Last week I made the case against real estate as an investment class. My recent change of heart is due to the ridiculous amount of market tinkering the Fed, the Treasury, and the central bankers around the world are doing to “support the real estate market”. All the bad loans, the foreclosures, and the schizophrenic Hank Paulson with his “on again - off again” bailout schemes, is putting the banks on hold…not knowing quite what to do with the growing REO on their books.

They are holding on to a ton of it because Hank said he was building an auction platform to buy all their troubled loans. Hank called this program TARP….or the troubled asset repurchase program…and he put a really sharp Wall Street guy (…haven’t we had enough of these guys?) in charge by the name of Neel Kashkari. Hank went to Congress and got almost a trillion dollars so he could buy up the bad loans and save the real estate market. Help the guy on the street, you know…you and me.

But a funny thing happen on the way to “helping” the American public….

The banks stopped lending to each other…like some errant children, they decided to stop playing nice and started killing each other right in the middle of the mall!

What is Hank to do? It’s embarrassing….trying to separate these children…get them to stop fighting…stop them from being petty, greedy, and only out for themselves. Hank remembered he had a pocket full of money…your money. So he offered nine of the “bigger” kids a truck load of “ice cream” if they could shape up and fly right. This took $250 billion of the $750 Congress gave him to fund TARP.

And it seems to have “worked” since the LIBOR and the TED spread are down some, but bribing kids or bankers to behave wears off quickly. So on Monday of last week, Hank said in a press conference, he was not moving forward on TARP. He was going to stick with direct investments(bribes) in banks to get the markets working again.

What?

Hank realized he’ll need the remainder of the $750 billion just to keep the banks from destroying each other …and us in the process.

There are rumors running all over Washington since Monday, that Hank’s job is hanging by a thread. Every Congressman who voted for the bailout bill looks like an idiot now that Hank’s approach to fixing the “worst financial crisis in a century” shows less insight than your 14 year old babysitter shows when the kids act up on her watch. Bribes, picking favorites, and appeasement at the highest levels is exactly what I’d expect of a part-time baby-watcher, but we deserve more from the Secretary of the Treasury.

With the government and the Fed knee deep in “fixing” things, where can one find an investment that is less susceptible to this meddling? Better yet…what investment could actually benefit from it?

Well let’s look at the alternatives left after eliminating real estate. It can’t be stocks with a recession headed our way. It can’t be the bond market; those yields are so low they don’t cover inflation. The same goes for sticking money in a CD or money market account; yields are horrible. Commodities like sugar and pork bellies with a global recession aren’t the way to go either…but we all have to eat, so their might be something there a little later.

But right now…the only investment class that makes any sense to me is …. drum roll please….

Gold!

I know what you are thinking…I’m not about to trade the gold futures market….and you right to say it. I’m not thinking that either.

I’m saying buy actual physical gold bullion…and coins if you like…but mainly the bullion.

(If this is the first time you’ve read my stuff, you’re probably scratching your head right now. If you go back and read some of my earlier stuff here on BiggerPockets Blog, I recount the story of my call to short Fannie and Freddie 26 months ago when they were trading at $60 a share…and the home builders…and the subprime lenders.

I even gave a five live seminars here in Denver on it back in the fall of 2006! Telling folks to short those stocks when everybody else including Jim Cramer was advising the opposite sounded crazy too…but those who took my advise don’t work for a living anymore. Which begs the age old question - “Is blogging work?”)

Here are my reasons….

First, as we saw, there are no other reasonable investment options. Soon the big money will come to that conclusion too.

Second, if you like real estate for it’s hedge against inflation, you’ll love gold because it’s a storage of wealth just like real estate. The only differences is in a down market I can still sell my gold in a matter of minutes, not months.

Third, if you believe like I do, that all this lowering of rates and printing money at a pace the US has never seen before will end in 1970’s type stagflation, owning gold could prove to be the wisest decision of your life. Once you own some gold, you actually want Bernanke to keep printing money( he’s not likely to stop regardless).

