But before we get into the “Reset,” real estate, what the Fed’s digital dollar might mean, and other things, Lynette Zang starts with a question about how my three-year-around-the-world trip changed the way I look at things. Interesting question because it did change the way I look at things.
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Your commentary was flawless, but Lynette seemed to be so fixated on gold, that I’m not sure she appreciated what you had to say about real estate. As you stated, US real estate, long term, has been a hedge against inflation.
Here’s how much the median home value in the U.S. has changed between 1940 and 2018:
1940: $2,938
1950: $7,354
1960: $11,900
1970: $17,000
1980: $47,200
1990: $79,100
2000: $119,600
2010: $219,500
2018 $312,400
Notice what happened to real estate prices after the U.S. went off of what was still left of the Gold Standard. The RE crash of 2008 turned out to be just a temporary setback, of the long run, for real estate price inflation.
Gold have always been a safe place. By the way many countries were buying big amount of gold ( reasons for that they must have ).
In this time you can’t put all the eggs in one basket.
If prices of real state go down enough is a good investment.
It is all about timing.
‘US real estate, long term, has been a hedge against inflation’
TRUE!
But RE appreciated on average about 2% per year before 1990 and started zooming and melting UP on the back of DEBT(Credit) financed recovery by Fed, since 2000!
Will this melt UP turn around dive into MELT DOWN in the coming years, considering the drastic slow down in global commerce and our National economy, bred and fed through ‘DEBT’ financed Consumption? Think of 25% of unemployment at the trough of coming DOWN cycle after a record expansion of the Economy since ’09 ( again built on insane credit expansion – before the arrival of Covid 19!
I don’t want be DOOMER & GLOOMER but one cannot the REALITY developing on the ground! I hope I am wrong!
(Been in the mkt since 1982!)
Historically speaking, real estate prices go up as the currency’s value goes down. The only time I can recall that not happening was during the German hyperinflation of 1923, and that was because the German Government put a cap on rents. That destroyed cap rate, the price of real property, and the German landlords who owned that property. However, the Germans, who were forward thinking enough to buy real estate in England or France during that period, made bank! In the years following the Weimar hyperinflation, the German economy kicked ass (until the late 1920s.
‘Historically speaking, real estate prices go up as the currency’s value goes down’
Not when the value of RE is way above 2+ std deviation from the historic prices, over the last 100+ years.
Not when the median home price is WAY above the median take home pay!
Not, in the near future where thepossibility increasing loss of jobs with declining global commerce and US Economy facing recession, after nearly record expansion since ’09
Not in the ‘new’ normal post Covid 19, global/US Economy
‘Value’ is what you get when you pay the ‘Price’ – Warren Buffett
If the price paid for the value of asset is way above historic normal, ‘reversal to the mean’ make them more or less equal, over time.
I agree. I was a doom and gloom spreader ref RE for many years. I worked and travelled in Europe for several years and came back with a new view on RE in general. Now i own 3 homes that pay for themselves plus extra bank. Depending on where you live its obviously situation specific. I have done very well over the past 10 years or so. And i believe it will continue so i will hold and pass onto kids as they may be forced to rent like most other European countries.
@Got it
Past is not the preview of the future!
May be this time is different, right?
All the best for you and yours!
The most expensive words in the English language: “this time it’s different”. Followed by “The past is no predictor of the future”.
People living in coastal areas might not find RE as a hedge against inflation. Work from home will have long term implications for SF, LA, NY, etc. But more importantly there’s also the impact of climate change. I am reasonably certain that the future value of RE in certain areas of Miami or just Miami in general to be zero.
After living in Florida for many years I find the hurricane season exhausting. I went through 5 hurricanes in the first 5 years, then none for a long time. I wouldn’t want to go through that in retirement. Fixing up the damage or moving every few years. The process isn’t worth it.
I sympathize. I know someone who moved from Hawaii to Florida for retirement. Let’s just say he’s been regretting it ever since.
New Orleans is another place that should have not been rebuilt. A hurricane bigger than Katrina is a certainty. It’s a question of when.
Pet,
As a FL native, I can testify that the storms are very threatening, even the little two currently forming; having said that, the point for many of us is to be prepared to ”sleep when the wind blows,” or in OW, prepare accordingly. While it is very convenient for many to have AC every minute they want it, in fact it is not a requirement for life in FL ”once ya get used to it.”
