San Diego Housing Bubble News and Analysis

Define collapse, numerically.

Real estate will tank entirely. It simply can't survive what's coming. In fact, anything other than basic necessities will suffer severe deflation (iPods, cars, stereos, Kindles, etc).

Basic necessities will experience heavy inflation, and even a brief period of hyperinflation until we transition to a new global currency (backed by gold, of course).

Unless you plan to live in the property you are buying for at least a decade, I'd think twice about making the purchase.

Today seems to have been a turning point for a lot of people in the market. The shadow of 9/11 hung over the markets all day, but in a different way than it has in previous years. We are 8 years away from that event, but not until today did I sense a growing realization that something is shifting. It was almost as if the memory of the 9/11 tragedy reminded everyone today that America is more vulnerable - in ALL ways - than we previously thought. I suspect many investors may have gotten their very first glimpse of the black swan on the horizon, but they don't know what to make of it yet.

I notice that Larry Kudlow was uncharateristically grim. He even had Pat Boone as a guest, reminiscing about the good ol' days when America was strong, militarily and economically. It felt a lot like a wake to me. It was pretty sad.

As for what defines "collapse": when the dollar loses its status as the world's sole reserve currency, that will essentially be the day that the currency collapses. Because we simply do not have the means to support ourselves without printing money that others must accept. Once the dollar is rejected, the price of imports will skyrocket (there's your hyperinflation), and we will enter uncharted territory with all manner of repercussions and impact that I cannot even begin to address or predict.

The process will likely begin in earnest shortly after our fiscal year ends Sept 30. I'm hearing events will gather momentum in early November. Do what you need to protect your assets before then. By November of next year, we will probably be well on our way to a new currency that will, hopefully, bring greater price stability, albeit at the cost of demolishing everyone's formerly-dollar denominated assets.

I know everyone hates to hear my "doom and gloom" forecasts, but with gold at $1006 and the dollar in freefall, I think we are really getting to the point where it is pretty difficult to ignore the approaching gloom. I would strongly encourage everyone to resist the temptation to put their necks in the sand and *hope* for the best, and instead at least consider what will happen to you IF I'm right. There's no harm in hedging. If I'm wrong, then we'll all walk away happy campers in the next year with spare gold and silver that we can liquidate for decent prices and a store of food and other necessities that we would need to consume anyway.

Let's stop asking ourselves whether the worst WILL happen and start asking the more relevant question: what IF the worst does happen?

inflation isn't the concern, deflation is the concern.

Look first of all economics isn't a machine science, it's really the prediction of
human behaviour. It's applied behavioural pschology. So what matters is
what people will do, not, just what you think.

But say foreigners lose confidence in the dollar, they will demand higher
interest rates. higher interest rates will drive up mortgage rates.
Higher mortgage rates will crush house prices and sales.

now say Obama and Bernanke start printing money like crazy, will
the banks be lending long? hell no. They'll lend short, or demand
more rate.

Yup, economics is a belief system like a religion. Which is way 99% of economists are in outter space with their predictions, they forget the mechanics and think it is strictly about perception. During a deflationary depression people lose their job because the money ceases to exist. This has nothing to do with human behavior. It is a mechanical problem. You better believe it will change human behavior if it happens.

The monetary system is a machine which should analyzed scientifically and not through a economic lens. It's a machine that is broken beyond repair. The main mechanism for economic growth, credit, is contracting due to impaired balance sheets and too much private debt that can't be paid back. This can not be fixed with more debt which is their only tool. The underlying structural damage of the banking system is still intact. Nothing has been fixed besides accounting changes and digital money for liquidity.

They only solution by the Fed is more public debt to offset the deflationary effects of the credit collapse.

This requires the world to go along with the plan as our economy shrinks and deficits skyrocket. I don't believe you can keep buying consumption at interest forever. There is a mathematical endpoint that the world wants to avoid.

Loss of confidence in our financial system and currency will bring hyperinflation.

"With the U.S. borrowing about $30 billion a week, some economists say the Treasury will need an increase of as much as $1.5 trillion if it wants to avoid another request before the 2010 midterm elections. The U.S. could default on its debt if Congress doesn't raise the debt ceiling, but it is a remote scenario."
http://online.wsj.com/article/SB12527097...

If the dollar falling is true. Is buying foreign mutual fund a good move?

For example, if I buy a mutual fund in Euro. And that mutual fund price remains the same but the Euro gains 10% on the dollar. Does it mean that I gained 10%?

Thanks for your advice.

If the mutual fund price remains the same, then yes.

