Happy Nihilist

Australian home prices the world's most overvalued: The Economist

HOME prices in Australia are the most overvalued in the world, a leading global report said today, intensifying a growing debate in the country on the possibility of a housing bubble.

 

The report, published in The Economist magazine, comes as Australia's housing market continues to face stiff criticism both domestically and overseas.

 

"There may be good reasons for Australian prices to have risen so far, but people made similar, and ultimately incorrect, arguments for the run-up in prices in the West," author of the property special in The Economist, Andrew Palmer, said in a statement.

 

Several recent data reports have shown growth in housing prices is either starting to slow or turn negative.

 

International investors and even the International Monetary Fund have recently argued the local housing market is overvalued.

 

As prices have dipped, some economists and investors -- most notably GMO chief investment strategist Jeremy Grantham -- have even argued recently that a housing bubble is being created in Australia.

 

Still, local economists and even the country's central bank have dismissed claims there is a property bubble, noting there has never been a "credit-fuelled speculative boom" in Australian prices.

 

In the report, The Economist noted the ratio of house prices to rents in Australia is 56 per cent above its long-run average between 1975 and 2010.

The second most overvalued house prices in the world were in Hong Kong, at 54 per cent above historical average, it said.

THIS is gonna end VERY badly.

Indeed! I imagine it might look something like this:

Before

After

Interview by Motley Fool w/ Steve Keen on Australian Housing Bubble HERE

http://www.debtdeflation.com/blogs/wp-cont...ceInterview.pdf

From NZ Herald

"Housing lending fell in December, month-on-month, for the first since Reserve Bank records began, the central bank's latest credit data shows.

 

The Reserve Bank says mortgage credit fell by $50 million to $170.95 billion in December from $171 billion in November.

 

That's the first monthly absolute dollar decline since the Reserve Bank started collecting the data in June 1998.

 

Previously there had never been a month-on-month drop, with the previous low being an increase of $101 million from September to October last year.

 

The biggest monthly gain recorded by the Reserve Bank in housing lending was $2.2 billion in March 2007."

Could be the first cracks in the antipodean dyke ? At long last . . . perhaps

Some thoughts on Gold.

On the daily chart, it looks as though we may be close to a buying opportunity. In the past year, every time the Daily RSI moved below 40, it has presented a good entry point. Noted support around 1275-1300 level.

However, should this fail and we see a more substantial correction, then from a longer term perspective, it looks as though the 55 week EMA (combined with a weekly RSI reading below 50) would present a good alternative entry point. Currently around 1250.

Some interesting observations by Ross Clark here

E.g. ?

Double Post.

Uh oh

courtesy of the Sydney Morning Herald:

http://www.smh.com.au/executive-style/luxu...1007-1690v.html

The big "either / or": are we approaching an intermediate term top in the price of Gold, or are we in the process of breaking out to new all time highs?

Here's a technical look. On the one hand there appears to be a bullish cup & handle formation that would project to about the $1,500 level, while on the other hand there appears to be a bearish ascending triangle pattern that suggests an imminent correction. Volume has been dropping off favouring the bearish scenario, but as we all know, a market can stay irrational for a long time.

What is the volume/ RSI/ MACD etc looking like on the dollar? Would you want to short the dollar here?

Maybe

On a daily chart there is slight divergence, which might suggest a correction (perhaps in progress now?). There is an argument that the Euro could see one more lurch down to complete an AB=CD structure (from memory the target is around 1.16 I think), and although I'm no Elliot Waver, I think the current wave count on the Euro also suggests one more spike down [i.e., one more spike up in USD] before staging a more substantial rally. Anyway, personally I'm interested in a slightly longer time horizon, and for the moment the weekly chart in the USD still looks pretty good.

From the link above. Why don't they call them SHIPS.... as in sinking ones. [Greece has already sunk]

Perhaps they should replace the yellow stars on the European flag with a yellow submarine

That was a big call by T O'Brien. It didn't really make sense to me that he was saying sell gold [maybe I got that wrong, and he was only suggesting trading a litlle... but still]. The risk/ reward ratio just doesn't make it worthwhile.

