My warning about the end of the business cycle goes back to 2013
Note to reader: There is no going back to the way things were. We are too far past that point.
The New World Order does not want us owning assets outside its satanic tracking system. It will eventually consume everything, so gold and silver are in the globalists’ cross hairs.
The contrived economic collapse of 2008 allowed the globalists to assume control of all the financial markets. Prior to this, the markets were more free and subject to natural forces. One could use economic principals and simple deductive reasoning to formulate investment theses.
Since 2008, a brand new set of synthetic economic and financial laws have arisen. Now success in investing and trading relies primarily on a person’s ability to anticipate and interpret official intervention in the marketplace.
[Gold was 1,550 and silver was 28 at the time of the writing]
I received an email yesterday from a reader asking me if the business cycle was dead.
Question. With all this unconventional monetary policy, do you think market cycles are dead as we have known it?
Here was my response (edited for grammar and spelling)
Thanks for the email.
The elites are not just keeping themselves intact, but with their central bank money that is printed out of thin air, they are consolidating their wealth.
This next point is important to keep in mind. Recall from my prior posts that the interest that is generated from the Central Bank sovereign debt holdings is transferred back to the Treasury. Even though the central banks won’t make money on the interest, the money was conjured up from nowhere and they now own those assets free and clear. They can keep the scheme going a long time.
As long as inflation remains low they can continue this scheme. It may last for years. When inflation becomes out of hand, they will no longer be able to do any QE. But the more debt that’s generated and hoisted onto the economy’s balance sheet, the more of a deflationary drag the debt burden becomes. This is why we are seeing little inflation on the consumption level. A greater percentage of the economy’s output is devoted to servicing outstanding debt. There’s just so much money left over to bid prices up.
That’s very important to think about. The elites are using this terminal phase of the fiat monetary system to gather up as much of the world’s assets as painlessly as possible with no real money out of pocket. They hoist the assets on the central banks balance sheet and they use the cheap leverage [of low interest rates] to buy up more. [All this debt creates ever-larger pools of monetary equivalents that are used to buy up more assets; only a tiny amount leaks out through higher consumption].
This is why I keep pounding on the table for people to buy income-generating assets. This is the only thing that will keep us intact as the scheme unfolds further.
As for the asset cycle and the market cycles, that has been revoked for about a decade now. As long as the central banks continue to intervene in a ham-handed way the business cycle that you and I have grown up with is dead. We can no longer look to the asset cycles and to the natural rhythm of the marketplace for ideas about investing.
It’s all about interpreting central bank policy now. This is a sad time for humanity, but it will be saddest for the vast sea of humanity that have not planned accordingly.
The world’s economy is now on a permanent IV-drip and economists are relegated to interpreting central bank actions and acting upon the likely outcomes. Gone forever is the normal business cycle.
If the central banks did not intervene this past decade, the economy and financial system would have already collapsed. There is simply not enough aggregate demand for the growing global debt pile at prevailing interest rates. The central banks are buying up the substantial demand shortfall and this has kept things afloat.
This central bank intervention can essentially grow forever and the worse the economy performs, the better it is for the elite. The elites could have already collapsed things, but it is clear they have other intentions.
Keep in mind that this is part of the conspiracy for the global financial dictatorship. Anyone who discounts this harsh reality or believes that the elites are losing control needs to be discounted heavily.
In a sign that the U.S. Fed wants to “support the markets,” there are conversations that it may begin, as soon as early next year, to add to its asset balance sheet. The amounts some analysts are mentioning look to be about $20-25 billion/mo.
However, many in the MSM do not look at this as QE, but rather a sign that the Fed wishes to support the asset markets and bank lending facilities. Shortly after the 2pm FOMC minutes were released, members of a CNBC round table, which included CNBC’s Senior Economics Reporter and Chief Fed Shill, Steve Liesman, discussed this likelihood and they all seemed resigned that the balance sheet would begin to grow again. (Take my word for it, these people are excited at this prospect as they own many of the types of assets that will benefit).
I have been observing that Bloomberg and the other mainstream financial outlets are running cover for the Fed and are concluding that the recent stock and bond market strength has more to do with trade and budget negotiations than anything else. I am telling you that this has all to do with the change in Fed policy. If the Fed loosens, then all the other central banks can begin further easing programs as there will be less upward pressure on the U.S. dollar. The euro won’t sink further into the abyss.
When taken with the sudden rebounding growth of the ECB’s, BOJ’s, and PBOC’s balance sheets, the prospect of the U.S. Fed’s actions to add Treasuries to its balance sheet, provides investors with all the reasons they need to once again go long everything.
