiet at the inability of Ben Bernanke, the new Chairman, to communicate clearly the Fed’s intentions.

The Bank of England’s Governor meanwhile sounded a warning last night that markets and the global economy may be set for a period of greater turbulence triggered by rising interest rates around the world. ….”
IMHO this is my target area to buy gold and all I can get. It may go to 550, but I would rather own gold at this price than anything else.
I certainly think the phrase “a period of greater turbulence” says bail out of anything but gold!

Comment by Moopheus
2006-06-13 09:11:09

“Now is always a good time to buy.”—Suzanne

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Comment by hoz
2006-06-13 09:20:18

Perhaps for gold! LOL - Mais por moi Apres le deluge…
2 recent articles from China Daily

Forex reserves far too big: economist
Updated: 2006-03-03 14:38
China has three times more foreign exchange reserves than it needs and should cut them accordingly, the official Securities Times quoted an influential Chinese economics proForex reserves far too big: economistfessor as saying on Friday.

“China’s foreign exchange reserves hit $818.9 billion at the end of last year, but they should not exceed $250 billion,” Peking University professor Xiao Zhuoji told the paper in an interview.

The government should also ease its control on foreign exchange and make better use of the reserves, which are predominantly invested in short-term U.S. treasury bills with low returns, Xiao added.

“That’s like allowing foreign countries using our money cheaply,” he said.

In similar remarks published by state media last week, Xiao proposed to reduce the dollar share of the reserves to curb risks posed by the instability of the U.S. currency. ..

China’s forex reserves exceed $900 bln
Updated: 2006-06-13 07:12
…China’s reserves have already exceeded $900 billion,” he told an off-the-record forum. “Imbalances in international payments have triggered some new problems which deserve our attention.”…

It is incredibly stupid to be a millionaire playing at the billionaires table.

Comment by GetStucco
2006-06-13 10:18:34

The last bear market in gold lasted over twenty years (early 1980s through early 2000s). And the Panic and Depression of 1869 began with a crash in gold…


But I am sure this time is different, and the price will come roaring back from this humongous selloff.

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Comment by Moopheus
2006-06-13 18:54:21

“This time it’s different!”—Joe Flipperhead

Comment by arroyogrande
2006-06-13 06:24:34

Forget gold (down ~17%), how about silver (down ~29%)?

Comment by GetStucco
2006-06-13 06:39:00

How about submerging markets (e.g. India is off 28% since May 11 peak — worse than Black Monday in the USA — 20% drop in October 1987)


Comment by Max
2006-06-13 07:23:24

Next will be oil.

Comment by Marc Authier
2006-06-13 16:04:01

Yeah the US dollar is a real bargain. I am joking. Worthless piece among other worhless pieces of papers. Never mind the propaganda and buy on weakness when nobody wants it. The same can be said for silver.

Comment by deflation guy
2006-06-13 07:19:07

I think gold will have it’s day, but not yet. BB must prop up the dollar first. Afterall, the government NEEDS foriegn capital to fund itself. The hyper-inflation route (which high gold prices presume) would be a final act of desperation. We are probably a few years (and a new administration) away from playing that card. Meanwhile, there will probably be some good buying opportunities for gold over the next year or so.

Comment by Marc Authier
2006-06-13 16:18:31

Yeah what’s 44 trillion dollar debt anyways ? Nothing means nothing. You are soo lucky in the USA to have such stupid foreingn creditors. These imbeciles play the game without blinking. They will eventually loose everything. Exports markets and foreign reserves too. You are blessed to have such stupid and sheepish competition. You are blessed.

Comment by need 2 leave ca
2006-06-13 06:11:03

Grass Valley is a nice area, but there are very few jobs up there to support ridiculous prices. I see a big come-down there. Many of those folks commute down to the Sacramento area, which is at least an hour drive. Also a place where retirees would tend to move. I see a 50% haircut. That guy mentioned will have a house worth about $300,000, but he can brag about buying for $592K.

