iftttwall

Submitted by Jim Quinn via The Burning Platform blog,

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” – Napoleon Bonaparte

 

 

“A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men … [W]e have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.”– Woodrow Wilson

When you ponder the implications of allowing a small group of powerful wealthy unaccountable men to control the currency of a nation over the last one hundred years, you understand why our public education system sucks. You understand why the government created Common Core curriculum teaches children that 3 x 4 = 13, as long as you feel good about your answer. George Carlin was right. The owners of this country (bankers, billionaires, corporate titans, politicians) want more for themselves and less for everyone else. They want an educational system that creates ignorant, obedient, vacuous, obese dullards who question nothing, consume mass quantities of corporate processed fast food, gaze at iGadgets, are easily susceptible to media propaganda and compliant to government regulations and directives. They don’t want highly educated, critical thinking, civil minded, well informed, questioning citizens understanding how badly they have been screwed over the last century. I’m sorry to say, your owners are winning in a landslide.

The government controlled public education system has flourished beyond all expectations of your owners. We’ve become a nation of techno-narcissistic, math challenged, reality TV distracted, welfare entitled, materialistic, gluttonous, indebted consumers of Chinese slave labor produced crap. There are more Americans who know the name of Kanye West and Kim Kardashian’s bastard child (North West) than know the name of our Secretary of State (Ketchup Kerry). Americans can generate a text or tweet with blinding speed but couldn’t give you change from a dollar bill if their life depended upon it. They are whizzes at buying crap on Amazon or Ebay with a credit card, but have never balanced their checkbook or figured out the concept of deferred gratification and saving for the future. While the ignorant masses are worked into a frenzy by the media propaganda machine over gay marriage, diversity, abortion, climate change, and never ending wars on poverty, drugs and terror, our owners use their complete capture of the financial, regulatory, political, judicial and economic systems to pillage the remaining national wealth they haven’t already extracted.

The financial illiteracy of the uneducated lower classes and the willful ignorance of the supposedly highly educated classes has never been more evident than when examining the concept of Federal Reserve created currency debasement – also known as inflation. The insidious central banker created monetary inflation is the cause of all the ills in our warped, deformed, rigged financialized economic system. The outright manipulation and falsity of government reported economic data is designed to obscure the truth and keep the populace unaware of the deception being executed by the owners of this country. They have utilized deceit, falsification, propaganda and outright lies to mislead the public about the true picture of the disastrous financial condition in this country. Since most people are already trapped in the mental state of normalcy bias, it is easy for those in control to reinforce that normalcy bias by manipulating economic data to appear normal and using their media mouthpieces to perpetuate the false storyline of recovery and a return to normalcy.

This is how feckless politicians and government apparatchiks are able to add $2.8 billion per day to the national debt; a central bank owned by Too Big To Trust Wall Street banks has been able to create $3.3 trillion out of thin air and pump it into the veins of its owners; and government controlled agencies report a declining unemployment rate, no inflation and a growing economy, without creating an iota of dissent or skepticism from the public. Americans want to be lied to because it allows them to continue living lives of delusion, where spending more than you make, consuming rather than saving, and believing stock market speculation and home price appreciation will make them rich are viable life strategies. Even though 90% of the population owns virtually no stocks, they are convinced record stock market highs are somehow beneficial to their lives. They actually believe Bernanke/Yellen when they bloviate about the dangers of deflation. Who would want to pay less for gasoline, food, rent, or tuition?

Unless you are beholden to the oligarchs, that sense of stress, discomfort, feeling that all in not well, and disturbing everyday visual observations is part of the cognitive dissonance engulfing the nation. Anyone who opens their eyes and honestly assesses their own financial condition, along with the obvious deterioration of our suburban sprawl retail paradise infrastructure, is confronted with information that is inconsistent with what they hear from their bought off politician leaders, highly compensated Ivy League trained economists, and millionaire talking heads in the corporate legacy media. Most people resolve this inconsistency by ignoring the facts, rejecting the obvious and refusing to use their common sense. To acknowledge the truth would require confronting your own part in this Ponzi debt charade disguised as an economic system. It is easier to believe a big lie than think critically and face up to decades of irrational behavior and reckless conduct.

