Gold, Greenspan and Real Estate

Brian Hicks

Updated September 13, 2009

Welcome to the Wealth Daily Weekend Edition – our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

Another week, another bear loses his mind. . . and Greenspan can’t keep his mouth shut.

Just what has the bulls jumping for joy, and the bears ready to tear their eyes out this week?

More on that in just a moment. . .

For now, in case you’ve missed any of the recent top stories from Wealth Daily and our companion publications, we’ve included them below.

Canadian Gold Stocks: Five Canadian Gold Companies Increasing Production
Gold World’s Luke Burgess talks about five Canadian gold stocks that are expecting an increase in gold production.

Solar Stocks 2010: "The Worst is Already Over" for Top Solar PV Stocks
Editor Sam Hopkins points out why it’s a danger for your portfolio to only keep a short-sighted view of solar power stocks. . .

Triple-Digit Gains in Less than 2 Months
Ever since taking advantage of our latest oil report, readers have banked gains of 130% in under six weeks. That was just one of several winning Bakken picks. And the best part? They’re not even close to closing the books on this play. Don’t miss out on our next round of profits.

Water Infrastructure Stocks: Flows of Profits Under Your Nose
Energy & Capital Editor Nick Hodge digs through the archives to prove why investing in water infrastructure stocks is always a good idea.

Investing for Retirement: Getting Ready for the Golden Years
Wealth Daily Editor Steve Christ takes a look at investing for retirement and explains why the quality of your golden years depends entirely on you.

Higher Education Bubble: Short these Now
What’s going on in education now is reminiscent of the housing bubble. The same easy credit that over-inflated the prices of homes has over-inflated the value of college education. I talk about opportunity for profit as we near this bubble’s bursting for students, institutions, and lenders alike. . .


The major indices staged quite a rally this week with the Dow racing another 300 points higher in five straight winning sessions.

As the dollar suffered, gold raced well above $1,000 an ounce. The bulls are looking for a close above this psychological barrier to confirm possible moves higher.

Barrick Gold, for one — the world’s biggest pure-play gold miner — is making a huge bet on higher gold prices. The company announced that it will raise as much as $4 billion in a stock issuance, using the money to pay off gold hedges. It’s extremely bullish for gold.

Also making headlines this week. . .

Alan Greenspan: It’s Still Not my Fault

Alan Greenspan is dodging responsibility for the current crisis. . . again.

Apparently, the fault lies with us Americans — not the loose money, ridiculous bailouts, lazy regulators, and huge unsupportable deficits.

In an interview with the BBC, Greenspan said:

They human beings begin to take speculative excesses with the consequences that have dotted the history of the globe basically since the beginning of the 18th and 19th century. It’s human nature: unless somebody can find a way to change human nature we will have another crisis.
They [financial crises] are all different, but they have one fundamental source. That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue.
Sure, the next crisis will be different. . . but the rest of what he said seems somewhat delusional, at least to me.
He seems to forget the reckless amounts of liquidity he pumped in which created the crisis in the first place. When banks have no stake in the outcome of made loans. . . know they can be bailed out. . . know they have access to cheap capital. . . of course we’ll have a bubble.
But Greenspan continues to blame everyone but himself.

The Worst Investment Ever?

There’s a very real possibility that the Chinese Investment Corporation (CIC), a sovereign wealth fund, could invest in commercial real estate, which is down about 35% from the peak.

The kick in the pants: the CIC appears to be eligible to do this under the U.S. sponsored Public-Private Investment Program (PPIP), a program created to rid banks of toxic mortgages by bringing in private investors to buy assets with funding from the U.S. government.

To summarize, we’re going to finance our properties for China with generations of taxes.

Real nice. This should end beautifully.

And Speaking of Real Estate. . .

Not only is the housing disaster far from over, there’s a strong possibility we haven’t see the worst. Remember this chart in an article I wrote this past July about Option ARMs?

This loan idea was simple enough: pay interest on the principal for a set period of time and wait until the housing market appreciated in value. By the time the interest-only period expired, the owner could sell for a profit or simply refinance. But with many of these homes well under water — worth much less than the loans against them — many homeowners will find their mortgages to be unaffordable. Monthly payments can jump by as much as 75%.

  • There are 2.8 million interest-only mortgages, worth a combined $908 billion.

  • Over the next 12 months, $71 billion of them will expire, forcing borrowers to pay much bigger monthly installments toward the value of the principal.

  • $100 billion more will reset the year after that.

  • By mid-year 2011, another $400 billion will follow suit.

But, hey, it’s tough to argue with a 350-point Dow gain on hopes for recovery.

Good Investing,

Ian L. Cooper

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