Comment by tweedle-dee (not dumb...)
2006-06-13 06:41:42

The problem here is that there are literally no buyers left. Home ownership is at a record 70% and lots of speculators own more than one. So who wants to buy a house ? I think the only buyers that are left are people that are still in denial about the bubble. Or people who can’t read and who have no financial sense.

The bubble pop scenario is building every day. Its like the pin is dull and it is starting to push against the balloon. It is only a matter of time before it pierces the balloon. It will pop, no doubt about it.

Comment by Karen
2006-06-13 07:19:11

The buyers left? Kids under 25.

Comment by Housing Wizard
2006-06-13 07:51:19

And a few people who just sold their house and they are buying a new one , and I hear state lottery winners are in the market for a house .

Comment by gt
2006-06-13 14:20:41

everyone i know who’s bought, inlcuding 5 cowrokers, in the past 6 months is

Comment by GetStucco
2006-06-13 07:10:41

Here is some reassuring news…
Bernanke says consumer debt burdens at manageable levels
By Greg Robb
Last Update: 11:00 AM ET Jun 13, 2006

WASHINGTON (MarketWatch) — Despite the complexity of financial products and wider availability of credit to families with low to moderate incomes, U.S. households appear to be in managing their debt well, said Fed chief Ben Bernanke on Tuesday. “U.S. households overall have been managing their personal finances well,” Bernanke told a seminar on Capitol Hill. “On average, debt burdens appear to be at manageable levels and delinquency rates on consumer loans and home mortgages have been low,” he said. Bernanke did not discuss monetary policy in his prepared remarks. Bernanke said the central bank will continue to make financial education a priority to help families of modest means build assets and improve their economic well-being.

Comment by Max
2006-06-13 07:20:18

On average, debt burdens appear to be at manageable levels and delinquency rates on consumer loans and home mortgages have been low

Oh, you haven’t seen anything yet. Just when we lived for half of a year on negative saving rates, Ben is starting to take away cheap crack, expect a lot of banging on the windows at 3 in the morning.

Comment by GetStucco
2006-06-13 09:27:47

I will expect a lot of broken windows at 3 in the morning…

Comment by SF Mechanist
2006-06-13 09:25:57

It’s reassuring in that things seem on course for another rate hike.

Comment by Anthony
2006-06-13 07:51:31

Interesting how sentiment on this blog has turned so negative against gold. I remember barely a month ago I was saying gold was just another bubble and got chastised for even suggesting it. I see it is getting hammered (down 5%) again today.

However, if it keeps going down like this, I may be tempted to buy some.

Comment by deflation guy
2006-06-13 08:04:46

I’m thinking I may be making a trip to my local coin dealer if it goes under $500 ;)

Comment by CG
2006-06-13 09:09:09

Some goldbugs aren’t even waiting for that…. they’re buying PMs now. Personally, I’m waiting a little bit… after a move like this, it may bounce, or just go sideways. But as holgs says, the fundamentals haven’t changed. The dollar has barely broken through 86, and oil is still above $68. ben or no Ben, inflation is still in the works.

Comment by holgs
2006-06-13 08:21:44

I believe there are fundamental reasons to buy gold in the near future, but I also think it will continue to correct before the best buying opportunities show themselves. The fundamentals are:
1.) The world no longer trusts the US economy and the US dollar, so they need something else in which they can park their dollars (believe it or not, the savings rates in Europe are way higher than they are here - like 10%) I keep reading about countries around the world taking steps to increase their gold reserves.
2.) There is evidence that it has been artificially held low (and no I don’t read press releases from GATA every day…) See http://www.sprott.ca for more.
3.) fiat currencies are still a relatively new thing… Depressions come and go about every ~80 years. We may find that our little 80 year break between depressions (~1930-2010) was the “fiat currency” era in the history books..
4.) Historically undervalued?

