Gold battled the headwinds of a stronger dollar to move higher this morning on mounting concerns over the Euro-zone sovereign debt crisis.

An ounce of gold is up $8.32 this morning to $1,566.69 and silver is up $0.42 to $28.09, lowering the silver/gold ratio to 55.8.

The European Central Bank and finance ministers are telling member states to start preparing for a Greek exit from the euro. The idea now is to prevent a domino effect from triggering more countries to leave.

I’ve seen the markets turn ugly in May before, hence the old Wall Street saying, “Sell in May and go away.” But I’ve never seen this; the whole global economy deflating like a leaky party balloon at 3 am.

To be clear, I don’t think the global economy is going to melt down. Perhaps it’s better to say I don’t think it’s going to melt down much more than it already has. Governments can print virtually unlimited amounts of money, so the idea of a global economic collapse seems unlikely.

Gold prices are still trending with the dollar most days, with today being one of the exceptions. Right now the U.S. is shouldering the world’s cash crisis. We can do that for a while because we have big economic shoulders, but we can’t do it indefinitely. At some point the Federal Reserve will have to pump more cash into our economy.

The first hint of easing by the Fed is going to send precious metals prices on a rocket ride. There is so much cash sloshing around in the world economy that panic-induced gold buying could send prices into new record territory.

We’re just waiting for a trigger to set it off the bulls. Greece leaving the euro might do it, but I think a lot of that bad news has already been priced into the market. A Federal Reserve stimulus announcement would definitely do it, but so far the Fed has been surprisingly resolute in holding the line.

In the meantime we have right now one of those rare opportunities to accumulate gold and silver at a discount. Enjoy it while it lasts, because when it goes we’re going to be looking at today’s prices in the rearview mirror.

Chris Poindexter, Senior Writer, National Gold Group, Inc

In a Housing Showdown on Bloomberg TV, Economist Gary Shilling & Mark Kiesel Go Head-to-Head.

Housing bear Gary Shilling and housing bull Mark Kiesel of PIMCO debated the state of the U.S. housing market on Bloomberg Television’s “Street Smart” with Trish Regan and Adam Johnson.

Shilling said that housing prices will decline 20% this year because “there are 2 million inventories, both visible and shadow inventories, over and above normal working levels”, which is “a tremendous overhang.” He went on to say that “excess inventories are the mortal enemy of prices.”

Kiesel justified his bullish stance on the market, saying that, “all inventories you look at, whether new existing or shadow, they are coming down” and “there is only 144,000 new home sales for sale. That’s at a 49-year low.”

Kiesel on purchasing a home in California and whether he’s having buyer’s remorse:

“No. I will say it is a little chaotic because there are a lot of boxes around. I think after renting for six years, my view is that housing prices have fallen about 35% and the inventories are coming down and banks are starting to lend again gradually. U.S. housing looks very cheap relative to international housing. I feel good about putting some money into housing right now.”

Shilling on why housing prices will decline 20% this year:

“Because of excess inventories. We estimate that there are 2 million inventories, both visible and shadow inventories over and above normal working levels. That is a lot. Back in normal times, we built about a million and a half houses a year, so two and a half million is a tremendous overhang. Excess inventories are the mortal enemy of prices. What may happen here is that now that the robo signing flap is settled and the big banks settled for $25 billion with the various state attorneys general and the federal government, they have been holding off on foreclosures because they had enough bad PR. Now they have settled that, I think they will go back to foreclosures. The National Association of Realtors says that when foreclosed houses are sold, they sell at a discount of 19% to existing houses and that drags everything down when you get a big dumping of these houses on the market. I'm looking for another 20% decline and that is what it would take to bring them back to the long-term averages. They go back to 1890 in terms of median single-family house prices.”

Kiesel on how he factor in those inventory levels:

“Currently, we have 2.5 million homes in existing inventories which is down in the last seven years from 4 million. There is only 144,000 new home sales for sale. That’s at a 49-year low. The existing inventory is at a seven-year low. If you look at the shadow inventory, there were 3.6 million homes that were 90+ days delinquent two years ago. Today, there is only 2.9. All inventories you look at, whether new existing or shadow, they are coming down.”

Shilling’s response:

“They are coming down, but they are still huge…Yeah, they are down, but when you count in the shadow, and particularly this category that the Census Bureau has, which are houses held off the market for other reasons, very descriptive. This includes foreclosed houses that are vacant, but not yet sold. It includes houses that people have listed, but they couldn’t stomach the bids they got so pulled them off the market. You count all of that in and you are still over a working inventory of about 2.5 million. You are still 2 million above that when you count everything in.”

Kiesel on what number he’s tracking:

“What I was quoting was the 90+ day delinquencies. If you add that with the foreclosures, you do get to the 3.9 level. The thing about housing is that it’s very much a regional market. The homes that your viewers and people actually would want to buy, you need to look at the existing inventory that is quality. Go out and look for a house now. There is less quality inventory on the market today than a year ago. That shadow inventory will get absorbed quicker than you think because the implied rental yields is roughly 5%-12% in a lot of markets, so investors will line up. Gary, I respect your work and I read your books and if housing goes down 20%, I will back up the truck and likely PIMCO will, too.”

Shilling’s response:

“That's right. At that point the percentage underwater of mortgages would go from now 23% to our estimate is 40%. The equity of people who have mortgages which has come from almost 50% in the early eighties to 17% would go down to about 7%. Virtually nobody with a mortgage would have any equity. What that would do to consumer spending to say nothing to mortgages and mortgage-backed securities derivatives, that is pretty heavy duty stuff. That is recessionary kinds of things. We think that will happen over the next three-four years, one way or the other.”

Kiesel on whether employment levels are at a stage at which consumers are feeling confident enough to make an investment in buying a home:

“If you look at it, we have added 2 million jobs in the private sector over the last year. Confidence is picking up. The U.S. economy is doing well in numerous states and sectors like energy pipelines, technology, autos, manufacturing. There are many areas in the country where there is a housing shortage. The shadow inventory and the amount of homes underwater, there are 11 million homes but it is concentrated really in three states: Arizona, 61%, Florida, 45%. Yes, there are some weak areas, but the fact is that in certain areas, housing is picking up and prices are going up and so again, it’s very regional.”

