A gold bubble burst would hurt investors who dumped their portfolios into gold as a safe haven during the global financial crisis. nathalielaure/Flickr photo.

Talk of a gold bubble burst is spreading. Investors have perceived gold as a safe haven during the global financial crisis. But after rising in value steadily since October 2008, the gold bubble may be reaching the bursting point as the global financial crisis fades. If the markets continue to rally, the demand for so-called safe investments like gold will fall. For those investors who bought gold when it reached a record high of $1,266.50 on June 21, a further drop from the Aug. 3 level of about $1,185 could be disastrous.

Signs of a bursting gold bubble

Some say the gold bubble is about to burst because gold prices are too volatile. Brian Rezny at Seeking Alpha writes that India and China, the world’s first and second largest gold markets respectively, are buying a lot less gold. He said that gold is a commodity with a value based entirely on the assumption that it will increase in price. Gold became a safe haven during the global financial crisis based on perception. The only reason gold is valuable is because investors have believed it is valuable. A gold bubble burst would change that perception overnight.

Markets overreact to European credit crisis

One reason the gold bubble may be about to burst is because the markets may have exaggerated the effects of the credit crisis in Europe to the global economy, according to Ron Acoba at Daily Markets. With recent news about the surprise earnings of European and U.S. banks, Acoba said the effect of the credit crisis on their business turns out to be minimal. Rezny said that the gold bubble is about to “end in tears,” and that the recent decline in gold prices will get worse. He reminds us that back in 1980, gold was used as an inflation hedge, and it peaked at $850 an ounce. Adjusted for inflation, that $850 was equal to $2,300. And then it tanked, falling to $253 by 1999.

A safe haven gets risky

The gold bubble is precariously large as millions of people are buying gold. Celebrities are endorsing gold. Hucksters like Glenn Beck are convincing average people to dump a large percentage of their investment portfolios into gold — even their life savings — to be safe when the global economy collapses into the stone age. Beating Broke wonders what will happen if (when?) the economy recovers. Those who bought gold at $1,100 and $1,200 an ounce may see the gold price adjust back down to something like $800 or $900. If these investors lose 30 percent of their savings or portfolio, the gold bubble will burst. The price of gold will drop even further as people rush to sell off their holdings. True believers in gold will lose even more.

Small business lending is adapting to the credit crisis at Sam's' Club, which announced a program for easy small business loans online to Sam's Club members. Flickr photo.

Small business lending is adapting to survive. Small business loans have been an endangered species during the credit crisis, a stubborn legacy of the financial meltdown, housing crisis and Great Recession. But small business credit is making a comeback in unconventional ways, even as a miserly banking industry holds back the U.S. economy as it tries to fight its way out of the recession. The latest innovator is Sam’s Club, which announced a pilot program to offer small business loans to its members.

Innovative small business lending

The credit crisis is holding back the growth, hiring and spending of businesses that Sam’s Club wants as customers. MarketWatch reports that Sam’s Club, a unit of Wal-Mart Stores Inc., is testing a program to offer qualified members small-business loans from $5,000 to $25,000 backed by the Small Business Administration. Small business loans will be offered online to Sam’s Club membership through a partnership with Superior Financial Group. Members who apply for a small business loan online from Sam’s Club get $100 off the application fee, a 20 percent discount and a 7.5 APR. Terms are locked in for 10 years.

Small business consumer spending stimulus

Sam’s Club decided to start offering small business loans online after a company survey of small business customers indicated that tight credit was cutting into Sam’s Club retail sales. The New York Times reports that just less than half of Sam’s Club membership is small business customers, accounting for just more than half of its revenue. So far about 200 people have applied for the SBA loans and about 45 percent have been approved. The company says it does not expect small business loans online to be a big moneymaker, though it earns $50 for each financed loan. The payoff is to get consumers spending more freely — Sam’s Club hopes.

