by The Mogambo Guru
The Gap Between Inflation And All These Higher Prices
As proof, I demur to the keen eye of Mike in Dallas, who writes that an article in the Dallas Morning News business section listed some price increases and plans for them. Michelin, Goodrich, Uniroyal prices up 8%. Clorox 8%. Kleenex 5%. Cottonelle 6.5%. Glad bags 8%. He didn't mention health care, but maybe everybody knows that already.
And let's not forget the Postal Service, which increased the price of a first-class stamp to 39 cents, which is an increase of 5.4%.
And it is not just consumer products that will be going up in price, but lots and lots of things, especially in California, as we learn from the newsletter View From Silicon Valley, which shows that the politicians in California in general and Silicon Valley in particular are as ignorant and stupid as the rest of their loathsome political class of morons, and the have instituted the "millionaire taxes", whereby "Anybody getting a seven-figure W-2 in 2005 will be required to pony up an extra 1% (so $10K+) earmarked for 'mental health' in 2006'" and a new 1.7% tax for "universal day care." Hahaha! Public-funded babysitters!
And there is, I am sorry to say, more, as the Valley Transit Authority (VTA) wants another quarter-cent sales tax levy to further "improve service," which is supposed to raise $2B over 30 years, and another quarter-cent ($2 billion) for something else, buses or something.
To make everything work out on paper, the VTA somehow determined that there would be "5.8% growth in sales tax revenue over the next ten years, instead of the 4.8% previously estimated." Hahaha! That reminds me of how ten years ago I estimated for my wife, neighbors and children that I would be 10% less obnoxious in ten years, which was, as it turned out, a big fat whopping lie, and am at least 10% MORE obnoxious! But ten years down the road these arrogant fools think they can estimate revenue down to the fraction of a percent? Hahahaha! And I though the Fed was arrogant!
Labor Unrest As A Result Of Disintegrating Monetary Systems
As the Charleston Voice succinctly notes, "Labor unrest has always been symptomatic of disintegrating monetary systems." This naturally brings up the city of San Jose, which "agreed to a 12.9% pay increase for police over the next 24 months, on top of goosing pensions from 85% to 90% of final pay. The firemen are angrily demanding the same deal, and local nurses just won a pay increase (on top of hospital staffing concessions) of $150M over two years." This settlement of labor negotiations came at the end of, I note with a sneer of contempt, 5 years of declining revenues. "We ain't got the money, but you can have more, nevertheless!" Hahaha! California! What idiots!
And it is going to get worse, as the jackass-in-Republican-clothing governor of California is putting through another $50 billion in bond issues for road improvements! If Shelby Moore is correct when he says that we have seen a "war between austrian and keynesian economics" and that the next war is a "war between keynesian and socialist economics", then the socialists are obviously winning.
Even worse, much worse, is that there is going to be a state-wide increase in the minimum wage to $7.75. This puts total wages up about "$2 billion per year." That workers need the money, as wages have long lagged rises in prices, is damning testimony of the abysmal incompetence of the Federal Reserve.
Billions Of New Costs in Silicon Valley
The summary says it all "Counting new income taxes, new and increased parcel taxes, increased public employee salary and pension costs, increased debt service, additional sales taxes, increased minimum wages and utility costs, Silicon Valley residents will see literally billions of new costs in 2006." All of which means higher prices for everything else.
Rising ARM's Will Slow The Rest Of The Economy
Bill Gross of PIMCO has posted his latest essay, entitled "A Gift That Should Keep On Giving." Naturally, I thought he is talking about precious metals, pornography or a boatload of bourbon, but he was not. Instead, he says that homeowners with adjustable rate mortgages are going to be stressed. "As the cost of the ARM increases with higher short rates, your excess income available to spend on discretionary items begins to shrink. If that ARM rate goes too high, you hunker down even more by not eating out, going to movies, or taking a vacation to exotic destinations. The economy, in other words, slows down."
