Global economic growth and inflation must remain weak for this system to work

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?

Thanks much.

Chris in Seattle.

Here was my response:

Hi Chris,
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.

Regards,
Chris Pirnak

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.

Global monetary stimulus moves around the world, wrecking the lives of the locals who don’t keep up

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

Foreign QE money is drawn to cities like Toronto and Sydney

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.

Here is a link to a CNBC video, Why Australia Hasn’t Had A Recession In Decades.

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.

Read: Is the Chinese love affair with Australian real estate over?

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
Countries with small populations are held hostage to speculative foreign QE money

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.

U.S. housing – Extremely tight lending standards and lack of new supply dispel collapse talk

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.

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

Pedaling fear can be very profitable and is easier than taking the risk with investing

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.”

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

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.

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

One more thought; contemplate a dovish Fed scenario and a regime of falling mortgage rates. This is a probable outcome.

Conclusion

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.

February 10th Market Update – Moving averages are important in a trendless market

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.

ES e-minis clinging to 100-day support.
The same goes for the NQ
The Dow futures are pulling up the NQ and ES
I observe Bezos’s personal behavior, effective loss of half his shares, and the possible pullout from NYC, and wonder what else is going on. Bezos is in his mid-50’s. Is he coming unglued?
Bonds

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.

There is plenty of upside to this chart. If we eventually test the 200-week mva, we could see much lower yields. I think it will happen.
At 4.41%, the 30-year mortgage rate should fall again further over time.

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.

Oil

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)

The XOP is a dog. It could not keep the already low 50-day mva. Oil troubles ahead. Tomorrow’s performance is VERY important. Another down day seals the deal for oil’s fate.
CL is brushing off the drop in the drillers (for now). If the XOP cannot retake the 50-day mva, I see more problems here.
The dollar
Despite a dovish Fed, the dollar has been well supported. I look for firm support going forward. Thank you oil industry.

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.

Gold

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.

Gold has had a nice run and it clearly is up against chart resistance. A strong dollar doesn’t help, but these are trying times
Bitcoin

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.

Could a test of the 100-day on the BTC futures? Possible, but unlikely.

Not all real estate is created equal, especially if rates continue falling

There is a housing crisis, but the alt-financial media get it wrong again
The big myth. Housing will never be affordable ever again and any program intended to make housing affordable will only make it more expensive

Despite all the gloom that the alt-financial media spread regarding residential real estate, one sector continues to shine; starter homes and working class real estate.

There is gloom and doom however for two groups; for first-time home buyers and renters. This will not change.

Think about this.

  • Housing stock in the lower half is most likely not affected by the tax law changes.
  • The Federal Reserve has begun to make it clear that they are not going to raise rates. Mortgage rates have dropped by 1/2 percentage point since November. I believe that mortgage rates will continue to ebb (in contrast to the consensus). This means higher demand and further restricted supply.
  • Government guaranteed mortgages subsidize rates and lower the buyer cost of capital. Thus, banks can lend at very low rates. There are no changes planned to these subsidies.
  • Despite rises in new home construction, the total numbers still lag what is needed on a yearly basis, and the total deficiency in supply has grown by a decade of severe under-building.
  • Imagine what will happen when the global economy rolls over and the central banks are forced to promulgate further unconventional policy.   This money will only find its way into assets. Despite all the talk of QE termination, the major central banks, in aggregate, have yet to unwind in any meaningful way.
  • Because of its growing energy sector, the economy of the United States continues to move forward. If the U.S. did not have all this growing oil and gas output, U.S. GDP growth would be as anemic as the rest of the developed economies and the U.S. would be in the same situation as Europe. As of now, China and the U.S. are supporting global economic growth.
  • This new-found energy independence of the U.S. is lifting all dollar-denominated assets. Look for this phenomenon to continue.

Here’s a link to a story that increasingly has become typical around most areas of the country.

We’re talking affordable homes in the Tri-State. [Evansville, IN]

You might have found it is becoming harder to buy a home fit for your family. Real estate experts tell us there’s a severe shortage of inventory in the market.

“The housing market has shrunk tremendously,” F.C. Tucker Real Estate Broker Carol McClintock said.

Many buyers say they were forced to settle because of the shortage.

“Yes, she is completely right,” recent Evansville buyer Morgan Locher said. “There are no houses on the market right now (or not enough) in that range [$140,000 to $220,000]. We had to rush into something we didn’t even love just because it was all we could afford in the market right now. All the houses we loved sold that day, with multiple offers,” Locher said. “Most were insanely over what we would’ve offered.”

