Posted on 12/25/2002 1:21:15 PM PST by arete
Collapse of the stock market will cause real estate values to go up,not down. Property is ultimately the safest investment. When people lose confidence in the stock market, they head for property. Can anyone name one wealthy family in America that does not have a major investment in commercial and/or residential property? Vanderbilts, Mellons, DuPonts and the like didnt get rich by renting other people's property.
Who is going to lend all those unemployed buyers the money to put into an already overvalued asset? There is a limit to everything. The wealthy people you mentioned ended up with so much real estate because they could pick it up for a song when others had to sell or default. They didn't buy it at the inflated artificially high prices it is going for today.
Richard W.
Puplava's "things".
Richard W.
No one will lend them the money. They will rent at artificially high rates. When times get tough, the wealthy buy even more property at bargain rates and then use the property to make more wealth. I read recently where something like 80% of the people in the country who do not currently own homes have less than $1,000 of disposable money. They may end up renting forever. That is why I think property is a win win all the way.
Puplava's "things"."
That's probably not a bad test. But I expect the dollar to go up against personal use real estate (housing); cars; clothes; and computers to name some classes of assets (things) against which the dollar probably will go up, not down..
hinckley buzzard makes several valid points about the prospect that the dollar will 'decline' against foreign currencies--and it may although if that decline actually occurs, it isn't likely to be more than 30% more.
The real point of the analysis--the critical dollar decline against issue is gold. It is gold which is the meaningful asset the dollar is going down against. 30% down against gold gets you a dollar gold price of about $460. I expect to see gold much higher. Because as to the store of value function of money, gold is more efficient money than any other--thus anyone with any liquidity on which they are earning money market rates (T-Bills) in the 1 % range is going to shift his liquidity from legal tender fiat currency to gold.
Whole point of the gold price increase is that if gold is going to be used as the principal store of value money for the entire world, the utility of gold (its usefulness as store of value money) is much much higher than $340.
I don't see the dollar going down that far against the exchange currencies although the precipitous decline hinkley suggests is not impossible--I just don't think it is likely because the off shore central bankers have the same interest in depreciating their own currency as we do and we are bigger and got there first. But I think gold will go up against the dollar, whatever they do.
And I can't see any particular things that I think we can be real sure are an indicator the dollar is declining. You know Oil and Gas will go up because there is a current market shortfall--that happens even if we back the dollar with gold tomorrow.
Dear friend. Please consider that if the dollar collapses as he states, Everything will collapse in value.
Food and Water and Shelter will be the most difficult provisons to find. You and I will be faced with short supply for our NEEDS and almost no consideration for our WANTS.
I do not like to say this, but I agree with him. To a consistent observer this could be seen from afar for years.
It will occur more quickly if more of us listen to the Democrat Leadership and especially to Hillary. I am not saying this politically but only as a observer of their policies and the outcome of such thus far.
Their "political thought" is so pervasive that I would look at Prudent Bear Fund and Gabelli Gold Fund and learn to be a Straight Boy Scout again. BE PREPARED!!
In other words, if people lose faith in the currently popular stores of wealth and turn to gold, demand will be much greater than supply at the current price of gold. New supply is relatively fixed over the short/mid term since it takes several years to bring new production online. In fact, supply is projected to decline over the next few years as a result of a greatly diminished level of exploration over the past few years due to the low price of gold. So if demand rises and supply is fixed, price must rise. Because of the realtively small size of the gold market, a small shift in asset allocation could create large increases in the price of gold.
We had a discussion about what would cause gold to rise in a deflationary environment. My answer is fear. The current levels of debt look like a disaster waiting to happen. Gold in your possession is a store of value that is beholden to noone and it appears to be in a win-win situation with respect to deflation/inflation.
P.S. I posted the following to you the other day on an old thread. Not sure if you saw it:
We had a discussion on deflation a while back and these are the things I've been pondering. The money supply has been increasing faster than GDP, so if we have deflation that implies the velocity of money has declined to more than offset the excess. How is velocity measured? Is it measured directly or backed into? Second, in the equation MV=PT, P assumes a certain volume of goods, does it not? Does the trade deficit act to increase the volume of goods and therefore have a deflationary effect according to this equation?
So what you are saying is that everyone is going to be printing more money to protect their own national interests but we will win. Is that possible?
