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An American Oracle Sees The Future Of Real Estate. What He Predicts Is Both Mind Blowing And Terrifying Beyond Words

 infographic 2 - real estate - main picture

If you ever want to ascertain the primary psyche of the American culture, just watch 1 hour of TV, paying particularly close attention to the commercial breaks.  Here is what “The Man Behind The Curtain” wants you to do. The worst part is… most people seem to comply.  

First, you must go to college, get a massive student loan and get a bunch of credit cards. After you graduate, buy your girlfriend a giant diamond ring, get married and she will love you forever.  Then buy a house, a new car, start a family, get a dog and drink a lot of beer.  Of course, the overwhelming pressures associated with all of the above will grind you into the ground. But not to worry, our top notch pharmaceutical and medical industry got you covered.  Bonner pills, ADD pills, depression pills,  high blood pressure pills, surgery and who can forget ….adult diapers.  And that’s your future, in a nutshell.  

In all of the above, one thing stands out. There is nothing more prevailing in the American culture than the notion that any self respecting, reasonable American with half a brain should own his/her own house. If you don’t, you are viewed as a failure. Now, before I destroy that notion with a few simple calculations and tell you why the housing market is going down the drain again (yes, it’s happening right now), please allow me to destroy the notion of home ownership with some simple common sense.

Reason #1: You Will Never See Your $50-100K Cash Down Payment Again:

Let’s say you are a responsible member of society and instead of getting Interest-Only-No-Down-Payment-I-Am-Never-Going-To-Pay-It-Back Loan, you get a typical 30-Year fixed with 20% down payment. In fact, you have worked incredibly hard and saved up $50,000 – $100,000 to do just that. Congratulations. However,  the stupidest think you can do next is to buy a house and get a mortgage. If you do, kiss that money goodbye. Under today’s monetary conditions you are never going to see it again.

“But Alex, my realtor is telling me that buying a house right now is an opportunity of a lifetime….if I don’t do it now, I will never be able to afford it again, recovery is here, the prices are about to go through the roof, blah, blah, blah…”  – Everyone.

Well, unless your realtors name is George Soros or Warren Buffett, tell your realtor to go pound sand.  What we have experienced between 1994-2007 in the real estate sector is not only atypical, but is truly once in a lifetime. More on that later, but if you are lucky enough to sell the house you buy today at a breakeven, you will still not see the down payment again. It will simply roll over into your next house.  From my point of view it is a lot better to invest that money into your future as opposed to park it in an illiquid asset that is likely to lose at least 50% of its value over the next 2 decades.  

Reason #2: Closing Costs, Maintenance & Property Taxes:

Finally got that house of your dreams?  Great, now bend over and take it like a man. Everything in this house will break down over the next 20 years and it will cost you a boatload of money to maintain.  Throw in closing costs and property taxes and you talking about real money.  Realtors themselves estimate you should budget about $8,000-$12,000 annually on a $500,000 house. Sure, there is an interest deduction on your taxes, but typically (based on your family’s tax structure) the costs above are never fully recovered.

housing bubble

Reason #3: It’s Not An Investment:

Stop saying that your house is an investment. Just stop. It’s a debt burden, not an investment.  Investments produce income and pay dividends. Your house doesn’t do either unless and until you rent it out.  Yes, your house can exhibit capital appreciation, but that is not an investment either. That is more accurately defined as a speculation.  What we saw during the housing boom was just that. Speculation.  Household incomes didn’t go up 500% between 1994-2007, but house prices did.  People who were in the real estate sector simply got lucky. Now, it’s time to ride this Cho Cho Train down.  

Reason #4: Your House Is A Trap:

Got that house of your dreams in The City of Compton, California? Congratulations, you are now trapped.  Even if you get a $100K job offer to wax dolphins in Fiji, you won’t be able to take it. You will be tied down and unable to sell your house at break even. Particularly over the next 2 decades and that is exactly where “Corporate/Government Interests” want you to be. They don’t want you to have the ability to move and get a better job elsewhere. They want you to be tied down, “to have roots”, to be paid less. That wouldn’t be the case if you could increase your salary 25-100% by simply picking up your things and moving across the country. 

And that’s just a few of the points. I can keep going, but I think you get the point. The housing myth is just that….a carefully crafted marketing message.  

Now, let’s get to the best part.

Here are the reasons why you should be mentally committed if you are even thinking about buying a house. Plus, why you should sell your house NOW if you are misfortunate enough to OWN one.

First, you must understand where we are and the cause/effect behind today’s market.

UNDERSTANDING THE HOUSING MARKET, ECONOMY, SPECULATION AND DRIVERS BEHIND BOTH.

Yes, I called for the real estate crash and credit collapse as early as 2005. While my call was a little bit early and premature, eventually it was right on the money. Now, I am saying that the housing crash is not over. 

Before we can understand where we are now and where we are going in the future we must understand where we came from. The Real Estate run up that we have experienced between 1997-2007 has no historical  precedent.  Real estate data going all the way back to 1890 clearly shows that the US housing market basically appreciated at the rate of inflation.  Yes, there were some bubbles and substantial declines, but overall, appreciation at the rate of inflation is an appropriate way to look at the US real estate sector.

us-history-home-values

A QUICK HISTORY LESSON:

All of that changed in 1997 when Bill Clinton signed The Taxpayer Relief Act into law, basically allowing $250,000 in tax free capital gains in real estate.  While real estate was already appreciating at a good clip at that time, that law added fire to the trend. 

