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What Happens When Blackstone Starts Dumping Real Estate At Market?

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In another sign that the “Dead Cat Bounce” for the Real Estate market is now over, Blackstone Group has announced that it’s real estate acquisition pace has slowed 70% from last years pace due to higher prices. In fact, this is the trend seen across the industry. Investors, hedge funds, institutions are all slowing down their real estate acquisitions to the tune of 70-90%.  

“The institutional wave has passed,” Gray, who oversees almost $80 billion in property investments, said in a telephone interview. “It’s at a much lower level than it was 12 or 24 months ago.”

What happens next?

Easy. The real estate market might hover here for some time. Not too long thought. As soon the Bear Market of 2014-2017 hits and the US falls back into a severe recession, you will see housing going down once again. Once investors realize where we are in the real estate cyclical composition (dead cat bounce and not expansion) you will see the likes of Blackstone trying to get rid of their properties as fast as possible. With investors heading for the doors, mass volume of real estate should hit the market. Collapsing existing values just as fast, if not faster, than their initial ascend between 2010-2014. 

Good luck selling your 43,000 rental properties Blackstone. 

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What Happens When Blackstone Starts Dumping Real Estate At Market?  Google

 

 

 

Blackstone Group LP (BX) is slowing its purchases of houses to rent amid soaring prices after a buying binge made it the biggest U.S. single-family home landlord.

Blackstone’s acquisition pace has declined 70 percent from its peak last year, when the private equity firm was spending more than $100 million a week on properties, said Jonathan Gray, global head of real estate for the New York-based firm. After investing $8 billion since April 2012 to buy 43,000 homes in 14 cities, the company has narrowed most of its purchasing to Seattle, Atlanta, Miami, Orlando and Tampa.

“The institutional wave has passed,” Gray, who oversees almost $80 billion in property investments, said in a telephone interview. “It’s at a much lower level than it was 12 or 24 months ago.”

Private-equity firms, hedge funds, real estate investment trusts and other institutional investors have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35 percent from the 2006 peak and rental demand rose from the almost 5 millionowners who went through foreclosure since 2008. PresidentBarack Obama credited the investors for helping put a floor under the plunging housing market and consumer advocates such as the National Community Reinvestment Coalition later blamed them for soaring prices in some cities.


Photographer: Victor J. Blue/Bloomberg

Blackstone Group LP Global head of real estate Jonathan Gray said, “The institutional… Read More

Foreclosures Fall

American Homes 4 Rent and Colony American Homes, the second- and third-largest single-family landlords, also have been scaling back as bargains dry up. Home prices have risen 24 percent since a post-bubble low in March 2012, which was about when corporate buyers started their buying spree, according to the S&P/Case-Shiller index. The rate of U.S. foreclosure startsfell to its lowest level in eight years in the fourth quarter as higher prices allowed more delinquent homeowners to sell without taking a loss, according to the Mortgage Bankers Association.

Jade Rahmani, an analyst for Keefe, Bruyette & Woods Inc., said large investors are focusing on fewer locations as they gain experience and prices go up.

“Home prices have increased, which narrows the acquisition opportunity,” Rahmani said. “In addition, these companies have done this for a certain amount of time and there are lessons learned.”

While institutional purchases nationwide fell to a 22-month low in January, corporate investors were more active in the Atlanta region, buying 25 percent of homes sold, according to data firm RealtyTrac. That helped drive up Atlanta prices 37 percent since the March 2012 trough.

Outbidding Homebuyers

Last week, a group of 80 tenant and neighborhood advocacy organizations, including the National Community Reinvestment Coalition and the National Consumer Law Center, asked federal regulators “to address first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues flooding into local housing markets.”

Gray, 44, said the influence of corporate investors on home prices has been exaggerated. They represent at most 10 percent of the 2 million homes bought by investors in the last two years, according to Rahmani, the analyst.

“There’s a narrative out there that institutional buyers are driving the market,” Gray said. “But the reality is that institutional buyers are in a relatively limited number of markets, their buying is tapering and yet home prices continue to go up at a pretty strong clip nationally — even in markets where institutional buyers haven’t purchased a single home.”

American Homes

At the height of its activity, Blackstone’s Invitation Homes LP made purchases that may have comprised as much as 6 percent of sales for several months in one or more of its 14 markets, Gray said. This may have had a short-term impact on prices, he added.

“We definitely helped alleviate excess distressed housing stock,” he said. “We weren’t 5 or 6 percent for a sustainable period of time in any market.”

After collecting more than 21,000 homes in 42 markets, American Homes 4 Rent (AMH) has slowed its buying in some locations, chief executive officer David Singelyn said at a March 5 investor conference in Florida. The benefit of being in 22 states is that the Agoura Hills, California-based company has the ability to move within many locations and “buy as the opportunities ebb and flow,” Singelyn said.

Colony Financial Inc. (CLNY), a REIT that invests in Colony American Homes, slowed its funding for acquisitions last year to focus on improving operations, CEO Richard Saltzman said in a November conference call. Colony Financial has been gradually allocating less to the landlord business and capped its investment at $550 million for the quarter ending Dec. 31, Saltzman said last month.

Slowing Purchases

Colony American, which owns 16,000 homes, declined to comment, according to Owen Blicksilver, an outside spokesman for the Scottsdale, Arizona-based landlord. American Homes 4 Rent Chief Financial Officer Peter Nelson didn’t reply to a phone message seeking comment.

American Residential Properties Inc., a landlord with 6,000 homes, slowed acquisitions by almost half in its latest quarter ending Dec. 31. It invested $104 million in 633 homes compared with $204 million on 1,251 homes in the previous quarter, the Scottsdale, Arizona-based company said in a statement.

“We intend to maintain the pace of our acquisition activity at roughly the same rate we had in the fourth quarter,” CEO Stephen Schmitz said in an earnings conference call yesterday.

Ramping Up

Some corporate rental companies are still focused on growth.

“We’ve been ramping up acquisitions,” David Miller, CEO of Silver Bay Realty Trust, which owned 5,642 homes as of Dec. 31, said in a conference call with investors last week.

“Looking ahead, we plan to acquire in Florida and Texas while opportunistically adding properties to our Atlanta market and perhaps other markets as well.”