(Note, I am not an expert… just someone who reads the interwebs too much.)

Comment by holgs
2006-06-13 08:25:46

Sorry, I meant http://www.sprott.com...

Comment by Moopheus
2006-06-13 10:30:28

“4.) Historically undervalued?”

Guess it depends on what you mean by “historical.” here’s an interesting chart showing the price of gold in constant (2004) dollars since 1785.


Comment by GetStucco
2006-06-13 10:41:42

Nice chart. Average long-range value of gold is very stable, at $350 in 2004 dollars. So as of today, at $566.80 as I write this, it is about 60% overvalued relative to its long-term average — no worse than the average San Diego home!

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Comment by sigalarm
2006-06-13 15:24:14

Gold only has value to anyone above its use as an industrial metal because of perceived scarcity. God help them (goldbugs) if they ever get controlled nuclear fusion working at a production scale.

Seeing as all elements are created through variations of this fusion process, the ability to generate quantities of atomic gold will exists some time after stable controlled fusion becomes reality.

Enjoy it while it lasts. (will last at least by for my lifetime I expect).

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Comment by Moopheus
2006-06-13 18:47:13

Actually, gold has been produced in nuclear reactors and particle accelerators. Mercury and platinum, for instance, can be transmuted into gold. The process has not, as you might guess, had much of an economic impact.

The diamond cartels (DeBeers & friends), on the other hand, have been fighting tooth and nail against the incursions of artificial diamonds into the jewelry market, a battle they are slowly losing.

Comment by santacruzsux
2006-06-13 08:26:31

Every asset, gold, stocks, houses are can and will be bubbleized because there is no other mechanism for growth within our financial system. Bernanke and the G8 folks will learn quite quickly that removing too much liquidity from their antiquated system will completely destroy it. They are playing a dangerous game thinking they can pull just a bit of liquididty out to fight inflation while jawboning that the world economy is strong. The great reflation part two will begin this winter after the most dismal holiday spending season in decades. What Bernanke doesn’t get is that although our foriegn creditors don’t like the Helicopter Ben comments, the American public would actually like it if it were true! Just look at the savings rate in this country. A helicopter drop domestically would probably be used just to wipe out the average of $8000 credit card debt carried by the average consumer and would not contribute to price inflation. I really don’t get this guy at all…

There are some that believe the central banks are there to impose discipline upon the markets and it’s participants by taking away the punch bowl. Well I’m sorry to say that it is too late for that now as the guy by the bowl is a very angry drunk and will fight like a mad dog if you try to take it from him. Inflation the people understand, a deflation is like the freaking boogeyman.

Comment by auger-inn
2006-06-13 08:47:47

Well said!

Comment by deflation guy
2006-06-13 08:58:35

Good points santacruz. However, I doubt that foriegners will be willing to continue to fund our government unless the dollar is defended. A flight from USA Treasury debt would cause interest rates to explode. The net result will be the same to the economy. Catch 22 IMO.

Comment by santacruzsux
2006-06-13 09:15:15

Some folks may even call it a “conundrum”!

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Comment by GetStucco
2006-06-13 09:30:38

“Every asset, gold, stocks, houses are can and will be bubbleized because there is no other mechanism for growth within our financial system.”

What about entrepreneurship? That is the traditional mechanism for growth in our economy. Unfortunately, speculative manias tend to turn would-be entrepreneurs into profligate gamblers.

Comment by Moopheus
2006-06-13 09:40:51

Doesn’t that involve, like, working ‘n stuff? Making things? Providing services people want or need? That’s practically Carter-era thinking.

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Comment by santacruzsux
2006-06-13 10:24:27

What about entrepreneurship? That is the traditional mechanism for growth in our economy. Unfortunately, speculative manias tend to turn would-be entrepreneurs into profligate gamblers.

