The Global Monetary Madness
A weekend topic on some comments in today’s Bits Bucket. “I told you a couple years ago that low rates are here for a long time.”
“As the perpetual cycle of this bubble continues, your risk for a realized loss goes up. Luckily, some of us bought at the almost bottom of a deflationary cycle, so we protected ourselves, in a demand region. With us, worse case scenario, we’ll break even.”
“There will be no financial meltdowns as long as money can be printed. They would not let anything fail today.”
From Bloomberg. “Manhattan’s growing inventory of ultra-luxury condominiums has another big developer seeing signs of a glut. Toll Brothers Inc., the largest U.S. luxury-home builder, is zeroing in on smaller apartments with lower prices in Manhattan after watching expensive units sit on the market, said David Von Spreckelsen, the New York division president of the company’s City Living unit. Its latest project, at 55 W. 17th St. in Chelsea, will have an average asking price per square foot less than at new buildings in the rest of the borough.”
“‘The days of super pricing and of raising prices every other week, I think, are probably past,’ Von Spreckelsen said in an interview. ‘Supply has started to catch up with demand. We’re starting to see an oversupply of really large units and really expensive units, and we think those are sitting on the market’”
The Real Deal. “Despite market factors that might suggest otherwise, luxury home sales in Miami-Dade County dropped during the second quarter of 2015. Data from the Miami Association of Realtors shows that in the luxury market — homes priced at $1 million and above — a total of 277 single-family homes were sold during the months of April, May and June. Compared to the same quarter in 2014, that number has fallen by roughly 10 percent, from 310 single-family homes.”
“Meanwhile, a growing number of luxury houses are entering the market, partly due to growing prices feeding the confidence of homeowners. A total of 739 luxury houses were listed in the second quarter, up from 638 during the same time period last year. On top of that, the total inventory of luxe single-family homes has grown from 1,046 to 1,227 during that same time period, according to the report.”
“And a huge amount of new listings are entering the market. Owners listed 824 condos for sale during the second quarter, up from 676 units in 2014, according to the report. That brings the total number of luxury condo listings to 1,661, which has grown considerably from the 1,256 condos on the market during the second quarter of 2014.”
The Jakarta Post. “China has been the focus of global economic interest since a recent devaluation of the yuan followed by turbulence in its share exchanges. As other stock markets experienced their own bouts of volatility, policy makers and investors around the globe blamed China for their own woes. For the most part, China is the author of its own ongoing economic and financial distress. However, it is also a victim of the global ‘monetary madness’ engineered by the 3 largest central banks, i.e., the Bank of Japan, European Central Bank (ECB) and the US Federal Reserve.”
“Alas, China is not alone in being victimized by the monetary central planners of these countries. The rest of the world may also suffer from what may someday become known as the ‘Mother of
All Corrections’ due to imbalances and distortions arising from so-called ‘unconventional’ monetary policies.”
“Consider that zero interest rate policy and creating oceans of liquidity (i.e., quantitative easing) have induced investors to take increased risks and acquire mountains of highly-leveraged debt. For example, total global debt grew by US$57 trillion to $199 trillion since 2007, an increase of over 40 percent. The ratio of total debt to gross domestic product (GDP) hit 286 percent in the second quarter of 2014, up from 269 percent in the fourth quarter of 2007. And government debts grew by $25 trillion since 2007 with the share of GDP for 10 countries exceeding 100 percent.”
“It would be difficult to argue that either expansionary monetary policy or massive and persistent budget deficits have sparked strong economic growth. It is easier to see that the primary effect of unconventional monetary policy instruments has been to inflate bubbles. Central bankers have become increasingly adept at blowing bubbles while denying that they have been doing so. This is because the primary metric of central bankers to determine whether monetary expansions have gone too far is the rate of increase in consumer prices. As long as consumer price indices remain tame, it is full steam ahead with pumping more money and credit into the financial system, perhaps joined by endless rounds of fiscal deficits.”
“Their myopia about the impact of extremely-loose monetary allowed them to ignore the other consequences of an inflated money supply.”
“But make no mistake about it, an inevitable market crash will be blamed on the usual suspects, all of which are actually symptoms rather than causes. When the bubble in financial assets bursts, fingers will be pointed at shrinking corporate profits, competitive devaluations, falling oil prices, geopolitical tensions, Greece, etc.”
“Now the monetary central planners are being held hostage to a series of financial bubbles of their own making. The Fed knows that it cannot keep interest rates so low forever. But it wants to execute an orderly ‘exit’ from its follies. History and theory provide reasons to doubt that central planning, whether of monetary matters or of entire economies, can be successful.”
“Therefore, the planned exits from unconventional monetary policy will almost certainly not be orderly. Indeed, it is most likely that there will be an ugly, disorderly rout as market forces begin to assert themselves. A stampede is likely to occur once there is a general loss in confidence that the monetary expansion process will not go on forever. As the credit expansion process slows down or halts, stock punters and bondholders will find themselves amidst a mad crush as they all head for the exits at the same time.”
Christopher Lingle, Guatemala City, Guatemala - Opinion - The writer is research fellow at the Centre for Civil Society in New Delhi and visiting professor of economics at Universidad Francisco Marroquin in Guatemala.
‘The days of super pricing and of raising prices every other week, I think, are probably past’
From someone at Toll, no less.
‘April 18, 2005′
(FORTUNE Magazine) – No. 477
‘On a recent Monday evening in suburban Philadelphia, two dozen sober-suited executives huddle around a giant conference table for the weekly “ops” meeting inside the nerve center of Toll Brothers, the hottest homebuilder in America. As another half-dozen division heads join the conversation by satellite, the group begins wrestling with brick-and-mortar matters such as how many digits to include in the codes for custom options that distinguish, for example, butterfly staircases from Palladian kitchens.’