While their acquisitions slow, Blackstone and Colony are extending their reach into the rental business by offering financing to smaller landlords. Last month, Blackstone’s B2R Finance LP originated its first loan for $5.7 million and Colony formed a joint-venture with plans to originate $1 billion in landlord financing this year.

Both companies plan to package the loans as mortgage-backed securities, similar to Blackstone’s $479 million bond issue in October, the first securitization of single-family rental properties.

Long Haul

That’s concerning to U.S. Representative Mark Takano, a Democrat from California. This month he called for the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, the Securities and Exchange Commission and the Treasury to report on the possible risks of “the recent increase of investor owned rental properties and the development of single-family rental-backed securities.”

Institutional investors are not going away even though their size will remain a modest part of the market, Gray said.

“We’re not selling the homes. We’re building a long-term business,” he said.

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China Warns West: We Stand With Russia, Stop Your Sanction Madness

If you’ve had any doubts who China aligns itself with, those doubts should now be gone. In no uncertain terms China warned the West to “Back Off” from any sanction threat against Russia. In fact, according to the Chinese any sanctions against Russia can spiral into a chain of events with unforeseeable consequences. I tend to agree. 

If you look at Russia at this juncture, Putin is in no mood to mess around. Should the West push forward with sanctions, the EU might find itself on a receiving end of Putin’s wrath. If sanctions go through two things will happen immediately. In defiance, Putin will immediately invade Ukraine (flipping the proverbial bird to the West) and possibly shutting down gas/commodity supplies to the West. Or he can demand payment for gas in gold. Whatever the case, this will send a massive economic shock wave throughout the EU and start the “Dangerous Spiral” China is talking about.  

Let’s see who blinks first.  

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China Warns West: We Stand With Russia, Stop Your Sanction Madness   Google

China warns of dangerous Russia sanctions ‘spiral’

(Reuters) – China’s top envoy to Germany has warned the West against punishing Russia with sanctions for its intervention inUkraine, saying such measures could lead to a dangerous chain reaction that would be difficult to control.

In an interview with Reuters days before the European Union is threatening to impose its first sanctions on Russia since the Cold War, ambassador Shi Mingde issued the strongest warning against such measures by any top Chinese official to date.

“We don’t see any point in sanctions,” Shi said. “Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences. We don’t want this.”

The interview was conducted on Wednesday, the same day that the EU agreed a framework for sanctions that would slap travel bans and asset freezes on people and companies accused by Brussels of violating the territorial integrity of Ukraine.

German Chancellor Angela Merkel, who has taken the lead in trying to mediate in the crisis, has said the measures, which mirror steps announced by the United States, will be imposed on Monday unless Russia accepts the idea of a “contact group” to resolve the crisis diplomatically.

Using her toughest rhetoric since the crisis began, she warned in a speech in parliament on Thursday that Russia risked “massive” political and economic damage if it did not change course in the coming days.

Russia’s Deputy Economy Minister Alexei Likhachev responded by promising “symmetrical” sanctions by Moscow.

But Shi urged patience, saying the door for talks should remain open even after a referendum on Sunday in which Ukraine’s southern region of Crimea could vote to secede and join Russia. Merkel and other western leaders have denounced the referendum as illegal and demanded that it be canceled.

“We still see a chance to avoid an escalation. The door to talks is still open. We should use this possibility, also after the referendum,” Shi said.

Chinese President Xi Jinping, who will visit Berlin and other European capitals later this month, held separate phone calls on the Ukraine crisis with Merkel and U.S. PresidentBarack Obama earlier this week.

But beyond urging restraint and dialogue, China has shown little public interest in becoming involved diplomatically, a stance that is in keeping with its low-key approach to many international crises.

Still, Ukraine presents Beijing with a dilemma. On the one hand it is a traditional ally of Moscow and has routinely sided with its northern neighbor in major international conflicts. On the other hand, the question of territorial integrity is a tricky issue for the Chinese because of Tibet and Taiwan.

If the West’s confrontation with Russia over Ukraine worsens in the coming weeks, Xi’s visit, the first by a Chinese president to Germany in eight years, risks being overshadowed by the crisis.

Before coming to Berlin, Xi is due to attend a nuclear security summit in the Netherlands which Obama, Merkel and dozens of other world leaders will attend. He is also due to visit Paris and Brussels.

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The Secret To Chinese Real Estate

Chinese Real Estate is in a league of its own. Unlike the US/Canada/UK/Australia where real estate is a function of simple overvaluation and speculation, China took real estate to a whole new level of ridiculousness. Massive developments, empty cities and massive empty shopping malls.  In fact, real estate speculation has became a nationwide pass time. Last time I was there I heard the same thing from many very well to do and very smart Chinese “Our government will not let real estate collapse or even decline and because of that our real estate market will continue it’s climb….forever.”  You can read my previous post here. 

Sure, whatever makes you sleep better at night. 

Now, the Chinese Communist party is delusional enough to believe they can control the real estate market (or any market) and let it slow down “Softly, Softly”. With the Chinese economy finally showing major cracks and with the US bear market just around the corner, I highly doubt that Chinese real estate sector can escape carnage. Oh, and don’t forget the following numbers for China

  • $21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth. 
  • $6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.  

 

china empty cities

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The Secret To Chinese Real Estate Google

China Premier Li Chooses ‘Softly, Softly’ Approach to Property Market

China’s property moguls probably sighed in collective relief when the curtain came down on the annual session of parliament Thursday and there was no announcement of any new measures to keep real-estate prices from spiraling higher.

While the annual event is known more for ceremony than substance, it does give the senior Communist Party officials—the ones who really run the show—a chance to make important pronouncements on policy matters.

The parliament session opened with much fanfare but it paid only minimal attention to the housing market, where prices have continued to march higher despite more than four years of government-control measures.

The last chance for an unpleasant market surprise was the premier’s news conference Thursday morning, which traditionally is the final event on the parliamentary program. Premier Li Keqiang was asked directly whether there were any new policy measures planned that might affect the property market. He trotted out a time-worn line about ending speculation and building more affordable homes.

He could have said a tax on property values – now being used on a trial basis in Shanghai and Chongqing – would one day be rolled out more widely. But he didn’t.