Housing and other construction in FL is much much better since Andrew not only pointed out very clearly the lack of rigor in the building codes, but especially the negative effects of the ”piecework” method of construction that began when the rush to build caused by Mr. Carrier’s terrible inventions outstripped the ability of the more responsible builders and the corruption of the code enforcement arm of guv mint.
I will also point to many buildings built in the late 19th and up to the 1970s that have weathered many storms without significant or even any damage. The introduction of the FEMA policies also exacerbated the storm problem as banks were more or less protected from loss from storms, leading to tons of construction where common sense would indicate NOT to build, and nobody did except the fishing community cheap tar shacks meant to blow away and the rich folks who did not need banks.
As far as HI goes, just take a look at the damage from Iniki, that alone should be enough to convince that the storm situation there is exactly the same as FL, plus the awesome addition of the volcanic actions that continue.
Everyplace has its pluses and minuses; that’s life, eh? The real problem in FL is the 500 PER DAY net in migration of people overloading all resources, and continuing, possibly even accelerating now a days.
@rich Stocks have the P/E and P/Sales ration. Houses / Real estate have their own, similar metric, Price to Income ratio. Two questions. In general, where are we on the long term chart for nominal or inflation adjusted real estate prices? Where are we on the chart for Price to Income ratio? If we are at high point on both, which I’m guessing we are, is that where you think you should be putting your money? Now check gold. Where is the price? Answer, just a bit over 2x the 1980 high. Intriguing no? Has anything changed in the last 40 years to justify gold being more than 2x the 1980 price? Chinese, Russian, Latin America wealth? Are they higher or lower? Money printing, global debt?
One final question: Which has the USA govt/Fed been trying to rais and which have they been DESPERATE to lower? Real Estate and gold. Why do they want see gold lower?
The Gold prices are being MANIPULATED unshamedly over the last 25-30 yrs by global Banks ( Deutsche Bank and JP Morgan at behest of Fed!??) with repeated fines but back to business as usual.
Right now approximately 0.5% is allocated precious minerals in an average portfolio compared to 5.0% in mid 80s!
Imagine the impact possible increase in allocation in the coming years, when the Fed continues to devalue the purchasing power, repeatedly, as they have done it since 1913! The value of 1913 $ is less than 13 cents! Nearly 7-10 Trillions maturing treasuries have to be replaced in the next 12 months or so!
“Why do they want to see gold lower” simple, because it’s honest money that can’t be printed into existence and it competes with their fraudulent fiat money system
@RagnarD
“In general, where are we on the long term chart for nominal or inflation adjusted real estate prices? Where are we on the chart for Price to Income ratio?”
Real estate is local. The CAP rate in Manhattan, Kansas is going to be far better than the CAP rate in NYC. Additionally, I was addressing RE as a hedge against inflation. If you are interested in inflation adjusted prices, you should probably be looking at the Case Shiller Home Price Index.
“Now check gold. Where is the price? Answer, just a bit over 2x the 1980 high. Intriguing no? Has anything changed in the last 40 years to justify gold being more than 2x the 1980 price?”
Can’t see how that is more relevant than the price of silver, which was 2.5 X in 1980 than it is today. The price divergence between the 1980 gold and silver prices should indicate to you that they are seriously subject to serious manipulation. On top of that, gold prices are, in actuality, gold derivatives prices. It’s gold futures and ETFs trading that moves gold market prices, and ETFs and futures are derivatives.
“Chinese, Russian, Latin America wealth? Are they higher or lower? Money printing, global debt?”
Are you asking about the wealth of the average citizens or the wealth of the plutocrats?
“One final question: Which has the USA govt/Fed been trying to raise and which have they been DESPERATE to lower? Real Estate and gold. Why do they want see gold lower?”
The Fed is owned by the TBTF banks. In reality, the NYFRB’s Primary Dealers are in charge of selecting and buying the Fed’s assets on the secondary market. They have the Fed purchase the assets that their banks use to collateralize their banks’ loans. Gold is not one of those assets.
@ Rich
Russia, Indian, China, SAmerica, SE Asia, Europe, USA, etc. etal paper wealth was gone up and up and through the roof. Yet what has happened to the dollar price of gold? Has its price gone up to reflect this massive increase in paper assets? No, hardly at all. Why? Lots of reasons. But, when one sees the various bank spewing out currency in order to defend an completely over leveraged system from collapsing, one should NOT be surprised to see gold, which has no counterparty risk, shoot to the moon.
