Enough About You, Let’s Talk About Me

Here’s an account that may sound painfully familiar to you (from www.dowtheoryletters.com):

“In January 2006 I had an offer from a buyer using a sub-prime loan on a Vallejo, CA
condo for $285,000. I negotiated with him since I knew a condo about 60 feet from
me had sold for $365,000. The deal fell through and I decided to improve the
premises to get an even higher price. In February 2007 I placed the property on the
market and had four offers in days - at $240,000 - not one of them closed as not one
of the buyers could get “100% no-doc loans”. I sold the unit this week for $129,500
with credits of $4,000. Net price - $125,000!

“Building costs in Vallejo are $225 per square foot (sf). To this you must add land costs -
$100,000 to $120,000 per lot of about 6,000 sf or say $20 per sf. Total costs $245 per sf.
Carrying costs while the building is being constructed may be another $20+ making a
final total of $265 per sf.

“On any day you can buy a property in Vallejo in foreclosure for $125 per sf, and
$150 per sf would be a high price - and that includes the land and building.
What surprises me is why there is ANY building of residential buildings when you
can buy at $150 versus build at $265 - and the delta is getting bigger, not smaller.

“A typical day in the foreclosure arena involves 30 sales with almost all the
properties being taken by the banks. 30/day is 150 per week, or 600 per month
- or each month twice or three times the number of homes actually sold - 239 -
and the sales pace is slowing.

To state the obvious, this is an Armageddon, with supplies soaring, demand
falling and yes, prices collapsing. Yet the available statistics say prices are down
only 12% in Solano Co. — nonsense!

The banks hold the foreclosed homes and drop prices only slowly. Yet in the
last few weeks more and more of them are dropping bids at the auctions.
An example today: $235,000 owed, opening bid $112,000 - and this was one
of seventeen dropped bids. No one bid!

t is my understanding that banks are limited by law in what they can retain,
so how long will it be before they crack and slash prices of what they
already own?

Far from the situation being at a bottom, the database I keep of these
auctions is accelerating in speed of size increase. Where a year ago the
30-day moving average of new auction sales for all seven Bay Area Counties
was 30/day, reaching 60/day a few months ago, it is now 100/day.
I see an increasing flood of properties increasingly being dropped in price.”

Actually, when this was written (May, 2006) gas was 10 cents a gallon. Now it’s under 7 cents a gallon.

What in the world am I talking about??!! Read this:

http://www.lewrockwell.com/orig3/reisman6.html

I didn’t buy a note this year. As an individual investor I can wait for good deals and didn’t find a single one. Low interest rates are not good for either note creation nor risk-reward.

So where do I think one’s cash should be? Mine is in Australian and Canadian dollars and Euros (NYSE symbols FXA, FXE, FXC) and gold and silver (physical and NYSE: GLD, SLV, CEF, CTU). For physical gold, contact Franklin Sanders at the-moneychanger.com or 1-888-218-9226.

Don’t get spooked by the fact that gold and silver have had a run-up and will probably drop in price a bit over the next few weeks. That’s a healthy correction — and a buying opportunity.

For the past 25 years gold was a terrible investment. But when the economy started going south it became a different story. If you had bought gold coins as recently as mid-2005 you would have doubled your money. If you had waited and bought them a year ago, you would have made 40%.

I know, I know, “gold pays no interest.” Actually, it does; people just don’t understand the form it takes. Gold maintains its value; dollars don’t. Take any period of time — say, 1915. Gold was $20.67 per ounce. You could have bought an expensive man’s suit for the price of one ounce of gold. Fast-forward to today. Same thing. But those twenty 1915 dollars literally won’t buy a pair of socks now.

The reason is that gold is the only real money. The printed pieces of paper in your wallet are constantly going down in value (have you bought a steak, a gallon of milk or a gallon of gas lately?). The dollar-denominated paper in your wallet, bank accounts, IRA and 401(k) is losing value because of the decisions of the central bank, the Federal Reserve. The more paper dollars they print, the less each dollar is worth. That is common sense.

One dollar saved when the the Federal Reserve was created in 1913 is now worth 4 cents. The same dollar converted to gold is now worth $23.00.

I do think silver and gold should be a substantial part of one’s portfolio. I’m not keen on mining shares; although I have owned them off and on for years, and still have some, they are a very small part. I prefer the ETFs, such as SLV, GLD, GTU and CEF. They hold physical gold and silver and issue shares, so their share price is directly tied to the price of the metals. The problem with mining shares is that they can go down when the metal goes up due to strikes, mine output, increased extraction costs, changes in government regulations, management problems, etc., etc., etc…

I only subscribe to two financial newsletters; I don’t want to get confused with conflicting advice. The one I would suggest you consider is www.adenforecast.com It has a tremendous track record for the past 25 years.

FYI, here’s my favorite columnist, who believes the same things about gold and silver as I do, among other things: http://www.dailyreckoning.com/Writers/MogamboGuru.html

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” — John Maynard Keynes