Well, at least in the short term, the technicals (volume, RSI, MACD etc.) suggest we could be due for a more prolonged correction. Ross Clarke has also noted an upside exhaustion in the recent price action (although he views this in the larger context of heading to $2000+).

Tom O'Brien has been long Gold since $282 in 2001. His argument is quite simple: buy low, sell high. Given the recent parabolic price action in Euro Gold etc., he is arguing that now seems a good time to take money off the table? Anyway, he seems to be playing it by ear, and so far is only calling "a" top, not necessarily "the" top. But he is walking the walk, cashing in all his gold and going short! However, he is a trader, so I'm sure if the situation were to change, he wouldn't have too many hang ups in jumping back in.

Although I don't think this is "the" top, I do think it is worth noting a significant shift in sentiment towards Gold by the Mainstream media. Check out his latest interview on Kudlow for a case in point! LINK

Today should be an interesting session in the PM sector. Are we seeing a bullish Cup & Handle formation in the process of breaking out to a measured target of around $1450, or are we seeing a bearish Double Top forming, leading to a deeper correction that shakes out recent panic buying? Bullish case supported by established and healthy looking long term trend. Bearish case supported by bearish divergence, i.e., rising prices, declining RSI and MACD going back to the December high. Looks like we have reached a crossroads once again ...

For what its worth, Gary Tanashian suspects that Prechter has once again put a floor under the price of Gold with his most recent comments that Gold is not a safehaven!

Gold Bullish...

 

Sorry Bob, but you have provided a floor for gold all the way up from 310 (in my experience at least). You are a really smart man who I count as one of my influences. But your take on gold, while a bit more sophisticated than the average 'deflationist', is just wrong. Get over it.

 

...

 

In spite of this, I recommend people get up to speed on Prechter's general views on deflation and I honestly tell you that I read everything EWI puts out for free, although I no longer subscribe to their services.


 

Prechter interview attached here: LINK

Meanwhile, Tom O'Brien remains bearish and expects to see a double top with a correction down to at least 1075.

To the contrary, I "don't want to believe what he has to say re Gold" because there's no truth to what he says. He doesn't believe gold is a currency, otherwise he wouldn't treat it like any other commodity. Someone should take him to a Central Bank and show him they don't store copper or soya beans in their vaults. Gold is the currency of last resort.

 

There is no value in his opinion.

With the benefit of hindsight

Just to set the record straight. Yes, Prechter got the call on gold wrong, but I think it is important to put it in context. From FSN roundtable discussion November 1, 2003. MP3

Jim Puplava [40'40"]: What about some of the other investment aspects? We've seen a rise in Gold, I wonder if we can turn our attention to precious metals comments, and I know all of you have various opinions. What about Gold and silver?

 

Robert Prechter [42'03"]: First of all, I want everybody listening to this to realize I am a dedicated - philosophically speaking - gold bug. I think gold is real money, the only real money. I don't believe in monopolies of any kind, and certainly not in important things like money. I think fiat money is a disaster, and always will be. But I've also looked at the last Kondratieff cycle and I've seen that for example, silver which still traded freely at the time, had a strong rally in the middle of 1931, but eventually came down below its previous lows in late 1932 along with the end of the deflationary period. I think that now gold is traded freely, the real money of the realm here, is these green pieces of paper, now turning peach colour, called dollars. And in every classic deflation, whatever the currency you have is, the debt and credit levels out there that have been ballooned to extreme levels, and we now have a historical amount of credit, shrinks. So the remaining monetary units gain in value and you can buy more goods and services with it. This doesn't mean the dollar is going to go up against other currencies, it could even fall against them, but I think its already showing that it can buy more than a car for instance, than it could a few years ago. We're getting little hints to me that this deflation is beginning to bite. On the other hand, this is not - we talked about earlier about the stock market - I wrote a book recently called Conquer the Crash, and in there I said I'm a one armed economist when it comes to the economy and the market. I do not have a backup opinion or any other thoughts, I have only one opinion, and it's going to go way down and we're going into a depression, I don't see any evidence to the contrary. But in gold I don't feel that way. I could easily be wrong here, and I said in there that you need to have a core amount of this. It's real money, everybody should have some. I think you should have some outside the country if you possibly can, and I've got formations that will tell me "hey I better throw in the towel, its going up." It's been right though for 20 years to not waste your time in gold, and I think most gold bugs have worn out their fans by keeping them in something that's losing money against a dollar that itself was losing money, which is a pretty bad investment. But I'm watching it carefully, and I'll see, I guess I could be forced to change my mind.