Shilling’s response:

“You and I can remember almost a decade ago as this problem was developing and we were on top of it and you were too, that people initially said, the problem was only in subprime mortgages and those are loans that luckily people will never have to meet. Then, they said it is only in Arizona and Florida and Phoenix. Then as it expanded, they said it is bicoastal, don’t worry. Everyone else is safe. Tip O’Neill said that all politics is local and you can say the same thing about real estate. Somehow, the composite, the national numbers are made up of those local pieces. There are a lot of shortages here or the other place. That I think is begging the question, overall, there is still a tremendous excess inventory.”

Kiesel on whether he’ll lower his assumptions about the economy:

“We are looking at basically 1-1.5% real GDP, but you don't necessarily need superfast GDP to get housing to recover. Housing again is down 35%. The inventories are coming down. We are gradually employing more people. Housing relative to other asset classes—equities, bonds—looks attractive.”

Shilling on the New York-area housing market and whether Wall Street money not being what it used to be has affected real estate:

“I think it very much does. If you look at what is happening to the stock markets and related securities in the last month--if this continues, I think we will see a lot of softness in Manhattan and in the Hamptons and other places influenced by that. If you read off the employment verses GDP curve, if you're looking at even 2% real GDP growth, that says that the unemployment rate would chronically rise about 1% point a year.”

Kiesel on the West Coast housing market:

“Housing is very much based on jobs, based on consumer confidence. We were in the subprime capital of the world in parts of Orange County and we can show you houses that are down 50-60%. In my neighborhood, housing prices fell 20-30% from the peak. The economy is not a recession, we are growing, and banks are flush with cash willing to lend gradually and the Fed is set to reflate. The key here is that you want to own a hard asset in a world of very low to negative real interest rates where the Fed is going to print money. You have to own something tangible.”

Kiesel on the opportunity cost of buying a home:

“I think stocks are looking at basically nominal GDP, which is 4% plus dividends of maybe 2, so you are looking at 6. There are rental yields in housing out there above that. Plus, you get the benefit of actually living in the house. From my perspective, I still think that housing beats a lot of asset classes.”

Kiesel on whether PIMCO is looking at housing as an alternative to bonds:

“We own non agency mortgages and those securities benefit from a housing recovery. If Gary is right and we do see housing prices go down 20%, the U.S. will be one of the cheapest housing markets in the world. It is already near one of the cheapest.”

Shilling’s response:

“Actually, it would take a 22% decline in median single-family house prices to bring them back to the long-term trend that Bob Schiller has identified going back to 1890. That has been corrected for CPI, general inflation, and for the tendency for houses to get bigger over time. That would bring them back to the norm. They might seem cheap but there are only where they would have been for over a century.”

End-Transcript

Debate a "Mixed Bag"

1. I do not think the bottom is in. Yet, I doubt another 20% decline is coming nationally. 
2. Some high-priced markets may see huge declines, other areas may have already bottomed.
3. Inventories are down but still high, especially if one counts shadow inventory and pent-up demand for retiring boomers to downsize. 
4. Shadow inventory and changing demographics will suppress prices for a long time. Student debt will suppress housing formation for years to come as well. 
5. Attitudes have changed. Housing is once again considered a place to live, not a retirement savings plan. 
6. Exuberant attitudes reached a multi-decades peak in 2005. Some overshoot to the downside is expected and it will take years for attitudes just to return to normal.
7. I side with Kisel on the idea that "housing beats a lot of asset classes." In relative terms it is certainly possible to envision housing declines of 10% and equity markets declining 33% or more. While not a prediction, that seems like a reasonable possibility so forget about relative terms and concentrate on the absolute. 
8. In absolute terms, housing is only a very good buy in areas at or near bottom, and then only of one has a stable job. 
9.  Looking ahead, where are home prices going even after they bottom? My answer is nowhere fast. Yet nowhere fast, is likely to beat equities. 
10. Gold is a very nice hedge here against many possibilities.

One thing is for sure, when attitudes change to "it's better to rent" (and they have), a bottom is reasonably close.

This is how I currently see things.




For further discussion, please see New American Dream is Renting; Reflections on Renting Houses, Cars, Books, Clothes; Will Rentership Fuel the Next Boom? What About Home Prices?

Mike "Mish" Shedlock

It’s another one of those days, just like yesterday, when the dollar is surging against the euro and deflating commodity prices.

Gold is down $7.28 to $1,560.24 and silver is off $0.28 to $27.84, leaving the silver/gold ratio at 56, also where it was yesterday.

The Greek contagion continues to weigh on the euro, giving strength to the dollar which knocks the legs out from under commodity prices. Besides gold and silver, copper, platinum, palladium, and crude oil are all lower.

The losses are not limited to commodities, with equity markets in Europe and Asia taking a pounding after lower but continued losses yesterday in US equity markets.

There’s blood everywhere you look in the investment world today, which makes me wonder why several prominent gold analysts are openly speculating about prices going as high as $3,000 an ounce.

Maybe I’m getting cynical in my old age but I’m just not seeing prices going that high anytime soon. As long as the dollar continues to make such big gains on the euro, that’s going to be a headwind for metals prices. It’s tough to complain about a surging dollar as a precious metals investor as your regular buys bring in a few more coins.

Down the road the picture changes quite a bit as this situation cannot last for a number of reasons. Greece is not going to be on its deathbed indefinitely; the Greek economy is either going to improve or Athens will start printing drachmas again and leave the euro. Something is going to happen and I mean this summer.

There’s also the fact that the Federal Reserve will, at some point, stop this recent run on the dollar. It’s either currency manipulation or watch manufacturing jobs head overseas in numbers we haven’t seen since the early 80s. I’m betting on continued currency manipulation.

If you agree with my assessment, then that makes right now a great time to accumulate metals. Every time the dollar breathes fire it melts commodity prices a little more. Take advantage of that strong currency to hedge against the coming currency dilution that seems nearly unavoidable at this point.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Gold was down in line with gains on the dollar in overnight trading, with commodities generally tracking lower across the board.

old is down $17.90 to $1,576.48 and silver is off $0.41 to $28.15, raising the silver/gold ratio to 56. Joining gold and silver lower are platinum, palladium, crude oil and copper.

