In a remarkable – for its honesty and frankness – statement on the intellectual rot within America's Ivory Towers, Stanford University Provost John Etchemendy lay bare the challenges that higher education face in the coming, increasingly divisive, years.

The Threat From Within

Universities are a fundamental force of good in the world. At their best, they mine knowledge and understanding, wisdom and insight, and then freely distribute these treasures to society at large. Theirs is not a monopoly on this undertaking, but in the concentration of effort and single-mindedness of purpose, they are truly unique institutions. If Aristotle is right that what defines a human is rationality, then they are the most distinctive, perhaps the pinnacle, of human endeavors.

 

I share this thought to remind us all why we do what we do – why we care so much about Stanford and what it represents. But I also say it to voice a concern. Universities are under attack, both from outside and from within.

 

The threat from outside is apparent. Potential cuts in federal funding would diminish our research enterprise and our ability to fund graduate education. Taxing endowments would limit the support we can give to faculty and the services we can provide our students. Indiscriminate travel restrictions would impede the free exchange of ideas and scholars. All of these threats have intensified in recent years – and recent months have given them a reality that is hard to ignore.

 

But I’m actually more worried about the threat from within. Over the years, I have watched a growing intolerance at universities in this country – not intolerance along racial or ethnic or gender lines – there, we have made laudable progress. Rather, a kind of intellectual intolerance, a political one-sidedness, that is the antithesis of what universities should stand for. It manifests itself in many ways: in the intellectual monocultures that have taken over certain disciplines; in the demands to disinvite speakers and outlaw groups whose views we find offensive; in constant calls for the university itself to take political stands. We decry certain news outlets as echo chambers, while we fail to notice the echo chamber we’ve built around ourselves.

 

This results in a kind of intellectual blindness that will, in the long run, be more damaging to universities than cuts in federal funding or ill-conceived constraints on immigration. It will be more damaging because we won’t even see it: We will write off those with opposing views as evil or ignorant or stupid, rather than as interlocutors worthy of consideration. We succumb to the all-purpose ad hominem because it is easier and more comforting than rational argument. But when we do, we abandon what is great about this institution we serve.

 

It will not be easy to resist this current. As an institution, we are continually pressed by faculty and students to take political stands, and any failure to do so is perceived as a lack of courage. But at universities today, the easiest thing to do is to succumb to that pressure. What requires real courage is to resist it. Yet when those making the demands can only imagine ignorance and stupidity on the other side, any resistance will be similarly impugned.

 

The university is not a megaphone to amplify this or that political view, and when it does it violates a core mission. Universities must remain open forums for contentious debate, and they cannot do so while officially espousing one side of that debate.

 

But we must do more. We need to encourage real diversity of thought in the professoriate, and that will be even harder to achieve. It is hard for anyone to acknowledge high-quality work when that work is at odds, perhaps opposed, to one’s own deeply held beliefs. But we all need worthy opponents to challenge us in our search for truth. It is absolutely essential to the quality of our enterprise.

 

I fear that the next few years will be difficult to navigate. We need to resist the external threats to our mission, but in this, we have many friends outside the university willing and able to help. But to stem or dial back our academic parochialism, we are pretty much on our own. The first step is to remind our students and colleagues that those who hold views contrary to one’s own are rarely evil or stupid, and may know or understand things that we do not. It is only when we start with this assumption that rational discourse can begin, and that the winds of freedom can blow.

We wish John well in his future endeavors as we are sure there will be a groundswell of hurt feelings demanding his resignation for dropping another truth bomb on their safe space.

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In yet another ironic twist, the process (including random phone checks overseen by White House lawyers) by which Sean Spicer is cracking down on leaks from The White House has been leaked to Politico.

The push to snuff out leaks to the press comes after a week in which President Donald Trump expressed growing frustration with the media and the unauthorized sharing of information by individuals in his administration, and as was leaked to Politico…

Last week, after Spicer became aware that information had leaked out of a planning meeting with about a dozen of his communications staffers, he reconvened the group in his office to express his frustration over the number of private conversations and meetings that were showing up in unflattering news stories, according to sources in the room.

 

Upon entering Spicer’s second floor office, staffers were told to dump their phones on a table for a “phone check," to prove they had nothing to hide.

 

The phone checks included whatever electronics staffers were carrying when they were summoned to the unexpected follow-up meeting, including government-issued and personal cell phones.

 

Notably, Spicer explicitly warned staffers that using texting apps like Confide – an encrypted and screenshot-protected messaging app that automatically deletes texts after they are sent – and Signal, another encrypted messaging system; was a violation of the Federal Records Act, according to multiple sources in the room.

Spicer also warned the group of more problems if news of the phone checks and the meeting about leaks was leaked to the media – so much for that.

It's not the first time that warnings about leaks have promptly leaked. The State Department's legal office issued a four-page memo warning of the dangers of leaks — that memo was immediately posted by the Washington Post.

As a reminder, the costs of being caught are severe…

First, there’s the prohibition against disclosure of classified information. This is the obvious one, since any publication of classified material to an unauthorized party is illegal. Under the Espionage Act, 18 U.S.C. § 798, a person guilty of this can end up in prison for 10 years and face a fine. If the leaks involved classified information that was sent to members of the press, the source could end up behind bars if they’re caught. Opponents of Hillary Clinton argued that she violated this with her handling of emails on a private server, but the FBI determined they did not have a strong enough case to prosecute. As LawNewz.com contributor Philip Holloway wrote, the information regarding Flynn’s wiretapped phone calls is Signals Intelligence (SIGINT), which is highly classified, so if one of the “current and former U.S. officials” is identified, they could be in trouble.

The form of the leaks could also determine whether additional charges appropriate. If information was merely spoken to a reporter, that’s one thing, but if actual files or physical materials were transferred, then 18 U.S.C. § 641 could kick in. That law says that anyone who steals or provides for another person’s use “any record, voucher, money, or thing of value of the United States or of any department or agency” is guilty of a crime. If a source of a government leak turned over a physical record, they could face 10 years in prison and a fine for it.

In addition to laws against revealing certain information, if the President discovers a source behind a leak, they could face additional charges if they lie about it. Besides perjury, which applies to anyone who lies under oath, false statements or covering up material facts in a federal investigation, either by the Department of Justice of Congress, can lead to five years in prison.

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Another Trump nominee for a critical government role has decided to withdraw. After two prior Trump nominees,  Army Secretary choice Vincent Viola and Labor nominee Andy Puzder, both removed themselves from consideration for their appointed role in recent weeks citing insurmountable opposition or conflicts, moments ago financier Philip Bilden, a senior advisor at HarbourVest Asia and President Trump’s pick to lead the Navy, was said to become the third Trump appointee to withdraw his nomination.

“Philip Bilden has informed me that he has come to the difficult decision to withdraw from consideration to be secretary of the Navy,” Defense Secretary Jim Mattis said in a statement Sunday evening. He added that “this was a personal decision driven by privacy concerns and significant challenges he faced in separating himself from his business interests.”

Bilden’s vast financial holdings, many of which he earned in Hong Kong, would have made it difficult for him to survive the scrutiny of the Office of Government Ethics, USNI News reported.

Bilden, who built his career in Hong Kong with the investment firm HarbourVest, was a surprise pick for the Navy post but had been Mattis’ preferred candidate. Yet like billionaire investment banker Vincent Viola, who withdrew his nomination to be secretary of the Army earlier this month, Bilden ran into too many challenges during a review by the Office of Government Ethics to avoid potential conflicts of interest, the sources said.

