patrick.net

Kee-rist, people. Are we back to the old "Bay Aryans are all Googleaires and make 5X the incomes of everywhere else, thus prices cannot fall in my section of the Fortress" canard? How many times is it necessary to debunk this annoying myth:

http://quickfacts.census.gov/qfd/states/06/06075.html

Just plug in your county or city and go. Ex:
Median household income, 2004 San Francisco: $51,815 CA: $49,894

HARM, the median household income in my city (in the peninsula) is > $95K!

There is definitely a speculative element to the price of Gold and Oil. There always is. Supply/Demand, inflation expectations and change of confidence in fiat currencies also play a part.

I agree with many posts here - the speculative element in Gold is nowhere near to what I am used to seeing in stocks and houses. When it comes to reducing positions in Gold, I would not be using some magic number. I will see how euphoric the sentiment is and then decide.

Sell when panic buying is the norm.

* NOT INVESTMENT ADVICE

My wife and I, despite being educated professionals in the top income quintile nationally (not sure about the Bay Area though) make considerably less than 1 HaHa combined. Despite being such *obviously destitute paupers*, we manage to save a bit each year and max out our 401k/IRA contributions as well (probably by selling our blood, shopping at the local Salvation Army, and foraging for food in the local dumpsters).

Fyi: I am moving up there in 2 weeks. Can all you locals tell me, approximately how long will it take for the BA Kool-Aide to fully kick in and for me to lose all sense of perspective?

Steveoh Says:
January 2nd, 2008 at 11:42 am
"Gold is the new bubble…
Really? I wonder.
It seems more a shift of resources in order to preserve wealth, than a disconnect from market fundamentals, right now.
What would indicate a gold bubble?"

Because in a couple of years it doubled when prices in general have not increased significantly. The largest household expense has been in housing which roughly did track to gold. Gold still going up while other things including housing are falling indicates a disconnect to those fundamentals in my opinion. If both continue in the same directions gold will seem overpriced. Gold is not oil, gold is a reflection of what money is worth at a point in time, or what the market thinks money will be worth at that point in time in an irrational market. That is why it is seen as a hedge against inflation, it is a bad investment during deflation. If you have an inflationary outlook then your fundamentals are sound in supporting a gold increasing, I have a different point of view. If you are right, there will be much bigger problems than just what someone's few ounces of gold are worth.

To diversify a little I bought 2 full pads of forever stamps. That is a real hedge since it always buys the same service forever. Technically I won't make a penny but that $1400 will always buy the same thing as it does today.

HARM, the median household income in my city (in the peninsula) is > $95K!

So? I'm sure the median HH income for Bel-Aire is probably ~$300k (too bad its not listed). The median income for Alameda is $57k. We can all cherry-pick, but it doesn't change the fact that there are not enough super-rich people who haven't yet bought to sustain housing prices in NCal --not even in the Fotress.

There is a reason why this belief of mythological proportions in Bay Aryans earning power keeps propping up.

Permarenter pointed out that his (her?) family is a 2-income family that is still renting. SP/OO point out how high the salaries are.

This is because the bubble-bloggers are NOT the norm. We simply are not the most representative sample. Not just from an elitist point of view. Most people here are money savvy. Very skeptical of conventional wisdom and willing to swim against the flow.

So often times we mistake ourselves for the world.

StuckInBA Says:
January 2nd, 2008 at 12:01 pm
"Sell when panic buying is the norm."

Someone like me who bought a bunch of it 3 or so years ago and thought $500 per ounce might view todays buying as a panic. Do consider the annualized return. Like I said a little earlier, the appreciation has to increase to keep the same annualized ROI, it gets to a point when the money would do better in a bank. That's been my exit strategy for gold, and when I owned other properties. When ROE equals the safe rate, time to sell.

I always thought of pot as the most popular drug-of-choice in the BA, but now I suspect it might be crack.

