San Diego Housing Market News and Analysis

4plex

Net this out. Where are you putting your money as a result of that analysis? The smart money has left real estate, this we know. The question is, where has it gone. Obviously, blue chip stocks. The Dow has way outperformed the SP500 in the last few months, so that is one place. Interest rates are going to put an end to that any day now with their negative divergence against stock prices.

My question is, with all of that comparative analysis, what does that tell us about the next asset class that will be inflated to save the day from the housing collapse?

I do not have an answer, I am trying to figure it out now. Commodities is a sucker play the herd is chasing now. The music will stop there. Hedge funds seemed a likely bet, but there is starting to be some fall out there. Also, many of them are leveraged in RE, so they will go away.

The Itulip site is debating this very issue right now.

Currency?

Josh

4plex - you are a whacko, but your posts are awesome and you don't insult people, which is a bonus). Add this relative charting feature to the list of awesome things I have learned from this site. I hope you and Chris J have a nice discussion here. Looking forward to your thoughts on his question. It is a good question.

The money I took out of the housing market is sitting as cash so I'm wondering what to do with it myself.

I'm going to take 'whacko' as a complement since most visionaries are considered crazy until history proves them correct.

As you should.

Where to invest?

Before we can answer that question, I believe we have to have a ‘big picture’ view of the economy and what the significant trends are.

Remember the adage, “the trend is your friend”. Before we can befriend that trend, we have to figure out what it is.

Unfortunately, nobody has a crystal ball to identify economic trends so each of us has to decide for ourselves what the trends are and how far along we are in the progression of the trend. There are numerous investing books and newsletters that can provide us with quidance and advice along these lines but there are no guarantees in the investing world.

Right now, for example, some people believe that the US equity markets are in bull mode and headed to new highs. I personally believe the equity markets are putting in a top that will not be surpassed in my lifetime (and I’m only 42) before they crash (3000 or lower on the Dow).

Obviously, I’m not going to invest in common stocks right now based on my beliefs but other people are loaded to the gills with common stocks and even have them purchased on margin.

My point is that we can talk forever about generalities related to investing but actually putting your money at risk in any given market is a TOTALLY personal decision. You have to decide what YOU think the markets will do and take a position based on that belief.

I have formed my view of the economic world and I have invested accordingly.

My economic view tells me to sell investment real estate and put the money in silver and gold and the companies that mine those metals. So far, that view has served me well.

I have shared aspects of my economic view in these forums. Here are some highlights:

> we are in a commodities bull market that will run until at least 2013 and probably longer

> silver will be $80/oz and gold will be $1650/oz before the bull market is over – perhaps much higher for both

> the US dollar is in the process of losing its status as the world’s reserve currency

> the US dollar has been debased at a tremendous rate since 9/11 and this debasement has accelerated since the US Fed stopped publishing the M-3 money aggregates in March of this year

> we have seen the end of cheap energy whether we are at peak oil or not

> war with Iran serves many purposes for the Bush administration and is most likely inevitable – this war will cause the energy and precious metals markets to soar

> the baby boomers have been promised retirement bennies (social security, medicare, prescription drug benefit, etc) to the tune of about 30-50 TRILLION dollars and NONE of this money currently exists – there is no “Social Security Trust Fund” that the boomers are going to start drawing on when they retire – this money will come straight off the printing presses

In summary: I can’t tell you where to invest – all I can do is share with you how I am investing and why. All my investment money is in the commodities bull market with a heavy emphasis on silver. I will add to this position as funds become available and I will be holding this position until at least 2013 unless events dictate otherwise. Hope that helps.

I will post later in the week about the newsletters and web sites that I find most valuable inre the commodities bull market.

Poly -silica is simultaneously used in micro chips and solar panels. Intel's pain is Poli-Silicas pleasure. Stocks such as MEMC (WFR) and other alternative energy seem to be the play. Evergreen Solar(ESLR) Daystar technologies (DSTI). These are speculative. You might also consider basic materials. Cemex our of mexico has been on a tear and CRH out of Ireland has benefitted from emerging markets. If you like the Basic Materials sector but don't like to play individuals stocks you could take a look at ICBMX.

Great summary

My thoughts are as follows:

Many of those intermarket comparison charts I look at often. The rule of thumb I use, is that a correlation across markets has to be conceptually correct to be a valid predictor of the future. Some of those relationships do not meet that criteria in my opinion.

