Next week we will find out how Existing Home Sales and New Home Sales fared in April (as of writing this article, Existing Home Sales are expected to increase, New Home Sales are expected to stay flat from last month).

American home prices just suffered their worst quarter in recorded history.

That’s the word from the National Association of Realtors today… the median home price fell 14% from the first quarter of 2008 to the first three months of 2009, to just $169,000. Of the 152 metropolitan areas surveyed by the NAR, just 18 registered annual price gains. Nearly half of all sales during the first quarter were foreclosed properties or short sales. A whopping 3.7 million previously owned homes are still on the market.

Is this rock bottom for U.S. housing? Ehh… probably not.

After staying flat for most of the ’90s, the Case/Shiller home price index more than tripled during a 10-year boom. If this “credit crisis” is what people say it is — a generational calamity, Bill Bonner’s “Depression with a capital ‘D’” — then a mere 26% retrenchment from the peak seems kind of… lame. Even the Dow managed a bigger fall than that.
If you’re a real estate opportunist (or just looking for a damn cheap house), you might want to check out Saginaw, Mich. The median existing home price there during the first quarter was a stunning $30,300, the lowest in the U.S. We won’t pretend to know what’s going on over there, but geez… they’re practically giving ’em away.

And if you’re also a newshound, like us, Saginaw might bring back the memory of this little love shack:

Back in October 2008, a Chicago woman famously bought this Saginaw home on eBay for $1.75. Ouch.
Foreclosures set a new record in April, says a separate report from RealtyTrac today. 342,000 homes were in some form of foreclosure last month. That’s one for every 374 homes in the U.S. — just in April. Over 1.3 million homes have now been lost to foreclosure since the housing correction began in August 2007.
A study out today shows that minorities are suffering the worst of the housing crisis. The homeownership rate among all Americans has fallen 1.7% from its 2004 peak. But for black households, the rate of ownership has plunged 3.8%, more than double the national average. Native-born Latinos have it even worse — down 4.6% from their high.

According to Pew Research, this rise and fall among minority homeowners was directly correlated with the popularization of subprime lending. “Blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes,” reports The New York Times. (Queue the predatory lending lawsuits.)

And the only ethnicity to not see homeownership rates decline? Latino immigrants, with the lowest rate of all groups studied, have managed to maintain a homeownership rate of 44.7% since peaking in 2007. (Ugh… and queue the flood of hate mail into our humble inbox.)
The credit crunch has hastened the predicted demise of Social Security and Medicare. The Obama administration admitted yesterday that they now expect Medicare to run out of money in 2017, two years sooner than the Bush administration predicted in 2008. Social Security’s imminent insolvency was bumped up four years, to 2037. That’s all under the assumption, naturally, that the economy will recover by the end of 2009.

Even those already sucking the government teat got a dose of bad news. Social Security trustees now predict, for the first time in over 30 years, that recipients will not receive any cost of living increase next year, or in 2011.

In just seven years (2016), the Social Security trust will enter deficit. Eight years at the current pace and Medicare will be totally wiped out. When do you think we’ll start worrying about it… 2015? What a mess.
Last month’s budget deficit was the first April loss since 1983. We hit most of the details of the latest deficit yesterday, but felt obligated to raise this one point today: How can Uncle Sam possibly lose money during tax month? Only the U.S. government can “earn” $266 billion in one month (mostly our confiscated income) and still end up $20 billion in the hole.
All the above is weighing heavily on the market today, but the latest retail sales numbers are pushing traders over the edge. Retail sales fell 0.4% in April and were revised down to a 1.3% decline in March, the Commerce Dept. said today. The Street was expecting flat sales this month and no March revision.

Declines for both months proved to be the last straw for an already nervous market. After registering small gains yesterday, the Dow and S&P 500 raced down almost 2% at the opening bell this morning.
“Who’s surprised?” asks our currency man Bill Jenkins in response today’s retail “shock.” “Economists predicted a rise in sales from last month, but based on what? Here’s the bottom line: 3 million more people have been added to the lines of the unemployed since the beginning of 2009. I’m not sure where a person learns the following lesson, but apparently not in Keynesian Economics 101. So our readers can learn it here: Unemployed people spend no money. (Or at least they spend a lot less, if they have any sense.) Less spending equals fewer sales.

“As of the first quarter, we have already had record budget deficits, and Moody’s has announced that with the planned and continued spending, America puts at risk her AAA bond rating. What will happen to the dollar then? Dollar weakness is going to shock the world even more than today’s shocking sales numbers. Get ready to short the dollar aggressively.”

