Monday, April 9, 2012

More On Housing, Gold, Etc...

The financial system of the United States of America is like the Titanic. Hubris led many to declare it financially unsinkable even as its fundamental design was riddled with fatal flaws and the human pilots in charge ran it straight into the ice field at top speed.  - Charles Hugh Smith, LINK
I want to post some interesting articles without too much commentary.  I hope you read them in their entirety, as they underscore some of the themes about which I've been ranting for the past several months.

First, as has been reported by several non-mainstream media sources, China continues its aggressive accumulation of gold and mining assets.  This is an article about that from Australia's biggest selling national newspaper: 
A very reliable source close to several gold companies tells us Chinese interests are not only taking stakes in explorers and miners, they are also buying gold directly from producers and shipping it home
Here's the LINK (note:  if you have trouble loading the whole article, copy the title of the article into a google search bar and then click on the link that comes up - it should load in its entirety).

This article reinforces the fact that China is looking to diversify a large portion of its dollar-based foreign reserves into physical gold and mining assets and is doing so in ways camouflage the obviousness of overt physical buying in London.  In fact, China seems to think that right now it's cheaper to buy gold in the ground on a per ounce basis by buying mining companies than it is to buy refined bars on the open market.   I happen to agree with that.

Second, I've been ranting about the next wave down in the U.S. housing market.  I have argued that there was a substantial slowdown in bank foreclosures while the robo-signing fraud suit was settled.  FNM and FRE also slowed down their foreclosures so they could figure out how to unload their massive REO inventory.  Here's an article that reinforces my claim.  It quotes a couple of non-Government and non-industry organizations that track the housing market.  As you'll see, foreclosures have started to ramp up again:  LINK

Furthermore, the Fed just established a framework of rules and policies that enable big banks to rent out their housing inventory:  LINK.  Wouldn't you think that if the housing market was recovering the way the Government and the National Association of Realtors are both claiming that banks would want to unload their inventory to buyers?  What I find amusing about this is that the Fed has put its banks in direct competition with the Taxpayers/Govt in renting out housing inventory that can't be sold.  The banks will be competing directly with investor groups who are buying blocks of homes for the purpose of renting from Fannie and Freddie under a new dedicated rental program rolled out by the Government to enable FNM/FRE to unload inventory in order to make room for even more.

Bottom line:  the next year will be a great time to look for a nice home to rent and rental prices should decline considerably as bank and GSE inventory hits the rental market.  Conversely, it looks like this rental supply will soak up a lot of potential buyers and housing prices will start tanking again.  Per the recent monthly Case-Shiller data, prices have already begun to drop.  My bet is that they will drop precipitously over the next 12 months.

Make no mistake about it.  The economy is slipping back into crash mode.  Regarding the Fed and QE3, I'm still waiting for someone to explain to me in detail how the Government will fund its massive Treasury issuance for the rest of this year without creating downside chaos in Treasury prices (causing yields to spike a lot higher) unless the Fed prints up new money to buy the coming supply of Treasuries...

33 comments:

  1. Dave really nailed it as far as the housing market is concerned. Chinese buying gold directly from miners and buying up the companies themselves explains why there has been no move to blow up the Comex. They want the cheapest prices possible so let the cartel play their price suppression games.

    ReplyDelete
    Replies
    1. Thanks Bill. I've thought for 10 years that the Comex would be the last source of gold inventory to be raided. It's the most visible and doesn't have a lot. If the Chinese were seen aggressively buying on the Comex, the price of gold would explode higher. They LOVE having the huge paper supply keeping a lid on the price for them.

      Delete
  2. Dave,

    Have you considered FOFOA?

    You should definitely read his Moneyness post. He has written the mechanism of how Hyperinflation can unfold. It won't be in the Treasury market as you write here (which exists in the monetary plane), more than likely it will be in the trade deficit on the physical plane.

    Cheers.

    ReplyDelete
    Replies
    1. I'll read it but I'm not saying hyperinflation will be caused by dislocation in the Treasury market. Hyperinflation will be caused by an acceleration in the money supply, by the our trading partners no longer accepting dollars and by the Government directly competing with the private sector for everything.

      A huge spike in Treasury yields will be a symptom of the actual hyperinflation as it occurs. We would have a much higher Treasury yields right now if it weren't for the various forms of Fed/Government intervention in the Treasury market, some obvious - like Operation Twist and some not so obvious, like the use of interest rate derivatives and the massive bid for short term Treasuries to be used as repo collateral.

      Delete
  3. So with the Chinese, and also the Australians, as Jim Sinclair observes, now buying mining assets, including presumably explorers and producers, can we finally begin to feel confident that the mining equities will accelerate to the upside any time soon? At this point, I've all but given up on the mining equities, and am deeply fearful of holding on through the remainder of the spring and summer. Are the mining shares ever going to see better days?