’Severe’ shortage in housing market, says local real estate agents – 14News.com Evansville, IN (2/5/19)

Of course, there are many overpriced areas in the U.S. and these areas are already out of reach to the average worker. But the prices of these higher-end areas have been greatly impacted by the change in the tax codes and the cap on interest rate deductions. This has been one of the primary causes for the drop in higher-end home demand. The starter home segment actually benefits as it’s now relatively more appealing.

Oregon needs about 150,000 more homes to meet residents’ needs, according to a recent report by Up for Growth, a national coalition that promotes higher housing density close to workplaces, stores and transit.

The discrepancy between supply and demand means rents and house prices are higher, people pay a higher percentage of their income toward housing, more people are homeless and more people are at risk of becoming homeless.

Legislature wrestles with high rents and housing shortages – Corvallis Gazette Times (February 9th)

I receive at least 3-4 calls a week from investors and prospective home owners looking to see if I would sell and receive another 3-4 mailings a week for the same. The demand is fierce and only continues to grow. In the Greater D.C. area starter-home prices have increased much more than the higher-end. Rents continue to grow in this stable area. As a result of higher rent rates, capitalization rates have remained relatively stable.

Yes, it is gloom and doom for many areas of housing, but not in the areas that the alt-financial media overlook.

Will the U.S. government ever go bankrupt?

Will the United States ever go bankrupt?

I received a question from a reader asking me if the United States government will ever go bankrupt. I suggested he refer to the U.S. Federal Reserve’s holdings of U.S. Treasuries for a clue to this answer. Specifically, I directed him to look at how the Fed handles its interest earnings on U.S. government securities and its operating profits.

Will we reach a point when the U.S. government will no longer be able to service its debt? What happens when interest payments get too big?

John – California

To answer the first question; In theory, the answer is “yes.” In reality, the answer is “no.” To answer the second question; read the rest of this article.

The interest that the Fed collects on its investments in U.S. Treasuries is paid by the federal government, but is then returned to the U.S. Treasury. As we can see this wash cycle saves money because those interest payments would otherwise be made to the outside investors who would have purchased the bonds.

“It’s interest that the Treasury didn’t have to pay to the Chinese,” Ben S. Bernanke, then the Fed’s chairman, told Congress back in 2011, when the annual windfalls were still new and surprising.

The Fed Delivered $80.2 Billion in Profits to the Treasury in 2017 – New York Times (January 10, 2018)

Indeed, Ben Bernanke is correct. In 2016, the Fed remitted $91 billion to the Treasury. Had outside investors bought these Treasuries, the U.S. government would have never gotten that money back. Talk about free spending….

With this in mind, it would actually work out in the U.S. government’s favor if China sold all its Treasury holdings, because they would most likely be bought up by the U.S. Fed.

Of course, the U.S. Fed conjured up the money to buy to the Treasuries in the first place, so its holdings were acquired painlessly. Nonetheless, the outstanding debt on the Fed’s balance sheet comes at essentially no cost to the U.S. government. In an extreme case, if the Fed owned all of the U.S. debt, the government could essentially spend recklessly forever.

The Fed is legally required to use its revenue to cover operating expenses and send much of the rest to the Treasury Department’s general fund, where it is used to help cover the government’s bills.

The Fed payments to Treasury, called remittances, hit a record high in 2015 due to swelling interest income from its huge holdings of bonds purchased to help stimulate the economy after the financial crisis.

That interest income will decline as the Fed continues to shrink its portfolio of assets, or balance sheet, by letting a limited amount of bonds mature each quarter without replacing them.

Fed Sent Lower Remittances to U.S. Treasury in 2018 – Morningstar, January 10, 2019 (WSJ reprint)

The Fed’s bond holdings comprise of federal debt and securities issued by the government-owned mortgage finance companies Fannie Mae and Freddie Mac. By diving into the marketplace, the Fed created more competition, forcing investors to accept lower interest rates — and thus reducing the borrowing costs paid by businesses and consumers, as well as the federal government.

The remittances change as the Fed holdings change

On January 10th of this year, The Federal Reserve announced that it had sent payments of approximately $65.4 billion back to the U.S. Treasury from its estimated net income in 2018. These remittances back to the U.S. Treasury were actually the lowest since 2009 and were down from the peaks of more than $90 billion in 2014 through 2016.

Though the amount of interest sent back to the US Treasury is down from about $90 billion in 2015, the Fed remitted $65.4 billion to the Treasury over the past 52 weeks.

But what would happen if the U.S. Fed began to add to its balance sheet? Imagine a scenario where the global economies turn down once again and the major central banks are forced to commence unconventional monetary policy. We discuss these scenarios frequently.

Imagine a time where the U.S. Fed adds a couple trillion dollars more in Treasuries to its balance sheet. How about if it adds $4-5 trillion more? All the interest payments on that debt is remitted back to the U.S. Treasury.