Richard W.
"So what you are saying is that everyone is going to be printing more money to protect their own national interests but we will win. Is that possible?"
Not quite. More like everyone will print more money to protect their own interests and no one will much affect the final result. Currencies will more or less stay in the same range in which they are now trading. And as hinkley suggests, that range for the dollar may well be at a somewhat lower level than present.
We have all talked a lot about the printing more money concept however we are getting into an economic setting where I don't think the US can much affect the domestic money supply engine--numbers this morning (in some of the articles on the Prudent Bear site) seem to indicate that the residential mortgage financing boom has clearly come to an end; and that consumer financing is also contracting.
If anything, the Europeans have a lot more power to affect the money supply than we do--they seem to be in a somewhat more conservative mode than the Fed.
However this started out as an analysis of what happens to the price of gold; the data is that gold is in a strong uptrend which appears to continue even when the dollar is not going down in the 4X markets--I don't think the moving forces in the gold market are affected by a shallow trading range decline in the dollar. Maybe if you saw the dollar drop precipitously, you would get a significant pop in gold but I see gold going up whether we get the precipitous drop in the dollar or not.
Soren in #28 says: "We had a discussion about what would cause gold to rise in a deflationary environment. My answer is fear." That is an accurate down and dirty description--the professional economists words are that gold has become more useful (has higher utility) as a store of value for liquidity than the legal tender currency. There are obvious and serious long term threats to the long term viability of the dollar; in an environment where you are not getting any interest on your short term liquidity, gold is a better place to have it. Further, everyone should note that the prospect for increasing price of gold is much higher in this use than in the inflation driven market. Because there is a lot more liquidity being stored out there in T-Bills that would be better off in gold; won't take very much of that to move the gold markets a long way.
On the general inflation, deflation subject, Soren also makes another important point: "The money supply has been increasing faster than GDP, so if we have deflation that implies the velocity of money has declined to more than offset the excess. How is velocity measured? Is it measured directly or backed into?"
In the first place, I am not so sure the money supply is in fact increasing. There is an issue about what the money supply really consists of--for example, a homeowner with a standby second mortgage (the bank has a mortgage but has not loaned any money against the note the mortgage secures), can draw on the standby credit by writing a check. Is that in the money supply? Almost certainly it is, but it is not counted. Same for other kinds of ready liquidity assets--these brokerage money management accounts for example--you can draw with a check against equity in stock.
Since the equity value is now going down, money is disappearing. So even though M measures might go up a little, real money supply is in fact contracting.
More important is velocity. We don't measure velocity. One reason we use the "basket of goods and services" measure (in the CPI) to determine inflation was that we can't measure velocity reliably. The Fed has a process and I am not sure where it is posted to determine velocity with a plug number. But velocity is the most important economic thing that is happening in this context. And the best evidence you have is anectdotal--people are not buying because they know prices will be lower next year. Transaction volume in real estate is dropping like a rock in most markets--V is going down sharply. Most important thing happening and you can't read or learn anything about what the real data is--it's the most significant current cause of deflation.
"Second, in the equation MV=PT, P assumes a certain volume of goods, does it not? Does the trade deficit act to increase the volume of goods and therefore have a deflationary effect according to this equation?" No. Because P is an effort to determine what the aggregate {M} price is at a given moment of time against a given quantity of goods--the economist would assume that the dollars shipped off for the goods are immediately be recycled back into and included in M. In the modern world, M is a world market so the real deflationary impact is where the dollars stay off shore (in countries where the US$ is the medium of exchange) and are part of the money supply for a whole different quantity of goods and services--although that happened a lot in the 80's and 90's, it is much less significant now.
Finely, with respect to gold, there is a discussion about a year ago, about the merits of using physical gold as the every day transaction money. The principal historical objection was "well there isn't enough of it". That is of course wrong. The short answer is all the gold is worth all the goods so there is exactly enough. True, if you did that, gold would be worth a lot more in terms of the present purchasing power measure--hypothetically, $10,000 an ounce. So what.
That is not what we are talking about now. Money has two functions--medium of exchange; and store of value. What we are talking about is the store of value function. That is only a part of the total use of money--but add up all the savings in the world, and it is a big number for the market that would be served better by gold than by fiat legal tender.
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