The past week has been extremely busy. I attended IMN's 6th Annual Real Estate Opportunity and Private Fund Conference in Laguna Beach. Then I presented at the Cambridge House Investment Conference in Vancouver. While real estate and natural resources may seem extremely different they are actually closely related.
IMN's Real Estate Conference
The conference was exceptionally organized at a wonderful location in Southern California on the beach. The general tenor of the conference was rationally gloomy despite the sunshine. Scott Smith, Direct of Real Estate Investments for the New Mexico State Investment Council said to the full conference hall, "Let's be honest. You have closed no deals since July. Please do not call me or leave a voicemail because I will not be checking them for six months."
A common theme from these industry professionals was that this was the biggest event they had seen in their career, they did not know when it was going to end and not to catch a falling knife. Steven Orbuch, President of Och-Ziff Real Estate which manages about $25B throughout the world in multiple countries said, "The depth and breadth is seen in every market and is still in the early stages."
I had an interesting talk during a reception with a DLA Piper senior partner. He was incensed at 24 year old Maserati driving idiots who could not get into law school but were able to sell credit-default swaps and other structured financial products which are now vaporizing firms and have destroyed this industry. He had 30-35 deals lined up at the end of 2007 and completed only 5 in 2008.
I have a great story to tell about my chat with him but will leave it to the podcast.
A symptom of the underlying problem is that bid/ask spreads have been widening tremendously. In many cases there are no bids. Alvin Katz a partner with Mayer & Brown succinctly summed up the situation with "There is a full stop in deals." Perhaps the best advice came from Ambrose Fisher a managing director for Oaktree Capital Management, L.P. who said, "Batten down the hatches and try to survive to the other side.
It will be at least 2010-2011 before the fundamentals begin to improve." Marc Perrin a managing director with Starwood Capital Group Global, LLC said "I don't disagree with anything Ambrose is saying."
While predictable it is interesting to see the real estate market go into stasis. I wonder if they read my 1 Feb 2008 article about the deflationary credit contraction. "This is why stock markets have been crashing as investors flee into T-Bills. Ultimately, investors ensconce themselves within a deflationary but invincible and immoveable golden forcefield." In other words, 'batten down the hatches'.
Eventually I will move into and purchase a lot of real estate. However, unlike these 'professionals' I have a reasonably good idea of when I think the market will bottom and when to begin purchasing.
The monetary metals are used to perform mental calculations of value or the pricing mechanism.
Currently, an average American home costs about $220,000, 18,333 ounces of silver or 248 ounces of gold. I will begin looking for real estate deals, both commercial and residential, when an average American house is around 500-1,000 ounces of silver or 75-80 ounces of gold. Until then I have battened down the hatches, there is no bid from me and because I own unencumbered gold I will survive to the other side and be liquid to buy.
CAMBRIDGE HOUSE INVESTMENT CONFERENCE
I was surprised with the traffic at the Cambridge House conference. I think the final tally was around 7,000 with about 1,500 walk-ins that paid $25 at the door. I suppose the $50/ounce rise on Friday is helpful for all the activity.
During my panel presentation I was interrupted twice with applause so that was encouraging. I am sort of like a cross-eyed javelin thrower always keeping the crowd on their toes and never quite knowing how I will be received. Thom Calandra even quoted me as saying, "Wall Street is a bunch of sociopaths. You can’t grow a conscience if you don’t have one." The DLP Piper attorney has legitimate cause for being enraged but as I tell on the podcast his client has even more cause!
My presentation was on the development and intensification of the deflationary credit contraction. Several people found it extremely enlightening and useful. As most people scamper off as soon as possible after the presentations I was surprised the Q&A lasted about 40 minutes.
I think I need to develop a good foundational document of about 45-50 pages to provide a solid grounding in the principles at work. While most of the information is available it is scattered and unorganized throughout about 100 posts which could be formidable for a new reader. If you would find such a document valuable please leave your comments.
GATA has their 10 year anniversary this year. In light of the happenings in the real estate market a paragraph from the 14 Jan 2008 GATA Wall Street Journal ad is particularly enlightening, "The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world's reserve currency.
But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threatens the whole world."
As the gold cartel and complicit Wall Street sociopath's actions continue failing the derivative illusion begins dissipating and holders of capital ensconce themselves in a golden forcefield. Then more markets will move into stasis like the real estate market already has. Remember, the system does not so much collapse as evaporate and the rate of evaporation is increasing.