Why Gold Is Falling Again
The VP debate disappoints... Watch out Vancouver, New York, and Miami... Why gold is falling again... Central banks won't stop... A note for our East Coast subscribers...
That wasn't worth staying up for...
Vice presidential candidates Mike Pence and Tim Kaine put on a grating performance in their only scheduled debate of the election season last night. The transcript shows 33 instances when the back-and-forth interruptions degenerated into a "CROSSTALK" mishmash.
Pence, the former Indiana governor, was smooth and polished, though short on accuracy as far as his running mate was concerned... while Senator Kaine's interjections seemed over-rehearsed and petulant.
In short, if you missed it, you didn't miss much...
New signs of trouble for real estate...
Vancouver recently topped the 2016 UBS Global Real Estate Bubble Index. Home prices there have doubled in the past decade, and 90% of homes are now worth more than $1 million.
But those gains could be fleeting...
You see, the main flood of real estate capital was coming from China... And the Wall Street Journal reports that sales involving foreign buyers dropped 90% in August after the city introduced an extra 15% tax on offshore investors.
On Monday, the government added fuel to the fire... Canada's finance minister announced that the country would close a tax loophole that allows non-residents to buy homes and claim a tax exemption when they're sold. As the Canadian Globe and Mail reported...
The new measure would make the exemptions available only to home buyers who are residents at the time of purchase.
The Globe's investigation discovered these cases usually involve a wealthy breadwinner who earns their living in another country, while parking money in Canada, through buying residential properties.
While Vancouver can blame new regulations, similar trends here in the U.S. are more concerning...
According to Bloomberg, sales of New York City condos plunged 20% this quarter. There were also more than 50% more resales on the market at the end of September compared with the low point for listings in late 2013. From the report...
Many sellers have yet to accept that they can no longer name any price, and the disconnect between their expectations and what buyers are willing to pay is contributing to the drop in overall sales...
"We're clearly seeing a slowdown," [Jonathan Miller, president of appraiser Miller Samuel] said. "This era of aspirational pricing is coming to an end. Buyers get the message first."
Our colleague Sean Goldsmith reports that a brand-new building across the street from him in New York City recently started sales at a little less than $4 million... He just got a flyer offering units for rent.
A similar trend is developing in Miami's previously booming market. In July, sales volumes dropped 21% as inventory of available homes on the market surged. As the Miami Herald reported...
Three main factors are conspiring to slow down Miami's real estate market: Not enough affordable housing for locals. A lack of foreclosure inventory available for investors to snap up. And a major drop-off in the number of foreign buyers, who've been burned by the strong dollar.
"When you see a 20% drop, you start thinking not just housing recession but housing depression," said Jack McCabe, a South Florida real estate analyst.
Again, while we believe prices for high-end real estate could fall significantly from here – particularly in the most expensive markets – we don't expect a replay of the last crisis. As we detailed in the June 2 Digest...
The housing crash was fueled by massive amounts of mortgage debt... The financing in this real estate boom was much less aggressive. In Miami, for example, many projects required cash deposits of as much as 60%.
So another all-out collapse in real estate is unlikely. Instead, we could simply see a glut of unowned "zombie" homes for some time.
The gold correction continues...
Yesterday, gold fell 3.3% to $1,270 an ounce, its first dip below $1,300 in more than three months. Gold is now down about 8% since hitting a new multiyear high in August.
Silver – gold's more volatile cousin – fell 5.8% to $17.71 ounce. It's now down about 14% from its recent highs.
The latest declines followed a number of "hawkish" headlines from central banks this week.
First, several Fed officials have been talking up a rate hike again...
On Monday, Federal Reserve Bank of Cleveland President Loretta Mester said she expects the case for an interest-rate increase would be "compelling" at the Fed's next meeting in November.
The next day, Federal Reserve Bank of Richmond President Jeffrey Lacker – a longtime "hawk," or advocate of tighter monetary policy – said the Fed was "close enough" to its target of full employment and 2% inflation, and should begin raising rates now. He said short-term rates are currently "extremely low," and said they should be 1.5% or higher.
Meanwhile, a Tuesday report citing unnamed European Central Bank ("ECB") officials said the bank is planning to slow down, or "taper," its quantitative-easing ("QE") bond-buying program.
