After the Boom!
Frank Lechner
whynotgold@msn.com
December 8, 2002
Last time we met we were talking of the validity behind the argument of a housing bubble or not. I went on to say that a bubble is a special event and that we were at the beginning of a possible bubble. I agreed that some areas of the country had indeed seen bubble-type conditions, yet on a macro basis that this was not applicable yet.
I went on to say that the real cause of increasing real estate prices was directly related to the growth of the money supply and the rate of interest that is the lowest in many a year. This has bullish implications going forward to stay with the long term bull trend in real estate prices as the charts did show. Of course, this is predicated on a few things, namely interest rates remaining low and the employment rate maintaining a steady to slightly higher level.
There is certainly a propensity amongst the Fed crowd to continue this so-called miracle as they are running out of arrows in the quiver. The drop in stocks has many looking for a different place to park excess fiat. Cautiously they approach each upward move in the Duck as they have learned to be careful now. Funny how it took 3500 points out of 5000 to finally understand this. Maybe the stock market won't come back they say. So now what? They have been moving funds to bonds, but they are no fun. The next most logical for the instant gratification crowd is a bigger, better, grander house as they already have bought 2 new cars on 0% credit. "As long as I have a job, I can make the payments. I will keep putting into my 401K and by the time I retire, the money will be there."
Yet, when the Kondrietiff Winter comes, we will see reversals of increasing house prices for the first time in decades on a macro scale. The long bull trend in prices will finally correct. Go back and look at those charts and just imagine a 50% haircut in the median prices of housing. What would that do to your personal balance sheet?
I have talked many times about the excessive debt within many sectors of this country such as personal, mortgages, and business debts. From past comments the easiest way out of this debt mess is to inflate the money away, thereby allowing the debtors to pay today's bills with tomorrow's money. The greater wages and same payments theory over time. This is why the Fed MUST try to inflate the US$ away.
I only discuss the K Winter holding off for a while simply because I can. The scientific basis for this is really not scientific at all. I believe in the value of cycles, yet I also see the long term cycles as a plus or minus a few years venture for timing. I can see inflation of the money supply continuing into the near future, and by virtue of dead stock markets, this excess fiat will find its way to the real estate market. This has the possibility to continue until the 2007-2009 time frame.
The projected end of this cycle will be the change in the life cycle in the US. The retirement of the baby boomers will force many to sell stocks, further exacerbating that problem, and also result in a downsizing of housing requirements. The need for ever-larger houses will be replaced by the wish for smallness, and proximity to services. The 5-acre estates will be traded down to townhouses, and smaller homes. This will result in a glut of oversized homes on the market, with all of the accompanying features accordingly. The need for the latest and greatest lawn mower will be dead while the opposite is true of the most recent release of Viagra.
The history of gold and silver has shown that it does not matter which way this scenario develops for the holders of Precious Metals. Inflation will result in much higher PM prices as people finally realize that the paper printed is just that, paper. It is not money. A dollar today rapidly approaches 75 ct then 50 ct and so on to zero. The inflation will cause the prices for gold and silver to escalate just to keep pace with the destruction of the dollar. In an inflationary environment saving becomes a liability. So why do you think the Feds want to keep inflation alive? It keeps the debt cycle in motion and their very experiment with fiat currency a reality.
With deflation, the end will be the same with holders of gold and silver realizing their value is holding at today's levels. While everything around us is destructively decreasing in fiat value in deflation as the system purges itself of excessive credit, gold and silver will maintain higher levels. So the perceived value of gold and silver will be rising as all else is failing. The debtors are the losers in deflation as they have to pay these excessive amounts of debt back with ever-decreasing levels of income. Instead of paying $100 of debt with $125 of income per month, you now have to pay $100 of debt with $90 of income. Oooops. We have a problem here. Defaults and bankruptcies as the system hemorrhage increases exponentially. All that hold gold and silver will be happy to maintain a value, instead of the devilish opposite.
Instead of listening to soothsayers within the stock market or those that predict this occurrence or that possibility, you are going to have to choose the path that fits the greatest number of scenarios out there. The government will not be your friend as we move forward. You must take matters into your own hands, and make the hard choices that are to the ultimate benefit of yourself and your loved ones, not only financially, but also in matters of the mind and body. Debtors prison is not a healthy place.
Seems to me that as we go toward this uncertain future, that the way to emerge out the other side as a winner is really quite simple.
Buy Gold and Silver with abandon to protect yourself and your family.
Frank A Lechner
December 8, 2002
Questions or Comments? Fire Away At: whynotgold@msn.com
Frank Lechner is an independent business owner and investor who has studied the markets over the past 20 years, dating to the last major bull run in precious metal investments. We had a mini bull market in the early 90's and he believes we are currently in the early stages of an equivalent bull market to the late 70's and early 80's.
This is not meant as investment advice. This is only an opinion. Past performance is no guarantee of future results.
321gold Inc Miami USA
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