Tuesday, February 22, 2011

Don't Hold Your Breath...

On housing, the economy or the dollar.  Regarding the latter, I will sum my thoughts on this with a quote from James Turk from his interview with Eric King: 
But the lingering question in my mind is whether the strong hands who hold silver are unwilling to take a fiat currency. If that is the case, and this backwardation in silver eventually leads to a backwardation in gold, the implications for the US dollar, and indeed all of the fiat currencies in the world are ominous (Here's the LINK)
While our policy-makers playing "kick the can down the road" with the catastrophically unmanageable financial problems in this country, the rest of the world is slowly transitioning away from the U.S. dollar and its use as a "reserve" currency.  The evidence abounds.  Suffice it to say that several countries now trade directly with each other in their local currencies.  At some point the rest of the world will not accept dollars anymore and all the paper millionaires in this country will be paper paupers.  This tragedy can be avoided by moving as much as you can, while you can, into physical gold and silver.  And not CEF, GTU, GLD, SLV (or even PHYS and PSLV unless you buy enough shares to exchange for physical - about $500k for gold and I'm not sure with the silver but for sure 6-figures).

Housing continues its acceleration into oblivion.  To begin with, the Case-Shiller (leave off the "er" for "shill") monthly housing price index was published today and it showed a 2.4% year/year price decline for December.  I did some research into how this index is put together and, first it's a statistical composite of 20 metro areas, and it looks like the numbers are skewed toward non-distressed sales.  In other words, it understates the decline in prices being experienced in many areas and it overstates, on average, the price that has to be paid by buyers for homes.  It would also not include seller-"soft" concessions, which can be substantial, because those are not factored into the sale price reported to local recording offices.  What this means is that the true state of the housing market is much worse than is being reported even by independent data manipulators.  Here's the press release for C/S:  LINK

To make matters worse, it now looks like the National Association of Realtors has overstated the number total home sales going back to 2006 by at least 20%.  I actually had mentioned this report last week, I believe, but now it's been thrust into the mainstream media.  Core-logic has done the work on this and you can read about it HERE  The implications of this are quite ominous.  To begin with, if this is true - and I would bet good money that it is - it means that the true inventory of unsold homes is much larger than is being reported by the industry and the census bureau.  Oops.  It also means that most people who bought a home in the last 5 years did so without good information about the true economic condition of the market and probably overpaid because their realtor hyped them on dwindling supply and a much higher level of sales activity than was actually occuring.  Oh well it's only fiat money, right?  But even more ominous is that not only is the inventory of unsold home much higher than is being reported right now, but the situation will get even worse as banks are forced to start unloading their inventory of foreclosed homes to make room for the avalanche of foreclosure activity that started in January.

The bottom line here is the value of the entire housing market was bid up on a house of cards - so to speak -  fueled by lack of credit standards, fraud and lots of printed fiat currency, and now this mess is unwinding and the snap-back in the other direction will be just as large in magnitude and it will be catastrophic in effect.  Sorry, but I told anyone who was willing to listen back in 2004, when I unloaded my home, that the market was eventually going to collapse...now a lot of those same people want to know what I think is going to happen next and I refuse to even answer because they won't believe what I think will happen now any more than they did back then...history repeats the first time as a tragedy and the second time as a farce...

And now the overall economy.  If you want to read a great analysis as to why the retail sales numbers that are being reported completely overestimate the truth, go to http://www.shadowstats.com/ and get John Williams brilliant work.  Here's the summary intro to his latest piece:
Broad economic activity generally is viewed in real (inflation-adjusted) terms, as seen in headline Gross Domestic Product (GDP) reporting, for example.  With sales numbers stripped of inflation gains, or of pricing effects from distortions in monetary policy, the residual growth is a measure of straight economic activity.  Accordingly, when retail sales increase by the same amount as the underlying prices in those sales, underlying demand is flat
Williams' work aside, Walmart reported that its same-store-sales for the quarter ending Jan 28 fell 1.8%.  This is a huge miss, given that the CEO in October said the sss would be positive.  Oops.  I did write a couple weeks ago about a report circulating that said insiders at Walmart were concerned about this quarter's revenues.  Where there's smoke there's fire.  Walmart represents something like 10% of all retail sales in this country.  If sss sales declined 1.8% - and make no mistake, a negative sales result like this is HUGE for retail - imagine what the unit volumn is if you strip out the portion of revenues attributable to inflation. 

