Real estate prices in gold hitting a 20 year low

[santafe2]

Re: Real estate prices in gold hitting a 20 year low

FOOTNOTE: Mega's post here: http://www.itulip.com/forums/showthr...7004#post27004

A great example why holding bullion might be considered a 'very robust investment' in this brave new world. The chart referenced is downright scary. Would I want to have 50% or even 30% of my net worth in equities in this environment - call me weak-kneed, but I'd much rather not!

Lukester - This chart did not makes sense to me so I went to the St. Louis Fed site to check out their version of it. The Fed version is updated through 12/1/2007. If this Fed chart is correct, the Greenrush chart is doctored. Any idea what's going on here?

http://research.stlouisfed.org/fred2/series/BOGNONBR

[idianov]

Re: Real estate prices in gold hitting a 20 year low

Santafe2: check the non-borrowed reserves from weekly H3 report:

http://www.federalreserve.gov/releases/h3/Current/

I think the chart in the Greenrush report is adjusted to the current level of non-borrowed reserves from Feb 7, 2008 H3 release.

Igor

[Guest]

Re: Real estate prices in gold hitting a 20 year low

The ratio is at 333 right now.

And if you think 20 year lows isn't enough, I guess you truly are a gold bull

Don't forget also that RE has a significant positive yield, whereas gold has a negative yield (though it is a small one).

I rented a $560,000 beach duplex last year for $1200/mo in Florida on Amelia Island.

I recently toured a $500,000 beachfront condo near there that rented for $1650/mo and was about to sign a lease when my wife got a package and was laid off and we no longer needed the second home . The rent on the latter was about 1/3 of the montly carry cost for the owner (mortgage, maint fee, taxes, insurance).

We had a contract to rent a small but beautiful beach view house that listed for $675,000 for $1700/mo that fell through at the last moment due to a difference of opinion in the contract. This house has sat vacant w/o a renter since at least last August, even at the low price. The last time I checked it was still advertised at $1600/mo rent and also was for sale at $595,000.

They're hemmoraging cash when trying to rent them and the homes are dropping in value. Apparently in the short term at least prices will have to fall since they can't sell or rent them at current prices. Meanwhile the gold I bought last spring is up over 30% and is completely liquid. I can sell it tomorrow if I wish.

My in-laws in a non-bubble market in Georgia sold their home recently and pointed out that there were 6 foreclosed homes within sight of their old home when they got out (they paid cash for it and so could sell)

The inventory of high price McMansions here was said to be 2 years. My brother was laid off from a high position with a major builder after 25 years service. A spec home he built has sat completed and unsold for over 6 months. His former company has stripped land parcels with roads built a year ago but no construction started due to the oversupply of homes. My real estate agent contact says the inventory is 1.5 years now vs the usual 3-4 months they're used to.

I can count half a dozen similar tumbleweed subdivisions started and not finished (except for maybe the model home) on my commute home each day. They range from upscale single family to upscale condos.

The two strip malls nearest my house have a combined 60% vacancy rate. This is in Atlanta, which is hardly a boom town or bubble market.

My wife's company uses a huge amount of office space. They are in the process of laying off thousands of workers. Presumedly they will not be needing the space for those employees and this will go back on the market.

I realize all RE is local, and this is anecdotal evidence, but my family has been in home building since WWII and we haven't seen conditions anything like this since the 70's/early 80's, so why exactly would someone want to buy RE now as an investment?

btw, about that time gold was at a previous high which would be something like $2100-$2500 in today's dollars.

[Guest]

Re: Real estate prices in gold hitting a 20 year low

Another reason why building an equities portfolio "for the long haul" seems ever less attractive -

___________

Former World Bank Chief Economist Predicts Global Crash

Nobel Prize winner Stiglitz highlights agenda of predatory globalism now arriving in America under auspices of NAFTA Superhighway, North American Union

Former World Bank Vice President, Chief Economist and Nobel Prize winner Joseph Stiglitz has predicted a global economic crash within 24 months - unless the current downturn is successfully managed. Asked if the situation was being properly handled Stiglitz emphatically responded "no," and also drew ominous parallels to the development of the NAFTA Superhighway and the North American Union.

