Category: Economics & Investing

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 …


Letter Re: The “Sell Your House and Rent it Back” Option in a Falling House Market

James: In a recent e-mail, you suggested considering selling my house and renting for a period of time, or at least until the real estate bubble stabilized. [JWR’s replies are in-line, in bold text.] 1.) Do you still recommend doing this? Yes, if you are living in a bubble region that is likely to see steep house price declines. The big question now is: can you find someone willing to do this? A year ago or even just six months ago, it would have been fairly easy, since the market was still rising. Now, with prices falling, it might be …


Letter from Rourke Re: The Popping of the U.S. Housing Bubble

Dear Jim: I respectfully disagree that the housing “bubble has popped”. (You had written in Odds ‘n Sods: “Here in the U.S., the unsold house inventory backlog jumped to 565,000 in April. The housing bubble has popped. There are no more bidding wars for houses. Now its price cut after price cut. In the coastal markets, I anticipate a race to the bottom, most likely starting in September of Aught Six.”) Thankfully the air has been coming out very steadily of this overextended price balloon, without the blow-up or popping that could have occurred. As a Wall Street Journal article …


Letter Re: Content of Gold Bullion Coins and Numismatic Gold Coins

  Dear Jim, Regarding the metal content of gold bullion tokens: Gold Eagles are 22 karat, as are Krugerrands–the respondent in the old mail you quoted had that point wrong, too. (Where he claimed Eagles were less accepted than “pure gold” kruggerands (sic).) British Sovereigns are also 22 karat, with four coins equaling not quite one ounce of gold. Canadian Gold Maple Leafs, PAMP and Credit Suisse bars, and hallmarked bars and coins with .999 or .9999 are as close to pure as one can find. However, since it’s the gold content that is being traded, and that content is …



Letter Re: Potential Peak for Gold?

Mr. Rawles: The other day you mentioned some pretty outlandish predictions for gold and silver from the “gold bugs.” Just what are they saying, and how credible are their claims? I’d also like to hear your own estimation of gold’s potential. Thank You, – Mrs. F. JWR Replies: Some of the claims are indeed outlandish — like Roland Watson, who predicted $10,000 per ounce gold. (See below.) But it isn’t just die-hard gold bugs that are predicting significantly higher precious metals prices by the end of this decade. There are quite a few Wall Street wonks that are talking about …