Well it is a shame that in this country “entrepreneurs” usually do not have the capital “savings”, to initiate growth without expanding the lending base. I know of very few successful entrepreneurs that have been successful by using their own nut to expand their business. In this country everyone is beholden to lending institutions. If lending is tighten I would liken to say that entrepreneurship will be strangled going forward thus even causing lower growth.

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Comment by GetStucco
2006-06-13 09:34:02

“A helicopter drop domestically would probably be used just to wipe out the average of $8000 credit card debt carried by the average consumer and would not contribute to price inflation. I really don’t get this guy at all…”

Bwahahaha! A helicopter drop would be used to pay the closing costs on an investment condo, or to buy gold, or to gamble at Vegas. Screw paying off debt — that is for your Grandma and Grandpa who lived their youths during the depression era.

Comment by GetStucco
2006-06-13 09:36:28

“Well I’m sorry to say that it is too late for that now as the guy by the bowl is a very angry drunk and will fight like a mad dog if you try to take it from him. Inflation the people understand, a deflation is like the freaking boogeyman.”

The country withstood the Fed’s withdrawal of the punchbowl in 1980, after inflation had run even more amock than it has this round. Our country’s debt-intoxicated drunkards lived through rehab then, and they will live through it again…

Comment by santacruzsux
2006-06-13 10:16:42

I apreciate your comment GetStucco, but at the same time I am wondering if you are actually hoping for a deflation. If so the one key point that I don’t know if you are taking into account is that we are net debtors as a country as compared to the early eighties. In this present day scenario taking away the punchbowl ala Volcker I believe will cause a complete cessation of economic activity as in a great depression style event. If debt cannot be serviced and in conjuction be increased economic activity will just seize up. Japan underwent a deflation throughout the nineties but their population tended to be net savers and that I believe that will be the key difference going forward. Deflation didn’t kill Japan because of their savings and the fact that they had an export dominated economy. We are debtors and rely primarily upon our internal service economy financed through easy credit. I do agree that we will get through this, but the cost may be too high to ever regain a standard of living that most Americans aspire to.
If we want another great depression it is easily obtained: Stop lending.

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Comment by GetStucco
2006-06-13 10:22:50

I totally recognize the problem you describe. But my crystal ball is very murky on the solution. I use wild words to describe scenarios which seem plausible, if a bit extreme; in fact, I have no convictions about the future, and my personal risk premium on risky assets is extremely high.

Comment by GetStucco
2006-06-13 10:29:36

“In this present day scenario taking away the punchbowl ala Volcker I believe will cause a complete cessation of economic activity as in a great depression style event.”

If you and I are aware of this issue, then I am 100% confident the Fed is as well. But they have another issue: If they do no take away the punchbowl, at least near term, then our economy will continue its progression to becoming a giant casino, which produces nothing of tradeable value to service its ballooning trade deficit. The Fed at least needs to put out the fire of speculative mania before it can deal with the debt buildup problem; otherwise, debt will keep building up, and a bigger correction will take place down the road than the one currently needed to rebalance the economy.

Comment by santacruzsux
2006-06-13 10:53:10

I completely agree with your rational. I only think that we are 10 years too late with ending the “party”. If the Fed had not gone into a panic in 2001-2002 to cut rates to 1% the imbalances would have not gotten so far out of whack and the deflationary course would not have been necessary.

I find it no coincidence in the rise of gambling via poker, vegas etc with the overleveraging of the financial system of the last 10 years. When the majority of a people believe that they can make money by making nothing, then economic collapse is certainly in the cards by inflation or delflation. The Feds have to restore confidence that their “money” actually means something. If this is the path they are taking it could lead to economic destruction for the sake of an idea. I would prefer the complete destruction of the idea and the debts that have been constructed with its implementation through hyperinflation and to being anew with a better idea for money . What that is.. I don’t know and I don’t think that the money masters know either. Thus deflation we will have in all of its horrible glory for the sake of an system based upon an idea. I do hope that you are right and that they can kill the speculation without destroying the economy as a whole.