Perhaps this explains the latest news that Consumer Installment Debt went down, again, in November. So people are suddenly spending less. This ought to knock the hell out of VTA's estimate of how much revenue will grow! Hahaha! And since they say that 70% of the economy is consumer spending, then there are a LOT of other estimates of revenue that are getting the hell knocked out of them, too!
And I am telling you that increased costs mean increased prices. Or, as David Collum so pithily put it, "One man's wage increase is another man's price increase." And so all of this awarding higher wages will all be for naught, as prices will increase high enough to more than erase any and all gains for those workers.
And who is paying these higher prices? Me, for one. But Bill Bonner of DailyReckoning.com doesn't want to talk about how I mismanage money and am always broke mostly because I am a big stupid chump, but says instead that I should be cheered that I am not alone, and that "At the middle and lower ends of the economic food chain, people are having a hard time making ends meet." And there are lots and lots of these people at "the middle and lower ends of the economic food chain" who don't have any money or job or hope of ever having either of them, and you can bet that they are going to get really, really angry. Rioting, stealing, robbing and killing angry.
New US Muni Bonds Total 4% Of GDP
With a cry in my voice, I note that it is not just California, either. From Reuters we read that "U.S. municipal bond issuance set a record in 2005, soaring to $405 billion despite rising interest rates. This was more than 13 percent higher than in 2004, when sales totaled $357.1 billion. Last year's debt sales by states, counties, cities and towns topped the record of $379.3 billion set in 2003." What we did NOT read is that this $405 billion of NEW debt is almost 4% of the entire Gross Domestic Product of the USA! So you can bet that your state and local taxes are going to go up, and up, and up for the rest of your freaking life to pay for all of this.
If you want something else to worry about, George Ure of UrbanSurvival.com writes that (putting words into his mouth) even the Earth itself is rebelling at the degree of insanity, and that an earthquake that registered 7.1 on the Richter scale "was significant for more than its size. Notice its depth - 579 kilometers deep. That's a concern because when things shake and break down at that level you could be looking at the crust decoupling from the mantle."
Among the many things that I am confused about is the inflation/deflation debate. Which will it be? Deflation is when the money supply gets smaller, and your money, so the theory goes, becomes more valuable as the money supply contracts. Okay, I will admit that the deflation thing will actually happen, if only because it is ridiculous to think that debt loads can grow to the moon. But my money becoming more valuable and going up in buying power? Hahaha! I am laughing so hard that my stomach hurts! Hahaha! But perhaps I could be persuaded if I could be given an example, just one measly example of a country's currency going UP in value when its economy implodes from massive debt loads, consumer stupidity and the overarching stupidity of a gigantic government-centered economy, all utilizing a fiat currency. Just one!
Money Won't Deflate - Prices Will
Here is another deflationist debate: "We have had a global asset bubble in real estate, stocks and some commodities. That bubble will have begun to pop in earnest by the end of '06 and will engender global economic contraction and overcapacity resulting in falling wages and prices, falling interest rates, falling stock prices, and quite probably a falling dollar." Falling wages? Whose? You never heard of the minimum wage? And as for falling prices, hell, their own argument is that the dollar will fall, which will make import prices go up, and as we import most of everything we consume, where in the hell are the falling prices coming from? Well, housing, maybe. And stock prices. And bond prices.
And as for falling interest rates, the mighty laugh of The Mogambo (MLOTM) shakes the windows and I snort in derision. America is being bankrupted and ruined because we act stupidly, and now foreign lenders are going to keep loaning us money and accepting a lower interest rate (implying reduced risk) from certifiable morons? Hahahaha!
Investors Will Wake Up To The Dollars Vulnerability
And you don't have to take it from me, mostly because nobody in their right mind listens to me anyway, especially when you can listen to the Texas Hedge Report, which writes that "We think 2006 will be the year that the average investor wakes up to the U.S. Dollar's vulnerability and begins to use gold & silver as a way to protect his savings. The Euro & Yen have proven their fallibilities as hedges. Gold is now available to be purchased through two ETFs (tickers: GLD & IAU) with silver about to join."
