[Homestead] More on Gold

Leslie cayadopi at yahoo.com
Wed Dec 31 15:42:30 EST 2008


<<<<...timing is not equal among investments.  One thing about gold, currencies, tresuries; they are liquid.  Real estate , on the other hand is il-liquid. >>>>

True.   
 
Except one my r/e broker buds in CA... he specializes in estate sales.  One thing he has observed is that r/e is illiquid only when priced wrong for market conditions.  Once price is lowered enough, there will be a buyer.  Although the credit disaster makes it more difficult and of course closings take time.  They are illiquid if you aren't willing to sell at a lower price than asking.
 
I think I read in some of the hyperinflation stuff that r/e prices do rise.  I wonder about that this time, somthing doesn't seem right about that this time.  (The trick with the r/e bubble was knowing that by Feb 2007 specifically, the credit bubble "cat" would be out of the proverbial bag - the first hint to the public that there was "a problem, Houston".)
 
<<<Practically everyone saw the bubble in real-estate , and some of us knew the
end time was near. >>>>
 
I disagree.  You wouldn't believe how many people I talked to about the bubble from 2004 thru 2006.  Not only were they clueless, but they told me I was dead wrong, Mrs. Doomsday, that real estate always goes up, ya de ya de.  One guy had the cojones to tell me that as long as he didn't sell his property was worth his purchase price, something I'm still laughing about.  When I was selling in 2005-2006 you wouldn't believe the crap the realtors that came to the open house told me (well you probably would) - I confronted them with their b.s. - the most shocking thing, was that most of them didn't seem to know it was b.s.  LOL.  Then they would con people into thinking they had only X amount of time  to buy another property or they'd get hit with cap gains tax.  The crap was unreal... of course back then I could actually remember the tax rules on that and spouted the data off since it was fresh in mind.
 
One home health caregiver lady I talked to (a $12/hr type) had been convinced in early 2006 that she qualified for a S/F homes costing nearly $300k.  She lived in a small place with her mom and MIL, hub dead, and she is sole wage earner.   She was so excited about buying a new home so she could have more room and not have to share 1 bathroom.  She only had 2 years left to pay off her small condo.  I sat her down and put the math in front of her - then told her not to believe me, but to take what I wrote down to the lender that qualified her and ask if what I wrote down was true.  She wept the next week while she profousely thanked me and told her I saved her life.
 
Ditto with a very well to do friend, self-made Palm Beach type.  She called me, again this was 2006 and prices were already sliding for those who pay attention.  She was trying to get me to go with her to a condo buying party.  Short end of it, I told her the side she hadn't heard.  I learned later she didn't make any condo flipper investments.  She thanked me earlier this year.
 
Just a couple examples - as I talked to so many people - next to none understood it was a bubble.
 
If you can afford the "carry" on the r/e, I think it is still one area people recommend if you think hyper-inflation and depression on the horizon.  That's one advantage in gold.
 
Real estate "carry" is a lot bigger than most people think.  Mortgage interest, rising real estate tax, insurance, and in some cases repairs.  At least some of the carry can be off-set by renting - at least until rent controls are imposed.
 
 
<<<<....gold is not looked at as an investment, but rather as a store of wealth....>>>
 
It only stores excess wealth as long as prices are steady or rising.  Prices meaning the exchange rate back into a currency, or,, if it takes the same or less grams to purchase some things in the future.    Really what it is is an insurance policy taken out against the government debasing the purchasing power of the currency.
 
For example.  We know in history that during depressions, gold priced in currency falls.  So let's say you bought gold today at $881.  And history repeats, and a depression unfolds.  If we look back to the early 30s, you will see that gold actually fell in price (in terms of being able to purchase fiat currency).   If history repeats here, and we have a depression, gold could continue down for a while.  If so, it will take more grams to purchase supplies than at the time you purchased gold - i.e. it didn't store any wealth during that time period - it lost wealth.  You have to wait for gold prices rising before it is a store of "money wealth".   
 
(Geez - we really should have two different terms here to identify wealth to avoid future discussions about what is the proper definition of wealth....  the wealth being discussed here is not the kind of wealth that sustains one's life....i.e. cropland, seeds, etc., but the wealth of excess production being held in a form other than life sustaining items which should be the first priority...)
 
