Gold Drops Below $1,400/oz

Gold hit a record high of US$1,416.10/oz on Monday of this week but it's dropping today, losing $25 and waffling around $1,384 this afternoon. The price ranged between $1405.40 and $1372.10. I think gold is dead but it won't drop straight down. It'll drop and rally in alternating waves before the death knell is rung and the rug is pulled out from underneath. I think 2011 will prove that the bull market in gold was a fool's errand in capital preservation futility.

Home prices to take hit next year in many markets

   A new AP article today starts off with, "Don't take the latest snapshot of U.S. home prices too seriously." and goes on to reveal:

"The Standard & Poor's/Case-Shiller 20-city index released Tuesday ticked up in July from June. But the gain is merely temporary, analysts say. They see home values taking a dive in many major markets well into next year."

Where are the housing bulls? Nowhere. They're NOWHERE for the next few years as I've prognosticated in previous entries on my little blog. I'm a contrarian's contrarian in that I always bet against the crowd during extremes. When shoeshine boys, Barbara Streisand, and UPS drivers were trading internet stocks in 1999, I knew the jig would be up soon. When it looked like the end of the world on September 11, 2001, I felt just as scared as everyone else and admittedly, I didn't buy anything when the market opened up again. I did start buying too early in 2002 and racked up losses before the market took hold and started to climb again. So what's the J-Sonoma meter telling me now?

   An extreme melting point in the real estate market hasn't been reached yet. Prices have pretty much stabilized and although buyers are scarce, deals are still being done. I think there's still steady price erosion ahead that'll probably ratchet prices back to the levels that were being bid in 1999-2000. If that happens, I think buyers will become courageous and start bidding again.

Glimmer of Hope

An AP article released this morning proclaims:

Home prices rise in 17 cities in June

   The relevant snippet from the article is as follows:

"The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago."

   Someone might ask, "So, out of the thousands of cities across America, prices rose in 17 cities?" Well, the Case-Shiller 20-city home price index only tracks 20 major cities. If you look at the national data, prices were up 4.4% from April to June 2010 thanks to the $8,000 government tax credit which has expired. Without the tax credit subsidy, prices are expected to trend downwards in the next few months. As I've mentioned earlier, the turn is coming but it won't be a V-shaped rebound. It'll look more like a hockey stick with the stick portion tilted slightly upwards.

   I thought the following snippet from the article was amusing:

"Pam Geller and her husband have been trying to sell their two-bedroom condominium in Los Angeles so they can buy a house. It remains unsold after more than two months on the market, even after the couple lowered the price to $359,000 from $399,000.
They're close to completing the purchase of their next home. But the deal will collapse unless they find a buyer in two weeks. Geller said she's unwilling to slash the price further.

With home prices likely to fall, Geller wonders if it might be better to wait to buy another home. "What I see is houses still dropping" in value, she said."

   I'm of the belief that writers for the AP make up people like Pam Geller out of thin air to support a supposition or a point in their articles. How was Pam Geller contacted? Were any of her quotes edited by the writer? Why would she be buying a home when she sees "houses still dropping?" None of it makes sense and I'm going to call B.S. on the existence of Pam Geller.

Home prices on the mend? Nah.

   A Reuters article this morning reads as follows:

PREVIEW-US home prices to eke out small June gain

   Looking at the article, one poignant quote follows below:

"U.S. home prices likely eked out a small gain in June, but a rise would represent the final tail-winds of the homebuyer tax credit that ended in April rather than housing market improvement, economists said."

   Economists have a knack for stating the obvious and getting outfits like Reuters to trumpet the obvious across newspapers online and offline. Housing on a national scale won't recover for at least another 10-15 years. At that point, the recovery won't even be appreciable. I'm talking sustained back-to-back 1-2% price increases instead of the drops and flatlines we've been seeing for the past few quarters. Markets have a way of destroying value just when everyone's all in. In the recent real estate bubble, plumbers and truck drivers became real estate moguls. That's reminiscent of the dot-com bubble when UPS drivers and Barbara Streisand day-traded their accounts and earned a few thousand dollars every day on E-Trade, Datek (now part of Ameritrade), and Schwab.

   Of course, it all ended in tears because not everyone can be a millionaire. Who'll serve coffee at Starbucks if everyone's got a few million tucked in the savings account? Who's going to get me a burger and a side of fries?

   Home prices won't recover appreciably anytime soon but the recovery is coming. That's how markets work - they destroy excess and reset to zero before growing again. We're still in the destruction phase but the reset will happen in the next few years. That's why I started this blog so I can map the recovery and offer anecdotal evidence and share any of my potential investments in real estate as the economy in the United States picks up again.