Real Estate recovery? 5 reasons you are delusional.

As an auctioneer specializing in real estate, I see a plethora of circumstances and indicators that conflict with the reported information. Lately, our industry has experienced a shortage of interest in our offerings. Less bidders equates to lower prices realized.


In conversation with other real estate auctioneers, observation of results and from direct experience at our own auctions, it is obvious that there are still serious challenges ahead. The next time you see one of those up beat housing reports on the MSM propaganda outlets, I want you to consider these 5 facts about the American real estate situation.

#1) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report in January 2005. So can you please explain again how the U.S. real estate market is getting better?

#2) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period. That was a record high and up from 9.1 percent a year ago. Do you think that is an indication that the U.S. housing market is recovering?

#3) Existing home sales in the United States jumped 7.6 percent in April. That is the good news. The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming. Also, this so called incentive was effective only upon the lowest price point sector of the market. An $8,000 1st time buyer & $6,500 reseller credit isn’t going to have much influence above the $250,000 sale price mark. If one needed the credit to qualify for the mortgage, could they really afford the house? So now that there is no more tax credit for home buyers, what will that do to home sales?

#4) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. In fact, that was almost twice the level of a year earlier. Does that look like a good trend to you?

#5) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?
There are many other signs that point southward and these are but the most obvious 5. Many small realty companies are dropping their franchise relationships and going it alone. A great deal of rank & file licensees have been forced to leave the business. Many agencies have the “Career Night” signs out, trolling for fresh meat, assuming the old adage that every new licensee has at least 1 listing in them.

From our vantage point as auctioneers, we are seeing an overall liquidity crisis. Our sellers can not afford to carry the property they own, nor can they usually afford to necessary expenses required to properly market their property. Ready, willing and able bidders on the other hand are in short supply. A few bidders, smelling the blood in the water are stepping up but they are doing so with extremely low offers. Due to the liquidity crisis on the buyer side of the market, those bidders are not being sufficiently challenged to the point of truly competitive bidding often resulting in protracted negotiations. In essence, this is a protracted way of saying: Prices are in the tank because everybody’s broke.

This situation obviously reflects a true market value that is very hard for sellers to accept.

The facts often are.

Omar P Bounds III
The Bounds Auction Company

Another Perfect Storm or just Shorting?

“Capitulation fever has swept global markets on triple fears of faltering recovery in the US, Chinese credit curbs and Europe's intractable escalating debt crisis.”
Is what we are seeing a correction, a manipulation, investor capitulation or - all three or a short selling consolidation?

4 Points to Ponder

• Financial Reforms Are Just 'Cosmetic'

• Market Selloff Isn't Over: Pros

• Germany to Curb Naked Short Sales

• Market Meltdown Still a Mystery

The “Faux” financial reform being hailed as a victory for Obama is really a commitment to business as usual by the “White shoe boys” of Goldman Sacks et al. In its essence, this bill makes the Federal Reserve a true monopoly, ignores Freddy Mac and Fannie May’s problems, ignores the meltdown of American banks, the FDIC insolvency, & doesn’t restore Glass ~ Segal. What it does is assure a continuous bailout. Wall Street will be backed by the Federal Reserve and its printing press.

“Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens”, noted economist Nouriel Roubini told CNBC.
As the market slides into correction territory, Roubini said weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for investors in the months ahead.

"There are some parts of the global economy that are now at the risk of a double-dip recession," said Roubini, head of Roubini Global Economics. "From here on I see things getting worse."Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash and other safe havens. Roubini said investors also can use options to hedge against future market risk that he said is sure to come as conditions weaken in the US, Japan, China and through much of Europe.

This was easily checked by the fact that gold slid in harmony with the Dow. While this doesn’t equate to traditional thinking, this can mean only two things; either Dow sellers were not moving to hard assets or gold was being shorted. I think the later.

