Ratio of housing to precious metals sentiment

January 6, 2014

San Francisco (Jan 6)   The last time housing market sentiment and precious metals prices lined up this way, we were on the cusp of massive volatility and collapse. Housing had reached the end of its long, great credit-driven rope. At the same time, defaults began to create tremors deep below the house of cards. Silver and gold had recently been pummeled in the same not-for-profit manner that has riddled these markets for more than 40 years in the modern era (and perhaps much longer throughout the history of the monetary metals).

At that time, the market was coming to terms with the reality that markets -- especially ones fueled by credit expansion and massive subsidy -- do not go in one direction forever. Emergency measures were reigniting the same false sense of security and prosperity we are witnessing in the equity market and extending to major metro centers. This is being hailed as the great return by the mainstream media. Despite this, we are on the cusp of yet another wake-up call.

As many will recall, the housing bubble was re-inflated with mark to market accounting changes, the direct bailout of government sponsored entities, and financial intuitions. All of this was to get us back to where we were without correcting any of the imbalances that led to the original fragility. Renters and savers were punished, while the political class cheered the efforts of the monetary masters.

In contrast, gold and silver were deemed bubble each time they ascended from lows celebrated and ridiculed by the mainstream financial press.

Housing and precious metals are once again so far away from each other that they practically rhyme with very recent history.

The last time precious metals fell to such poor sentiment levels the financial system, along with the underlying economy, nearly fell to its knees. Then, like today, there appeared to be enough political wiggle room to let loose with more experimental monetary policy.

To make matters more precarious, the Fed continues to operate under emergency measures, tapering slightly ahead of the next crack up boom.  It is bizarre that history might be repeating itself this soon.

Price Performance

Price performance makes market commentary and analysis; and it is the tail that wags the dog in every market.

News and information travels like the speed of light. Something happens and we turn immediately to a myriad of outlets -- whether from the mainstream news circus or even what most would consider "deeper" via the lonely existence of social media.

Imagine the conversation we need to have in order to explain to an outsider how and why silver prices trade the way they do. It's a monumental task - even for those “inclined” to the market in some way. Each layer of the onion is followed by another layer of complexity.

It's like bicycles, it's an old technology. On the outside, it doesn't look like much has changed. Yet the nuance is endless the deeper you go in.

To the outsider it's just riding a bike. And as with most things, when you are not 'up' on it, you tend to be down on it. This is especially true regarding precious metals.

Most investors don't see the need or associate the need with disaster - like “Mad Max” scenarios. Then they rationalize the avoidance by lamenting the difficulty of storage, security, or lack of a dividend. The fact is that so much of the so called wealth is generated via the growth of the financial system. Additionally, it is supported by promises that cannot be kept and, thus, will be destroyed much faster than anyone can imagine.

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