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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: Silver Super Bull who wrote (27328)	2/3/2003 5:10:44 PM
From: Sharp_End_Of_Drill	Read Replies (1) \| Respond to of 36161

The interesting aspect of real estate as a hard asset occurs with low (or zero) downpayment loans that quickly end up underwater in a down market. At that point people just turn the keys into the bank and walk away. Their hard assets go poof into nothingness. The bank's hard asset now represents a liability, and very likely a loss on their balance sheets when they sell at a steep discount. So, hard turns back into soft pretty quickly for the bagholder, and the hard doesn't have the expected cushion against downside when the initial leverage was high. Sharp

To: Silver Super Bull who wrote (27328)	2/3/2003 7:59:02 PM
From: patron_anejo_por_favor	Respond to of 36161

<<But given the massive growth of the mortgage market, in my opinion this paper has subjugated the "real asset" status of real estate.>> This is the key point. If you own your home outright, it's true that it is yours. The problem is that home values and prices are determined at the margin, and if everyone else's home is leveraged (mortgaged) to the hilt, the value of YOUR "hard asset" will take a monumental hit if enough of those "weaker hands" get "shaken out", ie, foreclosed. If it's your primary residence, at least you still have a place to live if the mortgage lending bubble bursts. But real estate used as a source of income or cash flow would be hit and hit hard, thus "softening" its value in an environment of credit contraction. Gold avoids most of these pitfalls with one extra kicker: due to the carry trade, not only is there a lot less borrowing underlying the value/price of gold, but gold itself has been loaned out to underpin other cash flows...and if credit contracts, the unwinding of that trade actually INCREASES the value of gold (at least, relative to other investment classes). Some of this unwinding is going on now, and IMO is largely responsible for the outperformance of the metal compared to the miners over the past several weeks.A very different situation from housing and real estate, to say the least.