In hindsight, I suspect that last years’s Fed tightening was done with the intent to see how far it could go before the markets folded. The answer was clearly evident; the Fed cannot tighten anymore even though the Fed funds rate is at historic lows for this point in the asset market cycle. The Fed may try to increase the Fed funds rate once more this year, but I see that as the end of this round. Moreover, I see an increasing probability the Fed will once again grow its balance sheet in order “to provide liquidity” to the market place.
Gird your loins and be prepared, Dow 30k? How about Dow 40k?
I have been warning my readers that any asset bust would be short lived and that the central banks are going to do whatever it takes to keep prices moving north. If you are bearish on any asset sector I would advise you to reconsider.
I am positioned to take advantage of this prospect. I have a short-term cash position and a portfolio of income generating assets, including real estate and day-trade stocks, as well as my long-term gold and silver. My leverage continues to shrink. There will be many opportunities in the future. Never underestimate the peoples’ desire to sell their birthright for a bowl of soup.
Look, we may think this economy looks like a sham and is manufactured, but never underestimate in the ability of the elites to keep asset prices climbing. Imagine not having the assets and being dependent on the government. As the global economy begins to accelerate to the down side and QE begins to ramp up again, the vast majority of humanity will come out the losers. Don’t be on the losing end.
The average home owner in a nice area may be worth more as prices climb, but at the end of the day he still only owns the same house.
-Trump folds on the wall and spending, and the U.S./China outlook ostensibly brightens. All the government officials are saying market supportive things. I just observe how they are all speaking with one mind. Their intention to support asset prices is remarkable.
-The RBA discusses dovishness. The PBOC is injecting massive liquidity and undertaking their own unconventional policy.
–The Fed adds to its balance sheet last week. That is truly dovish.
-If things roll over and the Fed begins to add in earnest, and the other central banks like the ECB and PBOC add to assets and inject unprecedented liquidity, the Dow could blow through 30k.
-AMZN still looks poor. Is something wrong with them?
-In order for that to happen, the total balance sheet level would have to move from $20 trillion to about $25-27 trillion
-All the ingredients for unconventional policy formation are present; low inflation (despite strong employment), low interest rates, and weak economic growth worldwide are all prerequisites for the promulgation of hyper-growth in the central banks’ balance sheets.
-The relatively strong U.S. economy is what is keeping the ECB from resuming further easing. If they eased now the euro would sink into the abyss.
-If dovish policy grows, look for residential real estate prices to further disconnect from economic fundamentals.
–The 10-year UST futures COT is pointing to a floor in yields here and a resistance in UST prices. This is shorter-term and not a change in the secular trend.
-Gold looks good, according to the latest COT report. Silver and Pl need to catch up. If we test 1,362 again, we should take it out. This price has been longer-term resistance over the past few years. Once in 2016 and again last year. If we take it out on close, 1,400 could be in the cards.
-Keep in mind that oil and gold have been doing well despite a very strong dollar.
-Oil has responded well and is up against the 100-day mva.
Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself. Sufficient unto the day is the evil thereof.
Mattherw 6:34 – KJV
I received an email yesterday from a reader in London, England, in response to my prior blog post. I wanted to put Matthew 6:34 into its proper perspective. This site is dedicated to this passage as I tell the reader how not to worry. It takes work and planning. It takes overcoming dependency and confirmation bias toward the alt-media. But many read Mathew 6:34 and think that we should not bother.
Dear Mr Pirnak,
I follow your site with interest, however, I find your repeated references to being “a Christian”, reading the Bible etc. somewhat incongruous on a site mainly dedicated to financial matters (mammon).
For example, I believe it would be hard to reconcile what Jesus is reported to have said in his Sermon on the Mount, where he exhorts his listeners to “Take therefore no thought for the morrow…” etc, with the underlying theme of your articles and podcasts which seem to be advocating precisely the opposite.
Equally, I find your comments about charging low rents to some of your tenants because you are “a Christian” (most recent article) not in the spirit of the New Testament where there are several passages specifically telling people not to speak of their good works – e.g. Matthew 6:1 “Take heed that ye do not your alms before men, to be seen of them: otherwise ye have no reward of your Father which is in heaven…”.
Finally, it is not clear what you mean by being “a Christian”. The only insight into this that I have come across is in your ‘About Chris’ section where you write that you regard “the Bible as the best psychology textbook ever written”; but this is perhaps not what many people understand as Christianity (although it is very possibly the case that no one has a clear idea of what ‘Christianity’ actually means).
I hope you do not take my comments as an indirect criticism of your articles, which I find interesting and helpful, but I can’t help feeling that your references to Christianity do not add anything to the subject matter of your articles and, in fact, might detract from important points you make for people who do not share your ‘religious’ beliefs (whatever they are) or at least do not feel the need to make them public.
Charles- London, England
Here is my response (edited for grammar, etc. Voice to text is a pain).
Thank you for the email and interest in my site.