Bottom line here:  the grass roots economy is in a downward tailspin net of the reporting mirage created by inflation, the Government and non-independent private entities (Nat'l Assoc of Realtors, Wall Street).  Imagine how bad this will get if the Government actually tries to keep its spending levels constant with last year and eventually stops extending the duration of jobless benefits (aka Labor Force welfare)...

The spike higher we are seeing in gold and silver these past few days is not the signal of blow-off top in a market that is in a bubble.  Quite frankly most seasoned precious metals veterans are starting to conclude that we truly haven't even started Stage 2 of the bull market cycle for gold/silver.  (To review:  Stage 2 would be when big institutions pile heavily into a market sector - we have not seen that yet with the precious metals).  The bubble stage occurs after Stage 3 (to review:  everyone you know can't buy enough) is 50% over.  The move in the metals right now is a warning shot being fired by the market that the financial and economic tsunami about to hit the United States is getting very close and it will be a lot bigger than the one that hit in 2008.  I will wager any amount with anyone that I am right on this...


  1. agree on the storm about to hit-

    if the banks have to start dumping the foreclosed houses-which sooner or later will happen-then how do they continue to fudge the house and collateral and mortgage obligations viz a viz the market to fantasy accounting that allows FDIC to close banks weekly where the real asset value is 50-70% of the last audited financial statements? Rhetorical question I guess.

  2. Dave,

    Probably a dumb question, but what are "PHYS and PSLV?" Also, is GoldMoney O.K?

  3. Not a dumb question. PHYS and PSLV are the Sprott physical gold and silver trusts. They are the best ones out there and the only one that offers true verifiability that what they say they own they actually own. But you still have to have deep pockets in order to buy enough shares to exchange for gold/silver in the trust. So, technically, it's still a paper investment in gold for most people...

  4. Dave,

    Thank you for that info. However, I'm a little slow, so forgive me pursuing this. That is, you're not too bullish on GoldMoney.com?

  5. Dave,

    Can you be reached at the email link in your Blogger profile?

  6. re: email - yes - though I don't check it every day - i'll try to remember to check it later - i have appointments this afternoon.

    re: goldmoney.com - forgot to answer - it's fine. it's Turk so it's good

  7. Hi Dave, as a former coin dealer I agree with you on stocking up on physical. Most of my savings is in bullion in one form or another. I don't think it's fair to lump GTU and CEF in with the ETFs though. Central Fund at least has a 3rd party audit twice a year, and is not a bullion derivative like GLD, SLV, et al. I don't own any personally because I think there are better vehicles, but it's not the worst by far.

    As far as housing goes, I sold my home in early 2006 despite the fact there wasn't much of a bubble here in Dallas. So glad I did, since I don't see a bottom before 2014, and that's my optimistic prediction.

  8. Jennifer, I agree on CEF and GTU but only to the extent that one wants to index the returns on gold and silver. The biggest problem is that investors buy CEF and GTU and think they are invested in gold and silver. They are not. There will come a day when the distinction between having the physical - or access to it like with the sprott trusts - and having an index product that you can only convert back in dollars becomes obvious.

    With CEF and GTU you still have to sell the security and take paper.

    The other problem with CEF and GTU is that they no longer allow investors to actually go see the bullion in the vault. I have a problem with that but most people do not.

    And my friend/colleague "Jesse" did a blog post on site about a year ago I think, in which he outlined the way that folks managing the CEF and GTU trusts are sleazing extra fees out of them. The link to his blog is in my blog list in the lower right if you are interested in his work on that

  9. Hi Dave, I didn't know about the extra fees, that's interesting. I don't have any CEF/GTU because I don't want paper, and I have very high standards for any company that holds my bullion. IMO, GoldMoney is the leader in governance and transparency.