Real estate

Peter Schiff And The Untapering "Waiting for Godot" Era

The mere mention that tapering was even possible, combined with the Chairman's fairly sunny disposition (perhaps caused by the realization that the real mess will likely be his successor's problem to clean up) was enough to convince the market that the post-QE world was at hand. This conclusion is wrong. Although many haven't yet realized it, the financial markets are stuck in a "Waiting for Godot" era in which the change in policy that all are straining to see, will never in fact arrive. Most fail to grasp the degree to which the "recovery" will stall without the $85 billion per month that the Fed is currently pumping into the economy.  Of course, when the Fed is forced to make this concession, it should be obvious to a critical mass that the recovery is a sham.

Recent Graduates Have Saved A Negative 13% Down-Payment On Their First Home

Considering the median price of a home in the US is $208,000 according to NAR, the average student debt balance is the equivalent of a 13% down payment. In other words, two-thirds of recent graduates have saved a negative 13% down payment toward their first home. Of course, these are the same people that the bulls are counting on for household formation, population growth, job creation and other equally irrelevant arguments for strong housing demand in the future. Take a look at the table below and tell us if you are still optimistic.

Every Asset That Depends On Cheap, Abundant Credit (Housing, Bonds, Stocks) Is Doomed

Four words: financialization, debtocracy, diminishing returns. The entire global economy, developed and developing nations alike, is now dependent on cheap, abundant credit for everything: for "growth," for asset inflation, and ultimately for central state deficit spending, which props up all the cartels, rentier arrangements, fiefdoms and armies of toadies, lackeys, apparatchiks and embezzlers that suck off the Status Quo. The wheels fall off the entire financialized debtocracy wagon once yields rise.There's nothing mysterious about this.

Frontrunning: June 21

  • Turmoil Exposes Global Risks (WSJ)
  • China Money Rates Retreat After PBOC Said to Inject Cash (BBG)
  • Fed Seen by Economists Trimming QE in September, 2014 End (BBG)
  • Booz Allen, the World's Most Profitable Spy Organization (BBG)
  • Abe’s Arrows of Growth Dulled by Japan’s Three Principles (BBG)
  • China steps back from severe cash crunch (FT)
  • Smog at Hazardous as Singapore, Jakarta Spar Over Fires (BBG)
  • U.S. Weighs Doubling Leverage Standard for Biggest Banks (BBG)

Guest Post: Artificial Abundance, Moral Hazard And The Fed's Doomsday Machine

The Fed has created a Doomsday Machine. The Fed has nurtured moral hazard in every sector of the economy by unleashing an abundance of cheap credit and low interest mortgages; the implicit promise of "you can't lose because we have your back" has been extended from stocks to bonds (i.e. the explicit promise the Fed will keep rates near-zero forever) and real estate. An abundance based on the central bank spewing trillions of dollars of cheap credit and free money (quantitative easing) is artificial, and it has generated systemic moral hazard. This is a Doomsday Machine because the Fed cannot possibly backstop tens of trillions of dollars of bad bets on stocks, bonds and real estate. Its power is as illusory as the abundance it conjured. This loss of faith in key institutions cannot be fixed with more cheap credit or subsidized mortgages; delegitimization triggers a fatal decoherence in the entire Status Quo.

Guest Post: Fed's Economic Projections - Myth Vs. Reality (Jun 2013)

The FOMC lives in a fantasy world. The economy is not improving materially and deflationary pressures are rising as the bulk of the globe is in recession or worse.  The problem is that the current proposed policy is an exercise in wishful thinking.  While the Fed blamed fiscal policy out of Washington; the reality is that monetary policy does not work in reducing real unemployment.  However, what monetary policy does do is promote asset bubbles that are dangerous; particularly when they are concentrated in riskiest of assets from stocks to junk bonds. However, if you want to see the efficiency of the Federal Reserve in action it is important to view their own forecasts for accuracy. The reality is that Fed may have finally found the limits of their effectiveness as earnings growth slows, economic data weakens and real unemployment remains high. Reminiscent of the choices of Goldilocks - it is likely the Fed's estimates for economic growth in 2013 are too hot, employment is too cold and inflation estimates may be just about right. The real unspoken concern should be the continued threat of deflation and the next recession. One thing is for certain; the Fed faces an uphill battle from here.