The only reason why I have my blog is because I am a Christian, or at least aspire to be a better one. I can’t be a pastor or preacher, because I do not have that expertise. I would not want to come across as an expert on the Gospels and lead people astray. But I do study a lot about what the Bible says with respect to economy and money and it says an awful lot.
For some strange reason, most Christians view money and economy as incongruent with scripture, but how we handle money and such is very important. We need to get through the day, we need to persevere, and we need to make money, because we are not supposed to live in a communist or socialist society.
Most western, formerly Christian nations are now socialist and most Christian citizens are hopelessly dependent on government. I find that very evil. They’re dependent on the government for healthcare, pensions, education, retirement, and a sundry list of other subsidies. Most Christians today worship government, even if they don’t think so. They don’t have to worry about working and saving money, because most of them now rely on Big Daddy government.
When we deal fairly with everyone we work with and interact with that’s a very Christian thing. Believe me on this one, that is rare. I don’t trumpet my works to people. But quite often my tenants are concerned, because they go month-to-month and are worried that the rents will increase or are worried I will kick them out. I tell them not to worry. There is another reason why I keep my rents low. I tell I tell them as long as I can cover my costs and make some money to live, they do not have to worry. I tell them it’s because I am a Christian. Then they thank me, shake my hand, and appreciate what I do. In today’s degenerate society I think it’s important that we tell people why we do what we do.
I find a problem with many of the Christians today, especially of the so-called remnant type. Many of them are not involved in the day-to-day that I have to deal with. When they are down in the ditches working like I am, it takes another perspective. There are a lot of deceivers, liars, thieves, and disingenuous people in my line of work. I have to interact with government and dishonest people every day.
What happens if I don’t have these properties? I am 53 and would have to look for a job. I talk about what I talk about all the time and would never be hired. My back hurts a lot now. Without these properties and the income where would I go? I have no retirement money. I haven’t paid social security for 18 years. England has universal health care. I have not had health insurance for 18 years. Most Christians are hopelessly dependent on government, so they have less worries about money. I have no dependencies at all.
I don’t put my comforts in mammon, but I don’t expect government handouts. Plus, what I do takes a lot of work and knowledge. I think many people read what I talk about and just think I’m greedy. But what I do is the culmination of over 30 years of work, experience, a lot of mistakes, a lot of lost money, and a lot of trial and error. I am not a pastor nor do I claim to be. I repeatedly tell my readers that if you are going to make your life manageable in this satanic hell hole you need to become more independent.
I have discussed Matthew 6:34 quite often on the blog. Jesus instructs his followers to just worry about today’s problems today; there’s plenty of time to worry about tomorrow’s problems tomorrow. But that doesn’t mean Jesus is telling us not to plan for the future. He tells us not to get too comfortable about the future but that doesn’t mean we can’t plan. Work toward goals, plan for goals, and if we are taken out early, so be it. But he tells us not to get too wrapped up into problems in which they may never appear.
Life is full of tragedy, most of which never happens. We have to plan for marriage, we have to plan for family, we have to plan for raising our children,. Why is money somehow mutually exclusive to planning? The Bible talks an awful lot about economy and money. Paul is careful to tell us not to fall in love with it. I totally agree as it is only a tool in the carpenter’s tool chest. If you think it’s evil, then it’s evil. If you think it’s just like anything else, then it’s like anything else.
With respect to the Bible and psychology; the vast majority of Christians have no idea what Christianity and its concepts really are. My wife is a school psychologist and I think the stuff that she teaches is complete bunk. I know enough about psychology to know that it is bunk, but it works for the Evil One. The Bible is a much better source of the human mind and its condition than anything else man can conjure up. Or should I say Satan? I talked about this in the past that psychology is a science of Satan. It works because it preys on human weakness and it treats us like animals. Look around us today. People really are like animals. That’s because they’ve been told they are. If they read the Bible they would believe something completely different. Animals look at money completely different than God’s people.
Most contaminated Christians today view money and the economy and Christianity as a false dilemma. They somehow see the Bible and money as a mutually exclusive analysis. They see it as a false dilemma.
My life is easy. This is why I have ample time to study, research the Bible, and research my expertise and relay it to others. I am not wealthy, but I am comfortable, and I have enough to live off of. I am as self-sovereign as you’re going to see. I have enough money to pay cash for a house. I have enough money to pay cash for a new car. I don’t have the concerns that 95% of the population have. I live a life of austerity and frugality, which is why I have money in the first place (most Christians spend money like it’s burning a hole in their pocket) and I know that when tomorrow’s problems appear I can easily handle them. I have plenty of time to go to the gym everyday, so i stay out of the doctor’s office. Christians have become government-dependent moral hazards. I am self-sovereign.
If I didn’t care about the Bible, I would not waste my time with my blog. I derive no benefit from this website. I only receive mostly criticisms anyway. My thorough understanding of Economics, finance, scripture and, especially, our adversary has allowed me to put my writings and podcasts together with confidence.
