Want to solve the housing slump? Let it be.
Let it be, let it be, let it be, let it be鈥�
Simple words of wisdom 鈥� let it be
The Dow lost 107 points on its first day of trading after Labor Day. Gold rose to within $3 of its all-time high.
What do you make of it, dear reader?
Watch the bonds鈥� We could be seeing the first crack in the bond market. But it seems too early to us. It seems more likely that the bond market will stretch this out鈥ringing more and more hapless investors on board before finally sinking.
Everything takes longer than you expect. Yes, we expect a bond market crash. But it鈥檚 not like Mr. Market to give us what we expect when we expect it. It鈥檚 too simple. Too logical. Too obvious. Instead, he toys with us鈥e leads us down the primrose path鈥e plays out some line before reeling us in.
How do you like that fellow? What a nasty piece of work! Or, is Mr. Market just nature鈥檚 way of offering instruction? When he delivers a lesson, you don鈥檛 forget it!
The longer you invest, the older you get. You may get wiser too. Frankly, we鈥檇 rather be younger and stupider, if we had the choice. But we don鈥檛. So we鈥檒l take what we can get.
What we make of it is that the long slog through the correction is continuing. We can expect lower stock prices. And we can expect that the price of money will go up; meaning, you鈥檒l be able to buy more assets and other stuff with less money.
Gold is the best money. Gold is going up.
But wait a minute鈥� We know what you鈥檙e thinking鈥� You鈥檙e thinking that The Daily Reckoning has been rather silent on gold for the last few months鈥� In fact, didn鈥檛 we say we thought it most likely that gold would cool its heels until this downward thrust in stocks, banks, houses and other assets is completed?
Yes, we did say something like that. And we still can鈥檛 think of any good reason why it shouldn鈥檛 be so. But so far, it ain鈥檛 so. Gold is going up. It seems ready to set new records. So we won鈥檛 quibble with it.
We鈥檙e a bit agnostic about gold now. We think you should own a lot of it. But it鈥檚 not under-priced. Don鈥檛 expect to make a lot of money as it reverts to the mean; it鈥檚 already at the mean.
Most likely gold will become much, much more expensive鈥ut that is only because the real value of other currencies will collapse. So better to hold gold than dollars 鈥� which is what we鈥檝e been saying all along. And what other people seem to be thinking too.
Still, we wouldn鈥檛 speculate too heavily on gold. Not just yet. We still have this river to cross. You want to be fairly light and buoyant 鈥� free of debt鈥ree of risky positions鈥ree of overhead 鈥� when the time comes to swim across. A lot of your friends and neighbors will wash up. You don鈥檛 want that to happen to you.
Speaking of crossing that river鈥e finally read something intelligent on the subject in 鈥� would you believe it 鈥� The New York Times. We thought the Times had given up saying anything intelligent. When it signed Thomas Friedman to give opinions on politics and Paul Krugman to give opinions on economics, we figured the Times was finished as a serious journal.
But there it was in yesterday鈥檚 paper:
鈥淭o revive housing market, some say let is crash,鈥� is the headline.
The reporter gives an unusually clear picture of the situation:
The unexpectedly deep plunge in US home sales this summer will probably require the US government to choose between future homeowners and current ones, a predicament officials had been eager to avoid.
Present homeowners want to boost the value of their main asset. Future homeowners would like to buy their next asset on the cheap.
But the feds are always caught in the middle. And they almost always take the part of the present. If they hadn鈥檛 stepped back in the fall of 2008, future investors might have gotten much better deals on their stocks. Future bankers would have found the debris of the last bubble cleared away by now. Future businessmen would have found the landscape freer of debt, with future consumers much more ready to buy things.
But then, the future doesn鈥檛 vote or give campaign contributions. No Michigan politician represents future auto companies. They represent the Big Three. Nor do they carry the hopes and desires of future autoworkers with them into the House every day. Uh uh鈥� Instead, their mobile phones have the phone numbers of the present autoworker union chiefs.
Government is fundamentally a reactionary institution鈥lways looking out for the here and now. But let鈥檚 not get distracted鈥�
How do you solve a slump in the ? Easy. You let Fannie and Freddie get what they鈥檝e got coming. You let it happen. Prices collapse. Better yet, raise interest rates and kick Fannie and Freddie on the way down. Then, houses are cheap鈥eople are ready to buy again鈥nd a whole new cycle can begin.
How do you stop a bear market in stocks? You don鈥檛. You let it happen鈥nd look forward to the bargains you鈥檒l find at the bottom.
How do you revive an economy that is in recession? You push it into depression. The bad debt gets flushed out. Businesses that aren鈥檛 competitive鈥r that have too much debt or too many fixed costs (GM, for example) go broke. Their assets are bought up at pennies on the dollar. New automakers take their places. Banks go bust too 鈥� and depositors decide to be more careful next time.
The present suffers, but the future benefits.
What鈥檚 the cure for a depression? A depression, of course! Let it be鈥et it be鈥et it be鈥et it be. Simple words of wisdom鈥et it be鈥�.eeee!
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