Need a hand trading currencies? Then definitely check out Bill’s Master FX Options Trader. His strategy is one of the only ways to profitably trade worldly monies without taking on loads of leverage. Details here.
But don’t short the ol’ greenback just yet. Today’s equity decline is doing wonders for the dollar. After cratering at a four-month low of 81.9 yesterday, the dollar index is back up to 82.5 this morning.
“One of the most exciting growth industries,” writes Jim Nelson, finding opportunity amid today’s sell-off, “is Far East Internet service providers. According to internetworldstats.com, 73.8% of Japanese and 76.1% of South Koreans are on the Internet. Even about one in every four Chinese citizens has Internet access. But too many forget that these superpowers aren’t the only places where you can make big money.

“Indonesia has the world’s fourth largest population, over 200 million people, but it ranks No. 16 in GDP purchasing power. Internet access is trailing in the region, with just 10.5% of its population online.

“But it’s the growth that impresses us. In 2000, only 2 million Indonesians had the Internet. That number is going to reach 25 million this year. That’s a massive growth rate… and serious investing opportunity.”

Jim just gave his readers a solid dividend-yielding play in this sector. If you’d like to get the details, be sure to check out his Lifetime Income Report.
Oil is holding up today, even though stocks are in the dumps. As we write, the front-month contract is actually up about a quarter from yesterday’s close, to $59 a barrel.
“Take your coal profits and run,” Bryon King told his Outstanding Investments readers late yesterday. “Coal is besieged. The coal industry wrestles daily with weak demand due to the U.S. economic slowdown. At the same time, the build rate for coal-fired power plants is at a historic low. Sure, in ‘ordinary’ times, coal might stage a comeback. But these are not ordinary times.

“The ‘rock that burns’ is under attack from many quarters of the environmental movement. Primarily, coal is guilty of the environmental sin of emitting carbon dioxide when burned — much more, pound for pound, than natural gas or oil. But it’s not just coal. Coal ash is also under attack, as are the many other byproducts of coal combustion (mercury, arsenic and much else).

“Is the anti-coal movement over the top? Yep. Is the anti-coal ‘science’ valid? Some of it is good; some is dramatically bad. Will the U.S. economy benefit from a precipitous rush away from burning coal? Nope. Will many Americans eventually look back and regret it if the current anti-coal frenzy prevails? Probably.

“But for now, I’m not going to get into the whole scientific and economic debate over the merits of the anti-coal claims. I’m just going to say that if you have a chance to make money in your coal positions, you should take it and move onto other ideas.”
It’s a great day to own some gold. The spot price has perked up $20 from yesterday’s low, now at just over $925 an ounce.
“You asked a question yesterday,” a reader writes: “‘Would you expect more credit card losses during this recession (aka the credit crisis) or the tech bust?’

“For what it’s worth (not much, as it is only my gut-feeling guess), here’s an extreme answer. I expect that the chart you’ve provided will hit 20-30% by the time it is all over, many years from now. Unlike any previous recession/depression, the use of credit cards today is at an all-time high globally, particularly in the U.S. As such, The Daily Reckoning Dicta No. 2 as provided by Mr. Bonner comes into play: ‘The force of a correction is equal and opposite to the deception that preceded it.’

“And with the marginal utility of debt approaching zero with each passing day, one may even be enticed to provide a higher number than merely 20-30%, but I do not wish to go that far into the gloom.”

The 5: Thanks for the forecast.

Source: The Housing Bottom, Doomed Entitlements, Retail Sales Suffer, Sell Coal and More!

Needless to say, when the number of jobs lost every month is in excess of 600k, we aren’t going to see an abrupt stop. We will unfortunately set the record for consecutive months of job losses in the next few months.

Monday

Economic Reports: Pending Home Sales

The Pending Home Sales report for March comes out this morning at 10:00 am, and I am a little surprised by the expectations (flat). With all the foreclosures continuing, and prices still sliding, I think this report will show a modest increase in Pending Home Sales.

Earnings Announcements: S

Tuesday

Economic Reports: ISM Services

This could be another month of contraction in the services sector if expectations are accurate. One thing to note when the report is released is if any sectors are expanding versus contracting. Last month the only sector to display expansion was in real estate rental and leasing. In any event, until more sectors are expanding than contracting the economy will continue to languish.