What’s In Your GDP                          

“The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity.  The popularly followed number in each release is the seasonally adjusted, annualized quarterly growth rate of real (inflation-adjusted) GDP, where the current-dollar number is deflated by the BEA’s estimates of appropriate price changes. It is important to keep in mind that the lower the inflation rate used in the deflation process, the higher will be the resulting inflation-adjusted GDP growth.” – John Williams – Shadowstats

GDP is the economic statistic bankers, politicians and media pundits use to convince the masses the economy is growing and their lives are improving. Therefore, it is the statistic most likely to be manipulated, twisted and engineered in order to portray the storyline required by the oligarchs. Two consecutive quarters of negative GDP growth usually marks a recession. Those in power do not like to report recessions, so data “massaging” has been required over the last few decades to generate the required result. Prior to 1991 the government reported the broader GNP, which includes the GDP plus the balance of international flows of interest and dividend payments. Once we became a debtor nation, with massive interest payments to foreigners, reporting GNP became inconvenient. It is not reported because it is approximately $900 billion lower than GDP. The creativity of our keepers knows no bounds. In July of 2013 the government decided they had found a more “accurate” method for measuring GDP and simply retroactively increased GDP by $500 billion out of thin air. It’s amazing how every “more accurate” accounting adjustment improves the reported data. The economic growth didn’t change, but GDP was boosted by 3%. These adjustments pale in comparison to the decades long under-reporting of inflation baked into the GDP calculation.

As John Williams pointed out, GDP is adjusted for inflation. The higher inflation factored into the calculation, the lower reported GDP. The deflator used by the BEA in their GDP calculation is even lower than the already bastardized CPI. According to the BEA, there has only been 32% inflation since the year 2000. They have only found 1.4% inflation in the last year and only 7.1% in the last five years. You’d have to be a zombie from the Walking Dead or an Ivy League economist to believe those lies. Anyone living in the real world knows their cost of living has risen at a far greater rate. According to the government, and unquestioningly reported by the compliant co-conspirators in the the corporate media, GDP has grown from $10 trillion in 2000 to $17 trillion today. Even using the ridiculously low inflation BEA adjustment yields an increase from $12.4 trillion to only $15.9 trillion in real terms. That pitiful 28% growth over the last fourteen years is dramatically overstated, as revealed in the graph below. Using a true rate of inflation exposes the grand fraud being committed by those in power. The country has been in a never ending recession since 2000.   

Your normalcy bias is telling you this is impossible. Your government tells you we have only experienced a recession from the third quarter of 2008 through the third quarter of 2009. So despite experiencing two stock market crashes, the greatest housing crash in history, and a worldwide financial system implosion the authorities insist  we’ve had a growing economy 93% of the time over the last fourteen years. That mental anguish you are feeling is the cognitive dissonance of wanting to believe your government, but knowing they are lying. It is a known fact the government, in conspiracy with Greenspan, Congress and academia, have systematically reduced the reported CPI based upon hedonistic quality adjustments, geometric weighting alterations, substitution modifications, and the creation of incomprehensible owner’s equivalent rent calculations. Since the 1700s consumer inflation had been estimated by measuring price changes in a fixed-weight basket of goods, effectively measuring the cost of maintaining a constant standard of living. This began to change in the early 1980s with the Greenspan Commission to “save” Social Security and came to a head with the Boskin Commission in 1995.

Simply stated, the Greenspan/Boskin Commissions’ task was to reduce future Social Security payments to senior citizens by deceitfully reducing CPI and allowing politicians the easy way out. Politicians would lose votes if they ever had to directly address the unsustainability of Social Security. Therefore, they allowed academics to work their magic by understating the CPI and stealing $700 billion from retirees in the ten years ending in 2006. With 10,000 baby boomers per day turning 65 for the next eighteen years, understating CPI will rob them of trillions in payments. This is a cowardly dishonest method of extending the life of Social Security.

If CPI was calculated exactly as it was computed prior to 1983, it would have averaged between 5% and 10% over the last fourteen years. Even computing it based on the 1990 calculation prior to the Boskin Commission adjustments, would have produced annual inflation of 4% to 7%. A glance at an inflation chart from 1872 through today reveals the complete and utter failure of the Federal Reserve in achieving their stated mandate of price stability. They have managed to reduce the purchasing power of your dollar by 95% over the last 100 years. You may also notice the net deflation from 1872 until 1913, when the American economy was growing rapidly. It is almost as if the Federal Reserve’s true mandate has been to create inflation, finance wars, perpetuate the proliferation of debt, artificially create booms and busts, enrich their Wall Street owners, and impoverish the masses. Happy Birthday Federal Reserve!!!

