patrick.net

theoakman says

No one recycles Silver. It all goes to the junkyard.

Your point is?

As far as conductivity, the order of the 4 metals is Silver, Copper, Gold, Aluminium. The reason Gold is used for computer parts and system critical connections is two-fold: It doesn't corrode/tarnish/oxidize compared to the other 3, and it maintains it properties over a wide range of temperature, like sub-freezing space to boiling hot computer processors.

Gold as a stable store of value?
Not if measured by workers purchasing power.

The real value of gold has been like a Yo-Yo over the last 40+years.

Hours of work needed for the average US worker to buy an ounce of gold:

A few selected high and low points:

. In ... 1 ounce of Gold=
1969 10 hours of labor
1975 40
1976 20
1980 96
1981 40
1982 62
1984 35
1987 55
1992 30
1993 35
2000 18
2005 30
2007 55
2008 40
2009 65

Even the stock market has been more stable than this!

Time to buy on the dip Laddies! Gold is going through the roof! This is what we've been waiting for!

I think GLD has still some room to fall. I will wait to see if it comes down to 100 and then place my bet.

tatupu70 says

Your point is?

forget it. I give up.

Side note: I just bought 400 more ounces...

400 more ounces.

Now that is walking the walk!

Zeph,

I maintained my own chart like that, MEDIAN wage from US census website. But I also assumed that the purchasing power of US wage earner has declined at a rate of about 1.4% per year after 1967. Looking at it that way gold is not so overpriced (not underpriced either).

Zephyr says

400 more ounces.
Now that is walking the walk!

Zephyr says

400 more ounces.
Now that is walking the walk!

errr, maybe I should have clarified...400 ounces of Silver.

sybrib,
Gold could be reasonably priced today. I don't know.
I am just pointing out the dramatic fluctuation in real (and nominal) price.

sybrib,

The purchasing power of the average wage earner has increased significantly since 1967. If you doubt that, just look at the typical home and its contents today, and compare that to what was typical in 1967. Worlds apart. The house is bigger and has better contents and far more luxury goods. People take much fancier vacations, more restaurant dinners, etc. People often complain about old tiny houses. Well, back in 1967 those tiny houses were not considered tiny at all.

Zephyr,

Wow, what a miscalculation. There is well over twice the manhours worked per household today than in 1967. That is a massive shift in quality of life. Yes, SOME costs have been allayed over that time, but it takes TWO earners to produce the average lifestyle none-the-less.

Zephyr, I sure hope you are right, but I came to a different conclusion.

I don't really know what you are talking about with respect to the housing. With the same 20/80 fixed rate financing standards that my single-income blue collar parent borrowed and bought his then-new 1200 sqft sh*tbox in 1968, my dual-income household of accountant and engineer could similarly qualify to purchase a similar-sized 1970-built sh*tbox in the same zip code. What changed? about 20 years of declining purchasing power of US wages.

Here are some things that have "made up the difference" so that there's an "apparent" rise in living standards:
in the late 1960's the average household had about 1.1 workers. Now it's much higher, I think closer to 1.8 - 1.9;
"back in the day" it was standard to make one-fourth downpayment, PITI not to exceed about one-fourth of income. Loosening standards permitted folks to borrow more, to buy more house, especially with that 1.8x worker per household income, another "apparent" rise in living standard.

Other gimmicks like 7-year car loans, credit cards, HELOCs, student loans, have allowed us the "apparent" maintenance or even apparent rise in standard of living.

More gimmicks like deflation in pricing power for discretionary spending like the stuff at big box stores that's made in China have also masked the decline in standard of living, and efficiencies of scale with FrankenFoods and industrial agriculture have helped with pricing deflation for food, papering over the decline.

Our wages buy a whole lot less tuition at GOOD schools (and childcares), and medical costs, those things not as easily to adjust prices with gimmicks.

I understand the point about people working more, but the data does not support a big change in that regard. In 1970 about 60% of adults were in the labor force (men and women). Today it is about 65%. That is not a significant change in the workforce participation rate.

But it suggests that about 10% of today’s earnings are because of more people working. But look at all the cool stuff that people have today for that extra 10%!

But the best test is how much you can buy for your labor.

It takes fewer hours of work today to buy almost everything in the typical household budget, and the goods are better. Compared to 1970 the average home is about 60% bigger (with fewer people in it) and has more upgrades, the TVs are better, the cars are better and we have more of them per capita, the vacations are better, people dine out more, we have more conveniences and buy more services, the list goes on. We have lots of things today that did not even exist back then, but we now consider them to be necessities (cell phones, computers, more than 3 TV channels). Life was good then, but today the average family has much more material wealth (& cool stuff).

