patrick.net

Listened to Bloomberg Podcast last night (Fridays podcast) and inflation adjusted, 1980 is the high, and to match that it (Gold) would need to go up 97% from here to about 2430 (if I recall the numbers correctly, I know I am close)

Crammer was saying something about the up cycle those companies are in. CAT. and DEER were both in major up cycles as the Emerging Economies are needing to mine for natural resources, and of course DEER to help the USA Farmer to feed the world. Gartman was suggesting that the mid west banks are going to benefit from the midwest farming cash inflows.

Troy, RIGHT ON! Good points on your post, we are in such bad shape, it is hard to see a way out. I am truly concerned and sad for USA. I have been saying for about 10-15 years, this is not the country my father fought in WWII for. He is gone now, so I can't ask him but I am sure of it!

I was looking up median wages on the St Louis fed website.

When the US went off gold, a median American would have to trade about 10 hrs of labor for an ounce of gold.
At $1200 in 1980, it'd have been about 170 hrs of median labor.

At $1300 in 2010 it'd be about 68 hrs of median labor.

However, I think that since we went off gold in 1971, the purchasing power of Americans' wages has declined by between about one to 1.5 % per year, disguised by gradual increase from the early 1970's to the late 1980's by sending a second wage earner to the labor force to maintain the same household spending, and later by borrowing gimmickery.

So, correcting for a decline in our standard of living, 10 hours of a 1971-American is probably worth about 17.6 hrs of a 2010-American, and 170 hrs of a 1980-American is probably worth about 262 hrs of a 2010-American.

It means that if you believe our standard of living has not declined, the American wage priced gold is at about one-third of the 1980 bubble.

If you believe that our standard of living has been declining since 1971 at a rate of about 1.45% per year, the American wage priced gold is at about between a fourth to third of the 1980 bubble.

Forget the talking heads in media , all you have to do is open your eyes.

Were will the wage growth come from or for that matter even the jobs?

Without job creation and wage growth housing will not even go up as a whole.

Our economy is in serious trouble and there are still some out there saying things
will just get better on their own. Especially the WSJ which should be pretty much
discredited in most peoples view, as for years I watched them say the housing
market was not in a bubble and that even if housing crashed it wasn't a crucial
part of the economy, and they would viciously attack any well known economist
who espoused otherwise.

Why can't people accept that the U.S economy is facing serious structural problems and
that real estate will not improve until those problems are addressed? Is it that hard
to comprehend?

Wonder how long CAT can hang on before they start exporting their
U.S manufacturing overseas.

After all the manufacturing work they do is perfect for exporting overseas
all that's missing is the quality which can't be that far off.

Armando148 says

Why can’t people accept that the U.S economy is facing serious structural problems and

that real estate will not improve until those problems are addressed? Is it that hard

to comprehend?

A lot of people realize this, that's one reason for "consumer deleveraging" and corporations hoarding cash.

There will always be a dissenting point of view, and you have noticed they're doggedly spending lots of time on Patrick's website ranting about why their point of view is right, and the overall premise of Patrick's "Housing Crash" website is wrong.

Interesting, and good points.

The 1980 bubble was near the peak of inflation expectations. Obviously we are nowhere near that now. And yet gold seems to be discounting some significant future inflation, given that gold has more than quadrupled in the last 8 years or so.

And yet the long term securities market (bonds) reflect long term interest rates near lows for the last 50 years. Which one is wrong ? Gold or bonds ?

Who knows, but maybe part of the explanation for gold's strength is simply the amount of capital there is that needs to be parked somewhere, and t is essentially a hedge for the huge amount of capital invested in bonds (and bond like investments), and to a lesser extent other dollar denominated investments.

I wonder it is the construction equipments that is triggering this surge. If that is the case then builders are planning for their next move. Doesn't sound like good news for existing home sellers and banks holding the toxic assets.

Armando148 says

Wonder how long CAT can hang on before they start exporting their

U.S manufacturing overseas.
After all the manufacturing work they do is perfect for exporting overseas

all that’s missing is the quality which can’t be that far off.

Labor is not a meaningful component of cats cost structure.

If they move manufacturing overseas, it will be to save on shipping costs.

If they do that, though, they'll have a very hard time holding onto various government contracts that dwarf any possible savings they might get out of shipping savings.

So it will probably be a very long time.

The article doesn't say anything about how much sales went down. Up from what? Are they just coming back to a baseline or is this actually an improvement? Pretty meaningless piece of reporting even by Yahoo standards.

Kevin says

Labor is not a meaningful component of cats cost structure.

Do you have a source for this? I confess not to know much about CAT, but would think labor would account for a significant portion of CAT costs.