Later,  fearing significant economic slowdown in 2002-2003 the Bush administration added a huge amount of jet fuel to the Real Estate Bubble by cutting interest rates and making mortgage finance available to everyone (yes, even to the dead people).  As people used to say, if you can fog a mirror you can get a mortgage. Of course, all of that led to the largest finance bubble in the history of mankind that “kind of” melted down in 2007-2009. I say “kind of” because most of those excesses are still within our financial system and will have to be worked through in the future.  

WHERE ARE WE NOW?

Issue #1: US Home Ownership Rate Is Plunging

On historical basis, home ownership rate in the US is in free fall. Take a look at the chart. I think it speaks for itself.  

USHOWN_Max_630_378

Issue #2: Real Estate Affordability Is Plunging

Take a look at the chart as it speaks for itself. The affordability index is in free fall as well. Most certainly, due to higher interest rates and rising prices. fredgraph111

Issue #3: Interest Rates Are Going Up             

The trend has shifted up and the 10-year rate is up 100% over the last 12 months. I gave detailed interest rate analysis here. Please take a look here.

Issue #4: US Economy & The Stock Market Is About To Turn Down (Big Time)

This has been the primary trend in our blog since inception. Based on our mathematical and timing work the stock market will go through a bear market between 2014-2017. Pushing the US Economy back into a severe recession.  To learn more about the upcoming bear market please Click Here and read the report.  With further job losses , lower incomes and an economic contraction it would be impossible for the real estate sector  to sustain any sort of a rebound. On the contrary, as the economy tanks real estate prices are bound to collapse further.

Issue #5: Who Is Buying All Of These Properties For Cash Today?

Chinese buyers, hedge funds, banks themselves, investors, speculators, etc…..  Who cares!!!  Remember all those Japanese investors buying everything they could in California and Hawaii in the late 1980′s. I wonder how that turned out for them.

In one of my previous reports I have outlined how large hedge funds, including Blackstone Group, are buying tens of thousands of real estate properties across the nation. With some hedge funds and financial institutions going to the extreme and investing in the likes of plumbers and dentist to help them find and manage properties(Click Here To Read). In Las Vegas alone 70% of real estate purchases over the last year have been done by investors. If all of this doesn’t not scream out “Market Top” at you, I really don’t know what will.

las-vegas-home-buyers-with-cash1

On a more serious note, notice that I didn’t say Average American Family. That is the only category that we should track if we want to accurately predict the future trend in the US Real Estate market. Every other category is irrelevant over the long run.  And guess what? They are not buying. See the charts above. 

Issue #6: Bear Market In Real Estate (sucks people back in)

As I have said in one of my previous posts (US Real Estate At A Turning Point), this is how the bear market works. This is the stage #2 bounce, before the big decline (stage #3).  The bear market tends to suck people back in, offer them perceived safety and a high return before slamming the door, ripping their head off, drinking their blood and taking all of their money. The US Real Estate market is topping in Stage #2 run up here. That is why you are seeing so many divergences. The market should turn down soon. Beware.  

Dead-cat-bounce-graph-yahoo-finance

FUTURE OF REAL ESTATE:

Real estate is not made of Gold.  There is a tremendous amount of land available in California, Florida, Nevada and all over the US.  There is no housing shortage. As such, expect real estate to decline significantly in order to revert back to its natural inflation adjusted mean. It might take a few years, it might be different for various cities, but one way or another the market will get there.

BubbleBurst investwithalex

HOW FAR DOWN?

Let’s do very simple math for the San Diego market.  It doesn’t have to be exact for our purposes.

Setup:

  • San Diego Median Family Income: $61,500
  • As Per Various Financial Guidelines Families Shouldn’t Spend More Than 30% Of Their Income On Housing.  That means a $1,500/monthly payment.
  • Median Home Price in San Diego: $425,000
  • Interest Rates: 30 Year Mortgage 4.35% (Rates as of 2/21/2014) 

With such fundamental input variables median house value should be $300,000 -OR – A 30% DECLINE     ($1,[email protected]%)

What if interest rates go to 7% over the next 5 years, which can easily happen? 

The fundamental value of the median house drops further to $225,000 -OR- A 47% DECLINE

Also, don’t forget that markets oftentimes overshoot to the bottom, just as they set blow off tops. In such a case I wouldn’t be surprised to see a median price of $150,000- 200K -OR- A 65%-50% DECLINE

You say impossible….. I say study financial markets. Nothing is impossible. Here is another way to look at this. Have household incomes increased 500% over the last 20 years? Nope. They have barely moved. Therefore, real estate decline in excess of 50% would simply return the prices to their inflation adjusted base.

TIMING:

In one of my earlier reports “I Am Calling For A Real Estate Top Here“ I clearly outlined the fundamental reasons of why the real estate market has peaked and is now in the process of rolling over. I continue to believe that the nationwide real estate prices are in the process of setting in a top. Since real estate is local, it is much more difficult to identify exact tops. As such, we must go back to the stock market in order gage a better understanding of WHEN the real estate market will tank.

Typically, the stock market foreruns the actual economic recession by 6-12 months. In other words, the stock market prices break down 6-12 months before Economic Data confirms a recession. While real estate prices, in theory, should start breaking down in conjunction with the stock market, that is not always the case. As such, it would be prudent for us to say that the housing prices will start breaking down 6-9 months after the start of the bear market in stocks.

