IS IT TIME TO SELL GOLD AND BUY A HOUSE?

By Chart of the Day

The struggling real estate market remains a concern for investors. For some perspective on home prices, today’s chart presents the median single-family home price divided by the price of one ounce of gold. This results in the home / gold ratio or the cost of the median single-family home in ounces of gold. For example, it currently takes a relatively low 94 ounces of gold to buy the median single-family home. This is dramatically less than the 601 ounces it took back in 2001. When priced in gold, the median single-family home is down 84% from its 2001 peak (to a level last seen in 1980) and remains well within the confines of a six-year accelerated downtrend and continues to close in on its 1980 trough.

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GOLD PRICE IS A MEASURE OF THE DOLLAR’S DEBASEMENT

by Tom McClellan

That headline is nothing new to most people, but you may never have seen such a long term view of gold prices before. This week’s chart looks all the way back to 1792 at the value of gold expressed in dollars per ounce. If we assume that gold’s real value stays constant over time, and that its price is a statement about the value of the dollar, then this chart is a good representation of the debasement of the dollar by virtue of how many more dollars it takes to buy an ounce of gold.

It is called “debasement” because when it happens, ‘de value of ‘de dollar goes down to ‘de basement.

We have been going through a financial crisis since 2007 when the real estate bubble collapsed, and the Fed’s efforts to resuscitate the economy have tripled the price of gold from its early 2007 levels. But the rise in gold prices was going on since 2001, long before anyone ever heard of “quantitative easing”.

Looking at this long term chart also allows us to make a visual comparison of this current round of debasement, and other periods in history when the dollar’s value changed dramatically. The scaling is logarithmic, which means that each increment of vertical chart space represents the same percentage move for prices. Calculating the logarithm of a number means that you are expressing that number as the exponent by which a base number (10 in this case) has to be raised to produce that number. So 2 on the Y-axis equates to $100/oz, 3 equates to $1000/oz, etc.

Being able to see gold prices in this way puts into perspective the modern round of dollar debasement, compared to other events in U.S. history. We might think we have it bad now, with unemployment north of 9%, but that pales in comparison to the estimated 37% unemployment rate in 1933, and also to the economic difficulties during the U.S. Civil War.

When talking about the price of gold, people typically use pricing units of dollars per troy ounce. But that convention is not the only way to look at the comparative value of gold versus the dollar. This next chart flips that relationship upside down, and looks at gold’s price measured in ounces per $100. I could have used ounces per $1, but then there would just be longer decimal numbers in the Y-axis. I did not use logarithmic scaling on this one.

After the founding of the U.S., a hundred dollars would buy you 5.16 ounces of gold. Now, it buys you just 0.05405 ounces. Pushing this line down all the way to the basement is great for owners of gold, but lousy for owners of dollars.

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Is The Market About To Collapse?

by Trader Craig

Or, why I'm not short this market. The first chart below shows the Nasdaq 100 index in 2008 with a vertical line at the point that the waterfall decline began around the first of September 2008. What is clear is that the market had made a lower high over many months and as it rolled over the 5 day, 10 day and 21 day price rates of change were falling and negative.

Moving to the current situation, the next chart shows that the current rebound is only two months away from the most recent high and price rates of change are rising/positive. In particular the 21 day price rate of change is positive and rising. So, even if there were to be another waterfall decline/crash scenario, we are probably weeks to months away from it happening.

So, in the scheme of things where are we? I think the current situation is more like January/February 2008, and a two month plus rally is about to begin. Perhaps there will be a retest of the August low, or perhaps we will just see some backing and filling before the rally gets moving. I'm not suggesting that after the two month rally is over, we will see another crash setup like 2008. Far from it. I think the pattern will be so close that it will make people believe it, but instead we will probably see another 2 year rally. I know that sounds far out to most, but we are just not witnessing the convergence of factors that would lead to a crash at the present time, IMHO.

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Empires in decline ...

 


 

 





 

Foto di Gremxul, widemus, monkeyfinger, imagination factory e .wintermintgreen.

Deutsche Bank CEO says "It's Obvious Many Banks Will Not Survive if Forced to Value Sovereign Debt at Market Prices

by Mike Shedlock

Josef Ackermann, CEO of Deutsche Bank admitted the obvious today with statements recognizing that many organizations will fail at mark-to-market pricing. To show you the Fantasyland world these bankers live in, Ackermann also believes European banks are now much better capitalized and less dependent on short-term financing.

Courtesy of Google Translate please consider Many banks will not survive if forced to value sovereign debt at market prices

The chairman of Deutsche Bank, Josef Ackermann, today highlighted another obstacle to resolving the debt crisis that crosses the euro zone.

"It is obvious that many organizations will not survive in the event of having to reassess their portfolios of sovereign debt at market prices," Ackerman said in his speech at a banking conference held in Frankfurt.

