NOTE: It took 29 years for SILVER and GOLD prices to hit the prices of today. You honestly believe housing or the DOW will come back in the near future? Take a look:
John Carney and Charles Hugh Smith|Apr. 23, 2009, 12:11 PM|4
Our summary of Charles Hugh Smith's critique of the idea that we should be looking for a a recovery in the housing market to bubble valuations to "restart the economy" generated a lot of controversy. We're not sure the summary did justice to Smith's argument. With his permission, we give you his entire essay here. For more from Smith, go to his provocative website, OfTwoMinds.
The entire world is hoping that housing is about to "recover" and re-ascend its glorious bubble-era heights of valuation. But it's not going to happen.
Why not? For several fundamental reasons:
1. Bubbles do not re-inflate in the asset class which just popped. It is simply a truism that bubbles never reflate, ever. Tulip bulb valuations did not rise to stratospheric heights after the Tulip Craze popped, and the Nasdaq dot-com bubble did not reinflate, either, for the very good reason that bubbles are never based on rational valuations--they are based on the psychological state of mania which cannot be reinstated once lost.
Consider tech stock Cisco Systems (CSCO), a well-managed "real company" which continues to make profits providing real-world goods and services. It currently trades at around $17.50 a share, down from its dot-com bubble valuation of about $81/share.
To "recover" its bubble-era valuation, Cisco would have to rise five-fold. That's not going to happen. Now that the mania has dissipated, Cisco is valued on more rational metrics like earnings, profits, etc.
The speculative mania always moves on to a new asset class. After the dot-com bubble popped, the speculative bubble moved on to housing. Now that the housing bubble has popped, the mania has moved to the bond market. When the bond bubble bursts (it's guaranteed that it will in the next two years, losing 50% or more in the process) then the only asset class which hasn't already been blown into a bubble is precious metals/gold.
In other words: those wishing to catch the next speculative mania should be buying gold and silver, not stocks, housing or bonds.
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There are too many computers models trying to decide what is and will happen. Deal with reality. How about good old fashioned economics. Governments over the decades have agreed that the people should be educated to believe in "paper money" they produce, never considering in any way they need to balance their accounts. STOP now, that is enough, you should have +/- 30% of your assets in GOLD, a property that you live in, farmland to grow food. The “bubble” is still being patched by Governments; problem is there is not enough money in the world to stop a full melt-down. Not important if you agree with me or not
ReplyDeleteGc-cyprus
Interesting it is Henry VIII anniversary this year; “old copper nose” cheated the public by minting silver shilling with 50% silver and 50% alloy. You can fool the people some of the time but not all the time, reality will prevail. For 6000 years gold has been the final standard to value goods and services, it will not change because of bankers that are not answerable to anybody as governments fear their power. In the old days they would be in the "town hall square" and be stoned.
ReplyDeleteGold Shmold. You can't live in a gold bar. Everyone has to have a place to LIVE. Comparing real estate to cisco is like comparing apples to elephants.
ReplyDeleteThe real estate bubble will not re-inflate but it's also not going to drop by 80% and then take decades to recover. We will probably go back to mid 90's evaluations. Real estate has historically increased in value at about 3%-5% a year, basically keeping up with wage growth / inflation. So valuations drop by about 50% from the highs of 2005 and then kick into normal growth after a bottom.
The rest of this bull is scare mongering, pushing your favorite commodity.
Steve you sound like your 12. The DOW, the tech bubble, gold , silver, Northern Telecom, Dow Chemical, the US dollar over the years, your health, mining stocks in the past, GM, FORD, CHRYSLER MANY companies and conglomerates,countries, have all or will be down 80% or more..DEATH.. WHAT MAKES REAL ESTATE ANY DIFFERENT? It fell in the past and will fall again.
ReplyDeleteReference to : Gold Shmold. You can't live in a gold bar...
ReplyDeleteI am continually astounded at the lack of understanding of the most basic economic concepts. I am even more perplexed that so few citizens have any knowledge of previous historical financial calamities that toppled other super powers from prominence.
But then again, I suppose that it is how we have come to this place in time.
Sure hope some of these folks open a book and acquire a few self reliance skills.
They won't - they trust what an authority figure tells them.
ReplyDeleteCan anybody tell me the best way to store gold out of the country? I have heard if you keep it local the U.S. Government could confiscate it. IF you buy gold hat is the good storage solution? Thanks in advance.
ReplyDeleteAnon above lets use common sense here. The government issues a media report. All GOLD to be handed in to your local police station by say.... 5pm Oct 2011. You scurry across town with your bundle and HAND IT IN? Are you crazy? By that time riots will be occurring, the dollar will be worthless and you'll be starving. Thats like taking a bullet for your worst enemy. BUY GOLD witout a trail..its yours to trade in the future underground market.
ReplyDeleteRference : Can anybody tell me the best way to store gold out of the country?
ReplyDeleteEducate yourself to the best value in gold and silver purchases. Buy from a private citizen without a paper trail.
Never, never, never, entrust anyone to hold your wealth on your behalf. Silver, gold, firearms, and ammunition are presently demanding premium prices and will instantly disappear if left in the possession of others. This practice will lead to disaster.
Now that it's fashionable to be a bear, it's like every Tom, Dick and Harry is starting a bear blog and predicting doomsday.
ReplyDeleteThese comments are hilarious. Riots in the streets? Trading gold on the underground market? You guys need to get a grip. Steve is the only one here that DOESN'T sound like a child... his prediction that housing valuations will drop to mid 90's levels is actually MORE bearish than most bears around the blogosphere are predicting!