As you know, it has been my claim (based on my mathematical and timing work) that the stock market topped out on December 31st, 2013 ushering in the final leg of a cyclical bear market. If such is the case, we can safely assume that we will start seeing drops in real estate prices sometime in the summer of 2014. Once the market rolls over and confirms, we should see a significant acceleration to the downside in real estate price over the next 3 years (at least).

With that said, we already starting to see evidence that the housing has topped. Please see volume data from RedFin.com below. As always, the volume of sales is first to go. Prices tend to follow. 

california-sales

WHAT SHOULD YOU DO?

That part is somewhat simple. If you do not own a home and thinking about buying one…..just DON’T do it.  You will save a lot of cash (and your down payment) by renting and waiting for the market to come down over the next few years.

If you already own a home the situation is a little bit tricky. Listen, I am no fool and understand that your house is a home and is important for family formation/structure. If you are happy with you home and could care less what is going on in the real estate market……stay put. However, if you are thinking about selling your home, right now would be a great time to do so.

If you own rental properties that generate positive cash flow and they are not in any way tied into the upcoming real estate decline, keep them. If you are buying investment and/or rental properties as a “speculation” in hopes of capital appreciation or a “flip” you are better off liquidating all of your positions (right now) and getting out. 

CONCLUSION:

Now, I understand and agree that there are various market forces at play that make the picture a lot more complicated. Interest rates, timing, mortgage finance, cash buyers, the FED, foreign buyers, speculation, location, supply/demand, etc….    However, fundamentals will always prevail over time. Everything else is just temporary BS. 

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Real Estate Collapse 2.0  Why, How & When Google

An American Oracle Sees The Future Of Real Estate. What He Predicts Is Both Mind Blowing And Terrifying Beyond Words

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What This 30-Year Old Did With His College Loan Is Shameful. Take One Look And You’ll See Why

Just when I think things can’t possibly get more idiotic and ridiculous, they do.  As WSJ reports, tens of thousands (if not hundreds of thousands) of Americans are going back to school in order to take out student loans. Not for education, but to use them as their primary source of income. Once you think about it, it does make perfect sense and I do not blame the people trying to get whatever money they can in order to bridge their expense gap.  

I guess this so called 6.6% unemployment is not working for everyone. I do blame the FEDs and the idiots at every level of our government. The situation we see today is the direct result of monetary policy implemented over the last 2 decades. Somehow, the fools believe that they can simply print money and insure that everything goes on as it should. Of course, it works until it doesn’t.

We have already experienced a number of sever bear markets since the 2000 top. With one more bear market and a severe recession left of the clock (2014-2017), it is my hope that the American people wake up and demand answers from their Government. But I will not be holding my breath.  For most Americans, watching “The Biggest Loser” is a lot more important than understanding macroeconomic issues at hand. Oh well.

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WSJ Writes: Student Loans Entice Borrowers More for Cash Than a Degree

Some Americans caught in the weak job market are lining up for federal student aid, not for education that boosts their employment prospects but for the chance to take out low-cost loans, sometimes with little intention of getting a degree.

Take Ray Selent, a 30-year-old former retail clerk in Fort Lauderdale, Fla. He was unemployed in 2012 when he enrolled as a part-time student at Broward County’s community college. That allowed him to borrow thousands of dollars to pay rent to his mother, cover his cellphone bill and catch the occasional movie.

“The only way I feel I can survive financially is by going back to school and putting myself in more student debt,” says Mr. Selent, who has since added $8,000 in student debt from living expenses. Returning to school also gave Mr. Selent a reprieve on the $400 a month he owed from previous student debt because the federal government doesn’t require payments while borrowers are in school.

A number of factors are behind the growth in student debt. The soft jobs recovery and the emphasis on education have driven people to attain more schooling. But borrowing thousands in low-rate student loans—which cover tuition, textbooks and a vague category known as living expenses, a figure determined by each individual school—also can be easier than getting a bank loan. The government performs no credit checks for most student loans.

College officials and federal watchdogs can’t say exactly how much of the U.S.’s swelling $1.1 trillion in student-loan debt has gone to living expenses. But data and government reports indicate the phenomenon is real. The Education Department’s inspector general warned last month that the rise of online education has led more students to borrow excessively for personal expenses. Its report said that among online programs at eight universities and colleges, non-education expenses such as rent, transportation and “miscellaneous” items made up more than half the costs covered by student aid.

The report also found the schools disbursed an average of $5,285 in loans each to more than 42,000 students who didn’t log any credits at the time. The report pointed to possible factors such as fraud in addition to cases of people enrolling without serious intentions of getting a degree.

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Capella Education Co., which runs online schools, examined student costs and debt at institutions—public and private—in Minnesota and concluded that between a quarter and three-quarters of loans taken out by students were for non-education expenses. At one of Capella’s master’s programs, the typical graduate left with about $30,200 in student debt even though tuition, fees and book costs totaled roughly $18,800. Borrowers are prohibited under federal law, except in rare instances, from discharging student debt through bankruptcy.

The share of student borrowers taking out the maximum amount of loans—$12,500 a year for undergraduates—has risen since the recession. In the 2011-12 academic year, federal Education Department data show, 68% of all undergraduate borrowers hit the annual loan ceiling, up from 60% in 2008.

Research suggests a fair chunk of that is going to non-education expenses. In 2011-12, about a quarter of student borrowers took out loans that exceeded their tuition, after grants, by $2,500, according to research by Mark Kantrowitz, a higher-education analyst and publisher of the education site Edvisors.com.

