Real estate

Marc Faber: "Fed's Neo-Keynesian Clowns... Are Holding The World Hostage"

"There is nothing safe anymore, because the money-printing distorts all asset prices," is the uncomfortable response Marc Faber gives to Thai TV during this interview when asked for investment ideas. Faber explains how we got here "massive money-printing and ZIRP creates a huge pool of liquidity that does not flow evenly," as it washes from Nasdaq stocks to real estate to emerging markets and so on. Each time, "the bubble inflates and then is deflated as the capital (liquidity) floods out." The Fed, based on the doubling of interest rates since they began QE3 "has lost control of the bond market," Faber warns; adding that while he expects some "cosmetic tapering," the Fed members and other neo-Keynesian clowns will react to a "weakening US and global economy," and we will be a $150 billion QE by the end of next year, as the world is held hostage to US monetary policy.

China's Ghost Cities... Are Multiplying

Nowhere is China's historic misallocation of capital (resulting from a pace of credit creation that makes even the most fervent Keynesian western central banker green with envy) more evident and tangible, than in videos showing the tumbleweeds floating down the main streets of its ghost cities. We did that first in 2009, then followed up two years later only to find nothing has changed. Today, on yet another "two years later" anniversary, we go back to the scene of the excess capacity crime, to find out if thing may have finally normalized. For that we follow SBS' Adrian Brown who back in 2011 did an extensive report on what were some of the then unknown ghost cities dispersed across the mainland. What we find is that not only is the overcapacity problem nowhere close to being resolved, but that 20 new "ghost" cities are taking shape in this year alone.

Guest Post: The Trouble With Asset Bubbles: If You Stop Pumping, They Pop

Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble. This is another facet of The Fed's Double-Bind: if you stop pumping asset bubbles, they pop as participants realize the music has stopped, and if you keep pumping them, they expand to super-nova criticality and implode.

A Tale Of Two Subprimes: Homes And Autos

Whether we want to admit it or not, we find ourselves in pre-revolutionary times at the moment. This doesn’t mean we predict violent upheavals everywhere followed by chaos and bloodshed, it means that the current paradigm is no longer sustainable because it is not longer working. More and more people now recognize this. In case you needed anymore insight into the complete and total insanity of the “elite” Central Planners driving the U.S. economy off a cliff, we have decided to highlight a couple of articles explaining the rapid reflation of two important subprime markets: Homes and Autos. Clearly the only lesson learned from the 2008 crisis was that connected oligarchs can steal all they want with total impunity. There’s only one way this ends. With a complete and total collapse and then a massive paradigm shift. We're quite hopeful our next system can be far better than this one.

Frontrunning: September 20

  • JPMorgan Guilty Admission a Win for SEC’s Policy Shift (BBG)
  • Pricing Glitch Afflicts Rollout of Online Health Exchanges (WSJ)
  • This will end well: Japan LDP Considers Draft Bill to Put Government in Control of Fukushima Cleanup (WSJ)
  • How a German tech giant trims its U.S. tax bill (Reuters)
  • Despite Merkel's Popularity, Angst Creeps In (WSJ)
  • Hank Paulson warns of regulatory conflict (FT)
  • Rajan Surprises With India Rate Rise to Quell Inflation (BBG)
  • Apple Begins Selling New iPhones (WSJ)
  • Pope Says Church Should Stop Obsessing Over Gays, Abortion (BBG)

Peter Schiff On The Taper That Wasn't

The Fed's failure yesterday to announce some sort of tapering of its QE program, despite the consensus of an overwhelming percentage of economists who expected action, once again reveals the degree to which mainstream analysts have overestimated the strength of our current economy. The Fed understands, as the market seems not to, that the current "recovery" could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed's monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago. Following this playbook, the Fed will likely maintain the pretense that tapering is a near term possibility and that it has a credible plan on the shelf to bring an end to QE. In reality the Fed is stalling for time and hoping that the economy will inexplicably roar back to life. Unfortunately, hope is not a strategy.