Here is an interesting link to a comparison of material wealth in 1971 vs. 2005:

http://austrianeconomists.typepad.com/weblog/2009/11/the-economic-condition-of-poor-americans-and-the-rest-of-us-continues-to-improve.html

A key excerpt:

“And do note that the average American household in 2005 was doing much better than its 1971 counterpart. MUCH better - and this doesn't even count medical advances and the like. So whatever one hears about stagnating wages and the like, the bottom line is ultimately what we can afford to buy and have in our households to improve our lives. By those measures, life for the average American is better today than 35 years ago, life for poor Americans is much better than it was 35 years ago, and poor Americans today largely live better than the average American did 35 years ago.”

wish i was lucky says

Today it takes about $30,000 or more to do the same thing - so wages have not gone up - the dollar has gone downhill

technically I think the dollar has gone "uphill". Strong dollar = high US wages compared to our trading partners.

Zephyr's latest is pure bullshit since land values and rents suck up any excess earnings accruing to the laboring masses. 30%+ of this country has no discretionary income after rent & food.

Yes it is true that it is possible to live cheaply like a King with all the access the poor have to 80s & 90s era second-hand stuff that still works fine for the most part.

Except when it comes time to pay the rent, see the doctor, consult a lawyer, fill the tank, or have an economic encounter with any other active rentier in our system.

wish i was lucky says

In 1967 you could rent a 2 bedroom apartment with a swimming pool, buy a car and food and all utilities on minimum wage.
Today it takes about $30,000 or more to do the same thing - so wages have not gone up - the dollar has gone downhill.

No--minimum wage has not gone up (enough) is what that means. Other wages have definitely gone up as Zephyr's table shows.

wish i was lucky says

I’m not sure that having a big TV with 5000 channels and all day programming is really better. Back in the old days we only got 3 good stations and yeah sometimes we had to climb on the roof to fix the antenna - so we read books, went to the library and actually did things outside of the house.
Sometimes when you don’t have toys - you have to think - and sometimes you find out you actually have talents and interests when you use your brain.

I didn't know we were going to get into a morality discussion. The point is that all of those "toys" (and I'm not sure I'd call a washing machine or dishwasher a toy) cost money. And people can afford more of them today than in 1967.

wish i was lucky says

In 1967 you could rent a 2 bedroom apartment with a swimming pool, buy a car and food and all utilities on minimum wage.

This seemed a little odd, so I looked up some stats from 1967. Minimum wage was $1.00/hour. = $40/week = ~$180/mo. Before taxes. Average monthly rent was $125/mo. So, unless I'm missing something, I don't see how someone making minimum wage can afford to rent the average house. Much less one with a swimming pool.. That would be ~70% of his wages going to housing--don't think any landlord would be OK with that...

Just some points to consider about that lovely chart...

Cell phones didn't exist until 1973:
Using a modern, if somewhat heavy portable handset, Cooper made the first call on a hand-held mobile phone on April 3, 1973 to a rival, Dr. Joel S. Engel of Bell Labs.[11] http://en.wikipedia.org/wiki/Mobile_phone

Personal computers 1977:
The first complete personal computer was the Commodore PET introduced in January 1977.
http://en.wikipedia.org/wiki/Personal_computer

No wonder why 0% had them in 1971.

wish I was lucky--

I think you are feeling nostalgic about the past--it is very common to remember the past as a better time... But, in reality, purchasing power has most definitely increased in the US. The most commonly used measure is GDP/person. And it has approximately doubled since 1970.

The funny thing is that we'd all be a lot wealthier if our mortgages and rents were say 50% of what they are now.

but we bid up home prices to the point of unaffordability and rents are jacked to match. It is a treadmill, a veritable hole in our economy that was first diagnosed over 120 years ago:

http://en.wikipedia.org/wiki/Progress_and_Poverty

This is as clear as day to me yet few people incorporate this into their models. I was just reading a Krugman article on France's lower per-person GDP and even he didn't get it -- that lower productivity will not result in "smaller houses" (as he asserted in passing) -- just lower land values, since land values are driven by the disposable income of the masses.

I feel like I'm in a Twilight Zone episode about this fundamental economic point that few if anyone (other than Patrick!) groks.

wish i was lucky says

Doesn’t GDP include purchasing power which could include a debt that one cannot afford?????

