Category: Invest with Alex

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Housing Market…Barbarians At The Gate

Reuters Writes: Home sales fall as prices rise

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WASHINGTON (Reuters) – U.S. home resales fell in October to their lowest since June due to an inventory shortage and high property prices that have dampened buying power.

The National Association of Realtors said on Wednesday that sales of previously owned homes fell 3.2 percent last month to an annual rate of 5.12 million units.

Economists polled by Reuters had expected sales to drop to a 5.13 million unit pace in October.

At the same time, the median price rose 12.8 percent in October from a year ago to $199,500. It was the 11th straight month of double-digit gains, and up from last month.

Real Estate fundamentals continue to deteriorate.  Over a month ago I went out on a limb and called for the real estate market top.  Here is that post and reasoning  I Am Calling For A Real Estate Top Here  Even though the price is still increasing in certain markets (as I have predicted), I continue to stand by my forecast.

So, what is the future of housing? To understand what’s coming we must first understand overall macroeconomic picture.  Most importantly we must understand that….

A. Historically speaking the real estate market is still in a massive bubble driven by cheap credit. There is no reason for housing prices to be at this level. As my earlier valuation work showed a 50% haircut from today’s levels would bring the prices into the “normal range” of where they should be.

B. I know that many people will disagree, but your house is not an investment. It is the place you live. It could be an investment if you view it as a business and generate positive cash flow and ROI from your rental. However, that is next to impossible with today’s market prices.  Essentially buying today (or over the last few years) is a speculation where you bet on asset appreciation Vs. positive cash flow.  That is a huge difference.

C. The stock market and the economy will tank starting in 2014. The bear market leg will go into 2017. My mathematical timing work clearly shows that. It is now unavoidable. In such a case housing will experience its 3rd leg down.  Typically, 3rd legs are much harsher than the first decline. The bottom line is, I wouldn’t be at all surprised to see a 30-50% haircut from today’s prices.

Taking an even longer view, eventually we must get to a point where real estate is not viewed as an investment. Where people feel discussed by the housing market. That will be the bottom. Today we are on the opposite side of that view. 

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Sorry. Christmas Has Been Officially Cancelled.

Bloomberg Writes: Wal-Mart Touts $98 TV in Weakest Holiday Season Since ’09

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U.S. retailers are discounting earlier than ever as they brace for the weakest holiday shopping season since 2009. Wal-Mart Stores Inc. is dangling a 32-inch flat-screen TV for $98, down from $148 last year. Sears Holdings Corp. has waived layaway fees and its Kmart chain is introducing a rent-to-own program. More than a dozen retailers are opening earlier, or for the first time, on Thanksgiving Day. Among the attention-grabbing stunts: a $1 million jackpot for one of the first shoppers to visit Gap Inc.’s Old Navy chain on Black Friday.

Faced with wary shoppers and a shorter holiday season, retailers are piling on deals as they jockey for market share during the most important sales period of the year. For the fourth year in a row, disposable incomes in 2013 have only inched up. As result, low-income Americans will again have a less-merry season than affluent consumers, who are more flush thanks in part to surging stock markets 

Read The Rest Of The Article Here

Just as I have predicted in my previous post about 6 weeks ago  “Who Else Wants To Cancel Christmas?”  this Christmas retail shopping season will be a terrible one.

The question is why? After all, Ben Bernanke, Janet Yellen, President Obama are all claiming the economy is doing better, the unemployment rate is going down and the real estate sector has made a full recovery. Plus, the stock market is hitting all time highs and if you listen to financial media the stock market is ready to go up another 50% in 2014. So, what gives? How come no one feels it.

It’s very simple.  The above mentioned things are merely an illusion. The average American family hasn’t benefited from any of those things. The financial bailout has been designed to bail out financial institutions and to make the rich richer by offering a select few access to FREE credit to speculate with.  Credit that largely has been unavailable to average Americans. Basically it is an unsustainable financial bubble that will blow up in 2014.  

I really hate Christmas, but I know that many people love it. So, here is my advice.  First, wait for as long as you can to buy Christmas gifts this year.  There will be huge discounts as we get closer to that MAGICAL f&#*ing day.  Second, enjoy it this year.  The Christmas of 2014-2017 will be terrible after the bear market feasts on the economy.