Bilden’s withdrawal leaves Mattis with just Air Force Secretary nominee Heather Wilson, a former New Mexico Republican congresswoman, in line for a top political post. Her Senate confirmation has not yet been scheduled.

 

Bilden served as an intelligence officer in the Army Reserve from 1986 to 1996 and is on the board of directors of the U.S. Naval Academy Foundation and the board of trustees of the Naval War College Foundation.

Some background. According to USNI, Financier Philip Bilden has withdrawn himself from consideration to be the next Secretary of the Navy.

Sources in the White House and the Navy told USNI News that Bilden’s extensive financial holdings would likely not meet the Office of Government Ethics standards to serve in the position. In order to serve he would have to divest much of his foreign holdings, USNI News understands.

 

The White House is scheduled to make the announcement this evening. Bilden was formally nominated as Navy Secretary on Jan. 25 after back-and-forth reports in the media as to whether he or former congressman Randy Forbes would get the job. The White House called Bilden “a highly successful business leader, former Military Intelligence officer, and Naval War College cybersecurity leader [who] will bring strategic leadership, investment discipline, and Asia Pacific regional and cyber expertise to the Department of the Navy” in its statement announcing Bilden’s selection.

 

Bilden served as a military intelligence officer in the U.S. Army Reserve from 1986 to 1996 after attending Georgetown University on an ROTC scholarship. In 1996 he moved to Hong Kong for business and resigned his commission.

 

In recent years, he had been involved with the Navy through serving on the Board of Directors of the United States Naval Academy Foundation and the Board of Trustees of the Naval War College Foundation. Additionally, one of his sons graduated from the Naval Academy and another is currently a midshipman there, and the White House statement noted that he comes from “a military family with four consecutive generations of seven Bilden Navy and Army officers.”

In a statement, Defense Sec Mattis added that he’ll make a recommendation in the coming days to Trump for a leader who can guide Navy and Marine Corps.

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Submitted by Daniel Drew via Dark-Bid.com,

Warren Buffett released his annual letter over the weekend, in which he praised Jack Bogle as his "hero" for promoting index investing. The irony is that investors would have been better off buying Berkshire shares. Over the last 10 years, Berkshire stock is up 139% while the S&P 500 is up 71%. The real question is why Buffett just doesn't tout his own stock rather than promote index investing. He tries to explain himself:

"Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price – it's no fun having owners who are disappointed with their purchases – nor one too low."

Buffett is doing something every skilled salesman does: managing expectations. Buffett's own performance is compared against the S&P 500, and what better way to win that game than by putting a floor under the Berkshire price with the promise of share buybacks and then putting a ceiling on the stock by promoting index investing? The real secret is Buffett is talking his book by not talking it: Rather than tell investors to buy Berkshire at any price, he tells people to invest passively through an index, which leads to the very market inefficiencies that he profits from.

The great appeal of index investing is its low fees, but like buying a cheap pair of shoes that falls apart after 6 months, investors will find that index investing is the most expensive thing they ever did. Vanguard promotes its rock bottom expense ratios, but what is not published is market impact costs that are incurred when the fund rebalances. Since these rebalances are often announced ahead of time, they are extremely vulnerable to front running. Christophe Bernard, PhD Senior Scientist at Winton Capital Management, estimates that front running costs index investors 0.20% per year. That's 4 times the official expense ratio of Vanguard's S&P 500 ETF.

In his latest research, finance professor Hendrik Bessembinder discovered that 58% of stocks don't even outperform a Treasury bill. This study was based on 26,000 stocks from 1926 to 2015. Just 4% of stocks accounted for all of the $31.8 trillion in gains during this period. That means 96% of stocks were complete garbage. Even worse, shares of unprofitable companies outperform their profitable counterparts, which is why you have a marketplace that is dominated by Twitters and Teslas.

Index investing means buying a box of garbage stocks sprinkled with a few hope and glamour stocks whose price gains are solely a result of underperforming fund managers grasping for quarterly bonuses and retail investors juicing up their portfolios in a doomed attempt to catch up on their retirement targets.

While mom and pop buy a Vanguard index with their $500,000 and get front run all day by proprietary traders, the capitalist televangelist Warren Buffett will continue to actively trade billions while preaching the miracle of buy and hold investing.

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As recently as two weeks ago, a second Scottish independent referendum seemed improbable. As Reuters reported on February 10, Britain saw no need for a second Scottish independence referendum and the devolved Scottish government should focus on improving the economy and tacking domestic issues rather than flirting with secession, a senior British minister said.

Meanwhile, an opinion poll published in early February showed support for Scottish independence rose after PM Theresa May proposed making a clean break with the European Union, stoking speculation that Scotland could demand another secession vote. Such a move would present yet another major challenge for the ruling Conservative party as a demand for a second independence referendum from Scotland’s devolved government would throw the United Kingdom into a constitutional crisis just as PM May seeks to negotiate the terms of the Brexit divorce with the EU’s 27 other members.

May had repeatedly said she does not believe there is any need for a second independence vote in Scotland as 55.3% of Scots voted to stay in a 2014 referendum. In that vote, 44.7% of Scots voted for independence.

When asked whether she would allow a second referendum, May told reporters: “We had the independence referendum in 2014.” “The Scottish people determined at that time that they wanted Scotland to remain a part of the United Kingdom. The SNP at the time said it was a ‘once in a generation vote’,” May said.

But the pro-EU Scottish National Party (SNP), whose ultimate aim is independence for Scotland, said May’s drive for what they call a “hard Brexit” against the will of most Scots had put independence back on the agenda.

It now appears that the SNP has gotten its wishes, and despite her stern denials, Theresa May’s team is preparing for Scotland to potentially call independence referendum in March to coincide with triggering of Article 50, the Times of London reported late on Sunday, citing unidentified senior government sources. According to the UK publication, May could agree to new Scottish vote, but on condition it’s held after U.K. leaves EU.

From the Sunday Times:

Nicola Sturgeon and Theresa May are heading for a showdown over who has the right to call another independence referendum and when it should be held.

 

As the prime minister prepares to head north to speak at the Scottish Conservative conference this week, it has emerged that the SNP government raised the issue of a second referendum at a private meeting with her administration on Wednesday. 

 

The first minister looks set to call a vote by the Scottish parliament — following next month’s SNP conference and triggering of article 50 — to strengthen her mandate to stage a second referendum. At her party conference, Sturgeon is expected to call for Holyrood to have the right to call a referendum.

While there has been no official statement from UK officials in this late hour on Sunday, the prospect of even more politcal chaos, not to mention the sudden possibility of Scotland declaring independence has sent cable into a tailspin, with sterling plunging 70 pips in thin trade, sliding below 1.24 on the news.

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By Chris at http://ift.tt/12YmHT5

Chairman Trump may well be a child in a man’s body – erratic, lacking in finesse, as articulate as a gangsta rapper, contradictory, and missing the cognitive functions allowing one to think before acting. But.. But… he does seem smart enough to have thought a little about Russia. Thought alone is a welcome surprise from Washington.

The establishment for their part are fuming!

