Housing Down, Gold Up

[EJ]

Housing Down, Gold Up
Mar. 26, 2007 (iTulip)

Today we explore gathering evidence of a cycle of housing market "surprises" on the downside and gold price "surprises" on the upside–which may become self-reinforcing over the next several months. Here's how it played out today.

New Home Sales Drop Unexpectedly
Mar. 26, 2007 (Wall Street Journal)

U.S. new-home sales unexpectedly fell in February, dropping to their lowest level in nearly seven years and calling into question whether the housing slump has resumed.

Sales of new homes fall sharply
Mar. 26, 2007 (Business Week)

Sales of new homes fell for a second consecutive month in February, dimming hopes for a rebound soon in the troubled housing market and raising fears about the health of the overall economy.

The Commerce Department reported Monday that sales of single-family homes dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years.

Treasurys turn higher after weak housing report
Mar. 26, 2007 (MarketWatch)

Treasury prices shook off their losses and turned higher Monday, after news that new home sales dropped to a seven-year low last month. The Commerce Department reported a 3.9% drop to 848,000 home sales, the lowest level since June 2000. Economists surveyed by MarketWatch were expecting an increase in February to about one million units. Sales were down 18.3% compared with February 2006. Signs of weakness in the housing market create demand for low-risk instruments like bonds and build a case for the Federal Reserve to cut interest rates.

Dollar weakens after weak US new home sales data
Mar. 26, 2007 (Forex TV)

The dollar weakened after US new homes sales dropped to their lowest level in almost seven years during February.

Gold nears a 4-week high as US housing data whacks the Dollar
Mar. 26, 2007 (BullionVault)

Spot gold prices on Monday came within spitting distance of a four-week high against the US Dollar.

Buying or storing physical gold at the London open returned more than a 1% gain by late trade in New York.

AntiSpin: How long before the forces driving gold up depicted here dawn on a larger group of market participants? Now the circuit is open, with the rising price of gold not yet feeding back into the source of rising gold prices: mis-information and mis-guided expectations of the US housing market and economy, and the role of gold in the international monetary system?

When the Fed moves to rescue the FIRE Economy from the knock-on effects of the on-going decline of the all-important property segment of the FIRE Economy, the PC Economy will experience monetary inflation.

(Sorry about the last minute add-on, but we had a couple of poorly timed server outages mid-posting.)

[jk]

Re: Housing Down, Gold Up

How long before the forces driving gold up depicted here dawn on a larger group of market participants?

ans: exactly as long as the wait for the fed to start cutting rates.

[Tet]

Re: Housing Down, Gold Up

Housing Down, Gold Up
Mar. 26, 2007 (iTulip)

Today we explore gathering evidence of a cycle of housing market "surprises" on the downside and gold price "surprises" on the upside–which may become self-reinforcing over the next several months. Here's how it played out today.

New Home Sales Drop Unexpectedly
Mar. 26, 2007 (Wall Street Journal)

U.S. new-home sales unexpectedly fell in February, dropping to their lowest level in nearly seven years and calling into question whether the housing slump has resumed.

Sales of new homes fall sharply
Mar. 26, 2007 (Business Week)

Sales of new homes fell for a second consecutive month in February, dimming hopes for a rebound soon in the troubled housing market and raising fears about the health of the overall economy.

The Commerce Department reported Monday that sales of single-family homes dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years.

Treasurys turn higher after weak housing report
Mar. 26, 2007 (MarketWatch)

Treasury prices shook off their losses and turned higher Monday, after news that new home sales dropped to a seven-year low last month. The Commerce Department reported a 3.9% drop to 848,000 home sales, the lowest level since June 2000. Economists surveyed by MarketWatch were expecting an increase in February to about one million units. Sales were down 18.3% compared with February 2006. Signs of weakness in the housing market create demand for low-risk instruments like bonds and build a case for the Federal Reserve to cut interest rates.

Dollar weakens after weak US new home sales data
Mar. 26, 2007 (Forex TV)

The dollar weakened after US new homes sales dropped to their lowest level in almost seven years during February.

Gold nears a 4-week high as US housing data whacks the Dollar
Mar. 26, 2007 (BullionVault)

Spot gold prices on Monday came within spitting distance of a four-week high against the US Dollar.

Buying or storing physical gold at the London open returned more than a 1% gain by late trade in New York.

