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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold to House Prices Ratio May Plunge

Commodities / Gold and Silver 2011 Dec 05, 2011 - 07:14 AM GMT

By: Shelby_H_Moore

Commodities

Increased volatility of the ratio is possible, due to financialization.

Understanding PHYSICAL gold at this juncture is critical to preserving your networth.


See the gold to DJIA and house ratios charts.

(the charts prove we have deflation relative to gold, but that is inflation to everyone who doesn't use gold as their unit-of-account)

Historically gold will peak at a ratio near 1oz to DJIA, thus we still have about 8 - 10x relative gain in gold before it peaks. I titled this essay with "plunge" because I am measuring in physical ounces, not the fiat price of gold.

Although it appears from the above linked chart, that gold is within 67% of its relative peak to a median house price, please look at the chart going back to the 1800s. I have a theory. See how the volatility in gold-to-house ratio was much less volatile and much less volatile than the gold-to-DJIA, back when houses were not part of "financialization". See how the 1980 volatility in the gold-to-house ratio was much greater and got closer to the extreme in the gold-to-DJIA. Remember the level of the USA 1980s S&L bailouts? That was roughly a few $100 billion (peanuts) compared to the current global real estate financialization, with a $quadrillion of derivatives of financialization.

Thus my theory is that the median price of a house will be devastated relative to gold going forward.

Gold is not a commodity.

(the technical reason is the physical has the lowest turnover velocity-to-inventory ratio of any monetary substance on earth, i.e. its marginal utility is nearly constant over the long-term)

The elite understand that ALL fiat systems end (every case in the history of world), and they hold their gold for decades waiting for it. We are now at that juncture.

Understand the oil = gold, strong dollar fiat system.

Unambiguous Wealth
Euro is the transition model to the NWO

Also, the authors above didn't think circa 2000 that silver would perform as an unambiguous store-of-value, but it did outperform gold, because it is a tiny market and doesn't need much monetary demand to drive it up, which is the same reason its fiat price is volatile.

My entropic universal theory is we have demographic bankruptcy in the developed nations.

Per Coase's theorem, the only solution to the demographic bankruptcy is remove the borders.

But it can't be coordinated without a world government, thus instead.

This author was prescient in 2007, again in Oct. 2010, and also called the top of the silver price above $20 in 2008 and to sell mining stocks.

By Shelby Henry Moore III

http://www.coolpage.com

antithesis@coolpage.com

short bio, I have published articles on FinancialSense.com, Gold-Eagle.com, SilverStockReport.com, LewRockwell.com. I am the sole or contributing programmer of numerous (some million+ user) commercial software applications, such as Corel Painter, Cool Page, WordUp, Art-O-Matic, etc.. I have an education in engineering and math.

Disclaimer: My writings are my personal opinions, not to be construed as statements-of-fact. Do you own research. Licenses to think and communicate have never interested me too much, so I am not a licensed research, journalism, investment, legal, nor health professional. Please consult the proper authorities for all matters covered in my writings. I disclaim all liability for what you do after reading my writings. No one can predict the future, and if there is a physical world investment that never loses value, I haven't found it yet in my 44.1 years here on Niribu.

© 2011 Copyright Shelby Henry Moore III - All Rights Reserved


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Shelby Moore ("author of this article")
01 Feb 12, 22:24
House prices to decline -75% or more

Sorry couldn't find the following articles on marketoracle, so will link the versions that appeared at another site.

I understand that Nadeem thinks inflation will lift all boats including houses, but the math below is fairly convincing. Perhaps the only factor I didn't include below is Asians coming in to provide additional demand.

http://www.financialsense.com/contributors/lance-roberts/2012/01/26/why-home-prices-have-much-further-to-fall

As gold returns as money, if we assume Mortgage payment as $ of DPI must decline to pre-1971 level of 7% (before dollar was detached from gold), then house prices must fall -50%.

If we assume the interest rises return to norm, then house prices must fall another -50%. So that makes a -75% price decline possible. Interest rates must eventually rise to finally arrest the rise in the gold price (as in 1980):

http://www.financialsense.com/contributors/bruce-krasting/2012/01/26/bernanke-goes-all-in

Tangentially, Fed targets the incredibly shrinking prices of personal products:

http://www.google.com/search?ix=heb&sourceid=chrome&ie=UTF-8&q=shrinking+size+of+grocery+products

To the extent that inflation raises the cost of materials (which is a small % of cost of home), it will be offset by declining wages and demand as UNemployment skyrockets.

Rising property taxes will further increase the (total) mortgage payments (costs) and thus decrease the amount of available (from the historic 7% of) DPI, thus further declines in house prices.

Thus I maintain the conclusion of the original title of my article on this page. See the link to the gold-to-house price charts in the article on this page.


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