Well I could go on for an hour about fiat currencies, a seriously out-of-whack M3, and the under reported unemployment numbers that lead to a very ugly economic picture moving forward, but suffice it to say, if even a tenth of it happens, gold will be the only safe haven.

If we could only buy physical gold the way we buy rental real estate….25% down, finance the remainder…gold would be the best investment - at least for now.

Oh, wait…you can! Check out my BiggerPockets blog this week for more on gold…I’m planning on posting a few ideas for you!

Next week I’ll be writing on why Paulson resigned…and explain in more detail who his successor, the mystery man, Neel Kashkari really is…at least I hope so!

Bye for now!

If you're new here, you may want to subscribe to our RSS feed or sign up for our real estate social network. Thanks for visiting!

Tags: Economy, gold, investment, paulson, real estate investing

In a July 14, 2008 AP article titled: Fed adopts plan to curb shady mortgage practices , Fed chairman Ben Bernanke is quoted as saying:

“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower.”

Keep that in mind as you read these two sections taken directly from Title 12 (quoted as 12USC) of the United States Code:

Sec. 354. Transactions involving gold coin, bullion, and certificates

Every Federal reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold.

Sec. 411. Issuance to reserve banks; nature of obligation; redemption

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

Read the sentences I placed in bold print. Does anything jump out at you? When I first read these two sections in the ‘90’s I immediately called the San Francisco federal reserve bank.

I wanted to redeem my FRN’s (Federal Reserve Notes) for gold. I was told all I could get for my FRN’s was like denominated FRN’s. In other words, if I came into the bank with a FRN that was denominated with a 5, I would receive another 5 FRN in its place.

It was explained to me that these sections didn’t mean what they say. What they really mean is a person can show up at any Federal Reserve Bank and get only a like denominated Federal Reserve Note. They wouldn’t receive any gold or silver despite the plain language of the code sections.

Accepting that on face value, let’s read Bernanke’s remarks again but with a question in mind. That question being, how does a liar and deceiver expect anyone to believe any of his remarks.

The quoted sentence was from an article about the fed stepping in with new and better regulations covering mortgage lenders if you hadn’t figured that out. The first clause of his remarks is actually the smoking gun (according to me).

The many causes are actually only one – the federal reserve. This is an organization that has plundered the value completely out of our currency and is now bombarding us with smoke and clouds on how it intends to fix the problem.

Hogwash. The problem is fixable immediately and it is fixable through the above two cited sections from 12USC. Again, that is according to me.

So you don’t think I’ve fallen and knocked all the sense out of my head I call your attention to 12 USC 95(a) (Regulation of transactions in foreign exchange of gold and silver; property transfers; vested interests, enforcement and penalties). Pay particular attention to this section. It has never been repealed.

This section was used by Roosevelt in his power grab. To understand how Roosevelt used it to take over the banking system and how that takeover is still in force today, read Working Paper 9405 by Walker F. Todd, assistant general counsel and research officer, Cleveland FRB (retired).

While this one paper alone won’t provide all the answers, it will act as a blueprint for today’s banking/mortgage crisis. What is happening today has already happened during the Hoover and Roosevelt administration.

There is nothing new under the sun. Next week, I will present another solution to our current mess. That solution will be supported by U.S. Supreme Court cases which, by the way, tell us what we actually already know.

Tags: Bank notes, Ben-Bernanke, bernanke, bullion, delinquincy, federal reserve, gold, monetary policy, month

If someone were to have said, say a year ago, that there would be a crisis in the subprime mortgage market that would lead to world-wide economic chaos, that person would no doubt have been laughed at.

Sadly, though, that is exactly what has happened and the evidence just this week is overwhelming.

But, before the depressing news, how about a little uplifting news? You know you want it!

The Fed To The Rescue: Too Little Too Late?

The Federal Reserve has come up with a “rescue” plan that, as the Associated Press put it, “would pour as much as $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.”

Why does this matter?

Because the mortgage crisis induced credit collapse has made banks and other lending institutions not want to lend money to one another. And, in the end, that means they don’t want to lend money to you.

Under this plan, financial institutions can borrow from the Fed, and, in effect, exchange their questionable mortgage-backed securities for a sure thing: U.S. Treasury securities.