Some students say they intend to get a degree but must borrow as much as possible because they can’t find decent-paying jobs to cover day-to-day expenses.

Tommie Matherne, a 32-year-old married father of five in Billings, Mont., has been going to school since 2010, when he realized the $10 an hour he was making as a mall security guard wasn’t covering his family’s expenses. He uses roughly $2,000 in student loans each year to stock his fridge and catch up on bills. His wife is a stay-at-home mother who also gets loans to take online courses.

“We’ve been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don’t have to worry about food,” says Mr. Matherne, who owes $51,600 in federal loans.

Some students end up going deeper into debt. Early last year, when Denna Merritt lost her long-term unemployment benefits, the 49-year-old Indianapolis woman enrolled part-time at the Art Institute of Pittsburgh’s online program, aiming for a degree in graphic design. She took out $15,000 in federal loans, $2,800 of which went to catch up on unpaid bills, including utilities, health-insurance premiums and cable.

“Obviously, it’s better not to use it that way if you can help it, because you’re just going to owe that much more later,” says Ms. Merritt, a former bookkeeper.

The government lets students use a portion of federal loans for living expenses on the grounds that it allows students to devote more time to studying and improves their chances of graduating. Even when schools suspect students are over-borrowing, they are restricted by federal law and Education Department policy from denying funds.

College and university trade groups are pushing legislation this year to set lower maximum loan limits for some types of students, such as part-timers. Dorie Nolt, spokeswoman for Education Secretary Arne Duncan, says the Obama administration is “exploring alternatives to see how we might ensure that students don’t borrow more than necessary.”

Mr. Selent, of Fort Lauderdale, knows he is getting himself deeper in a hole but prefers that to the alternative of making minimum wage. In his 20s, he earned a bachelor’s degree in communications from a local for-profit school but couldn’t find a job in the field after graduating and began falling behind on his student-loan bills. He is now taking courses for a degree in theater so he can become an actor.

Meanwhile, federal loans allow him to cover any needs that arise during the semester. Says Mr. Selent: “It keeps me from falling apart.”

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Warning: Student Loans Replace Home Equity ATM’s   Google

What This 30-Year Old Did With His College Loan Is Shameful. Take One Look And You’ll See Why

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What This New TV System Does Will Shock You. But Definitely Not In The Way You Would Expect. Weird

In a bid to change how consumers shop online Amazon introduced Fire TV, a console that will attempt to unify TV/Internet/Gaming/Entertainment & Shopping. While other brands such as Apple TV, Google Chromecast and Xbox already sell into this highly competitive market, Amazon has something up their sleeve that will make them a clear winner.

As you know, Amazon is one of the world’s largest retailers with massive direct to consumer distribution channel already build up. While most of Amazon’s competitors offer the same service (more or less) Amazon has the ability to unify Fire TV with it’s retail operation. Just imagine watching a TV show and being able to pause and buy whatever you see on  the screen. Anything from a toothbrush to a pair of pants someone wears. While other products might match the technology, they will be unable to match Amazon on prices and delivery times. Making, at least in my view, Amazon Fire TV a clear winner in the space.   

Will this impact Amazon’s stock price in any way? It hasn’t thus far and it probably won’t until we see Amazon execute on the strategy outlined above. That might take a few years. 

new tv system

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What This New TV System Does Will  Shock You. But Definitely Not In The Way You Would Expect. Weird Google

Reuters Writes: Amazon leaps into home entertainment fray with $99 Fire TV

NEW YORK/SAN FRANCISCO (Reuters) – Amazon.com Inc made a play for the increasingly crowded home entertainment arena by unveiling the $99 “Fire TV” video and game streaming device on Wednesday, with hopes of boosting its main online retail business over the longer term.

The square device, which just about fits in the palm of one hand, streams content from Netflix Inc, Hulu and other video services – much like Apple TV or Google Inc’s Chromecast.

It also offers a prominent platform for Amazon’s own fast-growing streaming video service as well as its growing slate of original television programs and games. Amazon will also sell a separate controller for gaming that costs $39.99.

Amazon, which has been building its multimedia presence to tap the growing appetite for digital media, is now jumping headlong into the heated competition for consumers’ attention and an estimated $70 billion TV ad market. It took the wraps off the Fire TV at a rare Apple-style media event in New York.

Analysts were split on Amazon’s prospects. Some said its strategy to pitch the Fire TV as an option for casual gamers would set the box apart. Others were disappointed Amazon did not undercut its rivals’ prices in keeping with its pricing strategy on the original Kindle Fire tablet.

“They created a product we didn’t need,” said Wedbush analyst Michael Pachter.

The Fire TV competes in a market that is set to grow by 24 percent this year, Strategy Analytics said. But that’s off a low base: streaming boxes have still not made much of a splash, partly because game consoles from Microsoft, Sony and Nintendo — not to mention “smart” TVs and DVD players — already stream Netflix and other popular services.

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Worker handles items for delivery at Amazon's new distribution …

A worker handles items for delivery at Amazon’s new distribution center in Brieselang, near Berlin N …

Tech leaders from Microsoft Corp to Apple Inc are vying for space on the TV, the traditional family entertainment center and where Americans used to spend most of their leisure time. That has changed with the advent of the smartphone and tablet.

The device is one of several initiatives by Amazon, one of the world’s largest online retailers, to play a central role in how consumers shop and spend their leisure time. Its projects range from building more warehouses to expand its same-day delivery service to developing original television shows such as the political comedy “Alpha House” starring John Goodman.