These comments came after the controversy arose Christine Lagarde, managing director of IMF, which has called for an urgent recapitalization of European banking. According to the institution, the shortage could reach 200,000 million euros, resulting from exposure to sovereign debt.

Ackerman believes that the turmoil facing the financial sector is reminiscent of the crisis suffered in 2008 after the collapse of Lehman Brothers, but also believes that European banks are now much better capitalized and less dependent on short-term financing term.

However, the president of Germany's biggest bank predicted a long period of difficulties for entities to still "have not provided convincing answers to the crisis," while the prospects for revenue growth are "limited to some extent ".

Somehow we are supposed to believe banks do not need to raise capital, even though banks cannot survive mark-to-market pricing, and even though a very biased head of the IMF states that European banks need to raise capital.

Only in the fantasyland world where there are no sovereign debt defaults can banks remotely be considered adequately capitalized. The stress-free tests came to the same conclusion as Ackermann by the same ridiculous measure (assuming no losses on sovereign debt).

Europe rejects IMF call for more bank capital

Reuters reports Europe rejects IMF call for more bank capital

European politicians on Thursday rejected an International Monetary Fund call for banks to raise up to 200 billion euros ($290 billion) in new capital, adding to fears that policymakers may be underestimating the severity of the debt crisis.

IMF chief Christine Lagarde's call on Saturday for mandatory capitalization of European banks to prevent a world recession has reignited a debate over whether they have raised sufficient capital to withstand a severe downturn.

The IMF, the International Accounting Standards Board (IASB) and bank analysts have voiced concerns about a capital shortfall, while European regulators, politicians and banking associations argue that banks have a sufficient cushion to cope with market turbulence and worries over sovereign debt after several rounds of capital raising across the continent.

A European source told Reuters on Wednesday that the IMF had estimated European banks could face a capital shortfall of 200 billion euros, a figure rejected by European bankers and policymakers.

The IMF figure is much higher than European Union estimates of banks' capital needs following stress tests in July which showed banks needed to raise 2.5 billion euros ($3.6 billion), less than had been expected before the tests.

DAX Down 30% from Year's High, Bank Stocks Hammered Again

Bloomberg reports German Stocks Drop to Two-Year Low as Deutsche Bank, Commerzbank Decline

German stocks retreated to their lowest level since August 2009 after German Chancellor Angela Merkel’s party suffered its fifth election loss this year and European services and manufacturing growth weakened in August.

Deutsche Bank AG (DBK) fell to its lowest price since March 2009 as the lender is among 17 sued by the U.S. for $196 billion.

The benchmark DAX Index (DAX) slumped 5.3 percent to 5,246.18 at the 5:30 p.m. close in Frankfurt, its third straight decline. The gauge has retreated 30 percent from this year’s high on May 2 as reports in Europe and the U.S. spurred concern that the economic recovery is stalling. The drop has left the DAX trading at 8 times the estimated earnings of its companies, the lowest valuation since Bloomberg began collecting the data in 2006. The broader HDAX Index declined 5.2 percent today.

Deutsche Bank, Germany’s biggest bank, plummeted 8.9 percent to 23.72 euros, its lowest price in more than two years, as it was among 17 banks to be sued by the U.S. to recoup money spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac.

The Frankfurt-based lender declined to comment on a Financial Times report that the U.K. Serious Fraud Office is examining Deutsche Bank’s packaged securities deals for signs of wrongdoing. The SFO hasn’t started an official investigation and is at the stage of gathering evidence, the FT said.

US and European Banks Had Ample Opportunity to Recapitalize

US and European banks had ample opportunity to recapitalize in late 2009 and all of 2010 in the wake of global reflation tactics by Fed chairman Ben Bernanke and central bankers in general. They failed to do so.

It's crystal clear to everyone but bankers and brain-dead analysts that banks need to recapitalize, except now it will happen after share prices have collapsed.

Bank of America is now trading at $7.25 (and barring a miracle it will be lower tomorrow). It could have and should have raised capital when shares were close to $20 in April 2010. Of course Bank of America should never have purchased Countrywide Financial or Merrill Lynch in the first place, so one has to wonder what the hell these CEOs do for the enormous salary and benefits compensation they receive.

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Joe Weisenthal

Right at 11:30 AM (ET) when Europe closed, an ominous headline came out.

RTRS-GERMAN DEVELOPMENT BANK KFW CHIEF SCHROEDER- SITUATION OF BANKING INDUSTRY IS "MUCH MORE DRAMATIC THAN IN 2008

We haven't seen more context yet. That's from FT Alphaville's Neil Hume.

Needless to say, the funding situation in Europe is very bad.

Along the same themes, earlier FT's Tracy Alloway published chart from Deutsche Bank, showing that through 2011, there's been no net new issuance of bank debt in Europe.

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