patrick.net

You said it yourself: "I consider real estate to be a non-traditional bubble"

Look at Tokyo land prices. 18 years on, and it's still not climbing.

The big difference about gold, stocks, collectibles, and many other classes of bubble assets is that they have no "fundamental" value, or are very hard to value. What's the current value of Google's future income stream? Hell if I know. Metrics for the fundamental value of home prices are readily available.

Bubbles in commodities are also different. We had a speculative bubble in commodities in 2008, but speculative bubbles are always looking for a greater fool to sell to. In the case of consumable commodities, the buyer of gasoline, or bread, or what have you will in very short order be asked to become the greatest fool, since the holder of commodities contracts must sell them. A speculative bubble in commodities futures can't sustain very long. Stocks and gold are not very much consumed so the sky is kind of the limit... perhaps 500% as you say. I think oil is not a speculative bubble for the most part, but is simply supply and demand. If the world economy gets back on it's feet, it will be right back well over $100.

I'm sort of with you on Gold. We got a nice run recently, but I'd hardly say we've had a manic spike like usually happens before a crash. I'd give even odds that it will bubble and break in 2010 or 2011.

I would love to see this bet work, but I think we may be a year early on this. 2011 and the Age of Aquarius stuff like that.

Gold is yesterdays news. Transmutation/alchemy is where it's at.

http://chemistry.about.com/cs/generalchemistry/a/aa050601a.htm

The only thing I believe true of gold value, I believe to be true of any currency, gems and most collectables. Most of its value is based solely on perception. Although there are commercial uses for gold, its value is derived from what people believe it to be worth. So long as people believe that gold has value its there will be demand. If people start perceiving that the price of gold is greater than its percieved value, the demand will drop and so its price. The main reason gold has maintained value over the centuries is because of an almost universal belief in it having value. Like anything else this perception can change, which it has many times throughout history and our lifetime.

Big divergence today (I'm quoting the tv, not really sure what that means) when the job rate came out. Dollar down, gold up.

I'm counting words. After 5 minutes I've heard the world gold 7 times.

Austinhousingbubble says

Gold is yesterdays news. Transmutation/alchemy is where it’s at.
http://chemistry.about.com/cs/generalchemistry/a/aa050601a.htm

Lead into gold is not really chemistry. I understand its possible but as cheap as digging it out of the ground. I think I saw this on an episode of WonderWoman.

Oh, now its tanking.

Man, this stuff is hard to figure out.

Zephyr says

Over very long periods of time, perhaps. But few of us live for more than 100 years.
An ounce of gold today buys several times what it could buy ten years ago.

But it buys less than half of what it could buy in 1980.

That is a very wide range for something that “holds it’s value.”
Of course, paper money can go to zero.

Gold was at $850 for a whole 12 minutes. I prefer too look at it's purchasing power the other 1051200000 minutes it was used as money. A temporary price spike does not define a range to consider when talking about a time horizon of more than 4 years.

as cheap? I'm pretty sure it costs a few hundred million more to make a particle accellerator than it does to open up a mine.

theoakman says

Gold was at $850 for a whole 12 minutes. I prefer too look at it’s purchasing power the other 1051200000 minutes it was used as money. A temporary price spike does not define a range to consider when talking about a time horizon of more than 4 years.

I think d3 summed up my view better than I could.

d3 says

The main reason gold has maintained value over the centuries is because of an almost universal belief in it having value. Like anything else this perception can change, which it has many times throughout history and our lifetime.

What makes gold any different than diamonds or silver or platinum? Or copper?

^ those have significant industrial uses.

goddamit I was going to buy platinum in late 2008 but the car BS chickened me out.

Lead into gold is not really chemistry.

Indeed, transmutation is Alchemy!

I understand its possible but as cheap as digging it out of the ground. I think I saw this on an episode of WonderWoman.

Is Wonder Woman still on TV these days?

I think with electric cars we're going to see a lot less platinum.

I haven't seen Wonder Woman on re-runs. I'm guessing the Feminazis wouldn't approve.

Everybody is talking gold. All the women are having gold parties. China is encouraging the purchase of gold by their citizens. I'm guessing they don't want to have to buy any more American paper.

Gold BABY GOLD!

tatupu70 says

theoakman says

Gold was at $850 for a whole 12 minutes. I prefer too look at it’s purchasing power the other 1051200000 minutes it was used as money. A temporary price spike does not define a range to consider when talking about a time horizon of more than 4 years.

I think d3 summed up my view better than I could.
d3 says

The main reason gold has maintained value over the centuries is because of an almost universal belief in it having value. Like anything else this perception can change, which it has many times throughout history and our lifetime.

What makes gold any different than diamonds or silver or platinum? Or copper?

Gold is completely different from diamonds. The diamond market propped up by legal monopolies and artificial scarcity. Diamonds are composed of Carbon and in a free market, would be no different than a lump of coal. We can artificially manufacture diamonds if we want.