"There is that risk because the problems on the macro level are first in the euro zone. Then in China there is evidence of economic slowdown...Japan is in trouble and US economic growth is going to slow down," he said. "There is also regulatory risk because we don't know how financial reform is going to occur."

"Apart from cash I would invest in short-term government bonds of countries that don't have a serious debt problem, countries like Germany and maybe Canada, a few other advanced economies that from a fiscal point of view are sounder than the weaker economies," he said. These are also countries who are taking on issues like naked short selling.

Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". The transaction generally remains open until the shares are acquired by the seller, or the seller's broker, allowing the trade to be settled. Naked short selling can be used to fraudulently manipulate the price of securities by driving their price down, and its use in this way is illegal as is its trading sister, front running. Both are ways for a trader to profit from his investor’s losses.

Most stock market investors know little about flash trading, black box trading or nano second trading. Top trading houses, bankers, well financed foreign day traders and the like have been using high level electronic trading systems that can trade at the nanosecond level. On eBay, we call this use of trading/bidding software as sniping and its users as Snipers.

The recent sudden meltdown of the Dow was clearly a Sniper event. One large trader armed with a nanosecond trading capacity could easily set in motion a series of trades that would have not only set off the run, but profited from it by buying back at the same speed. Illegal? No. Controllable? Maybe, but at what price?

Omar P Bounds III
The Bounds Auction Company

Still A Time for Gold?

The frightening financial gyrations unleashed by the unrest in Greece, and compounded by the mysterious kinks of electronic stock markets, have quickly reintroduced naked fear into the hearts of investors. Not surprisingly, while these concerns throw into question the safety of just about every asset class, gold and silver are beckoning once again as a means to help protect purchasing power.


We are now in the early stages of what I believe will be a global sovereign debt crisis. With Greece, Portugal and Spain, we are seeing the results in what might be considered the “subprime” nations struggling with overly burdensome debt payments. However, just like in the mortgage crisis, many “prime” nations, like the United States and Great Britain suffer from the same disease. It is just that for these countries it will take a bit longer before the symptoms materialize.

The bottom line is that many nations, including the United States, have simply borrowed more than their citizens can realistically repay.

For many such countries, default may be the only way out. The only question is how to do it. Will governments simply refuse to pay, or will they pretend to pay by printing money? I believe either option would be very bullish for gold and silver. If nations default, gold and silver prices should rise, if they inflate, they should soar.

Today the collective governments of the European Union, who had been following a more responsible policy than the United States, decided to capitulate. With their massive trillion dollar bailout package to any euro zone country that needs help financing their debt, the Europeans have decided to follow the path blazoned by the Federal Reserve. All debt problems, on both sides of the Atlantic, will now be monetized with a printing press.

While gold sold off on the bailout news, there is no question in my mind that the development is extremely bullish for gold. Germany has caved and the inflationists have prevailed. The moral hazard of the bailout will mean bigger deficits in more euro zone countries. Eventually even Germany itself will succumb and join the party. To defend the euro and sterilize their bond purchases the ECB will have to sell dollars. But to whom? The U.S. is certainly not buying.

If Europe, like America, becomes a net foreign borrower, the industrialized West must expect emerging markets to pick up the tab for both America and Europe! After all not every nation can ride the debt wagon; someone has to pull the cart. This will mean that China in particular will have to buy even more foreign exchange to prevent a collapse of both the euro and the dollar. This may push them to the breaking point much sooner than many like to think.

Last Thursday as the Dow Jones plunged 1,000 points, gold surged $35 to just under $1,200 per ounce. Yes, gold and silver may already be “hot”, but I believe there are still great quantities of kindling now lying around which could fuel a continuing fire.

I do not think we should wait for the sovereign default disease to spread. I do not think that it is too late to buy physical gold and silver. Once more people comprehend the magnitude of the problem, I believe prices may go higher than they are today.

We are at the dollar/gold high water mark at this writing.

