Calvinism,
Pro-Hockey, Condo Fever, Confessions of a Gold Forum Junkie Sometimes they’re the best, most efficient news gathering and dissemination agencies on the planet. Other times their content denigrates into little more than spurious and salacious prattle. One thing that few would likely argue is this; unlike CNN or CNBC - the internet’s more popular gold forums are meeting places – where naked fact and fanciful fiction get the opportunity to stare into the buffed whites of each others eyes. These forums, or chat rooms, present inquisitive readers with raw unfiltered news – and that would be news with a decidedly contrarian bent. Lest there be any confusion about the type of chat rooms that are being discussed here, it should be remembered that all chat rooms are not created equal. At the pinnacle of the “chat” hierarchy is ‘instant text messaging’ where participants connect via enabling technology, like MSN, and interact in real time, where anything goes – in much the same way as people communicate on the telephone, obviously, less the voice. One level removed from this is another group of ‘near real time’ assemblies that require registration prior to being granted posting privileges; like the Kitco or Gold Is Money Gold Forum. The difference between the two levels, if you will, being the latter typically has a moderator who imposes some modicum of decorum to the proceedings. This could mean anything from disallowing printed profanity and racial slurs to outright censorship at the other extreme – in other words, a microcosm of what one encounters and what’s permissible in the real world. How We Get the Reality In Realty / The Secret RecipeThere are those that post in these forums and those that read. The posters typically have ‘handles’ or pen names, by which they are known on the internet, to veil their true identities. Readers, or consumers of information like me, are often referred to as ‘lurkers’. Myself, I prefer “news” in its natural state, with no artificial CNN or CNBC additives. One must be wary of consuming news in its natural state though, if taken too seriously, it can be toxic to their ‘Stepford Wives’ outlook on life in general. This unrefined news often serves as grist for the mill or the basis for articles I write. What I like most about consuming information from these forums; I liken it to picking fruit off a tree – just make sure you avoid the ones with worm holes. One such low hanging piece of fruit, which I simply found irresistible today was this big, juicy apple: Nout Wellink: On the euro and exports, speculation and global trade Speech by Dr Nout Wellink, President of the Netherlands Bank and President of the Bank for International Settlements, on the occasion of a luncheon conference of the Limburgse Werkgevers Vereniging, Herten-Roermond, 26 January 2005. I would like to dwell briefly on the factors underlying the strong euro. The prominent role of the dollar is tied up with the United States’ global leadership, in both economic and political terms. Its prominence does not necessarily signify that the dollar is strong. At this moment, the dollar is weaker vis-à-vis the euro than in the period between 1980-2000, because the United States has lived beyond its means for so long. Both the average American citizen and central government are consuming too much and saving too little. Private savings in the United States make up a meagre 0.4% of disposable income. In the euro area, citizens lay by more than 10% of their income. While the low level of private savings in the United States is not easily accounted for, stock exchange and housing price movements are probably an important factor. From surveys it emerges that especially citizens in the higher income brackets are dissaving. They look upon their assets as a substitute for savings. Not only American citizens are not saving much, if at all, even central government is dissaving, witness the high budget deficit. The expense of the war in Iraq and internal security is one of the causes of the high budget deficit. On the balance of payments, the national savings deficit of the United States translates into a current account deficit to the tune of 6% of the gross domestic product, or about 1.25 times the total annual output of the Netherlands. This means that funds must be raised from other countries on a structural basis. This cannot go on forever. A tad more Calvinism would not hurt. In some areas a lot can be achieved with little effort. The American administration might decide, for example, to raise tax on energy consumption, after the European example. This measure would bring down the public sector deficit and put a brake on private spending. Besides, it would enhance national security by limiting dependence on oil imports. And this measure would benefit the environment into the bargain. However, it is not just the United States that should be doing something to lessen the global imbalances on the balance of payments. The countries that for internal reasons have resolved to stabilise their currencies against the dollar, have had to buy up substantial amounts of dollars to prevent their currency from increasing in value in dollar terms. As a result, they have built up unprecedentedly high dollar reserves. I’m referring to Japan, China and several other Asian countries. This policy cannot and will not be continued forever. Neutralising the monetary consequences will be at increasing cost. On top of that, the potential foreign exchange risks rise with each dollar by which the reserves increase. What I found so irresistible about this offering was the tenure of the