Wednesday, June 10, 2009

Is this a Bull Trap

I met with an estate agent today to look at a few properties. He was very quick to tell me about the rise in UK property prices for the past four months (check Chart if you don't believe him....)

Rather than rehash the same old stuff this article explores if this is a bear trap and also considers the inflation debate. The rise may be a bit of both.

I would just like to explore the dream world that is the Irish property market. The more mature UK market tanked 20% in 17 months to €163,000 (£147,746) before starting to climb. This is a more densely populated country with a real shortage of quality housing and strict but unambiguous, compared to Ireland planning laws.

Take the average Irish House price, it climbs to €311,000 and over the past 26 months has drifted slowly down 20% still 50% higher than UK property prices. Last November in our webpage we put a case that €123,375 was fair value.

Fair play to the Irish Government they have created the “soft landing” they predicted in the property market. With all their intervention and now with the monster that is NAMA it looks like it is going to be the long slow grind lower. But we will get there.

One is just being like a protective parent pointing out the benefits of Government butting out and allowing a natural correction. In the end of the day “the people want leadership” and politicians love doing stuff, anything that increases their perceived importance. Meanwhile poor old moaning Paddy will have to experience being raped twice along the way (that is once by buying an overpriced property and continuing to pay for it and then by bailing out the few that are creating and working the system).

I think I will stay renting for a while.

Monday, June 1, 2009

Compare gold in the 1970s to the 2000s

Gold multiplied 5 times from 1970 to 1975 $35 - $185.
Gold multiplied 4 times from 2001 to 2008 $256 - $1011.

From 1975 – 1976 there was a 50% retracement bring the price down to $103.50.
In 2008 gold corrected 44% of the 2000 to 2007 move, low $680.

From 1976 to 1980 gold multiplied nearly 7 times from $103.50 to a peak of $710 This parabolic move happened very quickly once the 1975 high was taken out and prices doubled in 1979.

So the question is how high can gold go? If it were to follow the late 1970s panic, prices could quickly go to between $3500 and $4000.

What I thinks is most bullish now about gold is the shallowness of the corrections. As mentioned above the 2008 correction was just 44% and again the recent correction Feb. to April was again just a 44% correction of what we will now label wave 1 of Three. If we are now in a wave 3 of 3 this is the most impulsive wave. Mybest count now is that the correction is over and gold is on its way to making new highs and possibly the parabolic move that many were predicting the last time it hit $1000.

Gold is a fear play and not an inflation hedge as many suggest. If this were so it would not have dropped from $710 in 1980 to $254 in 2001 while the buying power of the dollar halved.

A melt down in the bonds market may be the catalyst for this fear play.