A couple of you correctly pointed out that my defense of silver failed to mention that the lower price support for silver is $22 an ounce on a technical basis. That is true, but I seldom pay attention to technical indicators when making purchases because they tend to be lagging indicators.

Trying to time any commodity in the current market is like trying to catch the proverbial falling knife. You can either make small, regular purchases on the way down, like I recommend, or wait until prices recover off the bottom and lose a couple points at the margin. How you play any market is really up to your personal preferences as an investor.

When it comes to silver I’d also add that, since it is an industrial metal, it is sensitive to inventory considerations in the production pipeline and right now those are bearish indicators. Manufacturing in China has slowed to the point that Chinese manufacturers are turning away shipments of some commodity deliveries, with many, literally, piling up on the docks.

That slow down will back up in the supply chain for every industrial metal, including silver. Gold prices are not as sensitive to industrial demand since the yellow metal has few industrial uses. Its historical demand as a currency hedge means that gold and manufacturing are seldom in sync.

It’s a little less complicated for me. I buy when prices are on the way down because I know history is on my side. Sooner or later precious metals will adjust to a relative value against paper currency. On a long enough time horizon, global currency policies are on my side.

There’s a feeling amongst some analysts that we’re in a long-term bear adjustment for precious metals, including gold and silver. I’m not sure about that, either. There’s a limit to how far the Fed can let the dollar gain against other currencies before layoff notices become common again. The Federal Reserve is not going to let that happen.

But my main reason for buying now is that no one ever made any money buying when the rest of the market was confident and prices were rising. To me the best time to buy is when the investment is out of favor with the rest of the market.

Like anything in investing, you pays your money and takes your chances. Chris Poindexter, Senior Writer, National Gold Group, Inc

After a tumultuous week commodities are relatively quiet this morning. Gold and silver are basically flat, platinum, palladium, copper and crude oil are all higher.

Gold is down $1.22 to $1,593.04 and silver is off $0.22 to $28.51, leaving the silver/gold ratio at 55.9.

Enjoy the calm while it lasts as events could easily conspire to bring a fresh round of volatility into trading as news comes that hedge funds and other big players are betting big against the euro in anticipation of Greece switching back to the drachma.

Also impacting precious metals are projections that show lower than expected inflation which could spur the Federal Reserve to consider additional stimulus.

The news would be bullish for equities markets which have taken a pounding so far in May and would acknowledge that record low long-term interest rates have not helped people refinance home mortgages or done much to spur home buying. It just doesn’t seem to sink in at the Federal Reserve that people might not want to buy homes because home ownership is no longer a centerpiece of the American dream and 7.4 percent of mortgages nationwide are already delinquent. That means almost 10 percent of the housing market is off the table as far as the recovery is concerned.

So between the situation in Europe, which has not gone away, and the potential for the Fed to fire up the printing presses on this side of the Atlantic there is plenty of fuel for the fires of volatility; all we’re waiting for is a spark to set it off.

In the meantime gold prices are still below $1,600, near the low point of 2011 prices. With the silver/gold ratio at quarterly highs and some vendors selling 10 oz silver bars at $0.99 over spot, it might be good to consider putting some of your regular purchases into silver.

Adding a little silver to your precious metals purchases gives you an upside hedge as well since silver is a metal with industrial uses. The shiny metal has been in the shadows lately due to the decline in film production, but there is a quiet explosion of new uses for silver quietly taking place in industrial processes such as solar panels, new reflective coatings on energy efficient windows and medical applications that capitalize on silver’s unique antibacterial properties.

Either way you go the future for precious metals looks brighter than either equities or the housing market right now.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Last week was a little better for gold, which ended the week higher. That means gold once again outperformed the Dow Jones for the week. We’ll find out next week whether the rally will last or if the bump is investors closing out positions or covering shorts.

With the amount of uncertainty in the markets, it’s my opinion the price rally is going to hold and in hindsight the prices in May will turn out to be an excellent buying opportunity.

Even though Greece got a big group hug from the members of the G8, there’s no guarantee they’re going to be able to keep the struggling country in the European Union. The flicker of hope late in the week came from the G8 where leaders at the economic summit opted to favor growth over debt reduction.

Greece and Spain have shown clearly that a country cannot slash its way to prosperity and European leadership in countries like Germany are beginning to see the light. The change in perspective is a significant step in the right direction and it will be interesting to see how overseas markets react on Monday.

The real currency test will be what the U.S. Federal Reserve does in June when Operation Twist comes an end; that’s the Fed’s attempt to lower long-term interest rates. Give them credit, the Fed plan worked; mortgage interest rates are the lowest I can remember.

At some point the Fed will have address the safe haven flow of money to the dollar or risk seeing the manufacturing sector seize up and lose jobs. Bernanke and company will be forced to do something, but whether that is next month or farther down the road is difficult to say.

What we have in the meantime is an excellent entry point for precious metals as it’s hard to miss in this market. Gold is on sale at 2011 prices and the silver/gold ratio closed the week at 55.6, which is as high as we’ve seen all year. That means for the same amount of money you’re getting more silver for your dollar compared to gold.

Continue making your small, regular purchases, only consider splitting part of that usual investment with silver. Just remember to include your shipping and handling charges when calculating your our cost basis. That’s because of the weight involved shipping silver can be slightly more expensive than gold.

Either way enjoy these first days of summer and cash in on great prices for gold and silver. These kinds of market retractions don’t come along every day; enjoy it while you can.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Investors pushed commodities higher as the euro rebounded against the dollar after Germany tells Greece there will be some flexibility in their bailout terms.

Gold is up $14.44 in early trading to $1,589.40 and silver is up $0.38 to $28.47. The silver/gold ratio dropped to 55.8.

Commodities in general are doing well this morning with gold being joined on the upside by platinum, palladium, crude oil and copper.

There’s also evidence that Greek voters really don’t want to leave the euro and the pro-EU parties may win enough of a majority to form a government next month. While Greeks may not like austerity, they like the idea of leaving the European Union even less.

Things are still way too volatile in the commodities market to start singing Zip-a-Dee-Doo-Dah; all the same if you locked in your buy price on gold or silver yesterday you did well.

The bad news isn’t over for Europe, not by a long shot. Even if Greece clings to the euro and Spain, Italy and Portugal manage to avoid default, the European Central Bank is going to be forced into printing billions of new euros. Currency dilution will happen and that’s ultimately bullish for precious metals.