Correction to ROI, on the original invested amount the annualized return is the same for the same level of appreciation. It is the investment plus appreciation equaling ROE which is how I determine exit point.

"and hasn't since 2006"

Well thank heavens for that! Otherwise we could have considered them a contributing factor to the bubble...

I've picked up some more gold recently and am probably in OO's camp (wake me when they decide defending the dollar is a priority?)

While it IS... a wonderful think to have a local blog started up in your area one of the things I've found is that since ALL the posters there are "new" when you say something like "I've been saying that since 2004!" it really doesn't cut any ice w/ them. In fact if anything they tend to just blow it off like you're some BS artist that didn't "discover" the bubble a moment sooner than they did. So... great local intel, but no real sense of history.

Malcom,

That is why it is seen as a hedge against inflation, it is a bad investment during deflation.

Mish has been arguing against this all along. If you haven't read his blog, please do. He is not god and he can be wrong. I disagree with him on many aspects in my uneducated non-economist way of thinking. You can disagree with his premises, but his arguments are logical, consistent and honest.

According to him, gold is actually a very good investment in deflation. Not good in normal-inflation - proof is last 20 years of performance. And very good in hyper-inflation, which I am willing to bet will not happen.

DinOR :

wake me when they decide defending the dollar is a priority?

Are you implying that you don't trust our Treasury Sec ? ;-)

StuckInBA,

Not at all! I don't want to get to embroiled in the ROI/Exit-Point debate, it's just when you're in my end of the industry, clients see noteworthy events, call in, and want to be assured they ALREADY own it!

(So owning gold in this instance is defensive in more ways than one)

I actually believe the stat that the median household income in the BA is about $50k. That's 2X $25k, or about what I made as a bench tech FIFTEEN YEARS AGO.

So, I marry another bench tech, preferably a non-White one since they get paid 2 or 3 dollars more an hour (for a bit less work I might add) and if not already in the BA we move to the BA.

Hey Presto, we're rich Bay Aryans! We can buy a million-dollar house!

OK ok let me get back to reality .... the truth is, a person can make $8-$10 an hour in the BA or they can make $8-$10 an hour in Bumfuck Tennessee, but the living costs are less than half the BA costs in Bumfuck, and the people are nicer.

The only reason I can see to live in the BA is if you're single or a really well-matched couple and you can live in a hippie van thus avoiding the insane cost of rent, and live in the BA to enjoy what the BA is about, which is not working yourself to death. You can work yourself to death anywhere in the US, but only the BA and a few other places have nicer weather, nice beaches, some good clusters of musicians and artists, things like that. If I were good at an instrument or at twisting balloons (Nope Twister don't worry, I don't want your job!) or something like that, the BA is one of the places to be discovered. You can actually made a decent living doing that with all the beach areas, hangouts, farmers' markets, swap meets, etc. I'm willing to believe $100k a year is possible if you do something popular and you hustle.

But most people in the BA are working their asses off just to survive and don't get to do much but stare at the walls of their cubicle, or work 2 shifts at Costco or something.

So, the BA is really only a good place to be "discovered" not for bread-and-butter living.

Peter P, If it hits $900 I’m selling the rest of mine. I have about 5 ounces left. I’ve been slowly selling it off.

On the other hand, I see $2000/oz a real possibility. Gold is not YET a bubble. However, gold price is going to be super volatile.

Disclaimer: I have a tiny physical gold and GLD holding.

NOT INVESTMENT ADVICE

Don't some of you hold out even the remote possibilty that all of these future uncertainties are already built in to the gold price?

DinOR, is defending the dollar a priority? (rhetorical restatement) Who stands to lose? Would policy makers favor the poorer masses or would the wealthy special interests win them over? So far IMO they seem to favor the poorer masses probably because it is an election year. That begs the question of whether policy will change after the elections. Do we wipe out the wealth of the savers or do we devalue debt people are carrying?