 As for your IRA. Most people own dollars in their IRAs along with equity based mutual funds. These are both poor long term investments in consideration of the above. I believe the next recession will be worse due to this debt hangover. The world will run out of trees if Bernanke thinks he can print his way out of the next round.

The problem with moving an IRA fund to gold has always been the “holding” issue. One may not actually “hold” or use those funds designated as tax deferred. It must be held by an intermediary. Until just recently, this has limited ones ability to rollover an IRA to gold as only stocks of gold producing companies have fit that requirement. For some time, these stocks had not been stellar performers as the net cost to actually mine gold had been exceeded by it trading value. Much like many natural gas and shale oil investments, they only paid off when the price of the commodity itself was expanding. Now, with more money on the table from investors and more expansion in spot price, these gold based equities are attractive and are receiving lots of attention from IRA investors. But, these are gold “related” or gold based” but not gold backed or let alone gold. They are equities in higher than average risk ventures.

Samuel Clemens wrote that a gold mine was “a liar standing next to a hole in the ground”. He also recommended that when the next gold rush comes along, invest in shovels. Both great words of wisdom.

Next came the ETF’s (Exchange Traded Funds) or so called venture funds with are nothing more than mutual funds investing in commodities rather than equities. Many of these ETF’s are built on a combination of gold mining stocks, gold investment ventures & gold holding trusts. These have been very lucrative over their short history, but like all “cooperative” funds, raise some strong questions. Who’s calling the shots? Where are the hard assets? What are the assets? And, much more importantly, as they are simply taking your money and buying gold based or actual gold with that money, do they hold enough actual hard assets to cover their investors when a run comes? While I like ETF’s based on a commodity or even an entire regiaonal stregety, like a Brazilain ETF, I balk at these all glitter and maybe no gold venture funds.

Both of these avenues of gold investment are oft time NOT actually here in the lower 48 or even Alaska. Also, these vehicles are largely not investing in actual refined gold in hand out of the ground. A mining stock is investing in a future production or even a futures sale to another company and most ETF’s only hold actual gold in trust as hedge on their more speculative activities.

Also, other than actually in hand, gold is more often an offshore investment. Most gold stocks and gold ETF’s are based on an offshore mining group. Most gold mines are not in the lower 48.

Most recently, the opportunity to purchase gold, physical, out of the ground refined bullion, and have it held for you in trust is now being offered by a few mints around the globe. In the past, this was a service open only to the very wealthy. One that I do business with is the Perth Mint of Australia. OK, so the gold isn’t “in hand”, but for IRA use, it can’t be anyway. It’s in real, out of the ground gold rather than a piece of paper. It’s safe, in that no one can take it, it’s in their vault. I can sell it back to the mint at any time at current spot value. I am charged a small storage fee annually. I can also fly to Perth anytime and visit my gold or withdrawal it physically if I wish. Why would I want to? It’s an IRA.

Gold has been the best long term investment over the last decade. Period. One doesn’t need to bury coffee cans full of coins in the back yard to take advantage of this surge in gold and one shouldn’t miss the tax loophole that an IRA affords when investing in gold.

How long will this surge in gold run? Is there a top?
Mor elater - please comment.

Omar P Bounds III


Opinions expressed are those of the writer.

Week of 5/1/2010

Largely because of the sovereign debt crisis, the world’s second most important paper currency — the euro — has lost a massive 16% of its value in just over four months! At that rate, Europeans will effectively see HALF their wealth wiped out in just one year.


But as disturbing as that may be, I count three solid reasons why this great sovereign debt crisis could do even greater damage to the world’s MOST important paper currency to you and I — the dollar.

In Europe, governments are at least STARTING to cut their deficits.

But like four drunken sailors on shore leave, Obama, Geithner, Reid and Pelosi are still spending hundreds of billions of dollars that not only we don’t have ... but that we are BORROWING!

In Europe, the Central Bank is NOT aggressively inflating the money supply.