He could have threatened a host of other tightening measures if there are more price advances like the nearly 11% year-on-year gain in February, according to a major private-sector survey. But he didn’t. And he could have vowed to get tough with speculators who ignore government efforts to curb price rises. But he didn’t.

The premier’s quiet approach followed the remarks of Finance Minister Lou Jiwei, who told reporters during the parliament session that a hefty tax on profits from home sales—one that has encouraged some people to divorce just to avoid paying it—was “defective.”

The policy shyness probably reflects the fact that the property sector is a key source of economic growth, which is now showing signs of flagging. Beijing has set a target of about 7.5% growth this year, and Premier Li said Thursday he is confident growth will be in a “reasonable range.”

But a raft of economic data released Thursday suggests that growth at the start of the year was fairly lackluster. Industrial production, retail sales, fixed-asset investment data and even property construction figures were released later in the day, and all looked disappointing. New construction starts—measured in terms of area—were down 27% from a year ago.

“[Decision makers] recognize a key role investment plays in boosting growth,” said ANZ economist Liu Li-gang, noting the softer tones of the premier’s remarks.

Others agreed.

“The officials are signaling that they do not want to intervene in the property market, but this doesn’t come as a surprise. They have been doing that quietly for the past year,” said Rosealea Yao, an analyst at GaveKal Dragonomics.

While the premier’s rhetoric was “softly, softly,” it was loud enough to be heard on the stock market. Property stocks eked out a 0.6% gain Thursday on the Shanghai bourse and they were up 1.5% from March 5, when the parliament session began. Analysts said that reflected relief that no new property measures were in sight. The Shanghai bourse as a whole, by contrast, fell 2.5% over the parliament session.

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Yo Canada, Your Real Estate Is Way Overpriced. Crash Coming?

If you thought California real estate was expensive, take a look north of the border. The situation in Canada is equivalent to the hottest markets in the US, with one primary difference. Canadian real estate was a late bloomer and their speculative cycle didn’t really get going until after 2002. Since their real estate cycle was about 8 years behind, they were not impacted by the real estate collapse in the US. Further, when the next round of financing (by the FED) showed up in 2008, Canadian Real Estate simply continued to accelerate as if nothing had happened. 

Basically, Canadian real estate is where the US real estate was 8 years ago. The cycles confirm that as well. When this particular liquidity party ends (happening now) and the stock market shifts into the bear market of 2014-2017, I would fully expect Canadian real estate to collapse. It is never different. 

Garth Turner’s Blog “Greater Fool” is a great place to follow Canadian Real Estate if you wish. Click Here. 

Please see the full report below.  

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Yo Canada, Your Real Estate Is Way Overpriced. Crash Coming?  Google

From Our Friends At Doctorhousingbubble.com

I really enjoy Canada.  A beautiful country with great cities and fantastic food.  Leave it to our neighbors to the north to show us how it is done for a real housing mania.  For the first time in history we have experienced coordinated global housing bubbles courtesy of central banks following very similar policies.  The addiction to debt isn’t only a U.S. born condition.  While the recent U.S. market is dominated by low supply and massive investor buying, Canada continues to see rising home prices even right through the global Great Recession.  The Canadians interestingly enough also face similar dilemmas between older and younger generations.  Many young professionals are fully priced out of the real estate market even when they are working at relatively good careers.  Many battle it out in the condo markets were even in this market prices are inflated.  Canada has an incredibly heavy reliance on real estate, more so than the United States and their household debt ratios make the U.S. look like a frugal uncle.  One fascinating story highlights a similar story to what many baby boomers here in the U.S. are facing with their offspring.  They face the reality that they are house rich but cash poor.

Canada’s inflated real estate market

Home prices in Canada are inflated.  Global cities like Vancouver and Toronto face massive investor buying that largely makes it tough for local families to buy.  Many pre-bubble buyers are caught in a golden castle but unable to unlock the money until they sell, a similar condition to many baby boomers here in California.

It is important to note that there was no correction in home values even during the Great Recession in Canada:

canada home prices

Canada home values have increased by close to 80 percent in the last decade.  For the U.S. over this same period of 1994 to 2004 home prices are up (adjusting for inflation) by a modest 10 percent even after the 2013 mania:

us home values

The housing market in Canada has been split in many areas between mass produced cheaper condos versus single family homes:

“(CBC) One market is facing too much supply, while another appears to be heating up,” the bank said. “The GTA housing market is a tale of several markets with divergent conditions.”

There are certainly changes in the wind but bubbles can go on for much longer than you think.  How are Canadians keeping this thing going?  For one, they are going into massive debt and putting the consumer hungry Americans to shame:

Debt-to-disposable income ratio

The above chart is very important.  The U.S. hit an apex in terms of how much household debt would tip an economy over.  Debt-to-personal income in the U.S. hit a peak of roughly 125 percent during 2007 at the height of the housing bubble.  You can see the correction that followed in the U.S. and many have felt on a personal level.  Yet Canadian’s continue to pile on debt beyond their actual incomes.  As of more recent data, they are closer to a 150 percent ratio.  Which leads us to those golden real estate handcuffs in Canada.  A great piece on the Great Fool blog highlights this generational divide:

“(Greater Fool) Cheryl and Paul are 57 and 60 and live in a Mississauga house they figure is worth $900,000. They’ve spent the last 14 years paying down the mortgage and have about $80,000 yet to go. She’s been at home since the last kid left the nest six years ago. He sells real estate, made $126,000 last year and has no pension. Between them they have$37,000 in TFSAs, $160,000 in RRSPs and about forty grand in a high-yield savings account.

“How we doing?” Cheryl asked, hopefully. I paused to collect my thoughts. “Oh,” she said. “That bad?”

Of course she knew the answer. The Boomer couple has just over $1 million in net worth, but 80% of it’s in one asset. Paul has no pension. Worse, as a commissioned salesguy, he has no business to sell. And he’s just as good as his last deal – which means any housing correction will not only sideswipe his income, but also his family’s net worth. It’s double jeopardy. And then there’s the nature of their liquid investments – the bulk of which sits in high-cost mutual funds inside an RRSP, meaning the money’s fully taxable.”