Kitco has a crappy historical chart that shows gold prices from 1883-1998.  You can barely see the drop in gold price during the depression - but I don't know where else to get a better historical chart, but I have seen it in books and the drop was dramatic - but gold did lead the way out as far as price moving up.
 
http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx (hopefully this chart link works - if not, go to kitco.com hit charts on the left, then historical charts until you find the box to click off the 1883-1998 range)
 
Of course it is interesting to see the price response of gold.  It was $20/ounce until the Federal Reserve was created.  It dropped during the depression, moved up in response to the new deal / gold confiscation era - then zoomed up when Nixon took us off the gold standard, and has nearly tripled again since that ending price area on that chart.... 
 
So far an 4,405% move up from the 1800s value of $20/ounce, since the devaluation of the currency game started with the creation of the Federal Reserve.   
 
Guess that means, that if you were worth $1 Million in 1900, you would have to be worth $44 Million + in order to purchase the same amount of "things" as in 1900..... being a millionaire today is "worthless" compared to being a millionaire in 1900.....
 
 
 
Note that those who bought the peak in 1982 had to wait some 25 years to get back to break-even, and many probably sold at a loss while waiting.... at least those that didn't understand what kind of insurance they were taking out, or those who found themselves forced to raise cash at an inopportune time.
 
 
 
http://www.lewrockwell.com/paul/paul445.html 
 
It's too bad few understood that this guy knew what he was talking about.  From that link he writes:
 
".. buying gold per se should not be touted as a good investment."  
 
"Both gold and dollars are considered money, and holding money does not qualify as an investment."  
 
"...by holding paper money one loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency."
 
"Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value."
 
"...the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued."
 
"The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living."
 
"...most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries;..."
 
And he goes on to explain that most people in this country do not realize that $1.00 pre- Federal Reserve (1913) is now only worth .04 cents  What is scary is that that is just the beginning of a serious devaluation of the currency!   He also explains that while there is a strong (inverse)correlation between gold and the amount of money in circulation "it's not instantaneous or perfectly predictable".   He goes on to state, "...many new dollars have been created over the past 15 years that have not yet been fully discounted, guarantees the further depreciation of the dollar in terms of gold. "
 
Anyway, he says a lot more.......... but he explains things well.  The kind of article that anyone who is considering buying gold should read - whether as a temporary insurance policy against inflation and/or hyperinflation, or collapse of the USD, or any other reason. 
 
(I found this today, looking to see what the US Constitution said the value of a dollar is supposed to be $1 is supposed to = 1/20th of 1 ounce of gold.)
 
 
<<<<<<<<<<,...........property taxes could take away that which no-one now is even considering.  Things might be different this time, why does one man need more than five acres (or 3 acres or whatever), maximum?  Maybe a federal property tax on 'excess' acreage is what people will think we need to pay off our debts.  Since the vast majority of people live on less than an acre , the vast majority of people would not have a problem voting for people who would enact such a tax.>>>>>>>>>
 
SHHHHHHHH, don't even repeat that... LOL !!   Actually, some of this is already happening, albeit with a twist.  In FL there are homestead exemption laws.  In the event of a judgment, they can't take your one homesteaded property away - so you would homestead the largest piece of land/most expensive property.  I don't know the outcome, but they were trying to change that law to protecting a maximum of 1(?) acre.  (Definitely not more than five acres.)  
 
I hadn't thought of that before, but I think you are on to something here... It is just a matter of time before the tax man follows suit............
 
The Icelandic guy isn't the only one who doesn't trust US $.  Neither does my family in Norway - and these are just "old timers" who have no background in economics - just common sense.  
 
 
<<<<<<<<<I haven't even considered doing what he did. The only difference I see between the dollar and the Krona is that one is backed by the world's largest arsenal of weapons and the other isn't.>>>>>>>
 
Dr. Paul writes: "The special nature of the dollar as the reserve currency of the world has
allowed this game to last longer than it would have otherwise."  What makes the USD the reserve currency of the world?  The fact that countries have to change into dollars to purchase oil.  Nothing more, nothing less.  That fact is changing.  Do not ignore the importance of the change of the "Petro-Dollar" changing to the "Petro-Euro" (and other currencies) with respect to the world's reserve currency status.  Or Putin's plan behind this move.
 
Politics isn't my game.... so for those of you who follow that, if the US feels backed into a corner --- feels threatened that the US Dollar will no longer be required in order to purchase oil ---- who are they going to point the nukes at to force the rest of the world to return to dollars?
 
Personally I think the US made a lot of enemies around the whole world this time, with the exporting of toxic waste ponzi scheme - a lot of enemies.  And then you have Putin playing his own version of chess - a financial war game, also backed by nukes and an alliance with the Chinese.  Scary stuff.
 
:-)
 
 

--- On Wed, 12/31/08, bobf <bobford79 at yahoo.com> wrote:


 


      


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