patrick.net

Sheesh I didn't know investing could get so personal. At least on a stock exchange floor the bulls and bears fight each other in a totally anonymous, impersonal manner.

zesta says

Valued in gold, housing prices are pretty much at historical lows. Lower than in 60s and 70s. Does that make housing exceptionally affordable?

That's the thing. Value is all "relative." There is no "absolute" yardstick.

It's all about RELATIVE scarcity. If dollars are plentiful, and gold is scarce, you will have to trade a lot of dollars for gold. If a bunch of gold is discovered or dumped on the market via Cash4Gold, the scarcity of gold will drop relative to dollars (assuming "helicopter Ben" doesn't print any more money). Same with dollars to silver, euros to dollars, silver to bread, bread to oil, etc etc. Same principle.

I don't know of any asset who's value remains absolutely constant relative to the value of a basket of every other good/service.

To me, investing seems like millions of people in a huge room madly exchanging "this for that" assuming they know "this" will go down in value relative to "that."

dunnross says

A good way to track the "real price" of the DOW is to consider its price relative to ounces of gold. In 2000, the DOW was around 12K, and gold was $300, which would mean that 1 DOW could buy 40 oz of gold. Today, the DOWN is again 12K, but gold is $1600, which means that 1 DOW can only buy 7.5 oz of gold. So, in terms of the gold currency, the DOW is now down 5.3 times from the peak, which means, in 2000 dollars, it's price is now $2250, quite close to Schiff's lower estimate of $2000.

You have to be kidding. If not you are one confused puppy. Talk about convoluted.

You could similarly make an argument that somehow the dollar inflationary fears or expectations reflected in the price of gold, simultaneously indicate the all time worst deflation we have even seen.

Who knew ? That is, who knew that everything from the price of a car, the the price of bacon or shoes, had dropped by so much ? By your reasoning, even the price of college or health care "in 2000 dollars" is way less then a third of what it was then.

Who knew ?

marcus says

Who knew ? That is, who knew that everything from the price of a car, the the price of bacon or shoes, had dropped by so much ? By your reasoning, even the price of college or health care "in 2000 dollars" is way less then a third of what it was then.

Who knew ?

Yeah it's great! The gold coin my grandpa gave me back in 2000 can buy so much more stuff now! We're so much more efficient than we were back then! And we have so much more farmland and oil than we had back then and far fewer people in the world to consume it!

Or maybe it's just that markets are efficient. And the "inflation paranoia factor" is already "priced in."

Good luck to all of you gold bugs out there...

Clearly gold is immune from speculative frenzy and should be used as an absolute frame of reference. ;-)

wthrfrk80 says

Clearly gold is immune from speculative frenzy and thus should always be used as an absolute frame of reference. ;-)

Gold is not immune to speculative frenzy. However, you know that gold has been around since the Babylonian war, and all the fiat currencies which ever existed had to succumb to it, in the end. One thing, for sure, is that all the currencies in existence today will not be around 100 years from now, but the gold currency will live on, and you will still be able to buy a tailored suite (or its equivalent) for an oz of gold 100 years from now, just like you can today, and just like you could 100 years ago.

marcus says

By your reasoning, even the price of college or health care "in 2000 dollars" is way less then a third of what it was then.

Yes it did, because since 2000 we are living in a deflationary world (exactly like Peter predicted). Only the suckers who worshiped the all-mighty dollar lost purchasing power. But, if you keep worshiping the all-mighty dollar, you will lose even more. Just ask some people in Argentina, Brazil, Soviet Union or Zimbabwe how their currencies fared against the govt who is deep in debt like ours is, today.
And when you say - who knew? I know 2 people, 1 is myself, and the other one is Peter Schiff.

dunnross says

One thing, for sure, is that all the currencies in existence today will not be around 100 years from now, but the gold currency will live on, and you will still be able to buy a tailored suite (or its equivalent) for an oz of gold 100 years from now, just like you can today, and just like you could 100 years ago.