    ReplyDelete
    Replies
    1. I dunno Tom, but if more people show dispair like your's it will mean we are at a serious bottom based on sentiment alone. Not sure the sentiment indicators can get any lower.

      I do know that once the Fed rolls out QE3 and the SPX takes off, the HUI will outperform the SPX by at least 2x

      Delete
    2. Good God though, the HUI/Gold ratio is approaching levels not seen since late 2008/ early 2009.

      It's ridiculous that companies with imaginary and fantastical balance sheets and earnings such as the weaker US/Europe banks got bid up like crazy all this year, as well as tech/internet companies that make zero money all get bid up.

      But it seems that's just the curse of the resource sector in general. Though the gold and silver miners are the hardest hit, it's not like oil, copper, coal, or natural gas companies get rewarded for supplying the world with energy and materials.

      Nobody wants to buy a stock with steady increasing earnings with a balance sheet that isn't BS.

      Delete
  4. How many oz's. are you talking about?
    I've got enough Ag and Au in my living room right now to buy up a couple blocks of prime estate in San Francisco.
    Just waiting to go out shopping for a new home(if it was worth anything).
    I think that I'll keep the silver, thank you.
    The Other Dave in SF

    ReplyDelete
    Replies
    1. OD in SF: by the time you might seriously think about trading gold oz's for a home, you might not want to be living in this country.

      The guy who dragged me into this sector back in 2001 and I used half-kiddingly say that we would eventually be able to buy a McMansion for 10 1-oz. gold eagles. Note: we were half serious...

      Delete
    2. For the record, he's getting ready to leave this country for permanent residence in the Carribean. He already has the land bought.

      Delete
  5. California is a diffenent country.
    I'm thinking about buying former cattle grazing 3 miles down the road from an old gold mine in Lake Co. CA. I heard where an old guy died on Morgan Valley Road recently. I'm wondering if the family will want to get rid of the house (in the middle of f***ing no-where).
    But thanks for the idea. I've never been to tha Carribean before. Time for a nice, long vacation there. I want to be your friend's neighbor! All I have to do is figure how to get the metal thru customs. I don't want to make a TSA agent's day! I sent the Silver to my Lake Co. storage site yesterday. 200 lbs stuffed into two full (and very heavy) suitcases. And I didn't even send any of the gold, The gold stays with me.
    Thank you. I read your blog everyday.
    The Other Dave in SF

    ReplyDelete
    Replies
    1. Does your posting my comments mean I have passed the Turing Test?
      'Dave in Denver' says The Other Dave in SF is a real person!
      I have never felt so honor-ed.

      The Other Dave in SF

      Delete
  6. Just want to say thank you for all the hard work you've put into this blog... been reading it regularly for a year now.
    ~ Andrew in Seattle

    ReplyDelete
    Replies
    1. Thx for the feedback - I appreciate it

      Delete
  7. As a landlord in Chicago, the rents this year compared to last are at least 25% higher. I've had more showing in one week than I used to have in a month. My personal theory is that many of the prospects were likely once part of the first time condo buyer crowd. Now they're part of the "I need a couple of roommates to split the cost with or move back home" crowd. The most annoying thing though is the suburban girls who have been so pampered and shielded for the last 20+ years they don't understand the costs and space constants of living in the city.

    ReplyDelete
    Replies
    1. Ya rents are a lot higher in Denver now too. That will change, as we know most of the housing starts have been multi-family and a lot of homes will coming into the market as rentals.

      Delete
  8. It makes sense for China to buy up gold mines since once China owns the mines they get the metal at cost AND don't have to worry about delayed deliveries, any tungsten filled bars or the chance the gold would be loaned out if kept by a middle man (COMEX, London, etc.)
    I think they are also using their US Dollar hoard to buy up oil fields in Africa or become partners in oil companies overseas.
    Swapping depreciating dollars for gold and oil, not a bad idea....

    ReplyDelete
    Replies
    1. They should be swapping those depreciating dollars for food! F*** gold (and silver) and oil!

      Still Stackin'

      The Other Dave in SF

      Delete
  9. The Chinese have a long term plan. Unfortunately, we have no long term plan. Really a sad state of affairs but that is the way it is.

    ReplyDelete
  10. Why Obama's JOBS Act Couldn't Suck Worse

    Boy, do I feel like an idiot. I've been out there on radio and TV in the last few months saying that I thought there was a chance Barack Obama was listening to the popular anger against Wall Street that drove the Occupy movement, that decisions like putting a for-real law enforcement guy like New York AG Eric Schneiderman in charge of a mortgage fraud task force meant he was at least willing to pay lip service to public outrage against the banks.

