[Rich Toscano]

I don’t understand this line of reasoning. If someone’s house burns down, the insurance company pays them for the replacement cost of the home, not the home AND land. This won’t give them anywhere near enough to pay off their mortgages. They are left with an expensive plot of raw land that nobody would buy, just enough money to rebuild the home, their original mortgage debt, and no place to live (although insurance should pay for a rental while they rebuild). How does this bail them out?

rich

[Rich Toscano]

Hi Contrarian — Thanks for the compliment. Unfortunately I am not able to easily engage in back and forth discussions on securities or anything security-like (eg gold) –boring details of why are at this post.

I can however point you to some stuff I’ve previously written on gold here in these two comments

http://piggington.com/gold_is_a_bubble#comment-48413

http://piggington.com/gold_is_a_bubble#comment-49544

I can also talk about people, so I can say that I am not a big fan of Fisher. I think he’s done some very interesting work on the behavioral finance side of things (I have not yet read his book but it’s on my shelf and I intend to). That said he loses major points for having continuously and stridently denied the existence of the housing bubble throughout. For instance, a quick googling comes up with this utterly misguided Forbes article by Ken Fisher, Feb 26 2007:

Don’t buy it. For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.

You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.

What’s happened since those words were written provides commentary enough so I won’t add to it.

I’ve got some other thoughts on what you wrote, some in agreement and some in disagreement, but that would get more into the kind of stuff I’d have to get approved so I will leave it at that. As always anyone is welcome to email me at [email protected].

Thanks,

Rich

[Rich Toscano]

Hi Contrarian — Thanks for the compliment. Unfortunately I am not able to easily engage in back and forth discussions on securities or anything security-like (eg gold) –boring details of why are at this post.

I can however point you to some stuff I’ve previously written on gold here in these two comments

http://piggington.com/gold_is_a_bubble#comment-48413

http://piggington.com/gold_is_a_bubble#comment-49544

I can also talk about people, so I can say that I am not a big fan of Fisher. I think he’s done some very interesting work on the behavioral finance side of things (I have not yet read his book but it’s on my shelf and I intend to). That said he loses major points for having continuously and stridently denied the existence of the housing bubble throughout. For instance, a quick googling comes up with this utterly misguided Forbes article by Ken Fisher, Feb 26 2007:

Don’t buy it. For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.

You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.

What’s happened since those words were written provides commentary enough so I won’t add to it.

I’ve got some other thoughts on what you wrote, some in agreement and some in disagreement, but that would get more into the kind of stuff I’d have to get approved so I will leave it at that. As always anyone is welcome to email me at [email protected].

Thanks,

Rich

[Rich Toscano]

Good suggestion – I actually agree completely with your suggestions but I am using content management software and that just isn’t the way it work. A sufficiently motivated person could learn the API and code the changes, but I am not such a person…

rich

[Rich Toscano]

Good suggestion – I actually agree completely with your suggestions but I am using content management software and that just isn’t the way it work. A sufficiently motivated person could learn the API and code the changes, but I am not such a person…

rich

[Rich Toscano]

Hi all — I am now able to post from time to time whereas it wasn’t so feasible before (details are in this thread http://piggington.com/site_content_and_the_potentially_increased_frequency_thereof if you are interested).

I do lurk on the forums though I definitely do not have time to read everything so it’s hit or miss whether I see a given topic.

In his brilliant (as usual) reply, Bugs brought up a point that I always think about when I hear these financial pundits making their predictions: if someone didn’t see something coming in the first place, why would you expect them to know when it will end?

Thanks to everyone who has offered kind words and personal stories. (I had to laugh at the “ten times more useful than the rest of the Internet combined” line — what about The Onion? 😉 I am very gratified that the site was able to help some people by offering an alternative view to the RE permabull misinformation onslaught that dominated the conversation for much of the last few years.

On that note, the purpose of this site is so blindingly obvious that people are probably right that the OP is a troll. I don’t see how it could be otherwise. So good job, troll — you fished a bunch of us into wasting our time responding to your nonsense.

My wife and I are moving on Monday and she will beat me if I spend much more time on site this weekend, so I will most probably check out of this thread at this point. Thanks again to all for their kind words.

Have a great weekend, everyone. (Even the troll).