But like a deranged counterfeiter, Fed Chief Benjamin Bernanke is printing unbacked paper dollars like there’s no tomorrow...

In Europe, the governments and their people are not beholden to China or Japan to finance their follies.

But we ARE! And U.S. Treasury Secretary Timothy Geithner is begging China to effectively devalue the dollar by jacking up the value of the Yuan...

In Europe, this great sovereign debt crisis has already pushed the euro off a cliff — driving it to 14-month record lows in the last week alone.

So I ask you: What will happen to the U.S. dollar — YOURS & MINE — when investors awaken to the fact that our government’s debt load is larger than that of most of these failing European nations?

The answer is clear: The tragedy now taking place in Greece and the rest of Europe is merely a sneak preview of the chaos that this great debt crisis is about to bring to America’s shores.

When you read today’s top news stories, simply substitute “The U.S.” for “Greece” ... “Washington” for “Athens” ... and “the U.S. dollar” for “the euro” ... and you will, in effect, be reading tomorrow’s top news stories today.

Obama, Bernanke, Reid, Pelosi, Geithner, The Clintons, GW Bush, Paulson, Dodd & Barney Frank and others will be remembered as arsonists. And, they keep asking for more matches – and Congress keeps giving them more.

Other minor players who either deserve a firing squad, like the Bonus babies (Fannie Mae’s Franklin Raines and Goldman Sacks’ Blankfein come to mind) are soon forgotten while some who aren’t as culpable, like former Fed Chairs Greenspan & Volker will be pilloried by history, as after all, the winners write history.

BUT – the Greek Tragedy is NOT the driving force of this week’s Drama on Wall St.

Last week I told you that DOW 11,000 was unsustainable. I believed that there COULD be high volatility, but the last two days out paced even my contrarian prognostication… but… what is up with this “bounce”? I understand how so called programmed trading can set off a 1,000 point drop and I know that in such a situation there is oft times a midsession bounce as traders buy in on assets exposed to undervaluing at the valley of such a drop, …. But… as I pointed out last week, the markets were vulnerable to such sudden corrections because there was at that time & still is a huge shortfall in liquidity.

The very signal which forecast this week’s events are exactly the reason that the degree of “rebound” must be questioned. Where did the liquidity to fund such a rapid rebound come from when absence of liquidity was the problem? Who or what is falsely supporting our liquidity?

I leave you to ad 2+2 and get the Fed as the answer.

If you are a player you need to take this into account as you adjust for the next round.

3 three thoughts for the coming week:

1. Gold. Yep… more gold. Even as it flirts with 1,200 an ounce it is still a buy sign. I increased my gold holding by 20% this quarter. Gold stocks are good; some will skyrocket as there will be consolidation in the mining sector by the big winners. Bullion is good, but I don’t like holding hard money too closely. I hold mine offshore. Risky? Less so than under you pillow or in a bank deposit box. I like a 25% of portfolio position in gold at this time. Silver, platinum, palladium, copper are also all reasonable buys if you wish to diversify within metals. Silver is always as a good in hand hedge.

2. Oil & Natural gas. Energy stocks. When BP drops, buy it. Natural gas – buy it. I especially like Canadian gas & hydro trusts. A. they pay dividends, always have – B. they are not demoninated in Euros or US dollars. While the Canadian dollar is nothing to brag about, it is less exposed to sovereign debt than either of its western counterparts.

3. China investments. I do not currently hold any, but I am watching their markets via a broker who specializes in offshore investing. He is an all in bull here while I am less inclined. I can’t point to any sound fact to back this statement, but I believe that the Chinese will have a sharp adjustment (a crash?) sooner than later. Nothing can go as well for as long as their markets have without an adjustment. 6 to 9 months out? Perhaps as big as a 30% sudden slide. They don’t have a strong or broad base of consumer equity. China is a bubble.

It will be the sudden drop in Chinese speculation that will trigger the long predicted run on the dollar. I plan to be ready to buy at the bottom of that adjustment with gold.