No, it's the value of all goods and services in the country divided by the population of that country.

wish i was lucky says

I used the low end of the pay scale as a reference because it deals more with affording basics.

That's fine I guess, but what you're seeing is more the growing inequality in the US rather than a deteriorating standard of living. The rich are getting richer and the poor are getting poorer.

wish i was lucky says

If a person making $3000 per month now could afford approximately the same thing as a person making $300 a month then - how do you get that we can purchase more - more what?

I'm not quite sure what you are asking here. I'm saying that the average person right now can buy more with his 40 hours of work than he could in 1970.

wish i was lucky says

How many college graduates can expect to get a job paying more than $3000 per month now?

The average starting salary for fresh college graduates was $49,353 in 2009 (according to the American Society of Employers) or $4,112/mo.

Zephyr says

q

Well, when you choose to measure your standard of living in cheap appliances from China, I guess you are content.

tatupu70 says

The rich are getting richer and the poor are getting poorer.

http://www.calculatedriskblog.com/2008/12/fed-household-percent-equity-cliff.html

tatupu70 says

I’m saying that the average person right now can buy more with his 40 hours of work than he could in 1970.

After paying the rent or mortgage ? 30%+ of this country has no discretionary income so the average person is damn near penniless.

http://www.housingbubblebust.com/Fed/GDPvsHSG.html shows how housing costs are the sucking chest wound of the modern economy, even outpacing GDP growth, impoverishing the working masses and enriching the lucky (admittedly, there is significant overlap here).

Minimum wage in 1967 $1.00 per hour = $40 per week = $160 per month. Price of silver in 1967 was $1.29 $160 / $1.29 = 124 ounce's of silver could be bought with one months wages at minimum wage.

To be able to buy 124 ounces of silver today ($18.65 per ounce) would cost $2,312. $2,312 / 160 (hours per month) = $14.45 would be an equilivant minimum wage today.....IF we had HONEST MONEY. We wouldn't need a minimum wage law if we had sound money because the value of real money would be at least double what it is today. THIS IS HOW INFLATION STEALS FROM EVERYONE.

It is really quite simple. People can afford to have more good stuff today than they could 40 years ago. That is fact. How and why this is so is open to debate.

Zephyr,

Your data reminded me about President Bush's "ownership society", like Bush's platitude, asterisk denoting that the"ownership" was achieved by being up to eyeballs in debt was conveniently left out.

So that table's just great for folks who buy all that stuff every year. Actually, we may have to buy them more frequently since the quality has been traded off to get that price deflation.

Here's some things that matter, that haven't had such price deflation: quality child care (it's a daily expense for many people for several years); college tuition, medical insurance premium, hospital costs, nursing home costs.

Besides omitting those ongoing expenses, there's some other categories of growing ongoing expenses for Americans which went a long way to paying for the deflated prices of all that stuff made in China, also omitted in your table:

% of income on home mortgage, 1967 (or 71) vs now
% of income on housing (renters) 1967 (or 71) vs now
% of income on car payments, 1967 (or 71) vs now
student loan interest payment, 1967 (or 71) vs now
credit card balance, 1967 (or 71) vs now

We are going to disagree. You argue that price deflation proves that the purchasing power of our wages has gone up. I argue that inflation for non-offshoreable critical services is due to the purchasing power of our wages going down, and that even to defray the deflated priced stuff you cite, we went into debt rather than trade our wages for that stuff.

Time will tell which perspective is wiser. How it relates to the gold price is that I think 40 hours of American labor in 2008 (or now) ought not to be expected to purchase the same amount of gold as did 40 hours of American labor in 1975. We will disagree, readers can make their own conclusion.

Time kind of has told, and its not looking great so far. Here's a vid of Elizabeth Warren talking about what she sees as the "Coming collapse of the middle class" and the trends of the past few decades:

http://www.wimp.com/notgreat/

Moneypitt,

If your decision is influenced by a worry that it would be a mistake to miss a real estate bounceback opportunity in the future then it sounds like it sounds like you are a speculator, not an investor nor someone who just wants to "own" their residence.

As far as that goes, buying a home in the Bay Area in 2006 with the intention of moving out of it in five years is a speculation, too. So many people like Randy H. and Patrick himself were warning folks on this website not do such speculation in 2006.

So in terms of a speculation and market timing and all that other Cool and Hip Beautiful Stuff, according to your numbers the homes in your neighborhood will have to go back up 37% percent just for you to make even on your downpayment. What about all of the interest and taxes you would've added to your speculation between 2006 and the possible "turnaround" you worry about missing? Flushed down the toilet those dollars would be.