The program – which is currently set to end in March – has been buying 80 billion euros' worth of bonds each month. The report said the ECB could reduce these purchases in steps of 10 billion euros a month well in advance of this deadline. From the Bloomberg report...
An informal consensus has built among policy makers in the past month that ECB asset buying will have to be tapered once a decision is taken to end the program, the eurozone officials said, asking not to be identified because their deliberations are confidential. They didn't exclude that QE could still be extended past the current end-date of March 2017 at the full pace of 80 billion euros ($90 billion) a month.
The Governing Council, which is holding an interim meeting on Tuesday before members go to the International Monetary Fund in Washington, has just four policy-setting sessions left until the currently scheduled expiry of QE. Since September 8, when officials kept their stimulus package unchanged and left the question unresolved of whether bond purchases will be extended, investors have been left guessing on when and how the program will end.
In short, if this report is correct and the ECB intends to wind down QE before it officially ends in March, it would need to start almost immediately.
Both of these potential events – a Fed rate hike and ECB tapering – are widely seen as a "tightening" of central banks' loose monetary policies. And this is considered a bearish sign for precious metals.
But we think folks predicting an end to the gold bull market are missing a few critical points...
The "big picture" for precious metals hasn't changed...
First, the Fed is talking about raising short-term rates just another 0.25 percentage points. Even if it follows through, rates would still be historically low. And don't forget... the Fed's first 0.25 percentage point increase last December did absolutely nothing to derail the historic gold and silver rally earlier this year.
Second, it's possible the ECB will extend its QE program. ECB President Mario Draghi has said QE will run until March "or beyond, if necessary" until inflation rises to the bank's target of 2%. That hasn't happened... The ECB still predicts inflation will rise to just 1.6% through 2018.
Third, and most important, the developed world is facing a debt crisis like we've never seen before. As Porter explained it in his "Metropolitan Plan" Digest series earlier this year...
A tremendous amount of credit was created out of thin air around the world. You can measure it in plenty of ways: total debt to GDP, the size of financial earnings as a percentage of GDP, debt service as a percentage of household income. I could bury you in numbers... but they all mean the same thing.
For an entire generation, most people in the world's major, wealthiest economies consumed far more than they produced, resulting in a debt bubble of mind-boggling, epic proportions.
This process of unlimited credit creation is hitting the wall of economic reality. Wages haven't grown. Productivity hasn't grown as fast. And various economic tricks to extend even more credit – like increasing international trade, manipulating currencies, and printing money – are running out of steam. Thus, this massive, global bubble is beginning to deflate.
This means central banks are certain to fail... Each dose of stimulus is creating a smaller and smaller effect. Eventually – no matter what they do – the bubble will pop.
But it also means they're virtually certain to continue easing until the bitter end...To do otherwise would only hasten the crisis they've been fighting for years to delay.
Central banks may eventually abandon QE or even negative rates. These policies are clearly not working as intended, and have distorted markets and crushed banks in the process. But to believe central banks will simply give up is naive.
Governments have always preferred to inflate away their debt problems rather than face them head on. That's unlikely to change anytime soon.
Rumors suggest "helicopter money" or another form of direct money-printing may be next, but this much is clear: Precious metals are likely headed much, much higher before it all ends.
Of course, none of this means gold and silver can't fall further in the short term.
No bull market goes straight up forever. As former Stansberry Research Editor-in-Chief Brian Hunt likes to say, markets are like sprinters. They can't run flat-out all the time. They need to take a "breather" from time to time.
Pullbacks and corrections are natural and necessary parts of every bull market. They allow sentiment to reset and they set the stage for the next leg up.
Gold and silver soared over the first half of the year with only minor pullbacks. They were overdue for meaningful corrections.
As we've mentioned several times this year, if the recent pullback is keeping you up at night, it likely means you have far too much of your portfolio in these investments. Consider reducing your allocations to a more manageable size.
On the other hand, if you've followed our advice regarding proper position sizing and trailing stop losses, you can sit tight. We remain long-term bullish and expect prices to move much, much higher in the coming months and years.
Are you prepared for Hurricane Matthew?
Finally, a quick note for our subscribers on the southern Atlantic seaboard.