author, namely, the head the BIS -- is very much in step with the way I think about the budget and current account deficit situation in the U.S. of A. As the good Dr. [Wellink] clearly and emphatically states, this party [debtor’s bash] is long in the tooth, and it’s only a matter of time before it ends – it’s simply not sustainable. The difference here folks, this dude – unlike me, doesn’t merely write for Realty Reality – he’s the head of the BIS. Personally, I find the good doctor’s take on the gravity of the debt situation a little more forthright than that of our fine feathered Wizard – Easy Al Greenspan, too. If you take the time to read his speech, you might find that it sheds a little light on the likely near term direction of the dollar and perhaps by extension and more importantly – interest rates. Dr. Wellink goes on to point out that Americans seemingly look upon their inflating assets, like their homes, as a substitute for savings. That is to say, Americans have grown accustomed to using their homes much like ATM’s [Inflating Piggy Banks, perhaps?], where a quick refi serves as a means to withdraw cash, in many instances, to fund current obligations. Let it be stated here, this practice can have ruinous consequences. Heck, I’m going to go out on a limb here folks; reading and understanding the implications of this speech is like looking into a crystal ball. Jane and Joe Six-pack consumer have some tough, excessive debt derived sledding ahead. Well-Intentioned Words From the Folks At Realty RealitySo what can any of us do about all of this? Let’s start with suggesting one might immediately start paying down any extinguishable floating rate debt. Destroy a few credit cards; use any remaining cards in case of emergency only. Pay off balances monthly. Start thinking in terms of becoming more financially self reliant. If you currently have an adjustable rate mortgage, take a hard look at securing longer term financing. If you are considering purchasing a second or third home with excessive leverage for investment purposes - think again. By the way, none of this is profound thinking. It is just a good dose of prudence and common sense. After gazing into this crystal ball that the head of the BIS has given you a peak of, start thinking about the perfect financial storm so often cited by Jim Puplava in his storm watch series of articles and start taking stock and making provisions – if you haven’t already. You see folks, as sure as god made little green apples; this storm is going to come ashore. The only part of this crystal ball gazing exercise we cannot be sure of is where it’s going to make landfall, and the exact time of Night and Day. An Apple A Day Keeps The Doctor Away, but A Whole Bottle of Aspirin Can Kill You For those of you who question what is being said in this space, I would now like to draw your attention to this little snippet. Unfortunately, and I’m sad to say, this story has become as American as apple pie: “….Now Carlos Lidsky, a lawyer, and his wife, a charity fund-raiser, have put down a deposit on a fifth property, a $1.3 million condo in a high-rise under construction, and they are planning to sell before the deal closes, without even taking out a mortgage. "It is much better than the stock market," Carlos Lidsky said…….” This piece is titled, Speculative fever sweeps through white-hot U.S. real estate market, and it comes to us from the folks at International Herald Tribune, reprinting an article from the New York Times. The absurdity highlighted in this piece, with people claiming that trading houses is “better” than trading stocks is, in my mind, unparalleled. If this is you that I have just described, dear reader, all I can say is you are skating on very thin ice. With me being from Canada and the hockey season being cancelled and all [like you ever noticed ehh?], some of you might rightfully claim this is sour grapes, ehh? For those of you who are unaware, meaning virtually all of you, I’d like you all to know what happened when the NHL players – metaphorically - did the same thing. Their season was cancelled and they all forfeited millions without as much as the drop of a puck! – not exactly your Mid-Winter’s Night Dream! To round this theme out, I would now like to draw your attention to this nugget, found at financialsense.com titled, Honey, I Shrunk the Net Worth, by Kevin Duffy. What this pointedly foreshadows, to me, is the likely negative fallout, or proverbial brown stuff, that will likely hit the fan if as and when real estate values head south. Families and the family unit will, no doubt, shoulder a disproportionate share of the ensuing malaise: Predictably, the residence has become an emotional hot button, making this credit mania all the more terrifying. Popular mortgage ads feature the woman in control as lenders line up to provide cheap credit on her terms. Attention personal bankruptcy specialists, divorce lawyers, and marriage counselors. Business is about to improve. Speaking of heading south, what’s bothering me lately folks? - How many well intentioned sheeple are going to show up, having anted up - ready and willing to play this game, only to find out that the season has been cancelled along with all their equity they threw in the pot? When do you figure that puck is going to drop for Jane and Joe Six-pack? When real estate prices finally do head south, do you think Jane and Joe Six-pack will have the financial resources, like Pro-hockey players, to join them on the beach with hopes and dreams for a new season? Any bets? Rob
Kirby Edited
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