Buying a house vs buying gold

Miscellaneous Current Events
1

Evermore frequently I hear that people are buying houses because the market bottomed out–lot’s of young professionals are homes and even multiple unit housing. Also, I hear people recommending to ther to buy homes because of the cash flow.

In the first case, support comes from that stats that show that nomimal housing prices have bottomed. In the second case, the support comes from doing financial math shows that you can buy a house for $180,000 and then rent it out for $1,500, giving a return of about 10% per annum.

The case against gold involves any combination of “it’s in a bubble because of how high is the price,” “no cash flow,” and that the economy is recovering which will divert money away from the safety of gold and towards stocks, etc.

Now, if the economy does “recover,” then money will divert form gold and go towards stocks, etc., including housing. So, given eveyone thinks that housing has bottomed out, either the market will drop again, or that optimism will drive the purchase of homes.

My bet is that, in this year, gold won’t really go anywhere; meanwhile, will be an economic “recovery.” After all, Obama needs to get re-elected. There will be a continued boom in tech and healthcare industries, with IPOs and all, and this will drive the new housing boom–although, I don’t know if the nominal prices go up much.

Although TPTB can direct all that printed money into certain areas, that money will eventually spread to everywhere and they will have no way of controlling to where it slushes. So, my speculation is that if there is a boom housing, then there will be an enventual, greater boom in gold and other PMs.

Anyone else with me?

2

My argument against buying housing: you cannot hide it away, you cannot move it around and with so much cheap housing available right now (prices won’t skyrocket all of a sudden) selling and renting it may still be a problem for years.

My argument against gold: while Asia’s appetite remains strong (especially in India), Europe and America are deterred by high prices. People in Asia tend to buy gold long-term as an edge against inflation and as a store of wealth, Westerners tend to buy it short-term to speculate on price fluctuation. With prices already so high less and less Western investors are attracted by gold: in fact many have already started selling, partly to cash on high prices, partly to obtain immediate liquidity.

My argument for gold and housing (deeply connected so just one post): inflation is here and it’s here to stay. Europe and the US are locked in a race to the bottom which has the merchantilistic countries of Asia deeply worried. At the moment it seems the US has somewhat slowed money creation but there are two issues. First, the euro is quickly and steadily declining in value relative to the dollar, going under 1.30 for the first time in years. The EU as a whole is America’s #1 trade partner and is a huge importer of both raw commodities and finished products from the US. Second, even if the Fed stops printing money all of a sudden there’s a huge mass of pented up liquidity waiting to be unleashed, an inheritance of QEI and QEII. In these three years we have seen the effects of a small trickle of this liquidity and they have been far from beneficial: in face of declining demand prices have literally skyrocketed. Money hasn’t gone from banks into “job creation” but straight into old fashioned speculation. And it isn’t stopping. This has led to the present climate of uncertainty: less jobs, declining standards of living, reduced capital investment etc. What does people buy in an uncertain climate? The two oldest “fall back to investments”: gold and housing. I see a slight edge for housing in the US (where prices have declined more sharply than in European countries hit but the housing boom) but worldwide gold will continue to perform well, especially on Asian markets.

Final note about the US economy. As I said a declining euro is bad for American exporters. Add on top of that many European countries are currently considering axing weapons procurement plans (involving US equipment) worth billions. The Obama administration has already countered this last move (after all “defense” is one of the chief American industries) by going on a selling spree in Asia and the Middle East. Also the US will benefit from the EU’s progressive disintegration. How? Very simple: debt. US Treasury bonds are now seen as one of the safest forms of investment: they pay a pittance relative to Greek and even Italian debt but Uncle Sam won’t default any time in the future. Better yet the US is seen as much more solid than the faltering EU. Despite the reassurances by haughty champagne socialists, the euro is going down and more than one European country is going to default. Banks have already been asked to take a 50% haircut on Greek bonds: this won’t be enough and the IMF is already “suggesting” 65%. Greece’s economy is literally disintegrating and with it tax revenues. But Greece is nothing compared to Italy. French and German banks are literally loaded with junk bonds from the PIIGS. They will require either a massive bailout or downright nationalization to stay afloat. You are staring to see why T-bonds paying a pittance suddenly see like a good bargain.