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 Fun with Numbers
Market Update 8-4
by Edgar J. Steele

February 27, 2008  

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My name is Edgar J. Steele.

Hey, boys and girls!  Want to have some fun?  With numbers?  Follow along and let's see just how much fun Mom & Dad have been having with what they call "finances."  First, though, let's look at a fun kind of picture that grownups call a "chart":

This is a chart of how much home values have declined in just the past year, all over America.  Can you point to America on a world globe?  Good.  I knew you could.  Can you point to your home town on this chart?  Good.

Have you ever seen a grown man lying in the gutter in your home town?  Good.  Keep that image in mind while we have "fun with numbers."

Let's multiply the average national residential price decline shown at the bottom of the chart for the past year times four, representing the last three years of the administration of the Weasel from Hell, two of which already have passed (2006 and 2007) and the first year (2009) of the administration of the new Weasel from Hell who already has been chosen for us. 

You remember the Weasels from Hell from our "Fun with Politics" lesson, don't you?  They tell us what to do and when and where to die.  They are "The Deciders."

Lessee now:  4 x 9.8% = 39.2%, which is your home's nominal price depreciation in four years, two of which already have passed.

Now let's adjust for inflation, which now is running at an 18% annual increase in the money supply and was about 10% in the prior year - don't forget that we have to double those numbers to match the four-year period above:  2 x (10 + 18) = 56%.  That's 56% in monetary inflation (dollar depreciation) in four years, two of which already have passed.  Can you say $10 per gallon for gasoline, boys and girls?  Good.  I knew you could.

Now we're starting to have some real fun with numbers, aren't we?  Now let's adjust the 39.2% decline in our home's value from 2006 through 2009 for the effects of the inflation we just calculated.  We do that with something really amazing that we won't learn until we attend graduate school:  division.  Just watch me do this one, but don't try this at home, boys and girls:  39.2% divided by 56% equals 70%.  Yes, that means that the value of your home will have declined by 70%, on average, by the end of 2009! 

Some of your homes may decline more or less.  For example, you boys and girls in Boston might see your homes decline in value by only 24% ((3.4 x 4) / .56).  Picture those yummy Boston baked beans for every meal.

But, you boys and girls in Miami might see your homes decline in value by 125% ((17.5 x 4) / .56).  Picture a hole in the ground with all your family's money in it.  Now, imagine what fun it will be to wake up on the beach every single day, for the rest of your life!  If you're lucky, the nice people from something called "CPS" just might take you to a new home where you will learn to have "Fun with Sex and Drugs."

Say, let's try something fun right now - ask your Mom and Dad what percentage of your family's home value is what we call "equity."  Then watch their faces light up when they see how you can subtract your own home's coming decline in value from the percentage they tell you.

When they say that it won't happen, ask them why the price of gold has doubled and the price of silver has tripled in the last two years.  Watch their wonder and delight when you explain to them that gold and silver are just barbarous relics, but really shiny relics that reflect the changing value of money.

Be sure to tune in next time, when we will have "Fun with Cooking Roadkill."

-ed

Copyright 2008, Edgar J. Steele

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