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Sorry. Christmas Has Been Officially Cancelled. 

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Your Secret Invitation To The Bull Orgy. Please RSVP asap.

Bloomberg Writes: Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win

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Carl Giannone says he’s given up hunting for quality stocks. Now he’s simply riding the wave of upward momentum in the U.S. market. “It’s a game of musical chairs,” said Giannone, who manages an equities team at T3 Trading Group LLC in New York. “You just want to make sure you can sit down.”

The Federal Reserve’s near-zero interest rate turns five years old next month, the longest period without an increase in history. Coupled with more than $3 trillion of asset purchases, it adds up to “Bernankecare,” said Joshua Brown, chief executive officer of Ritholtz Wealth Management in New York. And it’s causing parts of the market to behave strangely. Stocks of companies with weak balance sheets are rising twice as fast as stronger ones; junk borrowers get rates lower than their investment-grade counterparts did before the credit crisis; and initial public offerings are doubling on their first day of trading.

While in the minority, some investors say prices have climbed so high it’s possible to look ahead and see an ugly end.Laurence Fink, chief executive officer of BlackRock Inc., the biggest U.S. money manager, said in an interview with Bloomberg Television on Nov. 12 that he feared a bubble and the Fed ought to quit buying so many securities.

Read The Rest Of The Article Here

Have you ever seen a real bull orgy? I haven’t, but a fathom it would be a fairly gross site to feast your eyes upon. Luckily for you can see an artificial one by turning on CNBC or reading any other kind of financial media. Bulls are salivating over each other, predicting the DOW at 20,000, 25K, 50K, to infinity and beyond. It’s quite entertaining to watch.

The article above is right on the money. At this stage everything is in the speculative bubble that will pop and it has become a game of musical chairs. However, that is not why I bring this up. I want to point your attention to a psychological breakdown of market participants. We all know the saying “Buy Low Sell High” or “Buy When There Is Blood On The Streets”, yet not a single person I know actually does it. 

Case and point, March 2009 bottom. Not a single person I know, not on TV or elsewhere advocated buying. No, they were all talking about the end of the world, how low the market will go and what stocks to short best. The blood was running on the street, the stocks were being given away and these fools couldn’t see the forest through the trees. Now the situation is completely reversed. When everyone should be selling and/or going short, everyone is screaming BUY, BUY, BUY.  It’s a fools game and if you buy today you are that fool.  I guess human psychology, the primary driver behind the stock market, will never change.

With such a backdrop it is very nice to know exactly when the Bear leg of 2014-2017 will start and the damage it will do. While Bulls are busy having their orgy, the market is getting ready for a massive haircut. You have been warned. 

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Larry Summers Predicts Doom And Gloom. I Agree.

 BusinessWeek Writes: Larry Summers Has a Wintry Outlook on the Economy

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Larry Summers, the man who was almost chairman of the Federal Reserve, is surprisingly gloomy about U.S. growth prospects. In a recent speech at the International Monetary Fund, he suggested the U.S. might be stuck in “secular stagnation”—a slump that is not a product of the business cycle but a more-or-less permanent condition.

Summers’s conclusion is deeply pessimistic: If he’s right, the economy is incapable of producing full employment without financial bubbles or massive stimulus, both of which tend to end badly. The collapse of the debt-fueled housing bubble led to the financial crisis of 2007-09, and some policymakers worry that the Fed’s easy-money policy is setting the economy up for another fall. Witness the Dow Jones industrial average at 16,000.

“Conventional macroeconomic thinking leaves us in a very serious problem,” Summers said in his speech. “The underlying problem may be there forever.” He added: “We may well need in the years ahead to think about how to manage an economy where the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential.”

Read The Rest Of The Article Here

Mr. Summers is right on the money.  Exactly as I have argued before, we now know the true reason behind his candidacy withdrawal from FED Chairmanship role.  Unlike Janet Yellen who is a cheerleading fool who believes she can control the markets, Mr. Summers has a clear view of what’s coming.