True, but if you buy gold at a peak you'll still lose. Big time. And after 100 years we're all dead.

wthrfrk80 says

And we have so much more farmland and oil than we had back then and far fewer people in the world to consume it!

Gold price has surpassed it's pre-recession all time-high. None of the other commodities have. Does anybody on this blog have an answer to why gold is the only commodity that surpassed it's pre-recession high? Wait I do. Because gold is not really a commodity. Unlike all the other commodities (including housing) it's not tied to the credit market, which is currently unraveling itself, so its price is a direct measure of how much "real money" or the so-called "reserves" is going into the economy from all the money printing. All the other commodities are tied to the "credit money" which is the multiple of the "real money" which the central banks are printing, and this "credit money" is deflating faster than the FED is trying to inflate the reserves. This inflation is not like the one we saw in the 70's. It is a so-called depressionary inflation, which means that the "real money" supply is growing, while the credit supply is collapsing. This is exactly how Peter explains it, too.

wthrfrk80 says

True, but if you buy gold at a peak you'll still lose. Big time. And after 100 years we're all dead.

You'll lose for 20 years or so, but after 20 years, if you keep it, you'll still wind up ahead. Besides, gold is still on the way up, while housing is still on the way down.

dunnross says

Yes it did, because since 2000 we are living in a deflationary world (exactly like Peter predicted).

You're kidding right? Been to a gas station recently?

Almost everything costs more than it did in 2000, other than stocks...which were ridiculously overvalued in 2000.

dunnross says

Besides, gold is still on the way up, while housing is still on the way down.

Never make predictions. Especially about the future.

wthrfrk80 says

You're kidding right? Been to a gas station recently?

No I am not. Oil was $145 back in 2006. It's only $84, today.

wthrfrk80 says

Never make predictions. Especially about the future.

Although this is a prediciton, it's a pretty certain one. Tell me this. If I tell you that the sun will be up tomorrow morning, is that a prediction? Gold has been going up for the last 10 years. The sun has been going up in the morning for the last 6 billion years. Yes, agree that the sun prediction is a little more certain than the gold one, but the gold one is pretty good as well. At least it's much better than the one a house-buyer makes by buying a house right now, because the house buyer is betting against the trend. The gold buyer is betting with the trend, and 99% of the time, the one who is betting with the trend is going to win.

wthrfrk80 says

Almost everything costs more than it did in 2000, other than stocks...which were ridiculously overvalued in 2000.

You dollar worshipers make me laugh. Forget the dollar. It won't be around much longer. Trade you toilet paper of a dollar for some gold nuggets. Then you won't be claiming that everything is getting too expensive.

bgamall4 says

The dollar is based on a debt currency and the only banks that are relatively strong are US banks.

That's the biggest myth if I ever heard one. The US banks are all insolvent. Most of them were leveraging their reserves 30x1 when the housing bubble popped. That means they could only take a housing decline of 3% to stay solvent. Now that housing has dropped at least 30%, across the board, if these banks had to show their real books, they would immediately be proclaimed as insolvent, and closed down by the FDIC. Instead, the FED decided to keep them open and continue to perpetuate the big lie of their financial fortitude. However, the FED only capitalized them to the sound of $2T. In reality, they lost closer to $15T, and will continue to lose more, as the housing market continues to tank.

bgamall4 says

I am not saying I can read the future, but so far you have been very wrong.

I've been wrong. You mean I've been wrong when I sold my house back in 2006, and bought gold for $450/oz?

bgamall4 says

dunnross says

That's the biggest myth if I ever heard one. The US banks are all insolvent.

There are a couple of reasons they can extend and pretend indefinitely. First, real estate at the bottom is being gobbled up by the 1 percent. Second, they were levered much less than Chinese and European banks. So they are in better shape. Third, they are selling assets. Fourth, they are buying US bonds, and using free money to do so.

Only a massive downturn from here on out in real estate would cause these banks to crumble or need more bailouts. They are the best of a world of crap banks.

