Letter Re: The Developing Oil and Gold Price Divergence

Jim, This is just my opinion, based on years of observation (rather than facts and figures) but I think I know where most of this is coming from. Politics. The oil companies are thriving under Bush/GOP rule and so they’re playing their part like they so often do, rolling back the source of so much anger and irritation (gas prices) and giving the false sense that things are “getting better”. I fully expect them to rise again, quickly, right after the election. Bush and company will restart their massive theatrical performance of real and implied violence against oil producing nations …




Letter Re: Investment Recommendation: Palladium

Dear Jim, My recommendation for an investment metal is palladium. The first thing we need to look at in relation to this is rhodium. As can be seen in the Kitco charts, rhodium’s value has gone to insane levels, due to a combination of supply troubles–Russia and South Africa are the primary sources, and neither is tremendously stable–and demand issues. As China and India develop, all the commodities will be more in demand, and India has made great strides in the last few years as is noted from this Indian American blogger. So the industrial metals in limited supply will …




The Developing Oil and Gold Price Divergence

You’ve surely noticed he recent huge drop in the price of crude oil (currently at around $62.50 per barrel, down more than 21% from its July peak of $78.40 per barrel.) Simultaneously, we have seen smaller, yet significant drops in the prices of gold and silver. (See the 30 Day gold and silver charts at Kitco.) Gold has dropped about 11%. The declines in the prices of the precious metals can be attributed to gut level trades made by the big institutional investors. Decades of experience has taught them that when oil moves significantly, then gold and silver will move …




Letter Re: Housing Market: An Analysis and Prediction

Jim: Dr. Kurt Richebächer’s “A Tightening Farce” featured in Wednesday’s September 13th, 2006 edition of The Daily Reckoning makes three salient observations about the way asset inflation in the housing market leads to economic dislocation. Item: “Housing price busts have larger wealth effects on consumption than the equity price busts [do]…” Item: “All major banking crises in industrial countries during the postwar period coincided with housing price busts.” Item: “The disinflation increased the real burden of debt, which exposed inflation-related overinvestment and associated financial frailty." A stock market crash primarily affects discretionary spending; a housing market crash will leave many …




Letter Re: ARM Twisting and the Nascent Real Estate Market

Mr. Rawles: I’ve been following the articles you post about the impending housing bubble burst, and I happened to see this article about Adjustable Rate Mortgages (ARMS) that backs up some info you had posted not too long ago. One interesting statistic I saw on page 4: “More than a fifth of option ARM loans in 2004 and 2005 are upside down — meaning borrowers’ homes are worth less than their debt. If home prices fall 10%, that number would double.” So 40+% of mortgages would be upside down, in an only 10% depressed market? Not looking good. I rent …




Letter Re: When the Economic SHTF, Which Way Will it Go?

James: I’ve been trying to figure out whether we’re going to go hyper-inflationary or depressionary when the ESHTF (Economic Schumer Hits the Fan). We’ve all been watching the .5 to 1 trillion in ARMs that are going to reset in 2007. Will this be what topples our economy? My money says yes. Here’s the housing bubble as I currently understand it. 1) 20% (more in California) of mortgages are adjustable rate mortgages (ARMs) 2) 50% of people lie on the mortgages applications overstating their income 3) Many brokers lie to the borrowers about how fast the payment will go up …




Letter Re: The Hazards of Even Non-Recourse Loans

Just a heads-up, lots of folks in place like California where non-recourse loans are mandated by law (at least for homes) feel pretty smug, thinking that even if they get upside down on a mortgage they can walk away without repercussions. Bad news: the IRS considers the amount of the loan “forgiven” by the bank to be income. That means, to use California numbers, if you owe $500,000 on a house which sells at foreclosure for $200,000, you now owe income taxes on your $300,000 in income you just “received”. Just a quick “report from the ground”, I live in …