He doesn’t want to be at the helm of the next substantial economic and financial market downshift that will start in 2014. Further, he is very well aware that the FED is the primary source of the problem. Instead of creating economic stability and an environment that is conducive to productive capital allocation, the FED’s have blown bubble after bubble in order to give the appearance of economic stability. Yet, any such economic stability is a mirage at best.  In reality it is a ticking time bomb. 

If we can learn anything from history, every financial bubble eventually bursts. Some spectacularly so and some with the whimper. As my timing work illustrates, the bear market will start in early 2014 and complete itself in 2017. I expect to see some fireworks as the market deflates back to where it should be. 

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The Secret Behind China’s Brilliant Population Control Strategy

Bloomberg Writes: Like Its Neighbors, China Struggles With an Aging Population

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China’s population is aging, largely because of the one-child policy in place for decades.

With China’s population likely to peak by 2020 and then start declining sharply, the government will have no choice but to act soon, according to Ting Lu and Xiaojia Zhi, China economists with Bank of America Merrill Lynch (BAC) in Hong Kong. “We are highly convinced the Chinese government will announce a significant change (allowing families to have two children if at least one parent is a singleton) to the outdated one-child policy in the next few months,” write Lu and Zhi in a new report.

Further details of party policy decisions published Friday by the official Xinhua News Agency show that change is indeed coming: Couples will be able to have two children if either parent is an only child….

Read The Rest Of The Article Here

When it comes to population control and its future economic growth I am not sure what to think here. China is either performing brilliantly or has dropped the ball big time.  

From the initial analysis it looks China has dropped the ball by about 10-15 years and that gap will cause significant disturbance in both the Chinese Economy and Chinese Society. Yet, if you look at the situation from an analytical standpoint, they might be right on the money. Unlike the US, China doesn’t have massively underfunded entitlement programs like Social Security and Medicare. As such, China’s generational transition will be much easier. Further, China’s government doesn’t have to worry that much about its older generation.  Chinese family structure requires younger generation to care of the older one, taking the government out of the equation and making things much easier (unlike in the US).

As such, I believe China is executing its population control strategies perfectly by now allowing couples to have more than one child. If these laws work as anticipated and lead to a baby boom in China, it will give the Chinese economy another  boost in growth in about 20 years.  

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Warning: New FED’s Chairman Janet Yellen Is A Lying Idiot

Bloomberg Writes: Yellen Signals Continued QE Undeterred by Bubble Risk

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Janet Yellen indicated she’ll press on with the Federal Reserve’s unprecedented monetary stimulus until she sees a robust recovery, downplaying risks the policy is inflating asset bubbles.

“I don’t see evidence at this point, in major sectors of asset prices, misalignments,” she said yesterday during her confirmation hearing to be the next Fed chairman. “Although there is limited evidence of reach for yield, we don’t see a broad buildup in leverage, where the development of risks that I think at this stage poses a risk to financial stability.”

Yellen signaled her determination to use bond buying to strengthen the economy and drive down the nation’s 7.3 percent unemployment rate.

Read The Rest Of The Article

Janet Yellen is either a lying idiot who doesn’t understand economics  or she is just a lying idiot. Why? For a couple very simple reasons.

First,  anyone with a keen understanding of today’s economic environment would run away from this job. Only a fool without an understanding of where we are in the economic cycle would take it. Let’s put it this way. Would you take a job as a CEO of the company that seems to be doing fine, but you know is massively cooking its books? You know the company is essentially insolvent and the truth will come out shortly. You also know that if you take this job you would be blamed for the upcoming collapse. Would you take that job? Of course you WOULDN’T.  You don’t need that in your life. So, Janet Yellen either has an overinflated ego where she believes she can control and manipulate financial market OR she simply doesn’t understand today’s economic environment. Either way, its not a good start.

Second, she signaled further stimulus by pumping even more money into the economy if need be and stated “I don’t see evidence at this point, in major sectors of asset prices, misalignment”.  Well, there is so many things wrong here that I don’t know where to begin. As I have said before, we are in the largest financial bubble the history has ever seen.  Surely the FED’s see it, yet they continue to lie for the sake of stability. Yet, such stability can only exist until the markets have their first seizure. Thereafter, relative stability will translate into massive volatility.

