With The Philly Fed admitting QE has been the driver of inequality in the USA and the Kiwis slashing rates unexpectedly, the fact that Reserve Bank of Australia Governor Glenn Stevens uttered the following is even more crucial. "I think it's a social problem," Stevens told the Economic Society of Australia, adding ominously, "I think some of what's happening is crazy," specifically pointing to Sydney property prices as an example. No matter where we look around the world, Central Bankers appear to be exercising their honesty glands about the impact of their policies. However Stevens can't help himself at the end, noting "we remain open to the possibility of further policy easing."
The current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can’t. Larry Lindsey will be right that the markets will eventually force the Fed to raise rates even more abruptly if it waits too long to raise them on its own. But he grossly underestimates the magnitude of the rise and the severity of the crisis when that happens. It won’t just be the end of a raging party, but the beginning of the worst economic hangover this nation has yet experienced.
20 years ago this month, Bill Clinton unveiled the National Home Ownership Strategy, a 100-point plan designed to drive the home ownership rate in America to all-time highs. The plan succeeded — and now it has unraveled completely.
"Qualified households will be unable to move from renting to owning as housing-cost burdens, slow wage growth and student debt make it harder to cobble together even a modest down payment," WSJ says. As homeownership becomes increasingly unrealistic, demand for rentals will only increase, driving further increases in the cost of rental housing. The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?
Something happened in late 2008 that has skewed the recovery towards the wealthiest Americans.
The Fed sees no risks of bubble trouble because they are looking at it all from the 2008 perspective. That is completely wrong-headed; if there is a “next one” it will have nothing to do with subprime mortgages, or even mortgages and real estate. Everyone seems to simply assume that the subprime problem ended in 2008, if only by crash. That is true but only of mortgages. Deleveraging is myth as debt has still expanded, and greatly, just not in the same exact places. There are certainly auto and student loans that have exploded exponentially, especially in subprime categories, but if there is another credit bubble now, the third, it is undoubtedly corporate debt.
"How long the bubble can continue to inflate is the key question – but necessarily unanswerable. Inherently irrational, bubbles usually last longer than expected, [but they] ultimately burst... they expand continuously, then pop."
This would suggest that the bull market in stocks is ending. It’s quite possible that a significant top, and possibly THE top is in for stocks.
"...recent indications have darkened the probability spectrum to the point that it may actually be worth examining a worst case scenario. My gut sense is that there is indeed a recession forming, and one that looks worse by the month, so there are numerous relevant factors that demand attention the greater the potential for it. That starts with leverage and any transmission from finance to the economy."
"...the 'Ice Age' of low rates and low growth for a long time – as predicted by many analysts and economists – won’t happen. Instead, a crisis will cause a crash on Wall Street. The banks will go broke. The credit system will seize up. People will line up at ATMs to get cash and the cash will quickly run out. This will provoke the authorities to go full central bank retard. They will flood the system with “money” of all sorts. The ice will melt into a tidal wave of hyperinflation."
"Bernanke & Greenspan Have Destroyed America" Schiff & Maloney Warn "People Don't Realize What Is Coming"Submitted by Tyler Durden on 06/03/2015 16:00 -0500
Ali and Frazier, Laurel and Hardy, Mayweather and Pacquiao, Liesman and Santelli, and now Schiff and Maloney. Peter and Mike join clash of the titan-like to discuss their investment strategies and expose the charts the government doesn't want you to seeas "people like Bernanke are taken seriously still and the people that did predict [the crisis] are dismissed as lunatics half the time." The wide-reaching conversation covers everything from gold and stocks to The Fed and The Dollar - Bernanke "took the coward’s way out because all he did was exacerbate the problems to postpone the day of reckoning." The air is coming out of the bubble, they warn, "Bernanke and Greenspan have absolutely destroyed America. People don’t realize what is coming..."
"This market has a lot to be concerned about," warns Carl Icahn in an interview with FOX Business Network's Trish Regan, slamming Fed policy, "by keeping interest rates this low you are creating bubbles that you don’t even know about." While mainstream media pundits are instantly feverish over every bullish AAPL word the aging activist has to say (or tweet), it seems that when it comes to facing facts and reality of the broad market, few, if any, are willing to share his thoughts as he concludes, "it’s not just a question of it could be the beginning... It’s not will it happen. It’s when it will happen."
Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.
Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow - the financial markets. That excess liquidity has sent prices soaring to record highs despite weakting macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreperable loss of capital.
The age of propaganda is now upon us; where perception trumps the truth, until that is, the house of cards burns and falls, which it always does. With such blatant data manipulation going on, why shouldn’t we question the extent of stated “glut” in oil? The longer perception is distorted to create a false reality, the worse things will get in the end. We saw this before in 1999/2000 with the internet bubble and in 2008/2009 with the housing bubble, and it will not end well. If producers are dumb enough to get roped in to turning the spigot on when oil does rise (just as they appear to have done this morning) then, once again, prices won’t hold.