Hyperinflation

Canada Kills the Penny…Is the U.S. Next?

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Yesterday was a historic day in Canadian monetary history, as the mint stopped distributing pennies.  As expected, this sparked a debate in some mainstream media outlets in these United States as to whether it was time for us to do the same. I have been interested in the metal content of U.S. coins for many … Read more

Fed Statement is Laughable: The Precious Metals Consolidation is Over

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I haven’t written anything about the markets in a very long time due to the experience in extreme boredom that they have become as of late.  The election came and went and now that we are just ahead of the Holiday Season the apathy has hit monumental proportions.  More significantly, what was the point of doing anything ahead of today’s Fed meeting?  There wasn’t any and so nobody did.

Now that the announcement is out, I think in retrospect today will turn out to be a meaningful turning point.  Not so much because of what they said, but because of where certain markets are and because of what they didn’t say.  Let’s start with the latter point.

From the statement, we found out that the Fed is set to launch an unsterilized buying program of $85 billion per month ($40 billion in mortgage backed securities and $45 billion in treasuries).  This part was widely flagged already.  The more interesting part is the language in the text discussing how the Fed will essentially link their low rates to unemployment, with 6.5% being the threshold.

This is all within a text that attempts to portray a very benign and healthy economy, one described as having an improving labor market, a housing recovery and anchored inflation expectations.  Sounds pretty good to me; so then why accelerate the aggressiveness of their radical money printing policy?

The answer is that the Fed realizes its policies haven’t worked and are convinced they need to do more and more to prove an academic point that man is indeed more powerful than nature.  At first, they said a stock market rally would set a fire under the economy.  That hasn’t worked.  Then they said a new housing recovery would do it.  Once again, nein.  So now their answer is just print money like crazy and eventually it will work.  Yes, they are insane, but we already knew that didn’t we.

Actions always speak louder than words and their actions demonstrate a deep concern for the real economy and an unspoken understanding that things are not going well underneath the layers of propaganda.

Now onto the second point.  I think today will mark an important turning point in the markets not just because of what I wrote above, but because of where things stand.

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The Gun Has Been Fired: Precious Metals to Hit New Highs

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So I was dead wrong about what the Fed would do in the video blog that I put out last night.  I did not expect them to expand their balance sheet with asset prices as high as they are and the economy supposedly growing.  This is THE signal I have been waiting for (and the … Read more

Thought of the Day – House Flipping in Colorado

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I overheard a very interesting conversation in a local coffee shop today between a realtor and a prospective client.  It was the sales pitch that really shocked me as I could have sworn I was transported back to early 2005.  She was using lines like “you’d be a fool not to buy with rates this low,” while also peppering the conversation with anecdotes about this “person she knew” that had just flipped a home for a 40k profit in just a few weeks.  America is back folks.

Does this conversation translate into any actionable investment ideas?  Not really, but it relates back to what I wrote several weeks ago regarding the equity markets.  That people that know better are once again drinking the kool-aid.  The one thing I do feel strongly about is despite ubiquitous prognostications of real estate brokers everywhere, housing is going to be in a deep slump for a very long time (unless we get hyperinflation of course, where anything is better than paper dollars).  Despite all attempts to revive housing and trillions of dollars printed and then spent by the government, all housing has done is bounced around the bottom.  Ex-hyperinflation I expect another major leg down within the next couple of years and even in hyperinflation I expect real estate will do poorly in real terms (ie versus gold).

It is at this point that I’d like to direct you to read a piece I wrote in March 2010 titled: Residential Housing: Why it Doesn’t Stand a Chance.  One of the focal points of this piece was that Americans would become a lot more like the Madrilenos that I lived with during my study abroad in Spain.  Basically a huge percentage of the population lived at home until marriage or even after and there is no reason that cannot happen here.  Not to mention the fact that the youth in America are not only likely to rent but also to simply shove more people in the same space.  All of the secular trends I identified back then hold true today and with over $1 trillion in student debt you better believe it is only going to get worse.  There is also the fact that household formation generally, ie marriage, is also likely to enter a secular decline much like has happened in Japan.  It has been and is my view that household formation in America is about to take a drastic turn lower and this will be the biggest headwind for the market.

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