My second concern regarding global economic stability; China’s false economic numbers

The CPC and its false economy: Why would I believe anything that comes from a regime that killed 100 million to consolidate its grip on power?
  • Although circumspection is warranted with the Federal government’s economic data, this confidence gap pales in comparison to the reliability of China’s published numbers.
  • Even if China’s productivity grows 1.5 times faster than in comparable countries, its yearly trend growth should be about 3.5%, not >6.0%.
  • Communist party members and sympathizers receive preferential treatment. Only the well-connected can thrive in China. All decade, I have strongly warned my readers to avoid all passive Chinese and yuan-denominated assets. It turned out to be excellent advice.
  • Considering that the Communist Party of China (CPC) has been responsible for killing up to 100 million of its own Chinese citizens over the past 100 years to consolidate its grip on power, why would I believe anything coming from their news outlets? I never do and you shouldn’t either.
  • The CPC is growing its nation’s economy with a mix of brutal centralized control and Western monetary policy. Since China is new to the fiat money game, it could be the one to topple the system. The Western nations seem to have their circumstances under control.
  • The world’s investors know the CPCs true colors, but they won’t say anything adverse as that may undermine investment opportunities.

…I argue that, based on the performance of countries comparable to China, the latter’s GDP growth could be as low as half the official number and that markets are likely overestimating China’s importance for the global economy. That being said, China has one of the highest levels of corporate debt in the world and slower growth implies greater risks of financial instability.

China’s true economic growth could be half of what everyone thinks; Business Insider, Dominique Dwor-Frecaut, November 29th

How can China’s economy grow at more than 6% when its share of global exports has flatlined and the global economy is only growing at about 2%?

I pass along a link to a timely Business Insider article regarding the fabricated economic growth data that the CPC-controlled government publishes.  It’s an interesting read and one with which I agree. I have always rejected the notion that China’s economy could continue to grow at over 6% annually with falling export growth and a population rising by only 0.5% a year.

Here is another observation. If China’s economy was growing as well as the CPC says, then the yuan should be performing better against the US dollar.

The yuan struggles against the USD. This chart shows me that China’s official GDP growth data of >6% is a fraud. The yuan’s structural weakness is just another reason for Americans to avoid yuan-denominated assets.

I base my skepticism over Chinese growth on three things primarily.

  • First, China’s government driven development model works well in the early stages of development but much less well when economies become more complex and growth becomes dependent on private sector innovations – the stage China is currently at. For instance, China’s property rights system, with its fluid delimitation of public and private spheres, is an impediment to the country’s integration into the global economic system.
  • Second, studies of the middle income trap show that countries tend to get stuck at lower levels of income per capita when they have very high investment ratios because these tend to reflect pervasive distortions. China’s investment share of GDP was 45% in 2018, much higher than the 25% prevailing in comparable countries.
  • Third, China’s share of global manufactured exports has been falling or stagnant since 2015 and the country is struggling to rebuild it. This is inconsistent with superior productivity growth. China’s loss of global market share suggests productivity has failed to keep up with wage growth.

China’s true economic growth could be half of what everyone thinks; Business Insider, Dominique Dwor-Frecaut, November 29th

If you are still bullish on a centrally-planned economy in which its ruling party publishes bogus information, then disregard this article. I am old enough to recall the Soviet and CPC propaganda campaigns from the 70’s and 80s. The same power structures are still in place today, but have only re-branded themselves to be more appealing to the unwashed masses who have forgotten or are unaware of these governments’ murdering atrocities.

