Two Things: Own Gold, and a Big Gun

Comstock Partners has concluded that real estate is almost certainly the place where the big popping of the bubble will begin, and for many important reasons, even though they hedge their bet a little, and allow that perhaps a collapse of the dollar may be the culprit, or maybe some big bankruptcy, or something. But probably real estate.

But continuing with the real estate angle, they quoted the Richebächer Letter, and said "Since 1997, total housing values have soared from 8.8 trillion to about 14 trillion presently." Even though they left the dollar sign off, you still get the idea; real estate is in the midst, or at the end of, a big freaking bubble. Then they referred to the Center for Economic & Policy Research (CEPR), who wrote that "The national rate of home price growth surpassed the overall inflation rate by more than 30% since 1995." Eight years of this bubbling, bubbling, bubbling, in the real estate market.

They then take these statistics and concluded that, "This relationship shows clearly that existing homes are less affordable now to U.S. households than they have been for the past 50 years." Fifty years! Fifty! Wow! But I am not ready to conclude that the rest of written history will conclude that housing is always less and less affordable until that day when nobody can afford to buy a house.

I can hear you say, "Big deal." But it IS a big deal. And to illustrate why, they quote the International Strategy & Investment's (ISI) data that shows that "Every time existing home prices exceed 3 times the median income, housing prices shortly decline." "So?" you ask in that darling way you have that melts my heart, "are housing prices now in excess of three times the median income?" The long answer is "Yes" and the short answer is "Yo." To quote ISI, "The median existing home price is presently $182,000 and the median income nationwide is $60,000." Their inescapable conclusion? "Housing prices are due to decline." And why are they about to decline? Because, if you take the time to re-read this paragraph, you will note the precise phrase, "Every time existing home prices exceed 3 times the median income, housing prices shortly decline." The operant phrase is "every time." And there are few things in this world as certain as "every time," as in "every time I smack my thumb with a hammer it hurts."

And, worse, because people were rushing to take out equity in their houses to spend on gaudy baubles and having a wonderful time, "Homeowner's equity fell to a record low of 54.3% of home values." So, houses are less affordable than at anytime in your life, are overdue to decline, and the owners are carrying more debt on these record-setting houses, so that if values decline by 46%, they will end up with no equity at all? Wow! If anything, you gotta give us Americans bonus points for optimism!

And before you get the idea that this is just business as usual, and that the Fed can lower interest rates and foster enough inflation to bail everybody out like they always do, they note that "The rush to refinance over the past few years is without precedent." The reason that this is without precedent is that never before in history have we had a nation of greedy imbeciles who pledged their houses for a little spending money, we have never had moronic-yet-gigantic GSE's like Fannie Mae lending money willy-nilly to any un-creditworthy nincompoop that walks in the door, nor have we had a Federal Reserve chairman who is so profligate that he would consciously finance the whole mess.

Caroline Baum of the Bloomberg site had an interesting column apparently entitled "Some gaps get all the attention. This one should," even though that sounds more like a curiosity-piquing blurb than a title. She writes that "One gap that gets almost no attention and has major implications for interest rates is the one between the overnight federal funds rate and nominal output. This gap is wide and getting wider. History suggests a gap this wide for an extended period of time results in a rising interest-rate cycle that is both long in duration and large in magnitude, according to Joe Carson, director of global economic research at Alliance Capital Management."

Intrigued, we read on, since we, and here I am speaking in the editorial "we" since I am sure that you, the genius that you are, are already hip to this stuff. But I have a very hard time even keeping awake when somebody is telling me about nominal output, because these kinds of statistics come from governments, and if there is one source of statistics that are notoriously untrustworthy, to the point where you can almost bet it is a bald-faced lie, it is government statistics.

She writes, "Carson looked at all the rising rate cycles (defined by a cumulative rise of more than 100 basis points in the 10-year Treasury note) during the past 40 years and found they subdivided into short and shallow (1980-2000), and long and large (1960- 1980). On average, long and large cycles 'lasted a little more than three years with a cumulative increase in interest rates of 400 basis points,' Carson says. Short and shallow averaged 13 months and produced a 200 basis-point yield rise."

Right now the gap is, and I will quote from Ms. Baum in her introductory paragraph, "It is wide and getting wider." Mr. Carson wryly notes that " It will take years to close it. The longer the Fed stays accommodative, the greater the possibility that the next up-cycle turns out to be large and prolonged.''

So, there is another tasty bit of evidence that big, ugly things are on the horizon, as far as rising interest rates are concerned. And if there is one thing that the Fed is preoccupied with, it is interest rates. You can only wonder how Greenspan is taking the news that there is going to be a long and large cycle of constantly rising interest rates ahead of us.