If Fire TV takes off, it could help shape the way consumers shop online. Fire TV viewers may eventually be able to use their remote to buy a product directly off a commercial, analysts said, as Amazon’s multimedia and online retail businesses become even more integrated.

“The company will eventually want to help you buy things in the living room,” Forrester Research analyst James McQuivey said. “Only Amazon can piece that entire experience together in the living room and though we don’t see evidence of that ambition here today, we should assume Amazon knows this and is planning on it.”

While the company tried to one-up existing streaming boxes with voice-activation and a line-up of games from publishers like Electronic Arts and Walt Disney Co, some remained doubtful the Fire TV will make waves upon debut.

JOHNNY COME LATELY

Amazon’s biggest previous foray into tech hardware — the Kindle e-reader — succeeded because it was an early entrant in a nascent market. But the Fire TV is a latecomer to two markets that rivals had fought over for years — gaming and home entertainment.

Amazon has to wedge itself into a market split fairly evenly between various nascent technologies, all of which are challenging cable companies’ traditional death-grip on TV viewing.

But the company promised however that Fire TV, available now on Amazon.com, would be faster and easier to use than Apple TV, Google’s Chromecast or Roku Inc’s streaming video device.

It can predict what the user will watch and cue it up, Kindle unit vice president Peter Larsen said. It also has a feature that uses data from IMDB to identify the music on screen as well as the actors and their filmography as they exit and enter the screen on TV.

“When we look at the living room, how do we make the complexity disappear?” Larsen said at a rare, Apple-style New York product launch event.

Fire TV’s remote features a microphone that enables voice-activated search. Fire TV is integrated with Hulu Plus so users can see Amazon shows from their Hulu account, and Amazon said it may bring in other partners soon.

By next month, Fire TV users will be able to play thousands of video games. Amazon decided to develop the device after reading customer complaints on its website about lagging performance, cumbersome search and closed “ecosystems” on rival set-top boxes.

new tv system

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Today I Learned

pentagram

Stupidity is Considered the Worst Sin in The Church of Satan

The Nine Satanic Sins

  1. Stupidity
    The top of the list for Satanic Sins. The Cardinal Sin of Satanism. It’s too bad that stupidity isn’t painful. Ignorance is one thing, but our society thrives increasingly on stupidity. It depends on people going along with whatever they are told. The media promotes a cultivated stupidity as a posture that is not only acceptable but laudable. Satanists must learn to see through the tricks and cannot afford to be stupid.

It’s about time this get’s implemented into every religion. 

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Stock Market Update. April 2nd, 2014. InvestWithAlex.com

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A relatively flat day with the Dow Jones up 40 points (0.24%) and the Nasdaq up 8 point (0.20%)

The Dow tried to push for an all time high, but thus far, has failed to do so. Stopping and reversing right at 16,588. The exact top previously achieved on December 31st, 2013. A perfect double top…so to speak. While most bulls are celebrating the recent upswing I am a lot more cautious. All markets left a number of large gaps on the downside that they must go and close over the next few trading days. In fact, if Mr. Putin delivers on Ukraine and/or the jobs report on Friday disappoints, I would expect the market to take a significant beating. 

Plus, based on our timing and mathematical work the bear market of 2014-2017 is just around the corner. When it starts it will quickly take the market below it’s February 5th low. If you would be interested in learning when the bear market will start (to the day) and it’s internal composition, please Click Here 

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Stock Market Update. April 2nd, 2014. InvestWithAlex.com Google

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Investment Grin Of The Day

investment grin of the day 3

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Shocking News: Congress Lies About Federal Budget

Today, most Americans believe that borrowing from Peter to pay Paul is normal. In fact, many run their households in exactly the same fashion. Yet, Bill White, former mayor of Houston suggests that today’s heavy borrowing in unprecedented in American history. The only time it was done before, on the scale it is being done today, is during major wars or other very unique circumstances.   Not to buy every member of Federal Government an iPad or to juice the stock market. 

We couldn’t agree more with Mr. White. The Federal Government and their Central Banker shills are destroying the America we all love and cherish. By promoting war, speculation, financial bubbles, foreign affairs meddling, torture and spying instead of piece, fundamental economic growth and liberty for all, the American Government is destroying this nation. Those who are not paying attention will suffer greatly. It is time to rise up against every level of this government and take back what our founding fathers left us. It is time for a revolution, oh wait a second…….American Idol is on tonight….maybe next week. 

Congress lies to american people

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Shocking News: Congress Lies About Federal Budget  Google

 

The Daily Ticker Writes: Congress is deceiving the American people about the federal budget: Bill White

Bill White, former mayor of Houston, believes that our country has veered way off course with our federal debt.

“For 90% of our country’s history, we only borrowed for extraordinary purposes…to wage war, plug holes during severe downturns or to acquire territory,” says White in the video above. He argues that borrowing money to keep the government functioning normally is deceitful and goes against the “fiscal constitution” that our forefathers created. 

“The founding fathers realized that there might be a temptation to use debt to disguise the routine operating expenses of government and taxes are the price that allow consumers to figure out what government costs them,” explains White.

When it comes to balancing today’s budget, the debt ceiling is a joke, says White. “Congress votes to spend money that is greater than the available tax revenue and then they debate later on whether or not to raise the debt to pay for the spending that they’ve already authorized.”