As a trader or investor it depends on the time frame for your investments. Large picture fundamentals do not have much effect if you are looking at short time frames, 90 days or less for example. However, they are important for longer time holds.

The two most important relationships that I study are interest rates vs S&P 500, and gold vs. interest rates. I like to keep things as simple as I can. Many trader friends of mine get so tied up in so many different things, that they cannot make any decisions. Historically, stock market crashes have not caused Gold rallies, just look at the charts.

The primary mover for stocks historically have been interest rates and earnings, one causes the other. We have rising interest rates on a relative basis, which is a problem for stocks. We are roaring higher, but the SP500 is lagging the Dow alot. This has been a problem historically. Commercials are currently heavily short the SP500, a very bearish sign. Large rallies in the past have not launched from this type of setup.

Inflation is the primary mover for Gold from my studies, and we clearly have inflation issues. Whether this translates into the levels you mention, I have no idea. My view on investing is as follows. Those who hold positions a long time, take the most risk. Why? They have to be right for a much longer period of time.

Taking a long position in Gold right here is very risky, where would the stop be carried? We have a parabolic move at hand which will not last. After it calms down, if I get a good solid setup with the commercials heavily long on a drop, I might be a player on the long side. However, barring that, I am looking for a short sale setup to develop. It is not here yet.

I have found it much easier to predict short term moves with higher reliability, so that is where I live mostly. I do not share the 3000 Dow prediction. I think over time stock prices will eventually be much higher than where they are now for many reasons.

I think history is the best indicator of what is likely to happen in the future. There is nothing that I have seen that indicates over a long period of time, stocks will not move ever upward, just like real estate. Bumps will be there along the way. They may be big ones at times.

Congrats on the shift in your assets, that was a great call. One friend of mine, I call Chicken Little, was so afraid the sky was falling that he leveraged all of his assets on oil more than a year ago, and hit a home run.

At that time I have to admit I did not think Oil was going this high, but I do not trade on my opinion. Thankfully!!!!!!!

A while back I asked about the prospects of Japanese real estate. Rich thought it would help hedge against a falling dollar and I thought it may be a good time given the 13 year slump, though I have not analyzed it at all. Any thoughts on that? Is there an ETFs that would follow Japanese real estate?

So if I'm thinking about buying some Silver, what is the best way to go:

ETF (SLV)?
Physical?
Pool account? (available on Kitco.com)

The ETF is the easiest for me, but is it a good way to go?

Yes, ETFs are the way to go. A few hardcore goldbug types may recommend taking physical possesion, and I don't necessarily see a problem with that if you are willing to pay for it (1-2% on each side of the trade and a safe-deposit box fee).

I am leery of PM's right now. I stopped buying about 8 months ago, and I am thinking about taking some off the table. There is hopefully an entry point lower than this. I enjoy both Chris J's and 4plex's comments. Chris says he has a short term view and 4plex has a long term view, so I think they are both generally correct in their views.

ETF's are a good way to play that. A futures position would require a stop too large to make any sense at this level. The hard asset itself, as per the other post is more expensive in terms of transaction costs. Proxies are also good for foreign stock markets as well.

Can anyone tell me how to post a chart here? I would love to be able to show what the commercials are doing in these markets visually to everyone who cares to see it.

I have emailed charts to a few of you. Anyone interested, send me an email at info [at] iamafuturestrader [dot] com and I will send you a chart so you can see how things look right now.

chris send me the chart to john67elco [at] yahoo [dot] com and ill place on my site and post a link :)

Thanks John, but I could do that with my site. I was hoping to be able to display it here to make it easier.

Chris

What is your definition of "commercials?" I'm not familiar with the term.

Jim

They are the actual producers of the commodity itself. This is why they are the best group to monitor for future price direction. They are in the report I have been mentioning in here. This link should work to view what Crude Oil looks like right now.

http://iamafuturestrader.blogspot.com/20...

So the chart may be foretelling a drop in oil prices in the near future... What other indicators can you look for to confirm that information, before you could make a trade on it?

I am afraid of discussing this at too great of a length here becuase Rich has created this as a real estate blog.

I am more than willing to do so with anyone that is interested, but I want to first be sure Rich is okay with this.

Sorry for straying so far off topic here. Send me emails individually, and I can prepare something a bit more detailed to go through this. Or, we could discuss it in my blog I am setting up for trading.

info [at] iamafuturestrader [dot] com is my email.

I am not ducking this, I am just trying to be considerate.