    Then the JOBS Act happened.

    The "Jumpstart Our Business Startups Act" (in addition to everything else, the Act has an annoying, redundant title) will very nearly legalize fraud in the stock market.

    In fact, one could say this law is not just a sweeping piece of deregulation that will have an increase in securities fraud as an accidental, ancillary consequence. No, this law actually appears to have been specifically written to encourage fraud in the stock markets.

    Read more: http://www.rollingstone.com/politics/blogs/taibblog/why-obamas-jobs-act-couldnt-suck-worse-20120409#ixzz1rarToTFS

    We're going back in time...

    The Prince of Penny Stocks

    Fortune; 1/19/1987; Katz, Donald R.

    EVEN AMONG DENVER'S free-L wheeling fraternity of penny stockbrokers, Meyer Blinder stands apart. The irrepressible founder of Blinder Robinson wears high-collared silk shirts open to the sternum, gold chains, a gold bracelet, and a diamond and gold pinky ring. Then there is his street-corner-tough Brooklyn accent, and a nose gnarled like a prizefighter's -- the result, he relates, of the time a customer slammed the door in his face during an earlier career selling vacuum cleaners door-to-door.

    Blinder's style may be a long way from Wall Street. But plenty of people want him as their broker. More than 1,700 stockbrokers work for Blinder in 58 offices spread across 35 states. His firm brings public more new issues each year than any Wall Street house, and Blinder, 65, has made a personal fortune he estimates at nearly $200 million by selling highly speculative stocks. Blinder says he underwrites only the brightest entrepreneurial dreamers and then sends his brokers out to sell pieces of the dream to investors willing to roll some dice.

    http://www.microcapmarkets.com/penny-stocks/prince-of-penny-stocks.html

    ReplyDelete
  11. My thinking is that a full-scale European debt crisis may create huge demand for US Treasuries, which may help finance the US deficit, if only temporarily.

    ReplyDelete
    Replies
    1. That is what Jim Sinclair (and Tyler Durden)say anyway.

      'Look Out Below...'.

      The Other Dave in SF

      Delete
  12. Romney "Surrounded by Neocons, Playing Around with Matches" on Iran

    Romney added that he’d restore aircraft carriers to the eastern Mediterranean and Persian Gulf region. And he closed with this stark warning: “Either the ayatollahs will get the message, or they will learn some very painful lessons about the meaning of American resolve.”

    “The easy, quick fashion in which he disposes of the Iranian problem by indicating that in effect, he would be using force, is very troubling,” Brzezinski pere told the gang. “I don’t think a presidential candidate should be playing around with matches that way. This whole thing can become explosive, disturbing, and destructive.”

    Joe Scarborough noted that in recent times, the Republican Party has been split between realists like James Baker and Colin Powell, and the neo-conservatives who pushed for war in Iraq. “If you look at the people who are around Mitt Romney, he’s surrounded by neocons,” said Scarborough.

    As bad as Obama is on foreign policy, Romney is worse. I cannot and will not vote for either Romney or Obama. Many independents feel the same, and they will be the key to the election.

    http://globaleconomicanalysis.blogspot.com/2012/04/romney-surrounded-by-neocons-playing.html

    ReplyDelete
  13. the new depression

    http://www.321gold.com/editorials/russell/russell041012.html

    ReplyDelete
    Replies
    1. Richard Duncan: QE3 Possible Later This Year
      “Probably more paper money creation and more acquisition of Treasury Bonds…”
      http://sgtreport.com/2012/04/richard-duncan-qe3-possible-later-this-year/

      Will they replace the household collateralized debt with new corporate entities as the anchor for embellished valuations to lend against (especially in light of the regulation light New b Jobs Act?)See Instagram valuation for comparable? Like the housing bubble that's a whole lot of something for nothing.

      Delete
    2. I have to be honest, Richard Duncan's analysis is very remedial. He's semi-clueless.

      No inflation in this country? What planet does he pay bills on? The Fed isn't going to just buy back Treasuries. They are going to buy a boatload of mortgages. They have already floated the trial balloon figure of $750mm. And they are going to have to print and buy at least that much in Treasuries to accomodate the Government's spending deficit.

      Answer me this, Richard, given that the Fed bought 61% of all new Treasury issuance in 2011, how can the Treasury possibly issue all the new debt that's coming without either letting the the market take Treasury yields seriouly higher (see Italy and Spain) OR a lot more QE.

      What's the answer, Richard?