The best thing about financial markets is that they teach all idiots a lesson. I was one of those idiots once, but now it’s Janel Yellen’s turn.  I wish you luck Janet. The bear market of 2014-2017 (as per my timing work) will teach you a valuable lesson. 

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Shocking Federal Reserve Admition…..We Are Destroying The US Economy

Business Insider Writes: Fed Official Who Helped Orchestrate QE: ‘I’m Sorry, America,’ QE Really Was A Huge Wall Street Bailout

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Andrew Huszar, a former Federal Reserve employee who executed QE, has written a Wall Street Journal op-ed apologizing for the “unprecedented shopping spree.”

Huszar worked at the Fed for seven years before leaving for Wall Street. The central bank recruited him back in 2009 to manage “what  was at the heart of QE’s bond-buying spree–a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months.”

“I can only say: I’m sorry, America,” Huszar writes. From the Journal:

It wasn’t long before my old doubts resurfaced. Despite the Fed’s rhetoric, my program wasn’t helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn’t getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street’s leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.

Huszar argues that QE, while “dutifully compensating for the rest of Washington’s dysfunction,” has become Wall Street’s new “too big to fail.”

There you go everyone. In this stunning admission Mr. Huszar clearly confirms everything that I have been talking about on this blog. Basically, the FED’s are destroying the US Economy at the expense of the middle class and for the benefit of the wealthy, the banks and the Wall Street.

I know what you are thinking.  At the initial glance the strategy seems to be working. After all, the economy “seems” to be doing fine and while the unemployment is still relatively high, it is getting better. The stock market is hitting all time highs and the future looks bright.  However, such a positive view is highly distorted.  It is equivalent to smoking crack and claiming that you feel great.  Certainly you would, but only for a short while. Should you continue the behavior you will eventually die.  

The US Economy and its entire financial system is in the same situation. Things seem fine,  but that’s just a temporary illusion. As my timing work indicates, the economy and our financial markets will begin to have deadly seizures in early 2014. 

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Top Secret: Camel Business Will Be Booming Soon In The Middle East

CSM Writes: US to be No. 1 oil producer, but it won’t last

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The US will lead the world in oil production for two decades starting in 2015, according to a new report. After that, OPEC will reassert its dominance in oil production.

The US is poised to become the world’s largest oil producer beginning in 2015. But its reign will be fleeting as the Middle East reasserts itself two decades from now.

Why? America’s oil boom won’t last forever, according to an annual outlook released Tuesday by theInternational Energy Agency (IEA). And the technologies that have fueled that North American boom in shale rock formations won’t be easily replicated in the rest of the world. 

“The capacity of technologies to unlock new types of resources … and to improve recovery rates in existing fields is pushing up estimates of the amount of oil that remains to be produced,” reads the Paris-based agency’s report. “But this does not mean that the world is on the cusp of a new era of oil abundance.”

Read The Rest Of The Article Here

In a  bit of a good news,  this is a positive development for  the US Economy and the consumer. While this positive development will not have an immediate impact on the financial markets, over the next decade it will be a huge positive for the overall US Economy.

Just as the US will be the clear winner, there will be many losers who rely on the high price of oil to sustain their faltering economies. Most notably, Russia and most of the OPEC members.  Going forward, the US should use this 20-30 year window of opportunity to make a massive investment into renewable energy and new technologies to try and completely eliminate oil dependence. I believe it’s possible and if done right should set the US Economy for massive economic growth over the next 30-50 years.  At the same time, if such independence is achieved, middle east countries like UAE (Dubai) and Saudi Arabia will face the full force economic pain.  

Even though they have built massive cities and infrastructure I do not see how such cities can be sustained without oil money. I believe it was one of the Sheikhs who said something along the lines of (and I am paraphrasing here ) “Our fathers rode camels, my children and I ride in Mercedes and my grandchildren will ride camels again”.  It looks like his wisdom might become a reality.  

So, is now a good time to start investing in a Camel Business? 

