Peter Schiff: Housing prices will go back to 2000 or lower…

[peterb]

There seems to be a lot evidence mounting that the Fed’s attempt at reflation is not working and that the market is overwhelming it with deflationary pressure. I tend to agree. And we’re going into a global recession.
It looks a lot like demand destruction all around. Having said this, certain sectors of commodities are hard to reduce and/or subsitute. Like oil and food.( I noticed lately that both Rogers and Faber have been talking about food.) The CRB did extremely well in the 1970’s. We had inflation and a recession then. Stagflation. The CRB cranked up from 1971 to 1975 went sideways for a year and then went strongly up again to 1980.
I also agree that there’s a lot of cash looking for a home right now and Commodities may be the only logical choice when some of the noise dies down. Certainly, nothing else looks even remotely as bullish.
Thus, I am begining to think it’s a timing issue to get back into commodities at this point. They’ll do well in a recession and better in inflation. I hope!!

[hipmatt]

FormerSanDiegan…

Jim Browne helps point out why your investing in stocks has actually been a bad move. Maybe you should have considered commodities a bit more.

…
So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities? If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further. In fact, the major U.S. averages for the first years of this bold, new 21st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693. The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close. Not too bad, on the surface, at least. However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856. If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that’s using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real’ terms, despite a ‘nominal’ rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities. These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise. Shrinking earnings will cause PE ratios to rise, based on present stock prices. This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks. The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

[hipmatt]

FormerSanDiegan…

Jim Browne helps point out why your investing in stocks has actually been a bad move. Maybe you should have considered commodities a bit more.

…
So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities? If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further. In fact, the major U.S. averages for the first years of this bold, new 21st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693. The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close. Not too bad, on the surface, at least. However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856. If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that’s using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real’ terms, despite a ‘nominal’ rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities. These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise. Shrinking earnings will cause PE ratios to rise, based on present stock prices. This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks. The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

[hipmatt]

FormerSanDiegan…

Jim Browne helps point out why your investing in stocks has actually been a bad move. Maybe you should have considered commodities a bit more.

…
So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities? If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further. In fact, the major U.S. averages for the first years of this bold, new 21st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693. The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close. Not too bad, on the surface, at least. However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856. If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that’s using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real’ terms, despite a ‘nominal’ rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities. These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise. Shrinking earnings will cause PE ratios to rise, based on present stock prices. This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks. The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

[hipmatt]

FormerSanDiegan…

Jim Browne helps point out why your investing in stocks has actually been a bad move. Maybe you should have considered commodities a bit more.

…
So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities? If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further. In fact, the major U.S. averages for the first years of this bold, new 21st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693. The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close. Not too bad, on the surface, at least. However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856. If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that’s using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real’ terms, despite a ‘nominal’ rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities. These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise. Shrinking earnings will cause PE ratios to rise, based on present stock prices. This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks. The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

[hipmatt]

FormerSanDiegan…

Jim Browne helps point out why your investing in stocks has actually been a bad move. Maybe you should have considered commodities a bit more.

…
So with the dollar appearing to recover (as recession is forecast in Europe and elsewhere) and with foreign stock markets having experienced corrections, is it time to look again at U.S. equities? If the past decade is any indication, the future looks bleak.

Although the recent U.S. stock performance has indeed been bad, many would be surprised to know that the weakness stretches back much further. In fact, the major U.S. averages for the first years of this bold, new 21st century are anything but impressive.

On October 12, 2007, the Dow Jones Industrial Index, against which many investment returns are measured, closed at a nominal high of 14,693. The media, of course, reported it as a sign of good things to come.

On May 23, 2008, the Dow closed at 12,480 — down just over 15% from its record close. Not too bad, on the surface, at least. However, if adjusted by the official CPI inflation from January 2000 of approximately 4% per year (which in reality is far below the rate of actual inflation experienced by real people), the Dow in May of 2008 was worth only 9,856. If this inflation adjusted figure is compared to the Dow close of 11,723 on January 14, 2000, U.S. stocks were down more than 15% after eight years! And that’s using the government inflation figures which are ridiculously optimistic.

In sum, assume an investment of $11,723 in the Dow average high of 11,723 on January 14, 2000. The same money could then have bought approximately 460 barrels of oil, 40 ounces of gold and 9 percent of an average family home.

Some eight years later, the money in the Dow would have increased to $12,480, for a nominal gain of $757, or 6.4 percent. But the $12,480 will now buy 355 less barrels of oil (down 77%), 27 less ounces of gold (down 66 %) and, despite a massive fall in house prices of 15.8%, only some 6 percent of an average family home (down 33%). In short, the investor of 2000 should feel robbed in ‘real’ terms, despite a ‘nominal’ rise in the Dow of 6.4 percent!

On the other hand, many foreign stock markets and currencies have risen substantially, and have outpaced the costs of typical consumer necessities. These are the kinds of returns which attract people to stocks in the first place.

With growing evidence of international recession, and increased credit woes, it is likely that the earnings of many American corporations will fall, not rise. Shrinking earnings will cause PE ratios to rise, based on present stock prices. This should make the current prices of many stocks look ‘expensive,” as they move violently sideways with a downward bias.

So beware the current rally in the dollar and U.S. stocks. The fundamentals remain miserable, and stock performance will ultimately reflect this reality.

[peterb]

I think the DOW is going to really correct down soon. Looks like a lot of foriegn money is going from debt to ownership now. They’ve got to do something with those damn deflating US peso’s.
So now it’s gonna be buy-in time.
The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

[peterb]

I think the DOW is going to really correct down soon. Looks like a lot of foriegn money is going from debt to ownership now. They’ve got to do something with those damn deflating US peso’s.
So now it’s gonna be buy-in time.
The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

[peterb]

I think the DOW is going to really correct down soon. Looks like a lot of foriegn money is going from debt to ownership now. They’ve got to do something with those damn deflating US peso’s.
So now it’s gonna be buy-in time.
The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

[peterb]

I think the DOW is going to really correct down soon. Looks like a lot of foriegn money is going from debt to ownership now. They’ve got to do something with those damn deflating US peso’s.
So now it’s gonna be buy-in time.
The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

[peterb]

I think the DOW is going to really correct down soon. Looks like a lot of foriegn money is going from debt to ownership now. They’ve got to do something with those damn deflating US peso’s.
So now it’s gonna be buy-in time.
The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

[kewp]

The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

I agree, if the US$ finds its bottom here I think we will be in good shape relatively speaking. It makes our commodities and labor much more competitive globally without sacrificing too much of our quality of life.

[kewp]

The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

I agree, if the US$ finds its bottom here I think we will be in good shape relatively speaking. It makes our commodities and labor much more competitive globally without sacrificing too much of our quality of life.

[kewp]

The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

I agree, if the US$ finds its bottom here I think we will be in good shape relatively speaking. It makes our commodities and labor much more competitive globally without sacrificing too much of our quality of life.

[kewp]

The only bright note I see is that the UD$ is now correcting to reflect actual weakness in competing currencies. Great!
I still think commodities is probably the safest play toward the end of this year. Hope the US$ holds till then.

I agree, if the US$ finds its bottom here I think we will be in good shape relatively speaking. It makes our commodities and labor much more competitive globally without sacrificing too much of our quality of life.

[Author]

Posts