Another and Friend Of Another wrote about the changing gold market starting more than ten years ago and ending seven years ago. Many of their predictions came true then, but their boldest predictions are unfolding right now.
I don't believe that anyone knows what the future holds with certainty. Heisenberg's Uncertainty principle applies in life as it does in Quantum Physics. And just like in physics, the future of life is determined by the playing out of various probabilities. So when I appear to be predicting the future I am simply assigning higher probabilities to certain outcomes.
When I look to the future, I am looking to the end of this round. We are going from here to “there”, and it is the “there” that I am focusing on. There are many paths to get us from here to “there”, and in most cases the various paths have very similar probabilities while the final destination has a much higher probability. So by focusing on the endgame, I believe I can predict the outcome of our current crisis with greater certainty than many of the false prophets who are attempting to predict the exact road that will take us “there”. Does this make any sense?
When will we get “there”? In my view it could be as soon as a year from now or as long as four years from now. How will we know we are “there”? For one thing, many of the great questions about this crisis will have been answered. Though things may be very different and, in many cases, bad, things will have settled down for the most part. Stability will begin to reemerge. It will once again feel somewhat safe to invest in stocks and real estate because the bottom of each will have been clearly reached. What will “there” look like? The purpose of this blog is to make some predictions about this. How can we get from here to “there” in one piece? The answer as I see it will be very clear in this blog.
On to some predictions. Some of these will be quite controversial and I welcome the opportunity to defend and explain the rationale behind my statements. So please feel free to comment with your questions, criticisms or links to supporting articles.
First on the value of gold. When we get “there”, I believe that gold will be a world class store of personal wealth unlike anything else. I believe that governments and central banks around the world will welcome the high price of gold because it will bring a newfound stability to the world. I believe the future value of gold will be north of $30,000 per ounce based on the current amount of paper currency in existence. I believe a value north of $50,000 is likely. And I believe that between here and “there” we will see massive creation of new paper money so the future value of gold will likely be much, much higher. If “there” is one year from now, add 30% to 100% to that value. If it is four years from now, who knows.
On the values of other metals like silver and platinum, I believe that they will remain near current levels, with a fairly wide margin of error. If Another and FOA are 100% correct, they may be worth less than they are currently worth. But with the massive printing and scarcity of commodities, I could see them rising in value substantially and then falling in value due to demand destruction or something similar in the final analysis. The bottom line is that these metals do not share with gold the one thing that will make gold shoot to the moon. That is the world class fame as a store of wealth, and the commitment of the biggest players on earth, the central banks of the world. In the final analysis I believe other metals will be mere commodities, while gold will soar as the lone survivor in a world of failed fiat, government created money.
On the value of real estate. This is a tough one, because real estate is caught right in the middle of the fray. I have to keep reminding myself about some key aspects of real estate in my analysis. First is that houses are basically commodities. So as inflation skyrockets, so too should the price of houses. Currently the prices are falling because they just came off a bubble. But ultimately they should bottom out and then rise in the face of inflation. But even though they are essentially commodities, they cannot be shipped overseas and sold in the market which is paying the most for houses. So they are limited to the availability of "local money". On the other hand, wealthy foreigners can and do come over and buy property when it is relatively cheap. We saw this in the 1980's with Japan, and we are currently seeing the Sovereign Wealth Funds of the Middle East snatching up our countries' assets.
Another thing about houses is that we have likely borrowed a lot of the money for all this building of the last few years from foreigners. And through high inflation of the money supply and financial collapses we will likely have a de facto default on those loans in the near future. In other words, China and others have financed all this building of new homes and will never be paid back for their efforts. But they can't take back the homes. They are stuck here. So in that way it would make sense if we saw an influx of foreign money buying up our “fire sale” of home inventories.
So that brings me to my prediction. This is a reprint of a comment I posted a couple days ago on another blog:
Getting from here to there is going to be painful and confusing. But I've been trying to figure out what "there" is going to look like.
For the last two decades the American Dream has been home ownership for everyone. Easy credit made that almost possible. But over the last decade people went from mortgaging 3 years salary to more than twice that amount. They were essentially enslaving themselves for the dream of home ownership.
When we finally get to "there", we'll still have the same homes that are standing now, and we'll have the same amount of people as now. We will also have the same percentage of people willing to enslave their futures in order to live in a nicer house.
The big difference, I think, will be that these same people will be enslaved to landlords rather than to mortgage companies.
There is still a lot of money in the world, and that money is already starting to look at foreclosures as a future investment. Landlording is going to become big business, and the dream of everyone owning their own home is going to be a chapter in the history books.
When money is created in the form of a loan so that someone can buy an oversized house, that money flows through to the builder and out into the world. It is not destroyed by crashing prices, it is already in circulation. And all that money is going to come back in strong hands and the home ownership will be consolidated from the many weak hands to the few strong hands.
It's the same as in the stock market, through consolidation those on margin are shaken out and the strong hands not on margin take control.
I think the "there" will look a lot like here, except most houses will be occupied by renters, not by homeowners, even in the nicer neighborhoods.
A lot of people are thinking that home prices are going to crash so low that everyone will once again be able to own their own home. I don't believe it is going to work out that way. I think we are getting close to the point where we will see wholesale buying of foreclosed homes... in cash!
Well, this feels like a really long blog post. So I'll end it here. On my next post I'll make some predictions about other methods of gold investing like futures, mining stocks and ETF's. Thank you for reading and please come again.