By now, you've likely heard that Hurricane Matthew is headed your way. The storm is predicted to make landfall in eastern Florida sometime Friday morning, before passing through Georgia and the Carolinas.
If you live along the storm's path, we urge you to take a few moments to review your preparedness plan tonight...
Do you have a plan in case the power goes out for a week or more? What would you do if you lost access to fresh food or running water for days on end? Does your family have an evacuation plan?
If not, you can quickly get up to speed on everything you need to know with our colleague Dr. David "Doc" Eifrig's book, The Doctor's Protocol Field Manual. It's a simple, step-by-step guide to prepare for and survive virtually any crisis situation. Get yours here. It could literally save your life.
New 52-week highs (as of 10/4/16): none.
Another busy day in the mailbag... More fantastic reader feedback for subscribers Steve and Marcia G... two subscribers disagree about the latest essay from P.J. O'Rourke... and a question about Porter's new Stansberry's Big Trade service. We love to hear from you at feedback@stansberryresearch.com.
"Marcia, your words sadden me because they encapsulate the heart of what is wrong with your country and mine – entitlement. You seem to think it is somebody else's duty to hand you a golden ticket to life. But that is not what most successful people think. They know that it is their and only their responsibility to improve their life. You will only get richer by saving more of your money and investing it wisely.
"You can do this by honestly looking at your spending and cutting back on some of the luxuries you don't need and putting the money aside. Nearly everybody has some luxuries they don't need if you honestly undertake this assessment. You can also get extra work to boost your savings. Finally you can follow the great advice Stansberry Research gives in many low-cost publications, and also for free through DailyWealth, Growth Stock Wire, etc.
"I didn't get a $1 million portfolio by following hot tips from Stansberry, but by saving and investing 30-40% of my earnings over around 20 years, achieving annual returns of around 9%. I don't have an iPhone, satellite or cable TV, expensive clothes, a new car, or a large house – if I did have all these I probably wouldn't have much money and the peace of mind that brings. I will never be as rich as some because I don't have, for example, Porter's drive and abilities, but that is okay. I don't begrudge him that because he has worked hard, taken risks and on top of that has given so much good advice back.
"Marcia, if you carry on in life with the attitude you have it is likely that by retirement age you will still be poor and will be bitter that the politicians haven't given you the retirement pension benefits you believe you are entitled to. If instead you accept that your financial position is your responsibility and nobody else's and take appropriate actions you are capable of funding your own retirement. I am 95% certain that you won't and will continue to blame Porter for pricing some of the premium investment letters at a higher price. I hope I am wrong." – Paid-up subscriber Mark C.
"Regarding [subscriber] Steve's comment... I too felt this way a couple years ago. Cancelled out of [Stansberry Flex] because I thought that my bank roll was too small to take advantage of all the opportunities. A year later, I paid the fee to be a lifetime member and have never regretted it. Two things, I knew that I always would be reading the research and trading accordingly. That was not going to change in my life. Second, I discovered how to allocate what I did have, thereby taking what advantages I could." – Paid-up subscriber Tim B.
"PJ, I desperately wanted to vote Libertarian this year, but won't because the Libertarian 'powers that be' nominated a slate that doesn't know the difference between Libertarian and Libertine." – Paid-up subscriber Ed A.
"What would be your response, if someone asked you – out of the blue – 'What do you think of uh lepo?' which is, I'm sure, about the way the doubtless democratic questioner posed the question to Gary Johnson. 'What is uh lepo?' he answered, as I think I would have, also, at least until I had a chance to think about it. It was likely posed in just such a manner to make him look dumb." – Paid-up subscriber Chuck Burton
"Is there any chance to release the 'Dirty Thirty' before mid-November, 6 weeks from now, in case we have a serious market correction in the meantime? Any day this could happen, dangerous times?" – Paid-up subscriber Robert K.
Brill comment: As Porter mentioned last week, folks who subscribe to Stansberry's Big Trade now (along with our Stansberry Alliance members and other lifetime subscribers who have selected the service) will receive The Dirty Thirty this Friday, October 7. And as we build out our research on these companies, they'll continue to receive new research each week until the service officially launches in November.
If you'd also like to be among the first to receive this research, simply sign up right here.
Regards,
Justin Brill
Baltimore, Maryland
October 5, 2016