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.
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….
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!