Wednesday, June 9, 2010

Illusions in a World of Housing Gems

Illusions vs. Reality in a World of Gems

LONDON — In Guy de Maupassant’s 1884 story, “The Necklace,” a poor woman married to a lowly clerk borrows an elaborate diamond necklace for a fancy ball. She is devastated at the end of the night to realize that it has vanished. For a decade, she and her husband toil to pay off the enormous debt that they incur in buying a suitable replacement, only to discover that the necklace was paste — an artful but worthless glass used in imitation jewelry.

The themes that concerned Maupassant — reality, illusion and the murky borderland between them — have preoccupied jewelers ever since they and their clients first discovered that glass could be a convincing substitute for genuine gemstones. In ancient Rome, Pliny called it mendacio vitri, or “lying glass.” Little wonder that, throughout history, any discussion of gems has necessitated a mention of the potential for duplicity and deception.

There's been a bull market in "lying glass" for over a decade. Who knows when it will end.

Take today's stock market. It was up almost all day and then right there at the close... poof.

Perhaps the housing market is the better example of what decades of debt can do though.

August 6, 2006
Look at the benefits of buying a home in a cooling market

That's not to say that a well-priced property won't move quickly in this environment, he said, but buyers need to educate themselves so that they can recognize a housing gem when they see it.

This post inspired by GawainsGhost.


EconomicDisconnect said...

Well I do a long, thought out thought experiment comment and you post a new thread!

GawainsGhost said...

A housing gem, oh that's rich. You should have seen the pictures of the house I rekeyed last weekend. Talk about a disaster. I suppose you could call it a lying house.

EconomicDisconnect said...

Houses dont lie, they only do not tell the whole truth.

Stagflationary Mark said...

GYSC & GawainsGhost,

Rumor has it that many houses lie empty!


Thank you! Thank you very much!


EconomicDisconnect said...

From last thread by Mark:
"Although I'm deflationary, I could definitely hoard something from the periodic table. Assuming the price is right, oxygen looks pretty good to me. There have certainly been plenty of "gasps" on Wall Street lately! ;)"
I do believe in Spaceballs O2 was a real commodity!

Or in "Total Recall":
"Cohagen, give them the AIR!!!"


"We will not know what the answer is until we know."

Indeed. It's pretty clear what my thoughts on gold are these days and what your thoughts are on gold.

I think gold is overpriced. However, there are lots of ways I could be wrong."

I think gold COULD be underpriced to a huge degree (5X, 10X) using my own private proprietary methodology or overpiced by a factor of 2X, not a bad risk:reward ratio in my mind. Thats why we have horse races, yes? I think folks buying AAPL when it is worth more than MSFT or almost XOM are fiing retarded, but what do I care what they do?

Is it Friday yet??

EconomicDisconnect said...

Last note on all the controversy because I think we all are pretty much done; a well reasoned take on gold that I think would give both the bugs and the bears pause in their thinking:

Read it!

Stagflationary Mark said...


That's a pretty reasoned take on it. I'd agree.

I see two points I'd differ with it, but they are both subjective.

I don't see gold as money, but can understand why some would.

I wouldn't own gold if it was made illegal, but I could understand why some would.

Stagflationary Mark said...

Here's today's sign of the apocalypse!

Comment moderation of posts older than 3 days has caught yet another victim.

Hello! Joseph Begay . payday loans

Mr. Begay, if indeed that is your real name, I'm terribly sorry.

Your "payday loans" link is...


EconomicDisconnect said...

Unreal the SPAM just keeps coming!

Your first point I disagree with extreme prejudice; the base of the "money" pyramid has always been gold.

Your second point, illegal is more fun!

Stagflationary Mark said...


Cattle was money before gold was money. So which is it? Cattle or gold? :)

As for the illegal activities, it's all fun and games until someone gets an *bleep* poked out in prison while reaching for the soap.

I can't believe I just said that. I have no shame. ;)

Stagflationary Mark said...

Oh crap!

Toilet Paper Bubble!

According to RISI, an industry research provider, industrywide tissue production is up 13%, thanks to improvements in demand, after plunging in late 2008 and early 2009. Factory-capacity-utilization rates are also moving higher again.

Overall, bath tissue has been the fastest-growing paper sector in North America for the past 15 years, a distinction that looks set to continue.

Don't they realize that all that extra demand was just me stocking up for the financial crisis?!

I'm just joking of course. Mostly.

EconomicDisconnect said...

Sometimes I cannot figure out if you are serious or kidding, are you kidding? When apes left the forests for the savanna and had cattle, yeah cattle was the first currency. Geez.