So ask yourself; Will the U.S. government ever go bankrupt? I think the answer is clear.

Today’s trade data confirm the United States is an energy power house

Never doubt the U.S. dollar over the long-term
Last year alone, the Permian’s production rose by a million barrels a day, and it could surpass the Ghawar field in Saudi Arabia, the world’s biggest, within three years. Now producing four million barrels a day, the Permian generates more oil than any of the 14 members of OPEC except Saudi Arabia and Iraq.

“OPEC producers never thought the Permian could be the next star world producer,” said René Ortiz of Ecuador, a former secretary-general of the Organization of Petroleum Exporting Countries. “They never thought one field — one, and not a country — could actually be the monster field of their imaginations.”

New York TImes – How a ‘Monster’ Texas Oil Field Made the U.S. a Star in the World Market

I was combing through today’s trade data from this morning’s U.S. Department of Commerce’s BEA press release, and was startled to see just how far the United States has progressed in the energy sector. I include a link to the press release for you reference.

In less than two years, the United States trade deficit in petroleum has dropped from almost $7.5 billion to about $600 million (data highlighted). The U.S. should be running surpluses next year.

All told, domestic oil production increased by two million barrels a day last year, for a record of 11.9 million barrels, making the United States the world’s top producer.

Permian production has quadrupled over the last eight years, in contrast with the decline of most other established oil fields, for several reasons.

Companies found ways to lower exploration and production costs in tapping the Permian’s accommodating shale. New technologies for drilling and hydraulic fracturing helped bring the break-even price for the best wells from over $60 a barrel to as low as $33.

The Permian, as vast as South Dakota, is distinct from other shale fields because of its enormous size, the thickness of its multiple shale layers — some as fat as 1,000 feet — and its proximity to refineries on the Gulf of Mexico. Some shale fields produce too much natural gas, which is worth less than oil. Others have uneven layers of rock difficult to drill through. The Permian is rich in oil, and its shales are relatively easy to tap with today’s rigs.

Today the biggest risk, at least for producers, is that too much output might drive down prices too much and jeopardize their profitability. They could also prompt another round of aggressive actions from OPEC and its new ally, Russia.

Exxon Mobil, Chevron, BP and Shell have begun to heavily invest in the area. With a major acquisition in New Mexico last year, Exxon Mobil became the most active driller in the basin, and projects that it will increase production five-fold by 2025. Also growing rapidly here, Chevron estimates that one in six of every barrels it produces globally will come from the Permian by 2021.

After regaining a foothold in the Permian last year, BP is expected to invest heavily, contributing to a total investment of more than $10 billion by the major oil companies here this year.

There may be ups and down in the value of the US dollar, but the forces supporting it are strong. The global dollar debt markets and the rapidly expanding domestic energy industry are just two factors that come to mind. Just when we think the dollar is toast, we come across more data that confirm the fears of the dollar’s demise are way off the mark. We don’t need to wonder why the United States economy continues to outperform most other developed nations. It’s energy market has quickly become the most vibrant in the world.

 

February 4th Update – The art of ruling the people is ancient and the techniques only get more perfected

I have uploaded a February 4th update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

First item; This Wednesday at 7:30 pm, Fed Chairman Jerome Powell will host a town hall meeting with educators from across the country joining him in the Board Room of the Federal Reserve Board’s main building in Washington D.C.
-Tonight at 7:30 pm, Cleveland Federal Reserve Bank President Loretta Mester will deliver a speech on the economic outlook and monetary policy at the 50 Club of Cleveland Annual meeting in Cleveland, Ohio.
Second item; Most people are embracing the tenets of the NWO. The NWO is a spiritual system of voluntary servitude and self-indulgence. Why have FEMA thugs forcibly take our DNA samples, when the vast majority give it away freely? Privacy rights in the internet age are an oxymoron.
-The nation is already one big FEMA debt slave camp. The FEMA camps and Army CILFs will have the barbed wire turned outward, to keep people from trying to enter.
-Is the internet a good thing? Any close relatives who send in their DNA for geneology and medical testing have, in effect, given your DNA to the government authorities. Look at this case, for instance.
Third Item; A discussion of Alan Watt’s February 3rd podcast – The art of ruling people only gets more perfected.

February 3rd Market Update – Housing analysis and the data I use; Stocks, gold and silver, oil, bonds, bitcoin; Chart and market action and my predictions

I have uploaded a February 3rd market update. Click here to go to the show archives page to listen or you can listen on the link below.

