February of 2012 was the third month in a row that US economy added more than 200,000 jobs. This sounds great, however many of the new jobs were temporary, part-time or low quality jobs. I am not saying that job growth is not important; I am just saying that the quality of the added (and existing) jobs should be as important as, or even more important than, quantity of the jobs added.
First of all, let's take a look at home prices. The Shiller US Home Price Index, also known as the Shiller Index or the Home Price Index, is a good indicator of average home prices in the country. In 1987, this index was 62 and it moved up to 81 by 1990. From 1990 to 1998, the index remained almost flat in low 80s. During the housing bubble that started in 2000, the index skyrocketed and moved up all the way to 225. After the crash, it went down to 150 where it currently sits.
It almost looks like home prices have bottomed out and they are going to take off soon, right? Actually no. The fact is, the Shiller Home Prices Index is based on the US dollar, which keeps losing value every year. What if the Shiller Index was based on gold? We would have a chart like this:
Notice how home prices based on gold have been falling sharply since 2006? The chart looks like home prices are the lowest they have been in a long, long time in gold currency and they haven't even bottomed yet. The next question is this: When will they bottom and start moving up? The answer is clear: When the wages improve. The chart below shows the average hourly wage in America in gold currency. Notice how the trend is extremely similar to the home index trend.
In 2000, minimum wage could get 0.60 grams of gold; today it can buy 0.16 grams of gold. Until wages improve significantly, house prices will not start recovering.
Implications to Investors
Those invested in gold should stay invested in gold until wages improve significantly in gold currency.
Until the housing market improves, all stock investors should consider allowing a significant portion of their portfolio to defensive stocks such as ExxonMobil (XOM), P&G (PG), Coca Cola (KO) and Pepsi (PEP).