November 10, 2006

During WW II, the Germans and Japanese both told their respective citizenry that all was well, and the Allies were being soundly defeated. A B-17 every hour was being turned out by Boeing, and thousands of Jeeps were being built every month by Willys. Millions of gals were running trolley cars, building planes, guns, bullets, and doing stuff that had been reserved for men heretofore. Hundreds of millions of war bonds were being sold, and I was collecting newspapers when I was a kid…to help with the war effort. WW II was an all out effort to beat the Germans and Japanese. All the while, while we were sinking their ships, and shooting down their planes, they were regaling their populations with lies, and more lies, which is commonly called 'crap.' (That term comes from the inventor of the toilet whose name was "Crapper.") Why? Because they thought they could turn it around and win. They desperately hoped they could win, and even as the war was being lost, they kept lying to the people. Why do I mention this?

Because the same old thing is going on at this very minute in two of our major industries. The economic war is being lost, but the D.C. Gang, just like the Germans and Japanese in WW II are trying to make it all seem to be OK, wonderful, and that we are on the brink of a new age. Millions of jobs are being 'created,' and the stock market is at all time highs. What more could one ask for? More crap?

If there ever has been an industry which has made the wheels go 'round in the last decade or so, it has been real estate sales, financing, and new construction. Unbelievable economic activity, similar to the NASDAQ of a few years ago perhaps, although I know that rings a bitter bell to many Americans. $5-7 Trillion was lost in that bust. Here's the way it seems to be now, as far as I can see:

A new client does a deal with me in a town called Flagler in Florida. He tells me he has had his home for sale for over a year and only one person has come to see it. There are 5,000 homes for sale in Orlando, Florida. I see the local Coldwell-Banker #1 producer in my town in a restaurant after church Sunday. The conversation goes like this:

"Hi John. How're real estate prices? Gone down much?"

"Oh no Don, still firm, but we have a hell of an inventory, and sales are down 30%."

What does that mean to you? If prices are "firm," the inventory is high and sales are down 30%, to me that means a huge drop in prices, or else everyone is just listing their homes for the fun of it. We visited my son in Madison, Wisconsin on Labor Day weekend. He lives in a $500,000-$700,000 home neighborhood. We walked the neighborhood with the grandkids. No homes for sale. He called me last Friday and told me that there are 'For Sale' signs all over his neighborhood. Another client calls me from California and tells me that several real estate brokers have shut their doors because no one is buying anything, even though it appears as though there are 'for sale' signs everywhere. Homebuilder Centex reports for the last quarter, profits are down 60%. Nationwide, 20% of real estate sales people are leaving the industry, and builders have cut their staffs by 50%. In Key West, there are from 1400 to 1600 homes currently on the marker, with one or two selling every week. Most home builders there are "under water." Have you ever been to Key West? It is tiny, and 1400-1600 homes for sale? Doesn't sound like prosperity and stable prices to me!

On NPR last week, a reporter said that the 'Big Three" auto makers (Ford, GM, and Chrysler) have unbelievable inventories on hand of the 2006 cars, and none are selling. Locally, I check out dealers, and the Jeep, Chrysler, GM truck, Chevy and Ford dealers' lots are chock full of new cars. So many new cars, that there is hardly room to walk around in the lots. I mean FULL. Those dealers are paying interest on those cars and trucks. Not only are dealer lots full of new cars, and the factory lots full, but used car lots are bulging too. Why? It must be because as our government says, there is teensy inflation, and the economy is in great shape! I am so glad to hear it!

Now think about it please, and place the logic caps on your heads, which means forgetting the crap which the D.C. Gang issues every day. If new and used homes and cars aren't selling, and they aren't, how can the economy be in excellent condition? It is said that one out of seven workers in America are directly connected with the auto industry. They may fix, build, sell, advertise, make signs for, finance, or service them, but that's close to 15% of the American work force, isn't it? Then there is the housing industry, and I have heard no statistics, but that has to be at least 20% of the American work force, doesn't it? I mean selling, building, remodeling, fixing, advertising, financing, painting, roofing, or improving homes, is big business…or am I wrong?

Lowes and Home Depot, plus the local hardware stores, real estate brokerages, newspapers, lumber yards, and the whole ball of wax, are totally dependent on real estate selling, buying, and being improved, aren't they? If homes and cars aren't selling, it is just common sense that millions will be unemployed sooner or later. Am I wrong? If so, please e-mail me and correct me. Please tell me that where you live, cars and homes are selling like wildfire, and everything's rosy. Please tell me I am wrong.

One of the best economic writers…with an Irish name… says we are heading for a depression which will make the 'great depression' seem like a Sunday picnic…or words to that effect. He may be correct, and I hope he isn't. We holders of gold and silver will be fine, of course. Why? Because there are certain things which are different now, than during the 'great depression.' During that depression, the dollars were still backed by gold, and the coinage was silver, first of all. This meant that the then D.C. Gang under FDR couldn't print as much as they wanted, although they tried. Then, there were no credit cards, and people couldn't extend their problems longer, like they can now, while accruing huge balances and interest charges. During the great depression, there were few suburbs. People lived in the cities, and commuted to work on trolley, rail and bus lines. Cars weren't too necessary then. In nine years, my parent's 1940 Plymouth had but 30,000 miles on it, and they had a "C" sticker for gas during the war. Millions of well built row houses on tree lined streets with handy access to public transport was the rule then, not today's suburbs, when cars are an absolute must. (The air was clean then also).

People could exist a lot easier during a depression then, than they can now. Today, if a severe depression hits us, with auto and real estate sales crashing, it could be more severe or less so than 80 years ago, I don't know. What I do know though, is that the lies and crap continue, and most are fooled I am afraid. Why will gold and silver holders be O.K.? Because in order to get us out of a depression, if one does come along, and I believe it will, the D.C. Gang has but one recourse, and that is the printing press. If there are millions of homeless, millions of foreclosures, and millions out of work, the governmental aid will be in the form of handouts of printing press dollars. There will be dollars floating out of the heavens from helicopters if Bernanke's words are true. In other words, history will repeat itself, with governments unable to fix the problems they have created, and foisted off on their citizens.

"Oh help us," will be a common pleading. I can think of no one who will be spared. I also can think of no other way to 'help' those in distress than by flooding the land with printing press dollars, which by then, will be losing value pretty quickly. The indication of dollars losing value, is prices going up. This does not mean that real estate will go higher though, because it is already so high that it can go no way but down. Japan has already been though this, and suffered mightily. The Japanese real estate boom-bust cycle took 15 long years to run its course. At the end of 15 years, Japanese real estate was exactly the same price as it was 15 years before. Except millions were ruined, because they had placed their hopes and trust in a real estate bubble, as Americans have been doing for a decade now.

What to do? Hope for the best and protect yourself.


November 10, 2006

Don Stott has been a precious metals dealer since 1977, has written five books, hundreds of columns, and his web site is

Gold is widespread in low concentrations in all igneous rocks.

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