Satan will wear out the patience of the saints and the most high. Daniel must have seen the alt-financial media and the garbage they spew (Daniel 7:25). Perhaps if I can temper people’s expectations I can get them to think more pragmatically. I can help out in some way. God has afforded me plenty of time and enough money that I don’t have to worry about things of this world like others. I listened to Matthew 6:34 and took Jesus’s advice. I live a life free of worry. I only worry about the judgment. I think about that all the time.
I will continue writing and podcasting to my blog and dispensing my timely recommendations and advice until I have no more visitors to the site. Then I’ll hang it up.
I see no false dilemma between Christianity and money and economy, unless, of course, you choose to make one. I don’t ask for money and would never take it. I just request that you put up with my Christian worldview.
Financial Independence is important to those with peculiar views
It’s always a good thing when I hear from a young person. I am sure you already know that there are very few people who share our views on life, money, and the reason why we are here in the first place.
Our financial system was developed to keep the vast sea of humanity in a state of perpetual worry and overwhelmed with the immediate tasks of the day. If we are too preoccupied with paying the bills, how can we ever have self-awareness to contemplate our existence? If we are always working to pay our rent and necessary expenses, we won’t even have the time and energy to look up in the sky to observe the weather. Satan likes that most will never be conscious enough to question things.
Moreover, Satan looks favorably upon the alt-financial media as it spreads hopelessness, despondency, and despair. Why bother working for the future when it’s all coming down anyway? I come across dozens of videos from Australian TV, like 60 Minutes and ABC News, that pound on the calamity concept. For those who have no idea what they are doing and follow the crowd, it is a calamity. We need to tune out this garbage and bunch of half-truths. We need to move forward.
At 53, the one constant I can say to those who share our peculiar views is this; if we are dependent on others for money and wages we will always struggle. This is why I try to relay to others that we need to be independent-minded and look for ways to be free of dependency.
I wish I had developed this mindset in my 20’s, rather than waiting until my late 30’s. Regardless, it is never too late to start. Here is an email I received for a reader in Toronto. (80% of my bandwidth is from the United States, yet I receive a ton of emails from Canada).
I am 24 years old and trying to best position myself to succeed financially in the current economic climate. I want to thank you for all of your insights, I’ve learned a tremendous amount.
I appreciate your perspective on investing in real estate, but don’t know where to start. I was wondering what books/websites/etc. you would recommend reading to learn the requisite skills to begin. For instance, I don’t even know whether I should learn to invest in the Canadian real estate market, the US market, or any of the implications or prohibitions that are tied to either.
Thanks in advance,
Here was my response (edited for spelling and grammar).
Thanks for reading my articles and for the email.
Investing, especially in real estate, is essentially a relationship between money and time. The less time people have, the more money they need. The more time they have, the less money they need. Okay. With this said, I didn’t start investing in real estate until my mid 30’s. So now, I’ve been investing in real estate for about 18 years. I invest in real estate, not because it’s something I grew up with and know, it’s because I saw the advantages of owning rental properties [especially after I “woke up”].
In the United States I can generate up to $100,000 in rental income and pay little income taxes on the federal level. For some reason I always have to pay some on the state level. What I’m trying to get at is that I identified rental properties as the most efficient way for me and the average person to stay ahead of what we discuss everyday on my blog.
At 24 years old you are ahead of the game by at least 11 to 12 years from where I got started. Given this, I can imagine a scenario that if you manage your time and money the right way you can own three or four rental properties by the time you are 30. By the time you are in your mid 30s you can own a bunch of them. I didn’t start until my mid-30s.
It all starts with the first one. It’s never a bad time to get involved in real estate, however there are better times to get active than others. Obviously, I research Toronto and such, and I would stay clear for now. This is okay. You don’t have to own your place where you live to invest.
I will let you know a secret, until I moved in with my wife I rented every place I lived. I devoted all of my resources and capital that I could devote into rental properties. I rented and I invested. Don’t make the mistake of tying up your precious capital with an owner-occupied property. Rent in Toronto if that’s where you want to live and invest elsewhere.
At 24, you have a lot of energy. I would look to buy my first property where I could find positive cash flow. This means that you may have to go outside into larger concentric rings. If you stick to Toronto you’ll be competing with all those investors who don’t care about negative cash flow. Unless you’re a trust-fund kid you should care about not having negative cash flow.
I don’t know the advantages of Canadians investing in U.S. real estate, but I know that there are plenty of cash flow properties around [even on Ontario, but mathematical analysis will go a long way to help where to concentrate]. I know in Upstate New York there are tons of places that cash flow. When I first got involved in real estate investing I was investing in areas where people were laughing at me. That was the height of last decade’s bubble and the properties doubled in like 2 or 3 years. That was auspicious timing, but you have to be very more prudent in this cycle as it is in late stage. I am concerned however that with monetary policy being as it is, assets may continue to climb in certain areas, including Toronto. But that doesn’t mean you should invest there at this point.