Earnings Announcements: KFT, UBS

Wednesday

Earnings Announcements: CSCO

Thursday

Earnings Announcements: GM, VRSN

Friday

Economic Reports: Non-Farm Payrolls, Unemployment Rate

Earnings Announcements: TM

Source:Employment Numbers Are About To Get Historically Bad

Last week, the February Housing Starts report handily beat estimates. While this may only be a temporary spurt, it was a positive surprise. The growth was primarily focused in the Northeastern states, but again, any increase in this dismal sector is a positive.

On Monday, I surmised that the Existing Home Sales report for February would beat estimates when announced, and sure enough it did. Foreclosures are driving down prices to the point that the market is now ‘affordable’ again to first-time buyers.

This past weekend I spoke with my father. He is a realtor in Ann Arbor, Michigan, and he mentioned something that is being overlooked, the first-time homebuyer tax credit. This year the rebate doesn’t have to be re-paid, and is worth up to $8,000. The company he works for feels this will be a significant driver of sales this year, as homes are finally affordable again to those priced out a few years ago, and the tax credit makes purchasing all the more appealing.

Something else I thought about too: with the moratorium on foreclosures and the Obama administration’s never-ending search for a solution, we may see the number of foreclosures slow significantly. This means less inventory, a slowing in the price declines, and eventually, an up-tick in prices.

Combine all of this with mortgage rates that are the lowest since WWII (albeit difficult to qualify for) and we may be starting to see the light at the end of the tunnel.

Source: Is The Porch Light On In The Housing Market?

“Any house bought for ‘No Money Down’ should become a no money home, a free gift to the debtor. How’s that for putting a floor under prices…?”

Remember the great hope for Hope Now…?

“Let’s not harp on about the costs, absurdities or risks of governments meddling in real-estate bubbles when they burst,” wrote BullionVault as the Bush administration pushed the initiative front-and-center in December 2007.

“This is about hope. Hope now. Let’s worry about tomorrow some other time.”

Too bad tomorrow’s turned up, but with 917,000 homes foreclosed since then regardless. A further 1.3 million foreclosures are now in progress according to Hope Now’s own data, with nearly one-in-twenty of all US mortgages standing 60 days late or more on debt service.

Some 8.3 million mortgages risk being drowned by negative equity, too. So even if the lender moves to foreclose, the asset won’t cover the debt — if they can find a buyer at all — making the net loss of wealth truly systemic for America’s banks.

Which is kinda where all this began, only the other way round.

“Mortgage performance steadily declined each month in 2008,” says Hope Now in its full-year data. “One in 10 loans was delinquent in some way by December,” despite Hope Now itself helping modify and refinance almost a quarter-million loans that month. It helped modify and refinance a quarter-million loans yet again in January. By then, however, US real estate had lost $2.4 trillion of its value year-on-year, reckons First American CoreLogic.

Puff! It was gone, just like that. Which kinda makes you wonder where it all came from in the first place.

“There is broad agreement that until we begin to stem the tide of foreclosures, you will not get an end to the current crisis,” says Barney Frank, Democrat chair of the House Financial Services Committee, pointing to the, ummm, foreclosure crisis.

Put another way, “The remedy for [today’s] deflationary delevering and mini-depression is simple and almost axiomatic,” as Bill Gross, head of the Californian bond giant, wrote last month:

“Stop the decline in asset prices.”

Such a happy truism; stop prices falling, and you’ll stop pricing falling. But how to achieve it? Maybe Gross doesn’t quite mean what he says. Not as simply as he says it, at least. Not without trimming his (occasional) moustache into a neat little paintbrush. You know, more like that highly-strung German chap who stole Charlie Chaplin’s look (minus the hat and cane) in the 1930s.

But that word “delivering” — it throws up the real problem sparked by declining asset prices: the gap between what they’re now worth, and how much money was borrowed to buy them.

“One in five US homeowners with mortgages owe more to their lenders than their properties are worth,” First American CoreLogic goes on, as quoted by Reuters, “and the rate will increase as housing values drop in states that have so far avoided the worst of the crisis.” That army of drowning, not waving debtors now threatens to swell by one-quarter if home prices slip only 5% further from here, as well.

Negative equity, of course, doesn’t in itself force default. It’s inability to pay, most often sparked by loss of income, which forces late payments. But negative equity makes the problem systemic. Because it gears up the net loss and spreads it from debtor to lender, levering the pain of foreclosure from the hurt of the home-loser to the net lending loss suffered by banks.