‘Suddenly co-founder and CEO Bob Toll bursts in and starts firing questions at his brain trust: Are local managers doing enough to deter the buy-and-flip crowd? Are rival builders throwing up houses without signing up buyers first? His lieutenants reassure the boss that their customers are bona fide primary- and vacation-home owners who just keep coming, and that speculative building isn’t widespread. Finally, with his paranoia assuaged, Toll allows himself to do what he loves best: ratchet up prices.’
‘At Toll’s Frenchman’s Reserve community in Palm Beach Gardens, the price of a Florida rococo confection called the Signature has jumped $200,000 just since January, to $1.4 million. That’s an average increase of $15,000 a week. “People just keep buying anyway,” Toll marvels. “I’ve never seen anything like this in almost 40 years in the business.”
‘But can this magical market really defy gravity much longer?’
‘Shockingly, despite his paranoid questions and years of hardscrabble experience, Bob Toll’s answer to that question is a resounding yes. For Toll, what looks to many people like pure craziness is perfectly normal, a reflection of a new supply-and-demand equation that will last a long time. He’s an outspoken believer that, yes, the world really has changed this time. That the traditional boom-to-bust housing cycle is now a smooth upward climb. That housing prices will keep rocking practically, well, forever.’
“We’ll reach the point Europe reached 20 years ago, where families pay 45% of their income on housing and married couples have to live with their parents for years before they can afford houses,” he says. “Prices will keep going up in double digits for years.”
“I’ve never seen anything like this in almost 40 years in the business.” ??
And he has seen a lot…The reason you never seen this before Mr. Toll is because you have never seen mortgage rates & CD rates like this before…I have been doing business for 40 years also…And yes, I have never seen anything the likes of this before either, at least in my small corner of the earth…But I do know this, if you take mortgage rates up to what I personally experienced in those 40 years its a new ballgame…A 6% mortgage during that time frame was unheard of much less 3-4%…
And I’ve been in the construction and engineering business for decades and know fraud when I see it.
Fraud my friend. Fraud.
Fraud is your friend? Does Oxy know?
Speaking of fraud….
Mortgages from around 1960 were 3%.
Mortgages from around 1960 were 3% ??
What part of “40 years” did you miss ?? Do the math Dude…Your getting as bad as HA…Just a argumentative twerp…I guess if I was stuck floating on a boat I would be on the blog every day all day also…You and HA enjoy yourselves…
The article is dated 2005.
Do the math my friend. Do the math.
Today’s $1 million homes were $100,000 around 1960.
Today’s $1 million homes were $100,000 around 1960 ??
More like 20k, at least around here…My mother & father purchased their first home here when my father came home after the war…$17,000…that same house now would sell today for around 800k…
Not without some type of fraud or material misrepresentation.
Wasn’t the big war over for a few years by 1960?
“More like 20k, at least around here…”
That’s true. I was thinking of the Midwest, where my parents paid $13K back in 1964 for our family home that sold earlier this year for around $50K (probably would have gone for quite a bit more if it weren’t located four miles east of downtown Ferguson!). Back then $100K+ was enough to buy a mansion-sized home in the wealthiest part of town.
Wasn’t the big war over for a few years by 1960 ??
My father remained active for sometime after the war ended…
Mine took the first boat home. Iwo Jima wasn’t his favorite thing.
“my father came home after the war”
+/- 15 years…
“My father remained active for sometime after the war”
I guess I don’t have any questions after all.
$100,000 home in 1960: add 3% inflation = $508,000 in 2015
$100,000 home in 1960: add 6% inflation = $2,465,000 in 2015
There hasn’t been any inflation in 15 years and we’re in a deflationary spiral.
Revise and resubmit your calculation.
It’s been over a year and a half since I posted reports that appraisers were factoring in lines at open houses to qualify values. There isn’t anything with regard to interest rates that would encourage a guy to pay $900,000 for a shack because it is close to a restaurant. He obviously intends to sell for more, and that is a bubble. I was reading yesterday:
‘Chinese investors are now second only to Canadians in terms of the number of U.S. homes they buy. And they outspend all other countries in the process, favoring higher-end homes or properties in pricier markets like San Francisco, New York and Los Angeles…Chinese investors typically buy a U.S. home as a vacation property or to turn it into a rental. But often the main reason for investing in the U.S. housing market is to protect their money.’
“They want a safe place to park their assets,” Tan said. “A lot of my clients were not expecting the Chinese economy to be strong indefinitely. A lot of them started moving assets to safer countries a few years ago.”
Why not gold or bonds? Because they expect house prices to go up more, even with depreciation and carry costs. Houses are a terrible investment if you pay retail and more so if you are paying way over asking or bidding against other fools. It doesn’t matter if you pay cash or borrow, you can pay too much. It’s only in a new era that a group of people who threw trillion$ into the waste basket at home think they can protect what they have left by doing the same thing overseas.
Regarding appraisers….. Appraiser fraud has never been more prevalent than it is now. This is key to the entire mess we’re currently in and has grown gargantuan in size compared to levels of appraiser fraud from 2000-2008.
Appraisers demonstrate the same low skill set as realtors. There is just nothing there except room for fraud.
“Houses are a terrible investment if you pay retail and more so if you are paying way over asking or bidding against other fools. It doesn’t matter if you pay cash or borrow, you can pay too much.”
This would become painful for them if the money that they are throwing into housing was hard-earned money but it isn’t, it is easy money. Easy money that needs to be gotten out of their country and into a country that is more stable.
“Why not gold or bonds?”
Why not, and who say they are not buying these things? With houses it is easy to track transactions, but as for gold? Who knows? How could one know?
Think: If ones needs to get one money out of a country then he would mostly likely want to spread his risks. Some of this spreading leaves obvious trails - such as buying up houses - but other types of spreading doesn’t.
Houses are a terrible investment ??