First their rice bowls are at risk, and to top it off they’re now publicly mocked. To egomaniacs this is worse than acne to a prom queen. As I mentioned a couple weeks back the mockery has come thick and fast:

CNBC’s John Hardwood decided to conduct a Twitter poll to see who the American people trusted when it came to the DNC hacks. Did they believe Wikileaks, who deny Russian involvement, or do they believe the intelligence community who has blamed Russia despite ZERO hard evidence being shown to the public?

 

The results were shocking and it stunned the media elite!

 

The absurdity over Russia has turned into a social meme. Few buy the narrative and those that do increasingly find mainstream thinking to be questioned.

Instead of allowing ourselves to be caught in the back and forth about Russia let’s try understand who’s saying what and why. The implications for capital flows could be worthwhile.

Why Washington and the Establishment Need a Russian Enemy

Without a Russian threat the need for NATO is… well, jeez Louise, there isn’t one. Hmmm.

After all, NATO doesn’t need Eurofighters to deal with angry Algerian teenagers. They were built to do combat with Ivan. What if Ivan isn’t the threat they need him to be?

Europe (and NATO) actually need weapons designed for a knife fight in a cubicle. Nuclear submarines seem like overkill for jihadists donning exploding underwear and yelling “Allahu Akbar” in a Paris subway. You sure as hell can’t fight him with a Mig-29. The problem is, none of this works for the lobbying military contractors sucking at the teat of Washington.

“Scrap the 20 F-22 Raptor jets boys. We’ve got an order for… Oh, jeez… An order for… 45,000 stab vests??… No, that can’t be right.”

Without NATO Lockheed Martin may not build as many ugly and ludicrously expensive planes. Without a Russian enemy Halliburton don’t provide “services”. Rice bowls are at risk. It’s about the money. It’s always about the money.

Remember weapons of mass destruction disappearance in Iraq?

9/11 was used as a wonderful tool to stir the rubes into a bid to secure more oil. What Iraq had to do with a bunch of angry Saudis with box cutters they never told us.

Afghanistan… What was that about again? Why the never ending bloodshed and mayhem? Filling rice bowls.

Let me remind you that KBR, Inc. (NYSE:KBR), which was spun off from its parent – oilfield services provider Halliburton Co. (NYSE:HAL), was the no. 1 recipient of tax payer funding during the Iraq war. A cool $39.5 billion, according to this source. Remember this guy?

The appropriately named “Dick” Cheney. Rice bowls at risk, folks. Trump’s tipping the bowls over. He’d better watch his back.

He’s threatened to pull out of NATO, pull out of South Korea, even Okinawa, and instead he wants to build a wall on the Mexican border. Pray tell how the establishment are going to make billions from that?

This must be truly terrifying for them. How the hell do you frighten the rubes without a big bad foe? How do you keep the defence contracts in place and ensure the spigot is kept open on full throttle? Those homes in the Hamptons don’t clean themselves, you know?

Then Trump goes and nominates Rex Tillerson (ex-Exxon Mobil CEO) as secretary of state. Rex has close ties with Putin (as he negotiated a deal with Russia to help develop Russian oil reserves) and doesn’t seem at all angry with Russia.

Is Russia a threat to the United States?

Pleeez. It’s a nuclear power so in that respect it’s a threat to everyone but then so is the fat kid in Korea and he’s a lot less mentally stable than Putin is. Russia is currently an economically depressed country that hasn’t threatened the United States and won’t. Russia isn’t going to invade Europe as the establishment would have the rubes believe.  Why would they, when all they have to do is bide their time a few years and then find a decent real estate agent to go buy it.

Is Russia hacking the US?

No more than every other countries spy agencies are constantly hacking each other. Snakes bite, dogs bark, and governments spy on and hack each other.

What now?

Well, unless the clowns manage to spark some conflict Russia stands to benefit from many angles.

• Better relations with the US, including perhaps an easing of or total lifting of sanctions
• Europe currently imposing sanctions will continue to fragment with member nations deciding their own fate and likely renegotiating trade deals and sanctions

They have already taken a big hit to their currency, allowing it to bear the brunt of the pain when oil collapsed. Something the Saudis never did.

What’s it got going for it?

• A freely convertible currency
• One of the cheapest markets in the world at a P/E of 9.1, P/B of 1 and a CAPE of 5.9
• Commodity driven economy which can be good and bad (more on this in a moment)

It doesn’t come without risks.

The markets is heavily tilted towards cheap state owned banks and energy companies so if you’re just buying an index or ETF tracking the index, you’re often making a bet on energy prices and the promises of the Russian government.

All that being said, I can certainly see capital shifting in a momentum driven trade into things “Russian”.

Below is a list of Russia’s to 10 exports:

1.  
   1. Gems, precious metals: US$7.4 billion (2.2% of total exports)
   2. Machines, engines, pumps: $8.1 billion (2.4%)
   3. Cereals: $5.5 billion (1.7%)
   4. Aluminum: $6.9 billion (2.1%)
   5. Wood: $6.2 billion (1.8%)
   6. Fertilizers: $8.6 billion (2.6%)
   7. Copper: $4.2 billion (1.2%)
   8. Iron and steel: $14.9 billion (4.5%)
   9. Oil: $168.7 billion (50.6%)
   10. Inorganic chemicals: $3.7 billion (1.1%)

The stand out for me? Grains, or more specifically wheat.

Consider a return to an inflationary environment and then take a look at wheat.

If the world turns insular (as I suspect), then protectionism, interventionism, stupidism, and an increase in nationalism (see my post from earlier this week on what’s likely in store for France) will have the effect of making entire industries less productive. Furthermore, what is more politically sensitive than energy and food?

Governments always impose export controls, making a bad situation worse.

Could something like La Niña combine with interventionism to send wheat prices from the lowest levels in over 30 years back over $1,000 a bushel?

Another thing to think about:

Guess who buys wheat from both the US and Russia?

China.

Guess who Trump is promising crippling tariffs against?

China.

Guess who China wants to buy their wheat from now?

Those pesky Ruskies.

Have a great week!

– Chris

“I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.” — Woody Allen

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via http://ift.tt/2mAkbnS Capitalist Exploits

Not only is the Trump rally over, but stocks are the last to get the memo. That’s the current market summary according to DoubleLine’s Jeff Gundlach who told Reuters that “there is a stealth flight to safety going on.”

Among key indicators, Gundlach pointed to German Bunds and especially Schatz (2Yr), noting that “German bond yields are leading the way down,” adding that “Gold is rising.” He also warned that “speculators remain massively short bonds and the market is going to squeeze them out.”

As we showed last Friday, the yield on German Schatz plunged to a record -0.96%. Earlier that day, Deutsche Bank’s Jim Reid said “I’ve no idea why Bunds are rallying so hard at the moment.”

That said, a simple reason for the collapse in German yields may have little to do with political risk or fear of the upcoming European elections, and everything to do with the ECB running out of eligible securities to monetize. As Citi’s Jamie Searle calculated last week, the ECB needs to buy around EU80b in 1y-6y German paper by year-end, and as a result traders are merely frontrunning the ECB. As a result, Citi expects that not only will the 2Y tumble below 1% but the 10Y Bund yield will plunge again, dropping as low as -0.10%.

Back in the US, US yields have given up much of their “Trumflation”, post-election gains, and on Friday, the 10-year traded at 2.32%, compared with 2.388% late on Thursday. Yields fell as low as 2.313 percent, the lowest since November.

