Housing, US Dollar, Gold, PPI and Inflation
Frank Barbera
The current downturn in Housing, the worst since the Great Depression has along way to run, with home prices likely to experience downside pressure well into 2009. Overall, a 30% to 40% price decline in high end homes is needed to bring prices back into line with incomes and clear the market. At the same time, the mortgage loan problem, goes far beyond Sub-Prime and will likely end up running into the Trillions of dollars, with the best estimates between2 to 3 Trillion dollars of defaulting bad paper. That's more than enough downside risk in the credit market to bring the US Financial System to the tip of a very deep solvency crisis, where several large institutions will probably fold. As a result, we continue to see the large scale credit contraction now underway deepening throughout 2008 with the Federal Reserve likely forced to continue to lower ratings despite a stagflationary economic condition, one in which yr/yr PPI is now running at the highest levels seen since 1981. The US Dollar is likely heading for a major currency crisis, with a devaluation likely in the year ahead. Gulf State PetroDollar currencies have now moved well off their pegs, as has the Chinese Yuan and HK Dollar. A currency crisis of epic proportions lies ahead, and with it will come soaring long term rates and crashing US Stock Market. For the S&P, a collapse back down toward the 2002-2003 lows near 800 is very likely the next primary direction, with all sectors of the equity market including Gold Stocks vulnerable to this decline. Post a crash type outcome, Gold Stocks are very likely to become the next great capital market mania, as broad scale monetization will be needed to reinflate both the capital markets and the US economy, which is already in a recession. The final outcome, over the next few years,will be more money printing, more currency debasement and in the end, most likely runaway inflation which will help Uncle Sam eliminated his bad debts. Gold and Precious Metals will be one of the few investments able to protect valuable savings and hard earned capital during this time, and we see the price of Gold heading for $10,000 or higher in the next 5 to 7 years, with price of Silver likely to move toward $500 to $1,000 per ounce. The upside explosion in Precious Metals following a serious banking collapse will leave onlookers with a truly once in a lifetime, -- jaw dropping experience, once the metals go higher, they will be going, going gone, right out of the park, as all central banks will also need to print money to keep currency relationships in some degree of balance and protect export advantages. Today, the world is confronted with a camouflaged 'fixed' global currency system masquerading as thematically free floating currency system, held together by currency derivatives and unchecked financial leveraging. The current death of high end Wall Street Finance signals the end of the leveraged speculating era and financial engineering.As the world lurches toward a truly floating exchange rate mechanism, currency volatility will infect consumer prices for basic manufactured goods which in time, will morbidly begin moving around as if tradeable using RSI and MACD....in that climate, the only asset one will want to truly own, will be precious metals. It is very regrettable that the excess of the last decade is likely to create these kinds of extreme economic conditions, and probably at no time in decades, has the average individual been at greater economic risk.The entire universe of paper money is sure to continue debasing against the universe of scarce and depleting commodities in a theme that will likely continue to play out over the next 10 to 15 years, while I hope I am dead wrong,I fear we are heading into very trying times...
