Housing Bubble

Faith in the QE world is waning everywhere and with very good reason. If the "wholesale money" eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that starting point rather than the irrelevant and overstated federal funds monkeying. In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it.

In the past year, we have extensively profiled the collapse of ground zero of Canada's oil industry as a result of the plunge in the price of oil. Since then it has only gotten far worse. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! But that's just the beginning, because for many recent millionaires, the real cash crunch has finally arrived which means business is thriving for at least one industry: pawn shops.

Ignorance of economics allows some very big falsehoods to be accepted as fact by large numbers of people. And it’s only going to get worse as the presidential election of 2016 unfolds.

Given “highly accommodative” policy almost everywhere, and so little gained; it isn’t a good sign particularly after eight incessant years of it and the lagged effects from the renewed “dollar” wave still to be withstood. Every year was supposed to be “the year”, but 2015 was a surefire lock according to orthodox versions. The real difference, unlike past years, is that everything is going wrong so far just as predicted by the “strong dollar.”

"The larger problem with repurchases is that debt-financed buybacks effectively put investors on margin. As corporations have borrowed in order to aggressively buy back their stock near the highest market valuations in history, existing stockholders have quietly become heavily leveraged, without even realizing it."

The US and world economies are frauds that are coming unraveled. The Greek bailout is the most recent example of “kick the can down the road” solutions. The US housing bubble was an attempt to cover up/recover from the dot-com bust. Now the US is in a financial bubble engineered to recover from the housing bubble debacle. Soon this bubble will burst. Only the date is unknown.

The dance of the zombies goes on... During the 10 years between 2005 and 2014, these four retailers spent $34 billion on stock buybacks and dividends. But, alas, their cumulative net income during the period was only $13 billion. So they pumped 2.6X more into the casino than they earned! Last week’s tepid retail reports were not only a reminder that QE and ZIRP have by-passed main street entirely. The faltering department store sector is also a reminder that the monumental amount of Fed confected cash pooling-up in the canyons of Wall Street is breeding debt-laden zombies throughout the length and breadth of the land.

“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” – James Grant

"Losses on car loans taken out by bad-credit borrowers are continuing to climb. What's driving the rise? Nomura has an idea."

The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.

When China's tinderbox economy implodes, who will be left to bid up the world's surplus commodities and real estate?

In "historic step," Norway may be forced to tap into its $875 billion sovereign wealth fund to help make ends meet in the face of persistently low crude prices.

"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."

After 30 years of torrid expansion, perhaps the single most consequential factor in China’s economy is how much of it is a “black box”: a system with visible inputs and outputs whose internal workings are opaque. China’s recorded history stretches back thousands of years, but in terms of applicable financial and economic parallels to the current economy, there is no precedent. China’s leadership is truly in uncharted waters. This in itself heightens the risk of miscalculation and basing policies on faulty premises.

Debt is a fickle witch. When left to its own devices, which it has been for nearly seven years with interest rates at the zero bound, it tends to get into trouble. Unchecked credit initially seeps, and eventually finds itself fracked, into the dark, dank nooks and crannies of the fixed income markets whose infrastructures and borrowers are ill-suited to handle the capacity. Consider the two flashiest badges of wealth in America - cars and homes...