On this side of the Atlantic we have our own problems. If you’re sad about your gold and silver losing money, wait until you open your 401(k) statement next month. The Dow Jones and S&P 500 are both down on the week and May has been an entirely forgettable month so far.

Another troubling trend is that U.S. banks using credit swaps to insure European debt to the tune of a half-trillion dollars. These are similar to the type of derivatives that JP Morgan recently lost $2 billion trading. Swaps are just a way to trade one risk for another, sometimes in a completely unrelated area of the economy.

To add to the volatile mix HP just announced 25,000 job cuts, amounting to 8 percent of its workforce.

Job cut announcements, banks backed by taxpayer money gambling in the derivatives market, we’ve all been to this rodeo before and it doesn’t end well. As Yogi Berra used to say, it’s deja vu all over again.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Despite another surge in strength for the dollar against the euro, metals and crude oil prices are higher this morning.

Gold is up $5.95 in early trading to $1,547.90 and silver is up $0.13 to $27.44, raising the silver/gold ratio to 56.4.

The run on European banks continues today only it’s not just Greek bank customers withdrawing euros, but also customers of Bankia SA in Spain who have pulled out over a billion euros in just under a week.

Between the equity markets, bank runs and a sell off in precious metals, there is a huge amount of cash building up in the financial system and the pockets of everyday people in Greece and Spain.

While I don’t think today’s price support in gold necessarily means that people are using that free cash to buy precious metals, I believe they will at some point. I think it’s likely all this free cash will, at some point soon, translate into a higher demand for physical gold.

I believe the uptick in the gold market is inevitable because, while large financial organizations can move money around to different currencies, like the dollar, the average person on the street can’t do that. Right now there are, literally, billions of euros walking around in people’s pockets.

Institutional investors overseas are betting against the systemic weakness of the euro right now by holding their cash reserves in dollars and Swiss francs. Most people can’t do that and as the euro continues to weaken; the options will be buying gold or watching inflation and dilution eat up the value of those euros.

Another factor to weigh is that a strong dollar is not really a competitive advantage for U.S. businesses. It’s good on one hand because you can buy more with your dollars, but it also means our exports are going to be at a competitive disadvantage in global markets.

The run on dollars already has the Federal Reserve signaling that it will not hesitate to inject more cash in the U.S. economy if things get worse and it’s likely the decision will come shortly after the current bond trading program, called Operation Twist, ends in June. If that happens, gold prices could rebound quickly.

My sense is we’re going to look back on these days as an extraordinary buying opportunity.

Chris Poindexter, Senior Writer, National Gold Group, Inc

European stock markets counted more losses today and the dollar gained more ground on the euro, dragging commodity prices down.

Gold is down $8.54 to $1,534.40 and silver is off $0.33 to $27.33, pushing the silver/gold ratio to a recent high of 56.1 as fear gives way to panic.

Stories are surfacing today about Greeks, fearing an exit from the euro, have started a run on banks, concerned about what might happen to their cash if the country returns to the drachma. What makes this notable is that Greeks have been drawing money out of banks for months, but the steady stream has now turned into a flood.

The panic spread to European and Asian equity markets with both the FTSE and Nikkei posting steep losses. The dollar surged against foreign currencies, knocking the props out from under commodities including gold, silver, crude oil, platinum, palladium and copper.

Welcome to the Great Market Panic of 2012 where investors sell everything that isn’t nailed down to raise cash.

Oddly U.S. stock futures are actually up slightly this morning after taking more losses yesterday. U.S. markets may be waiting for the Federal Reserve’s Open Market Committee report due out at 2 p.m. Eastern time. If there’s a hint of additional easing in the Fed report, expect gold prices to reverse rapidly.

Keep in mind that gold and crude oil are both dropping on electronic trading. All the cash that’s backing up in the global economy will have to go somewhere and at least part of it is going to end up in physical gold.

In the meantime this is a buying opportunity like few you’ll ever see. My only caution is to stay disciplined and make small buys. In this kind of volatility trying to time the market is crazy and the temptation to shift too much cash into precious metals will be great.

Stick with small buys when prices dip and keep your precious metals percentages in line with sound principles of investing. These are exciting times in the market and everyone loves a bargain, but temper your enthusiasm with some common sense.

If the Greek contagion spreads and unwinds the European Union, what we’re seeing today could just be the warmup act. So keep some cash in reserve just in case prices fall even farther.

Chris Poindexter, Senior Writer, National Gold Group, Inc

It was a wild ride but it looks like the euro and gold have found some price footing after recent losses.

Gold was up $4.21 to $1,562.56 and silver up $0.25 to $28.45, leaving the silver/gold ratio right at 54.9. Platinum and palladium were also up, with copper and crude oil flat to lower.

The bleeding hasn’t completely stopped for the European stock market with the FTSE down another 0.19 percent, though the STOXX 50 and DAX both showed small gains on the day. In Asia the Nekkei posted another drop, leaving the index down on the month.

Anti-austerity party officials in Greece rejected a plan to allow an appointed group of technocrats manage the finances until the elections were settled. Believing they can make further gains in another round of elections, the opposition is in no mood to cut deals.

Either way, Greece was supposed to make a 436 million euro payment today to the bondholders who rejected the voluntary accord. Paying the notes in full would anger the investors who took the deal; not paying would count as a default leaving Greece to choose between two equally bad options.

What effect all this will have on gold prices is difficult to say. I believe at this point the dash for cash should be running out of steam. We have basically rolled gold prices back to the summer of 2011. Last year gold showed pretty solid support at these levels and there’s no reason to think support won’t materialize here once again.

Where it all could go out the window is if the European Union starts to unravel, but even that is a two-edged sword for gold. The short-term cash conversion panic would be balanced out by a flight to safety, which would certainly include precious metals.

No matter how it turns out it’s going to be the most fascinating economic period we’ve seen in a long time. If you have some free cash at your disposal it’s a rare opportunity to accumulate gold and silver at fire sale prices.

With the volatility that’s almost certain to follow, this may be a time of very rapid profits in metals. While you shouldn’t be buying precious metals as a short-term investment, it’s always nice to be in the money by the time your shipment arrives.