 

Peter Eliades: So your current opinion is that gold has or has not seen its final low?

 

Robert Prechter: Well I tried to say there's a strong opinion and there's an opinion. My opinion is not that strong. I don't think its seen the final low, but I don't have the conviction that I have on these other things. In other words, if I'd want to get rich right now, I'd rather be short the stock market or long rydex ursa which is the same thing, rather than being long or short in the gold market. To me its a little too close to call, but I see too much optimism there, and I'm not certainly going to load up all my money in that basket right now.

And to help put it in perspective, these are the charts they would have been looking at:

Just out of interest, can someone who believes in Pretcher's near term gold outlook please set out a set of circumstances, that for them at least would prove his theory incorrect? What I'm wondering is... Is it possible for the time it will take for him to be proven wrong, make it too late to get in to gold?

Prechter has obviously been wrong on Gold this last decade. In my view, the last chance for him to redeem his Gold call "a little," is if we were to see Gold drop below 2008 lows of 680 in the next 12 months. Personally I don' t see that happening, and think the worst case scenario would be limited by the 233 week EMA, currently around 850. We shall see. Anyway, I think Gold's unexpected resilience (from Prechter's point of view) demonstrates that he has underestimated the investment demand for Gold (safe haven) in what otherwise is a broadly speaking deflationary environment (?).

Yep, there's deleveraging and then there's deleveraging. Investors levered up again with cheap yield-chasing money [taking the Bernanke bait]. Doesn't take much for a bit of deleveraging once the market turns against you... and then there are those just avoiding risk. I don't know if it will turn into the 2008 kind of deleveraging [super deleveraging?] but it's possible. If deleveraging is to last for a year and a half as T O'Brien suggests, then it would presumably be the first "garden variety" kind... more of the same. I wonder if the frequency of volatilty might pick up a bit. Rather than a year and a half of leveraging up and then the opposite, whether these periods might consolidate into 3-6 months.... as the market gets even more chaotic.

Well, perhaps deleveraging is the wrong word. Maybe "primary down trend" might be more appropriate Anyway, I don't necessarily think we'll get a 2008 style über-deleveraging (although as you say, it is possible), but I suspect it will be unrelenting (i.e., once we have turned the corner there is no turning back ... and uh, we have turned the corner). I think Gold will be vulnerable in the initial stages of this vortex, i.e., until the drive to safety overwhelms the rush to the exits to pocket profits (selling begets more selling) and forced selling. Anyway, for the time being, I think the 34 and 55 EMA's are good targets to keep an eye on, ... see where we go from there

Indeedy, the lower RSI peak and with deleveraging looking to settle in for a few weeks, one wonders how low it'll go. 1000 is certainly conceivable.

Yes, I think the 1000 +/- should provide formidable resistance, but don't rule out a spike down to $850. A few weeks of develeraging? I guess it depends how swift the price correction is? It seems to me there are a lot of recent buyers of Gold that are vulnerable to being "shaken out"? Also, for what its worth, Tommy O'Brien thinks we are heading for a roughly 1 1/2 year period of deleveraging ... which is conservative compared to Prechter's 6 year time frame. (I guess it takes a bit longer to get down to triple digits )

Currencies are going crazy. I had a rather large pay day, with some extra bonuses added in. Woke up to check the exchange rate [Korean Won to dollars] and holy cow... lost near 10% and still sliding! Jumped on the bank internet site to transfer pronto but some glitch in the system [capital controls?] put a stop to that. So jumped on the subway to the other side of town to do it manually at the bank....only to find the bank closed for Buddha's birthday.

That's a great story! If only it weren't true The recent currency volatility is incredible. Both AUD and NZD have taken a considerable hit the last few weeks. In today's Sydney Morning Herald they had a chart of the Australian Dollar plastered all over the front page. I wonder whether that could be a sign of a brief bounce pause? Too much too soon? On the other hand, once that carry trade unwinds, its Sayonara suckers

A longer term look at Gold.