Foreign Central Banks Buy Gold
Martin Weiss of the Money and Markets newsletter agrees that "Foreign central banks aren't under any obligation to continue holding a particular percentage of their reserves in dollars. In fact, two major players are already starting to diversify out of dollars: Russia and China. Guess what they're buying: GOLD! And China has already announced it will boost its gold reserves by putting 2.5% of its trade surplus in gold - every year."
Now, I figure that 2.5% doesn't sound like a lot, and sure enough Mr. Weiss goes on to say "A 2.5% allocation may not sound like much." See? I told you! "But based on China's trade surplus last year, you're talking an estimated $2.5 billion going into gold this year alone. Since the physical gold market is tiny, $2.5 billion is more than enough to keep gold moving higher." How much higher? "Gold should easily soar to my next two targets of $618 and $740 an ounce" he quickly replies.
Now, all of this is just current events, but he sees central banks around the world "pulling out of the dollar en masse in 2006." I innocently ask, "Are you sure?" And he says "I expect they will." There was an awkward silence, and I know that he was waiting for me to ask a follow-up question, but being a real stupid guy, I just sit there like a stump. Exasperated, he finally blurts out "It will spell disaster for the greenback, setting off a financial crisis in the U.S. the likes of which has not been seen in decades." Now, if it was me, the word "disaster" would have made me end that sentence with an exclamation point! Like that one!
Physical Demand For Platinum And Palladium
Richard M. tried to go out again to buy more platinum, but "Once again, they had none!" But he says that "The sales lady told me they are still doing big business in selling actual hard assets", which explains the shortage of platinum, and that palladium maple leafs "are also quite popular among the local hoi polloi."
Global Daily Oil Bill: $5.5 Billion
If you want to talk about oil, then Toni Straka of the Prudent Investor blog notes that the world uses oil so fast that the globe has "a daily bill of roughly $5.5 billion for crude oil" at current prices.
Iranian Oil Bourse
Perhaps this huge use of dollars is what has everyone worried about the new Iran oil bourse (trading center) that is scheduled to crank up in March, and probably rightfully so. Instead of an American-controlled oil market and American friends and insiders getting rich making their slimy little backroom deals, now it will be an Iran-controlled oil market and Iranian friends and Iranian insiders making their little deals.
It's all mox nix to me, as oil is going to rise mightily in price anyway, but all of those American oil-business scumbags have families to care for, bills to pay and these big, fancy cars that speed by me as I sit with my "Will work for food" sign around my neck, and so you can bet that they are all crapping in their pants at the thought of the end of a very long, very cozy and very profitable deal. Ergo, you can certainly make a case that George Bush and the Congress will okay a plan to invade Iran and take over the place, because that is the kind of treacherous, thieving, murdering scumbag that my beloved America has become in its increasing desperation.
Invasion Of Iran?
Muckraker Report, which is from the Libertarian Party in Berkeley goes farther than merely hypothesizing, and predicts how it will actually play out. Firstly, the government "must portray the Iranian President, Mahmoud Ahmadinejad, as a threat to the region and the world. Finally, once naive American people are convinced the 'weapons of mass destruction' that were to be found in Iraq are actually in Iran, coupled with the almost daily media coverage of Iran’s nuclear power/weapons program aspirations, and what we will soon have on our hands is another fabricated war that will result in tens of thousands of civilian lives being lost, all because the political elected pawns in Washington DC lack the discipline to return our currency to a gold or silver standard, end the relationship with the foreign banking cartel called the Federal Reserve, and limit the activities of the U.S. government to those articulated in Article I Section 8 of the Constitution for the United States of America."