Rich

[Rich Toscano]

So let me just see if I’ve got all this…

You open up by making two provably wrong statements, that this site was started in 2003 and that price declines didn’t happen until 3 years after they were predicted here. In fact the site was started in spring of 2004. The Case-Shiller HPI peaked the following year, although by spring 2004 the bulk of the price increases were behind us, and in terms of euphoric sentiment and panic buying the market was already at or past its peak. At the time, sentiment towards housing was ubiquitously bullish and the purpose of this site — since you are apparently having trouble figuring it out — was (and still is) to provide some rational analysis of the market to counter all the cheerleading from the legions of housing bubble apologists.

You then go on to insult me and everyone who posts here by saying “It doesn’t take much to predict such things.” (I somehow doubt that you predicted anything of the sort back in 2004).

Then you say something else provably wrong, that rents never decline. As davelj pointed out, they did decline here in the 1990s — a fact that you could easily verify yourself if you cared to.

Then, you attempt some tortured logic which as far as I can tell ends up with the ridiculous assertion that because prices didn’t crash in the space of a few weeks, there was never a bubble.

Somewhere in there among three falsehoods, an insult, and the most inept re-definition of “bubble” that I’ve ever heard, you to suggest a number of labor intensive data collection tasks that you apparently think that I — the guy you just insulted — should undertake because, despite their apparent importance, you are insufficiently motivated to do them yourself.

Good luck with all that.

[Rich Toscano]

HWG, I do not agree with the idea that jewelry demand drives the gold price.

The site you linked to details the usage of new gold supply, but this ignores the usage of the gold supply that already exists above ground. Just to put it in perspective with some numbers, the gold.org site lists jewelry demand at 2279 tons in 2006. Per the website of the LBMA, where much of the world’s bullion gets sold, the volume of gold exchanges id 562 tons PER DAY — http://www.lbma.org.uk/clearing_table.htm. The 2279 tons PER YEAR cited by gold.org is absolutely swamped by this.

Also from gold.org, we see that they listed jewelry demand in 2004 at 2614 tons, vs. 2279 tons in 2006. That’s a decline of almost 13% in jewelry demand. The gold price averaged $410 in 2004 and $603 in 2006 — a price increase of 47% despite the 13% decrease in jewelry demand. Something else is clearly driving the gold price.

To cite one other particularly glaring example, I know that gold medallions were popular in the 1970s, but do you really think that’s what drove the 20-fold increase in the gold price? 🙂

Gold’s supply and demand can’t be analyzed like other commodities becuase unlike other commodities, gold commands a monetary premium. IMHO that monetary premium is the primary driver of the gold price. Also IMHO what drives the monetary premium is falling confidence in the global monetary system and especially in its reserve currency, the dollar.

As always, feel free to email with any questions because I can’t do a whole lot of back-and-forth per my last post.

Thanks,

Rich

[Rich Toscano]

Chamberlin never posted here to my knowledge. I tried to email him at that address before my first (of three and counting) voiceofsandiego.org article calling him out on something he wrote that was provably, factually inaccurate. I was quite civil and just asked him to let me know if I was misinterpreting what he said, or if he wanted to clarify, etc. — never heard back.

rich

[Rich Toscano]

For those who missed it, I wrote a little rejoinder to Chamberlin’s “vast renter conspiracy” article over at voiceofsandiego.org:

http://voiceofsandiego.org/articles/2007/10/01/toscano/888conspiracytheory081607.txt

have a great week…
rich

[Rich Toscano]

For me, it’s both. The tightening of lending conditions has happened much more abruptly than I expected (not sooner, but more abruptly once it finally started).

However, the deterioration of sentiment is happening more slowly than I would have expected. I am continually amazed at the level of stubborn denial out there.

Sorry, that wasn’t an A or B vote, but there you have it.

Rich

[Rich Toscano]

No bubble in gold

I wanted so badly to respond to this one that I went ahead and went through the approval process I have to do for investing related posts.

My strongly held opinion is that gold is absolutely NOT in a bubble. (This is coming from a guy who, as the existence of this site would imply, doesn’t have qualms about identifying financial bubbles as such.)

A bubble takes place when irrationally euphoric sentiment drive prices far in excess to their fundamentals. Let’s start with the sentiment part first. Think back to the height of the real estate bubble here in SD. Everyone was constantly talking about how much they’d made in real estate. People who weren’t in yet were panicking to get in, getting in bidding wars on low quality and horrendously overpriced properties. The vast majority of people thought it was crazy to suggest that real estate prices could ever stop going up. (I know because I started this site in spring 2004 at the height of the speculative blowoff/panic buying phase).