Gundlach, who oversees $101 billion, first introduced his view on the 10-year yield’s bottom in January. He then said on an investor webcast: “I think the 10-year Treasury will go below 2.25 percent … not below 2 percent” before edging up again. As of this moment, we are just 7 basis point away from Gundlach being proven correct again.

As a result of the latest inflation trade unwind, Gundlach said the U.S. Treasury should consider issuing ultra-long-term obligations. “I’d issue the longest maturity Treasuries that the market accepts,” Gundlach said. “Start with 40-year, then keep extending if the market allows it. Do 100 if you can get there. The timing is good right now.” Of course, the mere hint that the US would so dramatically change its issuance calendar would very likely result in another steep selloff on concerns about duration realignment, and the sudden “unpredictable” shift in the world’s deepest and most liquid bond market.

Meanwhile, touching on stocks which soared in the last minute – literally – of trading to close at yet another all time high, Gundlach noted that “stocks are out of sync with the stealth flight to safety. Lots of hope built in.”

Bond mkt is flashing warning signal on Trump reflation trade. Dow hit fresh record while 10y ylds at multimonth lows https://t.co/UNxyN6hyRT http://pic.twitter.com/VCH45KCqAC

— Holger Zschaepitz (@Schuldensuehner) February 26, 2017

Back in December, Gundlach said that “the bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high. There’s no magic here.” So far the magic remains, even if it is on the back of retail investors rushing into ETFs , even as the smart money is selling.

Despite the historical accuracy of Gundlach forecasts, DoubleLine’s flagship Total Return Fund (with $54.7 billion in assets) has trailed its peer category so far this year, posting year-to-date returns of 0.70% lagging 73% of its peer category. However, if the like of Goldman are correct, and volatility returns to stocks in the coming days, leading to a wholesale flight to safety into fixed income, we are confident that DoubleLine will fade the gap with his competitors on very short notice.

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Submitted by Jan Skoyles via GoldCore.com,

The Oscars – Worth Their Weight in Gold?

• 89th Oscars to air this weekend
• Oscars have been dipped in 24 karat gold since 1929
• If the Oscars were made of solid gold they would weigh 330 ounces
• 330 ounces of gold is worth $408,210 at today’s prices (nearly €400k & £330k)
• Only some $630 worth of gold in Oscar statue
• Oscars cannot be sold due to regulations
• Steven Spielberg keeps his gold Oscar with the Academy for ‘safe-keeping’
• Shows importance of owning gold in safest ways
• Price of gold has climbed from $20.67 since the first Oscars ceremony to over $1,237 today

‘We All Dream In Gold’ read the strap line for last year’s Academy Awards. This is no doubt still the case for the nominees of the 24 awards set to be given out at this Sunday’s 89th Oscars.

Since the first awards in 1929 nearly 3,000 oscar statues have been awarded to the lucky darlings of the film industry. After the teary speeches, after-parties and press junkets following their win, what is left for those who have achieved the highest-level of recognition in the film industry?

Winning an Oscar is an expensive business, studios spend millions trying to get their hands on at least one, each year. But film and celebrity is a fickle trade and few people can remember who received Oscars last year, let alone when they were first launched in 1929.

How much value do they really bring?

As we all dream in gold, we’ve spent some time thinking about the golden Oscars, asking just how golden they are and how they hold up when compared to gold itself.

What is an Oscar?

Designed by George Stanley, the Oscar (rumours abound why it is has that nickname) shows a knight standing with a reel of film, clutching his sword. There are five spokes on the base, one representing the branches of the Academy: Actors, directors, producers, writers and technicians.

Fun fact, whilst the Oscars have been going on since 1929 and seemingly little has changed in regard to the appearance of the statue, the mould currently used was only created last year.

The Academy wanted a version of the statue that was closer to the original 1929 design. A 3D printer created the version that is used today and provides the trophies with their more authentic look.

The awards weigh around 8 and a half pounds, and are made from Britannia metal or Britannium and plated in copper, nickel silver, and on the top layer is 24-karat gold. Excluding three years during the Second World War, the statue has always been dipped in gold. So when the Academy says that we all dream in gold, they’re not wrong when it comes to the Oscars.

Worth its weight in gold?

As mentioned above, the gold on the Oscar is the icing on the cake, a cake which is made up of a few layers and alloys. However there is very little gold when it comes to the actual Oscar, in fact just 0.38 microns (one-two hundredth of the thickness of a human hair).

This year’s statues are rumoured to have a monetary worth of $629 each, demonstrating just how little gold Oscar is wearing.

This isn’t to say the Academy Award trophies aren’t worth anything.

Since the first ceremony in 1929, the price of gold has climbed from $20.67 to $1,237 today. Just the gold alone, in those 13.5 inch statues have climbed by nearly 60 times in price.

It is a classic example of how the dollar has devalued over the years – the dollar has devalued and has lost 98% of its value against gold in those 88 years.

But what if Hollywood had really wanted to show its stars how much they valued them? What if the dreams of gold really came true and the Oscar was made of solid gold?

At 8.7 lb, the statue in its current form is equivalent to 126.9 troy ounces but this weight has been taken on from the fact that the statue is made up of Britannia metal. Britannia metal is an alloy consisting of approximately 92% tin, 6% antimony and 2% copper.

Assuming that we are working with 24 karat gold with a density of 19.282 g/cm3, then research tells us that the cubic centimetres of this much tin is around 531.25, and it would take nearly 22.6 pounds of gold to fill it. This means a solid gold Oscar would weigh around 330 troy ounces and at today’s price would be worth around $408,210. A significant uptick from last year’s which were worth around $382,000.

Had actors and actresses received solid gold Oscars nearly 30 years ago, in 1991, then they would have seen a climb in value of over 3 times over. Not bad for a few months’ work on a film and not a bad return on any investment.

Regardless of whether or not someone remembers who won and what for, the solid gold Oscar wouldn’t care. The gold would act as a timeless store of value and insurance, no matter what the public and critics think of you and your film in the years ahead.

You can sell your gold but not your Oscar

Some of you might be arguing that the Oscars bring so much more than just a piece of gold, and the kudos that comes with them is priceless. If you were to sell an Oscar, you might argue, then you would get far more thanks to the kudos that comes with it being ‘an Oscar.’

Some trophies from the pre-1950s era have been sold and have done very well. David Copperfield bought Michael Curtiz’s 1942 Oscar for Casablanca, in 2003 for $299,000 later selling it for over $2 million. The 1939 Oscar for Gone With the Wind was estimated to sell for $300,000 in 1999 but was bought at a far higher price of $1.54 million.

You could take a leaf out of Steven Spielberg’s book. The ET director and one of the most successful directors of all time has previously bought two 1950s Oscars and rather than keep them in his cloakroom (as many seem to do) he has handed them both over to the Academy ‘for safekeeping’.

This is a similar approach taken by many who invest in the most precious of metal – gold. Gold investors often use storage facilities provided by the likes of GoldCore in Zurich, Singapore, Hong Kong and elsewhere, in order to maintain the safekeeping of their assets.

But before you start thinking you could go out and invest in an Oscar, it is no longer possible. Unlike investing in gold bars, which are borderless and cannot be controlled by one authority, the Oscars market is restricted. Those who receive Oscars are prevented from selling their awards at market price as since 1950 the trophies have been considered the perpetual property of the Academy.