Wow! Nice going! I am impressed that they understand how money becomes money because of bank-created credit, so that someone could borrow some money, and then someone borrows the money from a bank, which turned the credit into money, and thus money = debt. But they get zero points when they say "If all debt were to be paid, there would be exactly zero U.S. dollars in circulation because it will have all been returned to the vaults of the Federal Reserve. This might seem hard to fathom, but it is the gospel of fiat money." Wrong-o. Actual cash can come into existence and not be part of any debt. All the government has to do is print up actual cash, and then use it to pay somebody for some goods or services. For example, if I finally get my dream job cleaning the toilets of the Treasury building (which is a much better job than the one I have now) and they pay me in cash, then money CAN come into existence without a corresponding debt. Not much. But some!
Richard Maybury in his newsletter Early Warning Report notes that "81% of all the world's oil deposits" are in areas (which he calls "Chaostan") that are always kicking up sand with each other, and that his best guess is that "the Third World War and the war economy will last at least two more decades." He recommends that you load up on oil, gold, silver, platinum, defense industries, commodities and US rural real estate.
3 Disruptions In The Oil Flow Will Bring $5.32 Gasoline
Along the same lines, Gary North of DailyReckoning writes "Six months ago, an analyst group made up of former top-level U.S. government officials calculated a global oil scenario. In this extremely likely scenario, just 3 minor disruptions in the already-strained world oil supply chain cause $150-a-barrel crude prices, a $5.32 pump price for gas, more than 2 million jobs lost, and a 28% drop in the S&P 500."
Natural Gas Supply Will Decline Sharply
Well, if oil is going to get more expensive, what about natural gas? Les H. writes that a guy named Dr. Jean LaHerrere has models that "suggest that in about 4 years the supply of natural gas will be about 1/3 to 1/4 of today's supply." Another guy named Matt Simmons "has done extensive analysis of similar data and expects a severe drop in natgas supply soon." As an aside, we learn that "The Peak Oilers refer to this coming crisis as the 'natural gas cliff event.' "
Speaking of oil, Les H writes to say that "Dr. Colin Campbell has a Ph.D. in geology from Cambridge U points out that we now know the origin of oil. Ain't from dead dinosaurs. There were two very warm periods in the planet's history, one 140 million years ago and one 90 million years in which "huge marine algal mats grew and settled to the bottom of the ocean. Now, to make oil from dead algae, the algae must spend some time at least 7500 ft below sea level, but no more than 15,000 feet below sea level, to turn the residue into oil. Too deep, and it becomes natgas. Two shallow, and it is only oil shale."
Les steps in and extrapolates by saying, "But one thingee is for darn sure: one has to discover a natgas field before it can be produced, and the rate of discovery is falling rapidly. We now are fully utilizing every rotary rig in the US to try to find more fields. And for the last two years running, US natgas production has fallen about 4% per year. Dr. LaHerrere's analysis suggests that soon we will see a much more rapid decline."
And the problem ain't a-gonna get solved by more exploration and drilling, as Dr. Ken Deffeyes, professor emeritus of sedimentary geology at Princeton University, writes that "we have now found 94% of all the oil fields that have ever existed on the planet."
Trade Deficit Will Come Close To One Trillion Dollars
John Mauldin says, "in 2005 the United States is projected to run a trade deficit of $806 billion, up from $668 billion in 2004. The International Monetary fund forecasts that the trade deficit will rise to $890 billion in 2006 and then to what can only be called a staggering $980 billion in 2007.How in the wide, wide world of global trading can one country run an almost $1 trillion dollar trade deficit? What is the rest of the world going to do with all those dollars?"
Well, they could send them to me, but every time I suggest it, they hand up the phone on me. But Mr. Mauldin doesn't even slow down as he goes on to comment on Greenspan's big speech last year at Jackson Hole, where he actually admits that the central bank "will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period." I know what you are thinking. You are saying to yourself, "What in the hell is this crap? The nation's monetary policy is being used to bail out some butthead companies who have acted irresponsibly?" In a word, yes.