And let me emphasize here that the huge majority of people thought it was crazy to suggest that prices would stop going up. To suggest that prices would flatten out or, heaven forbid, actually decline either made people angry or, more often, just made them shake their heads in pity at your total inability to "get it."

Now, let’s look at the sentiment surrounding gold. Of course you have some dyed-in-the-wool gold bugs, who are permanently bullish on gold. But among the more general populace, the sentiment for gold is absolutely nothing like what you saw for RE during the bubble. Nothing like it at all. If you’d asked a random sampling of people about real estate back in the day, the vast majority would have insisted it’s the road to riches. Ask a random sample about gold. Sure, some people will probably be bullish (up from NO people who would have been bullish a couple years ago), but the majority will tell you it’s a terrible investment, it has no yield, and ask you whether you shouldn’t be out stocking up your fallout shelter with ammo and canned goods.

And incidentally, every time gold goes up a little bit, everyone comes out of the woodwork to declare it a bubble! People also constantly point out that if you’d bought gold in 1980, you would have had terrible returns. Of course you would have — you bought at the tippy-top of a huge bubble! Nobody seems to think about the people who bought at the beginning or even middle of the 70s bull market and sold near the peak of the bubble — they just say that if you’d bought at the peak of the bubble your returns would have been poor, and therefore, gold will always have poor returns. This type of reasoning is not the kind of thing that’s widespread anywhere near bubble peaks. Let me ask you this: in spring of 2004, how many people were saying that if you’d bought a San Diego house in 1990, you would have been underwater 7 years later, and therefore homes were an inherently bad investment? Not many.

So in short, there is nowhere near enough widespread positive sentiment to qualify this as a bubble. Now let’s look at fundamentals. In my opinion, gold’s biggest fundamental driver is confidence in the global monetary system. Specifically, gold moves in the opposite direction of confidence in the monetary system and in paper money as a store of value.

Unfortunately, that confidence or lack thereof is hard to measure. But just to take a stab at how expensive gold is compared to other stuff, let’s compare it to CPI (a dubious measure of purchasing power loss, per my latest article, but better than nothing). Compared to CPI, gold is less than 1/3 as expensive as it was at its 1980 bubble peak. (And yes, THAT was a legitimate bubble). The CPI’s understatment of true purchasing power loss means that the 1/3 figure above actually overstates the current valuation of gold. You can compare gold to other things as well — stocks, the amount of currency outstanding, etc. — and see that from a raw valuation perspective you just can’t make the case that it’s in bubble territory.

Gold was in a bubble that ended in 1980, and then it was in a horrific 20-year secular bear market. Stocks began 1980 at ridiculously low valuations and rose for the next 20 years, culminating in a bubble of their own. The fact is that many investors have just become accustomed to the idea that stocks go up and gold goes down, and that’s the way of the world. They view any rise in gold as an aberration and try to explain it away. But the conditions that were in place at the beginning of that long trend are no longer in place — far from it.

Whether you are bullish or not on gold at this point should really come down to whether you think confidence in the monetary system will rise or fall in the years ahead. My opinion is that it will fall and maybe fall by a lot. Whichever camp you are in, however, and whether you are bullish or bearish, there’s really no credible case to be made that gold is in a traditional speculative bubble.

I had to get this reviewed (as discussed previously) but I thought it was worthwhile because this is a question I hear a lot. Unfortunately I can’t really get into a back-and-forth discussion due to the review process, but if you have further questions feel free to email me at [email protected].

[Rich Toscano]

Hi bubble_contagion — per my response to raybyrnes I can’t answer that here in public, but drop me an email if you want, because I have some thoughts on that topic.

Rich

[Rich Toscano]

Patientrenter — Thanks very much — I have enjoyed your insightful posts as well.

Raybyrnes — I don’t think I can actually get into public discussions about financial stuff without getting it vetted (per this post). I think I’m limited to pointing people at stuff that’s already been vetted and leaving it at that. 🙂

So, I can’t really address that question here on the forum, but anyone is always welcome to email me at [email protected] if they want to talk about this stuff.

Thanks,
Rich

[Rich Toscano]

Apologies for the plug, but I wrote some thoughts on this very topic (pretty high-level, admittedly) here: http://www.pcasd.com/cash_not_as_safe_as_it_seems

Rich

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