November 27th Update – My primary concern; Stock index targets closing in; Advice for living in a dishonest world 

To download the podcast – Right mouse click here

-Dow within a baby’s breath of my year-end target of 28,500
-The differences between the Bernanke Fed and the Powell Fed. These differences are what concern me. The current Fed seems to be more disingenuous, while not even caring what we think anymore. The global investor has been conditioned properly.
-The dollar and bonds and commodities discussed
-The domestic economy looks good as the U.S. (with the reserve currency privilege) can spread its deficits far and wide to all four corners of the globe.
-I do not know of anyone who is bearish on gold; even the mainstream is extremely bullish. I like gold, but have grown very concerned about a short-term wash out with the most overbought conditions in history.
-What I am doing right now with my personal finances
-When it comes to money and business, don’t believe anyone anymore. The world is full of dishonesty, gaslighting, and disingenuity. I can’t even trust title companies anymore. The global population has gotten much more dishonest in the past 20 years that I have been investing in real estate. Ten page contracts are now 40 pages long, because most people lie when it comes to money. The only words that matter to me are what’s contained in the Bible, and I reconcile everything else off that. You must do the same if you are to survive.

November 25th Update; Investment real estate, MMT is MMR, the dollar and stocks, a warning for the gold bulls

To download the podcast – Right mouse click here

-I try to answer the many questions I have received regarding investment real estate. What I currently see and what I currently recommend.
-Why I think the United States still offers the best opportunities, especially for Canadians who are willing to be proactive managers
-The Fed and MMT scare mongering. MMT is MMR – modern monetary reality. A discussion of a CNBC article about MMT. The mainstream and alt-financial mislead the readers into thinking MMT is like what took place in Weimer Germany.
-The Fed and ECB must be concerned that the dollar is still holding up, even after the massive Fed stimulus. The globe knows what’s coming.
-Soviet-style propaganda against the dollar. What will happen if the dollar collapses? The Russian economy would be decimated on a much worse level than the U.S. Look at what the ruble has done this decade vs. the USD
-A huge red flag for gold. The most overbought COT report in history. Open interest, spec longs, and commercial shorts all rise again as prices fade further. A potential for a massive sell-off is in the works. The financial sky is not falling, but try telling that to those who hold the record net long SMALL spec positions. Keep in mind that Joe-six pack’s net long is contra’d by the large commercials.
-The grim reality; I personally know that the alt-financial analysts are out of their realm. Those who know what is really going on are too busy making money working for the system. They are not going to bother telling the alt-financial junkies what to do, and those who follow the alt-financial media wouldn’t listen anyway.  Even though these “stopped-clocks” credited themselves with correctly identifying last decade’s bust, they were the least able to take advantage of it. They had no capital left and were paralyzed with fear.

A subscriber asks: How do you know when to buy and sell investment real estate?

Hi Chris,

You mentioned that you purchased a number of investment properties earlier this decade. How did you know it was a good time to buy? Will you ever sell them? There must be a price that is good for you to sell.

John

When to buy and sell is all about the numbers

Even with unlimited QE, we know that prices cannot move higher forever, and this is especially true with rental real estate. Regardless of the cycles and circumstances, when it comes to rental properties (or most other business assets priced off the yield curve), we can determine a rough estimate of fair market value.

We can also figure out at what price we may seek over time when disposing of the property. With the advent of the heightened boom/bust cycles, I would rarely recommend holding our entire property portfolio regardless of market cycle. There comes a time when it pays to cash out of some of our holdings.

Forget the market forecasters; It’s all in the numbers

Last decade, it became apparent to me and many other knowledgeable investors that real estate prices had decoupled from their fundamentals. Now, most who follow ZeroHedge will always say it’s a lousy time to buy real estate, but this is not true. We can employ some simple math to determine capitalization rates and internal rates of return (IRR), which go a long way in assisting our investment decisions.

After we calculate these values then we can compare the current numbers to their historic averages and variances. Thus, if a property usually has a 5.5% cap rate and the current one based on its market value is 4%, then I would probably stay away. If instead, the cap rate is about 5.5% or higher and you intend to hold it over the long-term, I would generally recommend it, all other things being equal.

Let’s use an example of a 2-bed, 2-bath condo I purchased in mid-2015, which is located in suburban Maryland. Below is a table that demonstrates what my target disposition price would be with my ideal full-market value cap rate of at least 4%.