In theory, this should trickle down and make banks and others more likely to extend credit to all of us…and that includes new mortgages, which could help take some of those now empty foreclosed houses off the market.

Is this enough?

Says Ian Shepherdson, chief economist at High Frequency Economics, “This will not turn the economy around or fix all the problems in the markets but it should reduce the liquidity issue, at least for now,” according to the A.P.

Hold On. Here Comes The Promised Depressing News

Told you we’d get to this. If you are the weak knee type, you may want to stop reading right here and make yourself a cup of coffee…even though world coffee prices have jumped more than 20 percent in the past year.

But, if you are strong, read on and keep a tissue nearby. Better yet, keep a box of tissues nearby . . . although paper prices, too, have risen.

$6.1 billion dollars is how much Fannie Mae and Freddie Mac lost in the fourth quarter and they think they will suffer billions of dollars more in loses as we crawl through 2008.

The price of gas has gone up as of this writing to a new national record–$3.2272 a gallon, on average. And, in places such as Southern California, it costs even more. We’ve already seen some service stations charging $4 a gallon for regular gasoline.

In large measure, gas prices are now rising–they did lag a bit–because the price of light sweet crude oil keeps setting new records just about every day. It was trading at $109.72 at one point today (Tuesday) in the New York Mercantile Exchange.

120? Did I Hear 120? 120, Going Once, Going Twice, Sold To The Suckers Around the world.

That’s right, there are now serious projections that oil could rise to $120 a barrel.
And, ready for this? Maybe even higher??

Because U.S. dollars are so much cheaper now against many currencies, partly because of what began as a subprime mortgage crisis, and partly because of the ever expanding economies of China and India, the U.S. trade deficit in January rocketed to $58.2 billion from $57.9 billion the month before–this according to a Commerce Department report issued today.

Talking about China, and I was, our trade deficit with that country also got a lot bigger and is now $20.3 billion as of January. It was $18.8 billion in December 2007.

Even Google?

Yes, even Google, which pretty much owns the entire planet by now, is talking about possible layoffs soon! I mean, Google? You’d think they’d be able to Google for a solution to their problem, right?

I know what you are thinking. You’re thinking, yeah, this is pretty depressing stuff, but, boy, what about that stock market Tuesday which had its biggest one day rally in some six years, the Dow Jones industrials up 416.66 points!

Come on. We’re all adults here, right? Nice that the market went up so much on one day, but does anyone really think this will start a trend, what with all the bad and uncertain economic news out there? Shame on you if your answer is yes. Hate to introduce some more doom and gloom to this otherwise upbeat last few paragraphs, but you know the market is going to plunge again and probably lose whatever it gained in trading today. Of course you know it!

Like I said, if someone would have said a year ago that a subprime mortgage crisis would ignite all of this—-well, come to think of it, if someone had, that someone should have been made Secretary of the Treasury or even President. But, that’s a whole other story.

Tags: bailout, banks, China, dollar, Economy, Euro, gas, gold, google, government, housing, Interest Rates, oil, real estate, subprime

March is here and what else can I say about this past week other than — things aren’t looking good for the US. The cost of real goods continues to rise, with the price of everything from gasoline, oil, food, and commodities all continuing to climb at alarming rates.

Gold hit a new high near $980 an ounce, and crude oil set an all-time high of above $103 a barrel – both beating the real-terms peaks reached in 1979-80. Many traders believe that gold at $1,000 an ounce is now well within reach. - The Independent

Additionally, weakness in the dollar has driven the Euro to a record high of $1.5238 on Friday. While tourism and exports have increased, is this buoying the overall economy? It doesn’t look that way.

Lets leave all that behind for a little while and have a look at some of the interesting stories out there from this week:

Cool BiggerPockets Mentions

• NuWire Investor named BiggerPockets to its list of the Top 10 Real Estate Blogs, placing is in the company of some other great sites including Matrix and Business Week’s Hot Property.
• The Go Beyond MLS Blog also listed BiggerPockets in their list of top 10 blogs, and analyzes one of the factors that may influence popularity - frequency of posts.