Gary Anderson strategicdefaultbooks.com

This makes no sense. Are you saying that people would choose one bankrupt currency against another, rather than choosing something that kept its value for the last 5000 years? If you were given cow sh*t to eat all day, would you rather ask for chicken sh*t or the steak?

dunnross says

First, real estate at the bottom is being gobbled up by the 1 percent.

Real estate will start going up, because our economy will be stronger. Our economy will be stronger because people would start spending, again. People will start spending again, because, real estate prices are going to start going up. Wait a minute, did you see a little bit of a Catch-22 in this logic, or is it just me?

Silver has been used as money as far back as 550 BC. The words silver and money are synonymous in 14 lanugages around the world. Gold too has been used as money for many thousands of years. To think otherwise is simply denial.

Fiat currencies, by comparison have a life span of approximately 45 years. America went off the gold standard in 1973 or 1974. Oops, we're screwed.

bgamall4 says

Gold is not money.

Why, because FED has been working hard trying to make you and most Americans believe in this fairy tale, while all the central banks of the world were hoarding it like crazy. But what is money? Let's find out, and we can see how gold fares against the sad substitute for money, we call the us dollar:

1. Medium of exchange: Gold wins. Eventually countries like China and Russia will no longer accept the us dollar. In fact, Russia is no longer accepting the dollar as payment for their oil sold to China.

2. Divisible: Both Gold and dollar are divisible.

3. Fungible: Both Gold and dollar are fungible.

4. Verifiably countable: Both Gold and dollar about the same.

5. Store of value: Gold wins by a long shot.

6. Standard of deferred value: Gold wins again.

7. Money Supply: Gold wins again. China, Japan, India and Russia are growing their gold reserves while getting rid of their dollar reserves.

8. Market Liquidity: Although both dollar and gold are equally liquid now, just wait until the next currency crises.

So, what makes you think that the dollar is more of a currency than gold?

bgamall4 says

The financial machine will continue to pump and dump real estate bubbles.

I will pump and I will dump, and I will blow this economy to the smithereens.

bgamall4 says

Can you imagine having a scale at Walmart?

Well, first of all have you ever heard of coins? They don't need to be weighed, because they have their value imprinted on them. Second of all, cash is only a very tiny percentage of all the money in the world. When people talk about gold currency, they are not actually talking about physical gold used as money. They are talking about a gold-backed currency, or the gold standard.

dunnross says

They are talking about a gold-backed currency, or the gold standard.

Actually, today, most people don't even carry cash in their wallets when they go to Wallmart. They use credit cards. There is already a bank which offers gold credit cards, not the kind of gold visa card you get from most banks, but a credit card which counts your money based on ounces of gold instead of $US dollars. I bet if you had one of those, you would be able to buy that house you always wanted:

http://www.coinlink.com/News/commentary-and-opinion/gold-backed-credit-cards-really/

dunnross says

Gold is not immune to speculative frenzy. However, you know that gold has been around since the Babylonian war, and all the fiat currencies which ever existed had to succumb to it, in the end

You mean, except for all currencies that are currently in use. Right?

tatupu70 says

You mean, except for all currencies that are currently in use. Right?

Yes, and those will succumb too. There is nothing that is special about them, either.

dunnross says

tatupu70 says

You mean, except for all currencies that are currently in use. Right?

Yes, and those will succumb too. There is nothing that is special about them, either.

Just like there is nothing special about gold. It's a relatively inert, relatively scarce metal.

Oh yeah, and it's really shiny too.

dunnross says

Although this is a prediciton, it's a pretty certain one. Tell me this. If I tell you that the sun will be up tomorrow morning, is that a prediction? Gold has been going up for the last 10 years.

Right. Past performance is a great indicator of future results.

"Housing is has been going up for the last 10 years. They're not making any more land. Housing never goes down..."

I still think that Real Estate is in a slow bottoming process that will last years, but that may be hope more than reality. I wouldn't be surprised if it is at it's near it's low in terms of monthly payment on an 80% mortgage, but then that makes me think real estate could be lower a few years from now.