That kind of thinking is part of the problem…When did homes become investments ?? A home is a place to live…Maybe a place to die like my grandparents did…They lived in that house for 70 years…I don’t think they ever gave a rats a$$ what the home was worth…
Like me, they might have cared when the tax bill came.
“When did homes become investments??”
They’ve always been an investment according to the standard definition of the term as used in economics, finance and accounting.
standard definition of ?
“the action or process of investing money for profit or material result”….Sorry…Thats NOT why I purchased my home…
Tell us then why you did buy the Real Estate? Did you know it would be cheaper to rent?
P.S. I don’t claim to know know the Realtor® definition of investment. If you have a reference for or a link to that definition, please share.
“the action or process of investing money for profit or material result”
That’s a crappy definition which misses the primary distinction between investment and consumption. Don’t bother pointing out which dictionary it came from, as lexicographers are not trained in economics, finance or accounting, where the term is understood differently than in common parlance.
P.S. “process of investing money”
It’s also a circular definition…oops!
Similar circular definitions:
“government” is the process of governing
“development” is the process of developing
“management” is the process of managing
“movement” is the process of moving
“agreement” is the process of agreeing
I think you will agree that unless you understand the underlying concept referred to by the root word, each of these definitions is useless due to circularity.
Did you know it would be cheaper to rent ??
LOL…You don’t get it do you or maybe you do and like HA you just want to be a antagonist….Who the F$%ck wants to be at the mercy of a landlord if you have a choice…
“Who the F$%ck wants to be at the mercy of a landlord if you have a choice…”
Well, I guess it depends on the landlord. Ours are coming over later to clean out the downspouts and gutters, something I used to not enjoy doing all that much when we were homeowners. I’m going to see if I can get them to go up on the roof to fix the screen the termite exterminator replaced incorrectly when they paid him to come over and exterminate the termites that were physically depreciating their investment property a few months back.
I never had problems with landlords, except when they got divorced. I rented to save money for a while. I was just wondering if you accepted that it would cost you a whole lot more to buy a house than rent. Maybe you figured you’d actually make out better financially. That was my question.
What happened with your past landlord that left you so angry? No need to swear at me. I am not a landlord.
“I never had problems with landlords, except when they got divorced.”
Judging from Lil’ Sis and BIL’s accidental venture into landlordship, landlording can be a causal factor towards divorce.
I’d rather be at the mercy of a landlord for half the amount than at the mercy of a bank and slave to a rapidly depreciating asset like a house.
You nailed it, Mafia. Irreconcilable differences with a landlord can be simply resolved by ending a lease and moving on.
By contrast, Interest Never Sleeps!
LDS dot org
General Conference
Conferences
April 2005
Constant Truths for Changing Times
Thomas S. Monson
First Counselor in the First Presidency
We, as members of The Church of Jesus Christ of Latter-day Saints, must stand up to the dangers which surround us and our families.
…
My brothers and sisters, I’m appalled at some of the advertising I see and hear advocating home equity loans. Simply put, they are second mortgages on homes. The promotion for such loans is designed to tempt us to borrow more in order to have more. What is never mentioned is the fact that, should one be unable to make this “second” house payment, one is in danger of losing his house.
Avoid the philosophy and excuse that yesterday’s luxuries have become today’s necessities. They aren’t necessities unless we ourselves make them such. Many of our young couples today want to begin with multiple cars and the type of home Mother and Dad worked a lifetime to obtain. Consequently, they enter into long-term debt on the basis of two salaries. Perhaps too late they find that changes do come, women have children, sickness stalks some families, jobs are lost, natural disasters and other situations occur, and no longer can the mortgage payment, based on the income from two salaries, be made.
It is essential for us to live within our means.
…
I know lots of heavily indebted Mormons who must have missed Conference when President Monson gave that excellent description of the perils of taking on excessive debt.
Yes, my wife has some mormon friends, and the wife insists on living in a house that costs 2X what they can afford - they already had to short-sell one house here in WA before they moved back behind the Zion Curtain in the Morridor (I-15 corridor) several years ago.
Now they are trying to sell their house in UT to move back to the Seattle area (for work, in tech), and are trying to find a 4BR house in the $500K range (HAR HAR) within a few miles of Chinese-investor-crazy Bellevue. Used 3BR homes in good condition are $500-800K now.
“Used 3BR homes in good condition are $500-800K now.”
… and not a buyer in sight.
Remember….. I can ask $50k for my 10 year old Chevy pickup but where is the buyer at that price?
So it is with all depreciating assets like houses.
Mormons…they are also humans.
Mormons - When a natural disaster hits, you can count on the Mormons to be there to help. During Katrina, the Mormons did more than FEMA, in reality, according to locals. As an Atheist, I respect that.
‘Chinese investors are now second only to Canadians in terms of the number of U.S. homes they buy. And they outspend all other countries in the process, favoring higher-end homes or properties in pricier markets like San Francisco, New York and Los Angeles.’
Does this remain true after their economic slowdown and 40%+ stock market collapse, or is this simply a regurgitation of outdated news?
Comment by Blue Skye
2015-09-19 11:23:34
Tell us then why you did buy the Real Estate ??
Because I wanted grounding….A place to raise my family without disruption…Been here 35 years….
Irreconcilable differences with a landlord can be simply resolved by ending a lease and moving on ??
First, it isn’t as easy as one may think to “break a Lease”…Small claims Ct. (easy & fast) allows for pretty hefty compensation to the prevailing party…
2nd, I don’t feel like being a Nomad with my wife, children and dogs at the mercy of decisions made that are not in my control like; Owner/Landlord putting house up for sale and you as tenant “must” provide access to prospective buyers…
Breaking a lease is far less costly than breaking a mortgage contract at a grossly inflated price.
“Providing access” is a very small price to pay considering the massive savings that result from renting instead of buying a depreciating asset.
scdave
mafia is a broken record. mafia is a troll. We have a paid off from day one home, with $550 mo accruals, bought at a low in the ongoing bubble, and will most likely make a profit, even factoring in paying for the deferred maintenance items. We fixed up smart (parsimonious).