There are plenty of books in the book stores that talk about the fundamentals of real estate investing and what landlords and real estate investors look for. When I first got involved I read many of these books. I went into the bookstore and just picked up a few of them and went through them.
But I am here to tell you that if you want to survive financially and get ahead, especially with this endeavor, you need to understand the math behind investing in real estate. This is the most important aspect, because it is all about time and money and the formulas and the math behind it reflect this. Unless you are well-versed with the math behind real estate investing you will probably make most of the mistakes that other real estate investors make and result in their undoing. So, I would pick up books that emphasize the math behind real estate. The math isn’t very complicated, but it’s something that you need to keep in your mind when you locate potential properties. Real estate investing has nothing to do with what we see on the television shows. That doesn’t make for good programming.
I would also learn how to rehab the houses. At your age you can develop a skill set in which you can do much of the work yourself. I had no experience with carpentry when I first bought my first property. But I saw how important it was when it came to saving money. You will be shocked to see how much money you can save by learning to do the work yourself. As you get older and acquire more properties and develop a higher cash flow you can then begin to turn the work over to other people.
The advantage of this is that you already know what needs to be done and can keep your costs within reason. It’s very easy for costs to spiral out of control. So you need to understand the math and you need to understand the carpentry and rehabbing; two vital skill sets. There are a lot of first-time type of repairs and have learned a lot by watching YouTube. There really isn’t any reason to buy books anymore about real estate when there’s so much free content on YouTube. Maybe do a YouTube search on real estate math and see what comes up. [I just did and there is plenty].
I wish I could say there were a couple books that you could read and get a thorough understanding, but there really is no replacement for experience. And at 24 years old you have your whole life in front of you. At twenty-four I had my head up my ass in grad school, and was completely oblivious about what I discuss on my blog.
Like I said, I don’t know the advantages of investing in U.S. real estate versus your home area. I would look for former Rust Belt areas [in Canada and the U.S.] that you could easily get a positive cash flow. These are not houses you would want to live in but, that doesn’t matter. Don’t buy real estate to invest in places you’d want to live. As long as other people want to live there then that’s a good decision. Just don’t invest in crime-ridden ghettos. I never invested in Baltimore City for instance, but I bought around the area.
I think you get the picture. It all starts with the first property. If prices fall on that first property, but you made good math analysis, then your cash flow will ride any cycles out. Real estate is all about money and time. If you do a good job in investing, other people will notice and they may give you money to invest as well. Just don’t spend too much time behind the computer trying to figure things out.
Good luck and if you have any questions just shoot me an email.
A message to Christians about real estate investing
Note: Since I discussed the end times on my blog, my bandwidth has dropped about 30%, so I don’t care anymore about attracting more readers.
Here is one final thought to my Christian readers who think that money is evil and the real estate investing is a sign of greed.
My properties are in much better shape than those of my fellow landlords. I take great care of my residences and perform the repairs myself, unless I need licensed experts to perform the work. I can put money into my properties and charge less rent, because I learned how to invest and rehab, and I know when to buy. Besides, it’s a lot of work and it can be risky as we need to overcome all the apprehensions from those around us who say it cannot be done.
I only purchased two properties ever that were not foreclosures. That means 90% of all my purchases were either REO listings or bank auctions. I stay away from standard transactions, because I do not want to get over on homeowners. Working with banks and the government is entirely another matter.
I can time the market cycles to my benefit as well. As a result, most of my properties have no mortgages. What this means is that I can attract excellent tenants and charge them rent that is anywhere from 10-30% below market. For instance, I purchased a home in 2002 and paid off the mortgage a couple years ago. This 4 bed, 2.5 bath would normally rent for 2,000, but the family that lives there is the only tenant I have ever had there. They essentially paid my mortgage and I thank them. I thank them by only raising their rent $200/mo. in 17 years. That’s right, they pay $1,400/ mo in Fort Washington, MD.
I do this, because I am a Christian and I tell them so. Never forget that a man is worthy of his wages. We can spread the good news in so many ways.
It’s about consolidating the world’s wealth and power
We have spoken about this for a long time and the economic data coming across the tape still confirm this. Despite all the monetary and fiscal stimulus, consumer price and economic growth are still anemic. While most observers will conclude that quantitative easing (QE) has been a failure or at least relatively unsuccessful, you and I know better.
If an economic “guru” like Martin Armstrong refuses to believe that there is a conspiracy for a global government and maligns the Bible, I would discount much of his analysis. It is obvious to me that there is a guiding hand, which is moving this agenda forward. What I see continuing to unfold transcends cycles and ad hoc management. This system is working as intended.
