- The Fed’s apparent new strategy centers on its willingness to allow inflation to run hot for a period of time to “make up” for the period of inflation that was below the central bank’s 2% target. This is called “average inflation targeting” by central bankers.
- The Fed is using political correctness as cover to defend its new policies. The Fed is hoping that these new strategies will have greater benefits for groups like Blacks and Latinos, which historically have been relatively marginalized and punished during the COVID pandemic.
- The Fed’s ostensible hope is that by letting inflation run hotter as the job market recovers, while suppressing interest rates for longer, the economically disenfranchised will benefit more.
- We know that these new policy directions, with the promise of zero-rate policy for as long as 4-5 years, will only ensure an ever-greater economic and balance-sheet disparity, which is the true intention all along.
- These new Fed policies will primarily help the income-generating asset owners at the expense of those it says it is claiming to want to help. The more of these assets investors own, the wealthier they will become.
- Over the next few years, asset prices will begin to lose their moorings. Already, with respect to tech stocks, P/E and P/S ratios have taken a back seat. Investors are willing to pay up for the firms that benefit from this NWO dystopia.
- For those who are under-invested in real estate, this winter may provide us with the last good opportunity to buy before we enter a rising second derivative phase. Cap rates still make sense, but they should begin to gradually move lower as was the case in the mid-2000s.
- The catalyst for the last RE bubble was the result of the Fed’s response to 9/11; another manufactured crisis. This one will be the result of the Fed’s response to COVID.
- The Fed’s initial response to this latest crisis will allow the other central banks to maintain their dovish policies, and this should help keep the USDX from falling much further. If the dollar falls too much and its viability is in doubt, many overseas dollars will come back to the US and find its way into USD assets as well as the CPI. This will only be the case if the USD softens up versus the other currencies.
- The difference between this new speculative cycle and the one established under Greenspan in the wake of 9/11 rests with the growing concern over the USD’s viability as the global reserve. This may mean that global investors may find USD-based assets cheaper than do the people in the U.S. This would imply that the working class will once again be shut out of opportunities to buy homes and stocks.
My estimates on how high residential real estate prices will move
- Several years of dovish Fed policy will result in another round of stock, bond, and real estate bubbles. Currently, we are in the earliest innings, and I would advise those willing to take the risk to invest as prices should move consistently higher.
- The median price of a home sold in July rose 8.5% annually to $304,100.
- If over the next few years the Rent CPI index value moves to 260 on the above chart, and the HPI overshoots Rents CPI by 34% like in the mid-2000s, we could see the HPI index value at 348. This would equate to a median home price of $383,303. [(348/260) x $304,000]. If rents move higher under an inflationary scenario, house prices could move up more than anticipated. Based on trend rent increases, this would mean prices rising by another 26% nationwide over the next four years.
- Homes priced on the lower end performed much better than those on the higher tiers. This will continue as the working class swells with open borders and investors take over the sector. I would expect these homes to move up more than the 26% I estimate nationwide. These values could rise as much as 35% or more over the same time frame.
- Anyone with a 20-25% down-payment would more than double his money under such a reasonable scenario. This doesn’t include rents.
I sold much of my real estate portfolio in late 2005, because cap rates dropped to about 3.5% on my condominiums and 3% on detached single family houses, while at the same time, the Fed began to embark on highly hawkish policies.
These same condos currently yield about 6.8% (down from their norm of 7.5% and 14% at the bottom of the market last decade). These same houses currently yield 6%, down from 8.5% at the market bottom.
If a condo that sells for $200,000 has a cap rate 6.8%, a 3.5% rate would imply a price of $388,571. If a house that sells for $300,000 has a cap rate of 6%, a 3% cap rate would imply a price of $600,000.
While every market is different and the price points will vary, the overall results will be the same; higher prices.
Stock prices continue to move higher
I stated in the past that Dow 40,000 is a definite possibility over the longer-term, and if the current Fed mindset prevails over the next few years, we could easily see upside of another 13,000. This would equate to Dow 41,000. While this may sound remarkable, it only means a compounded 10% return for the next four years.
Unfortunately, the Dow is quickly becoming an irrelevant index, and thus I tend to concentrate on the S&P 500 and Nasdaq COMP. The Dow is price weighted, and the stock selection process has now become more subjective, arbitrary, and politically correct. I offer this prediction, since many subscribers ask me about the Dow.
The COMP is up 394% over the past 10 years, and if this same return were afforded the DJIA, which is up “only” 166% over the same span, then the Dow would be about 39,400. [10,016 on 08/31/10 x 394%].
Barring a nuclear takeout of Washington DC, higher stock index numbers are coming. As for the S&P 500, we are much more likely to see 4,000 before 3,000. Since we are already trading at about 3,500, the intermediate bias is to the upside. Moreover, the S&P is the second major index to move higher than its pre-COVID high. The lagging Dow should eventually overtake its current historic highs, but by then the Nasdaq and S&P could be much higher.
Please note that while the Fed-injected liquidity has provided a powerful upward force for stocks, the PE ratios of the S&P 500 have not risen nearly as high as the underlying stock prices. By function, a monetary system that supports and encourages the massive deficit-spending we have been observing is a “trickle-up” mechanism.
Understand this simple process; the money for these massive social spending campaigns is received by the masses, who quickly hand it over to the largest and most powerful firms, which only further strengthens the elite’s positioning over the unwashed and reprobate plebes. The elites control these firms and eventually capture all this spending as profit. At the same time, the impulsive and spendthrift proles are left nursing the debts. This necessitates more deficit spending to mollify the great unwashed who, in turn, spend the money like it is burning a hole in their pockets. The wealthiest are able to capture this money the most effectively, which is why I refer to trickle-down economics as trickle-up reality.
You can also stop using the Buffett Indicator as a gauge for a stock bubble. The Buffet Indicator is just the ratio of a country’s stock market capitalization to the overall GDP of the country. Through this four decade trickle-up reality campaign to enslave humanity, the S&P 500 has become the U.S. economy.
If these disenfranchised youth really knew their real adversary, they would be burning down the Marriner S. Eccles Federal Reserve Board Building in Washington D.C. But the masses will never be able to make the connection, and in fact, are no longer capable.
For the investors who are being distracted with their daily IV drip of race riots, police brutality, COVID, political kayfabe, and Zerohedge, they will miss out on the final once-in-a-generation opportunity that could last a few more years. This opportunity should last as long as the Fed maintains its current stance, which will enable all the central banks to embark upon asset-friendly policies. While most of the middle class will be financially wiped out over the next several years, for those who understand the Fed and its owner’s real intentions, this is a time to move forward and make hay while the sun shines.
The seeds for the ongoing social unrest have been intentionally planted in the minds of the unwitting young folk by the corporate MSM, their rigged social media, and their Marxist educational conditioning. Many of these willfully ignorant sad sacks are finding it increasingly difficult to reconcile the cruel real-world reality with their Marxist ideological fantasy. If these disenfranchised youth really knew their real adversary, they would be burning down the Marriner S. Eccles Federal Reserve Board Building in Washington D.C. But the masses will never be able to make the connection, and in fact, are no longer capable.
At the top of this pyramid is the ongoing dovish Fed monetary policy, which will enable this massive new wealth to trickle up to the hands of the wealthiest. If you are to keep your head above water, it is still not too late to speculate.
When I see things turn, I will let you know.