Our floor plan just sold at $550K and we paid $380 3 years ago. We’ll sell FSBO and save on the listing side.
We like stability as well. A family home is great. Just don’t buy stupid. 35 years later, you have made lots of splendid memories in your home, and will net a nice profit.
‘and will most likely make a profit’
Oh. Well so much for the “toe-tag home”. That was a load of hooey all along wasn’t it? I hope all the posters you told these years see this; “oh we’re old, we just want a last place to put a roof over our head.” Just another slo-mo California flipper. And with you there are millions others just waiting to take a few hundred thousand from the greater fool. Well, don’t cash out too late! There’s probably some young family that just wants a house that will still borrow the easy money and put it in your hand.
You paid a 250% premium for a depreciating rotting pile of sticks.
Thats your funeral.
“Houses are a terrible investment if you pay retail and more so if you are paying way over asking or bidding against other fools.”
Every bubble has its greater fools who are lured into overbidding at the peak. I, for one, hope most of them are overseas or other foreign national investors, as the less of the negative wealth effects in the next leg down land on our shores, the better.
It’s a regular Chinese laundry.
Lots of the all-cash investors who bought near the peak may soon be running Chinese laundries in order to feed their families.
“It’s been over a year and a half since I posted reports that appraisers were factoring in lines at open houses to qualify values.”
Which of the standard appraisal methods does this approach fit?
he was the biggest whiner in 2007-8
and gloater in 2005
he saw this before
‘Miami ranked as the sixth most important city in the world to ultra-high-net-worth individuals (UHNWI), according to the prestigious 2015 Knight Frank Wealth Report. UHNWI are defined as having a net worth of at least $30 million. Miami and New York were the only North American cities to make the top-10 list of the Wealth Report, which is issued annually by London-based real estate consultancy Knight Frank. London, New York, Hong Kong, Singapore, and Shanghai rounded out the top-five.’
‘Yet Miami’s strong dependency on foreign buyers to drive its local property market sales is the root cause of the recent sales slowdown, say some Wall Street analysts.’
‘Given the significant economic slowdown and market volatility of emerging economies around the world, coupled with the collapsing value of many foreign currencies against the U.S. Dollar over the last year in places like Brazil, Russia, Canada and now China - all top feeder markets for Miami - have dramatically impacted the pace of Miami property sales in recent months.’
‘I told you a couple years ago that low rates are here for a long time.’
Considering that interest rates have been falling for 30 years, this isn’t a very bold prediction.
‘The primary metric of central bankers to determine whether monetary expansions have gone too far is the rate of increase in consumer prices. As long as consumer price indices remain tame, it is full steam ahead.’
This is closer to what should concern us; with an unbelievable amount of money creation since 2008, where is the inflation? Wages should be skyrocketing and we all know they aren’t. The obvious conclusion is these central bankers are operating on a bogus theory. Now isn’t that a wee bit serious?
‘With us, worse case scenario, we’ll break even…There will be no financial meltdowns as long as money can be printed. They would not let anything fail today.’
I’ve always felt the comments on this blog will be viewed with great interest some day by those trying to understand this event. We’ve somehow managed to accept things as a public body that we’d never consider as individuals. I have to live within my means…Deficits don’t matter.
Sure, that how it always works. If you wear the title of central banker or US/Japanese/Chinese government, you can eat all the beans you want and not fart!
I’m not buying it. On this:
‘the planned exits from unconventional monetary policy’
It can’t be stressed enough; this ‘unconventional’ thing. It’s never, ever been done before. And it wasn’t just Bernanke; the Chinese went way past the Federal Reserve. The Japanese are still printing money and openly buying stocks! The EU is doing the same with bonds.
I’ll say this; I don’t know how it is going to end, and no one else does either. You can guess and you may be right, but you don’t know. But we’ve all known people who act as if they can indulge themselves (and others) without consequences.
This 30 year, economy destroying trend of falling interest rates has resulted in a rising level of fraud, graft and misrepresentation.
Watch the economy accelerate when the trend reverses. And it will.
‘The primary metric of central bankers to determine whether monetary expansions have gone too far is the rate of increase in consumer prices. As long as consumer price indices remain tame, it is full steam ahead.’
Isn’t housing these days over 40% of the consumer price index consumption basket? With housing prices and rent going up like gangbusters, I’m having a hard time understanding why inflation is so low?
Are housing price increases these days considered tame?
REALTY TODAY
Housing Prices Continue to Rise Leaving People Angry and Making Homes Impossible to Afford
Posted by Staff writer (media@realtytoday.com) on Sep 18, 2015
US New Home Sales Rise To Highest Level In Seven Years
WASHINGTON, DC - JUNE 23: A ‘For Sale’ sign sits in the front yard of a townhouse June 23, 2015 in Northeast Washington, DC. Purchases of new homes in the U.S. rose in May to the highest level in seven years, signaling that the industry may be gaining momentum heading toward the second half of the year.
(Photo : Drew Angerer / Stringer)
Housing prices are still continuing to rise thus making it harder for aspiring home owners to purchase their own property. As interest rates rise, so do home prices.
According to cnbc.com, Trulia, a real estate site, made an analysis regarding home ownership cost. Their analysis revealed that most prospect home buyers are getting “priced out” as acquiring a home can take up most of their paychecks.
Affordable housing programs are only focused on the house itself i.e. mortgage, insurance and taxes but home owners have other necessities that they have to provide for like food, monthly utility bills, transportation fees going to work, etc. If everything are taken into account, there’s a huge difference as to what the home owners can afford.
Trulia economist, Ralph MacLaughlin, said “When we took these two non- housing, essential costs into account, we found that some of the most affordable markets don’t look that cheap anymore.”
Many activist groups are taking a step in launching protests and programs to make housing more affordable.