This is an interesting situation very similar to our struggle for housing for younger professionals today in many high priced metro areas.  The couple in the story above is massively house rich.  80 percent of their net worth is tied up in housing.  Their retirement accounts are paltry assuming they will be living off this amount for 15, 20, or even 30 years.  The house does not throw off any income.  The only way to unlock the money is to sell.  A home equity loan essentially means resetting the clock on additional debt.  Downsizing or moving to a cheaper area is the only way to leverage that massive gain in housing.  But how many people actually move?  In the U.S. we pointed out that most people are home bodies that would rather eat cat food in their million dollar home versus selling and using the money to live a decent retirement.

Canada’s economy is too focused on residential investment:

US vs Canada resi investment

Canada has been investing too much into real estate going back to 2002.  You can see the correction for the U.S. but is there something else going on here?  The article highlights a reality that many even in the U.S. will face when they are house rich and cash poor:

“But it’s a house. No dividends or interest. Just property taxes, maintenance, insurance and eight hundred grand of locked-in equity which must be released, or these folks are going to run out of money before they run out of time.

This brings us to Jason. Their kid. He’s 28. A member of Gen Y which, at 27% of the population is almost as big as the Boomers (32%). Jason rents in Toronto, makes $52,000 as a IT guy, rides a bicycle and the TTC, likes being urban, has no debt and puts money monthly into a TFSA with $18,000 in it. That makes him typical, too.”

This story is all too familiar to people in high priced Southern California.  The vast majority of people in SoCal that bought pre-bubble have locked in some solid games.  Yet how do you unlock those?  Heck, the advice is to stretch to the limit (meaning forego the retirement accounts or other alternatives) and double-down on housing.  We have seen the resurgence of adjustable rate mortgages (ARMs) to stretch the budget even further.  So all the money goes into this one asset.  But then what?  The truth is most will want to move up with that equity they build up (the average hold time in housing is seven years across the U.S.).  So many simply kept resetting the clock up on the property ladder.  Age doesn’t care about your new 2,000 square foot house with granite countertops and if you have a mortgage, you’ll need to continue generating income to pay the bills.

The story above also highlights the story of one of their “kids” at 28 that has a job in IT and makes $52,000 a year.  How in the world is an $800,000 home even feasible for their son?  Even a $400,000 condo would be a stretch.  Should he save for a down payment?  If he starts now he might be able to buy in his forties.  But then a home will cost $1.2 million according to some analysts based on future projections (simply using the current trajectory in Canadian home values).

The young in Canada seem to be facing similar predicaments to those in the United States:

“Incredibly, almost 45% of all young people between 20 and 29 live at home. The jobless rate for the cohort is about 14%. Student debt averages $37,000 after a four-year degree. Underemployment is endemic.

And this is the big hope for so many Boomers – that the ‘next generation’ will pony up and bail them out? Good luck with that.”

Living at home and massive student debt!  A story near and dear to our hearts.  As much as some Canadians would like to believe they are different from their neighbors to the south we are very much alike in our addiction to debt.  We also apparently have a large portion of youth living at home.  I can imagine this is more pronounced in high priced areas.  Just look at the L.A. region in SoCal versus Vancouver in terms of prices:

home prices los angeles

Going back to 2004 home prices in L.A. adjusting for inflation are up 30 percent.  A pretty big jump considering household incomes have not gone up in tandem.  But just look at Vancouver:

vancouver

Home prices are up 110 percent during this similar period!  Vancouver makes SoCal look like an affordable paradise.  It is interesting to know that Canadians are basically facing similar demographic challenges and have a massive amount of young people living at home.  They beat us in hockey and they certainly beat us in going into massive debt.

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Does The US Want A War With Russia?

Sure looks that way. That is exactly what I was afraid of when I wrote Ukraine Wants The US To Get Into A War With Russia. 

“According to the Web site of the Atlantic Council, Dempsey said that “he’s been talking to his military counterparts in Russia, but he’s also sending a clear message to Ukraine and members of NATO that the U.S. military will respond militarily if necessary.”

Are these people in our administration morons? The US is 6,000 miles away from Ukraine and it should have no stake in what’s going on there. Yet, the US Administration is going out of its way threatening direct military intervention into Ukraine. WTF? If that happens, it will mean an immediate war with Russia.

Now, you might be a patriotic chest beating American (as I am) expecting a fast victory, but a war with Russia is a completely different animal. Russia is not Iraq or Afghanistan.  Any conflict in that region might very quickly escalate into a nuclear war. Luckily for you, we are not there yet. 

Anyway, is the American Idol on tonight? 

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Does The US Want A War With Russia?  Google

Chairman of the Joint Chiefs of Staff of the United States General Martin Dempsey has claimed that in the case of an escalation of unrest in Crimea, the U.S. Army is ready to back up Ukraine and its allies in Europe with military actions. 

According to the Web site of the Atlantic Council, Dempsey said that “he’s been talking to his military counterparts in Russia, but he’s also sending a clear message to Ukraine and members of NATO that the U.S. military will respond militarily if necessary.”

“We’re trying to tell [Russia] not to escalate this thing further into Eastern Ukraine, and allow the conditions to be set for some kind of resolution in Crimea. We do have treaty obligations with our NATO allies. And I have assured them that if that treaty obligation is triggered [in Europe], we would respond,” Dempsey said.

According to the General, the incursion of Russian troops into the Crimea creates risks for all the countries of Europe and NATO allies.

“If Russia is allowed to do this, which is to say move into a sovereign country under the guise of protecting ethnic Russians in Ukraine, it exposes Eastern Europe to some significant risk, because there are ethnic enclaves all over Eastern Europe and the Balkans,” Dempsey said. 

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What You Ought To Know About The FED’s Plan To Collapse The Economy

Don’t get me wrong, I was always against the QE. However, now that they have got the patient thoroughly addicted to credit any attempt to withdraw it would have severe negative consequences on our financial markets and the overall US Economy. Right on schedule I might add. 

In a blunt comment, Charles Evans president of the Chicago FED made it as clear as one could that the FED will continue to cut its QE $10 Billion per meeting for the foreseeable future. While I applaud this step, the consequences of their action will have a devastating effect on our financial markets. As I illustrated a number of times before, the FED is a reactionary force that is always behind a ball. It will not be different this time around.