Check out the blog, I have put a couple of charts there that do into a smidge of detail about that stuff. Oil and the SP are covered.

http://iamafuturestrader.blogspot.com/

I can post one of gold there also with some commentary if it is desired.

Chris J, would you also share with us where you think money can be made next ?

Warning, blowhard long winded post to follow, just skip it if it is annoying.

Here are my thoughts in answer to your question. I think in general cash is a good place until fall, where stocks will be the place to be. Cash as they say is a position. There is a time to pounce and a time to be careful. We are in a time to be careful in my opinion. The selloff I mentioned in my blog on Wednesday materialized the very next day in stocks and carried through today.

I have been warning people about this bearish setup in the SP 500 for those who have read my posts. My blog goes a bit into the reasoning if you are interested in reading it. This should carry us down into a buy point at the normal seasonal time Oct/Nov.

The metals binge reminds me of so many other bubbles. They go up for awhile, then once they accelerate up all of the stories about demand driven forces surface ( kind of like housing ) show up. These arguments may in fact be true, but they are all of the "different this time variety." China is buying, the us dollar is in deep trouble etc.. Do you just go buy gold today because you think China is going to be buying alot of jewelry, or is for some other reason loading heavily on gold?

Where do you place your stop? $25, $50, $100 per ounce lower. Ok, it has dropped $30, one days action nowadays, $3000/contract in futures. Now, are you still confident because of what will happen in the next 10 years, that the market will rally tommorrow, or next week, or next month, to save you? In the meantime while your great idea could still be right, you are down 10, 20% and bleeding money, due to poor timing.

You can see that there is a bit more to it than just having an idea. Sorry to be harsh, but I hate to see people piss away hard earned money being foolish. What is so clearly apparent to the herd is rarely the correct thing to do in investing. Does anyone really think they are unique in their analysis of why to buy gold here?

Timing is the most important aspect of investing. You can have a great idea, and be correct with it, yet lose money with poor timing. Long positions needed to be placed earlier, like 4 plex did.

I just do not invest money that way. I study history, and history does not show good success on average chasing spikes up in prices of anything. It is kind of like betting, you may hit a longshot occasionally. However, betting on the favorite is the way to win most of the time.

So, I do not buy the $2000 gold argument at all, simply because it requires a complete change of what has happened historically.

I am not an economist by any stretch. I am sure there are many people here that are more qualified to analyze economic backdrops for things.

I might be wrong. As a trader you are often humbled, so maybe this will be my time. The majority of money I make is trading SP and Bonds, so that needs to be stated. I venture into other commodities, if I see a very strong opportunity. I do not chase markets.

In the old days before I learned the hard way not to do that, I did it and at times made killings. But, ultimately got hammered chasing price spikes, or fading them.

Ironically, Silver shows as of last Friday the commercials heavily long, so no peak obvious yet, but Gold is showing commercials exiting. All of the dynamics for a drop in price are lining up for Gold. Whether this drop will set up a long trade or not will not be known until later.

I try to keep things very simple. I trade to make a profit not to be right or wrong. I do not catch every move, I miss many of them. However, the ones I do play I am pretty accurate with them. This is what I strive to do.

All that mess just sums up to be, cash (T-Bills) until fall, then aggressively long stocks. No interest in metals here, if I miss a move who cares. My short term trading in my two primaries remains active each day. T-Bill position position in RE.

I can only get daily or weekly timeframes. How do you get monthly. It's not an option.

I ignore the 500-word limit comment. That was one person's opinion on it, and that person can keep to that limit if it suits him. I often have more to say, and so did you Chris. Use up as much page space as you need to make a point.

Do you think it's a good time to go long on a silver ETF? And then we buy with a stop loss of what?

A Chinese economist recommends that China buys 1900 tons of gold, which will raise the gold price a lot, if they follow through on that. How will the producers know what is happening on the secondary market? The gold producers make only about 2000 tons per year, and there is much much more gold than that traded in the market. How do the producers have inside knowledge of that? I can see that they would, but am just wondering. Trying to understand this all. And do appreciate your patience with us in explaining all this.

An ETF still exposes you to the risk of a decline. In my opinion I do not believe this is a good entry point. Timing is more important than the idea itself. However, you need to do your own research. I could be wrong. My trading accuracy is about 80% so that means I am still wrong 20% of the time, which is alot. You seem to really be stuck on this idea, so focus on timing it would be my advice.