Chris Poindexter, Senior Writer, National Gold Group, Inc

California, like Greece is perpetually in fiscal trouble. Overoptimistic revenue forecasts coupled with spending $2 billion more than expected has California in a deep hole. Governor Jerry Brown has the same non-solution as ever, hike taxes.

Brown wants a "temporary" (as in seven years) tax hike. Given we all know there are no such things as temporary tax hikes in California (seven years is permanent enough in the first place), and also given the California school budget needs an axe, the I say let him.

Please consider California deficit has soared to $16 billion, Gov. Jerry Brown says

Gov. Jerry Brown announced on Saturday that the state's deficit has ballooned to $16 billion, a huge increase over his $9.2-billion estimate in January.

Lawmakers and others were hoping that a rebounding economy would help the state avoid steep cuts to social services. But revenue in April, the most important month of the year for income taxes, fell far short of expectations, leading to a shortfall of at least $3 billion in the current fiscal year.

The state has also spent $2.1 billion more than expected, according to the controller, further worsening California's financial health.

Advocates involved in budget discussions say they expect deeper cuts to social services than Brown originally proposed in January. Union officials are also in negotiations with administration officials about ways to reduce state payroll costs, an issue that wasn't on the table earlier this year.

Brown has said there will be even deeper cuts, mostly to public education, if voters do not improve tax hikes in November. He is seeking a quarter-cent increase in the state sales tax for four years and a seven-year hike on incomes of $250,000 or more that will range from 1 to 3 percentage points. He says the measure would raise $9 billion in the upcoming budget year.

Tax Hikes, Public Unions, and Union Sympathizers Hand-in-Hand

Whenever tax hikes are on the table, union supporters are at the front of the line demanding them.

Yahoo!News has additional details in California facing higher $16 billion shortfall

Under Brown's tax plan, California would temporarily raise the state's sales tax by a quarter-cent and increase the income tax on people who make $250,000 or more. Brown is projecting his tax initiative would raise as much as $9 billion, but a review by the nonpartisan analyst's office estimates revenue of $6.8 billion in fiscal year 2012-13.

Supporters of the "Schools and Local Public Safety Protection Act of 2012" say the additional revenue would help maintain current funding levels for public schools and colleges and pay for programs that benefit seniors and low-income families. It also would provide local governments with a constitutional guarantee of funding to comply with a new state law that shifts lower-level offenders from state prisons to county jails.

A second tax hike headed for the November ballot is being promoted by Los Angeles civil rights attorney Molly Munger, whose initiative would raise income taxes on a sliding scale for nearly all wage-earners to help fund schools.

Anti-tax groups and Republican lawmakers say both tax increases will hurt California's economic recovery. State GOP Chairman Tom Del Beccaro has embarked on a statewide campaign to discuss alternatives to Brown's tax hikes.

The governor is expected to propose a contingency plan with a list of unpopular cuts that would kick in automatically if voters reject tax hikes this fall. In January, he said they would result in a K-12 school year shortened by up to three weeks, higher college tuition fees and reduced funding for courts.

Expect to hear Armageddon chants from public unions immediately if not sooner.

How Brown Ruined California in His First Term

Bear in mind that Governor Brown helped ruin California with public union collective bargaining rights in his first stint as governor, in the 70's.
 

• The Educational Employment Relations Act of 1976, established collective bargaining in California's public schools and community colleges
• The Ralph C. Dills Act of 1978 established collective bargaining for state government employees
• The Higher Education Employer-Employee Relations Act of 1979, extended collective bargaining to the state university system.

California schools and taxpayers are perpetually in the hole because of Brown's idiocy decades ago.

Four Point Solution

Fixing the problem is easy to describe, but hard to implement given all the union sympathizers who want to further wreck the state.
 

1. California needs to end collective bargaining of public unions
2. California needs to claw back promised pension benefits
3. California needs to end all defined benefit plans for public employees
4. California needs to scrap prevailing wage laws that have crucified cities

Raising taxes will just cause the exodus of more corporations and highly salaried workers as noted in California Tax Revenues Plunge; Businesses Exit "Taxifornia" in Droves; Piecing Together the Jobs-Picture Puzzle

Taxed to Death

If Brown continues to suck up to the public unions responsible for the mess California is in, expect still more businesses to leave, expect the unemployment rate to rise, and expect a continued plunge in revenue.

Mike "Mish" Shedlock
 

It’s going to be another tough day for investors. European equity markets were a bloodbath today with the FTSE down over 2 percent as finance ministers openly plan for a Greek exit from the euro.

If you’ve ever tracked commodities prices during the initial phase of a crisis, you’ll notice gold and silver sink with the equity markets as investors scramble for cash. That is just what we see today as gold is off $18.70 to $1,561.95 and silver is down $0.36 to $28.44, leaving the silver/gold ratio at 54.9.

If you want to know what a market panic looks like, take a good look around today. Commodities are down by big margins almost across the board. Gold, silver, crude oil, platinum, palladium, wheat and copper are all down; the only two commodities showing any strength are the odd combination of natural gas and lumber.

While we’ve been talking about Greece here for a over a year, it looks like the tzatziki is finally hitting the fan. If it were just Greece this would not be a big story; what makes it epic is that it’s also about Spain, Italy and maybe France. A handful of economists, like Paul Krugman, are even speculating that the entire European Union could unwind in a matter of months.

In the short term I expect to see precious metals prices continue downward and I’m putting some of my free cash into small buys as prices continue falling. As far as a buying opportunity goes, it doesn’t get much better than this.

But I do advise making small buys and keeping some free cash in reserve. Greece doesn’t officially run out of money until July and a lot can happen in six weeks. So far Europe has found a way to step back from the brink and the reality of the current situation could make negotiators more flexible.

Any way you slice it Europe is going to need to print a massive amount of cash, whether that’s collectively as a union or separately. If the U.S. dollar becomes the currency life raft for European investors, then the Federal Reserve is going to find an excuse to print money. It’s either that or watch our export jobs dry up as countries like Spain, with 25 percent unemployment, will start competing aggressively for global jobs.

The next few weeks are going to be exciting times, maybe not for your 401(k) plan, but outside that it’s going to be fascinating to watch. Keep some cash handy as there will be bargains galore over the summer. I already feel like a kid in a gold and silver candy store.

