Buy A House With Silver

I had two purposes in writing today's commentary. The most obvious intent is to help people avoid committing financial suicide in our real estate markets. However, an equally important goal was to provide people with some sort of quasi-objective “measuring stick” to answer an important question: how high is “high”, when it comes to precious metals prices – and in particular the price of silver?

The first topic can be dealt with (in general terms) rather quickly. The criminal near-zero interest rates imposed on us by our banker-serving governments mean that any and every economy which allows such recklessness will always have a housing market in some stage of “bubble”.

Near-zero interest rates punish savers. When near-zero interest rates are combined with high inflation, this is nothing less than the economic rape of savers – the specialty of Western bankers. With savers forced to disgorge any/all savings (to avoid it being ‘stolen' via banker-created inflation), the first place capital flows in such situations is into real estate markets.

There are two reasons why real estate will always represent the first/worst bubbles to afflict such markets. First of all real estate is the most obvious asset-class to turn to in such circumstances. Secondly, many/most Western economies provide some level of subsidization for home-ownership – further “juicing” these real estate bubbles. The fact that the U.S. subsidizes home-buying more than any other economy is one of the reasons the U.S. housing market continues to represent the world's worst real estate bubble (with massive, systemic fraud being the other main driver).

In such circumstances, there is no such thing as “investing” in real estate – only in gambling on it. The exponential money-printing and near-zero interest rates have resulted in more capital sloshing around asset markets than at any other time in history – by a factor of ten. In such circumstances no one can attach a rational/objective assessment to home prices. With absolutely no way of determining how overvalued is any particular real estate market, then obviously any/every purchase is a gamble.

This means that any sane individual contemplating buying a home today would do only one thing: run! With no real estate market on the planet being a desirable place to invest our capital, the only sane strategy for future buyers is to delay buying a home – and instead to prepare to make that purchase under more optimal conditions.

While we wait for our interest rates (and eventually our housing markets) to return to sanity, the obvious step for future-buyers to take today is to buy silver – to reduce the price they ultimately pay for a house to a small fraction of current prices. The dynamics could not be simpler: house prices (in “real” dollars) will fall a long ways in most/all markets, while the price of silver is headed to many multiples of the current price. With both of these price-trends clearly telegraphed, there has rarely been such an obvious opportunity for a profitable arbitrage in all of history.

The best way I can attempt to describe/define this opportunity would be to provide an estimate of how much silver it will take to buy a secure, comfortable home: 500 ounces. This is a figure which I have seen quoted by more than one other writer, so I will presume they have looked at some historical data which suggests such a price-relationship.

I made no attempt to verify this, for two obvious reasons: real estate markets have never (collectively) been so over-supplied and over-priced in all of history. Conversely, in relative terms silver has not been this scarce in thousands of years. This means that as the “pendulum” swings back in these markets that at some point there will be an opportunity for people (in many parts of the world) to buy a house with less silver than at any other time in history. Thus, when I use an estimate of 500 ounces of silver to buy a home I'm not thinking of a “best-case scenario” (for silver-holders) but closer to a worst-case scenario.