-First up is some analysis from Mark Hanson on the housing data out of Sacramento. Not good. Of course, it stands in stark contrast to all the hyperventilating that goes on whenever people see new housing start numbers. Hanson writes it, but it bears repeating, creating new supply does not mean that there is actual demand for it. Moreover, he notes that stimulus around mortgage rates has simply pulled demand forward, which means you end up in a tricky spot where you always need to do more in order to sustain it. My guess: developers and homebuilders bought the land at a very low basis at the depths of the recession. Now, with interest rates at ultra-low levels, they feel compelled to act before they move up. So, in a sense, they have gone from warehousing land to warehousing supply.
In the past few months, Hanson has also written more specifically about how the shadow inventory is often understated and misunderstood. Demand for distressed properties has been shown to be about 1.5 million units per year (or about 25% of total demand). But, the supply is not just the 300k to 400k foreclosures per year that we see – you also need to factor in the 5 or 6 million units that are 60-days late or in foreclosure, the 600k short sales per year, and the 6 million modified loans which should still be viewed as high-risk. Then on top of all that, you have somewhere in the neighborhood of 25 million homeowners who are stuck in homes bought during the bubble years because of negative equity. Hanson notes that this last group is (historically) the key driver of demand, but they are a non-starter right now. And until they are back above water, don’t expect any true recovery.
-I have said before that I don’t think a return to the gold standard is baked into the cake. In fact, I would argue that even if the chance of a return is some non-zero percent, it’s probably not much higher than that. Nevertheless, it feels like I still read a lot of skepticism about gold as investment, separate and apart from whether it will ever return to a formalized currency role. And I am stuck wondering why. Perhaps because it represents a disavowment of the mainstream. Regardless, even if jokers like Krugman, Sumner, DeLong and Glasner are right about whether the Ponzi charade can go on endlessly, all that means to me is that the climb in gold will carry on as well. In other words, I am willing to concede many of the points that Keynesians make about how the economy works and why their particular version of economic theory is the right one, but will still feel it is vitally important to own the yellow dog. Of course, if a funding crisis does come, and it turns out that you can’t print your way to prosperity…well, they’ll be wrong and I’ll still be happy to own my gold.
-Speaking of gold, I enjoyed this piece over at Zero Hedge (confirmation bias?) which looks at the gold coverage ratio. The historical average is 40%, we are currently at 17%, and when you have periodic bursts of no-confidence in fiat currencies, it can go to 100% and beyond. All this as the monetary base continues to grow…
-After mentioning it the other day, I bought a small position in the water desalination company that trades in Singapore. I also dumped the GG October $45 calls on Monday. As it stands, they are even lower today. But, lesson learned.