Chris Poindexter, Senior Writer, National Gold Group, Inc

It was a rough week for gold and the shiny metal took a nosedive on Tuesday and pretty much stayed down the rest of the week. The silver/gold ratio ended the week at 54.6.

If it’s any consolation, equities were also down with the Dow, S&P 500 and NASDAQ all lower on the week. About the only bright spot in the investing landscape was the dollar, reaching levels it hasn’t seen since mid-March.

What gold and silver do next week is all going to depend on what happens in Europe and, by all indications, it’s going to be a great week to continue to accumulate. While short-term prices may continue down, events are shaping up in Europe to make precious metals a very attractive long-term buy.

There are finally indications that Germany will throw in the towel and admit that to bail themselves out of their current trouble Europe is going to need to print euros, and print a lot of them. While the Euro-zone managed to cobble together a trillion euros to bail out Greece and Portugal, a trillion just doesn’t go as far as it used to, especially when they’re also trying to prop up France, Spain and Italy, all of which are too big to rescue and too big to let fail.

So far gold and silver prices have been depressed as investors rush to the dollar, but if Europe starts printing money, that raises the specter of inflation. To be clear, the link between gold prices and inflation has been historically tenuous at best. However, inflation induces fear and there’s a very good correlation between the fear index, called the VIX, and gold prices.

So far the VIX has stayed in a relatively narrow range but there are just so many things that have the potential to push it higher. Greece finally making the all but inevitable decision to leave the euro, a temporary default by Spain or Italy, the slightest hint that the U.S. Federal Reserve may be considering injecting cash into the economy. Any of those could inject fear into the markets and with fear and uncertainty come higher gold prices.

Also consider that gold and silver are likely to do very well against diluted currencies in the long term. The markets can resist pricing pressure for a while, even moving counter to currency valuations, but not for long and certainly not forever. Sooner or later precious metals will reach a new equilibrium against diluted currency values.

That’s one of the reasons you buy and hold physical gold and silver. So at least part of your investment portfolio is grounded in something solid that will hold relative value as measured against whatever funny money paper that happens to be circulating at the time.

Chris Poindexter, Senior Writer, National Gold Group, Inc

It’s been a tough week for gold and prices are down again this morning as money flows out of European stock markets.

Gold is down another $8.20 to $1,585.20 and silver is off $0.34 to $28.68, bringing the silver/gold ratio to 55.

Commodities are down across the board even though the euro rebounded slightly against the dollar. Besides gold and silver, platinum, palladium, crude oil, and copper are all down. Investors are fleeing to cash like a stampeding herd as fear replaces rationality.

To be fair there’s a lot going on in Europe to feed investor fears. Greece is getting demands for concessions from creditors before they can even form a government. A coalition of lenders including the International Monetary Fund, the European Commission and the European Central Bank have given Greece until next month to produce a plan for even more government budget cuts, yet Greece will have to hold another election next month to even seat a government.

Spain is also in the midst of a banking crisis that forced the Spanish government to take even more measures to clean up their bank balance sheets.

While the news seems dire, there’s also general agreement that Europe is in much better shape to absorb Greece leaving the euro than they were last year.

The Cirque de Europe will almost certainly roll up on our shores, but the U.S. has been able to absorb the bad news so far, but it’s not going to last. Falling crude oil prices have softened the blow here as falling gasoline prices lighten the impact of the European selloff.

What it all means for precious metals is a continued short-term bearish trend as overseas investors scramble for cash. Where the bear trend could meet a rapid reversal is if the Federal Reserve starts talking about easing to keep the dollar competitive with other currencies.

So, for the average investor it all hinges on whether you think the current price correction in metals is a long-term structural correction or a panic flight to cash. If it’s a panic flight to cash, then at least some of that cash sloshing around in world financial systems will end up flowing to precious metals.

If there’s enough residual fear in the financial system, a lot of that free cash could end up in gold.

Chris Poindexter, Senior Writer, National Gold Group, Inc

It’s been an interesting week so far, and not just for gold and silver. Commodities and equities have taken a beating this week in the wake of European elections that flatly rejected the idea of more forced German austerity.

Gold is slightly higher this morning, trading up $2.68 to $1,591.88. Silver is up $0.08 to $29.24, lowering the silver/gold ratio to 54.

It’s hard to say if we’ve found a new equilibrium in prices or if the markets are just taking a breather to cover short selling. I’d like to believe this is the financial system calculating the cost in GDP of Greece leaving the euro, but don’t believe that’s the case. What we’ve seen this week seems like garden variety panic selling as investors flee to cash.

When the markets are in the midst of panic selling it’s not unusual to see commodities sink with other investment classes. Investors are trying to raise cash and, if they’re losing money in equities, they will sometimes resort to selling precious metals to cover losses.

You can see it in the five year gold chart from almost all of 2008. While the gold chart from the later part of 2011 until now may look similar, it’s actually not as bad if you take out that spike over $1,800. Without that run into an unsustainable range, the price of gold would be basically flat, as reflected in the 200 day moving average.

The good news is that, once all the trades settle, the financial system will suddenly be awash in cash and, like water, all that cash has to go somewhere. Looking across the investment landscape right now I don’t see a lot of safe havens for all that money. Certainly a great deal will flow to the dollar and U.S. stock markets; when it comes to bonds the U.S. is definitely the cleanest shirt in the hamper.

With precious metals at attractive price level at least some of that tidal wave of cash will be absorbed by gold and silver. Very few investors are going to have the will to jump into European equities until the euro-follies settle down. Also keep in mind it’s not just Greece in trouble; the real fear of Greece leaving the euro will be the possibility of other countries following them out the door.

For retail investors like you and I, it’s really not that complicated. Gold and silver are on sale at 2011 prices and, if you were already making small, regular purchases, now is a good time to be buying.

Chris Poindexter, Senior Writer, National Gold Group, Inc

On Tuesday, six-term Republican senator Richard Lugar was ousted  in shocking defeat in the Indiana primary to Tea Party activist Richard Mourdock, Indiana state’s treasurer.

Mourdock sent Lugar down in flames as he questioned Lugar's policies on immigration, Supreme Court nominees, the "Dream Act", and bank bailouts. Mourdock said Lugar was "not conservative enough".