Stagflationary Mark said...

I'm being totally serious. You said that gold was always money and that's not true.

When Christopher Columbus came to America he was sailing a boat made of wood that used wind power and had no refrigeration. It was fairly barbaric when you think about it. The trip was funded with gold. These days he could simply fly across the ocean in a plane built of aluminum (a modern miracle) and powered by jet fuel (also a modern miracle). They won't accept gold at the airport though.

Gold is no longer money just like cattle are no longer money.

I'm sorry. That's just what I believe. You are free to believe otherwise of course.

GawainsGhost said...

Here's an interesting analysis of the current situation, by Rick Bookstaber.

Money Quote: "Oh, and what about gold? Sometimes it responds, sometimes it doesn't. There is nothing intrinsic about gold that makes it part of the crisis/no-crisis equation. If it is a flavor-of-the-month market, it will respond positively, otherwise, it will simply act like a commodity, responding to economics."

That's pretty much how I look at it as well. People say that gold is money because it acts like money. Well, I received an email the other day that advertized "Buy all the gold you want for $1."

That is not the way money acts. It is however the way a flavor of the month acts, or how any other commodity acts in response to economics, which is largely governed by human behavior.

By the way, I abandoned the Darwinian narrative years ago and no longer believe the story about apes leaving trees and moving to savannas. What separates humans from all other apes is the ability to swim, due to a rotary shoulder blade. I'm a firm believer in the aquatic ape theory.

It's interesting that the appearance of humans coincides with the appearance of grasses, which occured following the melting of the glaciers after the last ice age. One cannot have agriculture without grasses, as all grains are grasses. I think humans evolved in an alleuvian flood plane, probably between the Tigres and Euphraides. They flourished and spread by following rivers and coastlines, before moving inland.

Long before farming and domesticated animals, humans were fishermen. Thus the first form of money, after sex, was most likely sea shells. I mean, you could probably buy a pretty hot mermaid for 50 sand dollars back in the day.

Stagflationary Mark said...


That was a good link.

"Correlations rise because people don’t care much about the subtle characteristics of one instrument versus another. Everything is either high risk or low risk, high liquidity or low liquidity. I think of the market during a crisis like in high energy physics, where matter melds into a homogeneous plasma when the heat gets turned up."

I often joke of pre-panicking. I did just that in 2004. I was looking for low risk and was indifferent about liquidity. I think I am now pretty much permanently in this state. For example, hoarded toilet paper is about as illiquid as it gets but it is also extremely low risk.

Perhaps this is our current global economy.

Savings Gluts and Spending Sluts

Xui Li sells sneakers on our sea's shores
The sneakers she sells are sweet sexy shoes
So if she sells sexy sneakers for sixty-six bucks
Then the sixty-six we spend creates our spending sluts!

I'm not even going to admit how long THAT took to think up!

Stagflationary Mark said...


You'll want to read Mish today. Enjoy! :)

Bernanke said "gold" in public.

AllanF said...

I posted this on the gold thread, but seeing as all the gold talk is on this thread, re-posting here:

I suspect everyone here will see it regardless [this was true, Mark even posted the link above before seeing my comment], but Mish has a post on Bernanke stating what Mark's been saying Gold acting differently from every other commodity.

Implied by Bernanke (and Mark) is that gold will eventually stop acting differently once the uncertainty premium (ironically being caused by the Fed themselves) is gone. Countered by Mish is that gold is doing exactly as expected amid endless talk and action of fiat monetization (ie quantitative easing) around the world.

The thing is central bankers are expected to talk like politicians: stay on message no matter how big the lie. Bernanke can't come out and say he is the source of the world's fiat anxiety and those concerns are completely a) justified -or- b) ridiculous. [Indeed if he did, would anyone believe him. Assuming he did so plausibly there would be a huge market stampede the likes of which would leave 1987 in the dust.] So I'm not sure there's any use to his commenting on gold. He seems to imply the monetization will continue until the commodities Mark cares about show increases. Of course, by the time that happens there might be some serious inflation baked into the cake.

AllanF said...

Thinking about it some more --

As a speculation, I agree with GYSC it is 500% up or 50% down.

As an investment, I agree with Mark it is not money. If we get hyper-inflation of gold, we are going to get hyper-inflation across all commodities/asset classes. In that situation there are cheaper asset classes to be had.

To get hyperinflation people *in power* must stand to benefit. Would the people *in power* in the US stand to benefit from hyperinflation? Half wouldn't get re-elected, the other half would see their entire bond portfolios wiped out.

mab said...

