Madrid

Expect Housing Prices to Continue to Rise

I would like to agree with the last comment. I think it's a terrible thing if, after so much damage to the markets caused by speculation, housing prices begin to shift upwards at this point. As Buffett says, houses are not ultimately investments-- they are places where people need to live because of their employment, family, etc., and when people are too speculative about housing, it ultimately hurts those people who are trying to use a house for its primary purpose, namely a place to live and possibly raise a family, not to make an easy 100k by [assing it on to the next sucker.

Expect Housing Prices to Continue to Rise

I have a comment about a recent experience I had bidding on a house, and why think that there may be another destructive bubble re-forming in some real-estate markets:

I live in Northern New Jersey, and I am looking for a 3 bedroom house. In the past 5 months, I've lost houses by underbidding-- I bid 475K and someone bid 500K for example on a small house that was priced at 510K. So on this house that I bid on this weekend, I was determined to not underbid. The asking price was 499K and I knew there were other offers that were coming in, so because we really liked it and had missed a bunch of other houses, I bid full price.

Well guess what-- I still lost the house because some idiot (more of a fool than me) bid 550K, and told the owners that if the bank appraises the house at less than 550k, the buyer will pay the difference in cash!

Note that this is a few months after the worst real estate crash in history. I saw an interview with Robert Shiller recently, and he said that in some parts of the country (Boston for example), people have not given up the mindset of speculation, and I think he is right. There is going to be yet another speculative bubble in real estate in some markets-- the Northeast for example, and while the banks may not be playing along at the moment, sooner or later they will. And it will be the good times all over again, that is, until the financial market crash again...

Which just blows my mind, and shows that Americans never learn.

Einhorn vs. Buffett on Moody's

I look at the chart of MCO and all I see is a screaming buy, with upside potential of doubling and tripling. Einhorn is simply wrong-- ratings agencies are going to become even more important as a result of all this mess, and companies like Wells and JPM are going to hold up their AAA rating as a huge bage of honor, a sign that they weathered the storm and could weather another one.

I bet Buffett wishes he could double his stake in MCO.

Why It's Actually Different This Time

When any investor or trader tells you, "It's different this time," be suspicious, be very suspicious.

That said, it is always different every time. That is the nature of historical unfolding. History never repeats itself-- it only rhymes. We have disadvantages compared to the past, but we have big advantages as well. We also have big advantages compared to Asia and the rest of the world. One is that this continent has so many more resources, coal, copper, nat. gas, wood, than other countries. Another is the agricultural base. And while there are enormous problems with the US political structure and with too much taxation, we do have a political structure that is pro-business at the same time that it does not generally reward failed business models to the extent that other countries, China included, do.

Here notice that I am making a comparative judgement. Does the US prop up unproductive and inefficient enterprises? Yes, look at the healthcare system and look at AIG and CITI. THe former needs big reform and will soon get it, but the latter were mainly propped up because their failure would cause systemic other failures. Generally, the US does not prop up inefficient state-run companies for decades and decades. I have lived in countries where such companies do exist-- phone companies, for example-- and where they do exist, one has to wait a year to have a phone installed, etc. NOthing like that has ever existed in the US.

A few corrective measures could help the US immessurably, but no one thinks outside the box: 1) dismantle the US empire of bases. The empire of more than 800 US military bases all over the world, including Europe and Japan is the biggest bloated mess and drain on the federal deficit that this country has ever seen. Reduce this bloated pig of a system down to 200 or 300 bases. And rely more on international organizations to police the world. There is no reason why we should be paying for Europe and Japan's defense-- those countries can pay for it themselves, and if they had to, they would create some badly needed stimulus in their own economies 2) Create a real stimulus package for the people who are downsized from the downsizing of the empire of bases. Rebuild the passenger rail infrastructure-- build efficient train stations and high speed rail all up and down the east coast and the west coasts. Restore rail service between New York and Chicago and make it high speed. Give the same amount of infrastructure spending to rail that you do to air travel and road travel. 3) Employ urban planners to replan American cities and towns so that they can again be used by the majority of Americans-- not just the urban poor. Restore their place as marketplaces, and producers of ideas and culture. A country, whose cities are falling apart, can never experience any true revival.

Has the U.S. Layoff Trend Turned?

What do people make of the 4 day uptick in the Baltic Dry Index (Tuesday through Friday March 2-6)? And the fact that Eagle Bulk Shipping made a double bottom and went up 17% on Friday and Dry Shipping (DRYS) has begun to uptick as well.

Is all this simply reflecting China stimulus? Or is it a sign of recovery? Or potentially both?

Comments?

America's Banks: Are They Really Insolvent?

And how do they expect to buy a house or start a business? Or will all these young people choose to live in a homeless shelter or the street?


On Feb 13 05:08 PM a believer wrote:

> Cash will be the best investment until inflation or hyperinflation
> kicks in - then commodities will be the best investment.
>
> Here is something interesting: I was on a street in Raleigh the other
> day and I counted 10 different banks in a 3-block stretch. 10! Most
> were in new buildings; some had just opened their doors.
>
> The American people have all watched the absolutely reprehensible
> behavior of the banks over the past 1.5 years and the banks have
> shown their "true colors" to us all.
>
> Here is a trend: Alot of the young people are starting to develop
> a NEW monetary system that freezes out banks because they realize
> so many banks are run by greedy crooks - the banks are destroying
> individuals and our country. They also realize the effect of "interest:
> (usury) on money supply growth is ruining the world's economy. Who
> can afford to pay back the ever-expanding interest? No-one.
>
> Those young people are SMART.
>
> Here is another trend I've recently noticed: More and more people
> are storing their money at home and are paying their bills with cash
> and money orders.
>
> My prediction, therefore, is that most banks will disappear. Avoid
> loans, credit, banks, crooks, shills and the Wall St. thieves at
> every opportunity.
>
> Minimize your business with banks; avoid them if possible. Our economy
> must go back to conducting business with cash and savings, NOT credit
> and loans, and it will.

