International Forecaster Weekly

The Point Dume Club

The Point Dume Club... the madness of markets... Credit growth remains at record levels... reasons for war...

Bob Chapman | July 17, 2005

The Point Dume Club has become famous - a place in Malibu, CA where you can buy a two-bedroom, two-bath mobile home for $1.4 million. Even in Key West, FL similar dwellings sell for $500,000. The buyers do not even own the land these manufactured homes stand on. Space rent on that lot in Malibu is $2,700 per month.

This is the story of the madness of markets. It will end and when it does our nation will suffer greatly.

California median home prices rose $12,960 during May to a record $522,590. That is up 12.8% over the past year. Prices were up $138,120 over the past 18 months or 36%. Median prices were up $203,000 or 64% over three years and $302,180 or 137% over six years. Median condo prices were up $12,630 during May to a record $420,740 or up 14.9% since 5/04. Condo prices are up 40% over the past 18 months. Condo prices were up 74% over three years and 153% over six years. Sales are off 2.8% from a year ago. The inventory of unsold homes held at 2.8 months supply. This certainly cannot go on indefinitely. When the correction comes there will be lots of unhappy people.

Credit growth remains at record levels, which as you can see has led to an inflationary boom, irrespective of what the Bureau of Labor Statistics says about inflation. If you add in just higher energy prices you have an explosive situation. Not only is real estate a bubble, the whole economy is a bubble.

Even the types of jobs we work at are changing. So far this year only 10% of newly created jobs have been goods-producing, down from 2004s 16%. That is in spite of the addition of 151,000 construction jobs. In just six months 64,000 manufacturing jobs have been lost. In 2004, 74,000 were lost, so the trend is accelerating. On the other hand, the economy has added 976,000 service jobs this year, which is a slightly higher pace than last year.

After having lived in Southern California for 36 years it is hard to fathom the absolute madness of the real estate market. This is a good clinical example of what massive credit and no real rules can do to prices of real estate. We have waves and waves of refinancing. Some owners have refinanced four times. Then there are interest-only and adjustable rate mortgages and other exotic mutations. We are told all will be well and prices will just flatten out and we will all live happily ever after. Markets do not react that way, as we will see. The boom will not have run its course until previously unimaginable real estate excesses have wreaked havoc thought the system. The Fed was created in 1913 to end recessions and depressions and all it has done is control and create them. The Fed is supposed to preserve price stability. It has done just the opposite in collusion with both political parties and the BLS, Bureau of Labor Statistics. What they have done is deliberate. Their unrestrained, asset-based Wall Street finance has created bubbles and what they have done guarantees monetary disaster. We believe the financial system is entering a period where no one, not even the Fed, will be able to control it. There is certainly no way back. Thus, get ready for a very rough ride.

Americans do not realize it yet but gasoline, heating oil and oil derivative products are going to rise another 30-40% soon. This is a permanent change in the basic underlying cost of the products of oil. We will probably never see $40.00 oil again. Add this to over-extended credit, tremendous debt, no savings and the need for foreigners to finance our current account deficit, and you have trouble just around the corner. If the first quarter current account deficit is repeated for the remainder of the year it will be more than $900 billion. We believe the US is close to reaching the absolute limit of total world savings that is available. The public doesn’t understand and when informed could care less. By way of example, accumulated household debt in the first quarter was 56% higher than in the first quarter of 2000. Anyone who believes that can continue indefinitely is sadly mistaken.

For those of you who think US gasoline and diesel prices are high, in Germany a gallon of diesel is $5.45; regular gas is more than $6.00 a gallon and premium is $6.59.

Just as Congress did in the US after 9/11, UK ministers were preparing to rush through measures to arrest and detain suspects accused or believed to be associated with acts of terrorism. The resident moron in the White House was using the event to make sure that all appropriate agencies were responding in case the American people needed to be repressed.

Afghanistan, Iraq, 9/11, 7/7 and Madrid are all an extensions of political activity on the road to domination of we serfs as the elitists divine their New World Order. We don’t believe in lawful killing except in self-defense. Why the American people accept aggressive war for profit or political ends is beyond us. In fact, it is a tragedy of humanity. Terror is not defendable. It is the same as when someone wants to kill you. If they want they can. Terror is especially un-defendable when it is government sponsored and simply considered collateral damage. We are sad to say man has never been truly civilized – we are still barbaric societies. War and force are the politics of profit – war is a racket. Terrorism is a myth and fighting for liberty and freedom is more often also a myth. War means more debt and less physical safety for the populous of any nation. Government ultimately uses war for suppression and any government that starts wars is the anti-thesis of civilized government.