To get hyperinflation people *in power* must stand to benefit. Would the people *in power* in the US stand to benefit from hyperinflation?


Exactly! The people calling the shots have just scored the biggest swindle in history and they're going to actively participate in hyper-inflating away their loot? They're going to trash the most lucrative, risk free, Gov't guaranteed racket in history with hyper-inflation? Hogwash. That line of thinking is idiotic imo.

Preventing deflation preserves the ill gotten gains. Preventing deflation is NOT the same as causing high inflation let alone hyper-inflation.

EconomicDisconnect said...

"To get hyperinflation people *in power* must stand to benefit."
I am not sure this works out, the old german guard was tossed and replaced by you know who after their hyper episode.

I wish I was handy with a graph because on a money added as price support graph values of all kinds of things would contradict Mab's statement:
"Preventing deflation preserves the ill gotten gains. Preventing deflation is NOT the same as causing high inflation..."
Buy in absolute price terms that is correct. Great comments section with plenty of great thinking lines, thanks!

Stagflationary Mark said...


As a speculation, I agree with GYSC it is 500% up or 50% down.

As an investment, I agree with Mark it is not money. If we get hyper-inflation of gold, we are going to get hyper-inflation across all commodities/asset classes. In that situation there are cheaper asset classes to be had.

That is an excellent way to look at it.

There is no way I can grow much richer hoarding toilet paper. It's not going to happen. I shouldn't grow much poorer either though.

There is definitely a way that gold speculators can get richer hoarding gold though. We saw this in the 1970s. There is definitely a way gold speculators can get poorer too though. We saw this in the 1980s and 1990s.

I would argue that if you have the ability to get rich off an investment/speculation then you also have the ability to get poor off an investment/speculation.

This would also be consistent with my belief that there are no "sure things" or "free lunches" in life. The more potential reward you desire, the more risk you'll need to take on.

The following is definitely a form of speculation. It has the potential to make this person much better off or much worse off.

The best part about this run to 22 is....

At 22 Silver will still be cheap and you will not have missed the boat.

Silver should see 25 this year on demand alone, inflation (which they are pretending is not happening) will take us to 30 plus in the next 12 months.

If you think there is no inflation go to the grocery store!

That post got 9 ratings at 5 stars each (on a scale of 1 to 5).

Stagflationary Mark said...


Both mab and I are operating under the mindset that if the government actually needs to prop something up, then it is most likely overpriced.

Many things in this global economy are being propped up these days, many of which are being propped up indirectly.

It's like a "cash for clunkers" system with the entire financial system being thought of as the clunkers! ;)

Stagflationary Mark said...

mab (and all),

Preventing deflation is NOT the same as causing high inflation let alone hyper-inflation.

The ship hit an iceberg and is sinking. The Fed is "bailing" out the water as fast as it can.

The odds of them bailing out SO much water that the ship actually rises out of the water and begins to orbit the earth seem fairly high to me.

AllanF said...

I am not sure this works out, the old german guard was tossed and replaced by you know who after their hyper episode.

My history leaves a little to be desired here, but perhaps the Old German Guard weren't actually in power, with losing the war and all. Perhaps the inflation suited the industrialists that were still in power, with needing to rebuild the country, the military, and pay reparations.

Not sure, just wondering.

AllanF said...

Rather than "still in power" above, please read "newly in power". Should be clearer that way.

EconomicDisconnect said...

AllanF, yeah I think you are right on that one. My histroy is as good as my math which is not pretty!

I do not think I will get "rich" off any investment and I do all I can to make sure I cannot get "poor" if any investment goes poof. Others like to do the All In thing and that is a recipe for disaster, not if but when.

EconomicDisconnect said...

Or my spelling.

Stagflationary Mark said...

I have fantastic news for everyone.

As seen in today's Flow of Funds report...

Our net worth grew $2.04 trillion from 2009 Q1 to 2009 Q2.

It grew $2.67 trillion from 2009 Q2 to 2009 Q3.

It grew $1.01 trillion from 2009 Q3 to 2009 Q4.

It grew $1.06 trillion from 2009 Q4 to 2010 Q1.

At this (declining) rate we'll all be much richer in no time!!

We did that all with just $1.6 trillion of new government total public debt spread out pretty much evenly each quarter. At this (constant) rate we'll all be...

Oh crap, what will we all be again? This was supposed to be a pep talk. Some coach I am.

EconomicDisconnect said...

I'm deflated.

Stagflationary Mark said...


I'm deflated.

We'll pump you up!