White believes lawmakers should go back to the way they used to fund policy—votes on government spending had to happen immediately and agreed to that day.

“That way the American people knew what you were borrowing money for. That way the American people could hold people accountable,” says White.

 

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Brazil’s Inflation Accelerates. Pick Your Poison

While the Central Bankers in the US are doing everything in their power to avoid deflation, their Brazilian counterparts can’t wrap their heads around Brazil’s accelerating inflation. In fact, the Brazilian Central Bank is widely expected to raise its benchmark Selic rate to a whopping 11% on Wednesday to try and stop accelerating 6.1% inflation.  An excellent and a must read article from the WSJ in regards to Brazil if you follow their economy/markets. While my mathematical and timing work shows that deflation and inflation is cyclical in nature (as opposed to fundamental), the WSJ article below brings out a number of important points.  

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WSJ Reports: With Rates Poised to Hit 11%, Brazil Offers Lessons for the World

The eyes of the world should be focused on Brazil right now — and not just because it will host the World Cup in two months’ time.

It’s also because Brazil’s struggle with rising prices is a reminder that even in this era of global disinflation, flawed policies can years later saddle countries with an intractable inflation problem.

 

The Brazilian Central Bank is widely expected to raise its benchmark Selic rate to a whopping 11% on Wednesday. It must do so because inflation won’t let up.

Contrast that with the European Central Bank, which Thursday will weigh whether to cut the rate its sets on banks’ deposits into negative territory, all because of data like Wednesday’s euro-zone producer price index, which was down 1.7% on the year.

Brazil is an odd man out in a world where the biggest economies are more worried about deflation than inflation. Despite having jacked up the Selic from 7.5% in the first half of 2013, the central bank last month had to increase its full-year 2014 inflation forecast to 6.1% from 5.6%. That’s well above the midpoint of its target range of 2.5% to 6.5%.

Brazilian society is paying the price for this. The economy has barely grown over the past two years.

It all seems unfair. In most countries with runaway inflation–like Argentina or Venezuela–the blame lies with a central bank that’s manipulated by growth-obsessed governments to keep real, inflation-adjusted interest rates negative. But Brazil’s central bank has for the most part been vigilant. Its rates are even higher than crisis-wracked Turkey’s, where the central bank hiked a key rate to 10% from 4.5% in January to stem outflows from its currency, the lira — both in absolute terms and in real terms.

The roots of Brazil’s problem are mostly structural. Brazilian wages and other contracts are often indexed to inflation–legacy of the hyperinflation of the 1980s and 1990s. That indexing creates a vicious cycle of tit-for-tat price increases to keep ahead of rising costs. There has been discussion for years about how to reduce indexation in the economy, but it’s hard to do so because no one wants to be the first to give up gains.

There’s also insufficient flexibility in the labor market. Despite sub-2% GDP growth for the past three years, unemployment was last cited at 5.1% in February and got as low as 4.3% in December. U.S. and European policymakers would kill for such unemployment numbers. The problem is they partly reflect rigidities. It is difficult to fire workers, which in turn leads to wage inflation.

Add into the mix some rampant government spending attached to poorly budgeted public-works projects — for the World Cup, the 2016 Olympics and port upgrades to enhance the exporting infrastructure — and you have a recipe for inflation.

This is far from Brazil’s hyperinflationary past, when the central bank printed money to finance profligate governments. But even in an era of seemingly responsible monetary policy, the central bank is in a bind.

Self-fulfilling expectations are now entrenched among the population, which believes that inflation — and its corollary, high interest rates — will continue. Business models are built around returns to be derived from those higher rates. There’s also a dependence on funds from abroad as speculators borrow at near-zero rates in dollars, euros or yen andplow that money into far higher-yielding Brazilian reals. This inflow keeps important price-setting sectors of the economy, such as real estate and rents, in a frothy state. It has also begun to bolster what had been a stubbornly weak real, now up 8% versus the dollar from early February — and that’s not good news for the country’s commodity exporters, which have struggled because of a slowdown in China, their biggest market.

Four years ago, the government moved to curtail these dangerous “hot money” inflows by raising taxes on foreign-exchange rates. But it backfired, starving Brazil of foreign capital right when a global slowdown coincided with an exodus from emerging markets as the U.S. Federal Reserve started talking about easing back on monetary stimulus. The policy also gave the central bank an excuse to lower rates, which meant that inflation crept back into the economy.

For those sins — modest as they are — Brazil is now paying the price. The solution does not lie with the Brazilian central bank, but with a government that needs to modernize its labor laws, rein in fiscal excess and dismantle indexation.

How well it achieves that could provide a valuable lesson for others. Once the stimulus policies employed in the advanced countries finally generate the inflation they seek, they will need to ensure that regulations and other structural components of their economies don’t create inefficiencies that breed Brazil-like problems down the road.

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Attention: Central Bankers Are Terrified Of 2007-2009 Repeat

As we reported here earlier, debt securitization and junk bond sales are surging higher. In many cases surpassing their 2007/08 levels. As the FT article below shows, some Central Bank officials are now starting to ring the bell, indicating that today’s situation is not that dissimilar to the one preceding 2007-09 collapse. 

This should not come a surprise to the readers of this blog. Today environment is nothing more than a continuation of disastrous FED policies. Instead of letting defaults work through the system after 2008 collapse, the FED stepped on the Credit Accelerator, flooding the market with the same money that caused the problem in the first place. I am truly dumbfounded why it is so difficult for most people (including our “brilliant” economists and FED officials) to see this. 