Why Oil and Gold Are Headed Much Higher

Thanks for that article Adam. Ok so they aren't lending now, or rather, they are not using the gov't injections of capital for lending now, but that can't last forever. At a certain point, they will lend, and there will be a flood of liquidity in the system.

If they keep this up, I will tell you one industry that is going to have some bankruptcies, namely higher education. If students cannot get loans, and pretty quick, we are going to see the first time in American history since the Great Depression when a large number of private universities and colleges go out of business. Most people, for example, don't realize tha extremely well-known names like Notre Dame and Rutgers (which was private at the time) almost went bankrupt during the Great Depression and during the war that followed (when young men preferred to join the armed forces than go to ND). That was a time when students did not take out loans to go to college, but rather worked their way through or got financial help from the colleges themselves. If banks don't loosen up with the money for students, it won't be very long that the only private colleges left are the 3% that have enormous endowments. Those that rely on tuition are going to be toast.

Why Oil and Gold Are Headed Much Higher

If those new dollars, generated by Fed printing and equity liquidations, do not get circulated at some point soon, then the current financial crisis is going to seem mild compared to what is to follow.

More importantly, it is not in the bank's interests not to circulate that money-- that is the way they make money-- by lending, and they cannot simply pay out dividends and interest payments forever, without generating income. If what the last poster said is true, namely that all of the dollars that have been generated by the stock sell offs and the printers going into overdrive, does not get circulated, then we are in for one doosy of a depression. THat said, what I am considering is only hypothetical. It defies basic economic principles for banks to withhold lending forever. It would be a suicide pact.

Why Oil and Gold Are Headed Much Higher

What increases in efficiency are you speaking of? There have been none-- none so far. So far the only tangible increases in efficiency have been the Prius, which is a marginal increase in efficiency, the beginnings of a viable solar industry, which has been cut off in its infancy, and T. Boone Pickens fantasies about wind farms in the midwest. And even if there were real tangible efficiencies, it's unclear that the kinds of efficienicies you and I are thinking of would make a difference. Jevon's Parodox shows that, in the absence of real fundamental changes in the way people use energy (like reorganizing cities so they function without cars, or forcing people to insulate their houses in certain ways, and putting limits on their thermostats), developments in energy efficiency have a paradoxical effect of causing increased energy use, not the opposite.

So what else has happened in terms of big changes in energy? Nothing tangible. No new mega-oil discoveries like the North Sea discoveries of the late 1970's or the Saudi fields that came on line during the early 1980's. The only big fields that have been discovered are the Tupi ones in Brazil, and those are miles deep and 10 years into the future for development. They have also been cut off in their infancy by the price drop. There are the tar sands, but they will soon be shut down as well, because of the price drop.

Finally, there will be no incentive to create efficiencies in the current environment. Now you have stupid economists, who know next to nothing about energy, saying that Peak Oil was all a conspiracy by speculators. There will be no new investment in this critical industry, I fear, until it is too late.

Your comment about gold is also laughable. I have been using this period to increase some positions in major oil companies, and don't own any gold stocks or paper gold, but if anyone thinks gold is going to stay at its current depressed level in an environment when the Fed prints money and cuts rates, to infinitum, is fooling themselves. The Great Depression is not a good precedent for what is occuring now, since the dollar at the time was tied to the Gold standard, and that limited inflation and also limited growth as well. A better comparison is the 70s. Where we are right now in terms of the 70s is right at Carter, who caused the first huge devaluation of the dollar, and caused the huge rise in commodities prices that followed. In 1981, inflation was 13.5 percent. What cured that was Volker ramping up the fed rate to 20 percent, etc. Does anyone think that any Fed chairman today is going to take such drastic measures? Do you know how many people were put out of work when Volcker did that? And finally, how do you expect us to realistically pay off the national debt, unless the dollar is tremendously devalued in relation to other currencies?

Why Oil and Gold Are Headed Much Higher

Answer me this riddle guys: I buy gold coins every once in a while, just because they are shiny and pretty (not going to lie), and I like to have something in the worst case scenario. And Apple Stock or SKF ain't gonna cut it if there is a worst case scenario. So in any case, I bought two onces of gold from Blanchards more than a month ago. They still haven't been delivered. I called, and Blanchards said they are so low on stock that it is taking 2 to 3 months to get people's orders to them, whereas usually it takes 2 weeks to get an order to someone. I called Kitco just to confirm this, and they said they are completely out of any US mint gold coins. The only thing they had were Krugs. and Maple Leafs. If the demand for gold is only in necklaces, etc, what is going on here at these gold dealers?

In my opinion, what is happening to the commodity play is that hedge funds are facing big redemptions and are liquidating, but this will not go on forever. And what is the main tool that the US gov't has when it wants to get the country out of recession: lowering interest rates and printing money. They did it in the 70s and they will do it again.

You may be right that there will never be the industrial demand for commodities again that there was in the middle of this decade, but then again, think about this. Over time, populations increase, people all over the world demand more and more housing, transportation vehicles, electronic devices, food, etc etc. How is it that commodities like silver, copper, and oil will stay at current depressed levels?