More To Come

We have long held the opinion that the markets, all of them, have been buoyed by what the Fed and the other central banks have done which was to pump a massive amount of money into the system. There are various ways to count this but about $16 trillion is my estimation. The economy in America has been flat-lining while the economies in Europe have been red-lining and while China has claimed growth their numbers did not add up and could not be believed. In other words, the economic fundamentals were not supporting the lofty levels of the markets which had rested upon one thing and one thing alone which was liquidity. Yesterday was the first day of the reversal. There will be more days to come.

Guest Post: 25 Years Of Real Estate In One Chart

With Bernanke now making it extremely clear that housing is all we have, the following may raise a few eyebrows. Accommodate, accommodate, accommodate, accommodate... that was and is the mantra. It did not matter whether it was the S&L fiasco, 9/11, the sub-prime bubble or the Lehman collapse, the Fed's policy is to accommodate. All good things must come to an end. Look at that chart. We are about to go off the page. With QE-to-infinity, Bernanke is spent. Each new iteration of accommodation is bringing in less results.

This Is Bernanke's Minimum-Wage "Recovery" In Facts And Figures

A suddenly seemingly hawkish Ben Bernanke may be giving the impression he is preparing to taper because he feels confident enough about the recovery (just don't ask him about sudden dramatic rises in yields: that "puzzles" him). Yet as those who have been reading Zero Hedge for the past three years know, this jobs "recovery" is purely quantitative (not to mention seasonally adjusted): the quality of jobs regained is, in a word, abysmal, with the bulk of new job creation benefiting part-time and minimum-wage jobs. If anything, this loss of saving power, is the backdrop not for a recovery, but for a depression far more acute than the current "sugar-high" one when the Fed finally pulls the training wheels off, and when the US consumer realizes that all purchasing power is gone, all gone, and in exchange the only valuable and competitive job skills gained have been, well, absolutely none.

Guest Post: The Bloom Has Fallen Off The Brazilian Rose

With better access to credit, housing, jobs and overall standard of living than probably anyone in their family has ever experienced, you would think that the average Brazilian would have little reason to hit the streets. And yet, they are. While the credit-fueled boom has been great and looks likely to continue for at least a little while longer, the reality of a government that has made little real progress improving the overall standard of living is becoming all too obvious. The protestors are frustrated.  Frustrated with persistent inflation – that hits them much harder than the upper classes who in many ways benefit from it.  Frustrated with corruption – while the Brazilian congress tries to pass a law that would limit the number of corruption cases that can be brought.  Frustrated with inefficient government – the infrastructure development for the World Cup and Olympics is already running up against cost overruns with projects of questionable long-term value.  But mostly frustrated that due to all of this incompetence, they could lose all of the gains they made since 2002. Changing Brazil’s well-established rich/poor, connected/unconnected, boom/bust political and financial system will be difficult in the extreme.

David Stockman's Non-Recovery Part 2: The Crash Of Breadwinners And The 'Born-Again' Jobs Scam

After exposing the faux prosperity of the immediate post-2009 "wholly unnatural" recovery and explaining the precarious foundation of the Bernanke Bubble, David Stockman's new book 'The Great Deformation' delves deeper (in Part 2 of this 5-part series) into the dismal internals of the jobs numbers and only the utterly politicized calculation of the “unemployment rate” that disguises the jobless nature of the rebound. To be sure, the Fed’s Wall Street shills breathlessly reported the improved jobs “print” every month, picking and choosing starting and ending points and using continuously revised and seasonally maladjusted data to support that illusion. Yet the fundamentals with respect to breadwinner jobs could not be obfuscated - by September 2012, the S&P 500 was up by 115 percent from its recession lows and had recovered all of its losses from the peak of the second Greenspan bubble. By contrast, only 200,000 of the 5.6 million lost breadwinner jobs had been recovered by that same point in time.

China Joins The Broken "Keynesian Multiplier" Club

A week ago we showed a chart from Charles Gave which does a terrific job at explaining why the modern economic "science", in conjunction with the Fed's negative rate environment, have failed at their ultimate stated mission - to stimulate growth. The reason: the Keynesian multiplier, which has tracked the nominal US GDP 7yr average change with a very high correlation, is now negative. From Gave: "shows that the marginal efficiency of public debt, at least in the US (public spending in emerging markets from a low base usually improves productivity) has been declining structurally since 1981. And it seems that this marginal efficiency has now reached a negative level."... There is now another problem: as the chart below shows, China has developed a Keynesian multiplier problem of its own. Even as the Chinese politburo and the PBOC have been injecting an ever increasing amount of credit into the private sector - the primary source of Chinese growth - the incremental GDP growth has been trending lower, and lower, and lower...