Mars and Real Estate

Mars drew near to the earth this week; only twice in 60,000 years has it been so close.

Of course, we all now know that the planets have no effect on us. And certainly not on our financial lives. We’re too smart for that. We are all scientists now. We look at the facts before us and make our decisions based on reason and logic…not the tug of some dirt ball out in space.

“I’m not so sure,” said a guest at dinner on Saturday. “They must have some effect. I know that if I collect peach leaves by the light of a full moon, the liqueur that I make is better than if I collect them during the daytime.”

“Well…yes,” said another guest. “That is possible, but it is only because plants follow a daily cycle, with various photo-chemical switches turning on and off. At night, plants don’t have the same chemical make-up.”

“OK, but don’t we humans have switches, too? Aren’t we part of nature, and subject to natural forces?”

William Drummond, an English traveler in the 18th century had the good fortune to visit a French insane asylum. He reported that not all crazy people are the same. French lunatics act like French people, he noticed, not like English madmen. They were charming and mannerly; they made little jokes, he said. They were also cunning and untrustworthy. More French than mad, was his conclusion.

But he also noticed that the inmates at the Hotel Dieu became particularly agitated when there was a new moon or a full moon. This was neither an original nor unusual observation, nor does it bother the proud little man who thinks he thinks for himself. Of course they howl at the moon in a French insane asylum, because they are French…and mad to boot!

Occasionally, though, whole nations of supposedly sane and reasonable people seem to go mad. What else could you make of Germany during the Nazi period? What else could you make of the Tech Bubble in the late ’90s? And what else can you make of Las Vegas, 2005?

A bubble is an expression of a certain kind of collective madness. People lose their senses and come to believe the most extravagant things. In Las Vegas, today it is pure bedlam; people believe that there is no limit to the upward movement in property prices.

Under construction, or in planning, are 93 luxury condominium projects, including 175 towers, says an article on Ten thousand new units are expected within the next 12 months. Vacant land prices have soared 88% in the last 12 months.

“The only thing we know is it’s not going down in value,” said a local realtor of the Las Vegas market.

And yet, about the only thing one can ever be sure of is that prices go both up and down. It is mad to think anything else.

Directly beneath the article were three “sponsored links,” each one offering the same service: debt consolidation.

What do you think, dear reader? Are the condo flippers and house speculators making reasonable, informed choices? Or are they merely barking at the desert moon?

• “Do you see a bubble?” asks Fed chief-appointee Ben Bernanke. “I don’t see a bubble.”

“Do you see a bubble?” asks Treasury Secretary John Snow. “I don’t see a bubble.”

Alan Greenspan leaves his post on the 31st of January. He desperately hopes that nothing goes too wrong until then. Most likely, nothing will, but we notice disturbing signs.

Bloomberg reports that wages are rising more slowly than at any time in the last 24 years. If Alan Greenspan has performed such a good job of managing the economy, you might wonder why people are not earning more money.

Asian markets seem to be collapsing. Are they not anticipating a drop in U.S. consumer buying?

• Mortgage defaults are increasing.

And the price of gold is rising. Gold, we remind readers, was once Alan Greenspan’s choice for a central bank reserve. He said he thought any money system without gold standing behind it was a fraud, designed to cheat savers out of their money.

But people come to believe what they have to believe when they have to believe it. As Mr. Greenspan realized his ambition to become a powerful mover and shaker in Washington, he found that believing in gold was inconvenient. So, he became a believer in managed paper currencies, with no gold backing of any sort. During his reign at the Fed, more un-backed dollars were created than under all the other Fed chairmen who ever lived. Thus, Mr. Greenspan became the most anti-gold human being in history.

Since there is no danger that we will be appointed to the Fed, we can believe what we want. We can believe that Mr. Greenspan and his successors have become so good at managing the value of money — which is otherwise completely worthless — that gold really has become a relic of an earlier age. Or we can believe that human nature — still under the spell of planets, emotions, and undiminished temptations — makes un-backed money suitable for the gods, but not for man.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.