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Asset Deflation 9: Metals and Real Estate Closer to Comatose

"We have become ninety-nine percent money mad. The method of living at home modestly and within our income, laying a little by systematically for the proverbial rainy day which is due to come, can almost be listed among the lost arts."
~ George Washington Carver

Real estate deflation continues to drag down all markets. It is an insidious disease that continues to eat away everyone's flesh one ugly blotch at a time. Investors ignore those pesky red spots, hoping they will go away on their own despite the fact there is no known cure. Meanwhile, growing legions of Americans are coming to their senses; they're figuring out that the massive and unwieldy real estate and credit bubbles are unwinding/contracting and they're losing their appetite to borrow, buy and risk. Those pinning their investment hopes on inflation and "The Fed!" are at the mercy of the New Silent Majority -- those concerned consumers, investors and borrowers (and even lenders) who are in ever-greater numbers saying, "No more!"

While setting their money aside.

I feel for real estate owners and those wacky, ever-passionate metals bugs, who desperately hold onto the notion that the Fed is firmly in control of their investments and/or that hyperinflation is the only indicated outcome. They ignore the fact that the Emperor Has No Clothes -- that the homebuilder's index has fallen like a skydiver without a parachute, that interest rates are showing no such trend, that the subprime mess is dangerously infecting mortgage securities markets and hedge funds, that consumer spending is waning and that commodities markets are exhibiting ever-greater signs of weakness. Denial is not just a river in Egypt, as the old saying goes.

The gold and silver cheerleaders are out in full force, beating you about the head and upper torso with their pom-poms and graphs, begging you to stay the course as overwhelming asset deflationary forces hold ever-greater sway. "Bargain" gold and silver is there to be had, we're told, but for some reason investors are passing on this "obvious and remarkable opportunity!" Exactly how low must these commodities go before folks begin to figure out they're throwing good money after bad? Something tells me that we'll soon be finding out.

More importantly, homebuilders continue to get killed in markets all across America, lenders continue to go out of business, the secondary market for goofball loans has quickly gone dry and wacky loans are going the way of leisure suits. Real estate buyers are figuring out that that jig is up, too. The remaining few, pathetic, zero-savings dunderheads buying real estate based on "builder incentives" like kitchen cabinet upgrades, free swimming pools and "six months, no payments!" promotions operate under the assumption that the disease is all just a temporary affliction. The swimming pool incentive is a particularly cruel market irony, for those buyers will surely find themselves underwater in more ways than one by Christmas.

"Buy low, sell high," the great investors will tell you. As asset deflation becomes the dominant investment story for the next several years, those who sell now (at slightly affected levels) will find buying opportunities galore later on. Why lose more in the meantime?

 

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