But with all that being said, if I had the capital, I would WAY rather have real estate than gold as a long term hedge.

And if I had to have a long term position in the real estate/ gold spread,
I would be short gold against long real estate, rather than the other way, in spite of the trend.

marcus says

But with all that being said, if I had the capital, I would WAY rather have real estate than gold as a long term hedge.

That only makes sense if you have rental income on that real-estate. Otherwise real-estate is paying you negative dividends in the form of property taxes, maintenance, and insurance.

Not that gold is much better. You have to pay someone to guard it, and hope they don't make off with it if "everything hits the fan."

dunnross says

Yes it did, because since 2000 we are living in a deflationary world (exactly like Peter predicted

Are you sure about this? In most of the Schiff videos he's warning about inflation. In that infamous 2002 video, he was predicting:

Dow would go down to below 4000, Nasdaq down to 500. He also predicted the dollar would fall, interest rates would skyrocket and we'd have high inflation.

tatupu70 says

Just like there is nothing special about gold. It's a relatively inert, relatively scarce metal.

Oh yeah, and it's really shiny too.

Chicks like it.

dunnross,

I can't figure you out. One one hand, you seem to be worried about inflation, and so you're long on gold. On the other hand, you're worried about deflation.

Which are we going to have? Inflation or deflation? How do you have inflation and deflation at the same time? Sure, some stuff might go up in value, and other stuff might go down. But usually when people talk about "inflation" and "deflation" they mean OVERALL, not particular goods.

bgamall4 says

We have some of both.

At the same time? That's ridiculous.

robertoaribas says

inflation and deflation are MONETARY conditions, they have nothing to do with specific asset prices, so stating that they both can occur at the same time demonstrates a spectacular lack of knowledge about economics...

Yeah that's what I was thinking. How can you have inflation or deflation at the same time (if you're talking about "overall" inflation or deflation)?

bgamall4 says

Speculation in futures is buying up contracts and making them scarce.

Scarcity in paper contracts doesn't hurt anyone. Scarcity in actual oil, coal, corn, soybeans, wheat, FCOJ, etc is what hurts people.

I admit, I don't really understand how the futures market works. I know it has something to with getting "firm" prices for things months (or even years) in advance of physical delivery.

I don't dispute that gold can keep rising. This will be the reaction if Bernake and the Europeans keep fooling around.
I only don't bother with it myself because I like stocks more. They may not have beaten gold in the last decade but I'm looking forward.
Also, I always remember my little old lady neighbor who is richer than god. She got that way with stocks but she's had them for over 60 years.
By definition, an asset with no intrinsic way to earn a profit or pay a dividend is more of a speculative investment than a stock.
Stocks we can judge based on direct information about how much profit it had, and of course guess what the future will be to arrive at a price of the stock. When it doesn't meet the consensus, it will fall. Over long time periods, those huge growing companies that pay dividends are just capturing their profits along with the general 4-5% worldwide average growth of GDP.
When I am rich, I will get some Swiss Francs.

robertoaribas says

inflation and deflation are MONETARY conditions, they have nothing to do with specific asset prices, so stating that they both can occur at the same time demonstrates a spectacular lack of knowledge about economics...

The most commonly accepted definition of inflation is simply--rising prices.

That's why the government uses the famous "basket of goods" to measure it.

Inflation can certainly be caused by monetary conditions, but it is NOT the (only or even most common) defintion.

Maybe dial back the insults a bit Roberto...

tatupu70 says

The most commonly accepted definition of inflation is simply--rising prices.

So that means when we finally run out of fossil energy to power our machines, we will have "massive inflation." Even if it's really just a reflection of the fact that we won't be able to produce 1% of what we did before.

wthrfrk80 says

tatupu70 says

The most commonly accepted definition of inflation is simply--rising prices.

So that means when we finally run out of fossil energy to power our machines, we will have "massive inflation." Even if it's really just a reflection of the fact that we won't be able to produce 1% of what we did before.

Yep. If you look back at the stagflation in the late 70s--much of it was attributable to oil prices...