Then there is the Credit situation. Is your property in a Fortress place where rich immigrants will repatriate some dollars to buy your home? Or is it somewhere else where the buyer would have to borrow? Do you really think credit will be as easy to get in the future as it was in 2006?

On the other hand if you have a non-recourse financing and you walk away then all the interest and taxes you would've pisssed into that home between now and the turnaround you worry about missing would be yours to spend on the next speculation.

Moneypit,

Don't feel bad. The market's not coming back for another 9-10 years, and even then its not going to be like it was. Why not? Because they're not giving loans to people without income verification, paperwork, ss#s ect.

I honestly think it will be wise to walkaway. Market will bounce back but I think will at the minimum take another 5 years.

The "theory" as you called it would be in reference to the niche of rich foreigners (mainly, Asians) who can, and have, propped up the Fortress. Then as you've pointed out there's a legion of others who like locals here are strapped to their eyeballs in debt, wannabees on the fringes in places like RiverMark and Fremont.

More and more owners are walking away everyday. Why put good money after bad money. More and more people are walking away because the market was grossly over inflated and the influx of immigrants bought into the market, which made big profits for everyone.

Those days are over and should never return. I looked at a home yesterday, spec home inside a neighborhood, zero lot line, 3800 sqaure foot, sold for 1.4 million in 2006, worth about 700k today if they find a buyer risky or crazy enough. I predict that home will devalue another 100-200 k in 2010.

Unless on water, ocean Front, intercostal, mountain-top, or on several acres they should only be selling around $100 per square foot. During 2006, homes were selling $300 to $600 per square foot. Complete craziness! Never again.

it will not bounce back to 2006 level in the next ten years or forever.

no more liar loans. no more easy credit.

and zillow is always optimized

add another 5% for the commission to the RE agent when you try to sell the house.

I would guess by the time you can qualify to buy again we'll be back to 2006 prices.

my crystall ball tells me that inflation is going to happen and when it does it'll be better to be holding an 800lb leveraged gorilla than to be at the mercy of rising rents.

The only question is how long can you afford to hold on?

1)move into a one room appartment.
2)rent your big home for whatever you can rent it for, month to month.
3)stop making payments, save every dime you can from rent payments
4)when the bank contacts you after 1 year or so, you can negotiate a short-sale or cash-for-keys.
5)you walk away with a huge pile of CASH when the bank finally moves, or they renogotiate your loan and you make easy payments.

And then, you can go straight to hell. Take a few REwhores with you.

sybrib says

wannabees on the fringes in places like RiverMark

LOL. Right in the sweet spot between Milpitas, Alviso, the garbage dumps, and the airport.

As for inflation, we need to see wage inflation for housing to reverse its decline.

2006 prices were predicated on banks willing to lend to people who could not pay the full amortization, were outright lying about their incomes (effectively altering debt-to-income limits in their favor), and/or were actually not even paying the full interest on the loan!
Buyers were playing in a market that was looking for the greater fool, and the game's music was going to stop!

All the lenders giving out money on these terms are no longer with us. To put 2006 into perspective, mortgage debt was $8.2T in 2004, $9.3T in 2005, $10.3T in 2006, and $11T at the end of 2007. It is $10.8T as of Q309. We're not going to see 2006-era pricing until the lenders are pushing out a trillion a year in new loans and HELOCs, and/or Walmart is paying $25/hr.

... edit: and/or effective mortgage rates go down to ~2%, like they are in Japan.

thomas.wong89 says

OK inflation goes up, what then?

(1) automatic wage increase in an area that doesnt have ‘bargining agreements’ thus landlords can’t increase rents.

(2) cost inflation absorption by employers, who then adjust costs by reducing wages/salary in order to stay cash flow positive.

(3) pull back on non-housing spending by consumers sending GDP lower and employers readjusting salary spending due to lack of sales demand by consumers.
What does your crystal ball say about these things?

hmmm...let me check. wait..wait....bzzz bzzz..

(1) does not compute.
(2) I see your wages are lagging the general price level increasebut that's ok. People only pay attention to nominal wages anyway.
(3) you will get your 3% raise and rush out to buy that new TV at Best Buy.

The market is not coming back for 30 years..........that is how long it took the last time we had a crash of this magnitude.

Why do I say that......?

Simple.........it takes that long for the new crop of naive greater fools to be born and raised with the mantra that "real esate never goes down in value"...........

They won't believe the rest of us who are still around with our memories of this period, because we'll just be retired old farts by then who's opinions won't count for squat. Trust me.........