This is certainly a bubble and there's certainly a lot of pain left to be dealt around, but real estate will go up again. Maybe not back to these ridiculous levels, but give it another 10-15 years... another housing bubble WILL form again. It's happened at least twice before.
It is not fashionable to be a bear. It is just rational. Our economy is collapsing more everyday and there are still those that believe (actually the VAST majority) that things are bad for a short while. Wrong.
ReplyDeleteWhat the author is saying is that precious metals will skyrocket in the next couple of years. He is right. You can buy new silver coins right now for $14.00. In a year I bet you can sell them for $200.00.
Now, in contrast, buy a $400k home right now. In a year you may get $200k.
So, who is smarter? The real estate investor or coin dude? People are going to freak out when they see how bad it really has become. Banks folding. Malls are already in default.
Ah, to be able to look at the price of just one silver coin on Ebay a year from now ....
If you own a home sell it now. Take that equity and buy precious metals. Rent for now - lease a place for a year or two. Real estate is a horrible investment in the short term. Next up is a horrible commercial real estate collapse. Sellers won't be able to give properties away. Invest in plywood > for window coverage!
ReplyDeleteAston, I think your view of the "bearish bandwagon" is misdirected. It's not that people are eager to "get in on a trend," it's that people are becoming increasingly informed of what's coming. Where is $400 trillion of housing-related derivatives going to go? Where is $50 trillion of credit card derivatives going to go? And the result of $12 trillion in bailout money? What rosy outlook for a housing rebound is remotely in place?
ReplyDeletePrecious metals have always been sound. The people who say you can't eat gold or live in gold are horribly clueless and in denial of what's unfolding.
"but give it another 10-15 years..."
ReplyDeleteChances are by the way things are going you might as well be on another planet by then. The USA as it exists now won't even exist. Probably no rights to own property, total banker control and enslavement via the Bank of the World.
The economy and the country will change more in the next ten years than it has in the last 50. Most people in this country will be starved out and begging for any solution, even absolute communism, world gov, chipped, no personal rights at all. When you are begging for a Saltine cracker you will agree to just about any terms.
I believe that things are going to get bad but I also believe that many of you are going way overboard on your predictions. We are not going to turn into Mad Max. There will be a collapse, there will be some shortages, there will be some riots, but we are not going to disolve into some post appocolyptic sci-fi channel movie.
ReplyDeleteAnd for those that say the housing market is a terrible investment in the short term. Well duh, the real estate market was never suppose to be a short term investment. Those of you who believe that it is are the morons who caused this whole mess to begin with. I don't give a crap if my house ends up being worth a million dollars or one dollar. It is not an investment, it is my home, the place I raise my children, the place that keeps me safe from the storm, not some sort of get rich quick scheme.
Anon above-thats the worst type of comment on this thread. "My home is my castle". Sell your home NOW and you can buy 3 castles and give each kid one..People like you lose their senses when it comes to this "Home" thing..Good God its bricks and mortar..take advantage of the scenario and HELP YOURSELF!
ReplyDeleteI don't need three castles.
ReplyDelete>>We are not going to turn into Mad Max. There will be a collapse, there will be some shortages, there will be some riots, but we are not going to disolve into some post appocolyptic sci-fi channel movie.<<
ReplyDeleteHmmm. I think saying this won't happen is akin to saying that it absolutely will. How the hell do you know?
Funny thing about economic collapse is that it has geo-political consequences that reach far and wide. Funny thing about economic collapse in America is - the results stretch so much further, wider, and are much worse...we prop up so much of the world through our generous food growth and distribution. Take even 1/2 of that away and you have massive rioting and regional governments collapsing like domino's.
Places like Pakistan are already on the brink. Ukraine. Mexico. Venezuela. If we go down, they go down sooo much worse. Pakistan has nukes. India has nukes. Resources are already stretched. You're going to see massive conflict over food and water in turd world (heh yes that was intentional)countries.
My guess is that if our economy and much of our political structure gives, there will be another world war, one involving nukes.
Aston,
ReplyDeleteThere is no such thing as "trading gold underground". Reporting requirements are mandated only when purchasing from a licensed dealer.
If you prefer to pay taxes, complete government tracking information, and pay the cost of the spread between spot price and dealer premium, please participate in the retail precious metals market.
I'm just some dumb hack who figured this all out 15 minutes ago. Yup.
LOL - gold bugs rule.
ReplyDeleteAnonymous, if you had read the entire thread, you'd see I was referring to another Anonymous above me who predicted a "future underground market" for fear that the U.S. government would start confiscating gold.
ReplyDeleteHaving said that, it happened during the FDR administration, effectively putting an end to the gold standard.
Only the worst morons would give up their physical gold willingly to corrupt bankster-run government. That is laughable. Won't happen. If this was really a worry for some, buy silver. It has better potential anyway.
ReplyDeleteIt isn't crashing fast enough for them. Time to cull the herd with some hybrid lab swine flu.
ReplyDeletere: best place for out of country gold.
ReplyDeleteI have bought gold from the Perth Mint in Australia. It is a government run facility that sells gold for spot and stores it free.
One thing however, their US rep. is Euro Pacifc Capital and you have to buy through them. This is Peter Schiff's organization and I like the way he thinks. gl....
And what if the PTB crash the price of gold.
ReplyDeleteThey have suppressed the price for long time,what's to stop them from crashing the price
EverBank has pooled and allocated accounts and their gold is also in the perth mint.
ReplyDeleteTry Goldmoney.com too.
Why deal with it, when there is another option
ReplyDeletewww.zeitgeistmovement.com