 

When you connect the dots you realize the under-reporting of inflation benefits the corporate fascist surveillance state. If the government was reporting the true rate of inflation, mega-corporations would be forced to pay their workers higher wages, reducing profits, reducing corporate bonuses, and sticking a pin in their stock prices. The toady economists at the Federal Reserve would be unable to sustain their ludicrous ZIRP and absurd QEfinity stock market levitation policies. Reporting a true rate of inflation would force long-term interest rates higher. These higher rates, along with higher COLA increases to government entitlements, would blow a hole in the deficit and force our spineless politicians to address our unsustainable economic system. There would be no stock market or debt bubble. If the clueless dupes watching CNBC bimbos and shills on a daily basis were told the economy has been in fourteen year downturn, they might just wake up and demand accountability from their leaders and an overhaul of this corrupt system.          

Mother Should I Trust the Government?

We know the BEA has deflated GDP by only 32% since 2000. We know the BLS reports the CPI has only risen by 37% since 2000. Should I trust the government or trust the facts and my own eyes? The data is available to see if the government figures pass the smell test. If you are reading this, you can remember your life in 2000. Americans know what it cost for food, energy, shelter, healthcare, transportation and entertainment in 2000, but they unquestioningly accept the falsified inflation figures produced by the propaganda machine known as our government. The chart below is a fairly comprehensive list of items most people might need to live in this world. A critical thinking individual might wonder how the government can proclaim inflation of 32% to 37% over the last fourteen years, when the true cost of living has grown by 50% to 100% for most daily living expenses. The huge increases in property taxes, sales taxes, government fees, tolls and income taxes aren’t even factored in the chart. It seems gold has smelled out the currency debasement and the lies of our leaders. This explains the concerted effort by the powers that be to suppress the price of gold by any means necessary.   

Living Expense	Jan-00	Mar-14	% Increase
Gallon of gas	$1.27	$3.51	176.4%
Barrel of oil	$24.11	$100.00	314.8%
Fuel oil per gallon	$1.19	$4.07	242.0%
Electricity per Kwh	$0.084	$0.134	59.5%
Gas per therm	$0.712	$1.078	51.4%
Dozen eggs	$0.97	$2.00	106.2%
Coffee per lb	$3.40	$5.20	52.9%
Ground Beef per lb.	$1.90	$3.73	96.3%
Postage stamp	$0.33	$0.49	48.5%
Movie ticket	$5.25	$10.25	95.2%
New car	$20,300.00	$31,500.00	55.2%
Annual healthcare spending per capita	$4,550.00	$9,300.00	104.4%
Average private college tuition	$22,000.00	$37,000.00	68.2%
Avg home price (Case Shiller)	$161,000.00	$242,000.00	50.3%
Avg monthly rent (Case Shiller)	$635.00	$890.00	40.2%
Ounce of gold	$279.00	$1,334.00	378.1%

Mother, you should not trust the government. There is no doubt they have systematically under-reported inflation based on any impartial assessment of the facts. The reality that we remain stuck in a fourteen year recession is borne out by the continued decline in vehicle miles driven (at 1995 levels) due to declining commercial activity, the millions of shuttered small businesses, and the proliferation of Space Available signs in strip malls and office parks across the land. The fact there are only 8 million more people employed today than were employed in 2000, despite the working age population growing by 35 million, might be a clue that we remain in recession. If that isn’t enough proof for you, than maybe a glimpse at real median household income, retail sales and housing will put the final nail in the coffin of your cognitive dissonance.

The government and their media mouthpieces expect the ignorant masses to believe they have advanced their standard of living, with median household income growing from $40,800 to $52,500 since 2000. But, even using the badly flawed CPI to adjust these figures into real terms reveals real median household income to be 7.3% below the level of 2000. Using a true inflation figure would cause a CNBC talking head to have an epileptic seizure.        

The picture is even bleaker when broken down into the age of households, with younger households suffering devastating real declines in household income since 2000. I guess all those retail clerk, cashier, waitress, waiter, food prep, and housekeeper jobs created over the last few years aren’t cutting the mustard. Maybe that explains the 30 million increase (175% increase) in food stamp recipients since 2000, encompassing 19% of all households in the U.S. Luckily the banking oligarchs were able to convince the pliable masses to increase their credit card, auto and student loan debt from $1.5 trillion to $3.1 trillion over the fourteen year descent into delusion.