Another small business loan innovator

Small business credit also is loosening at some banks. Last week JPMorgan Chase announced a program to stimulate small business growth and hiring. The JPMorgan Chase small business loan program isn’t as accessible as the pilot for Sam’s Club members, but it represents another oasis in the credit crisis desert. The offer includes lowering the interest rate by 0.5 percent on a new business line of credit for each new employee hired, for up to three employees, for the life of the loan. The offer is available for businesses that qualify for lines of credit up to $250,000.

Small business lending motives

The Sam’s Club small business loans online pilot is looked upon as an unusual move for parent company Wal-Mart. MarketWatch reports that Wal-Mart has been accused of harming small businesses with its aggressive pricing, scale and business methods. And a report at bnet said Wal-Mart chose Superior Financial, which is not a bank, as a partner because ongoing efforts to add banking to its resume makes the financial industry nervous.

Small business loan success story

But Sam’s Club small business loan customers like Michael Golata don’t care about the politics behind the program. Golata, a contractor in Louisville, Ky., for United Parcel Service, told the New York Times that he applied online for a $10,000 small business loan  at 7.5 APR and got the money in 24 hours. He bought a new truck, hired three drivers and went from billing UPS $3,000 a week to $8,000.

A housing shortage in 2011 is forecast, caused by a credit crisis that is keeping homebuilders from adding to the inventory required to meet expected demand. Flickr photo.

A housing shortage will likely be another effect of the housing bubble, even after the housing market crash, foreclosure epidemic, credit crisis, massive unemployment and other hardships fade. When the U.S housing market crashed and took the rest of the economy down with it, banks stopped home lending, home buyers stopped buying and home builders stopped building. Unwilling banks have allowed apartment construction to dry up as well. Even with a glut of housing inventory in 2010 and an emerging shadow market of foreclosures, a housing shortage in 2011 is forecast when a growing population exceeds available shelter.

Housing shortage masked by market crash

A housing shortage in 2011 could happen as the economy recovers, jobs are created and the desire to create new households returns. CNNMoney.com reports that the nation is not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, less than half the long-term rate needed to meet population growth in the U.S. The housing shortage, which may already exist, has been masked by the housing market crash. When job creation returns, so will the home buyers. Pent-up demand could catch the U.S. housing market off guard, leading to a housing shortage and rising home prices.

Housing inventory won’t keep up

A housing shortage seems unlikely as the U.S. housing market has been preoccupied with foreclosures and excess inventory. But Forbes.com reports that if America can’t regain its focus on building homes, the housing market will have a much bigger problem. Brian Wesbury, chief economist at First Trust Advisors, told Forbes that 1.5 million houses a year need to be built to keep up with population growth. Current inventory of new and existing homes is enough to accommodate the housing market for about 7 months.

Credit crisis handcuffs homebuilders

The upcoming housing shortage is being boosted by the credit crisis. The Los Angeles Times reports that home buyers aren’t the only ones who have to deal with tight-fisted banks. Builders are having a hard time borrowing the money they need to buy land, develop lots and construct houses. Most builders aren’t starting houses today until they either have nothing else to sell or buyers have an approved mortgage application in hand. A builder is more likely to get credit now with a solid contract from someone who has a mortgage and doesn’t have another house to sell.

Rental market shortage worse

The housing shortage of 2011 is expected to hit the apartment rental market even harder. According to the National Association of Home Builders, new multifamily construction has been crippled by the credit crisis. That leaves the industry unable to meet the increased need for market-rate and affordable apartments that is expected to accompany economic recovery beginning next year. The two- to three-year timeline required to build apartment communities won’t be soon enough for a large number of Generation Y professionals and newly formed households expected to need them.

Lock in low rent now

The apartment shortage and increased demand will lead to higher rents. Mai Ling Slaughter at MSN.com says that the current market is on the renter’s side, with vacancies at a 30-year high and plenty of perks available for both current and new tenants, but it could all come to an end soon. Now may be the best time to sign an 18-to 24-month lease to lock in that low rent price.