Whether it's really going to remain the same, that's a big assumption that needs to be justified.

For example, the 10% drop in the dollar may not result in a matching change in dollar-denominated stock value of Airbus, because cheaper dollar will allow Boeing to steal some market share from Airbus.

Also, if you're expecting some kind of catastrophic change (a collapse), that would most likely result in economic slowdown and lower asset prices worldwide. So, it's best to invest in individual currencies and short-term bonds.

PartyPup,

Ok, here's my problem. I happen to agree with your forecast of upcoming doom, however so far the US Fed has been able to ward off the fundamentals and continue with the Wall Street corruption. It seems like with the MSM propaganda machine they can continue the ruse forever.

Now, tell me in simple terms, how does one go abouit protecting their cash? Doesn't seem like 100% metals is a sure bet.

Give it to me straight.

Thanks

FYI, 100% metals is a 100% losing bet. Precious metals are in a bubble that has yet to deflate. I expect a 50% decline in the value of gold and a 30% decline in the value of silver by the end of 2010.

Some metals are fairly valued. You could buy a few tons of titanium scrap (~$3000/ton) and store it in a shed in your backyard.

Betting on Eugene's advice is like betting the Raiders will ever beat the Chargers no matter how bad the Chargers look!

Eugene is clueless and the rumor mill has it he will soon be appointed the precious metals czar with all his incredible insight!!

Nothing in life is a sure bet, except for death (it seems like some are still able to avoid taxes). Invest on instinct and be weary of advice, especially from Eugene. He is only 7, but has managed to put some nice sentences together. Congrats Eugene!!

Eugene, care to take a bet on where the price of metals will be by the end of 2010? I say gold holds above $1000 and silver holds above $16.

I actually expect them to increase substantially, but for betting purposes I'd go with these numbers.

Care to put your money where your mouth is? We can arrange for paypal payment :-)

Mountain, I hate to break it to you, but there are NO sure bets to protect your assets from what is coming. Metals are not 100% protection. But I firmly believe they are hands-down the best protection because all things paper are going to go *poof*! If you haven't detected it, there is a rapidly-growing fear of paper financial instruments around the world. The fear is more palpable in foreign countries now, and that stems primarily from the impending dollar collapse that many now expect. The dollar's collapse will literally drag down anything fiat.

While it may appear that the MSM can spin good news forever, that isn't the case. We are now coming to the end of denial and the end of metals manipulation. The Plunge Protection Team has worked tirelessly over the past few decades to suppress the price of metals. And yet they are rising in spite of their efforts. Do you really think the PPT wants gold at $1000? Absolutely not. But from what I have been hearing, COMEX is in grave danger of failing very soon because there simply isn't enough physical metal to back the amounts that have been sold. So as soon as the first hint of serious dollar trouble begins, the flight to the exit will be on. Huge calls for physical delivery will be made, and they cannot possibly be met. Metals have been leveraged by firms and investors in much the same way that derivative products were. So at the end of the day, the price must rise to reflect the absence of inventory.

For your own protection, why not at least put a portion (say 1/4) of your portfolio in metals? If Eugene is right (and I seriously doubt it), you will only have a minority of your assets at risk. But if I'm right and the dollar is devalued 50-75%, gold and silver will rise accordingly.

Eugene:

I'm not sure we have the same definition of bubbles.

This, for example, is a bubble:

http://www.lesjones.com/2008/11/25/infla...

And then we have this:

http://www.kitco.com/scripts/hist_charts...

Does this really look like a bubble to you? Looks more like a slow but inexorable creep upwards to me.

Also, can you please tell me what factors would lead to a decline in the price of precious metals? Since they are dollar-denominated, it would seem to me that a fall in the price of metals would require a corresponding rise in the dollar's value. Do you really see that happening?

I just get the sense that you keep saying that metals are in a bubble because you believe that, not because you are relying on any facts or fundamentals. And if that's what you believe, that's fine. But we need to be clear about what is fact and what is belief.

Here's a chart that portrays three metals. Two went through the bubble phase and then completely deflated, one is still "stuck".

http://charts.infomine.com/multivariantc...

Gold should have crashed below $600 last winter, in proportion with other metals, but the fact that there's virtually no industrial demand for the metal, and the fact that the existence of GLD allowed gold bugs to scoop up the excess gold on the market (absorbing 500 tons in 6 months), postponed the inevitable crash.

No, deflation of the bubble can occur without a corresponding rise in the currency value. Precious metals will be falling in all currencies simultaneously. Gold is up 100% wrt euro in 5 years.