Now that they have distorted most of the markets through infusing over $1 Trillion in credit, taking away the proverbial punch ball would be identical to getting a strung out heroin addict to quit cold turkey.  Rest assured, a massive seizure for the US Economy and financial markets is in order. Our timing work confirms the same. 

z14

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What You Ought To Know About The FED’s Plan To Collapse The Economy Google

COLUMBUS, Georgia (Reuters) – The Federal Reserve will continue to trim its monthly asset purchases at a $10 billion pace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low.

The blunt comments from Charles Evans, president of the Chicago Fed and among the most dovish U.S. policymakers, were perhaps the strongest indication yet that the Fed will keep cutting stimulus at each upcoming meeting, including one next week.

“We’re at a point now where we’re … moving away from purchasing assets, we’re tapering, and our balance sheet continues to be very large but we’re not going to add to it as much,” Evans told a gathering at Columbus State University.

“The last two meetings we reduced the purchase flow rate by $10 billion and we’re going to continue to do that,” he said flatly.

The Fed, responding to a broad drop in unemployment and a pick-up in economic growth, is now buying $65 billion in bonds each month to reduce longer-term borrowing costs and stimulate investment and hiring. The stimulus program started in 2012 and continued until December 2013, at a $85-billion pace.

With the bond buying winding down, the Fed’s more immediate challenge is re-writing a pledge to keep rates near zero until well after the unemployment rate falls below 6.5 percent. Because joblessness has fallen quickly to 6.7 percent, policymakers are debating how to adjust that pledge without giving the impression they will tighten policy any time soon.

The Fed could make the delicate change at a policy-setting meeting March 18-19, which will be Janet Yellen’s first as chair.

Evans is credited with conceiving the idea of tying interest rates to economic indicators such as unemployment and inflation. On Monday, he said the new guidance should reinforce that rates will stay low for “quite some time” and that much will depend on continued improvement in the labor market.

“It ought to be something that captures well the fact that (rates are) going to continue to be low well past the time that we change the language,” Evans told reporters after giving a speech.

“Tick through the different labor market indicators: payroll employment, unemployment, labor force, vacancies, job openings and things like that,” he continued. “We somehow want to capture that general improvement in labor market indicators, but that is hard.”

Evans added that the Fed will be accommodative “for really quite some time,” and added that he expects the first rate rise to come around early 2016.

Looking deeper into the future, he said the Fed would not have to sell the mortgage-based bonds it is now buying up, but could instead let them mature – an idea endorsed by other Fed policymakers.

After five years of purchases in the wake of the 2007-2009 financial crisis and recession, the central bank’s balance sheet has swollen to more than $4 trillion.

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Massive Inflation About To Hit?

In your dreams…. As CNBC Report below indicates “Perfect Storm For Inflation Could Rock The Market”. It shocks me how incompetent our financial media is. This should not come as a surprise since a pretty face, fake boobs and a good quoting/teleprompter reading skills seem to be the only job requirements.

We are already having massive inflation you mindless monkeys of CNBC. However, instead showing up in wages, goods or commodities it is showing up in the stock market and the real estate market. The FEDs have been pumping a tremendous amount of credit into our financial system since 2008, hoping it would spur inflation in every sector of the economy. To their surprise, that didn’t work. Instead, the money flowed towards the stock market and other speculative endeavors. Blowing up massive speculative bubbles in the process.

When the stock market continues its bear market of 2014-2017 you should see the evidence of the underlying deflation instead of inflation. Yes, we will eventually have massive inflation, but that day is way off in the future. First, a deflationary collapse is a must.     

zimbabwe-money

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Massive Inflation About To Hit?  Google

Perfect storm for inflation could rock the market

As investors cheer the good news for job growth that came with the February employment report, they may be overlooking a troublesome dynamic: A tightening jobs market, in combination with rising commodity costs, could stir inflation, cutting into corporate profits and forcing the Federal Reserve to become more hawkish.

On Friday, the nonfarm payrolls measure showed an increase of 175,000 jobs in February, well above the weather-dampened expectations. And though the unemployment rate ticked up to 6.7 percent from 6.6, the broadest measure of unemployment, the U-6, dropped slightly from 12.7 percent to 12.6 percent—the lowest reading since it was at that level in November 2008.

Since the U-6 counts all unemployed workers, plus marginally attached workers and workers employed part-time for economic reasons, it could be a better measure of the remaining supply in the labor market. The decrease in the U-6 could thus indicate that the “slack” in the labor force—which allows companies to hire more workers without paying more—is decreasing. Once the slack is gone, wage inflation tends to follow.

“Measuring slack is not an easy thing, but an unemployment rate of 6.7 tells you there’s a lot less slack than there used to be,” said Peter Boockvar, chief market analyst at the Lindsey Group. “The idea that all of the people who dropped out of the labor market will magically come back just doesn’t make sense—particularly for the low-end worker who is now enjoying a lot of government benefits. Therefore, the labor market is getting tighter than the Fed thinks.”

As a result, “the inflation trend is going to start moving higher. It’s not a single event that will happen—it’s a process. But it’s definitely worth watching,” he said.

(Read more: Jobs report signals higher interest rates ahead)

The other factor that could contribute to this trend is the recent rise in commodity prices. The CRB commodity index, a broad measure of prices, has risen some 10 percent this year. It’s at its highest level in over a year, due to tough agriculture conditions and winter weather issues that have sharply increased the prices of many commodities. More recently, the crisis in Ukraine seems to have boosted prices of commodities such as wheat and corn.

“Increasing commodity prices will drive a rise in inflation,” predicted Kathy Lien, managing director of FX strategy at BK Asset Management. “It’s a natural reaction to the recent growth as well as the geopolitical uncertainly that is happening in the global economy.”

A broad measure of inflation for the month of February will come on Friday, when PPI-FD is released. This recently revamped version of the Producer Price Index tracks changes in the “final demand” prices paid to producers for goods and services. And because it looks at inflation being experienced by producers, rather than consumers, it is considered an early gauge of the extent to which inflation will be experienced by consumers.

The consensus estimate is for the PPI to show a 0.2 percent month-over-month percentage change for February, while the PPI with food and energy stripped out is expected to come in at just 0.1 percent, according to FactSet.

“Even with the change in methodology, you’re going to start to see the commodity prices moves in these numbers, potentially,” Boockvar said.