Three Letters Re: The Ethanol Debate

James, Great site. Keep up the great work. Here are two interesting links about the market dominance of ethanol in Brazil: CBS News and Washington Post. Brazil plans to be energy independent by next year, based on conversion of sugar cane to ethanol. In comparison, the ethanol extracted from corn yields only about 15 to 25 percent more fuel than the fossil fuels that were used to produce it. In Brazil, according to industry studies, the sugar-based ethanol yields about 830 percent more. Sugar cane may not the answer here in the US, but it does show what can happen …




Some ARM Twisting in the Near Future

The mainstream media finally is starting to report on the nascent U.S. real estate collapse. The Los Angeles Times recently reported that perhaps as much as a half trillion dollars worth of adjustable rate mortgages (ARMs) in the U.S. will be “reset” in the coming year. The article mentions: “To head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, has begun sending out letters to thousands of borrowers who have been making only the minimum payments on the company’s popular PayOption adjustable-rate mortgages. The letters explain that ‘this is an early message to alert …




Letter Re: Australian Podcast on Peak Oil

Jim, There’s an excellent, very recent Peak Oil multi-part podcast at the Australian ABC site listed below. I found it informative, and also a good way to brake the news to my wife. She’s a type A personality that works ALL the time, but she doesn’t particularly keep up with world events. (Yes, it’s my fault. I should’ve brought her into the fold long ago.) It brought her to tears. Now I feel bad because I didn’t expect that…but, it had to be done. Since she’s a survivor, and smarter than I am, it’ll be good to have her help …




Letter Re: Real Estate Crash Followed by a Hyperinflationary Recession?

Mr. Rawles, Again, for your very useful posts, thank you. I have a question if you have the time. It was in regards to your real estate post: “My advice to home owners is pay it off and my advice to prospective home buyers is wait for the crash and pay for it with cash.” This is my current plan: I’ve sold my home and am renting now. But do you believe (in the hyper-inflation scenario) that there will be a lull to allow for your statement above? Will there be a time in between when recession/depression and when hyper-inflation …




Letter Re: Advice on Setting Up a Precious Metals IRA

Dear Jim: I am in the process of converting my U.S. Dollar-based Individual Retirement Account (IRA) into a precious metals IRA. 1.) Do you recommend it to be based in silver? Silver bars or Eagles? 2.) Or do you recommend (based on current prices,etc.) it to be in gold? Gold bullion or Eagles? 3.) Or do suggest a combination of both metals? If so what percentages and what types? Thanks again for you considered opinions. B’Shem Yahshua HaMoshiach Sar Shalom (In the Name of Yahshua the Messiah Prince of Peace) – Dr. Sidney Zweibel JWR Replies: If the storage fee …




Letter Re: James Kunstler at Midwest Renewable Energy Fair

Dear Jim: I was also at the Midwest Renewable Energy Association’s (MREA) Energy Fair, just about in the exact center of Wisconsin near Steven’s Point, a week ago. For me, the home tour was the most interesting part. For about $20 they load you on a school bus and take you to 4 local homes that had alternative energy incorporated into them. This included things like solar panels for electricity with a battery bank, heat pumps with in floor hydronic heating systems, soap stone fireplaces (like the Russian design) that burn 2 hours and radiate heat all day (some with …




Two Letters Re: The Current Ammo Shortage and Galloping Prices

Jim: Perhaps it’s a regional thing, but there seems to be an ammunition shortage in the United States. Here in NY, 7.62×39 has doubled in price in the past year. It is to $200 per 1,000 when you can find it. At last weekend’s gun show only two of the 40 tables were selling 7.62×39 and one of those vendors only had 500 rds. The bad news is thus that it is too late to stock up on cheap 7.62×39. The good news is that your investment in ammo [already] on hand has doubled in value. 308[Winchester] is still available …




Letter from David in Israel Re: Expected Near Future Prices for Precious Metals

James: Just a hint to my SurvivalBlog friends, if I had cash in the USA, then I would start buying gold now, and continuing to dollar cost average into the market since it may still go lower than Au @ $600 and Ag @ $11.02. Both are good investments for long term hedge/wealth preservation. Proviso for the record: I would never make a suggestion or advise in financial matters since that carries personal legal risk. I suspect that we are witnessing the final metals manipulation before Euro conversion of some oil trading and inflation driven dollar devaluation. Do some web …