As we can see, rents have risen more than expenses since 2006, thus comparing bubble-high market prices to today’s is misguided. We can easily look at the changes to the property’s cap rate over the years to get an indication of where we think prices may go, given the massive monetary stimulus that is being injected into the financial system.

I have to believe that based on the massive QE programs in place, I see that prices may rise to $300,000 and more over the next few years. If rents rise higher than my target estimate, the cap rate will climb and so will the market price to compensate.

I paid $91,000 for this property in the Summer 2015 and put in about $18,000 to get it totally rehabbed (plus two full-time months of labor). As we can see, the early part of this decade was a fine time to buy. Prices around this condo have risen about 20% over the past year and have shown recent strength even during this slow season. It is not out of the realm of possibility to see prices move higher. This property with a 6% cap rate still provides an attractive opportunity for a mature investor looking to park cash (or for a prospective homeowner looking to buy).

If we can drown out the collapse Cassandras and stay objective with our math, we can spot opportunities to buy and sell. If the market value of this condo approaches $300,000, I will look to unload. Given that I am making about $12,000 a year in rental income, I will have to find a replacement to that passive income, while paying long-term cap gains taxes.

A subscriber asks about oil assets; Is there any value in distressed oil assets?

Just because something drops in price, doesn’t mean it’s cheap
Five-year performances of XOP and OIH. There is nothing in this chart that is bullish. The losses have been staggering and I believe there are more to come.

Hi Chris,

I know zero hedge is suspect but this is something somewhat discussed a bit ago on your blog.

https://www.zerohedge.com/energy/billionaires-are-licking-their-chops-over-distressed-us-oil-and-gas-assets

Alex

Here was my response;

Hi Alex,
Thanks for the email.

Indeed, the wealthy are desperate for returns and yields. Sam Zell has been making the interview circuit recently and he is looking at energy assets. This Zerohedge article paints a fairly accurate picture of the situation.

I think that these oil assets are still too expensive and the only thing holding them up are low interest rates. Rates need to come down more in order to make the cap rates look attractive. Oil is stuck down here and the global supply is too great. As terrible as OIH and XOP look on the charts, I wouldn’t bottom fish here. There are longer-term industry dynamics at play, which are helping to reprice many of these assets. Although many of these firms were run inefficiently, at least their owners were knowledgeable of the P&E process. These outsiders are not as familiar and are using stale pricing models to spot value.

Pricing real estate and pricing oil are two different matters. Oil assets may look attractive to some investors, but these outsiders overlook the massive fixed costs that are incurred from time to time, which throw the pricing models into the wood chipper.

Chris

Instead of diversifying Russia’s economy, Ex-KGB Putin spreads Soviet-style anti-dollar propaganda

It’s easier to employ propaganda than accept blame
Putin in his KGB uniform (1980)
  • Russia’s monetary system is controlled by a privately-run banking cartel
  • Vladimir Putin has been in effective control of Russia’s government since late 1999, about 20 years (similar to the Soviet General Secretary)
  • Despite trying to diversify its economy, Russia is still overly dependent on energy production
  • Many of the powerful Russian politicians, including Putin, were ex-Communist officials
  • Putin was trained in counter-intelligence and has plenty of experience in propaganda
  • Putin’s anti-dollar rhetoric seems to be a convenient cover for a poorly performing centrally-planned economy
  • Alt-media outlets like Zerohedge, which have pro-Putin/Russian sympathies, and are tied to its sphere of influence, are instrumental in this propaganda dissemination
This chart shows that Russia’s economy is overly exposed to the global oil sector. The Russian ruble’s performance in the international currency markets is a direct reflection of energy prices. Click chart to enlarge.

It seems that national leaders like Putin and Turkey’s, Erdoğan, find it more expedient to blame others, especially the United States, for the problems that plague their corrupt and bloated socialist economies.

