by Edgar J. Steele
Sep 14, 2006
Housing prices, down 15-20% nationwide,
have only just begun to crater.
This time, it really IS different - well, after all, we're talking once every
eighty years or so in fiat money systems, so maybe "different" isn't such an
accurate term. A depression in housing is a regular, albeit long wave,
event. Housing will go to ten cents on the dollar in 2005 dollars, just as
it did last century. This is just the beginning.
I read Richard Russell's latest letter yesterday, wherein he says a 20% decline is the bottom for the real estate bust and forecasts gold and silver to fall much further before they eventually turn back up. Now that I am of an age where supplements seem to have a real effect, I think Mr. Russell needs to take some Geritol - lots of it, in fact.
Here's Russell's problem: He is as old as our current business cycle (i.e., since Depression I) and has hardening-of-the-analysis-artery disease. That's what happens when you rely on a tool, which is all that technical analysis or chartism really is - a tool. In his case, he has become so dependent upon his tool that he cannot let go of it in uncharted waters, which is what we now have entered (poorly charted, anyway). That also is what being right all your life, as has Russell, will do to you. He can't risk being wrong at this late date, so just won't let go of what always has worked for him. To which, I say, "Sorry, Charlie, we want tunas that taste good."
Despite the current metals price crunch, looking every bit as bad as what happened in May, I still have to glance around at the fundamentals: America has lost her manufacturing base and immigration continues unabated. Joblessness can go only one direction: up - and stratospherically. Ford and GM are teetering, along with so many others. Servicing the national debt soon will consume the country's entire GNP, yet America still spends like a cheated-on wife. Yesterday, America told China to revalue the Yuan upward. War is coming - world war - no longer can there be any doubt. The NAU is coming and, with it, a variety of revolutions throughout North America.
Even without all the foregoing, the dollar has lost about a third of its value in just the past 5 or 6 years. That means the Dow today really is at about 7,000 since the tech bust in 2000 and probably at about 5,000 since Greenspan's "irrational exuberance" speech of about 1995 (it was at 4500 then). That means that gold and silver still are at about $300 and $5, respectively, the levels of the Nineties. Yet stock P/E ratios still are out of whack, showing just how bad are the earnings...and about to get even worse. 'Splain me how metals go down from here, Lucy.
Which all means that the pain hasn't even really yet begun. Metals are NOT going to go down, rest assured. Regardless of what the market riggers do, considering the declining influence of America, the rest of the world will make the metals market in the long run. There will be dips. This is one of them. The long-term trend will be for metals inversely to reflect the path of the dollar, with a couple of bubbles thrown in here and there.
Bottom line: the dollar is doomed. That is an absolutely inescapable conclusion. So are dollar-denominated assets such as bonds. Metals are necessary to preserve wealth while it happens, so being in metals is a no brainer. Metals will appreciate - possibly in multiples, at least for a time.
Treat dips as buying opportunities. Frankly, I thought we never again would see gold below $600. We won't see it there for long. Silver will do even better than gold as it reverts to its historical 16:1 gold:silver price ratio (implying a silver price of about $38, even at today's depressed gold price). Silver may do even better than 16:1 as its true scarcity becomes apparent. Somewhere along the way, a moon orbit seems likely for silver. When? Who knows? Got a better investment, meanwhile?
My name is Edgar J. Steele. Please visit my
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Copyright ©2006, Edgar J. Steele
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