San Francisco has the highest home prices across the country and its local groups are crying for consideration.
According to inquisitr.com, a lawsuit against Lafayette city has been rumored to be filed by the housing group San Francisco Bay Area Renters Federation to counter the city’s new projects of building luxury and gated community which in turn can add to the housing crisis in the area.
The city’s new project will produce 44 single- family- homes with the prices of $1.2million each instead of 314 units for moderate- income families with $2,100 monthly fee. If the project pushed through, there will be fewer residents in the area as many will not be able to afford any of the units.
…
Years ago (15 or so years), there was a parcel of land available for development that was right next door to a commuter train station. We thought that it was a perfect opportunity to build medium-density apartments (an affordable living alternative means they will be full, and next to the train station means that people could commute by train up and down the peninsula without getting in a car). Also, the project was in a downtown, so people could walk to downtown services.
The walk score of the location is 88.
Win, win, right? More density with less need for cars, more affordable rentals, etc.
It took about one conversation with the City to determine that they wanted nothing to do with it. They forced lower density, which pushed the cost per unit higher, and so what was ultimately built was high-end for sale condos ($1MM+).
These choices have been happening for years–cater to the high-end at the expense of higher numbers of more affordable homes.
There’s never been a better time to gamble on future home equity wealth gains!
Rents are rising; consider buying a home instead
Courier News and Home Tribune 12:04 a.m. EDT September 5, 2015
According to real estate research firm Reis Inc., the average U.S. rent for an apartment has increased 14 percent since 2010.
(Photo: ~ Mark Miller, courtesy of Weichert Realtors)
MORRIS PLAINS
When deciding where to live, one of the first and most important questions to answer is whether to buy or to rent. Many assume that renting is easier and less expensive than purchasing a house or a condo; however, more and more renters are finding that buying a home is actually more affordable.
According to real estate research firm Reis Inc., the average U.S. rent for an apartment has increased 14 percent since 2010. To put that figure into perspective, this is more than the rate of inflation and more than double the increase in home prices over the same period. Furthermore, rents are projected to rise an additional 3.3 percent this year.
“A true benefit to purchasing a home is the ability to secure a fixed monthly cost,” said Jim Weichert, founder of Weichert, Realtors. “While rents typically rise a few percent each year, individuals who purchase a home with a 30-year fixed mortgage can count on having the same monthly payment over the course of the loan. In addition, homeowners will likely benefit from home price appreciation which can provide thousands of dollars in additional personal equity which renters simply can’t capitalize on.”
…
Inflation is low because we are in deflation.
BLS publishes CPI permutations, not inflation data.
BLS considers the price of houses to be in the investment category and does not include them in CPI. Rent and made up rent for your own house are included.
Practically all commodities are off 20 to 50%, including energy. Rent going up 0.3% does little to lift CPI.
We accepted that Government manipulated stats like CPI were BS during the inflation years (what WPS would call a conspiracy). Wouldn’t it follow that the stat will mask deflation as well?
We are in deflation tempered by central bank monetary intervention to defuse it.
They just need more of us to sink hopelessly into debt. Not happening here. Not going back to that jail cell!
“Not going back to that jail cell!”
You remind me that I have recently fallen behind on my reading of Charles Dickens’ David Copperfield.
“They just need more of us to sink hopelessly into debt. Not happening here. Not going back to that jail cell!”
BINGO
And yes…. the debt driven system needs more suckers to stay afloat(or submerged as it were).
I want more beans!
https://www.youtube.com/watch?v=LzXGhZebNOo
‘While you might think the Fed keeping rates near 0% is actually good for markets — in particular riskier assets like stocks and high-yield bonds — Juckes’ point is that everybody knew these riskier assets would appreciate in price, they did (in a hug way), and now the appetite to continue buying at these levels has dried up. ‘
‘In his note, Juckes cites an analogy made by Peter Tchir at Brean Capital who has written that financial markets are currently in a “Hotel California” situation. In this analogy, Tchir is invoking the famous line from the Eagles song that goes, “You can check out any time you like, but you can never leave,” meaning that central banks rolled out extraordinary monetary policy following the financial crisis and now won’t be able to roll it back.’
They are caught in a liquidity trap of their own making.
Opinion Commentary
The Federal Reserve Pulls a Lucy
So the economy isn’t ready to withstand a quarter-point rate hike even after seven years of stimulus?
Photo: Getty Images/Image Source
By David Malpass
Sept. 17, 2015 7:07 p.m. ET
Like Lucy in the classic “Peanuts” comic strip, the Federal Reserve Thursday invited a running kick of the football—the first interest-rate hike in nine years—only to pull back at the last minute. The Fed cited recent “global economic and financial developments,” i.e., China’s stock-market woes, which “may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”
Financial circles in New York and Washington are celebrating, but the latest delay in tapering off the Fed’s near-zero interest rate policy risks plopping the economy, like the hapless Charlie Brown, flat on its derrière. While Wall Street applauds, uncertainty about future rate increases will likely keep business investment weak.
The economy is stuck in a zero-rate trap in which businesses don’t want to invest when they don’t know the impact of a rate hike, while the Fed thinks a rate hike would shake financial markets and hurt investment. Underinvestment leaves high cash balances at big corporations, but it is idle liquidity and doesn’t add to productivity.
By keeping rates artificially low, the Fed and other regulators are choosing winners and losers in credit markets rather than allowing credit allocation based on market prices. Near-zero rates channel cheap credit to sophisticated borrowers who often don’t need more funding. But the low rates hurt small borrowers and lenders. New business formation has been notably weak, and job gains at new businesses, one of the keys to innovation and productivity growth, have been among the weakest on record.
Borrowing conditions are easy for the top 1%, but the economy has many more lenders than borrowers—more bond buyers than bond issuers, more bank depositors than bank loans—so the net result is contractionary.