When you get your head around this unprecedented decline in household income over the last fourteen years, along with the 50% to 100% rise in costs to live in the real world, as opposed to the theoretical world of the Federal Reserve and BLS, you will understand the long term decline in retail sales reflected in the following chart. When you adjust monthly retail sales for gasoline (an additional tax), inflation (understated), and population growth, you understand why retailers are closing thousands of stores and hurdling towards inevitable bankruptcy. Retail sales are 6.9% below the June 2005 peak and 4% below levels reached in 2000. And this is with millions of retail square feet added over this time frame. We know the dramatic surge from the 2009 lows was not prompted by an increase in household income. So how did the 11% proliferation of spending happen?

The up swell in retail spending began to accelerate in late 2010. Considering credit card debt outstanding is at exactly where it was in October 2010, it seems consumers playing with their own money turned off the spigot of speculation. It has been non-revolving debt that has skyrocketed from $1.63 trillion in February 2010 to $2.26 trillion today. This unprecedented 39% rise in four years has been engineered by the government, using your tax dollars and the tax dollars of unborn generations. The Federal government has complete control of the student loan market and with their 85% ownership of Ally Financial, the largest auto financing company, a dominant position in the auto loan market. The peddling of $400 billion of subprime student loan debt and $200 billion of subprime auto loan debt has created the illusion of a retail recovery. The student loan debt has been utilized by University of Phoenix MBA wannabes  to buy iGadgets, the latest PS3 version of Grand Theft Auto and the latest glazed donut breakfast sandwich on the market. It’s nothing but another debt financed bubble that will end in tears for the American taxpayer, as hundreds of billions will be written off.

The fake retail recovery pales in comparison to the wolves of Wall Street produced housing recovery sham. They deserve an Academy Award for best fantasy production. The Federal Reserve fed Wall Street hedge fund purchase of millions of foreclosed shanties across the nation has produced media proclaimed home price increases of 10% to 30% in cities across the country. Withholding foreclosures from the market and creating artificial demand with free money provided by the Federal Reserve has temporarily added $4 trillion of housing net worth and reduced the number of underwater mortgages on the books of the Too Big To Trust Wall Street banks. The percentage of investor purchases and cash purchases is at all-time highs, while the percentage of first time buyers is at all-time lows. Anyone with an ounce of common sense can look at the long-term chart of mortgage applications and realize we are still in a recession. Applications are 35% below levels at the depths of the 2008/2009 recession. Applications are 65% below levels at the housing market peak in 2005. They are even 35% below 2000 levels. There is no real housing recovery, despite the propaganda peddled by the NAR, CNBC, and Wall Street. It’s a fraud.   

It is the pinnacle of arrogance and hubris that a few Ivy League educated economists sitting in the Marriner Eccles Building in the swamps of Washington D.C., who have never worked a day in their lives at a real job, think they can create wealth and pull the levers of money creation to control the American and global financial systems. All they have done is perfect the art of bubble finance in order to enrich their owners at the expense of the rest of us. Their policies have induced unwarranted hope and speculation on a grand scale. Greenspan and Bernanke have provoked multiple bouts of extreme speculation in stocks and housing over the last 15 years, with the subsequent inevitable collapses. Fed encouraged gambling does not create wealth it just redistributes it from the peasants to the aristocracy. The Fed has again produced an epic bubble in stock and bond valuations which will result in another collapse. Normalcy bias keeps the majority from seeing the cliff straight ahead. Federal Reserve monetary policies have distorted financial markets, created extreme imbalances, encouraged excessive risk taking, and ruined the lives of working class people. Take a long hard look at the chart below and answer one question. Was QE designed to benefit Main Street or Wall Street?  

The average American has experienced a fourteen year recession caused by the monetary policies of the Federal Reserve. Our leaders could have learned the lesson of two Fed induced collapses in the space of eight years and voluntarily abandoned the policies of reckless credit expansion, instead embracing policies encouraging saving, capital investment and balanced budgets. They have chosen the same cure as the disease, which will lead to crisis, catastrophe and collapse.  