AntiSpin: How long before the forces driving gold up depicted here dawn on a larger group of market participants? Now the circuit is open, with the rising price of gold not yet feeding back into the source of rising gold prices: mis-information and mis-guided expectations of the US housing market and economy, and the role of gold in the international monetary system?

Interesting flow chart, I would respectfully disagree that China is going to be selling any US D0llar assets, from the looks of things China will be buying about $200 billion of US d0llar assets. Once China owns these assets I would imagine those assets will no longer be collecting their revenues in d0llars anymore but I'd guess regional currencies, who knows maybe even Yuan. China has stated they want to make their reserves stronger not weaker, making sure the trillion d0llars left of reserves are worth more not less is their stated goal. Currently a 5% drop in the value of Uncle Buck costs the Chinese over $50 billion, that's some serious coinage. From the looks of things it looks easy enough to make Uncle Buck worth more. China has been very clear that the people who make up this new $200 billion venture fund aren't traders, so I'd say that rules out stocks they'll be buying or shorting.

Now the real $200 billion question is where does this $200 billion end up flowing that China is going to be spending? Not too many things d0llars can flow into, stocks, bonds or real estate are the only options I know of. Repatriation is going to get interesting. Plenty of d0llar based assets operating in China that China could purchase as well, heck Intel just made a $2.5 billion investment in China.

[Andreuccio]

Re: Housing Down, Gold Up

Forgive me if this is a stupid question, but how exactly would the Chinese go about making "Uncle Buck" worth more long term. Short term, they can just buy dollars, but I don't see how that helps them out of their predicament. It seems especially difficult given that the US government appears to be hellbent on making the dollar worth less.

BTW, wouldn't one other option for China to spend their dollars on besides the three you mentioned, (stocks, bonds, and real estate), be commodities, especially oil?

[DanielLCharts]

Re: Housing Down, Gold Up

And yet for the most part stocks were up too. I can rewrite your paragraph:

"Today we explore gathering evidence of a cycle of housing market "surprises" on the downside and stock price "surprises" on the upside–which may become self-reinforcing over the next several months. "

Gold and stocks have more or less been moving in lock step. Itulip continues to promote that idea that stocks will falter and gold will rise. There is no evidence that this trend has started.

Housing Down, Gold Up
Mar. 26, 2007 (iTulip)

Today we explore gathering evidence of a cycle of housing market "surprises" on the downside and gold price "surprises" on the upside–which may become self-reinforcing over the next several months. Here's how it played out today.

New Home Sales Drop Unexpectedly
Mar. 26, 2007 (Wall Street Journal)

U.S. new-home sales unexpectedly fell in February, dropping to their lowest level in nearly seven years and calling into question whether the housing slump has resumed.

Sales of new homes fall sharply
Mar. 26, 2007 (Business Week)

Sales of new homes fell for a second consecutive month in February, dimming hopes for a rebound soon in the troubled housing market and raising fears about the health of the overall economy.

The Commerce Department reported Monday that sales of single-family homes dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years.

Treasurys turn higher after weak housing report
Mar. 26, 2007 (MarketWatch)

Treasury prices shook off their losses and turned higher Monday, after news that new home sales dropped to a seven-year low last month. The Commerce Department reported a 3.9% drop to 848,000 home sales, the lowest level since June 2000. Economists surveyed by MarketWatch were expecting an increase in February to about one million units. Sales were down 18.3% compared with February 2006. Signs of weakness in the housing market create demand for low-risk instruments like bonds and build a case for the Federal Reserve to cut interest rates.

Dollar weakens after weak US new home sales data
Mar. 26, 2007 (Forex TV)

The dollar weakened after US new homes sales dropped to their lowest level in almost seven years during February.

Gold nears a 4-week high as US housing data whacks the Dollar
Mar. 26, 2007 (BullionVault)

Spot gold prices on Monday came within spitting distance of a four-week high against the US Dollar.

Buying or storing physical gold at the London open returned more than a 1% gain by late trade in New York.

AntiSpin: How long before the forces driving gold up depicted here dawn on a larger group of market participants? Now the circuit is open, with the rising price of gold not yet feeding back into the source of rising gold prices: mis-information and mis-guided expectations of the US housing market and economy, and the role of gold in the international monetary system?