When the Fed tapered its bond purchases in 2014, its critics called it a tightening. Yet real GDP growth surged above 4% in the second and third quarters of 2014. Without that surge when the Fed was promising lenders a path to higher rates, real growth over the last three years was only 1.6%, a dispiriting performance that had previously only occurred during recessions.
The Fed’s communications spin on Thursday’s decision was glum. As already mentioned, the central bank warned of turmoil abroad and thinks the economy, while improving, still isn’t ready to withstand a quarter-point rate increase even after seven years of supposed stimulus.
The Fed’s new economic forecasts highlight its insecurity over markets, policy tools and its own effectiveness. It lowered its GDP forecasts for 2016-17 and provided a dismal 2% forecast for real growth in 2018 and beyond. It also lowered its interest-rate expectations for 2016-18, basically admitting that the tools aren’t working as expected. Still, there is no intention of changing course.
Persistent near-zero interest rates punish savers and hurt income growth for average U.S. households. Meanwhile, income inequality worsens as credit flows up the pyramid from middle-class savers earning paltry returns to the upper crust leveraging itself with cheap credit and stock gains.
New census data this week showed that real median household incomes are still falling, down 1.5% in 2014 from 2013. It’s a terrible setback for the middle class this far into a recovery, and the Fed should be urgently rethinking its policy.
The theory of zero rates and giant Fed bondholdings works for the government, big bond issuers and the upper crust, but it hurts lenders, savers and the broader economy. Japan has followed the same program since its bubble economy burst in the early 1990s, and it has experienced the same poor results. The Bank of Japan has maintained near-zero rates since the ’90s and bought bonds equal to 70% of its GDP—more than double the Fed’s appetite—yet growth and inflation haven’t budged and Standard & Poor’s just downgraded the ratings on its massive national debt.
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It can’t be stressed enough; this ‘unconventional’ thing. It’s never, ever been done before ??
+1 Ben….Its whats on my mind also…If you would have told me in 2010 that we would still have interest rates this low at the end of 2015 I would have bet a bundle against that prediction…Its apparent that this world wide opening up the monetary spickets is having consequences that were not anticipated…Like you said, its never ever been done before…
What about the 1933-1948 episode? Weren’t short-term rates similarly pinned to the floor over that period as during the post-2008 period?
The news is out that U.S. household wealth hit an all-time high in Q2 of 2015.
I’m wondering about the distribution effects of the Fed’s financially engineered housing and stock market wealth gains. Does anyone have anything to document that? Because I’m guessing with median household income lower now than it was half a decade ago, the bottom 50% or even the bottom 80% may not be celebrating on this news.
It should be useful to read what John Bates Clark Medal Award winner Emmanuel Saez and coauthor Gabriel Zucman have written on the evolution of U.S. household wealth inequality (albeit this information is as of 2012; maybe the situation has reversed thanks to QE3?):
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Sorry about the misspelled words. Copying and pasting from .pdfs does not seem to work very well…
“On aggregate, household debt (mortgages, student loans, credit card and other debts) increased from 75% of national income in the mid-1980s to 135% in 2009 and, despite some deleveraging in the wake of the Great Recession, still amounts to close to 110% of national income in 2012.”
This one sentence in the long passage I quoted deserves further comment. What appears as wealth in the form of fancy cars, houses, vacations and other luxury consumption often masks a household-level debt buildup in excess of a year’s income.
It appears that negative wealth effects masked by debt buildup are the norm for the bottom 90% of U.S. households. It is also telling that the authors’ definition of “middle class” goes all the way up to the 90th percentile of household wealth.
Professor Bear:The news is out that U.S. household wealth hit an all-time high in Q2 of 2015.
I have a strong suspicion that much of this household wealth can’t actually be spent. These are rises in prices of extremely illiquid goods and financial products.
The PTB develop these memes, things like “wealth effect”, and that gives them cover to drive up values of illiquid-to-the-average-person things, like stocks in a 401K, or houses (can’t cash out the 401K, most will put house sale money (which may or may not be a true profit if carrying costs are factored in) into another house).
I think the term “wealth effect” is just a sales meme that has gone viral. It has little to do with actual economic activity, but provides cover for those actually making money from it.
You know what really boosts spending? Actual, liquid wealth.
“There will be no financial meltdowns as long as money can be printed. They would not let anything fail today.”
It’s different here than in China, cause this is ‘Murika.
It bears mentioning that Chinese stock market muppets whose margin accounts were wiped out by bubble collapse are close financial relatives to ‘Murican muppets whose leveraged housing market gambles left them permanently underwater after the housing crash.
Wall Street’s Best Minds
The Culprits in China’s Stock Market Meltdown
Research Affiliates argues that markets dominated by retail investors deviate from rational valuations.
By Jason Hsu
Updated Sept. 18, 2015 2:29 p.m. ET
Bloomberg News
The Chinese stock market rallied more than 150% as the Shanghai Composite Index rose from 2,037 at the end of June 2014 to its peak of 5,166 in June 2015. Many market commentators, most notably Bill Gross, called it a “stock market bubble” and predicted a collapse. However, it bears asking, “What is a stock market bubble and how is it different from just a run-of-the-mill bull market?”
Simply stated, a bubble is an irrational bull market, where prices for stocks have run up much more than can be justified by improvements in the underlying corporate fundamentals. Classic stock market bubbles were the Japanese bubble during the late 1980s and the U.S. tech bubble that occurred in the 1990s. A characteristic attribute of a bubble is an unjustifiably high price-to-earnings multiple (P/E) for the market.
For the average investor, a bubble market isn’t bad in the short run. Investors are wealthier than they were a year ago and better off than their colleagues who did not invest in the stock market. The problem is that bubbles eventually burst. After the boom, the bust is psychologically painful to an investor who rode the Chinese A-shares market from 2,000 to 5,200 and then back down to 3,000.