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

via Zero Hedge http://ift.tt/1jors77 Tyler Durden

It seems the words of Polish Prime Minister Donald Tusk warning that “the world stands on the brink of conflict, the consequences of which are not foreseen… Not everyone in Europe is aware of this situation,” are a little more real than some (US equity buyers) might suspect. As The Week’s Crispin Black reports, at least 7,000 Polish workers in Europe have received call-up papers as army reservists in the last few weeks. Polish authorities dismiss it as “routine” but the men note this has never happened before.

 

As The Week’s Crispin Black goes on to note,

At least 7,000 reservists have been recalled to the colours for immediate exercises lasting between 10 and 30 days.

 

They’re told by the Polish authorities that the call-ups are “routine”: but the men say they haven’t been asked before and they’re well aware of the growing alarm in Warsaw at President Putin’s aggression.

 

Three weeks ago, their Prime Minister, Donald Tusk, called a press conference to warn that “the world stands on the brink of conflict, the consequences of which are not foreseen… Not everyone in Europe is aware of this situation.”

 

My own view is that Putin was initially more concerned with righting a specific historical wrong in Crimea than starting a new Cold War.  This is still probably the case despite the dawning truth that the EU/Nato Emperor really has no clothes at all. 

 

But in the worst case scenario of a truly revanchist Russia, Poland certainly has the borders from hell.  Starting from the top, it abuts Kaliningrad (the Russian exclave on the Baltic carved at the end of the war from East Prussia), Lithuania, Belarus and Ukraine.

 

None of these borders relies on any natural barriers like rivers or mountain ranges – they are just lines on a map drawn by Stalin in the full flush of victory.  No wonder the Poles are feeling vulnerable.

Read more here

via Zero Hedge http://ift.tt/1jykxUq Tyler Durden

Originally posted at Liberta blog,

Many people have a weird obsession with homeownership.

When it comes to buying a house, they are willing to overlook, or even completely throw out, a bunch of financial values and principles they claim to hold dear.

The unfortunate truth is, for many middle-class folks, buying a house is often a very silly financial decision, especially if they are young (in their 20s or early 30s), or have a low net worth.

A well diversified portfolio

The most mind-boggling thing I’ve come across is that most people who punt the importance and wisdom of home ownership, will also tell you they believe you should have a well diversified investment portfolio.

You know…

“Spread your investments over many asset classes.”

“Don’t put all your eggs in one basket.”

And so on.

Well, for the average middle-class-30-year-old Joe, buying a house is akin to gathering up all his eggs, borrowing another 9 times as many, and putting them all together into one basket.

Not only is the the average middle-class-30-year-old-home-owner Joe way over-invested in exactly one asset class (residential property), he is also completely undiversified within that asset class, since he owns exactly one property, in exactly one area, based in exactly one town, located in exactly one country.

In short, it’s just about the most undiversified investment portfolio a person could dream up and manage to get himself into.

Leverage

Leverage basically comes down to borrowing money to invest in something.

If you invest R1,000,000 in something, but you borrow R900,000 and only use R100,000 of your own money, then you have an investment in which you are leveraged 10:1.

That 10:1 is called the leverage ratio of your investment. And it is 10:1, since the thing you’re investing in is worth 10 times as much as the cash you put in.

Leverage is great if the thing you invested in grows a lot in value over a short period of time, because it allows you to make a lot of money by investing only a small portion of your own cash!

Unfortunately, the reverse is also true.

If the thing you invested in loses value, then it is very easy for you to lose a lot of money – even more than the initial amount you put in!

While Warren Buffet’s ethics may be a stinker, I do agree with his views on employing leverage:

If you’re smart, you don’t need leverage. If you’re dumb, you have no business using it.

Warren Buffet

Even though, over the long-term, returns made on equities outperformed returns made on property, by far, almost no sane person will leverage themselves 10:1 to invest in equities (i.e. shares).

For most people, this is way too nerve wrecking to even consider. If you suggest such a thing, you might be labelled a gambler, or worse, a madman.

And yet, everyday, average middle-class-30-year-old Joes all around me are buying properties in which they are leveraged 10:1 (and even more), without a second thought.

After spending many months thinking about this phenomenon I can only put it down to the fact that the truth doesn’t matter.

It’s just another asset class

In case you think I have a deluded and deep seated mistrust of property that most likely stems from a childhood nightmare of being swallowed by a house, let me just make my position official:

I have zero issues with investing in residential property.

Residential property is just another asset class.