Debt To GDP Ratio Now Higher Than 1929
Mr. Mauldin went on to quote Mr. Greenspan saying "The determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them." This is the only instance that I know of where anyone connected with the Federal Reserve, or the laughable and mutant "mainstream" economics that has infested the USA, has ever suggested, or ever even hinted that the liabilities that have arisen in all this financial activity have any importance at all! In fact, the bizarre economic theory that the Fed operates under actually takes no notice of existing debt loads. Strange, but true. All that matters to them is interest rates, and everything economic is determined only by interest rates. This probably explains why the ratio of total liabilities to GDP is now somewhere between 250% and 350% of GDP, which is a record never even attempted anywhere else in history.
But instead of admitting that The Mogambo was correct when he is standing outside the windows of the Federal Reserve building and screaming, over and over, louder and louder, that "We are freaking doomed by all of this accumulated debt!", Greenspan actually confesses that the actions of the Federal Reserve will NOT change, and he actually says "Our forecasts and hence policy are becoming increasingly driven by asset price changes."
An Alternative Approach To Determine True Inflation
John P notes that just three costs faced by every American that probably determine 80+% of the true RATE OF INCREASE in the cost of living:
1. lodging, 2. health care, and 3. energy.
Looking at these things, he figures that the inflation rate "is at least 16% and actually north of 20%", which sounds about right to me. That is why I am accumulating gold and expect you to, too.
Gold Still Cheaper Than Dirt
And when speaking about gold, listen to Richard Russell, of the Dow Theory Letters, who writes "All the gold ever collected, panned or mined since the time of Jesus amounts to about 2 trillion dollars worth. The Fed is now producing dollar liquidity at the rate of roughly $1.5 trillion dollars a year. How high can gold go? I honestly don't know, but compared with what the Fed's been doing over the last five years, gold is cheaper than dirt. And investors around the world are beginning to recognize that thesis. The capitalization of all the legitimate producing gold mines on the planet earth is around $120 billion. You could trade 'em all for Google and have money left over. Now please get this straight -- we don't buy gold to build wealth, we buy gold to HAVE wealth. And that is why intelligent people buy and hoard gold." I include this because I am buying gold, and this is the only time in my life that anyone has ever said that I have done something intelligent.
And the opposite of "intelligent" is "stupid", and if there was ever a really, really, really stupid idea (RRRSI) which is so stupid that nobody else in history has ever even considered it, it is the RRRSI of "Let's disarm ourselves and make ourselves completely defenseless!" Well, it turns out that there are morons in Australia too, and Ed C, who is a police officer in Australia, says that in the twelve months since gun owners in Australia were forced by a new law to surrender their firearms (a program which cost $500 million dollars), the results are that "homicides are up 3.2 percent, assaults are up 8.6 percent, and armed robberies are up 44 percent! In the state of Victoria alone, homicides with firearms are now up 300 percent. While figures over the previous 25 years showed a steady decrease in armed robbery with firearms, this has changed drastically upward in the past 12 months, since the criminals now are guaranteed that their prey is unarmed. There has also been a dramatic increase in break-ins and assaults of the elderly."
In case you were wondering, similar results are always achieved anywhere people are deprived of the means to protect themselves. That is why the famous John Lott correctly entitled his book (as nearly as I can recall), "More Guns, Less Crime."
Commercial Gold Traders Are Massively Underwater
But we were talking about gold, and Mark Lundeen, independent economist, has calculated that the price of gold has pushed the commercial traders in the gold pits massively underwater. As he puts it, "The gold commercials are hurting. The only way to end this is for them to get gold to go back down, or get net long. But to do so they would have to buy back their positions and who knows what gold would do then? I smell blood in the water."
James Murphy of LeMetropole chimes in with "The Gold Cartel has lost control. Physical market demand is overpowering the bums – their diminishing central bank supply is just not enough at these price levels. The Gold Cartel and their allies know they are TRAPPED. The crooks and friends know the downside is limited too and are trying to cover as fast as they can. This is why we are seeing these dramatic price surges to the upside."