Comment by SF Mechanist
2006-06-13 09:36:43

I get the sense a lot of the inflationary and increased liquidity speculations is driven with the perspective that government and the Fed will be acting in the interest of the greater good–specifically homeowners and consumers burdened with mortgage and credit card debt, and the average taxpayer burdened with government overspending.

I’m betting the present system only really serves the wealthiest few, for whom inflation is bad because that equates with debt forgiveness, forgiveness of what basically the poor and middle class owes them. So the Fed will do everything it can do now to fight inflation–up to the point of collapsing the whole system where then they have to loosen things up a little.

Whether they succeed in this aim is another matter, but this I suspect is their intention.

Comment by winjr
2006-06-13 17:14:49

Gold is a hedge. Nothing more, and nothing less. Nobody can predict what lies ahead and, for this reason, gold probably belongs in every well-balanced portfolio. If inflation is contained, swell. Life is good, and the hit to gold won’t hurt much. If inflation roars, having gold will make life easier.

Nobody should count on gold making them rich. But I think everybody should consider gold to help keep from going poor.

Comment by Bill
2006-06-13 20:13:43

I think it’s wise to maintain 10% of your portfolio in gold. At this writing, gold is unbelievably $550 per ounce! I don’t know what we’ll have: inflation/deflation/ or a combination with depressed R.E. I think we will have depressed R.E. over 6 years. But if y’all buy some of each, and get into value stocks and do it over a period of time, you will probably come out okay. I’d just stay away from R.E. for awhile. I’m happily renting and working 50 hours per week (and paid for every hour). I buy savings bonds (series I) regularly and buy gold with cash. I sold all of one of my stocks, as it was getting into a downward transtion. And now I’m about 7% cash and 25% bonds, with trailing stops on my stocks. Good position to be in. But I’m not really ready to buy more gold until early July. I have stocks to consider. Some are becoming very cheap.

You know, when this R.E. mess settles, the fact is American consumers just won’t be able to consume except for food, clothing, water, and maybe gasoline. So stocks in those areas may be well. And also buy T-Bills and CDs, of course…

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Comment by Joe Momma
2006-06-13 07:59:31

It’s not a buyer’s market. It’s a moron’s market.

You’d have to be an idiot to buy right now. You are paying for the seller’s retirement.

This reminds me of the scene in Saving Private Ryan when the blew the bunker and the Germans were jumping out on fire.

Don’t shoot! Let them burn!

Comment by Bill
2006-06-13 20:18:09

“It’s not a buyer’s market. It’s a moron’s market.”

I agree. About that guy in Sacramento to is buying for $30,000 cheaper than the former price. I think he’s off his rocker. Should have bought 18 month CDs instead.

Comment by Anthony
2006-06-13 08:10:25

So, what are the bulls’ opinions on gold now? Have you all sold, or do you think that Bernanke’s cruscade against inflation will end up being futile?

Comment by hoz
2006-06-13 08:34:49

I am buying at $590.00 (that is a reasonable correction from the earlier high - it may go down to $550 a 38% corrrection) then I will hold on for the duration. I will not buy any stocks until Nov 1,2006.

Comment by santacruzsux
2006-06-13 08:41:27

Buying. Of course my timeline for selling is very long term. I have been in this since 2002 when I bought GG at 6.50 a share. My thoughts, and people can disagree all they want of course, is that there is no way for future growth in this financial system with out massive inflation. Inflation has been tamed domestically over the last 25 years by having the liquidity run into asset holes that usually do not affect consumable goods. A stock market or bond rally/inflation doesn’t affect consumables directly, a housing bubble does indirectly. Indirectly because most of the bubble is wrapped up in land prices which are not consumables, and the building materials prices will be pushed up as NEW housing gets built. The worst thing that can happen with our financial system is for a commodities bubble to occur. When that happens, bar the door as the only way for a central bank to fight that is to cut off the money spigot completely. Say hello to the deflation bogeyman.
I really don’t think the boys want that so the pumps will turned on full blast if the economy tanks. That is, of course, unless they do want to turn the American middle class into chattle like the rest of the world.