I don’t currently, but I have in the past allocated a portion of my investment portfolio to residential property (both locally and abroad), by buying shares in publicly listed companies whose business it is to buy and rent out houses and flats.

I just don’t view residential property as a magic-unicorn-galloping-over-a-rainbow-of-profits type of investment with which “you can never go wrong”.

I’ve spent a significant portion of my adult life looking for investments like those, but unfortunately I haven’t found one yet.

Liability and Liquidity

If you are still adamant that you want to invest in residential property, then I have a great suggestion for you:

Why don’t you just buy some shares in publicly listed companies whose business it is to buy and rent out residential properties?

If you do some research and choose a good one, chances are that they are better than you at spotting and buying well-priced properties and collecting rent, because that is what the people who work for those companies do for a living.

There are also some other advantages about investing in residential property by buying shares in publicly listed companies.

You can have a more diversified investment portfolio: By only buying a few shares you are able to limit your exposure to residential property to a reasonable percentage of your net worth.

 

You have limited liability: If the company goes bust, you will not be liable for any losses. Comparatively, if you buy a property using debt and, for whatever reason, become bankrupt and can’t afford to make the bond payments, then you most likely have quite a few years of hell to look forward to.

 

Shares in publicly listed companies are liquid: If you ever need to do so in a hurry, it will only take you about 5 minutes and a few key-strokes to sell all the shares you hold in almost any publicly listed company. Selling a house, on the other hand, is a ludicrously expensive multi-month administrative nightmare.

Interest rates and timing your property purchase

Residential property is an asset class that is very directly influenced by the cost of borrowing money.

In our society, it is considered a perfectly normal and responsible thing for a person to finance the purchase of a house by getting a 20-year loan from a bank.

In fact, it is considered such a normal thing for the average middle-class-30-year-old Joe to be a debt slave for most of his life, that if you had to suggest to him that he should save up for a house and only purchase it once he had saved up enough money to buy it outright, using cash, he will probably think that you are crazy to even suggest such a thing.

But, I digress.

My point is, the vast majority of residential properties are paid for using borrowed money.

Because of this, when interest rates go up, so do monthly bond payments. When bond payments go up, some people can’t afford to make their bond payments and they are forced to sell their homes, or default on their bond. A few actually do default, resulting in a seizure and forced sale of their properties by the bank.

To summarize: When interest rates go up, property prices fall (or increase very slowly, usually at a rate lower than inflation), because the available supply of residential properties increases, while at the same time the demand for residential properties decreases. Conversely, when interest rates go down, residential property prices usually go up quickly, because more people can afford to take out bigger loans!

The first rule of business is: buy low, sell high.

This is such an obvious concept and yet, in practice, it is very difficult to do, because it usually means doing the exact opposite to what everyone around you is doing.

If you are going to buy a property, for whatever reason, then at least buy it at the best possible time.

And when would that be?

Well, of course, a few months after interest rates hit their peak after having risen quickly for two or three years in a row.

Take a look at the graph below, which shows the [10Y Treasury rate in the US] over the last few decades.

…with interest rates near record lows and just entering an upward cycle.

In my opinion, the present is just about the worst possible time for anyone to be invested in residential property.

You will know it is the right time to buy your dream home by looking for a few of these signs:

• Interest rates are starting to stabilize at a high rate, after rising steadily for two or three years in a row.
• Many people are trying to sell their properties, some in a real panic, because they are struggling to make their monthly bond payments.
• You hear many tales of properties being foreclosed on, also in neighbourhoods where people are considered to be wealthy.
• People around you are generally feeling quite negative about owning property.

When the blood is in the streets, my friends, that is the ideal time to buy your dream home.

Paying rent is simply throwing away money every month

I often hear people making this argument. I’m sorry, but that is just a silly thing to say.

Upon purchasing the average middle-class-suburbia home, you’re not only paying a massive amount of TAX to the government, you’re also forking over a significant amount in fees for bond registration, deeds and a bunch of other stupid banalities. Never mind the commission that goes to the estate agent.

Property tax, commission and other fees can easily add up to over 15% of the purchase price of a house. This makes residential property one of the most expensive asset classes to invest in, at least as far as up-front costs are concerned.

Then, once your bond is registered and you are the proud owner of your new home, you’ll be paying interest to a bank, every month, until your bond is paid off.

And don’t forget about maintenance! You know… paint starts peeling, roof start leaking, toilet stops flushing, that type of thing.