The ‘Regulations’ section of the oscars.org website reads, ‘Award winners shall not sell or otherwise dispose of the Oscar statuette, nor permit it to be sold or disposed of by operation of law, without first offering to sell it to the Academy for the sum of $1.00. This provision shall apply also to the heirs and assigns of Academy Award winners who may acquire a statuette by gift or bequest.’

The idea is that the honour of winning an Oscar is maintained, were it to be sold then some believe it would be cheapened. This is where a solid gold Oscar would be very different.

The market for gold is affected by economics and the desire to hold gold as a form of insurance, rather than the prestige that comes with owning a piece of something that is gold-plated and was once owned or won by somebody who happened to be famous and or was a great actor.

 Gold does not discriminate, the Oscars do

Few will have missed the furore that surrounds the Academy Awards when it comes to recognition that it shows to ethnic minority groups. The issue has its own hashtag #OscarsSoWhite.

But what few people discuss is the discrimination when it comes to the benefit of winning an Oscar. A 2008 paper by Kevin Sweeney, finds that “an Oscar increases a male winner’s salary by 81% holding all other variables constant.”

But this is not the case for women, Sweeney finds that, “Female winners do not experience this same clear boost in their salaries…women, experience significantly lower salary increases from winning an Academy Award than men. In such cases, winning an Academy Award did not have a statistically significant effect on women’s salaries in the sample.”

As mentioned above, gold does not discriminate when it comes to who you are or when you won, and it certainly doesn’t care what nationality you are.

Gold is a stateless form of money, something that has been bought for generations as a store of value across the globe. The Chinese Aunties don’t care who won an Oscar when it comes to Chinese New Year, parents don’t mind which film won when it comes to buying their daughter’s wedding jewellery in India and central bankers can’t give two hoots about the best costume winner when they are accumulating gold reserves and diversifying their foreign exchange reserves.

These people and everyone who chooses to own gold, know that it will hold its value and act as a form of insurance and money in the months and years to come.

Give the gift of gold

February is the month of love and this year’s Oscars attendees will certainly be feeling it when they get hold of the 2017 Academy Awards’ infamous ‘Everyone Wins’ goody bags. Last year each of the gift bags were worth £232,000 and included (according to Forbes):

‘ a year’s worth of Audi rentals ($45,000), 15-day private tour of Japan ($54,000), VIP all-inclusive trip to Israel ($55,000) and a lifetime’s supply of Lizora skincare products ($31,200).’

This year the bags have even more bizarre, luxury products:

“including a female sex toy, the Nuelle Fiera Arouser for Her, deluxe Swiss toilet paper …” according to the Telegraph.

The swag bags are provided by Distinctive Assets, whose Managing Director said “We are gifting them for the same reason that they are paid upwards of $20 million for a single film…because their personal brand has value as a commodity.”

The commodity that is celebrity is (as we said early on) is very fickle and comes and goes with the tides. Gold, the ultimate commodity and money, is not.

Its shine has not been tarnished over the years and it still sees constant and universal demand.

This year, celebrities are not the only commodities that will be on show. A 14 carat gold and diamond OM bracelet is part of the swag bag. As we wrote earlier this month, gold jewellery is a bad investment when compared to a pure gold bar or sovereign coin. Demand for gold jewellery is falling and the resale price is appalling compared to the initial purchase price. Celebrities would be better served, if they were gifted with a few gold bars or coins which will hold their value, in contrast to a flimsy gold bracelet or bangle.

Who will win Best Picture this year?

Personally, I’m not going gaga over ‘La La Land’ like most people seem to be, so I’m rooting for ‘Arrival’. But sometimes these things come down to personal preference.

Look out for our-post Oscars coverage next week. I’m afraid that doesn’t mean we’ll be giving you an actress-by-actress account of who wore what designer, instead we’ll be looking at the winning pictures and how much gold it takes to win an Oscar.

Interestingly the films nominated for this year’s Best Picture Award are diverse in their costs in terms of gold ounces. We will show you in previous years how much the price of movies has and hasn’t changed when it comes to spend in dollars and gold.

Conclusion

Celebrity, fame and awards all have their worth and they’re good fun for lots of people. In the same way, imagining what holding a solid gold Oscar in our hands would be like is also fun.

Winning an Oscar and being acknowledged for being a great actor would be wonderful. Winning a solid gold Oscar would be even better – a conversation starter and contrary to the Oscar ‘regulations’ in the event of financial crisis and collapse, it could be sold for close to its gold melt or spot value.

When it comes to protecting your life savings, or having essential financial insurance for a rainy day, we just think it’s better to own the good, timeless commodity and currency that are gold coins and bars.

But let’s be honest, most of us are unlikely to win any sort of Oscar – be it one made from base metal or investment grade gold bullion, and so a few gold coins or gold bars are better guarantees of wealth and financial security in the long-run.

via http://ift.tt/2lKiwgn Tyler Durden

 The following article by David Haggith was first published on The Great Recession Blog:

As we enter 2017, housing bubbles are showing signs of bursting all over the world. I know I’ve been promising I would lay out the economic headwinds for 2017, but 2017’s headwinds are building so fast and furious that I’m having to break that promised article out into several articles, as I’m accumulating material faster than I have time to cover.

I’m going to start with the housing bubbles that are now extremely evident in the US, Canada and Australia, noting that housing is also insane in its own weird way in China again and in many other parts of the world. The point I want to make is that, with housing bubbles now at the peak of popping in several parts of the world, this coming housing market collapse could make the US housing market crash of 2007-2009 look like the warm-up act, and housing is just one area of the global economy that is showing signs of high peril.

 

A 2017 housing bubble collapse in the US may be in the cards

 

As I wrote in “The Inevitability of Economic Collapse,” the whole US economy is a house of cards, but particularly the US housing economy where we have done everything we possibly can to pile up a potential housing collapse as precariously as we did last time around just so we can watch it all fall down again.

The hard push to get back to where we were in 2006 has been on for about seven years. In the past few months, housing has been on its fastest tear in the US with the number of new permits being issued for construction in 2017 particularly leaping up like a spring lamb, and that’s with prices that are now generally higher than they were at their peak in 2006. We are showing all the same evidence of an irrational market that we showed going into the Great Recession:

That peak was only attained because of lax credit, which made an expanding number of purchases possible after prices went beyond what people could afford. Since wages in real terms (having only recently started to rise in a few industries) are not any better than they were back in the housing crash of ’07-’09 , today’s higher prices are actually less sustainable without dangerously lax loan terms than they were back then.

That’s why we have again begun to relax loan terms for individuals buying a house. For the last eleven quarters, more lenders have relaxed mortgage standards than have tightened them. (“Minimum credit scores have dropped. Self-employment documentation has reduced. Maximum loan-to-values have been increased.”) On top of what banks are doing to relax their own self-imposed standards, Trump has ordered a review of Dodd-Frank with the hope of stripping it back in order to get banks to issue more loans in order to juice the economy (and to make things better for his real estate industry). We learn nothing.

 

Cohn said Friday on Fox Business that the executive orders are intended to relieve restrictions and scrutiny that post-crisis regulations have put on banks…. Trump promised to do “a big number” on the Dodd-Frank Act.  (Bloomberg)

 

What could be better than a return to the exuberant days of banking deregulation? A Republican article of faith says that banks and the economy can always benefit from further deregulation. Dodd-Frank will be stripped down before it fully goes into practice. The unstated goal here is to fatten up some more bankers and further inflate the housing bubble because we are so incapable of thinking outside of a housing-based economic model.