Comment by GetStucco
2006-06-13 09:38:38

Japan had the pumps running in the early 1990s, but discovered they were pushing on a string…

Comment by santacruzsux
2006-06-13 10:21:18

In Japan, the pushing on the string effect was because the money went right into the Japanese savers wallets and was borrowed by foreign “investors” to intiate the yen carry trade. The yen was not spent in the domestic Japanese markets as the domestic savers could not be convinced to go out and buy once the asset deflation had begun. Central banking is all about confidence and coloring expectations of the future for the consumers of their product: money.

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Comment by GetStucco
2006-06-13 10:25:08

Nicely explained!

Comment by deflation guy
2006-06-13 10:32:55

You can set the fed funds rate to 0 (as Japan did) but you can’t expand the money supply through debt unless you have willing lendors and borrowers. The fed can’t monetize and risk losing foreign creditors.

At some point debtors will not be able to service their payments and will have to retrench. I think we are rapidly reaching that point. This will lead to a recession which will exasperate the problem further. I think deflation is the most likely outcome. Maybe in a last act of desperation the government will go the way of Argentina and Brazil but I think there will have to be serious social upheaval (ie 25% unemployment) before that card is played.

Comment by Bill
2006-06-13 21:07:27

I am buying $2000 worth of gold every 2 months this year. IMO, gold is undervalued. Ever hear of peak oil? Oil is not being made anymore. Ever hear of compassionate conservatism? A year or two ago it pushed for $560 billion more spending in prescription medical benefits. So much for Republican fiscal responsibility. Ever wonder what happened by Nixon at the Bretton Woods summit and wonder if you can redeem a paper currency for metal? Well our $ is not backed by gold anymore. I know, it’s been 35 years but the chickens will come home to roost. Americans these days want more taxes and more entitlements. They want to produce less. The handwriting is on the wall - We are on the Road To Serfdom. So I put 10% of my portfolio in precious metals in bullion and pay cash only! Don’t want that fiat money.

Comment by Joe Momma
2006-06-13 08:24:09

I think gold and silver are due to bounce, but it may be short lived.

Comment by the_economist
2006-06-13 08:48:46

he he he…Lighten up Francis…Gold and silver will rebound when
Benjamin says either pause or lower….

Comment by Mike D OC
2006-06-13 09:14:55

What gets me is they are pricing home In the Inland Impire at 800k for a 4/3 2800sq ft nice house!
But you can the same home In Huntington Beach 4/3 2500sqft to 2800sq ft, and which In some areas are 2-4miles from the beach for the same price 800k?
How is this happening 800k for a house over 80miles from the beach?

Comment by Sunsetbeachguy
2006-06-13 10:20:34

There are plenty of houses available in HB.

They are even making more by tearing down 1 house and building 2 with a granny flat each.

Comment by Rancho Cal
2006-06-13 12:05:44

I know what you mean. I went to an aquaintances house a couple of weeks ago in French Valley (just outside Temecula). Husband and wife just bought in January and paid $650K for a 2,500 sq ft stucco box in a new development under the approach for French Valley Airport. We were sitting around the pool in the back yard having a few drink and had to stop talking every 15 minutes to wait for some small plane flying 150 feet overhead on landing approach to pass because you couldn’t hear over the noise.

It’s a nice house, but four years ago, given the location, it probably wouldn’t have sold for more than $300K. And the real kicker is that they both work in residential real estate. Of course, everybody in Temecula works in real estate.

Comment by Mike D OC
2006-06-13 12:30:08

650k To live back there nice, and that use to be part of the Desert at one time! I hope they bought it to live in for awhile :P

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