PBOC's Un-Tightening Sparks Renewed Bubble In Chinese Property Prices

Residential real estate prices surged in China in August - up 18-19% in first-tier cities - as it appears the slowing of several tightening measures earlier in the year has sparked a full-fledged recovery in the bubble-growing in the Chinese property market. As The FT reports, some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line. The fact that the government juxtaposed the soaring prices in the big cities with relative stability in smaller cities merely stoked the fires of hot-money inflows as one analyst noted, "continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies." Restrictions on purchases remain but it seems clear that no new tightening has given developers and investors the green light to blow the bubble even bigger.

Spanish Bad Loans Surge To New Record High

Spanish bad loans rose for the fourth month in a row, surging to a new all-time high at 11.97% of total loans outstanding. With the total loans outstanding falling (as credit demand collapses in Spain's supposed 'recovery') and delinquent loans rising, the picture is set to to get worse - even as the Bank of Spain's rescue plan for real estate market is under way. Crucially though, as the chart below suggests, the spread of Spanish sovereign debt - which by now is so symbiotically-linked with the domestic financial system as to be almost inseparable - has collapsed on the back of OMT promises. Our question is - at what point does the marginal buyer of Spanish sovereign debt (i.e. Spanish banks) run out of 'cover' to soak up Spain's supply and force Draghi's hand - exposing the fallacy that OMT is?

Half The World's Richest Women Are Chinese

While Chinese stocks are underperforming their Japanese neighbors', the decision of which Asian language to learn (in order to potentially better your future) is clear. As Hurun Research notes, half of the richest women in the world (with assets in excess of $1 billion) are from China - including 3 from the Top 5 and 6 of the Top 10. Asia was home to the highest number of billionaires this year with most of them operating in real estate sector.  The total wealth of the 1453 billionaires amounted to a staggering US$5.5 trillion, the equivalent of China’s GDP and the so-called 'Ten-Zero-Club' - individuals with over USD10bn - grew by 25 to 108 people. The USA still ranks #1 (exceptionally) for the country with the most billionaires - at 409!

US Government Confiscates Midtown Manhattan Skyscraper, One Time Ivan Boesky HQ, From Iran

A week ago when we presented the missing link in the "all cash" housing recovery, namely laundered, embezzled or simply stolen off-shore sourced cash parked in the US real estate market which takes advantage of the NAR's generous anti-money laundering provision exemption, we asked what we thought would be a rhetorical question: "just how far will Preet Bharara take this, and comparable such future actions?" Turns out the answer is quite a bit farther, and higher. And not only that, but instead of just targeting residential real estate, the US attorney in Manhattan, is now focusing on commercial real estate as well. As CNN reported moments ago, the US government has seized an iconic midtown Manhattan skyscraper, one where none other than Ivan Boesky plotted his insider trading schemes in the 1980s, that prosecutors claim is secretly owned and controlled by the Iranian government. The skyscraper in question is 650 Fifth Avenue, also known as the Piaget building.


Guest Post: Look Who's Winning

The chart below tells a story. Do you think the fiscal and monetary policies implemented by Bernanke and Obama since 2008 were designed to benefit you? If you believe in regression to the mean and a world based on reality, then you should be prepared for corporate profits to decline by 14% to 20% over the next four years. What do you think that will do to a stock market where the PE ratio is already at valuation levels of 1929, 2000, and 2007?

Guest Post: The Fed's Double-Bind

The Federal Reserve is in a classic double-bind: as its policies to boost growth bear fruit, interest rates rise, threatening the very recovery the Fed has lavished trillions of dollars of quantitative easing (QE) to generate. Put another way: if growth is needed to boost corporate sales and profits, but growth leads to higher interest rates and reduced central-bank suppport of markets, this is a double-bind with no exit.


Tomorrow, A Process Will Be Started...

A very soon tomorrow will bring the decision of the Fed concerning tapering into focus. Ok, a kind of fuzzy, hard to see and wispy focus. The one thing that we can assure you of is that whatever is to come our way it will not be a singular event. You will hear from the imbibers of Cool Aid and other mischievous reality altering drinks that it could be a one-off event. Tomorrow a process will be started, it will probably go in fits and starts but do not blind yourself; it will be the beginning of the journey to cut back on the propping up of the markets by the Fed.