QE and the more recent types of unconventional monetary policy were specifically designed by the elites to consolidate the world’s wealth and power. In order for QE to move forward, we need an economic dynamic with little inflationary growth, fading bond yields, and subdued activity.
I see the table being set once again.
In response to yesterday’s article, I received an email from another reader in Canada.
I agree, that we are going to see a deflationary scenario. Unemployment rates in the U.S are at pretty much record lows. Pretty low here in Canada and Australia, and still we have low inflation for most items except housing and food. You talk about that in one of your podcasts.
I believe he is correct. If the money is not getting down to the end-user, the consumer, prices can only rise so much. So far, only asset prices and government subsidized sectors (e.g. housing, healthcare, education) have seen prices increase. Let’s look at the leading edge U.S. employment data.
Let’s take a look at the most recent consumer price data here in the United States.
Let’s take a look at the 10-year US Treasury yield
I have to conclude that when things turn down again, inflation data will follow suit. The debt obligations continue to grow and its servicing burden sucks the life force out of the economy. There is never a good time for tax cuts and higher fiscal spending when it grows the government deficits. Sorry, supply-siders and socialists.
Going forward, I look for the U.S. dollar to be well supported at these levels. As the global economy ebbs further into the abyss, the dollarized global debt markets and large domestic oil sector will place a floor under the greenback.
Don’t worry, all this anemic activity is great news to the central bank owners and to those who own the assets. The elites can continue to buy up the world.
We need a weak economy for this system to stay afloat
I received an email from a reader yesterday and I wanted to share it with you. His thoughts are not unique, so I wanted to pass along to you my response. I think it will give you an idea of what I see going into the future.
What do you think of [the] call that interest rates and the dollar (and the Dow) are headed much higher during the next couple of years and gold will stay flat at best?
Then the strong dollar will create major havoc on the world economy causing an updated plaza type of accord to weaken it, there by sending gold to about 5k?
If I heard you right recently, you have mentioned that rates here may be receding in the near future until we maybe end up with an ECB type of sub zero rate situation?
Chris in Seattle.
Here was my response:
Thanks for the email.
My theory on what I think will happen is based on low interest rates being a prerequisite. My concern about higher interest rates is that many countries around the world will no longer be able to service the debt and that will be catastrophic. That would be totally catastrophic. [There will be no accord as the system would just unravel.]
Before we see rising interest rates we will see the central banks around the world conjure up monetary policy to ensure that interest rates stay low. With this said, a necessary ingredient of the central bank’s ability to keep interest rates low, especially on the longer end, is the New World Order agenda of open borders factors of labor and production. This will allow deflationary forces to be imported to the high-cost countries, while the high-cost nations export their inflationary forces.
As long as factors of production and labor can be arbitraged between nations, this scheme can continue and inflation on a global scale can remain subdued. As long as CPI numbers around the world stay within reason like we see now, the Federal Reserve and other central banks will continue to pump out unconventional monetary policy and will be able to keep interest rates low. Unconventional policy will no longer work if inflation rates around the world begin to rise in earnest.
Even open borders has its limits. As the developing nations begin to increase their standards of living, their price levels begin to rise and it becomes more costly to produce in their nations. I wonder how long the arbitrage between high cost and low-cost nations can continue. Eventually it will wear off.
Countries like the United States can no longer afford to bring businesses back and production to within its borders, because that would be inflationary. With all the debt outstanding and the treasuries outstanding the United States needs to offshore its production to keep its inflation from moving higher. So I see a regime of stable to falling interest rates and that will ensure the scheme can continue.
The only wildcard is inflation. Because once inflation rises the schemes no longer can continue. If interest rates begin to rise too much on the US treasuries we can see the dollar begin to waver as U.S. government’s interest payments may become a primary concern. But as long as inflation stays low and the economies around the world remain weak the central banks can conjure up more unconventional policy, keep interest rates low, and continue this current system.
Keep in mind this one important point, there are massive deflationary forces that are created by having large amounts of debt on a balance sheet. As a higher percentage of income goes to debt servicing there is less money left over to bid prices up. So, the irony of deficit spending is that there are deflationary forces that help to ameliorate the monetary printing.
Personally I see it continuing for a while. I don’t think we’ll see the stock averages move higher with interest rates moving higher. Higher interest rates would be a symptom of something fundamentally and terminally wrong and I hope we don’t see that anytime soon.
As for gold, I really can’t make any long-term predictions for when a bull market will begin once again. We had a bull market going into 1980 and paused for over 20 years, then we had another bull market begin 2003 [and top out in 2011]. I hope we don’t have to wait as long to get another parabolic rise.