All these macro things may be right, but they do not translate to the price rising every single day for eternity.

Buying Silver or Gold, and buying real estate right now are the same decision in my mind. They may bring a profit, but the risk is very high. The COT report just released did not show much in the way of professional selling in Silver yet. Gold was about the same as last week, which did show commercials getting out of longs but not so much that it is a no-brainer to short this thing.

Are you familiar with Jesse Livermore?

He is considered one of the best market speculators of all time.

Here is a quote from him: "It never was my thinking that made the big money for me. It always was my sitting."

What he was saying was that he made his big money by taking a position and sitting with that position until the trend completed. He didn't try to trade in and out of the market.

Richard Russell (www.dowtheoryletters.com) has been writing a financial newsletter every market day since 1958. He uses the analogy of 'riding a bull' to make the same point.

Richard says the bull does everything he can to throw you off his back. The bull wants as few people as possible to reach the finish line. The big money is made by the people who ride the bull from start to finish without being thrown off.

Richard says the current bull market in gold is the strongest bull market he has seen in any asset class in the almost 50 years he has been watching the markets. Wow!

Anyway, I believe I am riding the right bull and I intend to hang on for years to come.

I also aspire to trade for a living but I separate that from my investing. So far, I would be better off using the money I spend on Tradestation and datafeeds to buy more silver and gold!

I agree that now is a risky entry point for the precious metals. Adam Hamilton (www.zealllc.com) says that all bull markets correct back to their 200 day moving averages from time-to-time. That has already occurred several times in the precious metals since 2001. I am waiting for the next such opportunity before deploying new funds.

Market geniouses:

> Richard Russell - local San Diegan lives in La Jolla - WWII vet - incredible insight - nearly 50 years of analyzing all types of markets - $250/year for his daily wisdom is cheap! - www.dowtheoryletters.com

> Adam Hamilton - Zeal, LLC - if there were a college for speculators and investors, Adam would be the star professor, IMO - go to www.zeallc.com and read some of his free essays - he offers both a monthly letter for investors and a more frequent service for speculators

Lets look at gold silver and housing from a different aspect.

Lets say your house is paid off. You have an asset that is a hedge against inflation. You basically don't need gold or silver in this case.

If you have $100,000 in cash in the bank, $10,000 in gold and silver would be an insurance investment against inflation.

There is a mindset here, you don't buy a house as an investment. It doesn't produce anything and if you think it through, it will never be an investment. The gold and silver you buy will also not be an investment, they are there to protect you from the government printing presses. Inflation is a tax. Its a very cruel tax on savers (in my opinion)

ETF's or Exchange Traded Futures contracts, is not an area I would dabble in to build financial wealth. Its a zero sum game, one person looses and another gains.

You have to look at gold silver and housing as a store of value. You're not trying to get rich, you just want to be able to retire with only taxes to pay (no house payment)and some money in the bank.

Since everyone is dropping their blog address, I'll put in mine; http://greatdepression2006.blogspot.com/

The comment I made about the 500 words wasn't really for my benefit, you can talk for ever, It doesn't really matter, what I was trying to point out, is that people tend to skim when articles get long, and a lot of what you type is not really read. A constructive post of under 500 words that is well organized and too the point will be received quit well. We are all on the same wavelength, otherwise we wouldn't be reading this web page.

The only reason I posted my blog address was that I could not post charts in this one. I will check yours out because I am always looking for new information to study.

You are right about the zero sum in ETF's but the winning side can be a very nice place to be if you are on it. My favorite aspect of trading is exactly that, the rewards for being the winner are substantial.

If it were not a zero sum game it would not be worth doing, IMO.

Chris & Jim, I would like to read your blogs but unfortunately and for some reasons I couldn't access them. I'm in China and the government is known to block access to some foreign sites, maybe blogspot.com blogs are in this category. Oh well ...

I bought into the commodities theme after I read jim roger's book Hot Commodities. I started by buying gold because that was the only commodity that's easily accessible by me. I'm allocating a portion of my money into oil. I think commodities' a long term story but at the same time I also agree that it's not the best time to get into metals now ... I wouldn't be surprised if gold has to drop below $600 before resuming its uptrend.

Chris it sounds like you enjoy living on the edge. I used to short the market, and I had to quit, I couldn't sleep at nights. Way too much stress.

I've heard that the "burn" time on CBOT traders is about two years--its a rough job, but it can pay well.
Thanks for your blog link