[jk]

Re: Housing Down, Gold Up

And yet for the most part stocks were up too. I can rewrite your paragraph:

"Today we explore gathering evidence of a cycle of housing market "surprises" on the downside and stock price "surprises" on the upside–which may become self-reinforcing over the next several months. "

Gold and stocks have more or less been moving in lock step. Itulip continues to promote that idea that stocks will falter and gold will rise. There is no evidence that this trend has started.

if you look at gold and stocks from 2000 to present you will see that gold has seriously outperformed. if you look at real, as opposed to nominal, it is even clearer.

[metalman]

Re: Housing Down, Gold Up

if you look at gold and stocks from 2000 to present you will see that gold has seriously outperformed. if you look at real, as opposed to nominal, it is even clearer.

a decent article on the topic of stocks priced in gold for the past 5 years... reflects the loss of purchasing power of US stocks over the years... to add to the few dozen similar posts here on the site...



http://www.dailywealth.com/archive/2...006_mar_09.asp

recommend Sjuggerud's DailyWealth.com. his editor Brian Hunt has a article today about investing in a guaranteed inflation hedge... postage stamps!

http://www.dailywealth.com

[Tet]

Re: Housing Down, Gold Up

Forgive me if this is a stupid question, but how exactly would the Chinese go about making "Uncle Buck" worth more long term. Short term, they can just buy dollars, but I don't see how that helps them out of their predicament. It seems especially difficult given that the US government appears to be hellbent on making the dollar worth less.

This is indeed the irony, the Federal Reserve wants to continue the exportation of inflation with a weaker d0llar and the rest of the world no longer wants to import it. China is busy shopping for d0llar denominated financial institutions, similar to what Russia and China already did in South America. Russia and China is where the money came from that allowed Brazil and Argentina to pay off their IMF loans early. Today d0llar creation out of South America is a bare minimum and come this summer South America does away with using the d0llar for cross border trades and Venezuela starts exporting oil and NG to their neighbors for something other than d0llars. The Bank of the South should open up in the next few months in it won't require d0llar repayment for the loans they issue. The amount of money required for Russia and China to accomplish this was only $40 billion two years ago. Now we're talking about China using $200 billion.

Buying up US d0llar denominated debt owed by other countries is what China and Russia have been doing. What would happen to the IMF if China buys up Turkey's remaining $8 billion of IMF debt? That's about 90% of the loans outstanding for the IMF, those d0llars flow back to the IMF in the form of a liability, not an asset. World Bank, IMF and the Paris Club are having a terrible time trying to create more d0llars by lending. $8 billion is only a drop in the bucket compared to the $200 billion China will be spending.

From what I've read China wants to buy foreign d0llar banking institutions and convert these institutions to banks that don't require d0llars for repayment of the loans. What does this do to the abilities of the central banks of the world to create more d0llars?

BTW, wouldn't one other option for China to spend their dollars on besides the three you mentioned, (stocks, bonds, and real estate), be commodities, especially oil?

China won't be spending their d0llars on stocks, bonds or real estate, but whoever China buys the d0llar based asset from, those d0llars will eventually flow into stocks, bonds or real estate, those are the only places d0llars can be repatriated. China purchases Turkey's $8 billion IMF debt and the IMF is forced to repatriate that $8 billion into US treasury debt. China causes the repatriation, but China isn't doing the repatriation, that will come from whoever China buys the asset/debt from.

China has already taken care of oil, that was the first thing they secured. Central Asian and Siberian crude is what China is receiving and none of this oil requires d0llars for payment. The Sudan still exports oil in Euros, which explains why there's some problems in the Sudan, much of China's oil comes from the Sudan. None of this crude is purchased through Wall Street or London either. Crude imports from Russia will grow over 30% just this year alone. Now Russia is talking to China about NG exports.

Keep in mind a 5% increase in the value of the D0llar nets China a $50 billion return to their remaining reserves. A $50 billion return on $200 billion spent in one year is a pretty good return by anyone's standards. The question to ask is does paper gold, ie NEM and the other miners cause the price of physical gold to head higher from the repatriation of the $200 billion. What to worry about is will China be purchasing some of NEM's foreign based holdings of gold. From what I've read India and Russia are going to be making similar purchases, Russia is busy buying up the foreign d0llar based oil companies operating in Russia. The Seven Sisters are losing their abilities to export Russian crude for d0llars. If the Federal Reserve loses their abilities to create more d0llars, I would think the value of the d0llar heads higher. Maybe the Federal Reserve will start another war, but it doesn't look like there's anyone left we can beat up.