As proof of how extreme things have gotten, the Indiana Democratic Party released a statement Tuesday evening thanking Mr. Lugar for his service and criticizing Mr. Mourdock as an “extremist” who is “out of touch with Hoosiers.”

The New York Times has details in Mourdock Defeats Lugar in Indiana Senate Primary

Clearly, there is increasingly little chance for moderates anywhere.

In Europe, 11 governments have collapsed over austerity measures. German chancellor Angela Merkel may be the next to go.

Chaos in Greece

Extreme polarization in Greece is such that no political party could gather as much as 20% of the vote. Indeed the top two parties combined could not even muster 33% of the vote.

For details and further discussion, please see

• Greeks Political Parties Prefer Chaos Over Compromise; June 17 Elections on the Way; Next Bailout Tranche at Risk

 

• SYRIZA's Tsipras Lists Bailout Rejection as Key Demand; Don't Rule Out a SYRIZA Coalition; Eventually May Be At Hand; Why SYRIZA Will Win the Next Election

Polarization in US

For polarization in the US, look no further than the surprising showing of Rick Santorum vs. so-called moderate Mitt Romney midway through the the Republican presidential primary.

Santorum finally stepped aside, but the damage has been done.

Please note that Romney is hardly a moderate in any sense of the word. Romney is a war-monger promoting war in Iran, trade wars with China, and still more military spending in spite of massive budget deficits.

Moreover, anyone who thinks president Obama and his union supportive stance is a moderate has mush for brains.

Greece Is Ungovernable Pariah State

My friend "HB" writes ...

Today the markets realized that it may become entirely impossible to form a government in Greece, even after another election.

In that case there will also not be the votes to continue with the bailout package. I think it is slowly sinking in what that could mean: the troika will no longer have anyone to negotiate with.

The IMF, EU,and ECB would see tens of billions each evaporate. Greece would become a pariah state and likely drop out of the euro, followed by either a radical leftist government taking power or a military coup.

Greece has become near ungovernable. Its infrastructure is crumbling, its jobless rate is over 20%, youth unemployment is 50%, and Greek administrative institutions are paralyzed and corrupt.

The empire is fraying at the edges - literally.

Greece may by itself not mean much, but it is the first modern industrialized post WW 2 welfare state to go completely bust. The signal alone should scare the bejeezuz out of market participants.

Tweedledee vs. Tweedledum

In the US, the presidential choice is between Tweedledee and Tweedledum. Take your pick as to who is who. In case you disagree, please consider ...

• Obama Seeks to Prove He is More Like Romney; Obama vs. Romney - What's the Difference?

 

• Not your grandfather’s Republican Party; President Obama and Mitt Romney are Nearly One and the Same! 

Frankly it does not matter except for four year's down the road, and except for near-term Supreme Court appointees. Romney wants to overturn Roe vs. Wade, believes corporations are people, and strip searches are fine on the the flimsiest of excuses, three extreme positions.

Are those reflective of extreme positions or core US values?

Ignoring the Supreme Court effect, both candidates are war mongers and ObamaCare is the same RomneyCare (even though Romney campaigns against himself).

Inane Election Choices

The only real choice in this election is whether 4 years from now you want to face the inane possibility of Romney winning 4 more years vs. the inane choice of Obama winning 4 more years now (knowing in advance he is gone 4 years from now).

As we sit back and watch Greece and France disintegrate into a morass of extreme politics, the shocking defeat of Richard Lugar in the Indiana primary to a Tea Party activist suggests the US is on the same path.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Look out below as gold crashed through support levels and drove all the way through $1,600 an ounce to prices we haven’t seen since January.

Gold is down $18.08 to $1,594.77 and silver is off $0.53 to $28.80, bringing the silver/gold ratio to 55.

Prices were down across the board in commodities with platinum, palladium, crude oil and copper all posting steep losses. The panic in commodities selling was matched by the red ink in equities as investors stampeded for the safety of cash as the news from Europe just seemed to get worse as the day rolled on.

Greece hasn’t even formed a government after an inconclusive election and they’re already getting ultimatums from lenders about bond payments. The market seems to be betting that the odds of Greece staying with the euro are slim.

It was hard to find a bright spot in the investment landscape as panic set in overseas and the red ink washed up on our shores as the markets here sank in unison with their European counterparts. That’s not the end of the bad news for equities as futures point to more losses today.

Hopefully you’ve been making small buys of gold and silver during this time of soft prices and can scrape together some cash to take advantage of today’s fire sale prices. Silver is trading below $29 dollars an ounce with a gold ratio of 55, a price range we’ve only seen twice in the last year.

I find the best strategy in investing is to be buying when everyone else is selling, and that’s happening right now. Still, I’m not going to commit all my free cash on the off chance there is more room on the downside. The situation in Greece and France has investors running blind scared and there’s no telling where this fear fest is going to stop.

What the Federal Reserve will have to halt is the rush to buy dollars. Right now most of the panic selling is being converted to dollars and that will keep driving the dollar higher, something that will, very quickly, start to hurt our exports. I’d be surprised if we don’t start hearing something about an emergency Fed meeting in the next few weeks if this market bloodbath continues.

It’s a great time to buy if you have some free cash.

Chris Poindexter, Senior Writer, National Gold Group, Inc

The dollar exploded against the euro in overnight trading and knocked the props out from under commodities including gold, silver, platinum, palladium, copper and crude oil.

In early trading gold is down $10.50 to $1,628.60 and silver is off $0.40 to $29.69, raising the silver/gold ratio to 54.8.

The dollar continues to gain ground after tumultuous elections in France and Greece that brought the era of paying the banks before paying for social services to a screeching halt.

Equity markets on both sides of the Atlantic took a dim view of the news with European stock markets down and U.S. markets, coming off a less than stellar performance yesterday, look poised to follow.

With the selloff in equities that means there’s a lot of cash sloshing around in the world financial system and that cash has to go somewhere and right now the destination du jour seems to be the U.S. dollar.

That’s fine for right now, but if it keeps up very long it’s going to start costing the U.S. jobs in manufacturing as a stronger dollar makes our exports less competitive. In the global race to the bottom that script currency has become, being the shining light on the hill is not all that attractive.

The sudden popularity of the dollar will certainly prompt the Federal Reserve to consider easing in order to keep the dollar from becoming a competitive disadvantage.