So far, the 34 and 55 week exponential moving averages have provided good support throughout this bull market. Tom O'Brien's recent call for Gold to correct to $1075, would coincide with a move down to the 55 week EMA, currently around $1070. However, it is worth noting the bearish divergence between the price of Gold (Dec '09 peak w/ recent May '10 peak) and RSI.

EURO/ USD 1.22

L'Europfff

The thing is though, the Euro has traded below 1.00 before. It's not as if we are making new all time lows. What is dramatic however is how quickly this is all unwinding. 1.50 to 1.22 in just under 6 months!

Also, interesting that the top in the Euro should coincide with the election of Herman van Rompuy as European president. Some classic socionomics in action

Meanwhile, in USD, Gold is trading below its recent high of 1250 ... divergence? Maybe a little too soon to say for sure.

He is selling almost all his Gold and Gold shares, expecting a "big pullback"

He may be right.

BECAUSE LIBOR IS RISING AGAIN !

Tom O'Brien on CNBC

http://www.cnbc.com/id/15840232?video=1493980167&play=1

According to Pesavento, we could see something spectacular in the Gold complex on Monday.

Anyone have Stertling libor charts?

http://www.economagic.com/libor.htm#UK

Personally, I'm not convinced the only solution is to reincorporate gold in to the monetary system, in either the form of a new Bretton Woods or through SDR's, but at least for the conceivable future, it is gaining favour as the currency of choice.

 

I agree, you can feel the tension building and the main beneficiary will of course be gold.

 

BTW - I like rocket pictures...

Well, I'm not suggesting that it definitely will be formally reincorporated into the monetary system. But regardless, it is sufficient that it is assuming this role de facto. The moment the "Gold is Money" idea becomes accepted in the mainstream, I suggest it is time to move on (?)

As for rockets ...

Interesting to note that this recent upleg in gold has not been matched by an uptick in Google search or news reference volume:

 

Google Trends: "buying gold"

http://www.google.com/trends?q=buying+gold...=all&sort=0

 

So far we've only had a small spike in this, presumably as we made new highs in Euros and Sterling:

 

Google Trends: "gold price"

http://www.google.com/trends?q=gold+price&...=all&sort=0

Indeed.

Also, there is very little mention of the fact that since the February lows, Gold has been correlated with the USD not Euro! Larry Pesavento remarked on this a few weeks ago and suggested it was a sign there was something very wrong in the Eurozone. Pretty spot on.

Right on cue, this is looking like it's going to be one HELLUVA run up, the third wave appears to be subdividing again today!!

 

Let the power of third waves be with you.

Absolutely!

I'm thinking that Gold at 1000 Euro might act as a catalyst for the next wave of investment demand in Gold. Obviously we are already seeing flight from the Euro into Gold, but I think the 1000 mark will do a lot to register this idea in the public consciousness?

Can a currency form a bubble?

Well, perhaps not.

However, i suspect it might be a useful roadmap to keep in mind, if only in terms of relative value. Obviously, if Gold were to become a de-facto currency, then it can't have a blow off phase in nominal terms. Also, by implication, by that stage, there would be very little debt left in the system that could threaten to push down the nominal price of Gold, a la deflating bubble. But at some point there will be more attractive investments.

Anyway, what gave me the idea is the sneaking suspicion that we are about the move into the next phase of this bull market. I.e., moves in a different order of magnitude. Maybe its just me, but while all the attention is on Greece, the Euro and the Euro bail-out, there seems relatively little mention in the MSM about Gold making another move towards new all time highs?

If gold were to go bubble, then this is what it might look like (although I'm thinking the "New Paradigm" might refer to a de facto Gold standard of some sort)?

Anyway, looks like tonight could be an interesting night in the yellow metal:

And possible Cup and Handle in Swiss Francs (from Swiss Franc thread):

Or this.......??... back to the thin blue line?

 

 

Will it be a case of "history repeating" or "lightning never strikes twice"?

The volume on GLD is cause to re-consider the bullish case in the short term. In any case, it looks like it shouldn't take much longer to get a clearer picture of where Gold is heading in the intermediate term.