I think I'll just short GLD and that will have the same effect as betting with you directly.

Also, can you please tell me what factors would lead to a decline in the price of precious metals? Since they are dollar-denominated, it would seem to me that a fall in the price of metals would require a corresponding rise in the dollar's value.

Oil is dollar-denominated yet it fell dramatically last year without a corresponding dramatic rise in the dollar (the dollar rose a bit but not nearly as much as oil fell).

Concho, I don't think you can compare gold and oil when discussing a dollar collapse. In fact, gold and silver have now solidly de-coupled from oil. Gold and silver are recognized media of exchange and are considered money. They therefore move inversely to the dollar. Gold is often spoken of as the anti-dollar. The same is not necessarily true of oil, which fell prey to what we all know now was primarily a sepculator-driven rally last summer. Any 24-mos oil chart will demonstrate this. Gold, on the other hand, has been on a steady rise since the late 80s. Apples and oranges, my friends.

Oil production stalled at about 86 million barrels a day back in late 2004. From 2004-2008 consumption rose in the east by about 9 million barrels a day. So who was getting shorted oil if we were not producing anymore? In early 2008 food riots broke out all over the third world because oil IS food. Global growth started killing off the 3rd world as the richer nations grew there economies and need more oil.

Peak Oil IS the fiat killer because our monetary needs energy growth to continue and gold knows this. Fiat is a grow or die system and their is NO MORE growth. 1 year or 10 years it's over.

[quote=Eugene
Gold should have crashed below $600 last winter, in proportion with other metals, but the fact that there's virtually no industrial demand for the metal, and the fact that the existence of GLD allowed gold bugs to scoop up the excess gold on the market (absorbing 500 tons in 6 months), postponed the inevitable crash.[/quote]

I love it. Gold "should have fallen" last winter. Or rather, you THINK it should have fallen. The Plunge Protection team has clearly lost control of the metals markets now. Their manipulation efforts are seriously unraveling. I always knew this day would come - just wasn't sure when. Eugene, I bid you good luck with your gold short positions. In about 6-12 mos, you are really going to take it in the shorts ;-) COMEX has sold more paper metal than it can possibly keep track of, and when deliveries are called for en masse that can't possibly be accommodated - when the numbnuts on CNBC finally realize that the dollar is dying and it ain't coming back - you will see metals rise to new highs. Frightening highs.

I didn't think you'd take my bet, BTW. That is telling, IMO. I, on the other hand, was willing to put $300 down via PayPal, and am still willing to do so. We can talk and talk to till the cows come home, but the strength of your conviction (or lack thereof) in a coming gold crash is belied by your unwillingness to put any money on the line with me.

That, in a nutshell, sums up just about everything and explains why we are all completely f****d. Thanks, A.

"Here's a chart that portrays three metals. Two went through the bubble phase and then completely deflated, one is still "stuck".

too funny - comparing zinc, palladium and gold and expecting them to follow the same trends

in good times this might be reasonable - all the metals act like commodities and rise / fall in a similar manner

in bad times there's this little affectation that human beings seem to have for this shiny yellow metal called gold

silly quirk, this attraction to gold, but it exists, has existed for thousands of years, and will likely exist for thousands of years into the future

to deny gold's history or that we are currently living in bad times is really naive

to go short against the only secular bull market currently in force would be stupidity writ large

expand your economic and world view a little - check out the Chinese - they aren't just spitting into the wind - they intend to have the next reserve currency and they will back it with precious metals

you're something else, Eugene!

Wrong. Food commodity market was manipulated by the same forces that caused bubbles in zinc and palladium. There's ample supply of arable land on Earth to feed twice or more the current population at even $100/bbl oil.

Can we compare platinum, silver and gold? Or is it necessary for the metal to be useless industrially to be considered valid money in your universe?

It's not that I lack conviction in a coming gold crash ... it's that I lack conviction in you. I just don't see you as trustworthy enough to bet against, especially compared to my broker. No offense. If you can convince a neutral third party (e.g. Rich) to keep money in escrow, then we can talk. I made enough money in the stock market this year, I can afford to lose a couple hundred bucks.

50 million lemmings can't be wrong ...

Eugene,

I'm just curious: where do you see the dollar heading? Specifically, it now hovers at 76.49 on the USD index, which represents a 3.67% loss in one month.

1. Where do you think the dollar will sit on that index by Dec 2010?

2. Do you believe the U.S. will retain its sole reserve currency status by Dec 2010?

I pose these questions because your answer will provide some insight into the soundness (or lack thereof) of your analysis above, and it will determine whether further discussion on this topic is even warranted.