Time to take profit from your gold buillon while you can:

(from http://cpagroup.wordpress.com/2010/04/07/prepare-for-new-1099-misc-requirements-in-2012/ ):

The passage of the Healthcare reform bill included some of the most drastic changes to 1099 information reporting in over a decade. The bill included revenue raising provisions meant to seek greater compliance of the tax code via 1099 information reporting. General provisions included:

The elimination of the corporate exemption from 1099-MISC reporting. (Public Law 111-148)
The requirement to report payments for property (goods, materials, merchandise, supplies, etc.). (Public Law 111-148)
A six-fold increase in penalties from $250,000 to 1.5 million. (H.R.4213, H.R.4849)
A doubling of penalties per record from $50 to $100. (H.R.4213, H.R.4849)
Beginning for payments made after December 31, 2011, companies will be required to furnish and file form 1099-MISC for payments made to all for-profit companies regardless of corporate status. In addition all payments for goods, materials, merchandise, supplies, and other property will need to be reported as well. Early indications reveal that these changes will likely cause the 1099 reporting volume to increase significantly for most companies as well as the associated B-Notices.

CAT already posted a spectacular 1H10:

Sales:
FY06: 41,517.00
FY07: 44,958.00
FY08: 51,324.00
FY09: 32,396.00

1H09: 17,123.00
1H10: 28,647.00

Not that I know anything about the primary sector of the economy, but this might have the relevance of the price of tea in China to our domestic situation.

Ie. China's sitting on $2T+ of dollar assets and wants to start flexing its overseas production muscles. I've read a bit about their moves in Latin America. This is China's century, we're going to be their little bitches as things unfold.

Is it China, huh?

At least someone is digging up while we're doing craptacular at home.
China has been grabbing money by focusing on exporting and squeezing their people dry. The nation is rich, but the people are not. Can't do the same thing forever. China is trying to turn them into spending based economy. China badly needs such transformation before people realized they are still too poor to buy even after what they've been doing for decades. Japan did this transformation in early 70's, Korea did it in late 80's, and that was what kept them going forward. I think China is taking resources out of latin america preparing for that.

When this transformation done succesfully, the plant of the world as we know of will not be there for us any more. It's not a laughing matter for US.

I feel the entire point of the quoted article is that it was indeed a great time to buy in 1980 but not anymore. I agree with that in a sense because you have to hope everything keeps going your way for the next 25 years for housing to be a great investment. For example, we have mortgage tax deductions, we have ultra low interest rates, we have government doing all it can to support housing, banks sitting on shadow inventory, an abnormal financial system where you have option to refinance, no prepay penalty, capital gains on housing is waived, etc. All of last 25 years, US govt has done everything it can to prop up housing. And still the result of everything going its way is that housing is "just stable".

I asked my BoA mortgage broker how they can issue loans for 30 years at 4% with refi options, no pre-pay penalty and current bankruptcy laws not allowing lender to go after anything buyer has, etc. He said because they sell it to Fannie Freddie (Govt) and said that there is no way they could find buyers at 4% for these loans in free markets. I don't know whats in the next 25 years but I feel its more probable that we have higher interest rates, more taxes, govt spending cuts in the future. And that is the basic premise of the article that 1980s may have been a great time to buy an American property but do you think it will still be the case in next 25-30 years? What would be the driver? Lower rates, even lower taxes, even more govt stimulus, another tech boom (maybe)?

I also think that gold has a long way up to go. However, I have no idea when to sell. I bought at ~$450/oz

But WTF happened to that area?
No BART = Not part of the Bay Area.

marcus says

oak

marcus says

theoakman says

dollar is poised to drop off the side of the cliff the second interest rates rise

Sounds backwards to me. If there is a causal relationship there, it is the dollar falling off the cliff might cause interest rates to go up.

No, it doesn't matter which one happens first. If interest rates rise and the debt keeps growing, at some point, they result to all out printing to service the debt. They stand no chance of legitimately paying it off through taxation.

theoakman says

If interest rates rise and the debt keeps growing, at some point, they result to all out printing to service the debt. They stand no chance of legitimately paying it off through taxation.

I disagree. It's possible but...

All else being equal, interest rates going up causes the dollar to go up against other currencies. It's simple. Say you're money is in Euros and all the short term rates in Europe (and the US) are 2% and suddenly the rates in the US go up to 4%. Dollars suddenly got more desirable than Euros, dollar relative to the Euro goes up in price. This isn't some sort of speculation, it is the way it has always worked.

It's true that it doesn't have to work this way (that's why I said all else being equal). For example if interest rates go up because the dollar is crashing ( the fed is trying to stop the crash with higher rates ) and the perception is that the dollar will continue to crash, then I could see the dollar dropping in spite of the higher interest rates. But that would be unusual.

The question of whether we can get our act together, and start basically living within our means, that is the question of whether we can pay off our debt is a longer term question. And even if "at some point" inflation is a part of how we deal with it, that is different than what you originally said:

the second interest rates rise

But then again, everything is different than ever before this time, so who knows.

thomas.wong1986 says

Its not a monetary gain going into someones pocket.