Vs 1980, how many more wealthy players are there on the global stage who will be competing to grab some of the very limited supply of gold? Think 1980: China, USSR, SAmerica, SE Asia, India. Most of these places were destitute, now they are brimming with wealth. Yet, the supply of gold has only grown 2-3% per year since then. And as another has commented here already, gold represents 0.5% of assets in the average fund. What happens when there is a scramble to raise that to 5%?
I’m not selling my first ounce for <$10,000. They second I'll offer at $20,000. And there are many where I came from.
@Rich “real estate is local” doesn’t answer the question, “where is this local real estate on the historic chart.” Each locality has a historic chart, no? Are interest rates local? I think not. All real estate has been effected by the 40 year drop in interest rates:
Manhattan, NY to Manhattan, KS.
Manipulation? You think real estate is not a manipulated market?
Gold and silver are definitely manipulated via the futures markets, for sure. And that will end at some point. When folks demand physical delivery and the market can’t produce physical, that will be the end of that.
Old headline:
“BIS to Reclassify Gold as a Tier #1 Asset on March 31, 2019!”
Think it would be interesting for Wolf and Grant Williams to have a conversation. I see Williams has been doing his own podcast series since leaving Real Vision. Still think he’s one of the best interviewers on financial subjects around today.
fyi
There is a recent online interview with Grant (45 min) at ZH, within the last few days!
This crap scares the hell out of me….no sure way to protect your self unless you’re already fairly well off.
Very diversified (dominantly numerous GLOBAl ETFS paying dividens in various sectors/subsectors) portfolio with UNCORRELATED assets (including Bear position) and of course lots of cash on the side!
(Been in the mkt since ’82)
Just buy tech stocks and RE. No sarcasm here. Worked our well for me. I still work but dont have to. The best thing is im 42 and i have zero stress. Its almost like the less i care about work the more i get promoted and paid. Actually increase my performance.
@Got it
My other half owns a couple of rental properties. I know all about it but RE is NOT my cup of tea!
I own REITS and ETFs of REITS of only income producing, most of them outside America. My focus on Tech is limited to Health, cyber security cloud and robotics again mostly through ETFs.
For excitement, I do trade in options ( small portion my portfolio) using leveraged ETFs , index ETFs, both long and short, with hedges. Survived 1987 crash, ’99 mini crash, 2000 and even 2008. I tend to make more during down cycles than up. This is the most surreal mkt of my life time built on NOTHING but debt on debt with leverage.
Covid is just happens to be the pin slowly leaking this, 3rd largest everything bubble of of this century. It will meet the same fate as the other two, just a matter of time. And Covid is a big game changer, still unappreciated by many investors!
No country in human history has prospered by spending debt on debt, yet!
To each his/her own
Kudos to Wolf for this excellent interview with a good recap and review of topics posted at this blogsite, in the recent months!
With regard to UBI and also using Digital$ or even even direct ‘cash’ ‘deposit directly’ into citizens’ account(!?) at the Fed, this will be a dynamite blow the the single most industry and the business model of Banking & Insure industry. They even CANNOT consider the Negative rate b/c it will hurt the banks ( 12 or 15 global banks who virtually own the FED! So this is a NO starter at this point!
The RESET for Commercial RE including the Malls etc started even before the Covid-19 but getting a lot worse now! High rise offices and Apt/condo complexes are going get the next round!
With re Fed planning to ignite inflation or hyper inflation ( to reduce the value of debt forre-payment), DEBt spending hs reduced the VELOCITY of money since 2000!
Besides the continuing loss of JOBS in the coming months, please don’t forgetthat there has been NO significant WAGE growth since 90s! How are the Johnny/Jane pay check handle this coming inflation? Before inflation who is going to address the homongous record DEBTs in the private/Public sector?
BTW: Paying the debt reduces money supply leading to DEFLATION
There are a lot CATCH-22s in the Fed’s future planning!
The RESET of Covid 10 started in January of this year but not quite obvious for many until mid March!
Mr. Charles H Smith (oftwominds) prophetically pointed this on blog titled ‘DON”t BE TOO SURE” on January 23rd of ’20 and a put possible expected developments in this year and or next. with on the economy and the Mkts on Feb2,’20!
CHANCE favor the one, who is prepared!
Great info in that podcast, Wolf. I’m 98% liquid right now (learned my painful lesson in 2008). My understanding is real wages have been relatively flat for 5 decades in the US.
I continue to marvel at how min wage was $3.35/hr when I started my first ‘on the clock’ job around 1982-83 and is only $7.50/hr today.