Joseph Stiglitz, who eventually identifies himself as one of the "we in the Clinton administration," wrote a piece for The Guardian about the bubbles fostered during the 90's, part educational, part anti-educational, part nonsensical, part historical, and mostly self-exculpatory. "No one - not the president, the secretary of the treasury, or the chairman of the Federal Reserve - can be blamed for this irrational exuberance; but they can be blamed for not dealing with the consequences, and in some cases, for feeding the frenzy. After a faint effort to let the air out of the bubble, the Fed simply added to the hype." Earth to Mr. Stiglitz! Yes, they CAN be blamed, and I, the Mighty Mogambo, blame them with every fiber of my being, and with every decibel of my loud and irritating voice, and I point my long and bony finger at them and say "Shame! Shame!" Their every action was in reckless pursuit of expanding and exploiting the bubble economy via growing government meddling.

And also highly blameworthy, of course, is Joseph Stiglitz himself, who, armed with his precious Nobel Prize in economics, supposedly knew better and should have said something and done something, but chose to go along to get along. And now, I note with disdain, even though it looks like I am having some horrible gastric distress, but I am not, and that is just the way that my look of disdain appears to the casual observer, that he is defending his lack of responsibility.

Don't believe me? Well, just listen to this load of crap, and you instantly know that when the Mogambo uses a phrase like "get a load of this crap" that I am really going to lay into this Stiglitz character in a another pointlessly vicious and senseless personal attack of some sort; "We made some good long-run investments - both in the private sector and in the public, but too much of our investment went into wasteful private expenditures. By contrast, too little of our investment went to address vital public needs, in education, in infrastructure, in basic research." Get that part of about how private investments are wasteful, and how vital things, vital NEEDS he says, stem from government? Do you suddenly have, as I do, that foul taste of bile in your mouth?

He goes on to explain how he and his fellow-traveler commie buddies were so wonderful, "We had principles. As the administration came into office, most of us knew what we were against. We were against Reagan conservatism, we knew there needed to be a larger and different role for government, that we needed to be more concerned for the poor and for providing education and social protection for all, and we needed to protect the environment."

Once again, we have another loathsome Democrat bleating about how only he and his precious leftist political buddies are concerned with the poor, and how things need protecting, and how they are so nurturing and wonderful and all, and thus intimating that all others, meaning you and me, are horrid ogres who delight in being evil. As if we are supposed to clasp our hands together, gaze adoringly up at their shining faces and gleefully exclaim "How wonderful! Our heroes! Our saviors! Knights in shining armor!" But you would think that a guy with a Nobel Prize in economics would know that the government intervening in the economy always HURTS the poor, mostly by making prices rise! Ergo, Mr. Stiglitz and his loathsome friends are, their laughable and shrill protestations to the contrary, the embodiment of evil, as concerns increasing the pitiful travails of the poor.

The poor are considered poor because they haven't got enough money to afford to buy the things they need, and then here comes this Stiglitz and his buddies propounding expansionist credit-fueled policies to make sure that prices rise even farther out of range, making the poor even worse off! Jeez! I'm glad I didn't get a Nobel Prize, because then I would be ashamed that I won the prize because of the lackluster quality of previous winners as exemplified by the Stiglitz fella, and I already have plenty of things to be ashamed about without adding to my own misery.

But note carefully how he wants a larger and different role for government! But, and I extrapolate, just larger and different? No! Larger and different and better! No! Larger and different and better and more expensive! No! Larger and different and better and more expensive and much more powerful! No! Larger and different and better and more expensive and much more powerful so that it can crush anybody who dares to stand in the way of its providing for the poor, providing education, providing social protection for all, and protecting the environment through, ummm, providing! "We are the government, you pay, and we provide!" If you don't think that this is a fair characterization, then get another load of some more of this Stiglitz crap, "The central lesson that emerges from this story of boom and bust - that there needs to be a balance between the role of government and the markets. When countries got that balance wrong, veering either toward too much or too little government, disaster awaited."

Didja get that last stupid part about how he actually invents history out of thin air, and says it is dangerous to have a government that is too small? Huh? Did you ever, EVER, hear anybody other than a screaming, flaming communist, or socialist, or fascist, or Democrat, ever complain that government was too small? Is there a country right now, anywhere on the face of the planet, that is suffering because their government is too small? Was there EVER a country anywhere on the face of the planet that suffered because their government is too small? And exactly when WAS there a time and place, in all of history, in all of time and space, across the length and breadth of whole galaxies, and this includes those teensy-weensy little planetoids way out there on the edges of the universe where you can't even get a good burrito, who, and I quote, "got that balance wrong" and suffered an economic disaster because their government was too small? When, where, how and who, Mr. Stiglitz?

Since Mr. Stiglitz is not here in person to respond to my rhetorical questions or my ridiculously vicious ad hominem attacks, I will fill in the blanks and announce that the answer is, in nice round numbers, none and never. But every country, in all of time and space, and that includes those nasty little planetoids I already referred to above, that got a government that grew too big ALWAYS suffered eventual economic collapse of said country and planetoid. But nobody ever suffered because their governments were too small and inexpensive. Sometimes because their armies were too small and/or lightly armed, but never because their government was too small.