Once the bear market of 2014-2017 kicks into high gear and the US Economy slips into deep recession, excesses above will be exposed, once again. As Warren Buffett says, “Only when the tide goes out do you discover who’s been swimming naked”. You must protect yourself now. If you would be interested in learning exactly when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here. 

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FT Writes: Credit bubble fears put central bankers on edge

By Tracy Alloway, Michael Mackenzie and Arash Massoudi in New York

On a mild spring day in New York, representatives from Citigroup set out to introduce investors to the bank’s new subprime securitisation platform.

This might sound like a scene plucked from 2007, at the height of the credit bubble that eventually sparked the financial crisis, but Citi’s “roadshow” began only this week. The US bank is prepping the market in advance of a debut securitisation from OneMain Financial, its subprime consumer lending arm.

In doing so, Citi is aiming to tap into a wave of investor demand for higher-yielding securities created from sliced-and-diced loans that it makes to riskier borrowers.

The planned sale is symptomatic of a wider development in credit markets as the thirst for increased returns has led to fears about possible overheating and provoked public soul-searching by central bankers.

Parts of Wall Street’s securitisation machine have shifted into higher gear, while sales of junk-rated bonds have surged and lending to highly-leveraged companies has surpassed its pre-2008 level.

“We are beginning to see the build-up of speculative excess. It’s more advanced in the US, and starting to come through in Europe,” says Chris Watling, chief market strategist at Longview Economics.

Central bankers have been debating whether monetary policy should take into account asset bubbles ever since the low interest rates cultivated under Alan Greenspan were blamed for herding investors into riskier investments in the years preceding 2008.

However, in recent months, that debate has become increasingly public as credit markets continue their upward trajectory.

While many members of the Federal Reserve Board argue that the central bank should not risk derailing longer-term economic growth in order to respond to potential market excesses, some have argued the reverse.

Daniel Tarullo, Fed board governor and its top banking regulator, said in February that the central bank should reserve the option of using monetary policy to fight latent bubbles.

Jeremy Stein, Mr Tarullo’s colleague on the board, argued late last month that the central bank should incorporate financial stability risks into its monetary policy. He added that the Fed should consider raising interest rates when estimates of so-called risk premiums in the bond market are abnormally low.

Just days before Mr Stein’s speech, one such risk premium measurement had dropped to its lowest level since early 2007. The difference, or “spread,” between Bank of America Merrill Lynch’s index of high-yield bonds and 10-year US Treasuries, fell to 291 basis points – not far from the 288 bps recorded in 2007.

“Here is where one can get into hard-to-resolve debates about bubble spotting and about whether one can expect the Federal Reserve to be smarter than other market participants,” Mr Stein said in the speech.

For bankers, the idea of a central bank using its authority to deflate market bubbles is more than theoretical. They argue that leveraged lending guidance issued last year by regulators including the Fed, is as much about reining-in overly buoyant markets as it is about ensuring that banks do not make loans that are too risky.

“They’re trying to make sure whatever banks hold in leveraged loans is safe,” says one banker at a major lender. “But clearly the second major reason is to curb the market because they’d like to take the wind out of a perceived credit bubble.”

According to market participants, the guidance has yet to have a significant impact.

Banks sold $161.8bn worth of leveraged loans in the first quarter of 2014, according to S&P Capital IQ data. That is below the $189bn sold last year in the same period, but still ranks as one of the highest quarterly levels ever recorded.

“It’s affecting [individual bank] behaviour but I’m not sure it’s affecting the market,” says the banker. “If there’s a significant supply-demand imbalance for a product of any type, it will find its way from the guys who have it to the guys who want it – it’s just going to move to unregulated areas.”

A paper prepared for the 2014 US Monetary Policy Forum argued that financial stability risks could arise even outside of the big banks, prompting further discourse over how regulators should be approaching financial stability.

The paper’s message was later echoed by Mr Stein who warned that “the rapid growth of fixed-income funds – as well as other, similar vehicles – bears careful watching.”

According to the paper’s figures, based on Morningstar data, investors worldwide have poured almost $2tn into fixed income funds between the start of 2008 and April 2013, eclipsing the less than $500bn placed into stocks.

“An under-appreciated factor in discussions about owning sectors of the fixed income market is the that of liquidity,” says Michael Fredericks, portfolio manager at BlackRock, meaning that investors may find it difficult to exit their positions should rising interest rates spark a sell-off in credit.

For some analysts, far removed from the responsibility of selling bundles of subprime loans, the question is simply when credit markets will turn – not if.

“It increasingly feels like the credit cycle is on borrowed time,” Hans Lorenzen, credit strategist at Citigroup, said in a note this week.

Attention: Central Bankers Are Terrified Of 2007-2009 Repeat

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Putin’s Divorce Finalized. About To Invade Ukraine

What does every Alpha male needs to do after his divorce is finalized? Grab a few drinks and punch another man in the face, of course. Been there and done that. Yet, Putin is about to put every other man on the face of this earth to shame by invading another country shortly after finalizing his divorce. According to today’s NATO report, Russian forces are in full battle alertness and high state of readiness. Of course, the US stock market could care less as of right now. Expect it to crater as soon as Russia sets foot in East Ukraine. 