To download the podcast – Right mouse click here

-Housing analysis; Are we beginning to see a shift toward some sort of longer-term equilibrium? Time will tell as we are still in a deficit, but things may eventually change. New Homes sales are slowly rising and the average and median prices have fallen. Residential construction rose, after a drop in September and October.
-December’s data has been delayed, because of the government “shutdown, but home builders may be adjusting. Build more units and use cheaper-grade materials. They need to adjust to higher mortgage rates.

As mortgage rates rose the home builders have responded with more cheaply made housing.  With rates dropping will this trend change?
Home builders have begun to shift to lower cost housing. Will this affect new home sales in the future?
I look at housing starts, but this includes apartment units. I prefer single-family housing as that shows the truer sense of what the market desires.
(New home sales in thousands) Let’s hope October was an anomaly. Rental properties still have good support as these numbers still need to rise further. For existing rental property owners, the worse the numbers, the better your prospects.

-I am concerned that traders may begin to speculate on how genuine the Fed is with its dovish stance. The latest Fed balance sheet data indicate a further asset unwind.

-I am turning neutral on gold this week; We have been bullish on gold since mid-August at 1190-1200. The COT report from way back in late December indicates a large shift in sentiment. The Commercials added tons of shorts at a much lower price and while the numbers back then were still reasonable, I am sure the trend intensified over the next five weeks. We are up $130 since our bull call.
-I am neutral on oil and the 10-year UST. Though the COT report is more bullish for oil, I have to think that after a test of the 100 day mva (59.25 currently, but dropping fast) we will rest. Moreover, we need to see the XOP pop above 31 resistance to 33-34, before I am convinced higher prices will prevail.
-The gold and 10-year COT reports show how well a trader can do when he or she trades against the large specs when they are overly stretched.
-Still bearish on BTC; One descending triangle after another. Is the latest floor in the low 3,000’s about to break? There have been several descending triangles over the past year; all within one huge year-long descending triangle. There is a lot of blood in the crypto realm and many of the gurus are now broke and need to liquidate. Lethal overconfidence on display as things wipe out.

Where to park cash; A reader asks about the WSJ article, “Raise Your Own Rates Even if the Fed Won’t”

We don’t have to give up yield to keep liquid assets

Since early last year, I have been recommending we build our cash positions for future investment opportunities. Although I doubt there will be any sizable economic or general market collapses, there will always be cyclical booms and busts in just about every sector.

Last year alone, we had significant crashes in the crypto and oil spheres. If I were an investment expert with the oil drillers, last year’s bust should have been seen as providing tremendous opportunity – as long as I had the liquidity and was not overly exposed to the sector in the first place.

With this in mind, I received an email from a listener asking me to comment on where to park our cash.

Hi Chris,

If you have time please comment on the Saturday Wall Street Journal article on page B1, The Intelligent Investor by Jason Zweig.

The article “Raise Your Own Rates Even if the Fed Won’t” discusses online banking.

Tom

This Wall Street Journal article is behind a paywall, but I provide a link to a copy of the article for your reference.

The nearly $8 trillion of cash in savings deposits at commercial banks is earning interest at an average rate of 0.09%. The more than $1 trillion of cash at brokerage firms is paying investors just under 0.3% on average, estimates Peter Crane, president and publisher of Crane Data, a firm that monitors cash and other short-term investments.

Meanwhile, savings accounts at online banks and short-term U.S. Treasury securities are yielding 2% to 2.5%. Savings accounts are federally insured against loss, generally up to $250,000; U.S. Treasurys are considered risk free.

The Wall Street Journal – Raise Your Own Rates Even if the Fed Won’t (February 1st online)

Based on many of the emails I receive from listeners and readers, there are many here who have a sizable balance sheet and ample cash on hand. While many may not have a large amount of liquidity sitting around, I think that the majority of us can take advantage of the interest rate differentials between what the local bank down the street offers and what an online bank will provide depositors.

If you read the WSJ article, you can clearly see the advantages of having money deposited with an online savings bank. Someone with $100,000 wishing to park it for the next investment opportunity can lose over $2,000 a year in lost interest by keeping at the local bank.

While I understand that many, including myself, are reluctant to transfer our banking services to an online bank, we do not have to close out our existing bank accounts to take advantage of these higher yields. We can park our extra cash in money market funds with our mutual fund or brokerage accounts.

Here is an example. According the Vanguard.com, the Vanguard Prime Money Market Fund is currently yielding 2.51%. Keep in mind that this fund maintains a stable $1.00 NAV and has never “broken the buck.” Moreover you can link this money with your current checking account to gain access within a short amount of time.

Keep just enough cash on hand in your existing checking accounts to transact normally and for piece of mind, and transfer your other liquid assets to your brokerage account or mutual fund company and park the funds in some no-load money market funds.

All this money should be government insured (FDIC or SIPC), and if you purchase money market funds that invest in government paper, those assets are considered “risk-free.”