Lenders end up out of pocket — and so too might their lenders in turn — even if they can sell the house reclaimed to settle the mortgage. All of which, as we say, just replays the merry-go-round spiral of soaring house values and E-Z credit in reverse.

“Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners,” said the Treasury on Wednesday. (Note the friendly, if all-too pessimistic, use of the singular “home.”) Yes, the new commander-in-chief is leading a fresh charge against house-price deflation and the still-surging surge in foreclosures.

Once more, with feeling!

“The Home Affordable Refinance program will be available to 4 to 5 million homeowners [who] would be unable to refinance because their homes have lost value,” the Treasury went on, “pushing their current loan-to-value ratios above 80%…

“The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.”

Now throw on top the one million mortgagees expected to declare themselves bankrupt when Obama’s “cram down” bill wins the day in Senate (which it will), and up to 10 million American home-buyers look set to refinance or re-modify their loans, just 15 months after Dubya Bush and Hank Paulson swore blind that refinancing and re-modifying would stem the depression in housing.

Might it work this time round instead? Given that the cram-down act will enable federal judges to extend mortgage terms, slash the interest rates agreed with lenders, and cut the outstanding debt owed by insolvent homeowners, and you might expect the flood of foreclosures to slow. Destroying 1,000 years of contract law should achieve nothing less, you might hope. And that might stop home-prices tumbling. Right?

“Throughout 2008, the re-default rate ranged between 30% and 40%,” explains Hope Now, defining such recidivist shame as “any mortgage that is 90 or more days delinquent or in foreclosure 6 months after the date it was first modified.”

One-third of bad loans turned bad once again, in other words, even after the lender cut the debtor some slack. So perhaps the new hope for housing should just cut straight past the chase and go to the credits. Y’know, the bit where the state seizes outstanding home-loans entirely, and re-modifies their terms to give houses away free to what once were called “the buyers.”

Any house first bought for “no money down” should become a no money home, a free gift to the debtor. How’s that for putting a floor under prices!

“More householders than ever own their homes,” said the Census Bureau in 2001. Way up at 66.2%, however, that record ratio wasn’t high enough either for government or the finance industry. Hence the non-stop shilling by President Bush of home-ownership as a way to defeat racism, poverty, Bin Laden, you name it.

The number of owner-occupied homes had in fact swelled by nearly one-fifth in the previous 10 years. And since the 1990s marked prosperity (and even a shrinking fiscal deficit!) as interest rates ticked lower, runaway growth in home ownership was surely been an unalloyed good. Only an anti-American fanatic would think otherwise, you’ll agree.

But smothering fresh chunks of California, Nevada and Florida in hard-top failed to concrete over the basic facts of economics, however. Because where demand finds itself sated, but supply continues to build, over-capacity follows and prices start to fall back. And even before the housing recession became a depression, excess capacity was building fast in the US housing supply. The rate of occupation slipped from 87.5% to 86.4% between 2005 and 2007, while the total number of units crept higher to 128.2 million on the Census Bureau’s latest data.

Trying to stall or reverse this cold fact will clearly take more money — and more stupidity — than even the Bush administration could throw at the task. Such as, say, via fascism or hyper-inflation. Put a floor below prices, beneath which it’s illegal to sell; or allow house prices (if not the S&P too) to slide only in real inflation-adjusted terms, printing money to inflate the cost of living while nominal realty prices hold steady.

That would allow the slide in real asset values to continue, even as nominal prices stay flat or fall. Because short of socializing all houses and so taking their value to zero — a trick tried to sad effect across Eastern Europe c.1917 to 1991 — this tinkering and tweaking is just fighting a trend that cannot be stopped.

In this credit deflation, where the nominal price of all things is shrinking, that which inflated the most should now shrink the fastest. Both its share of total economic value and its absolute pricing are working to reverse their misallocation over the last decade and more.

And double the inflationary trouble means double deflation once the bubble has burst — as the financial services industry is only just finding out as well.

Source: Hope Now: Pretending People Can Keep Their Homes

The answer is critical to understanding the current economic depression.

This is a chart of the S&P/Case-Shiller Home Price Index.

As you can see, it’s plummeted over the last 18 months or so.

It shows that U.S. house prices have been spanked harder than a disrespectful 5 year old.

And, unfortunately, it shows no sign of bottoming anytime soon.

This makes sense considering the flood of foreclosures hitting the market.