Gold Shorts Are Panicking
Murphy goes on to say "the shorts are panicking in order to extricate themselves from their short positions. How are they doing? Not so good. By my calculations all they covered yesterday was around 40 tonnes, max. The total short position is above 10,000 tonnes. If only 10% of the minimum number of shorts plan to cover, it will take another 25 days like yesterday. 25 TRADING DAYS!"
Silver To Move $1 In One Trading Session?
I raise my hand and ask "And what about silver?" Well, Mr. Murphy is visibly upset that I interrupted him, but says through clenched teeth that he figures that it is "Only a matter of time before there is a Commercial Signal Failure in silver too. We will observe silver move $1 higher in a single trading session." And Ted Butler, silver guru, predicts that we will soon see days this year when silver "goes up-limit", although he acknowledges that this is actually just a figure of speech, as there are actually no up-limits on the Comex other than temporary halts to trading.
And speaking of gold, James Turk author of newsletter The Freemarket Gold & Money Report writes "Everyone who has bought gold over the past 24 years is making money. My expectation is that we're going to see $600 in the first quarter of 2006, and sometime over the course of 2006 we're going to touch that $850 level."
Then he gets into the shadowy and scary new world of ETF's, and says "iShares Comex Gold Trust (IAU ) and streetTracks Gold Shares (GLD ) are not an alternative to owning physical metal. They're a convenient way to speculate on the price of gold. They don't prove that the gold actually exists in the vaults of the custodians and the sub-custodians with an audit."
I know that it is only a slip of the lip, but President Bush may be more truthful than he realizes when he said (thanks to 321Gold.com for the quote) "Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we." Hahaha! And appointing Ben Bernanke to the chairmanship of the Federal Reserve only underscores those convictions! Hahaha!
Monetary Flood - Just Look At M3 Figures
Puru Saxena of Money Matters had headlined his latest newsletter "Red Alert - Monetary Flood!" He writes "Despite what you hear on your local T.V. or radio show, we are living in highly inflationary times. How do I know? Easy – simply take a look at the rates of money supply growth over the past year - Australia + 9.8%, Britain + 11.2%, Canada + 9.8%, Denmark + 16.3%, US + 7.3%, Euro zone + 8.5%." He concludes by noting that "Central banks around the world continue to print money like there is no tomorrow."
Bob Hoye of Institutional Advisors hears talking about central bank stupidity and says "As history shows, central banking is fine when disciplined by a convertible currency and, when not, it becomes a tool of state ambition to confiscate wealth though currency depreciation. That the dollar has lost 90% of its purchasing power in only 50 years exceeds most princely devaluations and, like those, has been no accident. Regrettably, modern financial agencies such as the Treasury or Federal Reserve System have become as corruptible as their medieval counterparts.
Size Of The Economy: $11 Trillion - Debts: $40 Trillion
"The total American debt is roughly US$40trillion whereas the size of its economy is around US$11 trillion. So, the debt to GDP ratio is over350%! Similar imbalances can be seen in most advanced countries where households and governments are choking on debt. In the current scenario, the easiest way for nations to make this debt easier to handle is through inflation.
"We can be rest assured that the central banks of this world will continue to inflate. After all, the same method has been tried (without success) several times before in history." As examples, he mentions France, which plunged "France and Europe into a severe economic crisis!" Germany also adopted the inflationary route after the First World War and "decided to finance its war reparations by printing money. This action had a catastrophic impact on the German economy as its currency eventually became worthless due to hyperinflation." Plus, there was "Latin America in the early 1980's. Once again, the end result was the same - economic chaos and plummeting currencies."
India Is Biggest Gold Consumer Of The World
By this time I am bored as I was in high school, listening to somebody yammer yammer yammer about ancient history. What I want to know about is gold, and how much money I am going to make. Graciously answering my question, Mr. Saxena tells us that "supply is shrinking. On the other hand, gold demand from India and (to a lesser extent) China is going to the moon. Over the past year, the Indian gold demand grew by 47% and India also happens to be the biggest consumer of gold. Now, you can do the math yourself, but I can assure you that demand will rise significantly over the years ahead. In summary, we have a situation where new supply is tight and demand is rising - classic recipe for a bull market."