Soviet-style propaganda for the disenfranchised Western masses

I received an email from a subscriber with the following screenshot.

According to Zerohedge, Russian President Putin is an anti-new world order proponent, and he is the ally of all that is good. Zerohedge claims that if we can overturn the US dollar hegemony, we will rid ourselves of this evil conspiracy. Of course, it is the evil United States that is to blame for the world’s perilous predicament.

The grasp of the new world order transcends geopolitical boundaries and its power is fueled by the private banking cartel that owns and runs all the major central banks around the world, including the PBOC and Bank of Russia. Putin performs an important function to the elites and is the controlled Western adversary. The elites of the NWO know they need to collapse the United States from within and the falsehoods spread by the controlled opposition serve to create double-mindedness and confusion in the minds of the NWO opposition in the Western nations.

It truly is all very ingenious. So, we need to be careful from where we obtain our “truth.” It just so happens that the anti-Western propaganda has spread the worst financial advice and made the least accurate predictions, and this cannot be by chance. Putin and the Russian oligarchs hope that the ostensible opponents to the NWO in the West are broke and powerless. From what I can see, it’s a job well done.

CNBCs Santelli; Fed actions could be a “de facto nationalization” of the short-term credit markets

The Fed is the market maker and lender of last resort

Chris,
I cant believe the number Grant just gave (3 trillion).

CNBC, Santelli Exchange: The Fed’s quiet about-face

Dave

A subscriber passed along a short video of a CNBC interview between CNBC’s Rick Santelli and Jim Grant of the Interest Rate Observer, and I thought it would be a useful watch. Both participants essentially agree with what we have been discussing all along; the domestic short-term debt markets are now centrally managed from top to bottom.

Here are the major points to keep in mind as you watch;

  • Rick Santelli wonders if recent Fed actions represent a “de facto nationalization” of the overnight lending markets and if they will be permanent.
  • Jim Grant estimates that total overnight, temporary, and permanent Fed lending has amounted to roughly $3 trillion since early September.
  • Grant says that the Fed is centrally administering the short-term lending and credit markets.
  • Grant and Santelli both mention the word “insouciance” to describe Fed behavior and their responses to market forces.
  • The Fed has replaced the large banking institutions in the overnight lending market and has become the market maker and lender of last resort.
  • Mr. Grant erroneously conflates Federal Reserve action as representing the actions taken by the federal government. He says that the government is now in charge of the credit markets.
The Fed’s actions are deliberate and it doesn’t care what we think anymore

If you have been reading my articles over the years then nothing these gentlemen discuss should come as a surprise. However, there two are important differences between what Messrs. Santelli and Grant discuss and what we discuss.

  • First, Mr. Grant uses the term “insouciance” to describe the Fed’s behavior during its recent actions, which just means that the Fed is carrying out their market operations with a sense of nonchalance or indifference. But you and I both know that these “stimulus” programs are well-planned from behind the scenes and are designed exclusively to keep the United States federal government in business, while fooling the general population behind these true intentions.
  • The Fed is effectively in charge of managing the entire yield curve, not just the short-term markets.
The central banks control this steamroller, which means higher global stock, real estate, and bond prices

I think there is a more effective way of describing the Fed’s behavior. The Fed’s success in its endless stimulus programs is hinged on the public’s willingness to accept them. Ten years ago, it took a potential catastrophe to get the world on the plantation, but the investing public has been conditioned properly to accept the current Fed psychology. The Fed and its owners know this, so they carry out their operations with little concern for what we think, because what we think no longer matters. Perhaps in this regard, Mr. Grant’s choice of wording is correct; the Fed is indifferent to our anxieties.

When I employ the term “Marxist” to describe the current financial and economic systems, I use this word deliberately. The privately-run central banks are now in charge of the entire process, including price discovery and credit availability, and there is nothing we can do to stop this steamroller. The only thing that will end its forward momentum is if the elites want it to. They obviously seem intent on driving the asset prices higher and we must accept that they have the power to control these markets.