The fact is that bank loans to businesses have never been higher (in total value of loans issued), so there is no problem, as Trump claims there is, of banks not issuing enough loans to businesses. The value of bank loans issued was not even this high just before the Great Recession. Likewise, the total value of bank loans for commercial real estate has never been anywhere near as high as it is right now. So, most likely those who are not being given loans (like perhaps the King of Bankruptcy) probably don’t deserve them.

For now, the race to the top in housing is still on, but there are signs that a peak is being reached. I’ referring to signs other than just the fact that we’ve passed the previous peak’s prices. January purchases of existing homes picked up to a pace not seen since 2007. The number of new-home sales jumped 3.7% in one month (in terms of number of units sold). That is in spite of the fact that the median price of a US home has risen 7.1% since the same time last year.

One caveat about this rise (until we see where it goes in the next couple of months) is that some of this activity since December’s rate hike may be due to people rushing to buy before interest rates rise even more, now that rate increases by the Federal Reserve are looking certain.

With houses in the US now remaining on the market for only fifty days, averaged across the nation (less than a month on the west coast), the market is feeling as searingly hot as it did in 2006 just before prices started to fall. So, that’s one indicator a top may be near.

Because of a shortage of inventory (the lowest number of houses on the market since 1999), bidding wars are starting again in cities like Seattle and San Francisco where houses again regularly sell for more than their list price.  That kind of bubbling-over race to higher prices ran for a few years in the highest-priced markets before the last housing crash, but it is the kind of frenzy that defines “irrational exuberance” in a housing market. When people scurry to say, “I want to pay you more than you’re asking for” in a market already priced higher than ever before, you’re witnessing the kind of mania that precedes a crash. So, that’s another indicator that a top may be near.

One more kind of action that has risen back to pre-Great-Recession levels is house flipping. Foreclosures are being snapped up by mom-and-pop fixer-uppers at a level matching the superheated speculation of the last housing bubble.

Some US housing bubbles appear to be popping already. Prices on expensive homes in some places, such as Miami, are now falling quickly. Since early 2016, condo speculators in Miami (who buy condos pre-construction, hoping to sell them for a better price as soon as they are completed) have been pummeled into accepting losses. Inventory is growing in Miami; sales volume is shrinking; and total volume of sales in dollars is declining.

Same kind thing is happening in Manhattan where luxury co-op apartment contracts have collapsed 25%. Closings on high-end sales in Manhattan (number of units sold) had fallen 18.6% year on year back in October. Inventory of units in new developments was backed up at that point an additional 27.2% YoY.

Barry Sternlich, CEO of the Starwood Property Trust, which finances real estate development, calls Manhattan’s luxury condo situation “a catastrophe” that “will get worse.” Since homes in this segment of the market are typically bought by those people who make a lot of money by working on Wall Street, one has to wonder what this says about the real situation in the world of stocks and finance.

From 2017 on, the US housing market will face different kind of bubble bust than it has ever faced before. The baby-boom bubble is now moving out of the housing market. For the next two decades, the fastest rising segment of the population will be those who are seventy or more years old, while those who range from twenty to sixty nine (where homes are still being bought) will shrink in total numbers.

Seventy-plussers, whose total population is projected to quadruple during that time, buy the lowest number of homes of any age group (only about seven percent of the market). Not only do they have less need of a new home, there aren’t many banks that want to issue a thirty-year mortgage to someone who will be a hundred years old by the house it gets paid off. So, ask yourself who is going to buy up all the houses that the baby boomers evacuate when they move into retirement facilities? (The growth in nursing facilities, may keep construction going, but it isn’t going to help banks with huge numbers of home loans on their books, and boomers trying to sell in that market will be hurt badly by falling values, making it also hard to buy into retirement facilities.)

 

Why the real-estate mogul president of the US may cause the housing bubble to collapse in 2017

 

It seems counter-intuitive that a real-estate development tycoon would cause a housing bubble collapse, as there is nothing he would hate more, but consider the following:

While high-priced homes (prices and numbers of sales) are already starting to slide in some major metropolitan areas, Trump’s immigration restrictions are likely to impact the lower and mid segments of the housing market, pushing them over the cliff, too — particularly the multiple-family housing market and to some extent single-family housing. (I’m for many of his immigration reforms, but the math doesn’t care how you feel about immigration. Math is math.)

The secondary reason — second only to having a cheap-labor pool — that businesses and government want as much immigration as possible is that high immigration forces expansion of our housing-based economy. And housing expansion seems to be the only sure way of growing an economy we know about — sure, that is, until it isn’t.

Housing markets with the highest risk of an immigration-based collapse in 2017 include Los Angeles, San Francisco, Miami, Silicon Valley and New York, which have the largest populations of foreign renters and buyers. Since some of those areas are already hurting on the top end of the market, they are going to really feel the squeeze.

Consider a simple reality of the deportation threat: even those who are not deported are likely to back off from their purchasing plans. More will stay for now with renting in fear that they may be deported. Overnight, millions of people are becoming reluctant to enter long-term residential plans.

Not only do millions of families deported mean a loss in demand; they also mean millions of homes and apartments going on the market. It’s a price hit from both demand and supply sides of the market at the same time. In the old days, that was a recipe for a ghost town where people simply walked away.

The possibility of deportation also makes lenders nervous and less willing to make loans to undocumented immigrants. (Some lenders actually specialize in making mortgages to “undocumented immigrants.”)  For the bank’s view, people leaving the market and selling their homes in large numbers means oversupply, which predicts falling prices, which predicts mortgages going underwater. If those underwater mortgages are adjustable-rate mortgages they cannot be refinanced when the interest increase comes. So, defaults will rise for immigration reasons just as housing prices are exceeding the peek they hit before the last major housing crisis. Smart bankers are getting nervous, but that means loan tightening will exacerbate the problem.

Then you have to factor in the millions of immigrants who won’t be coming even if deportation doesn’t happen quickly. That influx is already down because people know the risk of deportation is far more likely under Trump than it was under Obama. (Obama practically advertised for illegal immigration by letting the world know that children would not be deported, which translated to “send them quickly while you can get them in and can know they will be allowed to stay.”)

The factor here is that a third of the real-estate industry’s estimated new growth is based on new immigrants adding to demand. Whether they live in apartments, houses or condos doesn’t matter. All of that is new construction for a planned influx of new people who are no longer coming. That is going to start taking some plans off the table. Many of those permits that have been applied for may never be exercised.

While Trump’s massive immigration changes (and the fears caused by the knowledge that change is coming) are likely to effect the lower end of the market the most, they will effect mid levels as well. Immigrants with specialized skills, who are here with green cards to do specialized jobs, are becoming more skittish, too, being uncertain of how Trump’s immigration plans will effect them. Even some green-card holders who are already far along in the process of getting citizenship legally are becoming apprehensive about purchasing a home because they are concerned that the immigration issue could become more aggressive.

So, we have a rather large trigger that is already moving, which could cause a 2017 housing bubble c0llapse.