Lastly, you’ll also be forking out on a monthly basis for rates & taxes. Which, as property owners in Greece found out just recently, can easily go up by sevenfold in two years, if your government is anything like most governments are.

Safe-haven investment my ass.

Except for squatting on someone else’s land, there’s no such thing as living for free.

So are you saying no one should ever own a house?

No, of course not.

I’m saying people should save up for their family homes and buy them cash.

The saving part should be done by building a well diversified investment porfolio and the home buying part should be treated as an expense, rather than the purchase of an asset.

I know… in the world we live in I’m very much on my own in suggesting such a boring and outdated thing.

But I’ve looked at the facts, and even though I’m well aware that the truth doesn’t matter, I also know that nothing matters to anybody until it matters to everybody – and by then it’s too late.

via Zero Hedge http://ift.tt/1fcdoGd Tyler Durden

From Guy Haselmann of ScotiaBank

Mini-Contagion

The US economy has shown some hints of improvement, but overall it is plodding along at a pace that is neither strong nor awful. Most economists expect momentum to improve slowly to a 3% GDP growth pace in 2014, and something slightly above that in 2015. These forecasts are probably the best-case scenario. Therefore, they have asymmetrical skew to the down side. Due to crowded positions, valuations priced to perfection, and a confluence of global economic headwinds, the riskiest financial assets also have downside distribution skews of potential outcomes.

The most visible worry for investors is coming out of China, as Beijing and the PBoC attempt to tame growing imbalances and a dangerous credit boom. Recent defaults and sharp drops in many industrial commodity prices are not random events, but rather intricately connected to official plans for economic transformation. Premier Li said people should be prepared for bond and financial product defaults. In addition, PBoC announced plans for full interest rate liberalization by 2016. These changes are necessary in order for the Chinese government to pursue its ultimate goal of the Renminbi someday becoming a reserve currency.

Beijing maintains tight capital account controls. In recent months, the PBoC has expressed concerns about ‘hot money’ inflow. Total fund inflows amounted to approximately $500 billion in 2013. Officials who are trying to liberalize markets have not liked the perceived one-way bet on the Renminbi. One of the most popular (levered) trades has been to borrow in Yen and invest the proceeds in Renminbi. The trade made  sense, because the investor earned the large interest rate differential, while also benefiting from what had appeared to be the governmentally-controlled direction of each currency (Yuan stronger, Yen weaker).

One factor that may have prompted Beijing’s forceful currency move was anger at the Japanese who have driven their currency down 25% on a trade weighted basis. Their angst has likely been heightened by the fact that the US has refrained from any criticism of Japan’s policy. Recently, elevated geo-political uncertainties with Russia and EM, means that the Yen’s status as a safe haven has been putting upward pressure on the Yen. Thus, both currencies are moving the wrong way, further decimating investor yen-carry trades.

The changes being implemented to China’s economic development model are changing the behavior of State Owned Enterprises and local banks. Fewer loans are available, and loan refinancings, if available, require worse terms. Chronic overcapacity is now combining with slowing economic growth to increase debt servicing problems. Cross-guarantees risk a series of chain defaults which could then hit key supply chains.

Overcapacity is partially being blamed for plunging prices in copper, iron, cement, aluminum, solar panels and coal. Real asset collateral for trade finance arrangements ‘gone bad’ have resulted in further downward price pressures.

Lower prices and the drop in demand for key commodities products have proven to be disruptive not just for speculators, but for emerging markets in particular. The mini-contagion already appears to be leaving its mark on financial markets and the global economy.

In the past, during signs of economic weakness, the Chinese government was quick to authorize new large infrastructure projects or encourage new credit creation, but this time, those options are not desirable by officials as they are much riskier options at this point.

China, Japan and the US are the three largest economies in the world. Each country is currently in the midst of highly-significant policy maneuvers. The Fed is bringing QE to an end. China is dealing with the credit bubble issues outlined above. Japan is lifting its consumption tax from 5% to 8%. Japan’s hike in 1997 from 3% to 5% pushed the economy into a recession. In addition, Russian sanctions could magnify and potentially take a large bite out of global economic growth.

Portfolios will need to adapt to this changing environment. Just about everyone is anticipating higher Treasury yields. Most PM’s are short duration. However, the term premium is falling quickly. The technical chart looks outstanding on the long end. Macro factors are also beginning to align. I believe the next 50bps in the 30year (yield) is shaping up to be a move toward lower (not higher) yields. Portfolios are ill-prepared.