In my humble opinion as the humble and opinionated Mogambo, I offer as an example of their intellectual insufficiency that the Loathsome Left is always apoplectic about the problem of homelessness. And why are people homeless? They are homeless because they cannot afford a place to live. And yet the LL, which is, if you have been paying attention, merely an acronym for the Loathsome Left, sits there with these dumb, perplexed looks on their faces as the housing bubble prices the cost of housing even MORE outside of the pocketbooks of the poor, which increases homelessness!

How about lack of health insurance, which describes a sixth of Americans? The Congress, Stiglitz' big wonderful fount on goodness and compassion, mandated essentially unlimited free medical care for the old (Medicare), the sick, the poor (Medicaid), their children and whole hosts of others. Then they required that hospitals provide free care to anybody who shows up at the door, including illegal aliens. So government mandated a gigantic demand in health care. So who is left to pay all the costs? The people who buy health insurance. But now the cost is so high, thanks to years and years of prices rising by double-digit rates, that fewer people can buy insurance, and then one day they have to make the choice of either eating or buying health insurance, so they have to join the ranks of the un-insured, but still getting medical care simply by showing up at the hospital, driving up the premium costs by double-digit rates for the still-insured, until, one day, they too have to make the choice between eating and health insurance, and then they drop their coverage and become un-insured, but still needing medical care, which the Congress requires that they get, and thus driving up the premiums by double-digit rates for the few people who still have insurance, until one day those people...

And now these selfsame Congressional weenies are trying to pass a prescription drug benefit, which means MORE costs will be passed on to the people who have health insurance, which drives up the premiums by double-digit rates, which means that more people will be forced to make the choice between buying food or health insurance, and then they will drop their coverage, and then...

But now, I guess, he figures that because he has written some doofus "Me and my big-government buddies are so wonderful" article in a British newspaper, and don't get me started on the laughable idiocies of the British, which is an insular little island and so I guess it was only a matter of time before the inevitable inbreeding started to be made manifest, we are supposed to conveniently forget and forgive the results of the policies that the lying, corrupt Clinton administration pursued with his blessing. And all of the other horrors inflicted on us by other loathsome, leftist governments. It is enough to, as the saying goes, gag a maggot.

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It is in the breaking news sidebar!

Gold is worthless in a crisis

Hence the need for guns, water, and food stockpiles.

And gold will certainly have value once the crisis passes. Those with gold will have their wealth preserved, while their neighbors are pushing wheelbarrows filled what the fiat currency of the day.

"Two Things: Own Gold, and a Big Gun"

Since it's in the headlines, I might as well express my opinion.

There are times it isn't what you own, it's how well you use it. If the big gun is owned, balance the amount of ammo stored with the amount of ammo used for practice.

If you can't hit with that big gun, it becomes a rather expensive noisemaker.

Anybody know a way to buy GOLD, not GOLD STOCKS, in a 401k?

I'm sure there is probably a fund out there somewhere, but one of the advantages of gold is to physically have it on hand when the SHTF.

In a major financial crisis, it's very likely that you would have a hard time getting your assests out of a bank. And if you did pull it off, expect them to be heavily taxed.

There are times it isn't what you own, it's how well you use it.

Put another way: grandpa with a scoped deer rifle and 20 rounds of .30-06 from the 1960s is probably going to be a bigger problem to the "enemies of the Constitution" than the mall ninja with all the latest gear, but not a clue how to deploy it.

Comstock Partners has concluded that real estate is almost certainly the place where the big popping of the bubble will begin

Ironically, if the poop hits the fan as drastically as some of the doom-and-gloomers believe it will, then real estate is exactly what people will need - - specifically, fertile ground.

Put another way: grandpa with a scoped deer rifle and 20 rounds of .30-06 from the 1960s

LOL, that's ME! My boy and I take that wonderful old 30 odd six to the local range (actually it's just a farm where the old farmer takes ten bucks and says go have fun) along with the 30/30, the 300 Savage, the 357, and the side-by-side 20 gage (with two triggers!) and shoot for hours. That bad boy, the 30 odd six, is LOUD. There's usually other shooters who stop over to compliment us on the rifles, which were given to me by my Dad.

The bottom line is that California's problems will be problems for years and years, and there is a general disconnect as to why there is a problem in the first place. A guy named Donald Straszhiem opines that "California's budget problems are made in Sacramento." Half wrong. The Fed created the excessive money and credit, which got borrowed and spent, which caused things to boom, which funneled excessive revenue into the tax coffers of California, which the government bozos there decided to treat as some kind of permanent entitlement. But the original problem came from the damned Fed, and the Sacramento chumps, like the low-life opportunists that they are, just piled onto the spending and government-growing bandwagon, like every other brain-dead state did. So,the chumps in Sacramento would not have had the chance to act like childish morons if the Fed did not act like morons in the first place. Sacramento, for their part, just made the problems permanent.

What compounds this problem is that a large portion of this money was used to grow regulatory agencies. These agencies, eager to justify their newly created positions, have gone to work, feverishly harassing, fining, and generally making life miserable for the few businesses left in the late great golden state. Do the powers that be really think that small business is going to rebound, hire all the displaced dot com folks, and provide the tax base needed to pay for all these bureacrats, when these same bureacrats are working their butts off harassing and fining small businesses?

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