In my parents’ neighborhood in Fort Lauderdale, Florida, homes that were selling for $250,000 during the peak are now going for $70,000 in foreclosure.

Repeat this scenario across the country, and you’ll see that home prices still have further to go.

Making matters worse is the 8.1% U.S. unemployment rate and the fact that nobody can find credit to buy a home with. (Less credit means fewer mortgages.)

As the year drags on and foreclosures keep hammering house prices, this trend will continue to drain cash from homebuilders.

That means homebuilders such Lennar Corporation (NYSE:LEN) should continue to see lower share prices as the year wears on.

We are certainly in a buyer’s market right now and real estate investors have quite a bit of bargaining power these days.

But is this the time to buy or will real estate prices head even lower?

We are seeing millions of foreclosures coming on the market, which is currently driving prices even lower, but this could come to a head in the near term. Many experts think we could see the bottom in real estate prices sometime this year.

My suggestion: Keep your powder dry and get ready to jump into some real estate investments in the next year as long as the right opportunity presents itself.

My wife and I have had a great deal of success investing in real estate over the years. We were fortunate enough to see the writing on the wall and dumped most of our investment properties in 2006 at a net profit.

I attribute our success to a wise man that once told me “You make all your money in real estate the day you buy the property”, basically this means you have to buy the property for much less than it is currently worth.

Now, we are getting ready to jump back in and are looking to add real estate to our investment mix again. Recently we have been spending our weekends driving around looking at distressed properties. We are looking at properties that are bank owned or are being short sold by a homeowner that is upside-down on their mortgage.

The trick is to find nice properties that you can rent out and make a positive income stream. Essentially, you need to be able to receive more rent money than your mortgage payment.

And the most important part: Low Ball… Low Ball… Low Ball…

You need to make an offer 40% to 50% below the current market value. Now, 19 out of 20 people will tell you to go somewhere else. But if one out of 20 accepts your low-ball offer, you will get the deal of the century.

Source: Is it Time to Buy Real Estate Yet?

I don’t think I have to tell you how bad this could be. The market is already on shaky ground, and a week full of disappointing reports could plunge us back below the 7200 level.

With such a full week, I will briefly touch on a few of the more important reports.

Both the ISM Index and ISM Services reports are expected to show a drop for February. With a reading of 34 on the ISM, and 41.3 on the Services, both are indicating further contraction.

On Tuesday, the Pending Home Sales report for January is released, and is expected to show a decline of three percent. I actually expect this report to beat expectations with all the foreclosures and distressed sales in the markets.

The Fed Beige Book comes out Wednesday. While this only gives an overview of labor markets, wages, manufacturing, etc, in each of the Fed regions, it could give an early insight into whether any regions are seeing any sort of turnaround.

January Factory Orders are announced on Thursday, and no real surprise here. The decline is expected to continue, albeit less than the December report. Plain and simple, manufacturing is getting decimated.

The real blow this week could come on Friday when the Non-Farm Payroll report for February is announced. Expectations are for a loss of 615k jobs. If this is an accurate reading, that means that in the first two months of the year, the economy will have shed over 1.2 million jobs. That means in the first two months of the year, we will have lost half the amount of jobs the country lost all of last year.

Source: Employment Data Could End A Scary Week Of Reports

Freddie and Fannie are huge government-chartered mortgage lenders. In 18th century France, speculators bet on the riches of Louisiana, through the government-chartered Louisiana Company. In the 19th century, they wagered their money on the riches of India, through the government-chartered Eastn India Company. And in the 20th century, they gambled on rising housing prices through Fannie and Freddie.

The immediate problem is that the mortgage lenders are running out of money. They need to raise $75 billion. A few years ago, that would have been no problem.

Everybody was ready to put money into America’s go-go, securitized housing market. But then, housing went.

Yesterday’s news tells us that housing prices are falling in 23 out of 25 U.S. metropolitan areas. That, according to Case/Shiller. Foreclosures are still rising at a faster and faster pace. Etc. Etc.

(We’re sparing you the details…we don’t want to upset you too much, dear investor.)

So now, Freddie and Fannie have a problem. They need to raise money – a lot of it. And now it has become “very difficult,” say the experts, to raise that kind of dough. Investors are slowly putting two and three together. The pair of mortgage lenders needs more cash. Their industry is in full flight. Their capital is disappearing.

Their collateral gets marked down every month: “Hey, maybe we should sell the stock!” The result of these deliberations was a bad day on Wall Street for the twins, bringing total losses into the billions for remaining stockholders, who were too slow or too dull to sell their shares.