Uh--yes it is.

WHo knows what will happen. You can find numerous evidence for a rise or drop of gold prices. I myself have a very low tolerance for risk and would stay clear of gambling with gold.

BobbyS,
"gambling" with gold would be like speculating on the price, in whatever units you choose, (USD, Euro, "shares of Dow index", etc). Using it to hedge would be likely because of a very low tolerance for risk. You can argue if it is a good hedge or not, but using it for a hedge is not gambling. Probably not a good hedge if the cost basis is today's price. Certainly has been a great hedge for the USD up till now for folks who "un-gambled" by hedging in it earlier in the decade.

The point I was trying to make is that the carnage increases the further out you go. It looks like Pittsburg is around a 50% fall from peak. Antioch a bit more than that; I see some of the peak prices there off by 2.5 to 3 times.

BobbyS says

WHo knows what will happen. You can find numerous evidence for a rise or drop of gold prices. I myself have a very low tolerance for risk and would stay clear of gambling with gold.

A lot of the financial communities definition of low risk is USTbills earning 2%. If you asked me, they are the riskiest assets that exist today outside of Japanese Bonds earning 0%.

I'm heavy in gold and silver at $400 and $6(heavy for my resources anyway) and I ain't selling for the same reason I aint buying a house.

Houses are still too expensive and the government is dead set on trying to raise housing prices which will only raise gold prices.

Nomograph says

theoakman says

Once Gold goes parabolic, I’ll start selling. This has been a healthy bull run with plenty of pullbacks to prevent it from getting out of hand so far. I don’t really need to do any profit taking. I quintupled my net wealth in the past 3 years. Gold would have to fall down to about $200 an oz and someone would have to liquidate my bank account to get me back to square one.

I just replaced the word “gold” with “housing”:
“Once housing goes parabolic, I’ll start selling. This has been a healthy bull run with plenty of pullbacks to prevent it from getting out of hand so far. I don’t really need to do any profit taking. I quintupled my net wealth in the past 3 years. Housing would have to crash to get me back to square one.”

Actually you didn't.

Btw...where were all those pullbacks in the housing market during it's run from 2000-2006?

Nomograph says

theoakman says

Maybe you missed the part above where I said how fun it’s going to be to sell it to all the suckers who will be the last ones in the door. Once Gold goes parabolic, I’ll start selling.

You won’t know when gold goes parabolic until after it happens. How do you know we aren’t sitting at the top of an inverted parabola? You don’t.
An good investor would dollar-profit-average as a hedge. A gambler would try to time the market. Don’t try to make suckers out of people until you’ve assured it won’t be you, Theo.

Weren't you singing this tune around $500 dollars ago? A "good investor" would have missed out on all those gigantic gains I made in mining stocks. And yes, I did take some profit there. I put a lot of it in Potash of Saskatchewan because Marc Faber told me to. Oops. The rest of it went into my down payment.

How is AU a bubble? Look at where interest rates are. Look at debt levels. Look at the various governmental responses to the economic collapse. Look at unemployment. Look at pretty much ANY genuine economic fundamental, and then come back here and tell me that increasing one's holdings of a crisis hedge does not make sense and therefore must be solely rising due to baseless speculative behavior.

I'm not saying it is, I'm saying it very well could be. It's like in 2006 someone saying "How is housing a bubble? Look at interest rates. Look at employment." Gold is extremely speculative and volatile in today's markets.

I don't know exactly what is being argued about now but I did the math on the upper-bracket stuff.

An upper middle-class couple making $250,000K would see a tax rise of $100/mo.

Nobody gave a shit when my LL jacked my rent $150/mo in 2007 so I'm not crying over that.

An upper-upper middle-class couple making $500,000 will see see an extra $11,000 per year in tax, assuming they don't take their marginal income as dividends (20%) instead as wages (39.6% + 3% medicare).

It seems to me the Republicans are playing from an old playbook. Before Reagan.

Barry Goldwater in the 1960's. Ultra hardline positions that win you the primary and your staunchest supporters become even more fervent and hyperactive. His most famous quote seems behind their every action these days... "I would remind you that extremism in the defense of liberty is no vice. And let me remind you also that moderation in the pursuit of justice is no virtue."

However he was drop kicked when it came down to the general election.

I find it hilarious reading that Goldwater left politics in the 80's over the increasing influence of the Christian Right in conservatives circles. The one-time ultra-conservative was no longer conservative enough because his pro-liberty stance included abortion.

theoakman says

A “good investor” would have missed out on all those gigantic gains I made in mining stocks.

The typical investor isn't nearly as brilliant as you. Hey, we can't all have the kind of insight that you do.

theoakman says

A lot of the financial communities definition of low risk is USTbills earning 2%. If you asked me, they are the riskiest assets that exist today outside of Japanese Bonds earning 0%.