Higher commodity prices and faster-than-expected wage growth are actually the two risk factors that legendary bull Jeremy Siegel pointed out in an interview Tuesday in CNBC’s “Futures Now.” He warned that the labor market “could be tighter than we think,” which will create a serious dent in corporate earnings, given that companies will need to pay more to their workers. And the Wharton professor cautioned that if commodity prices continue to rise, then the Fed will need to rethink its dovish activities.

(Read more: Siegel: I’m a bull, but these two things worry me)

After all, the continuation of the Fed’s shrinking quantitative easing program and maintenance of its ultra-low federal funds target rate are premised on low inflation. One major concern about stimulative policies is always that they could spur inflation if used irresponsibly.

In fact, if inflation rises to 2 percent and the headline unemployment rate drops by just another 0.2 percent (to 6.5), then both parts of the Fed’s quantitative guidance regarding what will make the central bank raise the federal funds rate target will be satisfied. And a higher federal funds rate will likely mean higher bond yields across the board, potentially making equities less attractive by comparison.

“The broad consensus is that there’s no inflation. But if there’s one thing that mucks up Fed policy, it’s a faster-than-expected uptick in inflation,” Boockvar said. “If that happens, the Fed isn’t just behind the curve—they’re behind 10 curves.”

That’s why Brian Stutland of the Stutland Volatility Group will be watching PPI so closely, especially as it relates to gold, which is considered an inflation hedge.

“If you see the PPI number start to creep up, that’s maybe the only reason I start to become more bullish about gold,” Stutland said.

However, he adds that if the measure comes in low, as he expects, “that’s going to give me more confidence that the stock market is the place to invest right now.”

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The Impact Of 7 Million Foreclosures

Believe it or not, but since 2006 top, the US Real Estate market plowed through 7 Million Foreclosures. So much for that real estate recovery…aka…dead cat bounce.  

Based on my calculations, that number represents 10-15% of American households who have a very bad taste in their mouth when it comes to real estate and “owning their own home”. The American real estate psyche is definitely changing.  That is one of the reasons behind why you are seeing the home ownership rate dropping like a rock. Given today’s rebound in prices, unaffordability levels and investor speculation frenzy, there is only one direction this real estate market can go. To see when our Real Estate Market will collapse again, please Click Here to check out our real estate report. 

7 million foreclosure-completions

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The Impact Of 7 Million Foreclosures  Google

There is little bragging that goes on when a poor financial decision is made.  You rarely hear about the person that invested a sizeable portion of their retirement account into AOL at the peak or going all in on Enron.  The same applies to housing.  We are seeing chatter reflect that of 2005, 2006, and 2007.  Justifications are different but some people seem to feel they bought at the “perfect” time.  Just for the sake of curiosity I ran the numbers of total foreclosures since the crisis began with the housing peak in 2006.  In total, 7 million Americans have been served with the bitter taste of foreclosure.  On the flipside, since we know that roughly 30 percent of all purchases have gone to investors and Wall Street, we can say that probably over this same period 2,000,000 homes are now in the hands of some sort of investors (i.e., big money, small money, foreign money, and second homes).  You also have to wonder how many of these people that lost their homes in foreclosure are itching to get back on the horse and buy again.  Credit standards are fairly tough for getting a loan today even though rates are low.  And those with the credit and income are battling it out in flippervilles where “all cash” is dominating the scene.  There are likely some permanent structural changes that are a result of a stunning 7 million foreclosures.

 

The 7 million club

From reading the mainstream press all you hear are glorious signs of housing resurrection!  Come one come all into the house of real estate where the almighty Fed will allow no harm to occur.  Just sign and pray and the next thing you know you’ll be the next Donald Trump.  The flipping, rehabbing, and housing shows are once again filling the space on a cable station near you.  The perception of the Fed being this almighty protector of housing makes a bit of sense but where was the Fed in 2007?  Last time I checked the Fed came into existence in 1913, over 100 years ago.  Frankly, the Fed on their list of priorities has: to keep member banks afloat, keep financials steady, a deep attempt to protect the bond market, and more importantly keep interest rates low on our massive $17+ trillion national debt that will never be paid back.  Housing is low on the list of priorities especially with many of the foreclosures now shifting to “stronger” hands.

You wouldn’t know it but since the peak in 2006 we have witnessed 7 million foreclosures:

foreclosure completions

Even in 2013 we had 1.4 million properties with notice of defaults, scheduled auctions, and full on REOs taken on.  Early in the crisis these stories were common since they were a novelty to the press.  Now however, many of these properties are shifting over to large investors pushing inventory up.  A clear consequence of this is a large pool of potential buyers that are unable to buy.  7 million households now have a marred credit history.  In many hot metro areas given the 2013 jump in prices to get the best rates you will need good credit.  Contrary to nonsense being spouted you actually need a solid income to compete in any high priced metro area.  Plus, we are assuming this foreclosed club is even interested in buying again.  Many are opting to go the renting route.

The assumption is that the market is being driven up organically by regular households and that is not the case:

first time home buyer

Source:  Wells Fargo

The number of first time buyers is pathetic because household formation is weak and many young Americans are living at home with mom and dad.  Forget about buying, they are having a tough timepaying higher rents to the new feudal landlords.  You would expect with the rapid rise in prices that existing home sales are off the charts but they are not.  For most people in the perpetual serf demographic, a mortgage is necessary to buy but look at requests for mortgages via applications:

mortgage apps for purchase

We are back to levels last seen nearly 20 years ago!  Only difference is that we have 50,000,000 more people today walking the streets of the U.S. of A. than we did back then.  Since access to middle class living is getting tougher thanks to weak income growth, more people are opting to rent:

rentals vs households

We continue to add a large number of renting households.  For the 7 million foreclosed souls, credit destruction might force their hand but many might have gotten a healthy vaccine from the “real estate only goes up” mantra.  We have new folks taking their chance at housing roulette with placing a massive bet on red and many diving in with ARMs to stretch their budgets to the fullest potential.  Some luck out but only if their timing aligns with bigger macro events.  They then back fill the narrative to justify their behavior.  Confirmation bias!  It might come as a shock that many things that happen to you, good or bad may have nothing personal to do with your decisions.  I’m sure we have some aspiring Trumps in Greece or Liberia but the environment isn’t setup for mad real estate speculation.  You also had many that escaped the last crash by tiniest of margins.  Say someone that made that last fabulous flip in Compton, Pacoima, Palmdale, Las Vegas, or any market that is eons away from the peak.  Where they masterful timers?  Unlikely.  They lucked out.  The massive bubble forgave their sins.  But it doesn’t forgive all.  The beauty of this QE juiced market is the Fed has turned us all into speculators whether we admit it or not.  By default you are playing this game whether you want to or not.  Cautious and have your money in a safe bank or CD?  Inflation is eroding your purchasing power.  Thinking of buying?  This might be a turning point:

us real prices

Gains are stalling out largely because investors are slowly stepping back and households are still trying to gain their footing in this new economy.  Those 7 million foreclosures are massive and those people walk amongst us.  It is unlikely that we will hear their horror stories in mass.  Even in the crash days of 2007 through 2012 (the trough) you were hard pressed to see people discuss this openly.  Yet the confirmation bias going on right now is frothy and does remind us of 2006 and 2007.

Want to see some of this insanity in action?  A commenter pointed this gem out:

la home

2125 VALLEJO St

Los Angeles, CA 90031

4 beds, 3 baths (listed at 3,500 square feet)

The house is currently listed at $598,000.  But let us look at the sales and listing history here:

sales history

They actually tried selling this place for $695,000!  The last sale price was $219,000 in 2013 which tells us some major rehab work went on here.  But $476,000 worth of work?  Come on now.  Even the sellers don’t believe this and that is why they have dropped the price nearly $100,000.  Thankfully Google gives us a bit of a glimmer of the home pre-makeup and Photoshop filters:

google streetview

People are pulling figures out of thin air here especially with that $695,000.  The schools in this area are sub-par so factor in tens of thousands of dollars to send the kid(s) to private school.  This home qualifies for a Real Home of Genius Award.  In the game of musical chairs, there can only be one winner.  It is about timing.  There are many signs showing a tipping point is occurring.  Unlike stocks, real estate turns around like a large cargo ship, slowly and surely.

While we may not hear much on those 7 million foreclosures, rest assured that many Americans are no longer in the camp that believes the Fed can do everything and anything to keep prices up.  For the big players, real estate is merely one tiny piece of their portfolio like owning a Rembrandt or fine jewelry.  Most of their wealth is in stocks and bonds.  Ironically Wall Street owning rental property is going to put them face to face with the proletariat and will soon come to realize that you can only raise rents based on local area incomes.  Try cash-flowing a property in Santa Monica or Pasadena at these rates.  Even flippers are starting to enter pricing purgatory one bad flip at a time.  At least someone will get a new granite countertop sarcophagus home built in the 1800s with hardwoods floors!

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Time To Buy Emerging Markets?

Cheap is a relative measure. Yet, when compared to out of this world US valuations, emerging markets outlined below are indeed cheap.  

Is it time to load up? 

Not so fast. There are a few things we have to consider here. First, as the US market enters its bear market of 2014-2017, it is highly probable that emerging markets will follow the US market and get even cheaper. While the divergence is possible, based on the past, it is unlikely. Second, just because the market is cheap doesn’t mean it can’t go down further for a prolonged period of time. We  have to wait for a technical market reversal pattern before committing capital.

In conclusion, this would be a great time to start following emerging markets, waiting for a trend reversal. Once the US Market sells off and once the bear trend in emerging markets shifts, such markets will present patient investors with an amazing buying opportunity.  

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Time To Buy Emerging Markets? Google

emerging markets

These markets are ‘mind-boggling’ cheap

Given events in Argentina, Venezuela, Turkey, and Ukraine, emerging markets are looking more like an emerging threat rather than an emerging opportunity.

However, Larry McDonald, Senior Director at Newedge, says emerging markets are a great place to find bargain investments. The usually bearish author of “Colossal Failure of Judgment” has two reasons why he thinks emerging markets are an attractive buy.

1. Seventeen weeks of outflows from emerging markets

During the first two months of 2014, $11.3 billion have left emerging market equity and bond exchange traded funds, reflecting the overall sentiment of worldwide investors. McDonald sees this as mirroring similar outflows in developed markets that subsequently rebounded significantly.

“What we’ve seen at the great market bottoms – in the United States, 2009; Europe, 2012 – [is] a surge in outflows,” says McDonald. “What’s happening now in emerging markets is historic and it’s right on proportion with the 2012 bottom in Europe and 2009 bottom in the United States.”

2. Lowest valuations for emerging markets since 9/11

Though emerging markets are considered relatively risky, particularly in this environment, McDonald believes they are being over-discounted. He believes investors worried about buying emerging market stocks should heed the words of Seth Karman, founder of hedge fund Blaupost Group, who once said, “Buying right never feels good.”

“If you look at the emerging markets now, they are trading at a great valuation with a lot of with a lot of risks in the world,” says McDonald. “On a price-to-book [basis], they’re at 1.3 times book [value]. Developed markets like Europe and the United States are well above 2.2 to 2.3 times book. But, within the emerging markets, countries like Russia are trading at half [the value] of book and that’s too cheap to pass up.”

Emerging Markets Price-to-Book
Indonesia 3.2x
India 2.6x
South Africa 2.6x
China 1.5x
Turkey 1.5x
Brazil 1.2x
Greece 1.0x
Russia 0.5

While McDonald acknowledges that fear of instability in places like Russia given the current political climate may be a reason for the deep discount to its stocks, he believes that’s overdone. As example, he points to the Market Vector Russia ETF (the RSX).

“The RSX fund has 32 million shares outstanding,” says McDonald. “On Monday, 25 million traded. That’s the type of thing you see when a biotech company misses earnings or has a failed trial. This isn’t a biotech – this is a country’s stocks – which is mind-boggling. So, I don’t think there’s anybody left to sell these names.”

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Crimea War Conundrum

russia and usa

The war of words, sanctions and “My Di#$ Is Bigger Than Your Di*&” continues to escalate.

USA TO RUSSIA:

  • GET OUT OF THE UKRAINE OR WE WILL SANCTION YOUR ASS. – Almost Everyone. 

