Cuba, Gold, Silver, and QE3(Infinity)

June 24, 2013 – Post No. 19 – Those are four words we don’t normally see in the same sentence.  They are simply the four topics I want to discuss this week.

Regarding Cuba, I recently read that they have a free real estate market for the first time in 50+ years.  If you are curious, the average house price over the past year was $16,000.  Interestingly, in a new development there is a penthouse unit for sale at $2,500,000!  Slightly above the market average:)

What I found most interesting was the fact that lawyers and realtors are ‘illegal’ in Cuba and you can go to prison if you lie about the price you paid for a house.  Sorry to offend the lawyers and realtors reading this, but those are three excellent ideas we should take from Cuba and apply here:)

On to the silver and gold bear market (which is joined by the bond bear market).  As I cannot provide investment advice, let me phrase it this way – I have been looking for $1,050 to $1,200 per ounce for gold and $17 to $19 per ounce for silver as targets to start purchasing the metals again.  We are almost there.

The Federal Reserve rocked the World last week when it insinuated it might stop supplying meth, er fiat money, to the markets.  American stock markets have been artificially inflated by quantitative easing since 2009 and recently real estate markets have begun to enjoy the affects of artificial interest rates and money supply.  As the housing market was (falsely) perking up, the Fed popped the balloon.

Two observations about the Fed announcement.  First, I am not so sure they will actually cut back on the $85 Billion in monthly purchases.  They said they would only do such if the economy was hitting their targets.  GDP is projected to grow between 2.3% and 2.6% and unemployment has a yearend target of 7.2%-7.3%.  Both indexes are on target right now, but the second half of the year may prove troublesome.  Also, the FOMC has a 2.0% target for price (inflation) growth.  Current data suggests 2013 growth will range between 0.8% and 1.3%.

Upcoming FOMC meetings are at the end of July and October and middle of September and December.  They say they will begin the tapering in December.  Unless the above indicators move aggressively towards their targets, I would not be surprised if they delayed tapering into 2014.  However, some analysts suggest weak indicators won’t stop the tapering, but will delay a hike in interest rates until 2015.  We shall see how it plays out.  My guess is the economy will be weaker than the FOMC is expecting.

One analyst I follow pointed out that recent bond and stock market corrections mirror what happened in 1987 – which led to one of the worst crashes in US stock market history that October.  Again, we shall see if this occurs before yearend.

That is it for this week.  A diverse range of topics.  My gut is telling me the last quarter of this year may be one for the ages – but, not in a good way.

Happy Museum Comes To Life Day,

George R. Mann, CRE, FRICS, MAI

Managing Director

Collateral Evaluation Services, LLC

 

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