Malcom,

I was sort of going to comment on that b/c one of our great posters from the past (Randy H) had similar observations. Since then, we've seen much broader deterioration than most of us imagined. (Nat'l City's announcement this morning for instance).

CNBC just posted this was the worst, first day of trading since 1932! The bad news just keeps on coming.

For 2008, the best investment is not gold, but agriculture.

Here is a piece of important news that didn't get into the English channel. On the first day of 2008, the Chinese government suddenly reversed their agricultural export (semi-finished, packaged food commodity export) policy from a tax-rebate policy to quota policy. In 2007, if you export wheat, beans, etc. in semi-finished form, you claim up to 16% tax rebate by the Chinese government. In 2008, sorry, you need to apply for a quota. Overnight, the Chinese attitude towards food has changed drastically. What does that mean? Food shortage within China!

Look for huge strides in RJA, DBA.

Savers are not the wealthy people who control the congress. Savers like you and me are just middle class, or upper middle class if you will. We are the prey of every single policy looking for money somewhere.

The truly wealthy, smart crowd has long put their money in commodities and profited handsomely as the government chooses to cater to the indebted Americans. Rogers commodity fund was only available to the super-rich, commodity trading is the ultimate rich man's game. Without the recent innovations of ETFs, we little guys have no chance to participate in this wealth redistribution scheme. For that I am thankful.

OO, in my worst case scenarios even from three years ago before I even found Patrick.net I thought wars could break out from the impending fallout from the mess the housing bubble would cause. Food shortages in China is somehow not very reassuring.

I have said for a couple of years that most people here are on the same page but the variable is the timing.
Here, here... let's raise a glass to all those poor SOBs at the HBB who were shorting the homebuilders over a year ago. Technically, they were right, but as DinOR likes to say, we had to "hit the wall at 100mph".

Here is a good bubblicious "gold indicator": your neighbor starts touting a stock called GoLD (not in a retirement account) and when you ask him if he is comfortable paying taxes on a "collectible" he gives you the old deer in the headlights look. That said, GLD is going to allow much easier access to take a direct position in the price of this precious commodity when specUfever sets in... I still have buys in at under $800, at his point I am crossing my toes as I have promised myself to go "all in" once we hit an all time nominal high.

Okay, so by my count Malcolm & Headset are in Mish's camp... Is it correct to say most of the others are betting on some sort of stagflation scenario? I have a hard time believing that Eurotrash are going to come out much better than us as they have their own RE bubble to deal with....

Citizen HARM, you will soon be in a position to judge the health of the Bay Area economy. Hope that you can take a lawn chair to the ginormous mall in Walnut Creek (too smug to tell you its actual name) and give us first hand dispatches from the front. When the foot traffic starts disappearing there, we will know all hope is lost...

Malcolm,

China has plenty of USD to buy food. We are not having a shortage in the sense that there is not enough food to go around, we just need to pay higher price for the same amount of food, that's all. Of course, if you are stuck in Africa, that's entirely another issue.

China eventually can find good use of the USD they are collecting every minute as we speak.

Good point OO. I have also noticed that some of the 'powerful' actually aren't personally rich. I'm not quite as cynical because I think wealth is beautiful and I've met some fascinating people throughout my life who were very benevolent at the same time being local movers and shakers.

The conviction of Randy Cunningham (childhood hero of mine) was indeed eye opening. This guy seemed to have it all. What you say though is why I actually fear liberal power because we do have a huge target on our backs.

But you said a food shortage in China as a consequence. I thought the same, there is the same amount of food it is a change in a policy, but if food really is more expensive that means they have to buy less.

National City is a regional bank headquartered in Cleveland, Ohio. The company has been slammed by rising defaults in mortgages it made to its customers.

During the third-quarter, National City's mortgage business lost $152 million as the value of its mortgage holdings plummeted. The mortgage woes chopped the company's profits 80% lower than a year ago. (See: "National City's Subprime Misery")

The problems have prompted National City to cut back on its mortgage business. The company announced Wednesday that it will fire 900 employees from National City Mortgage.