Stiglitz caused controversy in October 2001 when he exposed rampant corruption within the IMF and blew the whistle on their nefarious methods of inducing countries to fall under their debt before stripping them of sovereignty and hollowing out their economies.

Speaking on the nationally syndicated Alex Jones radio show, Stiglitz defined the process of globalization as a system that was "rigged against the poor countries, rigged for the advanced industrial countries - the result of that is there were an awful lot of losers."

The Columbia University Professor described how rampant privatization has crippled Mexico, in particular citing the sell-off of major infrastructure such as roads."They sold the roads to the private enterprise and the hope was that they would be more efficient but of course what happens is that they didn't maintain the roads, they couldn't generate enough revenue and they eventually had to default and give the roads back to the government."Stiglitz agreed that the process of hijacking and looting key infrastructure on the part of the IMF and World Bank, as an offshoot of predatory globalization, had now moved from the third world to Europe, the United States and Canada.

These sentiments are especially disturbing when we consider the current fast-moving quasi-secret agenda to sell-off major American highways to foreign corporations who plan to turn them into toll roads for tracking and taxation purposes - collectively known as the NAFTA Superhighway. The program forms the framework for the advancement of the North American Union - a collective governmental, border and trading bloc that President Bush has signed the U.S. over to under the Security and Prosperity Partnership of March 2005.

As we previously reported , US citizens will be forced to adopt a de-facto national identification card and have their freedom of mobility defined by behavioral fealty to the government under proposals set to derive from NAFTA superhighway toll road systems and the implementation of the American Union.

"This is a movement that's gone on all over the world," said Stiglitz, "the movement of trying to turn over basic facilities - water, roads, to the private sector."

Speaking about the agenda of the World Bank since the installation of Paul Wolfowitz, Stiglitz highlighted the shift which began back in August 2001 whereby the Bush administration moved to block transparency of secret bank accounts, which in part facilitated the 9/11 terror attacks."Unfortunately in this current administration, the defense industries and the energy industries have really been running the show and it has been disastrous," said Stiglitz.

Discussing the warning signs of plummeting real estate prices in the U.S., Stiglitz stated that a global economic depression could only be avoided if a correction was made but at the moment all the indicators are that the situation is not being well managed.

"If it's well managed it will only be a slow-down, if it's not well-managed it could be a recession," said Stiglitz.Asked if the debt bubble was being well-managed Stiglitz plainly responded in the negative.

"It's gonna be difficult....this has been perhaps the worst six years of mismanagement of the macro economy....I think we can avoid an implosion if we manage this carefully but it's going to be very risky," said Stiglitz, agreeing that if the same course continued to be followed a global depression would occur within 12-24 months.

Stiglitz said his reason for leaving the World Bank was that he was told he would not be able to speak his mind on the issues he considered paramount to the press, summarized as helping make the world a better place, and that the two "amicably parted ways." He also said that the IMF were particularly upset that his predictions about their disastrous policies quickly came true - which is an ominous portender for his thoughts on the possibility of a global crash.

Stiglitz also slammed the recently passed Military Commissions Act , stating that the bill, "really did compromise some of our basic rights," and that it was a "disaster" for American freedom.

[c1ue]

Re: Real estate prices in gold hitting a 20 year low

Gold has had a good run, and it may indeed have further to go, but BlazeS is completely correct in viewing the behavior as very possibly NOT a long term investment.

I've noted several times - in recent weeks I'm seeing synchronization between gold and AAPL/GOOG. This is not the hallmark of a safe investment.

Furthermore it is important to keep in mind that gold prices are heavily influenced by sentiment.

In good times, 'investment' purchases of gold far outweigh jewelry and commercial use.

In bad times, the opposite is true.

I did some research and posted on this several months ago.

Sir Warren is from the Ben Graham school - he buys low. It doesn't mean that is the only way to go though.

Last note: the banks and financial companies - the worst has yet to come.

This last couple of weeks should be viewed as the first of the dead cat bounces.

We haven't seen a major failure yet, and (at least) one such is inevitable.

