House prices vs gold prices

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warheadwl_IHB

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I was reading <a href="http://bigpicture.typepad.com/comments/2008/03/new-home-sales.html">bigpicture.typepad.com/comments/2008/03/new-home-sales.html</a>, which is basically a chart of how much gold would buy a house Personally, I'm a housing bear and would prefer that housing bottoms in 2011, but I can't help but interpret this chart as saying that housing has gone down to its historical price in terms of gold. I believe that IR's argument is that housing's fundamental prices are determined by income (or rent, which is determined by income) and we're nowhere close to a sustainable price-to-income ratio. Does the chart bolster the argument that a housing bottom is near? Perhaps prices in terms of dollars are so high because the dollar is worth so little (as alluded to in several cartoons).





This, of course, is assuming that the chart is correct and that gold represents real value . Given our belief that housing is overpriced, is this just stating that gold is overpriced as well since they're at their historical relationship (although I know there are a few gold bulls here )? Any other thoughts?





Thanks.
 
IR, don't you think there are a lot of speculation in gold as well? I think it will be better to go long on food (DBA ETF comes to mind)
 
Re: Ratio of median home price to gold price. I think it is an important idea, but to see what the real long term ratio is, I think you need to go back way farther than the last twenty two years. I have seen that chart and it may be on nowandfuture.com.
 
IR: I agree with you on the speculation. Although in terms of food, I think the shortage is real. I have spend about three month in and out of China due to my job. I think if you look at how diet in major Chinese cities has changed over the past 10 years, it is easy to see that we will have a food shortage, combine that with bio-fuel, corn-based plastic Europe is demanding, I think food commodities will raise quite a bit in the immediate future. The current push to green products is actually producing a lot of negative impact. Take corn based plastic, it takes 7 times the energy to produce than normal plastic, on top of that, the fail rate for corn plastic is very high, resulting in a lot of waste product, plus it uses a lot of corn.
 
<i>"All the commodities are showing signs of rampant speculation. There will be some ugly corrections in many of them."</i><p>

Maybe true, but consider, the new TSLF auctioned off maybe $40B or $50B of treasuries today, which is the same as creating $40B or $50B of new dollars today, unless you think the IBs will pay back their loan in 28 days, (I hope no one is that naive). Where is that and the other hundreds of billions of newly created dollars, (and Euros, they are printing also), going to go? This is not a rhetorical question. Where do you folks out there think that money will go?<p>

Also consider, historically commodities bull markets last about twenty years. Any reason why this one should last any less? I ask this type of same question to folks who think the bear market in real estate is over and the bottom is in or will be at the end of 2008?<p>

And lastly, it is only in recent history, since 1971 or later, that gold and silver have been considered commodities. Previously, throughout almost all monetary history, gold and silver were considered money; <b>big difference</b>, but not one that many folks know about.<p>

Keep watching the fed and the other central banks. As I keep asking, (and no one has yet to answer), what is the central banks answer to every financial problem since Greenspan was appointed? What has B-52 Ben done so far? What has he said he will do? Any reason to not believe him?
 
The problem I have with all commodities as investments is that they are pure speculation. Commodities have no cash flow.





We may be in a long-term bull market in commodities, but short-term, they are overbought and over-loved which is a recipe for some nasty sell-offs.
 
<p>Here's an article about <a href="http://www.jasonzweig.com/uploads/4.08Commodities.pdf">"Why to Steer Clear of the New Gold Rush."</a></p>

<p>Gold soared in the 1979-80 bear market. Had you bought then, you'd have only recently gotten back to even. Adjusted for inflation, you'd be in the red.</p>

<p>Value of $10,000 invested in Gold in January 1980 would now be: $10,600</p>

<p>Value of $10,000 invested in the S&P 500 in January 1980 would now be: <strong>$279,000</strong></p>
 
CalGal, I think that just goes to the heart about IR's comments about how commodities don't have cash flows. No cash flow = no fundamental value
 
<p>house vs. gold vs. auction-rate securities...</p>

<p><a href="http://www.bloomberg.com/apps/news?pid=20601213&sid=adMWraq8li6c&refer=home">http://www.bloomberg.com/apps/news?pid=20601213&sid=adMWraq8li6c&refer=home</a></p>

<p>``The fact that they aren't worth par or may not be worth par is not going to be acceptable to any owners of these securities,'' said Gary Miller, a partner at the Houston law firm of Boyar and Miller. ``It's certainly not acceptable to me.'' </p>

<p>Couldn't Cash Out </p>

<p>Miller invested $750,000 from the sale of his house in auction-rate securities with UBS last December. After signing a contract on a new home, Miller said he called his broker to cash out of the securities and was told he couldn't. When he bought the debt, Miller said he asked his broker whether there had ever been an unsuccessful auction. </p>

<p>``The answer was, `No, there's never been a failure in the auctions,''' Miller said. He has sold $300,000 of his holdings. He still owns $450,000 of auction-rate preferred securities and municipal bonds. </p>
 
If you bought a home with $10,000 as 10% down in 2006, you would have $0 in equity right now. Is real estate a bad investment? Does a home have cash flow?<p>



If you put $10,000 in the Nasdaq in 2000, you would have $5,000 right now. Are stocks a bad investment? Are only stocks with cash flow a good investment?<p>



If you put $10,000 in CDOs in 2004, you would have had $11,000 in 2005, and $4,000 now. Are CDOs a bad investment? They have, or had, cash flow.<p>



If you put $10,000 in the S&P 500 in June of 2007, you would have $9,000 right now. Is the S&P a bad investment? What are the dividends of the S&P?<p>



If you put $10,000 in munis in 1980 you would have $39,200 in nominal dollars and $10000 in real dollars. Are munis a bad investment? Munis have tax free cash flow.<p>



No investment is always good or always bad. Always profitable or always a loser.<p>



If you had bought $10,000 of gold 2 1/2 year ago, you would have $20,945 right now? Has the price of gold topped in US dollars? If so, why? If not, why? What are the fundamentals that cause the price of gold or oil to change relative to dollars?<p>

The price of oil has gone up, right? What is the change in the price of oil relative to Euros for the last 9 months?<p>

Oil and gold have not gone up in value. The dollar has devalued. Why has the dollar devalued? And if you know why the dollar has devalued, are those conditions still existent? Have they changed? Will the dollar become more valuable or less valuable?<p>

Oh yeah, if you have read my other posts on some other threads, I have said before that I think that most of the time, gold is a terrible investment.
 
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