Friday, May 21, 2010

Brace Yourselves...

Chinese RE melts down

This is what happens when a government decides to burst a speculative bubble.

Of course our governments can never do that. There would be too much of a back-lash from all those who would lose much better to do whatever they can to keep bubbles inflated.

Yes, that's a much better policy. Pass that hot potato along and hopefully it will burn the next administration.

The problem is we never know what the fair value for an asset is when policy makers have decided that the asset needs to be supported at all cost (and future liability via the CMHC)


  1. Hey Chad- What did I tell soon as the Euro gets a bid up, gold would tumble.

    Gold is not trading on inflation fears, but fear itself- of a complete monetary breakdown.$GOLD&p=D&yr=0&mn=1&dy=0&id=p41486112720

    So measuring RE vis a vis Gold has no relevance at present

  2. You STILL don't get it.. just as you didn't get the dividend argument I was making. My point is that priced in gold Van RE is no where close to all time highs, gold to some is a very good measure of inflation and guess what you've been hearing all over CNBC the past week.. DEFLATION DEFLATION DEFLATION.. so it makes sense that gold is going down and Canadian analysts are also saying that the turmoil in Europe will likely delay the BOC raising rates, so thank you for PROVING my point that gold is a great measure of inflation and in turn a great measure of where interest rates are likely headed.

  3. Chad, you're funny. Like Steve Martin - dancing to architecture.

  4. Gold does measure inflation. But only long term.

    Gold will bubble just like everything else at 1 point or another.

    Gold almost doubled in 2 years. In that time, oil pretty much halved. Does that mean oil is worth 25% what it was 2 years ago? Only if you are trading gold for oil.

    So yes, gold will track inflation over time. But short term changes cant be interpreted as inflation or deflation, just blips in supply and demand.

  5. Well to your point with regards to crude, yes a lot of its rise was due to Chinese/Indian demand and peak oil BS but one can argue the majority of it's rise was because crude is priced in US$, my point being if it would have been priced in gold (remember guys... EVERYTHING used to be pegged to gold) it would never have gone parabolic... Basically a lot of asset prices, oil included went up a lot because it was priced in a currency that was going down or not going up as fast as gold..just think about things for a second and maybe it will start making sense.

  6. Psst, chad. Wanna know a secret? Gold is also priced in american dollars.

    You seem to think gold is a magical thing that is the 1 true currency. Just like American dollars, Euros, Yen... it is basically just an exchange medium. Sure it does have some practical value (electronic components for one) and people like it because it's shinny, but it really only has value because people percieve it to have value. Just like money. If everyone decided (not gonna happen, just if) that money or gold were worthless you would see one skyrocket against the other.

    Gold is up because faith in currency is down.

    The only reason things are priced in american dollars is because they need to use something. If you live in Britan and gold jumps 10% in american dollars but the pound also jumps 10% vs the american dollar, then you cant buy any more gold than you could yesterday.

    You can price things in gold if you want. Just put all your cash into gold and trade it for cash and buy things when you want them. Even better if you can find someone to trade you straight up for gold then you wouldnt ever need to use cash at all. Then before you know it we are all back to castle times carying around little pouches of gold. Isnt that one reason cash was invented? Because gold is heavy?

    I just consider gold another currency. Except instead of governments printing more, there are companies hauling it out of the ground.

  7. After these "gold measures inflation" arguments I decided to ask my boss to be paid in bars of gold. I could still hear him laughing as I was leaving for the day.

    As for currency being pegged to gold, that whole scheme failed in the '30s. There was a "peg" until the '70s but read the history books closely: there were several currency revaluations vis a vis gold during that time and the scheme collapsed because it isn't sustainable.

  8. You're completely incorrect Davers, gold is not just an exchange medium that has value only because people perceive it as having value. If you actually believe what you just said then go get a government to start printing gold, because clearly it's the same as fiat currency and should be perceived as such. When you get your gold printing press running then maybe you can share some with bears so they can finally afford to buy a home.

  9. Chad,

    If countries print money faster than gold can be mined then gold will probably rise relative to currency. If all governments stopped creating more money in any form then gold would probably fall in value. If all of the sudden a huge gold mine was discovered that doubled the amount of gold in the world then what would happen to the value of gold?

    The only difference between gold and currency is that there is that it's much harder to get more gold than it is to get more money. Thus making it rare, giving it value.

    Please explain to my puny brain why gold has value beyond its usefullness. Tons of gold just sits in bar form, if it was really that useful then it would be used, not sitting there collecting dust.

  10. If you add up all the gold ever mined in the world, and divide it by all the people we have now.

    It adds up to 0.7 oz per person.