You cannot artificially manufacture gold. The only time it has been done is in a particle accelerator and you get a few atoms of gold at most. It would take a few trillion years to manufacture an oz. of gold in your particle accelerator.

Gold is more rare than Silver. Both Gold and Silver used to function as money but Silver has become more of an industrial metal in the past 100 years because it has so many industrial applications. Gold has no industrial applications that really consume it. We have enough gold above ground to support the industries it's used in for a few thousand years. Platinum is about as rare as gold & is also considered a precious metal, but it is pretty much an industrial metal as well used in catalysis and catalytic converters in your car.

Copper is different than Gold in that Copper is exclusively an industrial metal. Furthermore, Copper is not rare.

Gold bears cling to this notion that the belief in gold is artificial and that it can collapse in an instant. It's completely false. It's not artificial. The market has valued it for over 2000 years and even the world's most powerful governments have been trying to destroy the demand for gold for the past 100 years. They've failed miserably and they are failing again. The market sets the price. Not some magical irrational belief.

Better get into the gold market now before we're all priced out.

They're not making any more gold!

knewbetter says

Better get into the gold market now before we’re all priced out.
They’re not making any more gold!

No, you just better get into the market before your dollars are worthless. I find it hilarious that people will still try to crack jokes like this towards me on this website after I've made some pretty ridiculous returns investing in gold, silver, and mining stocks.

Oak--

There are so many things wrong with your post, I don't know where to begin. But, first let me try to understand why you think gold is so valuable. Sounds like your theory is because it's rare. You understand that there are several other metals that are rarer than gold, right?

You mention that gold has no industrial applications to speak of--well that's not really correct. Gold is a very useful metal that would be excellent in any number of industrial applications. Only it's too expensive. If it could be purchased for the same price as silver then I'd expect it would replace many if not most of the industrial uses of silver.

Further, I'm not sure how you leave of jewelry as a use for gold. Not sure how that's different than being used in a catalytic converter. At the end of the day, it's all being used for a consumer good.

The one thing you are correct about is that the market sets the price. However, the market can be irrational, as the last several years in the housing business has shown.

Oak--

I almost forgot. DeBeers does have a monopoly on diamonds, and that does probably artificially increase the prices some, but to say that diamonds and coal would be worth the same in a free market is just inane.

tatupu70 says

but to say that diamonds and coal would be worth the same in a free market is just inane.

I think he was saying their supply is more like coal than gold in that it has been known how to manufacture substitute diamonds for several decades now, and we'll probably someday see manufactured diamonds indistinguishable from the best natural diamonds and increasingly serve as a "substitute good" to get around the De Beers syndicate.

tatupu70 says

The one thing you are correct about is that the market sets the price. However, the market can be irrational, as the last several years in the housing business has shown.

I think this is the key take-away.

But the consumer uses of gold jewelry is not like platinum catalysts-- gold is a pure personal luxury, while limiting exhaust emissions is a quality of life and public health issue.

Gold has some store-of-value properties, but it's my thesis that when the chips are down more industrial metals will be bid up more than gold. Gold is a want, not a need, in the end.

tatupu70 says

Oak–
There are so many things wrong with your post, I don’t know where to begin. But, first let me try to understand why you think gold is so valuable. Sounds like your theory is because it’s rare. You understand that there are several other metals that are rarer than gold, right?
You mention that gold has no industrial applications to speak of–well that’s not really correct. Gold is a very useful metal that would be excellent in any number of industrial applications. Only it’s too expensive. If it could be purchased for the same price as silver then I’d expect it would replace many if not most of the industrial uses of silver.
Further, I’m not sure how you leave of jewelry as a use for gold. Not sure how that’s different than being used in a catalytic converter. At the end of the day, it’s all being used for a consumer good.
The one thing you are correct about is that the market sets the price. However, the market can be irrational, as the last several years in the housing business has shown.

I suggest you clearly read my posts before you start questioning them. I've got a pretty good grasp on industrial applications, the mining industry, and relative scarcity of elements. I have degrees in Chemistry and Geological Sciences. I'll also have my PhD in Chemistry once I decide I stop wanting a second paycheck.

Gold is not an industrial commodity that gets readily consumed. The electronics industry uses up about .001 % of the gold in the world each year. I didn't say anything about metals that were rarer than gold so I'm not sure why you even bring that up. You asked why copper is different than gold and the number one answer is RARITY!. Gold is not only rare, but it's properties were ideal for it to function as money. The fact that it doesn't get used in industry is one of the primary reasons it can be used as money.

If you expect Gold to replace Silver industrially, you are nuts, and I suggest you look up the properties of Silver that make it such a superior metal in its industrial applications. There's a reason why I didn't mention jewelry. That's because we don't consume gold when we make jewelry. We melt it down and shape it into pieces that fit around people's neck. It's no different than shaping it into a coin or bar. Furthermore, people pawn their jewelry and it constantly gets recycled, not consumed...