Nonetheless, even after a 40% decline (as of this writing), this hypothetical buy-and-hold investor earned a 50% return in 12 months. The naïve investors who were lured into the market near the peak suffered real pain in the form of large financial losses. In fact, many investors who bought stocks on margin have seen their portfolios wiped out because of the leverage. As we have shown elsewhere, the average retail investor’s portfolio return is substantially below the buy-and-hold return on the market. This return gap is especially large during bubbles and crashes.
It is often joked that a bubble market is where naïve investors feel like financial geniuses. That illusion inevitably destroys wealth. Hsu, Myers, and Whitby (2015) show that the less sophisticated an investor is, the larger his return gap over time. The enormous return gap that emerges for average retail investors is one of the most undesirable aspects of a stock market bubble.
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CraterRage Photo Of The Day®
http://goo.gl/7juptF
Scary!
It’s hard to believe the rage that simple truths cause.
Almost forgot, but I mentioned a couple of days back that I was trying to come up with an outsider’s explanation for the Fed’s liftoff postponement, under the assumption that it wasn’t a done-deal going into the meeting.
By repeatedly talking about initiating liftoff, then punting because “the global economy remains too weak,” the Fed sows uncertainty, which drives investor fear and divestment from the stock market. The result is deflating stock prices due to other factors besides the Fed’s initiating liftoff.
My hunch is that the Fed may continue to play this game until stock prices have fallen far enough that further declines following the initiation of liftoff are quite unlikely. It would be harder to blame stock market declines on Fed tightening if the market fails to sell off in the wake of liftoff initiation.
For some reason, this story reminds me of how my dog used to play with her food before eating it.
Market Snapshot
U.S. stocks tumble as Fed sows fear and confusion
Published: Sept 18, 2015 4:54 p.m. ET
Main indexes post weekly losses
Getty Images
Volatility is coming back.
By Sue Chang, Markets reporter, & Anora Mahmudova, Reporter
U.S. stocks sank Friday, with the S&P 500 and the Dow Jones Industrial Average closing down for the week, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth.
The central bank cited concerns about the global economy and a lack of inflation growth in its Thursday decision to leave interest rates unchanged.
“Many are confused by the outcome of the recent Fed meeting,” said Kent Engelke, chief economic strategist at Capitol Securities Management. “Markets hate confusion and lack of clarity.”
The S&P 500 (SPX, -1.62%) skidded 32.16 points, or 1.6%, to close at 1,958.08 for a weekly loss of 0.2%. All S&P 500 sectors finished lower, led by energy shares.
The Dow Jones Industrial Average (DJIA, -1.74%) dropped 289.95 points, or 1.7%, to close at 16,384.79 with all 30 components in the red. The blue-chip index edged down 0.3% for the week.
The Nasdaq Composite (COMP, -1.36%) shed 66.72 points, or 1.4% to 4,827.23. The tech-heavy index is the only one of the three major stock barometers to finish out the week higher with gains of 0.1%.
Trading volume was elevated, with 5.74 billion shares changing hands on the New York Stock Exchange, due to “quadruple witching,” which means the expiration of various stock-index futures, stock-index options, stock options and single-stock futures. Friday is the second highest volume day of the year.
“By not raising the rates, the Fed is now fanning global growth fears,” said Steven Wieting, global chief investment strategist, at Citi Private Bank.
“The key for future market action depends largely on whether or not the Fed had any good cause to worry about international developments,” Wieting said.
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If my theory is correct, the coming months could be unkind to those who persistently invest under the “buy the dips” theory that the U.S. stock market always goes up.
Me and my seventeen academic papers say otherwise. — Yelling
Here’s the challenge…next year is an election year, and given that the Fed generally wishes to remain out of the political scene, I suspect their actions will be more muted than if it was a non-election year.
So, whatever they do, will probably be relatively insignificant for the next 12 months or so.
“Therefore, the planned exits from unconventional monetary policy will almost certainly not be orderly. Indeed, it is most likely that there will be an ugly, disorderly rout as market forces begin to assert themselves. A stampede is likely to occur once there is a general loss in confidence that the monetary expansion process will not go on forever. As the credit expansion process slows down or halts, stock punters and bondholders will find themselves amidst a mad crush as they all head for the exits at the same time.”
Given that FOMC member are undoubtedly aware of such a risk of a disorderly exit from unconventional monetary policy, why wouldn’t they take precautions, such as stirring up enoufh fear and uncertainty amongst traders before exit to deflate a considerable amount of air from the speculative bubble, before actually commencing exit?
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I get these things from the Washington Post:
‘In The Washington Post, former Treasury Secretary Henry Paulson weighs in on China’s economy, writing: One byproduct of China’s recent stock market volatility has been the emergence of a veritable army of “perma-bears” who believe the Chinese economy is essentially falling off a cliff. Growth in China is slowing and will continue to do so in years to come. But the stock market drop in itself tells us little about China’s real economy.’
‘All markets, of course, incubate asset bubbles. In that sense, the summer’s collapse, while a tragic and painful experience for many Chinese investors, has brought equity values back to earth in Shanghai and Shenzhen.’
It goes on to say how everything is fine, and the Wizard behind the curtain has the “tools” to make it stop. What’s interesting is this idea:
‘All markets, of course, incubate asset bubbles’
See, bubbles are as common as rain. Never mind history doesn’t indicate such. History actually shows a rarity of manias. He would have us believe we are all just sitting around itching to throw our money into the next big thing. I’m thinking this is how the PTB are trying to explain away all this funny money craziness.
‘the emergence of a veritable army of “perma-bears”
I prefer the “barbarians at the gates” tag from the central bank meeting in Wyoming.
‘All markets, of course, incubate asset bubbles.’
The Paulson Doctrine?
“Move along, there’s nothing to see here.”
I remember this from Jamie Dimon few years ago:
“Not to be funny about it, but my daughter asked me when she came home from school ‘what’s the financial crisis,’ and I said, ‘Well it’s something that happens every five to seven years,”’ Dimon said. “We shouldn’t be surprised, but we need to do a better job.”