RUSSIA TO USA: 

  • U.S. SANCTIONS AGAINST MOSCOW WOULD “HIT THE UNITED STATES LIKE A BOOMERANG” – Russia’s Foreign Minister Lavrov. Keep in mind, Russian lawmakers are already trying to push a bill that would confiscate Western assets. 

In related news, Western Media is going into overdrive with the following premise…

 “Nobody’s scared of America anymore”.  

Call me a bunny hugger, but why should anyone be “Scared of America”? I would much rather be respected than feared. With extremist on both sides of the issue driving our foreign policy, this is not going to end well. 

Oh well, at least the stock market is up. Oh wait..

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 Crimea War Conundrum  Google

With heavily armed Russian-speaking troops patrolling the streets, the Crimean Parliament voted Thursday to join Russia and put its decision to a referendum. The all-but-inevitable annexation of Crimea is moving forward, despite protests, warnings and threats from the U.S. and its allies.

We have entered a new Cold War.

The clash between Vladimir Putin’s Russia and the forces arrayed in support of Ukraine’s independence-minded leaders has crashed the vaunted “reset,” ending hopes that Moscow and the West would smooth relations and work hand-in-hand toward common objectives.

Frida Ghitis

Frida Ghitis

Nobody can predict with certainty how this conflict will end. But the world can already glean important lessons. Unfortunately, most of those lessons are cause for deep concern. Here are five clear messages from the crisis in Ukraine.

1. Nobody’s scared of America, but American and European values hold strong appeal.

Lest we forget, this all started over a move by the now-deposed Ukrainian president, Viktor Yanukovych, who broke his promise to sign a partnership agreement with the European Union in favor of closer ties with Moscow. Ukrainians were enraged, not just because they want more trade with Europe but because they have seen what Western standards can bring to a society.

They were fed up with corruption, authoritarianism and stagnation. They wanted their country to be free of Moscow’s interference, and many gave up their lives to fight for an ideal of stronger democratic institutions, rule of law and fair play.

As strong as the pull of these values is, their principal advocate, the U.S., has lost much of its ability to stare down its foes in support of those who want to institute democratic principles in their countries. We saw it when President Barack Obama declared — years ago — that Syrian dictator Bashar al-Assad must step down. We saw it when then-Secretary of State Hillary Clinton was pelted with tomatoes in Egypt. And we saw it in Ukraine, when Obama warnedPutin to respect Ukraine’s territorial integrity, only to see the Russians capture Ukraine’s Crimean Peninsula. America does not intimidate.

Its loss of influence means strongmen and dictators have a freer hand.

2. You don’t mess with Putin without paying a price.

Even if Moscow were to relinquish all control of Ukrainian territory today, Putin has already achieved a main goal. He has sent a clear message to countries that were once part of the Soviet Union — and perhaps to the USSR’s former Eastern European satellites — that they cannot defy his wishes without paying a painful price. In that sense, Putin has won.

A top Putin aide warned last summer that Ukraine was risking “suicide” if it dared to defy Moscow. Now we know this was no bluff. Putin is serious about protecting Moscow’s sphere of influence. It’s not clear how closely he wants to control what are supposed to be independent countries.

3. If you are a vulnerable state, you may regret surrendering nuclear weapons.

This may be the most dangerous of all the lessons from this crisis. Ukraine had a sizable nuclear arsenal at the end of the Cold War, but it agreed to give it up in exchange for security guarantees. In the 1994 Budapest Memorandum, Ukraine committed itself to dismantling the world’s third-largest nuclear arsenal. Russia, in exchange, vowed to respect Ukraine’s borders and its independence. Now, Russia has clearly violated those commitments. If Ukraine still had its atomic weapons, Moscow would have thought twice before seizing parts of Ukraine.

4. Don’t expect support from all international peace activists (unless the U.S. invades).

To liberal activists in Ukraine and Russia, the reaction from international peace movement must be a hard pill to swallow. Parts of Ukraine have been captured at the point of a gun by a regime that actively suppresses dissent. When liberal Russians protested, police arrested hundreds of anti-war demonstrators.

While Russia’s invasion of Ukrainian territory and its harsh crackdown on local protests have been criticized by some human rights activists, the reaction among some prominent “peace” activists has been astonishing. Several have mimicked Putin’s line, blaming the U.S. for the crisis. Instead of taking a clear stance in support of a country with invading military forces on its soil, some so-called anti-war groups have taken the opportunity to dust off their anti-American vitriol.

A favorite line of discussion is whether Washington has any right to criticize Russia’s invasion of Ukrainian territory after the U.S. invaded Iraq, a country that was ruled by one of the world’s most brutal, genocidal dictators. However misguided America’s Iraq invasion, even drawing the comparison is an insult to Ukrainians.

Opinion: Putin’s Ukrainian endgame

5. The use of brute force to resolve conflicts is not a thing of the past.

One day, if history moves in the direction we all wish, countries will solve their disputes through diplomacy and negotiation. Sadly, that day has not arrived. John Kerry has expressed dismay at Putin’s “19th-century” behavior, but power politics, forcible border expansion and brazen aggression have not been relegated to the history books; witness events in places like Syria, the Central African Republic and now in Ukraine.

Those are the first five lessons. But allow me to offer a bonus, a work in progress that could join as No. 6: When the stakes grow high enough, the U.S. and Europe may rise to the challenge.

Western nations seemed caught off-guard by Putin’s “incredible act of aggression,” as Kerry termed it. Some of Putin’s gains (see No. 2) may be irreversible. But the U.S. and Europe have been shaken up by events, and they may yet send a message of their own, helping Kiev’s government succeed and prosper as it sets out to chart a future of its own and limiting Putin’s ability to replicate his acts of intimidation.

Kerry’s visit to Kiev was a powerful moment. His unvarnished message to Putin, if backed by action, was a respectable start. The U.S. would prefer to see this crisis resolved through negotiations, he declared, but if Russia chooses not to do so, Washington’s and its partners “will isolate Russia politically, diplomatically and economically.” Already the EU is offering Ukraine an aid package comparable to the one Putin used to lure it away. Secretary of Defense Chuck Hagel is boosting ties with Poland and the Baltic States, and economic sanctions are under discussion.

If Putin wants another Cold War, he has one.