Up, up, and away; Trillions of dollars need to find a home and global real estate is still an asset of choice.

I go back to my original theses from 2013-2016. My primary observation; in the wake of last decade’s manufactured crisis, the elites had carefully placed the global economy on a financial IV-drip that could be removed at will. I submitted that their intent was to buy up the world and that they could crash the global economy whenever they felt compelled, but that if they did so they would get the blame. Thus, I still believe that they are propping up the global asset markets and economy for some future course of events.

We will find out in the future, but for now, these trillions of dollars are going into dollar-denominated assets. Global real estate is essentially priced in US dollars, so be prepared for higher prices. That’s right; prices in Hong Kong, Sydney, Moscow, London, Washington DC, and Toronto will continue rising even if their residents can no longer afford to buy. Domestic stocks will keep rising, too. I wish I had better news, but the news is especially grim if we don’t own the income-generating assets that are going up in value.

 

 

Subscribers ask; My thoughts on gold

I just wanted to pass along my thoughts on gold and what I am looking at right now.

1) We need to keep in mind that COMEX Gold Futures Open Interest is currently at 708,463 contracts, which is the highest level in over five years and since the end of the latest bull market earlier in the decade. This level increased by over 18,000 contracts since the prior report. This is very bearish as trader interest in gold still remains very elevated.

2) Here is a five year price chart of gold’s front month contract with its accompanying COT data.

I want to show the five-year COT chart, because it will become clearer to the observer that gold’s COT data has been at this cycle high position since early Summer. The COT speculative longs and commercial shorts are not very far from their historic highs from a couple months ago.

$1,525 level remains elusive and if gold cannot retake that level, the COT should unwind

3) The all-important $1,525 level from early in the decade has proven to be the new “$850” level that has been stymieing gold’s latest move higher. Gold has fallen back below this level and it will be three months since $1,525 was hit. It is vital that gold get above $1,525 soon.

4) The GLD tonnage cannot move higher and is currently stuck at about 896 tons. These levels are a far cry from earlier in the decade when the tonnage for April 9, 2013 stood at 1,200 tons. In this latest bull run, GLD has not seen the massive inflows like we saw earlier in the decade when GLD holdings were as much as 400 tons higher.

My concern with the latest COT data is that there is not much firepower left to drive gold higher. I am concerned that as the fear of additional QE dies down, so will the desire to own gold. The speculative longs are still holding here, but if gold continues to lose air, we could see a sharp fall as traders run to the exits all at once.

 

Response to email: Socialism will only help those with the assets

Hi Chris,

Thanks for your writings. Keep it up….

Is socialism the real enemy? I am concerned about the far left socialists taking over. What should we do?

Tom – Las Vegas

The more socialist a nation, the more expensive its housing

This table ranks house prices of nations in the Americas, based on price to household income ratios. We can observe that the more socialist the national mindset, the less affordable their housing is to their residents.

One can only wonder; does Socialism raise the costs of living or do high living costs result in Socialism? I conclude that it is a self-generating mechanism. Social programs are introduced to ostensibly benefit the population, which raises the costs of life. These costs are the catalyst to introduce more programs, which just raises the costs higher. Eventually, as the decades pass, the government is intervening in every aspect of our lives with programs and legal codes to help alleviate the escalating costs of everyday life. Socialism ends with a sceientific dictatorship and the only way to stay ahead financially is to eschew personal debt and own income-generating assets.

As we can see from house prices in the United States, we have it pretty good. Sure, having the global reserve currency helps us with housing costs. But imagine a scenario where housing costs in the United States were as expensive as in Canada. There would be blood in the streets. House prices would have to effectively double.

So, if we want to see how housing costs will trend over time, I would analyze this socialist trend. Socialism creates massive budget deficits and these deficits only help those who own the real assets (real estate, stocks, bonds, etc.) at the expense of those who do not.