Why people continue to vote for to further enrich huge corporations and millionaires/billionaires is a real mystery to me. Psychological masochism perhaps?
They allow these social wedge issues (guns, god, gays, kicking immigrants in the teeth) to cloud their judgement.
There is just no alternative to the Dollar as a reserve currency at the moment.
Dollar backed by US Banking System, largest and strongest system in the World. As crappy as it is, there is nothing else out there…
But there is only so much room in the dollar.
No doubt that’s the reason why the US Dollar has been steadily losing value.
The Dollar has lost a TON of purchasing power.
@DG
There is no alternative to $USD as a currency/unit of account. There is VERY MUCH an alternative as a reserve… GOLD. Yeah, it’s not a currency, it is money itself.
In theory, what is the limitation to holding your reserve cash in Gold or Silver vs $USD? Very little, especially if folks start demanding it.
What happens to the value of the $USD when folks get scared/lose faith in the $USD and stampede out of it and into gold and silver?
Should anyone really be “saving” in a paper currency in times of negative real interest rates?
Looks like Wolf is sitting on a pile of cash right now.
I wouldn’t mind to be sitting on pile of cash right now.
As long as the $ denom liabilities continue to dwarf $ in circulation… im not worried about the currency… im more worried about debt, counterparty and solvency risk…
I am glad to see Wolf talking to LZ. I have not listened to it yet, but will surely. So….
Cash or Gold?
Gold, physical or miners? Balance of the two. I have silver due to GSR still ATH.
Definitely Gold but when to go “ whole hog” I’m thinking a big pull back if and when the markets take a big hit but longer term I’m certainly going with gold and silver over the dollar
The FEDs actions make it a no brainer
Wolf, you didn’t feel like pushing back in the moment on her use of the term “Plandemic”?
Why would he It sure looks like that is exactly what it is
Surely does look as though that is a real possibility F,,, only question is by whom???
Ask yourself who benefits and the answer is corporate America. This is the final takeover public for private assets, and revenue streams. Simply put CA is better at capturing tax revenue as profits, and metering service. If the prison system in America is too large, they stop funding. Turning government into a Milo Minderbinder profit scheme isn’t as nefarious as it sounds. Corporate debt servicing expenses are probably lower. Private contractors probably do most of the work on terrorism. There are no government vaccines for Covid. It was government that dropped the ball on 9/11, and made a mess of Iraq. Government didn’t order enough testing, or equipment. So ‘they need to do better, and now is their moment.
The descent into conspiracy starts… oh my. The biggest frauds facing humanity are in plain view but ignored when they advantage personal situations. Adaption is an excruciatingly slow process innit.
Would alternative energy and vehicles be if there wasn’t fiat money to push it?
Could coal and oil be good investments once the ponzi scheme of the feds does tumble?
In one minute she complains about fiat money, in the other she says there has to be “universal basic income”! Where is that going to come from? How many of those receiving will ever go back to work?
No, the fed has no clue, they are trying to micromanage based on emotion and politics and they have never been useful.
Wolf nailed it!
Privileged is exactly what I’ve been dealing with. 23:41
Been dealing with all sides to this.
I have my uniform on, boots on the battle field witnessing the casualties of the class war right before my eyes while the privileged cry to me from the mountain tops – why Tenants are not paying while their business are open as if doors open equates to an automatic transfer of cash flow?
As if consumers are walking around – look the doors are open lets throw some money in the door of that business.
oh wait what you mean problems in the economy “my portfolio” looks fine to me??
Or how about this response that I was given!
That’s why I don’t rely on my business or my real estate I might sell and put the money in the market its performed better than the real estate. Just think positive man you’re being too negative!
(April) My childhood buddy owns small printer business long term friend asks me what I think – mentioned to him you are in the sticks people will run to by your house sell grab the money go rent and wait this out. You crazy the houses will keep going up I’m not selling. Seen him few weeks ago – He hasn’t paid his mortgage in since April??
(June)What you mean extend and pretend what you mean forbearance?
Real estate is booming out here everything is being sold!
(September) can you believe that house is still on the market?
(October) Can you believe the houses are not appraising the banks are requiring higher down payments?
(December) To be continued….
There’s a quote for you, similar to Whistler’s exchange with Oscar Wilde;
“..the talking heads of Wall Street say there’s not enough inventory (in the housing market),” Ms Zang states.
“There will be,” quips Wolf.