The most likely scenario for gold and a new rise will be if the scenario I just previously mentioned begins to unwind. If we see this current system begin to unwind then gold will rise. But if the banks can continue unconventional monetary policy for as long as the eye can see, I don’t see a reason why gold will begin to rise and break out into a new bull market.
In this case, I see risk-taking continue to climb, I see the asset markets continue to rise, I see cap rates on real estate continue to fall, and I see interest rates remaining subdued.
As you an see from my response this is my whole gestalt investment thesis. I am more confident of my thesis bearing fruit, because the central banks will get the blame if the system folds under. The banks will do their best to not be blamed.
I received an email from a concerned reader in Toronto. He observes the same issues in his home city that we are currently observing in Australia’s former hot real estate markets of Sydney and Melbourne.
House prices in Sydney and Melbourne are way overpriced, especially to income. Just like Toronto and Vancouver here. Half of the mortgages in Australia are interest only. The lending standards are very lax, like they where in the states back before the bust in ’08.
Australia has not been in a recession in almost 30 years. They are due for one. We here in Canada and Australia borrowed our way out of the last recession. A lot of Chinese and Iranian money helped the real estate market where a huge chunk of jobs are in.
I’m looking on Zillow for homes in Florida and Arizona, to one day get out of this frozen wasteland. A big chunk of the homes are vacant. Find that strange. You don’t see that here.
Alt financial. gloom and doom…sells $$$; Good news. Not so much.
V – Toronto, CA
Indeed, Australia has been largely immune from all the economic turbulence over the past two to three decades. The downside is that foreign money has been drawn to Australia’s asset market with much of it going into real estate. The same can be said for Canada’s housing market as well.
Canada and Australia’s populations are much smaller than the United States. Thus in the U.S., foreign money has less impact. Australia has also benefited from its close proximity to China and Southeast Asia.
The downside of foreign money is that it is less sensitive to local supply and demand dynamics and usually just helps to drive up prices on the margin. Although foreign money may be a relatively small part of the equation, its impact is huge. Thus, in order for the local residents to keep up, the lenders are forced to develop easier loans for the locals to use when buying at these inflated prices.
If I lived in Toronto, San Francisco, or Sydney, I probably would have rented or if I were a longer term homeowner, I certainly would not have levered higher. We have to live somewhere. When I lived in NYC I knew of several friends who rented in Manhattan, but bought properties outside the city either for investment or vacation. This is always a viable alternative to those who are stuck in high cost areas.
Be prepared for more global monetary stimulus
We are seeing the European economies turn down once again and I do not see how their dropping GDP growth can reverse course without the re-institution of unconventional monetary policy.
When we see the major central banks begin to tear it up with new monetary stimulus, these funds will swirl around the globe, destroying the lives of the locals who will not be able to keep up. The result of QE is a wall of money that looks like locusts in a biblical plague. For those who understand and can spot opportunity they can move forward. Unfortunately, for the vast majority of humanity, they end up on the losing end.
When capitalization rates on residential real estate move lower than 3% it’s time to either unload poor performers or step aside entirely. When price to annual disposable income multiples approach 8 or 9 times, it’s time to stay away. If we can spot areas with higher cap rates and lower price/income multiples, the odds of surviving housing downturns increase greatly.
At the end of the day, when it comes to real estate, I am a long-term investor. This is how wealth is created. We just need to be sensible in our valuations. We also need to understand how fiscal deficit spending and its offsetting monetary stimulus work against the average person. Don’t be the victim.
Very tight lending standards and lack of new supply
The shortage is being aggravated by low unemployment, which is making it hard to hire workers. Not-in-my-backyard zoning rules are exacerbating the issue of an already small pool of construction-ready lots, and developers claim regulation is driving up costs. In March the National Association of Home Builders told Congress that edicts involving lead paint, endangered species, and worker safety go too far.
You can listen to the highly monetized X22 Report or the SGT Report channels for gloom and doom confirmation, or you can listen to reality. These charlatans make enough money off their sites and YouTube channels to survive financially. While house prices in Sidney and Melbourne, Australia are falling fast, simple math would have easily determined that we stay away from those areas. Simple math would have determined that we rent and not buy. It’s the math I use everyday.
But in most areas of the United States, we have a different story. I can tell you first hand about my latest investment experiences in the Washington D.C. area. I have plenty of anecdotal evidence pointing to a stable U.S. market, in aggregate, and that we will avoid the catastrophes of last decade. Anyone who disagrees can pass the time by tuning into X22 and SGT or reading the click bait on ZeroHedge.
Rather than heading for another bust, we’re still feeling the effects of the last one. Aggressive home builders were wiped out, and the survivors are cautious about working on spec. Smaller builders that rely on borrowing can’t supercharge construction, even if they want to, because their bankers are afraid of making loans. Even after a gradual rebound from its nadir in early 2009, the rate of starts on erecting single-family residences remains below the level of the early 1960s, when the U.S. population was less than 60 percent of what it is today.