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Fed’s Biggest Crime

AFP Writes: Fed’s Biggest Win? Bailing Out Subprime Companies

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One of the quieter, yet most emphatic, successes of the Federal Reserve’s long-running easy-money campaign has been the way it has bailed out subprime corporate borrowers. It’s almost as if the Fed has made it “too hard to fail” for mid-sized to large companies with lower credit ratings.

By keeping short-term rates at zero indefinitely and exchanging a fresh $85 billion a month for Treasury and mortgage bonds held by banks and investors, the Fed has stoked investor risk appetites, compressed debt costs dramatically and loosened credit conditions for most decent-sized borrowers. 

Junk-bond yields have fallen so far they no longer merit their longtime euphemism of “high-yield debt.” Junk benchmarks now yield around 5.7%, levels that high-grade companies used to be pleased to borrow at. Through most of the 30-year history of the modern junk-debt market, yields were in the double-digits, and in the panic of late-2008 they exceeded 20%.

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I am beyond sick of this stupidity.  This is equivalent to saying that the Federal Government has won the war on drugs by artificially lowering the market price of cocaine.  No difference.

When will people learn that there is no free lunch in financial markets or anywhere else for that matter. Yes, the scheme might work for a while but when it eventually blows up the economic fallout from such a destabilization will be far worse than simply letting these “subprime companies” fail to begin with. We do not need to go far to see the outcome.  This has already been tried by Japan since the early 1990’s where they have done anything they could to keep Zombie banks and companies alive by following the same idiotic rationale.

The outcome? Well, almost 25 years of deflation and an economy that went from one of the most efficient and powerful economies in the world to a shell of its former self. That is the outcome of economic stupidity. Now the same outcome faces the US Economy. Thanks a lot for your brilliance FEDs.    

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Warning: Russian Economy Is About To Implode

AFP Writes: Putin’s failure damning Russia to low growth trap

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Moscow (AFP) – Russia’s failure to significantly change its energy-dependent economic model under President Vladimir Putin is consigning the country to potentially decades of low growth and eroding its status as a top emerging economy.

The Russian economy ministry on Thursday dramatically confirmed what was obvious to many, by downgrading its estimate of Russia’s average growth to 2030 to a paltry 2.5 percent, a far cry from over seven percent rates in the early Putin years.

“The pace of Russia’s economic growth will fall behind the global average in the forecast period,” admitted Economy Minister Alexei Ulyukayev.

This year even Russia’s official forecast puts 2013 growth at just 1.8 percent. But most worrying for the Kremlin is that the weakness cannot just be blamed on external factors but stems from domestic shortcomings.

The Russian economy faces a daunting list of troubles –- a declining population, the re-emergence of the United States as a rival energy superpower due to shale gas, and the government’s colossal spending on defense that stretches the budget.

These factors are compounded by Russia’s failure to stimulate private enterprise, reform the judicial system, improve labor productivity and turn the Russian economy into more than a lumbering energy producer.

Read The Rest Of The Article

Russia is screwed. Big time.

The only thing that kept Russia afloat over the last decade or so is high energy prices. Now that energy prices are down substantially and with no indication for them to recover, Russia is standing on the edge of the cliff looking down into abyss. No doubt, there are multiple structural problems in Russia (aging population,  low energy prices, corruption, etc…), however, the biggest problem is psychological/cultural. 

Having lived in both Russia and the USA I know exactly what I am talking about. The difference between the two economies is as follows.  In the USA everyone knows that they have unlimited potential in terms of starting their own business and trying to get rich. Everyone has an understanding that if they work hard, risk, sacrifice and get lucky, there is really no limit to what they can accomplish. As a result, everyone tries to excel at something and you end up with a highly diversified economy benefiting all.

That part of the equation is gone in Russia.  Culturally people do want to get rich, but they don’t want to work for it. They want it to happen overnight and the only way to do that is too steal or take something away from someone or to be corrupt.  That is how most “New Russians” got rich and that is what most Russians aspire to.   

Given this reality, I do not see how Russia will amount to anything anytime soon. The fact that their economy will suffer over the next decade is now a certainty. The only way to fix it going forward is to change the culture or to change the psychology.  Unfortunately, I do not see that happening anytime soon. 

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