Greece! It has less people than the city of Los Angeles! Now ask yourself, is U.S. cash a trap waiting to be sprung

Image by Steve Rhodes via Flickr

The Euro is suffering because of the initial reluctance of the EU countries to take action regarding the Greek debt crisis. A devaluation of the Euro is overdue, and necessary. It will actually strengthen the Euro's trade deficits over time, and bring prosperity (eventually) But forget Portugal, Ireland, and Spain. In the greater scheme of the international markets, they are small fry.

However, it is the eventual devaluation of the U.S. dollar that should have Americans much more concerned. Beware of what is happening in California, Florida, Illinois, Ohio, Michigan, North Carolina,  New Jersey  and even Texas. These states have all spent over 1 billion on their unemployed alone, bankrupting their unemployment budgets. They also have between 13.7 and 17% unemployment, huge debts and deficits, and in some cases, housing prices have been cut in half.

Like the "Pigs" of Europe, these states also cannot print their own money, thereby inflating their way out of the current malaise. As the PIGS of Europe are having a huge, negative impact on the Euro, these states, (the HUGE federal debt notwithstanding) will have the same affect the U.S. dollar. It is a certainty. The only question is, how long can "king dollar" (as Larry Kudlow likes to call it) remain king. It currently is only king because there are no princes in waiting (as regards other world currencies). So, is "Prince Gold" quietly mounting a coup against the King. How about "King Commodity" who is somewhat weakened right now, but will be gathering strength as 2010 progresses.

Many developing countries, including China, India, Indonesia, Russia, South Korea, Brazil etc. are already looking to gold as a substitute for the prominence of the U.S. currency. Many individual investors and fund managers in these countries and throughout the west, have also moved into gold and commodities as a hedge against the demise of the usd. Some have recently added the Canadian and Aussie dollar to their international currency accounts as these two countries are considered "commodity rich"!

Whether they are right or wrong, sentiment is what moves the market. Anyone who thinks that gold, oil, uranium, titanium, natural gas, copper, diamonds, platinum, palladium, REE's or Lithium are not good places to put your money in this environment, just isn't paying attention. We are taking advantage of the current market disarray and buying these commodities


The U.S. dollar is a bubble waiting to explode into hyper inflation. Cash is a trap waiting to be sprung, and the current downturn is just that, a downturn that was expected and somewhat welcome by smart investors. Being in cash at the beginning of May was smart. Being in cash in June won't be.

 

 

Related articles by Zemanta

• A questionable action (timesunion.com)
• Why Europe may kill the U.S. recovery (money.cnn.com)
• How Europe Will Triumph Over the Debt Crisis (newsweek.com)
• Gov't to Give $600M in Housing Aid to 5 States (abcnews.go.com)
• : Think the PIGS Are in Trouble? These 7 U.S. States Could Be Heading for Something Worse (yzerfonteinchronicles.blogspot.com)
• A look at global economic developments (seattletimes.nwsource.com)
• Russia Drops 'Bellicose' Dollar Talk as Greenback Reserves Grow (businessweek.com)
• Gold hits new high as investors seek safety (seattletimes.nwsource.com)
• Gold surges, approaches new record (sfgate.com)
• Commodities pull back as euro retreats again (seattletimes.nwsource.com)
• What If Doug Casey Is Right? (lewrockwell.com)
• Dollar up as Europe woes threaten global recovery (sfgate.com)
• Europe's Rescue for Greece Brings Euro to New Normal (Update2) (businessweek.com)

From Piggy Bank to Albatross - housing Market will get worse by 2011

Image by Getty Images via Daylife

Housing! It was a great store of value. The largest investment for most average worker or small business owner, in their lifetime. An investment that was guaranteed to increase in value and many staked their futures on the simple premise that "they are not making any more land". House values climbed.

Over the past 40 years, whole neighborhoods were built almost over night in suburbs from California to Florida across the south and Midwest. Houses got bigger, more extravagant and much more expensive. From the 1970's through 2006, investors small and large either built or bought up surplus houses as stores of value. To a lesser extent, it occurred in Canada as well from Ontario to BC. For many boomers, it was their "piggy bank" where one could go, year after year, and re-mortgage to obtain more and more goods, cars, computers, college tuition, you name it. Some made fortunes in real estate. Those days are gone and they are not coming back any time soon. Almost no one expected such a spectacular housing crash.

Deutsche Bank reported Wednesday that the number of U.S. homeowners who's mortgages will be more than the value of their homes, will double to 48% in 2011 from 26% in March this year. The number of homes is a staggering 25 million!

If you bought a house in the past 4 years, it was equivalent to settling down on the beach when the tide is out. When the tide came in, these homes (read mortgages) were under water. So much for the piggy bank. It has been smashed to smithereens by the gluttons of wall street who have, for the most part, been saved by your tax dollars.

"Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak", Deutsche said. "They include sub prime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March".

This also from the Bank: "Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia". "Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011", it added. This is in direct contrast to some of the more hopeful opinions coming out in the past few weeks but those are mostly from the housing industry trying to put some lipstick on this pig. Deutsche Bank hasn't pulled any punches in it's analysis. It is a complete knock out blow to many homeowners. There is one group, however, who stand to benefit from this catastrophe. It is generation Y.

in 2007, my son and his wife were planning their wedding for Sept 2008 and asked me what my opinion was for buying a home. I told them that they should wait until "at least" 2010 or 2011 before they should even start to look. I felt at that time, and I told them, that housing prices would come down from 30-50%, maybe more. They were astounded at this advice as they, like so many others, were of the opinion that you should get into the housing market as soon as possible as housing prices (they assumed) never fell. They argued that, if they wait, it will cost that much more to get into the market and they will have to save up a greater down payment. I asked them if "If you could reduce the cost of purchasing by 30-50%, isn't that a great down payment on your house? This generation is in the housing market drivers seat, and most don't even know it.

I am glad they took my advice, even though I wish I was wrong. The days of storing value in your home are gone for the foreseeable future. Housing, instead of being an investment, has been brought back to where it originated. It is simply shelter! If you or your children are going to invest in a house in the near future, then shop, shop, shop! shop for location (always the most important issue) shop for value, shop for price and shop for mortgage rates. Above all, don't expect any quick return. It may take 10 years to see stored value in any home bought this year.

Remember, "Look after the pennies, and the dollars will look after themselves"!

Jan 23/2010: New York Times-Underwater but will they leave the pool?

Related articles by Zemanta

• To Unload a Mansion, Many Must Turn to Auctions (nytimes.com)
• Wealth Matters: Value in Real Estate, if You Find Your Florida (nytimes.com)
• The Other Shoe Drops (mydd.com)
• Half All Mortgage Holders Expected To Be Underwater (time.com)
• Wells Fargo stops mortgage lending in Canada (financialpost.com)
• Commercial Real Estate: Inside The Crisis (huffingtonpost.com)