Cruisin for a ...

Or as my Aunt used to say, "you just have to live a while." For any of you old time traders out there, what would be better for this guy in the long run ? To be right ? Or to be wrong ?

Vicente says

I find it hilarious reading that Goldwater left politics in the 80’s over the increasing influence of the Christian Right in conservatives circles

yup, compare Goldwater in the 80s:

"I’m frankly sick and tired of the political preachers across this country telling me as a citizen that if I want to be a moral person, I must believe in ‘A,’ ‘B,’ ‘C,’ and ‘D.’ Just who do they think they are? And from where do they presume to claim the right to dictate their moral beliefs to me? And I am even more angry as a legislator who must endure the threats of every religious group who thinks it has some God-granted right to control my vote on every roll call in the Senate. I am warning them today: I will fight them every step of the way if they try to dictate their moral convictions to all Americans in the name of ‘conservatism.’ ”

to Howard Dean speaking in 2003:

"I want my country back! We want our country back! I am tired of being divided! I don’t want to listen to the fundamentalist preachers anymore! I want America to look like America, where we are all included, hand in hand. We have dream. We can only reach the dream if we are all together - black and white, gay and straight, man and woman. America! The Democratic Party! We are going to win in 2004!”

yup even Doctors...

The part I have trouble comprehending is....

For the last 2-3 decades we ran this "trickle-down" experiment. The claim was if we gave tax cuts to the rich, it would all trickle down and EVERYONE would become wealthier. I was a staunch Republican for quite a long time, and I can say the wool pulled over my eyes was convincing and seductive, but it was hogwash. The experiment was a demonstrable miserable failure. None of that wealth trickled down, it wasn't used to "lift all boats" it was in fact used to buy up all the boatbuilding companies, crush boatbuilder unions and stripmine the companies, and then outsource it all. And coincidentally to buy a few yachts.

Anywho.... seems Richy Rich got set on the notion that this prize of having tax favoritism was a permanent freebie whether the experiment worked out or not. That they would thereafter be the new nobility, granted by God to do as they want. High time the ungrateful SOBs get a lesson in the fickleness and unfairness of the universe.

Nemo, I am not a CRAMMER Fan per say, but he is not just an entertainer, If you know or care to know his record, but that aside he is Correct as is your link, that we are EXPORTING a lot of HEAVY Equipment for all the emerging markets and mining rare earths and more common minerals. Farming is also growing locally here in the USA

My wife does. I honestly don't understand the appeal.

But that goes for all "reality" TV in my book. I know what reality is like already. When I watch TV, I want totally unrealistic, unlikely, and over dramatized portrayals of things, or pure fantasy.

I want giant robots, aliens, or some kind of super powers.

I want magic, gladiators, or at least roman orgies.

I want good vs. evil.

I want giant explosions.

I want fucking zombie apocalypse.

I don't want people who are only on TV because they have too many kids. I don't want to see people doing a shitty job on a game show. I definitely don't want anything to do with people who happen to have dirty houses.

Clearly not paying their employees enough to inflate home prices.

General, operating and administrative expenses were $331 million during 2009, compared to $391 million in 2008.

The decrease resulted primarily from reductions in labor costs and other operating expenses as a result of our cost reduction actions. There were 1,534 full-time employees as of December 31, 2009, compared to 1,714 as of December 31, 2008

lol ... so the trickle-up-poverty system that progressive leftisits cram down our throats is better? Under Reagan's system didn't ALL of the welfare/social/hand-out programs GROW A TON -- AND STAY FUNDED?!?! Can't say that about trickle-up-poverty by Barry.

Today's leftisits are doing J.Carter II and spending money faster than it can be printed. Not even the paper and ink for the printing presses are funded. The liberal/leftist/progressive controlled media is guilty of treason. What else explains the lack of outrage on the econmic choices made by the now-running rats? I know , I know, "it's Bush's fault.".... wait wait, "it's Reagan's fault" ..... oh, crap, wait wait, "it's Truman's fault".....

cmon folks ... Barry had done ZERO in life or politics before becoming HNIC* .. who in their right mind would expect him to do anything other than what has happened?? forced wealth transfers to SEIU, forced wealth transfers to docs and pharms and destruction of health system, no prosecution of voting place intimidation by Black Panthers, disrespecting Isreal, bowing to Islam, lots and lots of vaction and golf .... this guy pretty much sucks. Clinton was much better .... and other than all of the dead people around him and his husband Hillary ..... and all of that WhiteWater stuff .... and that dang Rose legal group ..... and military secrets handed over to China,,,,, other than that stuff, when compaired to Lord Barry, Clinton wasn't all bad. I even miss 'ol Slick Willy right now. His moral issues not withstanding.

*"Head Noobe In Charge"