    So if you are going to peg anything to it, it will have to be valued at many thousands of dollars an oz.

    Not impossible ( neither is an asteroid) but I think we are a long way from that yet.

  11. I never said it was more useful I said it held more value. Why does it hold value? Well I guess that is the chicken and egg question, it has been and still can be used as a currency, and like any other currency people hoard it. Love it or hate it gold is the most real currency out there as it can't simply be printed to bail countries out. Again I'm going to go back to my initial point because this argument about golds store of value wasn't what I was trying to discuss, the debate I wanted to have was in regards to Van RE inflation adjusted value being parabolic as a chart adjusted to CPI would suggest. Adjusted for CPI inflation #'s RE is at record highs by quite a margin, adjusted for gold's measure of inflation, it is no where close to highs. In the long run which measure of inflation is better, CPI or Gold prices? My argument would be that it's somewhere in the middle, which suggest that Van RE may not be as overvalued as some may suggest... that was my point from the beginning and is a subject that I think has merit to be debated.

  12. As Nouriel Roubini said on Real Time with Bill Maher last night, Spam preserves well (holds value) AND you can eat it. There you have it - better value than gold.

  13. Van RE is not overvalued... except compared to every other city in North America. Sorry Chad, my family needs to eat and I get paid in fiat currency. Good luck with your gold play nonetheless. Personally my money's on palladium; its colour is more pleasing to me.

  14. I've decided to float with Chad to the gold side. Why not. It appears from 2004-2008 my income was HALVED when pegged to gold and it's been trickling down since.

    Since my arguments re: housing are based on incomes, (and even Chad would have to understand that we're all being paid in fiat currency and that even in nominal terms our aggregate paychecks have been seeing very little increase) - well, if prices generally have inflated alongside gold, my stagnant income means I have quite a BIT less, and not more purchasing power.

    Makes Vancouver housing prices EVEN MORE unaffordable.

    Holy crap, Chad! We're in for a huge bust! You proved it!

  15. Chad is right, haven't you heard that people are buying RE with bars of gold they found in their Granny's attic? Why worry about price to earnings?

    Actually we should measure RE in Molybdenum and Palladium since they had gone up even more.

  16. Chad,

    Long term gold tracks inflation. I am saying that the past 2 years have been anything but normal. Huge crashes sent people running for gold because they saw it as stable. This caused gold to double. IMO gold is in a bubble and will not hold its current value vs oil or the markets or RE in most places that arent Vancouver.

    Please address this point. Gold has doubled (more or less) in 2 years. What does this tell you about inflation? If gold continues at this pace (rising faster than almost every other asset), what does that tell you about the price of gold?

  17. Based on all these responses I think it's clear why RE bears have been wrong for so long, they ignore facts and don't understand economics. Davers "Gold has doubled (more or less) in 2 years" -- I have no idea where you get your information from but gold is up 30% in 2 years, not even close to your pie in the sky 100%. It's dramatic move during the past decade tells me that inflation has been running rampant but has not been reflected in the CPI because the CORE inflation index doesn't account for one of the most important inflationary factors, energy. You're telling me that paying over double for gas than you did in the recent past hasn't dug into your pocket? It's starting to become very apparent why bears have been wrong for so long.

  18. Chad, dude, are you suggesting your paycheque has seen increases commiserate to gold? Because if that's the case, my friend, you're in pretty rare company. Wages are not up 30% in 2 years.

    If inflation is at 30%, and our wages aren't, then we're all getting poorer. Well, except for those paid in gold, yeah?

  19. Yeah Chad. My "bear" friend in San Diego just called me. He said to pass along to you that he was right. He just picked up a beachfront condo for half the price of a similar unit in Vancouver. That makes him a bull so don't go accusing him of being a bitter vindictive bear.

    Looks like gold doesn't work the same down there. I'm still all agog over palladium, though.

  20. Just a horrific attempt at an example Jesse because again, you don't look at raw #'s and facts. When gold and RE started it's upturn San Diego RE went up 200%, gold went up 130%.. RE had to fall and gold has to rise to get back to a normal historical value.. RE plummeted making the ratio normal again.. odd how research and raw facts can shed light on things eh? Bears wrong for 10 years and counting.

  21. Do you even read what you write? Goodbye troll Chad.

  22. My bad, I meant 3 years. I guess I read the graph wrong.

    And correct me if I'm wrong (as you have shown I am wrong sometimes), but a few years ago gasoline was hovering just below $1.50? Or do you mean natural gas? In that case, I dont pay the gas bill for my place. Apparently it's included in the strata, so the landlord inadverntly pays for my fireplace usage.

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