There is nothing we can do to change this trend and if you are afraid of socialism taking over the United States (it has already to a large extent) then I would try to acquire these assets over time. Don’t exert your energy tapping on the keyboard and getting angry. That’s the learned helplessness that the globalists hope to produce. Beat them at their own game.

A subscriber asks; Deval Patrick as President?

Chris,

Meet Deval Patrick,

Obvious Democratic nominee, product of the Obama team, adequate cash, and media will go ga ga.

Yes, he can beat Trump, the big picture is that beating Trump will make the right go radical just like the Dems did when Trump beat them. Playing right into a further divide of the country.

Donald will be active leading his old base as the ultimate citizen provocateur.

Regards,
Dave

This is a quote concerning Deval Patrick from today’s World Affairs Brief from Joel Skousen: (I have downloaded a pdf copy to my server)

Former MA Governor Joins Race for President:

Deval Patrick, a close friend of Barack Obama, announced he is running for president, adding his name to the long list of democrats already running. Pundits presume he wouldn’t have entered at this late date if Obama had not encouraged him to do so, perhaps knowing that Biden’s campaign is imploding, especially with all the news about his corruption in Ukraine.

However, Patrick’s major weak point is his being on the board of directors for ACC Capital Holdings which owns [owned] Ameriquest [now defunct]. Along with Argent, Ameriquest is [was] the largest subprime mortgage lender responsible for about $80B in subprime loans. Patrick is typical of the new wealthy political elite, given plush jobs with elite companies in the gov-business revolving door. He is currently a managing director at Bain Capital. He is hardly going to be able to present himself as the friend of the working class or even the Middle Class.

World Affairs Brief, Joel Skousen, November 15th

I agree with Mr. Skousen’s assessment on this one. I do not think that many blacks would even vote for him. I speak to many African-Americans and Hispanics here in the D.C.-area in my capacity as a property manager, landlord, and real estate investor, and have been surprised at the support that many of them give to President Trump. The irony of what we hear on the street is countered with what I observe; many blacks I speak to felt disenfranchised under Obama. In Prince George’s County, MD, many property-owning blacks are hoping that Trump gets back in, because their economic prospects have brightened much in the past three years.

NJ Sen. Cory Booker, an African-American, cannot get ratings above mid-single digits

New Jersey Senator, Cory Booker, who is also African-American, is having a tough time getting above mid-single digits in the Democratic primary race. I do not know if Gov. Patrick can break out either, but time will tell.

Of course, I speak anecdotally, and the mainstream polls will refute this, but my observations conclude differently. I think many successful African Americans and Hispanics will vote for Trump. The common refrain; if a democrat gets in as President, the markets will crash.

Position our finances as Socialists become the largest liberal demographic

I assume that most of us would be considered conservatives, and as such, we should be more concerned over the growing socialist mindset in the millennial and Generation-Z demographic. These groups have been schooled and indoctrinated in the globalist and socialist mentality, while being largely left out of the decade-long asset boom. Over the next couple presidential voting cycles, we will have to come to terms with far-left candidates on the local, state, and federal levels.

The Federal Reserve policies that are working to keep the Federal government in business are driving a vast number of voters over to the far left. This group is populated with all races and creeds, but these are primarily the young debt-slaves who were left out of the asset boom cycle. They have been conditioned to view the government as their big daddy and provider. Thus, candidates who mirror the policies of VT Senator Sanders are growing in importance and have been instrumental in shifting the political policies to the left. This important and growing voter block has also helped to facilitate the Right’s shift to the left as well.

Now, as an economic observer, I have positioned my finances to benefit from the growing socialist policies, and the massive government deficit spending that these policies require.

I have no opinion on who is in office, but socialism requires massive deficit spending and as all this deflationary debt is serviced, asset prices will move higher as the unwashed masses look to the government to help out (which just causes more spending and asset inflation).