[zmas28]

Re: Real estate prices in gold hitting a 20 year low

Lukester,
Really interesting post. Any idea on what Stiglitz thinks is the right response to the current global crisis?

[WDCRob]

Re: Real estate prices in gold hitting a 20 year low

I can't find the chart right now, but someone recently posted the Case-Schiller 20 showing the median decline and months since the decline started.

NY has indeed held up better than some of the other markets on the chart, but the length of decline there was somewhat shorter (IIRC 11 months) and there was still about a 5% decline (again, ballpark).

So, I suppose you could make the case that it's all relative if you only look at the 20 markets covered by the C-S index, but I'm not sure I'm going to buy the argument that an annualized decline of 10% in real terms counts as 'holding up.'

[ETA: Duh. 17 months, ~12% real decline.]

[Andreuccio]

Re: Real estate prices in gold hitting a 20 year low

I strongly agree you can't argue with the market.

That's why I generally avoid speculating in individual entities such as gold, because I think you're trying to out smart the market when you do.

If you buy gold right now, you're arguing that the market is wrong and is undervaluing this asset.


My suggested alternative is just to stick to bonds and broad indexes, unless you are as smart as Warren Buffet.

Right now I am at a very high cash position but I am trying to re-enter the market as it drops.

(Bold added by me)

Aren't you, then, essentially arguing that the market is wrong and overvaluing stocks?

If we see a 30%-50% drop in the market, I will be dollar cost average my way into about a 50%/50% equity/bond position.

I read an interesting article yesterday arguing against dollar cost averaging. The article posits that it's a "mathematical illusion".

http://www.fpanet.org/journal/articl...p1006-art8.cfm

What dollar cost averaging will do is keep you in a more conservative position than you would have otherwise chosen. Your 50/50 equity/bond position does not reach 50/50 until you have invested all your cash, and until then is weighted towards "safe" investments. Obviously, this does better in a down market than being fully invested, but loses out when the market goes up.

[Guest]

Re: Real estate prices in gold hitting a 20 year low

Zmas28 -

I found another post of Steiglitz elaborating, but did not archive it. I'll try to dig it up over the weekend.

C1ue -

<< in recent weeks I'm seeing synchronization between gold and AAPL/GOOG. This is not the hallmark of a safe investment. >>

Can't say I agree with your "fundamental" analysis here.

[jimmygu3]

Re: Real estate prices in gold hitting a 20 year low

I realize all RE is local, and this is empirical evidence, but my family has been in home building since WWII and we haven't seen conditions anything like this since the 70's/early 80's, so why exactly would someone want to buy RE now as an investment?

btw, about that time gold was at a previous high which would be something like $2100-$2500 in today's dollars.

Bruce,

If you look at blazespinnaker's chart, you will see the answer to your question. From 1980, the time you reference, real estate soared vs gold for the next 20 years.

Jimmy

[jimmygu3]

Re: Real estate prices in gold hitting a 20 year low

I also think it's worth noting to all that comparing an ounce of gold to a median house does not take into account the size and quality of said median house. It is not any more equitable than comparing a fixed size home to a 'median' gold coin. Well, they started making more 1.5 ounce coins, so now it takes fewer median coins to buy a house.

Median home size has doubled in the last 50 years. Do we really expect the same number of ounces of gold to buy a home that's twice as big? Granted, we may see median home size begin to decline, as McMansions sit vacant and a rising population creates a need for more smaller homes. It could be a game of musical chairs where people sell their 3000 sf house to get out from under the mortgage and purchase a 2000 sf home that someone else sells to move into a 1500 sf unit, etc.

See the chart below I created with housing in gold grams per sf. It includes a data point for 2012, assuming housing stays flat and EJ's projection of $2500 gold comes true. That would be 50% below the all-time low in 1980. If you add in the 50% drop in housing prices some are calling for around here, we would be 75% below the all-time low and 90% below the long-term average of 5.7 gg/sf.

To me it's absurd and closed-minded to think that all these bonars being created won't inflate the nominal prices of real estate but will send gold to the moon.

Jimmy

[dprinsze]

Re: Real estate prices in gold hitting a 20 year low

[MEDIA][/MEDIA]

Great graph, Zoog..