 

Canada’s housing bubble is more precarious and is already falling in 2017

 

From Miami, Florida, to Vancouver, B.C., housing is tumbling at the top. Vancouver’s housing market decapitation is partially intentional, created in part by a 15% foreign-investment tax that the city started at the end of summer in 2016. They implemented the tax because prices at the top were going insane due to Chinese investors, and that was pricing Canadians out of their own market; but that pushes somewhat wealthy Canadians down to high mid-level homes, raising prices there, which pushes mid-level buyers down and so forth.

The 15% tax hits mansions the most because that is where foreign money was percolating prices into the stratosphere (due to Chinese investors looking for ways to store their wealth outside of badly failing China). However, the price drop in top-tier housing is not entirely due to the foreign-investor tax because sales started to fall sharply (by about half the number of units sold in a month, year on year) for two months before the new tax was voted into place. (Maybe just in anticipation?) In fact, the average home price in Vancouver has fallen almost every month since March, 2016, though most of the deflation has been at the top. (So, maybe a top is in anyway.)

At the same time, the number of empty houses (including derelict mansions) in the greater Vancouver area had more than doubled from what it was back in 2001 even though prices since 2001 had risen 450%. So many empty houses means there is a lot of reason to believe prices will keep falling, especially now that the foreign investors are being driven away. Have incomes risen 450% to keep up with that? Don’t think so.

Because mansions in the best neighborhoods (where the median home price is about $5 million Canadian) were oddly being left unoccupied and deteriorating, Vancouver also imposed a one-percent surcharge on property taxes for houses that are not primary residences or are not rented out for half of the year in hopes of getting people to do something with those home in order to thin out the decay.

(The result of all this has been to push Chinese investment down to Seattle, Washington, causing the high-end home market along the US west coast to improve.)

Toronto, Canada, is as much a bubble as Vancouver. Doug Porter, the chief economist for the Bank of Montreal, told investors this past week, “Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble.”

Prices in that region have risen an average of 22% in just the last year. This is the fastest increase since the late eighties, which almost everyone in Canada will agree was another bubble, and it comes on top of pervious years of double-digit gains.

This is insanely bubblicious activity. Did incomes rise 22% last year? Do the math: When the cost of housing rises 22% in one year, and wages rise 2% and when the 22% is on a starting number that is maybe four times higher than the average annual wage that only rose 2%, clearly there is no more room for housing prices to rise … other than by foreign investment (now being curtailed) or further relaxation of credit terms. (Lest you think the latter is a realistic possibility, think how much you’d have to slacken credit terms in just one year to make the next year’s mortgages affordable.)

 

The housing bubble down under is probably going under in 2017, too

 

Australia appears to be trying to push its bubble higher in all the same ways the US tried leading into the Great Recession. Why? Because the Australian housing bubble is coming to an end, and what one does when that happens is loosen the strings on the net to cast a wider net. Thus, one member of parliament is now asking for banks to start giving zer0-downpayment loans. Been there, done that in the US; and the housing market collapse came shortly after.

When you have nothing down and little to lose, you walk away from your loan quite easily if housing prices fall. So, the end of the bubble comes surprisingly fast at the point.

The Australian housing bubble percolated along nicely all the way through 2016 with housing prices in Sydney and Melbourne rising fifteen and thirteen percent respectively in one year. Canberra and Hobart saw about 10% growth in prices. In Brisbane, however, where construction was soaring, growth has almost stalled. Vacancy rates have now doubled. Project approvals are dropping, so construction will begin to go down. Perth was the first major city to shift into reverse as it saw property prices slide downhill four percent last year. Smaller cities where the big money was coming from mining of resources sold to China are seeing even faster declines. They are not ghost towns, but it is the same dynamic.

One of the things the US experienced in its infamous housing bubble collapse was a lot of dishonesty in the loan approval process and the loan repackaging process that became necessary to expand the net after all possibilities of legally relaxing standards were exhausted. Now Australia is in the same place:

 

UBS Securities Australia reported today that about 28% of Australian mortgages issued in 2015 and 2016 are what we in the US have come to call “liar loans,” which played a big role in the housing boom and the collapse and subsequent bailout of the global financial system.

 

The last phase of a housing bubble needs liar loans to keep going because buyers have to reach beyond their limits, and the only way to do this is lie now, or miss out forever on buying a house to live in or get rich with quick as investor…. US-style mortgage fraud would be a “Nuclear Bomb” to Australia’s banks. (Wolf Street)

 

Much of this fraud has come from Chinese investors who falsely stated their income. With the Chinese running double books in China as well-known standard operating procedure, who would have thought they might have provided false data to Ausie banks? Increasingly, Australian banks are afraid to lend to them, so Chinese investment is falling off sharply.

 

Shanghai-based financiers claim their Chinese clients’ funding from Australian banks has been frozen and they face foreclosure – or usurious interest rates – from private financiers…. “All the deals have been frozen,” said Mark Yin, an agent with Shanghai-based Home Tree Group, about his Shanghai clients’ funding with Australian banks. “We are now looking for finance all over the world….” Billions of dollars has been invested in tens-of-thousands of high-rise apartments that are reshaping the skylines of the nation’s major capitals, particularly Melbourne, Sydney and Brisbane. Most have been sold off-the-plan, which means purchasers buy off the blueprint with a deposit and complete when it is built, which requires a second valuation and financing commitment by the lender…. Lenders, which initially fell over themselves to finance overseas’ buyers, slammed on the breaks when spot checks on the loan applications detected widespread fraud. The main problem is mainland Chinese buyers, which account for about half of the deals. That means many local lenders that agreed to provide funding when buyers made deposits, will not recommit upon completion. Nervous local lenders fear that a sharp downturn, or change of sentiment, could result in foreclosures with overseas borrowers they have little chance of locating. (Financial Review)

 

According to UBS, misrepresentation is systemic, and according to The Guardian, the housing bubble in some parts of Australia is “ready to hit the skids.” With things falling apart, the Reserve Bank of Australia started trying to make Donald Trump the scapegoat for the failure of its own cheap-money policies … before he was even inaugurated. (Don’t they have their own notoriously irascible PM they could blame?)

Trump’s policies may be inflationary, they whine. Wasn’t Australia’s central bank, like the rest of the civilized world, trying for the past several years to create a little inflation? Now their failures are because Trump is creating inflation?

The problem is that Trump’s talk of infrasture spending raised bond rates in Australia, too, which bleeds into mortgage rates. Interest rates are now rising outside the central bank’s control, just as they are here in the US, sending housing expansion into reverse. Market forces are wresting control over interest from central banks, so CB decisions to raise target rates at this point don’t amount to much more than catching up in order to maintain the illusion that they are still in control.

UBS also ranks Sydney as the fourth-most likely city in the world to experience the implosion of a housing bubble. (Vancouver tops the list.) Property prices there have grown almost fifty percent since 2012, while wages have stagnated. That assures it is a credit-fueled housing bubble, not a rise born of spreading prosperity.

How bad is it?

 

 

This Sydney house with its tiny sliver of land in a residential neighborhood sold for nearly $1 million in 2014.

 

 

That bad.

Jonathan Tepper — a US hedge-fund consultant who predicted the mortgage crises in the US, Spain and Ireland — claimed Sydney’s housing bubble was ready to burst in 2016 with a correction that could be as much as a fifty percent plunge. Stated Tepper, “Australia now has one of the biggest housing bubbles in history.” Was he wrong entirely about an Australian housing bubble crash or just a little premature on the timing?