[Tet]

Re: Housing Down, Gold Up

recommend Sjuggerud's DailyWealth.com. his editor Brian Hunt has a article today about investing in a guaranteed inflation hedge... postage stamps!

http://www.dailywealth.com

During the War Between the States stamps were such a popular form of currency that the postage department didn't even bother applying the gum on the back of the stamp. Not many places you can shop for debt free money here in this debtors prison. Treasury department issues a new d0llar coin and the Federal Reserve instantly turns the coin into a collectible not something that is going to circulate. $300 million of debt free money sitting in coffee cans at home instead of retail cash registers around the country. The postage stamp looks like a good buy, I'm going to be picking up a few of those.

[bart]

Re: Housing Down, Gold Up

... investing in a guaranteed inflation hedge... postage stamps!

TANSTAAFL - otherwise known as there ain't no such thing as a guarantee.

All it takes is for the Post Office to back off at some future date on their promise... but it should be a decent low risk investment for a while at least.

[Finster]

Re: Housing Down, Gold Up

if you look at gold and stocks from 2000 to present you will see that gold has seriously outperformed. if you look at real, as opposed to nominal, it is even clearer.

I don't think so. If you're comparing gold and stocks, you've already factored out the common denominator of currency (and inflation), so the relative performance of gold and stocks is exactly the same whether you look at it on a "real" or "nominal" basis. You could measure the stocks and gold in dollars, yen, euros, or anything you please, and the stock/gold ratio comes out the same.

But gold has seriously outperformed stocks. As of the beginning of the year 2000, it took exactly 0.8504 ounces of gold to buy the Dow Jones World stock index. As of the end of last week, it took 0.4364 ounces of gold to buy the Dow Jones World stock index. This means stocks as an asset class have fallen to half their value in terms of gold.

2000 0101

DJW - 245.30
AU - 288.44

2007 0324

DJW - 286.37
AU - 656.20

[metalman]

Re: Housing Down, Gold Up

I don't think so. If you're comparing gold and stocks, you've already factored out the common denominator of currency (and inflation), so the relative performance of gold and stocks is exactly the same whether you look at it on a "real" or "nominal" basis. You could measure the stocks and gold in dollars, yen, euros, or anything you please, and the stock/gold ratio comes out the same.

But gold has seriously outperformed stocks. As of the beginning of the year 2000, it took exactly 0.8504 ounces of gold to buy the Dow Jones World stock index. As of the end of last week, it took 0.4364 ounces of gold to buy the Dow Jones World stock index. This means stocks as an asset class have fallen to half their value in terms of gold.

2000 0101

DJW - 245.30
AU - 288.44

2007 0324

DJW - 286.37
AU - 656.20

ssssh! don't tell everyone yet. i need more time to buy cheap gold. i'll let you know when it's ok

[jk]

Re: Housing Down, Gold Up

If you're comparing gold and stocks, you've already factored out the common denominator of currency (and inflation), so the relative performance of gold and stocks is exactly the same whether you look at it on a "real" or "nominal" basis. You could measure the stocks and gold in dollars, yen, euros, or anything you please, and the stock/gold ratio comes out the same.

i should have put "real" in quotes - my intention was to point out that just correcting prices by our feeble and phoney official cpi, it is clear that the equity market has been losing for 7 years. mea culpa.

[jtabeb]

Re: Housing Down, Gold Up

ssssh! don't tell everyone yet. i need more time to buy cheap gold. i'll let you know when it's ok

R.E. Dollar strengthening, HOW does that happen exactly. It seems like the one and only bet is that the dollar is going to IMPLODE, collapse, what have you. (Hence the rush to hard assets no matter how overpriced they seem to be).

Doesn't dollar collapse imply Stock market to the MOON as well as RE as well as commodities.

Or are we talking about the worst of Both worlds were we have PE rampant inflation with simultaneous Debt deflation.

Taken as 1 part each, there are assets to hold during inflation and there are mutually exclusive assets to hold during inflation. When both are occuring simultaneously, WHAT the HECK do you Hold your wealth in?!?

(RESPONSES HIGHLY APPRECIATED!):eek:

"Yes, I know about cheap G0ld, but what about OIL, Uranium, Copper, Lead, TIN, all that other stuff, and do you own futures or stocks of miners, THAT is my question."