Tuesday, 7/23, Market WrapUp (Things vs. Paper)

Gold getting hammered for -$11 seems very odd to me given the current market environment. I think something is up with Citi or JPM. Could be someone has a little derivative problem. There are rumors of an emergency Fed meeting. This was posted on gold-eagle:

Kudlow on CNBC says there is a strong, strong rumor of a Fed Emergency Meeting in NYC with the Treasury Secetary in attendence.

Today was an absolutely gut-wrenching day to be in gold equities.

I feel your pain, buddy. 12 years in the market and today was the worst day ever for me. Scuse me, while I go put some ice on it. Still, if you invested in gold a year ago, you are still way up. Just not as way up as yesterday.

"...
We already have more scandals than we do people to investigate them. The investment portfolios of insurance companies are just yet another ticking bomb. Where are they going to get the cash needed for reserves and claims? It is a house of cards in a wind storm."

I have a dilemma...I have two insurance stocks that I have zero basis in. They were mutual companies (MFC and Pru) that went public and I received this stock as a policy holder. I beleive any sale will trigger capital gains on the full amount and I live in Calif so this will be about 40%. They have started to slide in the last few days and this talk about insurance companies makes sense as their investment opportunities are slim.

But, if things get tight in the job market, the housing situation will quickly grow worse for many people.

I've lived through what amounted to a housing depression over about a five year period in my local area. Lots of people lost lots of money. You couldn't sell a house. Those "unsellable" houses are now selling for an average of almost $200,000. Granted, they may be selling for $150,000, $100,000, or even $50,000 next year. But they won't go to zero value, barring something we didn't see even during the depression. Everyone has to live somewhere.

Of course, you never know.

Excellent links.

"Folks are going to be some choked by the time the dust settles; they may be ready for free enterprise, once again."

For a short time perhaps. According to Prechter this is the start of a long 4th grand supercycle wave. Doesn't bode well for liberty over the next century.

A problem for my eventual grandkids, I guess.

You might consider buying out-of-the-money put options. You will pay a premium, but then you will be protected on the downside below the option's strike price. If the stock does not fall, the options expire worthless. You can think of the option price as an insurance premium that you pay for downside protection. Options expire after a certain period, so you would need to renew them if you wanted continued protection. This would be a strategy to use if you wanted to get by a rough patch in the market. If you think the long term prospects are bleak, then I would sell, especially if you have any capital losses you can offset the gains against. Just my opinion.

Eventually, the GSE money pumps will run out of suckers. A Fannie Mae implosion would simultaneously compromise the bond, stock and real estate markets.

In the ultimate nightmare scenario, there is no safety. Gold was confiscated by FDR. The value of cash can be wiped out in weeks if hyperinflation kicks in. Bonds default. Stocks crash. Businesses go under. Housing prices (in general) dropped sharply during the Depression. Commercial real estate investors seem to pop in and out of bankruptcy every other year.

But, bottom line, if I picked something to own in the nightmare scenario, my first choice would be a fertile farm in a hidden valley. My second choice would be a mortgage free home.

We are in a dangerous time. I'm not sure if we could survive something like the Great Depression today. In the 1930's, most of the country was on the same page from a moral, religious, and cultural viewpoint. And we almost didn't survive then. I hope to never see a simultaneous collapse of stocks, bonds, real estate, and (I would guess) everything else. It wouldn't be pretty.

I read something recently which I haven't been able to confirm. In 1929, just 4% of households were in the market. Anybody know if that's true? (versus around 50% today). Also, 30% of the population was in agriculture verus 3% today. I saw someone complaining on a board that we are in a depression. An oldtimer responded that this is no depression (yet); a depression is when you go dig up dandelions in your front yard for food.

Fearing a Bubble, Homeowners
Cash Out and Return to Renting

By RAY A. SMITH
Staff Reporter of THE WALL STREET JOURNAL

Convinced the housing market is a bubble about to pop, a number of homeowners are deciding to cash out -- and stay out. Instead of buying new homes, they are renting until prices fall back.

Even amid a recession and stock-market plunge, housing prices have shown little sign of easing, with some major markets still seeing double-digit increases this year. Economists say such cities as Boston, Chicago, San Diego and Portland, Ore., are overheated. As a result, some homeowners whose properties have soared in value in recent years are now deciding to get out, selling their homes as one might a stock when it hits a new high.

While no group formally tracks the number of people cashing out, brokers say they are beginning to see more of this, particularly in strong markets. Jacky Teplitzky of Corcoran Group in New York says so far this year four of her clients have sold their homes and pocketed the proceeds, versus none this time last year. The softening of the rental market is also helping to entice some of the skittish homeowners.

"the Fed has been attemping to reflate "

Attempting is the right word. The Fed's liquidity index (M3 + commercial paper) has been flat to negative.

"The nice thing about housing is that it has inherent value."

Don't tell your bank. They might foreclose. ;)

"You can still live in it even when the housing market craters."

In Texas, sure.

I have a dilemma...

Yes you do.

Richard W.

Shucks, I wanted to put "Lazanomics" as a keyword but somehow that feature is unavailable on your thread. :-)

Considering the amount of movement on gold though,

My take on gold today is to present the illusion that gold is not a good investment. Market gets trashed along with gold. I have thought for the last 3 months that gold would be pounded down to $290 to $300 but I didn't think about the gold stocks being pounded down. Either way I think the hammering is not done yet. I'm still %35 in cash figuring my scenario would pan out. We'll see. So there's my WPOS opinion.

There's another thread on FR of an emergency meeting tonight of the Federal Reserve. Suggestion is that it relates to the issue of derivitives dealing by Citi and JPM their need for some sort of relief. A bailout coming ?

So then the markets could crush JPM just buy pushing gold up 15-20%?

"There are a lot of loans out there that are less than 10% equity, including a rather large 2nd mortgage market. "

Those kind are probably safest for the borrower. The more equity you have, the more of its depositors' money the bank can reclaim by foreclosing.

Let's pass a law cancelling all debt in the USA. Everyone starts over with every material possession they have now, with no debt.

You're an impostor! Rohry usually sends me these things. Who are you and what happened to the real Rohry?