And as for food...there is this little issue called "climate change" that you should probably prepare yourself for.

Probably about the same. Maybe somewhat higher. Our trade deficit is very low by historical standards. Annualized July trade deficit was at the lowest level since 2001.

Reserve currency status is irrelevant. It's merely a notational agreement. Balance of trade is what matters. I do not foresee any significant changes in the balance of trade, with China in particular, by Dec 2010.

Oh yeah, how could I forget that ... a 34 cm rise in sea levels and a 4 C increase in mean surface temperature by 2100 (mostly in Canada and Siberia). The horror!

On the other hand, there's this neat picture that shows how much India & such can increase their agri output when they industrialize...

Extra points to anyone who can identify the source.

i think the problemw ith saying something like "gold shouldve crashed to $600 u.s. or "it will be $2,000" is that those dollar figures are not very stable entities. T be so confident in future performance of anything, you have to be pretty damned confident about the currency. Anyone that confident about the u.s. dollar has cojones, imo. it could remain stable quite a while longer, longer than anyone expects, or it could be unraveling as we speak. gold going to 2,000 might mean a fall int he price of gold if we adjust our decimal points in some sort of currency makeover. numbers don't mean much. Since all my investment decisions are invariably wrong, it's just astonishing to me that ive made money lately on gold silver and even oil.

reserve currency status matters, I think. i mean, isn't part of the enormous demand for dolalrs the fact that that's the unit business is done in? if no one did business in dolalrs, there wouldn't be as much demand, we couldn't print em, and we'd have a lot less money flowing throught he system. I geuss i don't understand how you can say that status is irrelevant to the value of the dolalr.

The demand for dollars in countries like China and Japan exists because we're one of their biggest export markets. If they stop buying our dollars, exchange rate adjusts, their exports fall, and they'll have mass unemployment and riots on their hands. Do they want that?

Actually, the Chinese are steering their citizens into gold and silver to prepare for the inevitable dollar collapse so they WON'T riot and revolt.

http://www.mineweb.co.za/mineweb/view/mi...

Americans, on the other hand, are being told to stay in fiat, so Obama WILL have a revolt when the dollar collapses. China knows that a new global currency is coming to replace the dollar, and that currency WILL be backed by gold. The world will absolutely demand this in order to avert another crisis of this magnitude.

And BTW, the U.S. used to be one of China's largest export markets. But with real unemployment at 21.6% now according to Shadow Stats, those days are long over. This is precisely one of the reasons that China is bailing on the dollar. They invested in us only so long as we were deemed useful to them, i.e. willing to buy their cheap crap. We are no longer useful to them or anyone else.

Lastly, reserve currency status DOES matter. Without this built-in demand for dollars, our currency tanks. It's a mathematical certainty. There are simply way too many dollars sloshing around the world, but they are currently being soaked up only because dollars are needed for most trade. When the dollar is no longer required for trade, the game ends.

Sorry to break the news to you, Eugene :-(

And hey, you speak with such confidence. Will you PLEASE take my bet?? I'm an easy target, right? I'm just a silly little gold bug. Why do you hesitate to take advantage of me if you remain so confident of the dollar's staying power? ;-)

"On the other hand, there's this neat picture that shows how much India & such can increase their agri output when they industrialize..."

this projected increase is based on the same high energy input agriculture system used by Western countries

you know, using natural gas to make fertilizer, using petroleum to make pesticides and fungicides, using gasoline and diesel fuel to run farming equipment, using more fuel to distribute the fertilizers and the food

oh, what's that? peak oil? you mean they won't ever achieve those increased outputs because they won't have the cheap energy to do so? hmmmm ...

"Can we compare platinum, silver and gold? Or is it necessary for the metal to be useless industrially to be considered valid money in your universe?"

in my universe human beings have been using gold as a store of value for thousands of years

silver has the most history as a circulating currency

platinum is used in catalytic converters isn't it? or is that palladium? aren't they interchangeable?

so, we have
1) a store of value
2) a circulating currency
3) a catalyst for chemical processes

I'm not sure how to compare these three items - your analysis skills are far superior to mine, Eugene

i am pretty concerned about paper metals assets (GLD, SLV) and have been in metal mining stocks the last year. aside from the risk of leverage, do you all think these are more tangible than "paper" etf metals or do you thinkt heyc arry the same level of risk of failing to be able to deliver actual physical metals .. kind of a poorly phrased question...