He also notes that "a new bull market has begun alright, but it isn't in stocks, bonds or property - it is in the natural world of commodities. In 2001, commodities (adjusted for inflation) were the cheapest they had ever been in the history of capitalism! Agriculture (adjusted for inflation) has never been cheaper in 200 years. Now, that's what I call value! Agriculture may not appreciate instantly, but you're not going to lose much even if you're wrong - that is the beauty of buying value on the cheap. Adjusted for inflation, this sector is now selling at a 90% discount compared to its peak - a fabulous bargain, don't you think?" Yes, Mr. Saxena, I DO think that!
The Bond Bull Market Comes To An End
As for bonds, he is less sanguine, and notes that "Interest-rates are now rising all over the world, so the ageing bond bull-market may be about to end. I suggest selling your bonds during periods of strength."
How to sum this all up? Mr. Saxena says "My advice - forget the short-term movements, simply buy gold on the dips for the long haul."
Doug Casey of the Energy Speculator newsletter projects that "The world's use of electricity is projected to increase by 66% from 13 trillion kilowatt hours (KWH) in 1999 to 22 trillion KWH in 2020."
That is why he is pounding the table for uranium, notes that demand for uranium already outstrips demand by 26%, and that the deficit is "not going away anytime soon" because uranium mines will have to double their current output, which is pretty tough.
If you are thinking that your house will protect you, guess again. From Taipan newsletter we learn "The last time rising interest rates collided with a real estate oversupply was in 1990. That year, the price of an average home fell around 10% - and the price of upscale homes declined by 40% to 50%."
Their assessment of it is "This means we're sitting under a black shadow of something about to topple. Over $2.5 trillion in 'paper money' - the so-called wealth created since 2001 by the rise in housing prices - will disappear."
Low End Borrowers Are Already In Trouble
Gary Schilling, of A. Gary Schilling & Company, writes that "low end borrowers are already in trouble as shown by the leaping delinquency rates for the usually subprime FHA insured mortgages."
Home Prices Could Halve In Some Areas
In that same vein, economist Dean Baker, co-director of the Center for Economic and Policy Research, believes that "when the bubble bursts, home prices could fall 11% to 22% nationally, 30% to 50% in some markets. That would result in home equity losses of between $1.2 and $5 trillion."
Kevin DeMeritt of goldcentral.com hears all this, and asks "So when real estate inevitably crashes...does that necessarily mean investors will make another jump, this time to gold? There may be little choice. Meanwhile, investors will be watching wide-eyed as gold and silver thrives on all the uncertainty."
John Chalcraft of ProActive Communications reminds us that "Investors are well aware of the soaring price of commodities such as gold and oil, but a fact going largely unnoticed in the investment community is that over the past 3 years the price of molybdenum has risen over 1000%."
The way people are trading in and out of the gold market reminds me of a saying by Rich U., who solemnly intones "Greed, the silent killer." If you are sitting on a profit and you sell, you have to pay the taxes, commissions and fees, meaning you will have less money when you get back in. If you are, instead, sitting on a gain and you DON'T sell, then all that money is still there to make more money when gold goes back up in price, which it will. Trading is for chumps. Buy and hold is the way to play the coming long bull market in gold. And as a big chump myself, I know what I am talking about. Ugh.
****Mogambo sez: Nothing has changed, except that I am bored, as making money by buying and holding gold, silver and oil is so unexciting. And it will be continue to be both profitable and boring for a long, long time, too. So shut up and deal. And send the kid out for another six-pack. And some potato chips.
The Mogambu Guru's straightforward writings are made possible by The Daily Reckoning.
Richard Daughty aka The Mogambo Guru is general partner and COO of the Smith Consultant Group and can be emailed at firstname.lastname@example.org.