And for the faithful and/or delirious masses who continue to cling to their Fannie and Freddie shares, the bad news has not yet abated. The giant mortgage lenders must still raise even more capital to cover their mounting piles of defaulting mortgage debts. Freddie and Fannie still need to raise money…lots more money. And if a report leaked from Bridgewater Associates turns out to be correct, so will a lot of other businesses…and governments. Bridgewater’s confidential memo – which got out to the Swiss press and then made its way to Ambrose Evans-Pritchard at The Telegraph in London – says that losses from the credit crunch could go as high as $1.6 trillion…four times as high as official estimates from the IMF.

And it only gets worse…

One trillion, six hundred billion dollars is a lot of money. If Bridgewater is right, the whole financial sector will be gutted. You’ll remember, dear investor, after manufacturing pulled out of America, the financial industry was left. And retail. Housing. Services. And not much else. The center of economic power shifted from Detroit and Trenton – where they made things – to Manhattan, where they financed them. Mothers ceased wanting their babies to grow up to be CEO of General Motors; they wanted them to go to Wall Street. That’s where the real money was. Finance was the key not only to huge profits itself, but also to the growth of the retail and housing sectors. People bought durable goods and consumer goods on credit. No credit; no purchases. No purchases; no consumer economy.

Well, now GM has lost 75% of its value…and the financial industry is not far behind.

Well, Bridgewater goes on to say that a $1.6 trillion loss in the financial industry will mean a loss of $12 trillion in credit to the economy as a whole. When the lenders don’t have capital, they can’t lend it out. Typically, they lend $10 for every dollar of capital. So if a dollar of capital is wiped off their balance sheets, as much as $10 of credit is erased from the economy.

Here in Europe, we’re used to high prices. One billion? Heck, we spend that much on lunch. But $12 trillion begins to sound like real money. And $12 trillion taken out of the U.S. consumer economy begins to sound like the Great Depression. Like Japan, 1990-2006…only worse. Collapsing asset prices. Rising unemployment. Bankruptcies. Defaults.

Of course, no central bank or government will go into that good night without a fight. The Fed will cut rates…and lower reserve requirements…and probably intervene directly in markets. Banks will be effectively nationalized…The federal government will increase borrowing and spending to try to offset the money disappearing from the markets and the economy.

What about the foreigners? What about Sovereign Wealth Funds? They’ve got a lot of money. Couldn’t they help recapitalize the credit system? Alas, the SWFs have only $3 trillion currently. And the foreigners? Our guess is that when they realize what is happening they will be desperate to get rid of dollars and U.S. paper of all sorts.

Instead, they’ll want real resources, factories, brands, concrete and land. And they will have a great opportunity. As asset prices fall, they will be able to buy more valuable properties in America at bargain prices. Already, Abu Dhabi bought the Empire State Building. A Belgian brewery, run by Brazilians, is buying Budweiser.
More to come…

How’s our “Trade of the Decade” doing? Eight years ago we suggested you sell stocks and buy gold. The bull market on Wall Street was over, we thought. A bull market in gold was just beginning.

As far as we can tell, we were right.

The S&P is down about 20% from its high…which puts U.S. stocks barely lower than they were in 2000. But adjusted for inflation, the loss has been spectacular. Remember, oil has gone from around $10 a barrel to around $140 a barrel. Everything else has gone up too. Even by official CPI numbers, the year 2000 buck is worth only about 80 cents. And the dollar against the euro is down about 40%.

Real bear markets typically last 10-15 years. This one has another few years to go. These should be the most interesting ones. Commentators are already looking for a bottom in the stock market. They may have to wait a long time.

An ounce of gold would buy the whole Dow in 1926…again in the 1930s…and once again in 1980. If gold stays where it is, the Dow would have to drop below 1,000 for the gold/Dow ratio to return to one. More likely, the Dow will drop and gold will rise to meet it. In 1999, gold bottomed out at around $260 an ounce. Since then it is up nearly 5 times. The U.S. money supply, however, has gone up 11 times. So, our guess is that there’s plenty of upside left for the stuff they make dental fillings out of. If it were to equal the increase in M3, its price could rise to $2,700 or so.

This is all guesswork, of course. But the Trade of the Decade still looks good to us. Gold and the Dow will probably come together somewhere north of 3,000….

Source: The Woes of Fannie and Freddie