Yes, if we go back 60 years, you're right, we'll find another low.

I did say 20 year low

I think there has been a fundamental shift in wealth and spending patterns, however, since that time .. and since then the house, with all it's multi media rooms and the extra time we have to spend on it, the mortgage equity withdrawls, the greater liquidity, the tax incentives, and what not.. it has become more central to our financial lives.

Truly, I was thinking of buying gold lately. I check the price of gold every day for the last .. year or so. But after studying these charts, I have to say I'm comfortable with the decision not to buy gold at this time.

A year ago gold was in the 650-700 dollar range. There is nothing I hold that has done as good as that.

[Guest]

Re: Real estate prices in gold hitting a 20 year low

Another pretty obvious factor to toss in is interest rates. They're near lifetime lows for most of us, yet home prices are declining. What happens when the world wakes up to getting paid back in declining dollars, stops lending us money, and mortgage rates start rising again? Won't that be even more downward pressure on home prices? A $300,000 home at 6% today will cost less in monthly payments than a $200,000 home someone wants to "downsize" into if rates go to 9% (if my math is right). So anyone in a fixed rate mortgage today has very little incentive to buy or sell if rates go up, as they lose the attractive loan when they do.

I just don't see a ton of upside at the present time vs the chance prices will continue to fall some. So why rush back in? Especially when the place you could park that money you just took out of the market (gold) has some pretty good arguments for a nice rise in the coming year or two.

Ideally you'd have been out of stocks and RE before they fell, then into gold to ride it up, then get out in time to avoid its eventual popping and go back into bargain priced RE and stocks (perhaps infrastructure and clean energy ones will be ready to buy by then) at that time.

Now I just need a time machine to be able to unwind time and get the timing just right.

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

Blazespinnaker -

You wrote: << Only do this if you have long horizons (10+ years) for your money like I do. >>

If this is truly 10 year deployment money, do you recall having pulled it out of prior investments in only the last year or two? Maybe those prior holdings had originally been intended as 10 year positions also at one time?

We are always allocating '10 year money' but somehow we wind up selling our long term positions or at least cannibalizing parts of them for new investment ideas, every few years. Very, very rarely is it truly 10 year money which does not ever get further reallocated, and that's most especially true in today's highly turbulent stock market, and if one is referring to stocks, as opposed to something like inert gold coins, sitting in a safety deposit box.

I'll wager the coins are the last thing to get traded eventually, and the stocks are the first to get traded.

Some reputable people are talking about the eventuality of a 4000 point drop in the DOW at some point in the next one, two or three years. A big washout. Deploying 10 year money today into equities, no matter how strong their franchise, seems to me a task fit only for those of the strongest stomach. Inert bullion, which even taxes you by requiring storage fees, is looking very strong to confront the coming markets.

All fantastic points, Lukester. I've got a lot more wiser in the last few years though (mostly from reading Random Walk Down Wall Street) ... I'm more appreciative on the necessitity of accepting downturns in your money and waiting a long time before it to go back up.

I've spent a lot of time educating my family so they know that this money may lose value and we may have to simply accept it's untouchable for the next ten years. A lot of time

It does take a certain personality, for sure, but I think it really is the only to generally invest. The other way, of course, is to run your own business and invest in that. That's obviously the best way, and it's something I do a lot.

[Guest]

Re: Real estate prices in gold hitting a 20 year low

Blazespinnaker -

With regard to building stock portfolios for 'the long haul' - I share your view - I don't think portfolios need to be 'tuned' and 'tweaked' constantly. It's better if they are not - or at least that's certainly been my preference, as chasing stocks leaves me distinctly un-inspired.

I think the inflation that's rolling in now (we are just seeing the small outlier waves IMHO) is going to be a large event. I'll take a guess - deflation is only going to be the "punctuation" at intervals, not just for one ka-poom cycle, but for several (ok clearly I'm just following my "gnats-eye-view" intuition).

If you think that is potentially a high probability event, then there's a lot of 'kinetic energy' in that coming series of inflationary waves that can be harvested for investments. I like that scenario because it would allow me to keep the investing ideas real simple. There are a few sectors that would be squarely in the path of this trend.