– http://www.cbsnews.com/news/bank-execs-offer-head-scratching-answers/
These people are profiting massively from the fraud they engage in during the bubble run ups, and on the other side, from the government bailouts that inevitably follow.
And it’s not just the FIRE executives - the real culpability lays at the feet of politicians who accept the donations and promises of future employment, and actively write laws to aid this system. THEY’RE the ones who have sold us out. I expect heads of large corporations to behave sociopathically. But when our politicians join forces with them, then we’ve got a systemic breakdown.
It’s privatize the profits, socialize the losses writ large. Dimon and Blankfein are newly minted billionaires, having profited massively from this current system. Of course they want us to believe it’s completely normal that their elaborate casinos make this kind of money. It’s Manifest Destiny.
When I hear this kind of talk about (highly profitable for FIRE executives) meltdowns and bailouts being the norm, I always think of the redoubtable Lieutenant Frank Drebin, telling people, “Move along, there’s nothing to see here.”
‘Glencore, the world’s second-largest refined copper producer, plans to reduce copper output by about 20 percent over the next 18 months by shutting two of its flagship operations in Africa. The cuts are part of a wider $10 billion debt-reduction plan designed to help it protect its credit rating amid a rout in commodities that’s eroding profits at all of the world’s biggest mining companies.’
‘Copper for delivery in three months fell 2.2 percent last week to $5,254 a metric ton. Prices sank more than 2 percent on Friday as the Federal Reserve sounded caution over slowing growth in China and held off raising interest rates.’
‘Another drawback for the market: there’s plenty of supply. Warehouse inventories expanded 69 percent this year, according to data from exchanges in London, Shanghai and New York. LME stockpiles almost doubled this year, reaching an 20-month high in August.’
Miami Beach, FL Housing Prices Crater 6% YoY; Foreclosures Spike
http://www.zillow.com/miami-beach-fl/home-values/
Someone loaned me a copy of a book to read for later discussion with him. (His firm does business in China.)
Has anyone read this? (So far I’m impressed the writer made the bear case long before stock traders did.)
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The Wall Street Journal
March 6, 2013 11:00 p.m. ET
Eight Questions: Michael Pettis, ‘The Great Rebalancing’
Princeton University Press
Opinion on the outlook for China’s economy is sharply divided. China bulls believe that, with reform, China has another decade or more of rapid growth ahead of it. The bears maintain that imbalances are so great that a sharp slowdown in the next few years is inevitable.
Few have done more to shape the bear case than Michael Pettis, a professor of finance at Peking University. In his new book, “The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy,” Mr. Pettis makes the case for why China is about to run out of steam.
China Real Time caught up with Mr. Pettis and threatened to pay him a below-inflation return on his savings unless he answered our eight questions.
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Realtors Are Liars®
The fundamental business of China, that is, production and distribution of commodities, is on a sound and prosperous basis.
China Market Rout No Reflection on Economy, Top Diplomat Says
Bloomberg News
September 20, 2015 — 3:00 PM PDT
China’s stock market rout isn’t a reflection of the health of the world’s second-largest economy, and efforts to stem a $5 trillion slide in equities fall within the “boundaries of reasonableness,” the nation’s top diplomat said in an interview.
The Shanghai Composite Index has tumbled about 40 percent since its June high, upending global markets and fueling fears of deepening weakness in the $10 trillion economy. Those concerns are overblown, and China’s “handsome” growth rate of about 7 percent will remain an engine for global expansion, said Yang Jiechi, one of five state councilors.
“Some movements on the stock exchange in China should not equal the whole picture of the Chinese economy,” Yang said in a Sept. 9 interview in Beijing. “We believe that in the long term there is steadiness of the market, and besides if you look at the fundamentals of the Chinese economy they are quite sound.”
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“We believe that in the long term there is steadiness of the market, and besides if you look at the fundamentals of the Chinese economy they are quite sound.”
Do the folks in Beijing realize they are channeling Herbert Hoover?
A watched pot never boils.
Marketwatch dot com
Market Extra
Brace for the worst week of the year
By Sue Chang
Published: Sept 18, 2015 5:11 p.m. ET
Historically September is a bearish month
History does not favor stocks in September.
This was supposed to have been a banner week for stocks with historic data pointing to a very strong finish for the market. That was before the Federal Reserve blinked.
Instead, uncertainties in the wake of the Fed’s decision to keep interest rates unchanged triggered a selloff, dragging the S&P 500’s in the red for the week.
“Considering the past 10 years this current week was one of the best, the fact this week sold off hard late in the week is a clear concern,” financial blogger Ryan Detrick said.
Making matters worse, data dating back to 1950 indicate that next week will be the worst week of the year.
“Historically, September is one of the most bearish months,” he said. ”Most of the big drops took place later in the month,” he said.
In another harbinger of gloom, markets have closed lower on Fridays 42.9% of the time so far this year, one of the lowest “win percentages” as investors clear positions ahead of the weekend. Detrick noted that weak Fridays tend to result in bear markets.
The Fed on Thursday cited global headwinds for holding interest rates near zero, spooking investors and sowing confusion.
The confusion stoked a rout in stocks Friday, with the Dow Jones Industrial Average (DJIA, -1.74%) tumbling by nearly 300 points.
The main culprit is the question, “How bad are things out there that the FOMC is scared to raise rates 25 basis points,” said Ian Winer, director of equity trading at Wedbush Securities.
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“How bad are things out there that the FOMC is scared to raise rates 25 basis points,” said Ian Winer
Looks like the financialization and deindustrialization of the economy has done its magic. Now what?
Tax craze in Chi town. What makes you think this wouldn’t happen on a national scale?
Get out of debt, and stay out. Cuz’ yer gonna be on the hook for stuff you neva bought.