Oh my gosh, what'll we do now? Helicopter Ben must be stewing in his boots as he finds out what a mess Greenspan left him. Here in Colorado, one out of every 158 homes is in foreclosure, the worst in America. The rest of America sees one out of every 420 homes in foreclosure. The Dow sits where it was a few years ago, and all the hoopla and urging on the boob tube doesn't seem to change one thing. While gold and silver sit at a plateau, which is becoming a bit boring, they will blossom again with a spirit. They are so far ahead of the stock markets as to make it comical. Invest in stocks? Let the grass grow and watch the cars rust. Invest in gold and silver? From $252 and $4.21 to $640 and $11.60, ain't bad now, is it?
Look at the situation in America, and weep bitter tears. Foolish Americans took out millions of second mortgages to pay off their credit cards, buy new cars, make home improvements, take vacations, and in general live like millionaires, in salaries of $30,000 a year. They thought, like all risk takers in history, that booms in certain things would never cease. Matters not what booms one speaks about, most Americans, and maybe even the rest of the world too, can't see beyond the end of their nose. The Japs thought the Japanese boom would never end. The Jap stock market was close to 40,000, and downtown Tokyo land was selling by the square foot at unbelievable prices. The Jap stock market now hovels around 15,000, and downtown Tokyo land is difficult to sell at any price.
China is booming, and I am sure the Almond Eyes think it'll never stop or even slow down. They've got a tiger by the tail, as does America. Can you imagine having a tiger by the tail…literally? Think about it. The tiger is roaring mad and attempting to get you and eat you. You have his tail, so he can't quite get to you, and the two of you go 'round and 'round in a vicious circle. The tiger wants to eat you and you hold on for dear life. Guess who will win eventually? You know.
Helicopter Ben has the US economy tiger by the tail. Real estate foreclosures are gaining all the time. Denver, it is said by realtors, is literally a no man's land as far as real estate is concerned. Foreclosures and for sale signs are everywhere, and no one is buying. Guess what? Denver and Colorado are but the tip of the iceberg which will sink the real estate Titanic. Foreclosures mean that the mistakenly called "home owner," can't make the payments. I say mistakenly called "home owner," because he doesn't own a damned thing. He's making payments over 30 years and now I understand that a 50 year mortgage is available, as are interest only loans. Still the foreclosures increase. When a home 'owner' can't make even the interest payments, the home reverts to the lender, which is usually Fanny Mae or Freddie Mac. The homes foreclosed upon will go on the market, and increase the inventory of homes for sale. Then, guess what? Prices go down, down, down, and the real estate market literally collapses until the bottom is reached. The 'bottom' will be when a few wise people begin to buy at bargain prices.
Richard Russell, in his latest letter, says the same thing about stocks. He says the bottom will be reached when dividends are 6% or better, and at that point stocks will be an excellent buy. When a current $450,000 house can be bought for maybe $150,000, the bottom may be reached. I don't know, but I'm glad I don't owe anyone in the world a dime. Helicopter Ben's problems with real estate are only the beginning. Since the D.C. Gang insists on prowling the world to see how it can help (mess up) various situations, and spend billions of printing press dollars messing things up, that devalues the dollar. That can be really bad, and Helicopter Ben knows it, because we are so hopelessly and helplessly in debt, that all the taxes collected can barely, if at all, only pay the interest on the debts. If we can't even service the debt, and the debt grows constantly, why should anyone loan us money?
We desperately need over a billion dollars a day in loans, just to keep us afloat. Not ahead. Not paying it down even. Just to keep the ship of state afloat. Helicopter Ben knows that if real estate collapses and bankruptcies blossom, the world's would be lenders will say to themselves, "Hey, we have had enough of this. No more loans, because you America, are a bad risk." As the foreclosures and bankruptcies gain momentum, Helicopter Ben knows that purchases of consumer goods will radically decline, and it is buying that is keeping the economy going, which in of itself is a very bad sign. There is no TV show that isn't filled with automobile ads. One after the other, and the spiel isn't even buying. It's LEASING! You can have this nice new hootomobile for only $375 per month, and never own it! Such a deal. So already cars are a in a dismal situation, and real estate is following closely. Ford stock is about $6 and GM has been propped up by some strange influence, even though GM is for all purposes bankrupt as is Ford. Real estate is doing what all of us predicted, and the auto industry is hanging on by a thread. Oh I forgot to mention the tourism industry. Being a habituate of the glorious Colorado mountain towns, such as Ouray and Silverton, I can tell you first hand that tourism in these towns is down by from 20 to 30% this year, and this bodes not at all well. When people don't travel, an entire industry can fail. Why? Because tourism is a short time, intensive, industry. Take Silverton Colorado, elevation 9300 feet. It has 14 growing days a year, and three wonderful months of weather. Four steam powered narrow gauge trains come to Silverton each day in this brief time span, and unload passengers for two hours. They eat lunch and buy what we call 'rubber tomahawks,' (tee shirts, souvenirs and just plain junk), during this two hour period. If trains aren't full, and $3 a gallon gas kept the flatlanders away, which is happening as I write this, there will be business failures galore. In Silverton, the total season is about five months, but there are really only a couple of really good ones. From July 1 to the middle of August is about it. By the middle of August, the families must get home so the kids can start school, and before July 1st, few have had a chance to get there. The geezers have come early, and will be there after the middle of August, but they are on limited budgets and buy little.
So if tourism, real estate, and cars are declining, and the would be lenders are becoming a but leery, how can we stay afloat? We need the billions just to pay the interest, but if the loans are in declining value dollars, why loan? If dire economics causes people to stop buying cars, homes, and vacations, millions involved in those industries will be laid off, and this will further exacerbate the situation. If people can't afford to travel, buy cars, and their houses are worth less than is owed on them, how can they buy gee gaws from China Marts? If all that can be afforded are the bare necessities, even restaurants and expensive grocery store products may suffer, as will gas stations, auto repair shops, real estate sales forces, travel agents, home repair and improvement outfits, and even nail lumber and paint manufacturers eventually. The chain re-action, as I mentioned in the very first column I wrote for GOLD EAGLE,com, many years ago, will be fulfilled. Go back there and see for yourself.
A few miles away, the plant which used to make fiber board closed, never re-opened, and as I write this, the machinery is being removed. Those jobs, which were manufacturing jobs, never came back. Lots of people have moved into my town, and mostly are retirees, so the schools haven't been bombarded with new students. Lots of new restaurants have opened, and we now have a Home Depot, so the economy in my town of 14,000 is OK. But homes prices, which were very reasonable anyway, have started to go down, and car dealerships are in trouble. They have to pay interest on all those shiny cars you see sitting on their lots awaiting a sale. My town is a safe place to live. It is away from the big cities and their, pollution, racial tensions, power outages, extreme temperatures, hurricanes, fires, and earthquakes. In spite of the safety and being a wonderful virtually crime free place, real estate has begun its decline. Helicopter Ben has a lot of worries. He's got to get the bucks from lenders who are shying away. He's got to keep the real estate Titanic afloat, even though that looks to be impossible. He's got to keep the buck alive, and so far he's managed to do that by whatever devious means are at his disposal. He can't re-start the auto industry, can't stop real estate declines and foreclosures or bankruptcies. Oh dear! Protect yourself.
Don Stott has been a precious metals dealer since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com
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America's Housing Bubble: The Real Estate Outlook for 2006-2012