The problems also scared investors away from National City stock. Shares of the company have plummeted 56.5% over the past year. The stock decline left an unusually high annual dividend yield of over 10%.

Wednesday's dividend cut puts National City stock at an annual yield of 5.3%.

OO,

Those look good, oh and I agree btw. Also check out MOO. I know, sounds corny for an Ag. ETF but what's in a name?

NIA

http://www.bloomberg.com/apps/news?pid=20601087&sid=aO2aajb1Xwho&refer=home
China, the world's biggest grain producer, will tax exports of wheat, corn and rice to increase domestic supply and control rising food prices.

EBGuy,

True, but I usually preface that w/ "why do we have to?"

Oh loved Cody Banks: Secret Flipper too btw! I remember seeing an interview w/ Frankie and b/c he was a minor his folks controlled his paycheck. (I guess this was his first foray into "investing"?)

Perma-Renter,

Stories like that can make a Wednesday feel like a Monday every time! Did we close above $100 on oil?

Since the Mao time, China has always adopted a self-suffiency food program, which the government obviously abandoned as they gave up more land and resources to become the production base for the world.

There has been lots of controversy re: the official number of acreage in China dedicated to farming. Just from an overall point of view, apart from loss of arable land to residential and industrial uses, farmers also dedicated more acreage to growing higher-value-added crops like fruit and paper-pulp trees when food price was record low 5 years ago. On top of this, there is the environmental factor, unprecedented droughts and floods claimed many acreages as well. The official data of arable land in use differ quite a bit from estimates made by private organizations, the truth is somewhere in between.

Food supply is a bit more flexible to adjust than mining. But it takes time. An industrial or residential piece of land can't be immediately turned back to growing food overnight. Also, the higher-value-add crops deplete soil differently, and some of those paper-planting trees (eucalyptus etc.) disrupts local eco-system. For example, these tress have weak branches that cannot sustain the original predators of rats such as snakes and hoots, so the reproduction of rats gets out of control. It is possible to restore normalcy, but it takes time.

So China is not suffering from a structural food supply problem that cannot be reversed. Just that in the few years as they re-adjust, we can make lots of money selling food to them.

RE: food shortage

It is one of Free Market's ways to limit population growth.

DinOR,

I am not quite into MOO, because it is fertilizer ETF. What will happen is, grain price will shoot up without benefiting fertilizer companies much, as farmers are not making huge margins in their businesses. It is the shortage of food supply vs. demand that will contribute to a higher food price. Fertilizer companies will only continue to profit if farmers also enjoy a higher margin, which is not the case.

Another reason for my dislike of MOO is, Cramer recommended it. I generally use him as an inverse indicator, whenever he recommends anything in my portfolio, he makes me very nervous - is it time to cash out? Luckily my stuff has been below his radar screen so far.

Peter P Says:
January 2nd, 2008 at 1:44 pm
RE: food shortage
"It is one of Free Market’s ways to limit population growth."

Until the free market creates genetically altered crops.

DinOR / OO :

I have been trying to look for some good agricultural plays. MON seems very much overinflated and not sure about BG. I have some ADM but nothing else in that sector. The DBA is a strange beast. How to evaluate that ? It doesn't seem to go proportional to prices, maybe because it uses shorter term futures.

Any ideas ? With usual disclaimers of course.

My bad, the Fortress is impregnable.

Palo Alto Daily News:
Mortgage trouble? Act early

Counseling offered to troubled borrowers
By Shaun Bishop / Daily News Staff Writer

"Right now," Eichner said, "we're drowning in these calls."

It is one of Free Market’s ways to limit population growth.

Yes, starvation is right up there with war, pandemics and extinction-level disasters. Great "solution" to the problem of overpopulation. Anyone care to volunteer to starve first? (This is a good example of a macro-level social problem the free market is simply not well equipped to solve on its own.)

I want to buy stock in "Soylent Green"
That solves two problems.