The Golden Year & Economic Highlights from the Past Week
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* The average price of a home is down almost 6% from a year ago, though up by 3.6% in the second quarter, according to Case Shiller (August 30 Housing Wire)
* The Congressional Budget Office (CBO) estimates that Fannie and Freddie will cost taxpayers another $51 billion between 2012 and 2021 — $9 billion higher than their June estimate (August 25 Housing Wire)
* New privately owned housing starts are the lowest in recorded history, going back to the 1950’s (Dept. of Commerce)
* 6.54 million homes are either delinquent or in some stage of the foreclosure process (September 1 Dr. Housing Bubble)
* Second quarter GDP revised down to 1% after only a 0.4% rise in the first quarter (August 26 MarketWatch)
* Consumer spending up in July by 0.8%, though consumer confidence plunged (August 30 WSJ)
* CBO projects unemployment to stay above 8% through 2014. Deficits will total $3.5 trillion assuming that Bush-era tax cuts expire and Medicare fees to doctors are reduced – both of which are unlikely (August 25 WSJ)
As a mortgage note buyer, I watch real estate news and trends like a hawk. Over the years, I’ve been pulled more and more to also closely follow general economic news. After all, real estate does not operate in a vacuum , and is heavily affected by economic factors like unemployment, interest rates, regulatory decisions, etc.
One thing that I do not do is closely follow the stock market. Oh sure, I generally know how the overall market and the few stocks/mutual funds that I own are performing. But this “research” involves a few minutes per week of updating myself rather than doing any deep investigations.
The performance of the stock market lies, for me, somewhere between fascinating and disgusting. Buying stocks feels much more like speculating than actual investing. Given all of the bad economic news, the stock market should be well below where it is today. Government spending programs and short-term corporate profits have kept prices artificially propped up. My feeling when buying a stock is that I have much less information than needed to make any brilliant decisions. The stock market game is made more risky as Wall Street and the government manipulate a lot of pieces behind the scenes.
Gold seems to be a more pure investment that can’t be as easily controlled by evil forces. Oh sure, there can still be margin calls on gold stocks and rampant speculation, but gold still feels safer. After all, an increasing gold price is inversely correlated with good government fiscal decisions. So, every time that Congress, the President, or the Fed launch a new destined-to-fail program, gold is likely to go up. The value of the U.S. dollar is being so thrashed by those folks that it takes more dollars to buy an ounce of gold.
Gold has increased in price by 11% over the past month, 47% during the past year, and 193% since five years ago. Those are might sweet returns, especially when compared with the returns of stocks, real estate, and just about every other investment vehicle.
I’ve come to appreciate that buying gold is betting that the government will do the wrong thing financially – a fairly safe bet, if you ask me. Congress is starting up again and the President is back from vacation, so we will see lots of new programs and political bickering, all of which will only make the country worse off. My gut has been telling me for a couple of years to buy gold, but I’ve never actually pulled the trigger. Is now a good time buy, with price per ounce at over $1800? Your guess is as good as mine, though I would think it should exceed $2000/ounce by year-end, and much higher if the Fed decides to pursue a QE3. How lucky do you feel?