Diamonds will ultimately be worth next to nothing. Recently, a computer chip manufacturer artificially grew flawless diamonds the size of your fist.

theoakman says

I didn’t say anything about metals that were rarer than gold so I’m not sure why you even bring that up

I brought it up because I understood your theory to be that gold holds its value because of its rarity. That was your explanation as to why it is different from copper... My point was that if that is the case then what about other, rarer, metals?

theoakman says

The fact that it doesn’t get used in industry is one of the primary reasons it can be used as money

Gold had been used as currency far before the industrial revolution, so I'm not sure what you are talking about. Additionally, as I wrote before, Gold is actually very useful and would be used often in industry if it weren't so darned expensive. The real reason gold has been used a currency throughout history is because it is pretty and can be used ornamentally.

theoakman says

If you expect Gold to replace Silver industrially, you are nuts, and I suggest you look up the properties of Silver that make it such a superior metal in its industrial applications.

lol--OK, please share with me. Silver is slightly more conductive, but gold has many other advantages... I don't expect it to replace silver, like I said, because it costs WAY too much! And you also realize that metals in many "industrial" applications get recycled, right?

theoakman says

Diamonds will ultimately be worth next to nothing. Recently, a computer chip manufacturer artificially grew flawless diamonds the size of your fist.

We've been making lab grown diamonds since the 50s. Yes, they are getting better, and probably will routinely make flawless stones at some point. But, like gold, I don't think diamonds will ever sell for "next to nothing".

"Gold was at $850 for a whole 12 minutes. I prefer too look at it’s purchasing power the other 1051200000 minutes it was used as money. A temporary price spike does not define a range to consider when talking about a time horizon of more than 4 years."

Your retort illustrates my point. The price of gold fluctuates far too much for us to consider gold as somthing that holds its value in any meaningful timeframe. Look at the gold chart at the top of the page. There are very few periods where you would want to have owned gold. It was a big loser of nominal and real value for most of the 30+ years on the chart.

It is of little comfort that gold looks more stable when viewed over the centuries. Most people need their value protected over much shorter periods.

Gold is good for speculation, not for protecting value.

E-man,

You asked about my occupation.

I am an investor/speculator.
I make my living by betting on what the economy and markets will do.
When I am right I make money.
When I am wrong I lose money.

I have more than 30 years of experience in the financial services industry, including more than a decade running large (>$1 billion in assets) financial enterprises within the fortune 500 environment. I am retired and do some consulting for private equity/hedge funds.

E-man asks: “Looking at graph posted at the top of the page “Main Stages in a Bubble”, where do you think we were on the graph in early 09 and where are we now with respect to the housing market?”

In early 2009 the housing market was in the beginning of the despair phase.

However, the housing market is really many small submarkets. Right now, some parts are already in the early recovery phase, while others are still headed for the bottom. Generally the lower price segment is past despair and is slowly developing the base for the next up market. The middle is still faltering, and the higher end has more pain to come.

As a real estate investor, I am back in the market trying to buy again. I have not been a buyer since early 2003. I was a seller in 2006.

I love to play the cycles.

"What makes gold any different than diamonds or silver or platinum? Or copper?"

People and governments hoard gold, making its available supply artificially very low, and its demand artificially high.

God is pretty

I think the phases of bubble behavior are spot on; however, I'm a little skeptical about the timescale and one other more unique aspect of the housing bubble. In reality, this country hasn't seen a broadbased nationwide recrash since the great depression. That is almost 80 years from peak to peak. Now local markets have had their ups and downs relative to fundamentals (affordability) much like a rubber band being stretched and snapping back to the mean. But fundamentals were perversely skewed but by ridiculously loose lending standards. In the past, banks taking a chance on a shaky loan almost always recouped their funds. But the most absurd thing is that they began to believe the bubble mantra that real estate was a sure thing. THIS IS THE HALLMARK SYMTOM OF A BUBBLE. When EVERYBODY believes its a sure thing, look out.

The same holds true the market bottom. We have yet to see panic selling- the hallmark of a major market bottom. We have seen lots of forced selling (like classic margin calls for those over leveraged).
There is lots of bottom calling (a sure sign that the market speculators are still out in force). Yet looking at solid fundamentals, like price to income, we appear to be only half-way there. There is a lot more foreclosures to come, and when it becomes painfully obvious that the speculators are running out of greater qualified fools to sell to and start dumping properties en masse along with those with equity trying to get out while they still have some left will signal a true bottom. One more thing. If we start to see deflation in the general economy, house prices may go a great deal lower than the current price to income fundamentals would suggest.

"lol–OK, please share with me. Silver is slightly more conductive, but gold has many other advantages… I don’t expect it to replace silver, like I said, because it costs WAY too much! And you also realize that metals in many “industrial” applications get recycled, right?"

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

Solid fundamentals would be the monthly cost of housing compared to monthy income, and compared to the rent alternative. And this analysis must be stratified relative to the appropriate housing segment. Price is only one element in this analysis.

Using broad averages can be very misleading. For example, on average, americans have one testicle and one breast. So, if you encounter someone with two (or none) of either, that person does not fit the average. But they may very well be normal.

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.