Other quick reads for the week:

• The Real Estate Windfall Blog tells us 9 ideas on how to get and keep good tenants. Most of these important points have to do with servicing your tenants and treating them the right way. This is a MUST READ for any potential landlord.
• Learn what the difference is between getting pre-qualified and pre-approved for a loan from the Sacramento Real Estate Blog.
• Find out about the nine traits of the middle-class millionaire from My Money Blog.
• Jim Duncan cuts to the chase and tells us how not to sell your house. In the current buyer’s market, his words hold true.

Tags: biggerpockets, Economy, gold, oil, real estate, real estate blogs

Mortgage Meltdown
Countrywide Rises Despite Loss

Countrywide Financial swung to a huge loss during its third-quarter, but investors were just glad that it wasn’t worse . . . Countrywide and other lenders are reeling as borrowers default on their loans at higher rates. The spiking defaults have forced Countrywide to lay off thousands of employees and line up billions of dollars in financing to stay afloat. ^Forbes

US Economy

Jim Rogers quits dollar after declaring US recession
Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was “in recession” as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan. Mr Rogers, who ranks among the world’s best-known investment figures, said he was putting his faith in China’s politically-sensitive currency alongside the Japanese yen and the Swiss franc.

“The US economy is undoubtedly in recession,” he said. “Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is.” ^{Daily Telegraph}

Gold price strikes fresh 27-year peak
The price of gold rocketed Friday to the highest level since the start of 1980, as the precious metal won support from the weak dollar and record high crude oil prices, traders said.

Oil Briefly Spikes Above $92 a Barrel
Crude oil prices spiked above $92 in Asia Friday on growing tensions in the Middle East and renewed concern about oil supplies. The United States announced new sanctions against Iran Thursday, targeting the elite Revolutionary Guards, which Washington accused of backing Shiite militants in Iraq. A confrontation between the world’s largest oil consumer and its fourth largest oil producer could upend markets. ^MyWay

Dollar Sinks to New Low
The dollar fell to another new low against the euro Friday in midmorning trading on speculation that U.S. interest rates will be cut again.

After rising to a record $1.4375, the euro slipped back to $1.4369, higher than the $1.4319 it bought in late Thursday trading in New York. The euro last hit a record high against the dollar Monday, rising to $1.4348. The euro was lifted higher by a spate of sour economic reports from the United States, including a report that showed U.S. orders for durable goods dropped 1.7 percent in September, after an even bigger 5.3 percent plunge in August. That was the first back-to-back decline in more than a year and took economists by surprise. ^AP

Tags: Credit, dollar, Economy, gold, Jim Rogers, mortgage, oil

On Friday, Gold hit a 27 year high as investors around the world ran to safety from the plummeting US dollar. Hitting $752.80 an ounce, Gold is at levels we haven’t seen since January of 1980.

Additionally, the dollar index, which measures the greenback against six major currencies, fell 0.8 per cent to a record low of 77.66 on Friday. The index has fallen 5 per cent since mid-August. (Source: FT.com). All you have to do is look at this index to see that we’re on a free-fall.

I’ve begun to hear people from around the country asking about putting their money in foreign currencies, something I’ve never personally experienced. It seems as though those people who are aware of what is happening to the Dollar are really getting quite nervous.

To make matters worse, The dollar fell to a record low against the euro for the seventh consecutive session while the Canadian dollar hit a 31-year high as inflation data raised expectations that the Federal Reserve Bank would again lower interest rates. Longer term, the U.S. has been running large trade and budget deficits for years — factors that tend to undermine a country’s currency in the long term, unless they are offset by foreigners willingness to invest their money in the United States. (Source: Yahoo Finance)

Unfortunately, it seems as though there is a new global unwillingness to invest in the US, thanks to the growing fear of recession, and countries pegged to the dollar are wondering how to stop the bleeding in their own countries.

As the Dollar falls, people globally are looking for an alternative, and I think the Euro will reap the benefits of renewed confidence. The Euro will only grow in strength and stature as the Dollar falls.

Tags: Canada, currencies, currency, dollar, Euro, gold, platinum