      Delete
    3. I think these guys know inflation is running above official figures, so they are going to play the cpi game with bernanke and the fed. By that I mean if the regular puppet guests are going to get on MSM, pump the party line, and rationalize why the bond vigilantes aren't concerned with inflation (to prove your message is wrong and yet you know they are taking down new issuance to manage the yield curve as central banks balance sheets balloon, you have to take another tact.) Why marginalize your message. So you go along with their reasoning ie there's no inflation yet the debt is still there...and like you say who's going to buy it? The fed , of course...so what's stopping them? Each day they lose more and more credibility. No credibility..no trust...no faith. That dollar in your pocket is backed by what? Exactly. Its kind of like the gold manipulation story...everyone's tired of it...even though you know its managed. So why weaken your credibility? Over time there going to $%^& themselves...I just hope they run out of gas on the way home.

      Delete
  14. Isn't this chart insane when you also consider that producing assets like these have no value premium but a photo application for facebook garners a billion dollars when last week it's valuation was supposedly 500 million?


    The price of Gold stocks versus the price of gold has not been lower and cheaper in the last 20 years.

    http://www.jsmineset.com/2012/04/09/jims-mailbox-904/

    ReplyDelete
  15. Instagram – A Company Worth $1 Billion in Under 2 Years of Life

    Facebook, the biggest social- networking service, is buying the Instagram mobile photo-sharing application for about $1 billion in cash and stock, using its biggest acquisition yet to lure users of mobile devices. Instagram, owned by San Francisco-based Burbn Inc., was valued at $500 million after raising about $60 million last week from investors including Sequoia Capital, said people with knowledge of the funding who asked not to be identified because the matter is private.
    Instagram lets users take pictures with smartphones, retouch them with borders and filters, and then post the images on social networks. Founded in 2010, it has become the most popular free photo-sharing application on Apple Inc. (AAPL)’s App Store and boasts more than 30 million users.

    http://marketmontage.com/2012/04/10/instagram-a-company-worth-1-billion-in-under-2-years-of-life/


    You ever wonder if these vc guys play that game the japanese are known for in escalating valuations of stock holdings between related companies.

    ReplyDelete
  16. The resource countries better wake up...


    Vulturecrats

    But then there are the vulture funds. They follow a quite different path. They are creatures of the law not of finance and there are not many. One of the biggest, most notorious and best connected is Elliot Associates of Manhattan. They have very close links with the Republican Party and to Mitt Romney in particular ( They are large donors to his campaign). Another is FG Capital management. These companies are financial companies all founded and largely owned by Wall Street lawyers. FG Capital Management was founded by a former Morgan Stanley consultant.

    Vulture funds buy the bonds others have given up on. They buy what is often referred to as ‘distressed debt’. That is debt that has been defaulted upon and is, for the ordinary bond manager, worthless. The vulture buys it and then sues the defaulting nation. It is a very specialized area of the law and of finance. As an IMF study from 2003 said of vulture funds,

    “Investors in this market posses specialized knowledge of bankruptcy law and international litigation and are willing to hold out for many years before seeing any recovery”

    The study looked at Elliott Assciaites and others and found that those vulture funds trading in distressed sovereign debts who resorted to litigation to force repayment made profits of between 50-333% net of legal fees. Elliot Associates, for example, sued Peru.

    For example, Elliott Associates sued Peru in the Southern Distric Court of Manhattan by filing to seize money Peru had in the vaults of Chase Manhattan Bank. Chase was acting as agent for Peru when Peru was paying certain other debts. Elliott argued that if Peru had money to pay other creditors then it – and more importantly Chase – had a legal duty to treat Elliott and its claim equally. The suit held up payments and seemed to threaten Peru with financial paralysis. The threat worked. Peru paid. Elliott had bought the distressed debt for cents on the dollar and got the whole dollar plus interest. This is only one of several strategies used by Vulture funds.

    Now to my horrid thought.

    http://www.golemxiv.co.uk/2012/04/vulturecrats/

    ReplyDelete
  17. Avg. Folks Choosing Food, Health, or Fuel

    Average Americans are having to choose between food or fuel. The productive value of a person in this position is zero to the corporate Fascist oligarchy. If you decided to leave the country where would you go? Islands of suitability are those countries that have the rule of law. This is a global crisis that will be very hard if not impossible to prepare for. What should younger people do to prepare for the future. This is a major structural problem for people looking for jobs with 1/2 Billion meaningful jobs vs 2.5 Billion labor participants.

    http://inpoints.blogspot.com/2012/04/avg-folks-choosing-food-health-or-fuel.html

    ReplyDelete
  18. This is certainly one of the most valuable posts. Great tips from beginning till end. Lots of suggestions for me and for people. Superb work
    Collect Silver Coins

    ReplyDelete