Until the Fed turns on the printing presses and creates a few hundred billion out of nothing, commodities will continue down as the dollar continues up. That’s good news for gold and silver buyers because it means your investment dollars buy more.

We’ve only seen silver dip below $30 one other time in the last year and before that was in the fall of 2010. With the silver/gold ratio rising close to 55, this is a good time to stock up on silver.

If you believe like I do that the Federal Reserve will find an excuse to inject cash into the economy, then continue accumulating precious metals.

Gold is still in the range between $1,620 and $1,640, despite the headwind of a strong dollar. That is surprisingly solid when you consider what’s happened to crude oil over the last three months.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Gold tracked towards the upper end of its trading range on news that austerity got the boot in European elections.

Gold is up $1.32 to $1,640.30 and silver is up $0.14 to $30.28, lowering the silver/gold ratio to 54.

The big news overnight was that austerity and government cutbacks got hammered in European elections, with a socialist candidate vowing to tax the rich sweeping into power. It was the same story in Greece where a new administration, also planning to raise the marginal tax rates on the wealthy and cut defense spending, crushed the party responsible for steep cuts in government services.

The dollar surged against the euro on the news, putting downward pressure on commodities, yet gold managed to hold basically even while silver, platinum and palladium managed marginal gains.

It appears the forward looking players in the European precious metals market are betting the elections are going to trigger a return to deficit spending and an increase in inflationary pressures. A lot of investor free cash flowed into dollars, but this time at least a few opted for metals.

This does seem like a pretty solid setup for gold and silver going forward and retail buyers should continue making small, regular purchases in the current choppy trading range. If the Federal Reserve announces a new round of easing or Congress, potentially facing the same type of austerity backlash in the fall, opts for a big infrastructure bill, we could see a significant rise in precious metals prices.

Overall, there seems to be more bias to the upside with the potential pitfall being a continued drop in unemployment numbers. It’s hard to think of more jobs as a bad thing, regardless of what happens to gold prices because of it.

For right now Europe is providing the wind under the wings of gold and silver, so all we have to do is ride the current trend. In an upside down global economy built on paper script where debt is money, it’s so nice to be able to opt out of currency follies and insulate at least part of your wealth in gold and silver.

Take advantage of the current lull because I have a feeling it’s going to be a bumpy summer.

Chris Poindexter, Senior Writer, National Gold Group, Inc

Housing has now gone full circle. President Bush's "Ownership Society" has morphed into the "Rentership Society". The attitude applies to more than houses as noted in the Wall Street Journal article Renting Prosperity by Daniel Gross.

Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom.

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they're OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn't limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

The reaction to extended leverage and foolish borrowing isn't to stop consuming and buying; it is to consume and buy more intelligently. That's what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take "ownership" of a home.

For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

Zipcars and College Textbooks

Gross points out that students are increasing renting books as opposed to buying them. Of course there are also Kindle and other electronic ways of purchasing or renting books as well.

The same holds true for cars, and not just long-term leases either.

Gross writes ...

The Bureau of Labor Statistics says that private transportation—owning and running a car—is the second largest cost for a typical American household, accounting for 16% of expenditures. Factoring in finance costs, depreciation, repairs, insurance, taxes and gas, AAA calculates that an owner of a midsize sedan who drives 15,000 miles a year spends $8,588 a year on his car.

Enter auto-sharing firm Zipcar. Founded in 2000, it grew by focusing on cities and college campuses. It uses information technology to manage its fleet, and control access—people get cards that let them into garages where cars are kept and into the cars themselves. Users in New York pay a $60 annual fee and then $8.75 per hour on weekdays and $13.75 per hour on weekends—no extra charge for gas or insurance or miles. As the U.S. economy contracted, Zipcar went into hyper-growth: from 225,000 members in 2008 to 650,000 members and 9,500 cars in November 2011. Zipcar, which went public in 2011, has had success in the predictable big cities like Boston, New York and San Francisco, but its vehicles can also be found on 350 college campuses and in smaller cities like Providence, R.I., and Portland, Ore. Large rental agencies like Enterprise and Avis have responded by rolling out similar services.

Will Rentership Fuel the Next Boom? When? Why?

Gross put together a nice article explaining what is happening but the article falls far short of the opening premise "how it will lead to the next boom".

I see no reason renting Zipcars, textbooks, or houses will lead to a boom in anything. Every dime Zipcars makes is a dime lost by GM, Ford, and Toyota.

Kindle is going to put numerous bookstores out of business.

Younger Americans are not buying cars and houses because they cannot afford them. Collectively saddled with a trillion dollars in student loans, many cannot afford to buy much of anything, especially poor job prospects and falling wages.

I see no boom from this. Rather, I see pressures on profits in multiple places for multiple reasons.

What About Housing?

Renting cars and textbooks is the start of a trend that makes perfect economic sense. However, Zipcars, textbooks, clothes, and electronics are one thing, and housing is another.

When sentiment on houses reaches the widespread belief  "It's Better to Rent", prices are bottoming. I expressed that thought on numerous occasions since 2005.

This is how I currently see things.

This is how I have called the housing bubble and bust in real time over the years.

• March 26, 2005: It's a Totally New Paradigm
• June 07, 2005: It's time to shift the arrow
• April 10, 2006: US vs. Japan Land Prices Pictorial Update
• February 15, 2008: Housing Bottom Nowhere in Sight
• December 01, 2008: Housing Update - How Far To The Bottom?
• July 13, 2009: Housing Update - How Far To The Bottom?
• June 20, 2011: When was the Housing Peak and How Far to the Bottom?
• March 13, 2012: How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI 

The first four links above are quite humorous. The denial from Bernanke and others is stunningly funny.

Bottoming Process

Some cities are further from the bottom than others, but it is likely some cities have now finally bottomed.

That said, I do not think home prices are going much of anywhere "in general" because there is still years of shadow inventory and years of foreclosures to work through.

Moreover boomer demographics suggest much downsizing is ahead (and who will boomers sell their mansions to?)

Finally, generation Y has far different attitudes than boomers regarding wealth, debt, and possessions and will carry those attitudes for a long time having seen firsthand the trouble their parents and grandparents got into with too much debt, and how they are in the same boat with student debt.

Mike "Mish" Shedlock