“The only thing I knew how to do was to keep on keeping on.” – Bob Dylan

via Zero Hedge http://ift.tt/1rqqgkF Tyler Durden

Spending just $3.33 on US-produced goods every year by every person in the USA would create 10,000 jobs. We obviously don’t have that much money to spend or we don’t care. Or, we don’t produce it in the USA these days. Spending that little amount of money would be easy. But, why don’t we do it? Instead we worry over the fact that China might be doing this or cutting that. We ponder the effects of the Purchasing Manager’s Index and the Gross Domestic Product of another country rather than looking at our own labor market.

The USA doesn’t produce all of its own flags (the US imports $3.2-million worth of them from China). There are no televisions that are manufactured in the USA (since 2004 when Five Rivers Electronic Innovations went bust). Levi’s Jeans are manufactured (except for one single line of jeans) outside of the USA. Even the USA’s 2012 Olympic uniforms were made in China.

According to a survey carried out in the USA a few years ago about American sentiment regarding Made in the USA, respondents stated that 99% of them would buy American if they could and 42% said they would do so even if it were more expensive!

So, what do we do? We rely on other countries because we can’t purchase what we want at home. That means every time China starts moving up or down, we in the USA get the jitters and see our investments disappearing.

China contracted in the first quarter of 2014 according to data that is released today from a preliminary Purchasing Managers’ Index survey by Markit/HSBC. Although it is not the official PMI released by China onApril 1st, it provides a good gauge that China is not doing as well as they/we might like. The Markit/HSBC PMI takes into consideration private companies that are smaller than those that are in the official PMI for China.

The Markit/HSBC figure stands at 48.1 for March and that’s an all-time low for the past eight months.February’s figure was 48.5, which means that the Chinese are well below the level of 50 and they have been ever since the start of this year.

The world has been questioning the economic activity of China for over a year now and it seems that these concerns will be reinforced when the official figures are released. China is indeed slowing down. It can be expected that China too will now take the long road of stimulus to boost its economy. This may include:

• Lowering entry barriers for private investment.
• Spending to target public housing. 
• Spending on air-pollution. 
• Loosening monetary policy so that the economy will continue to grow at 7.5%.
• Reducing lending rates.

Already last year the Chinese economy officially grew by 7.7%, which is the same figure as for 2012. Deceleration is suspected to continue well into the second quarter of this year.

The Vice Finance Minister Zhu Guangyao stated in an interview that they would not be making the same mistakes as in the past by over-stimulating the Chinese economy.

However, the Finance Minister Lou Jiwei stated that it was the labor market that was more important than the economy and reaching healthy levels for workers was essential, even more so than getting 7.5% in economic growth. If Beijing wishes to improve consumption in the country, then the question is whether or not they will be willing to forego economic growth in the meantime while they bring that about. Secondly, how much will they be prepared to sacrifice? The Chinese economy is slowing down and some believe it will weaken even more so in the coming months. Growth is expected to fall to about 7% in 2015 and 2016.

Economists believe that this contracting is the sign of last summer’s interbank rate soaring to over 10% amid concerns that there was a credit squeeze and a shortage of liquidity in Chinese banks.

It would seem that it’s domestic demand that is proving to be the problem at the moment for China. March is expected to see a rebounding PMI in normal times, because the Chinese New Year is over and there should be a return to orders and activity. However, this is not the case. Output and new orders have been weakened according to the figures; although new exports grew.

Who will benefit from China’s contracting? Some now believe that just because China will be slowing down it doesn’t mean that the world is going to nose-dive into chaos and economic slump. The world may actually benefit from balanced growth (although commodities will certainly come in for a rough ride). But, isn’t it the Chinese state that has engineered their own economic slow-down? So, in theory if it fell too much, they would be in a position to counter-act that; or at least control means avoiding a crash-landing. If they tripped up, however, they would make the rest of us fall too. The commodity-based economies would have a knock-on effect on the rest of the world. However, it might also open up new opportunities.

If only China could get contracts rather than contracting. If only the USA had more home-made products that would mean the Americans could comfortably buy from home rather than importing and worrying about Chinese PMI.

If only pigs could fly…

Originally posted: China Contracts

 

via Zero Hedge http://ift.tt/1jo5eSz Pivotfarm