Tighter regulation has ended dangerous practices, such as no-documentation loans, which got people into houses they couldn’t afford. Down payment requirements are mostly higher. These changes have made it harder for people to buy a house, which isn’t necessarily a bad thing. When Fannie Mae, the government-controlled mortgage-buying giant, surveyed housing lenders recently, only 1 percent blamed tight standards for credit and underwriting for the weakness in sales. Forty-eight percent cited an “insufficient supply.”
The sad part is that when mortgage rates moved higher, less people wanted to sell.
I know personally that lending standards are much more restrictive than last decade. While the mortgage rates are heavily subsidized via Fannie Mae and Freddie Mac, getting the money is entirely a different matter.
I listed one of my single family rental houses a couple days ago for rent. Indeed, the rent is about $120 below market, but I get better quality tenants and get lower turnover. I have received at least 50 inquiries since I listed it Saturday night. Moreover, I received about 4-5 calls from investors asking me if I would sell. There is absolutely no inventory, even in the total rehab jobs.
I also have a portfolio of condos with about $1 mm in equity and I cannot get any loans for equity extraction. I mean it; I cannot get any lender to lend on that equity at any rate. Credit scores do not matter. Moreover, the condos generate enough income to live, but lenders do not care. Unless the properties are fee simple or have unblemished condo association numbers, money is impossible to get. Moreover, I can only get hard money lenders for my fee simple properties as the banks will not lend to me unless I have ample W-2 or 1099 income. Most investors have been shut out of this market. I timed the market correctly early in the decade and bought as much as I could with my cash. Today, I could only get about 50% of what I bought back then, and yet the people and renters are more desperate.
Despite the rising prices, my rents have continued to escalate. Thus, the numbers still make sense for new comers, which is why I am getting traction from investors. Tune out the gloomers; they make a lot of money sitting on their asses with their computers, scaring the crap out of their followers.
Rising mortgage rates also depressed the market in 2018. While strong economic growth gives more people the wherewithal to buy, it leads the Federal Reserve to raise interest rates, which makes mortgages pricier. Tendayi Kapfidze, chief economist for LendingTree Inc., says higher rates also shrink the inventory of homes for sale: People are less willing to move if their next purchase will have a costlier mortgage. On Jan. 30 the Federal Open Market Committee signaled it will be patient about raising rates further. In 2019, that will just have to count as optimism.
One more thought; contemplate a dovish Fed scenario and a regime of falling mortgage rates. This is a probable outcome.
I am not saying that real estate is a bargain; far from it. But for those looking for a bust, they will be waiting a long time. If I am getting that many renter requests for one of my personal listings we have room to move higher.
There has been a good deal of support across all asset markets in the wake of the Federal Reserve’s change of policy. For those looking to trade, I would predominantly trade from the long side, but exceptions do exist.
Stocks & AMZN
Stocks are supported here, but it is precarious as we see the S&P 500 emini clinging to the 100-day mva. If there are any trade problems, proposed shutdown talk, etc., I see a test of the 50-day mva within a short time frame. We are clearly overextended in the short term and I have sold off all but two long stock trades. The sharp reversal in the Dow lends support for the Nasdaq and S&P. The Dow is above all moving averages.
All the major 10-year sovereign yields continue to fall in the aftermath of the Fed reversal. This trend will continue to surprise for bond bulls. I would not be concerned about yield inversions as the Fed is managing all aspects of the UST yield curve. Below I present a weekly TN futures for perspective.
We need to get used to permanently higher priced asset prices, as I believe that yields are well supported at lower levels. If you doubt this, read my February 7th piece, Will the U.S. government ever go bankrupt? Stop reading the fear porn from Martin Armstrong.
Real estate in the lower-half of any region will continue to receive ample support as the tax changes will not affect these sectors. Moreover, rent rolls continue to rise and any program designed to help renters only burdens them. Investors should note this. Supply is not being added to.
It’s the same old song in a trendless market. HOWEVER, the XOP looks weak and closed poorly for the week. I have to conclude that oil will probably be pulled down as a result going into this week. The only save is that the drillers closed off their lows on Friday as the stock averages rebounded. (Note the red hammer candle on Friday)
Traditionally, the dollar would be fading with the recent Fed actions, and in the wake of the Fed turnaround, I expected a test of the lower 90s on the DXY. This never came about as a growing domestic oil supply and a relative economic outperformance both support the USD for the indefinite future.
I cannot get a clear picture on intermediate gold as the COT reports lag. However, the latest report from about a month ago showed a larger-than-expected Commercial short covering as gold climbed. Perhaps gold is better supported than the neutral rating I have given it over the past week or so.
All meaningful rallies are met with strong selling. Nothing has changed on my opinion. This level could be maintained for a while, like the 6,000 level was for several months.