Last Friday I warned that Russia will invade East Ukraine this Thursday. I got that information from a Russian business associate who is very well connected within Russian military. An ex General. Yet, after trying to verify the information from other sources, I was unable. In short, no one in Russian is talking and/or answering my questions. It would be very interesting to see if Russia does go in tomorrow as my friend had suggested. It would make a lot of sense from Russia’s perspective to do just that considering Ukraine’s recent NATO joint exercise announcement. If Russia goes in, expect tensions to spike and economic warfare to intensify.  

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Putin’s Girlfriend

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Putin’s Divorce Finalized. About To Invade Ukraine Google

Bloomberg Reports: NATO Warns Russia Force on Ukraine Border Ready to Act

NATO leaders warned today that Russian forces massed near the country’s border with Ukraine are in a high state of readiness and that any incursion across the frontier would be a “historic mistake.”

The presence of as many as 40,000 soldiers along Ukraine’s eastern border is fueling concern that Russia is poised to invade on the pretext of protecting Russian-speaking inhabitants of eastern and southern Ukraine. Backed by state-run media, President Vladimir Putin says the Kiev-based government is influenced by Russophobe extremists and hasn’t done enough to stop them from persecuting Russian-speakers.

“We have seen a very massive Russian military buildup along the Ukrainian borders,” North Atlantic Treaty Organization Secretary General Anders Fogh Rasmussen said after a two-day meeting of alliance foreign ministers in Brussels. “We also know that these Russian military armed forces are at very high readiness.”

Earlier today, Russia pressed Ukraine to disarm nationalists it says are oppressing its compatriots there, echoing comments it made in the run-up to its military occupation of Crimea and its annexation last month following a Kremlin-backed referendum. Ukraine’s government denies that Russian speakers are at risk.

Photographer: Andrey Rudakov/Bloomberg

The “hammer and sickle” emblem of the Russian state sits on display above the offices… Read More

“We urge the Ukrainian authorities not to limit themselves to sham statements about the fight against radical forces in Ukraine and to take decisive measures to disarm the militants,” Russia’s Foreign Ministry said in a statement on its website.

Military Buildup

NATO ministers vowed yesterday to boost support for eastern nations unnerved by Russia’s actions. Today, Rasmussen restated that the alliance hasn’t seen signs of a significant reduction in Russian military forces along Ukraine’s border.

“This is really a matter of grave concern,” he said. “If Russia were to intervene further in Ukraine, I wouldn’t hesitate to call it a historic mistake.”

The alliance’s top military commander, U.S. Air Force General Philip Breedlove, echoed Rasmussen’s concerns in an interview with Reuters and the Wall Street Journal.

Russia’s military is “ready to go and we think it could accomplish its objectives in between three and five days if directed,” Breedlove said in the interview. “This is a very large and very capable and very ready force.”

Ruble Rout

Potential objectives include an incursion into southern Ukraine to establish a land corridor to Crimea, pushing beyond Ukrainian port of Odessa or moving toward Transnistria, a breakaway pro-Russian region of Moldova, the general was reported as saying.

The worst confrontation between the U.S. and European states and Russia since the collapse of the Soviet Union has rattled markets.

The Micex stock index fell 0.2 percent to 1,373.33 in Moscow, extending to 4.9 percent its decline since March 1, when Putin’s intervention sparked the standoff between Russia and the U.S. The ruble has depreciated 7 percent against dollar this year, making it the second-worst performer of 24 emerging-market currencies tracked by Bloomberg.

Ukraine, whose hryvnia has lost 27 percent against the dollar this year, may return to international markets with a Eurobond sale in the second half of this year, Finance Minister Oleksandr Shlapak said today in Kiev. He said the government was willing to pay 6 percent to 7 percent, versus the 8.574 percent yield on its 2023 dollar bond as of 6:15 p.m. today.

Growth Threat

The standoff over Ukraine poses a threat to a global economy that’s already “too weak for comfort,” International Monetary Fund Managing Director Christine Lagarde said today. The Washington-based IMF is preparing to lead a $27 billion global bailout for cash-strapped Ukraine.

Shrugging off U.S. and European sanctions, Putin has justified the annexation of Crimea, a region with a majority of Russian speakers with historic ties to Moscow, away from Ukraine as righting a historical wrong that split the province from Russia when the Soviet Union collapsed.

NATO has decided to halt “all practical cooperation” with Russia, Rasmussen said yesterday. Russia condemned the NATO decision, saying this would hurt joint efforts to fight terrorism, piracy and other global problems.

“It’s not hard to guess who will benefit from halting the joint work of Russia and NATO in countering modern threats,” the Foreign Ministry said on its website. “In any case, it certainly won’t be Russia and the members of NATO.”

U.S. Navy

Options being considered by Breedlove also include putting an additional U.S. warship in the Black Sea, beefing up previously scheduled NATO exercises and improving the readiness of the alliance’s 13,000-member rapid-response force, according to an American defense official who spoke on condition of anonymity to discuss military planning.

“We directed our military commanders to develop additional measures to enhance our collective defense and deterrence against any threat of aggression,” Rasmussen said.

Russia is pressuring Ukraine to change its constitution to cede more autonomy to its regions and enshrine Russian as a second official language. After a deadly clash between Ukrainian police and far right activists as well as confrontations between pro-Russian and pro-Kiev protesters last month, the parliament in Kiev voted yesterday for a resolution backing the immediate disarmament of illegal military groups.

“The two sides are talking totally different languages,” Timothy Ash, a London-based economist foremerging markets at Standard Bank Group Ltd., said in e-mailed comments today. “While the battle for Crimea may have been lost, the stealth war for Ukraine is only just beginning.”