Buy Gold? Buy A Used Car Instead!

Why do people buy gold?

The smart ones do so not primarily because they’re looking to make money.

They are looking to not lose money.

That’s the sweet spot these days. Just trying to keep your proverbial shirt on.

Gold may not have the high rate of return that the casino called Wall Street offers … to insiders. But it is a really good way to store value – and that accounts for its popularity among people who may not get rich quick but tend to avoid becoming poor.

Used cars are another great way to transmute depreciating paper money into a durable asset that – like gold – is portable and fungible (i.e., easily converted into other things of value).

The government has inadvertently created a bull market for them, too.

First, it decreased supply via the infamous “Cash For Clunkers” program (“clunker” being defined not by mechanical condition, incidentally, but by the car’s gas mileage numbers) that paid people inflated sums of other people’s money ($3 billion of it) to turn in perfectly roadworthy used cars in for destruction … so as to “stimulate” demand for new cars.

This was like burning down every third house in a neighborhood. It had the effect of driving up the value of the now-smaller pool of used vehicles that remained available.

True story: Just before the CFC program, which launched in the summer of 2009, I bought a 2002 Nissan Frontier pick-up with about 49,000 miles on the odometer for $7,200. Today, six years after CFC (and 50,000 miles added to the odometer), the truck is worth $7,900 according to the NADA (see here).

Only the government could – in effect – pull a King Canute and cause the tides to ebb and flow in reverse.

You may have noticed that, to this day, used car prices (especially used truck prices) remain high – while new cars (and even new trucks) are often heavily discounted via “cash back” offers and effectively free loans at interest rates below the rate of inflation. This shouldn’t be surprising, given that the average new car now sells for more than $30,000 – while the average family’s annual income is less than $60,000.

Utopia Towels Shop Tow... Best Price: null Buy New $19.99 (as of 10:05 EST - Details) If the lending criteria used to approve mortgages applied to car loans, almost no one would be approved – because only a fool (or the Mafia) would write a loan to someone for an amount equal to half their annual pre-tax income.

Take home point? The new car market is as rickety as a Jenga castle and could topple at any moment. It is economically artificial, driven not by normal (healthy) demand but by heroin-like injections of too-good-to-be-true financing deals and cash-back offers that distort cost signals which – long term – cannot be sustained because you cannot indefinitely pay people to buy things, cars or otherwise.

And unlike home loans, car loans can’t be extended over decades to make the payments manageable. Six, maybe seven years at the most. Which is where we are right now. Beyond that lies the point at which the typical car is worth less than what you still owe – and not many people are going to sign up for a deal like that.

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