Some developers (with their own interests to promote) say Sydney cannot crash because Australia’s population is still growing rapidly and will for another twenty year, but Sydney could still crash if the rise in values has more to do with years of speculation than with population growth, as rental rates would indicate. Prices will revert to what people can actually afford when speculation can’t go higher.

We know what happens as soon as speculative housing bubbles stop rising because they can’t find enough qualified fools (or enough cheap credit). Like all Ponzi schemes, the game is over immediately upon reaching the last tier of willing or able players. Where wages have stagnated for years, that happens as soon a speculators can no longer count on a profiting from reselling to other anxious speculators.

Higher interest disqualifies more participants. As in the US, Australian households are again already struggling under a huge debt load of $2 trillion Ausie bucks. That means a little rise in interest should shut the game down pretty quickly. That crane count over the skyline of Australian cities, which has outnumbered major cities in the US and UK, may start to look a little derelict in the years ahead, as rusting cables sway in the wind over half-finished, vacant monuments.

Stop! Don’t worry about that scenario right now. Individual banks in Australia have found a way to keep the investor pool growing even as central-bank cheap money has topped out — mortgage fraud. According to a report last spring, which was tabled by the Australian senate, many banks are falsifying applicant information in order to make applicants look more capable of paying than they really are. So, Australia is not just experience mortgage fraud from applicants, but also mortgage fraud from the banks making the loans.

You have to appreciate how much the Ausies learned from the United States’ play book where many banks in Florida ran the same game in the run-up to the Great Recession. Australia should be safe, though, because, according to the report, this is happening “with the full knowledge of Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and the Reserve Bank of Australia.” (One has to wonder why they became so concerned about Chinese falsification, when others are going out of their way to create false applications; but such is the bizarre world of housing bubbles, especially when they reach their popping point and things get desperate.)

Philip Lowe, the Reserve Bank of Australia’s governor, tried last fall to blame skyrocketing home prices on a shortage of houses, rather than on the loosey-goosey interest rates of the national bank. Sorry, Pip, but if that were the case, rents would have risen parallel with housing prices; but rents have barely nudged upward for years. If there is a shortage of inventory, it’s only because you’re in a feeding frenzy of flippers, not because people can’t find enough shelter. It’s a speculative bubble, with everyone snapping up anything that flashes in the pond. Bite first, decide if its food-worthy later.

The last person we would expect to understand housing bubbles is a banker. Stay with the bubbles in your champagne flute, Phil. They’re the only ones you’re familiar with. The real problem is that years of cheap loans have enticed your people to amass the highest levels of household debt in the world! Do I hear a flush coming? But, hey, at least the RBA has set aside $300 billion dollars for its next bailout. So, you’re good, Australia … until round two. All bets are on the house in this casino.

Even ol’ Pip recognizes that one of the major reasons governments want immigrants is to keep pumping up the housing bubble. Lowe stooped to his name’s own level when he lamented last week that “the insidious” resentment that Ausies have toward immigrants, such resentment being caused by the overcrowding of Australia’s major cities. This could doom the land down under’s housing-based economy if people there start rejecting a major source of demand as is happening in the US. You see, the eternal expansion of overpopulation is essential when the only way to grow a housing economy is to grow population.

The solution, according to Lowe, is for the government to build more transportation infrastructure so the influx of people can spread out more. (Hmm, you mean take out more bonds, which will cause interest rates to rise just as happened because of Trump’s infrastructure plans? I guess Lowe likes the idea if it happens in Australia, just not when it happens to Australia.)

Hopefully, someday Australia will be one big city from coast to coast. Then they can start building islands (think how much infrastructure spending that will cause) to house more people in order to keep that real-estate-driven economy ever on the rise. (I ask the question, “Why do economies need to grow? What’s wrong with just sustaining nicely? Well, of course, they need to grow so that people can get filthy rich.)

How long can the game go on? According to The Sydney Morning Herald, 

 

The forecasters are now saying 2017 will be the year that the housing headwinds could get stronger.

 

But The Herald also states that none of this points to Australia’s housing bubble bursting, but just to a little letting of the air out of the market. Ah, the perfect world where the air hisses out like a lazy snake. The problem with Ponzi schemes, though, is that as soon as the air starts coming out, the snake bites, and the whole scheme collapses. In housing that plays out as flippers stopping their investment because they get scary-close to not making money anymore. Some even start to lose money. Demand plunges as soon as the flippers stop flipping, so housing prices fall. That means mortgages go underwater.

All of that becomes a catastrophe when a nation has issued a huge number of variable-interest loans — as Australia has. When interest rise just as housing prices go down, owners cannot sell their way out of trouble as an escape hatch if they got in over their heads. The only way out is default.

Even worse are interest-only loans where speculators qualify for much more than they can actually pay for with loans that require interest payments only until a set date when a balloon payment is due. The flipper plans to sell the house into a rising market and see a big profit before that impossible event hits. The home owner who plans to stay counts on being able to refi at a more attractive interest rate once he or she has built up equity due to rising values. If they can’t? Australia has half a trillion dollars worth of these loans outstanding, comprising more than fifty percent of residential term loans.

Prices could just settle out if this wasn’t a speculative bubble of people buying and selling homes to make a quick buck in a rising market. But when prices have reached lofty heights largely because of rampant speculation, housing is likely to slide off a cliff when speculation stops and prices revert to what people can actually afford without all the baloney that pumped up the market.

 

Housing bubbles ready to burst all over the world in 2017

 

The countries I’ve covered here are no different than many others. I could as easily write about the UK housing bubble, which began to unwind last year. Barclay’s is now offering 100% loan-to-value mortgages — an obvious latch-ditch kind of effort to prop things along to anyone who has seen these things fall apart in the past. As with Vancouver, Manhattan, and Miami, London’s pricier neighborhoods have seen a decline of ten percent in value in the past year.

The Organization for Economic Co-operation and Development said at the start of this year that it now sees dangerous property bubbles in several of the world’s largest economies that risk a “massive” price collapse. It notes that New Zealand and Sweden are perched at even more precarious heights than the UK, Australia, Canada and the US.

All of this accelerating insanity has to be a top coming in. One can hope all these bubbles deflate slowly, but our experience with major bubbles says they don’t just fade. As soon as there is no greater fool qualified to enter the market, housing balloons in the US, Canada and Australia will likely implode. Likewise, elsewhere.

We have rebuilt almost exactly the same potential panic-inducing crisis that was just starting to show in 2006; only this collapse is likely to be global … all at the same time — probably starting this year and really falling apart next as contagion moves from nation to nation.

To keep qualified investors coming into this Ponzi scheme for now, nations have reverted to relaxing credit standards and the US back to deregulating banks because that’s the only way to expand to the next larger tier of fools. Same old story as last time. We’re doing this because we are so addicted to the idea of a housing-based economy as the only way to go that we bullheadedly keep thinking it has no top limit to its expansion.

We do this even though we have already experienced how quickly things go bad — very bad — when you reduce mortgage standards so much in order to rope the final round of people in. People go mad in herds, but only recover their senses one at a time, while voices of sanity pretty much talk to themselves.

For right now, the stampede in stocks and housing is still on; so don’t worry: a collapse is nowhere in site. We are no closer to a meltdown in either market than Fukushima was after a thousand earthquakes and a tsunami. If you don’t believe me, ask a banker.

 

 

Oops.

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