2/28 Update – Housing and stocks; If you think we are in a bubble, just wait

To download the podcast – Right mouse click here (duration 31:48; 3:30pm)

-Let’s not forget that we are still operating under a post-2008 monetary system. Despite concerns of nascent inflationary pressures, I see little chance of it really overturning the current system. All this debt for the social largess will have to be serviced and will provide the deflationary millstone required for this wealth consolidation scheme to continue.
-A too high percentage of investors are worried about inflation; if the Fed wanted, it could nip it in the bud. The Fed only has to come out and say something and the push in higher bond yields would halt. All this debt of $1.9 trillion in new stimulus will remain for future generations.
-A discussion about who really benefits from social spending.
-U.S. real estate prices are still very inexpensive. I lay out all the reasons why housing prices will still continue moving north; not just here in the U.S., but the rest of the world. Below are two tables that show house price affordability ratios around the world.  There is still room for house prices to expand here substantially.

Please click table headers to sort

Housing affordability by country

 

Housing affordability by city-state

-Sort the data on these two charts. You will see how cheap U.S. housing is for its residents. The demographics of open borders, reparations, massive social largess are only going to raise prices even higher.
-Once stocks overcome the problems we are seeing with the ostensible Fed ignorance, prices will move higher.

Weekend market update; A change in the narrative and the bond, stock, and crypto markets

To download the podcast – Right mouse click here (duration 24:54)

-There are a number of firms that clearly receive the blessing of the Synagogue of Satan;

  • Microsoft in the 1990s; In the wake MSFT’s monopolistic practices, MSFT was still allowed to continue to grow at the expense of its competition. I think how it put Wordperfect and Netscape out of business, even though MSFT had inferior products.
  • AMZN; It was allowed to burn through tens of billions in cash at low cost in order to rewrite the retail and server markets. No anti-trust action from the Trump regime.
  • TSLA; Allowed to stay in business after burning through $50-60 billion in cash and grow, so it could rewrite the auto manufacturing industry. It single-handedly forced the entire industry to shift to electric and zero emission fuel cell.
  • Robinhood; Forced the entire broker/dealer industry to move to a zero-commission environment, so the PTB could attract more money to the stock market and engage with the poorer and younger plebes who could pretend to run their own hedge funds from their mother’s basement.
  • Netflix; Despite what I think to be a poor business model (depending on a shaky subscriber base), NFLX has been able to raise tens of billions in cheap financing to grow and build out a program library that is, in many regards, of inferior content quality. NFLX is promoted heavily by the MSM, and its programming is continually discussed in the MSM. NFLX now promises to be FCF positive over the next 12 months. Any other firm would have already been out of business, but not NFLX. That’s because NFLX produces the most filthy, vile, and demoralizing programming available. Since there is a limited amount of space on the cable channels, all this filthy and evil desensitising programing finds a home on NFLX streaming.
A change in narrative and the bond, stock, and crypto markets

-In addition to keying in on certain firms to help me figure out the narrative’s direction, I key in on certain institutions. While the WEF comes to mind in this regard, I pay more attention to what Johns Hopkins says than any other university in the world. Johns Hopkins has received billions in funding and donations (Michael Bloomberg gave well over $100mm alone) and as this total rises, the level of propaganda it spews rises as well.
-I mention this about Johns Hopkins, because they are now saying that the bogus COVID crisis may end by April.  Johns Hopkins expert says COVID-19 pandemic could end by April.  I know of people who have died and their obituaries stated they died from Covid complications, although they did not.
-I have observed the change in the manufactured narrative to coincide with the rise in vaccinations, and the period after the US presidential election. The livestock will conflate the two as a direct result of one another. Thus, the remnant Christians and anti-vaxxers will be viewed as evil and behind the times.
-The bond market is already responding to this narrative change. Bond yields and inflation are rising. While CPI data have been producing trivial increases, this past week’s PPI and Import/Export prices tell a different story. The Fed’s and Yellen’s willful ignorance is not helping matters.
Oil shares: The shares of the most poorly capitalized oil firms are rising as many of the investors holding their convertible debt, and short to hedge, are now reversing course and covering. This has supported these oil shares.
-As bond yields rise, we are observing a shift from the most speculative stocks (the ones we have been trading) to those with a value proposition (e.g. XOM, T). This is to be expected when rates rise. Dividends and earning matter in a land of higher bond yields. This is why I am a seller on rallies with the former stocks we discussed, rather than a buyer on dips.
-Crypto miner mania is hard to ignore and pass up while btc continues to climb in price. I am long a few of the miners for a trade.
-Imagine what will happen when Visa, MasterCard, and PYPL get involved with crypto mining. These penny stocks will go to zero, as no one will be able to compete with these deep-pocketed miners.
-Janet Yellen is the latest puppet dispensing the same trite talking points that all the other puppets say about bitcoin. Yellen says investors should be very careful with some sectors, calls bitcoin ‘highly speculative’. While these authorities give perfunctory warnings, they do nothing about it.
-I observe that the governing authorities are all talking the same story line. Whether it’s the US, former Commonwealth, or Europe. The results are the same. I picture a scenario where these cryptos will be allowed to run to the point where they will pose an existential threat to the nation states. At that point, the nations will all have to band together to deal with the crypto issue.

2/15 Update – Bubble talk; Zerohedge more effective than Soviet-era propaganda

According to ZeroHedge, only gold prices can rise

I came across the latest Zerohedge housing bubble propaganda piece titled, U.S. Home Prices Pass 2005’s Peak Level, and it got me thinking about how long Zerohedge has been at it, detering and demoralizing most of my readers and those who should be out there, relying on themselves to earn more income on their own. 

With its continual tweets like “Millions Of Texans Freeze As ‘Grid Chaos’ Sparks Massive Rolling Blackouts,” ZeroHedge has proven its worth in spearheading the anti-West demoralization campaign of the post-Soviet era. Gone are the days of Soviet TASS, or Soviet-era Pravda. In this age of ubiquitous social media, ZH is much more effective in spiritually weakening its readers.

If we are part of the resistance, shouldn’t we be trying to empower ourselves to earn as much money on our own terms? I would say so, which is the only reason why I have my blog in the first place. I try to help the propagandized remnant to overcome their collapse brainwashing and learned helplessness.

Prepare for His imminent return, but what happens if we err on the timing?

It’s so sad to also see how the compromised alt-Christian media have duped their followers for at least the past 20 years into believing of an imminent economic collapse and rapture (I recall the 2012 hoax). Most of the remnant Christians have not properly prepared for the arduous road ahead as they threw up their hands and walked away.

Many of these propagandized alt-Christian victims tell me I am sending my readers to hell, but I soldier on anyway. I have nothing to gain from any of my output. I don’t even want your donations.  I don’t need them as I tell you exactly how I am making my own money. Nobody else is doing this.

A stark warning to my readers

Be prepared for the most likely outcome; I am the only financial expert in the remnant who has been telling you that this current system, a new one formulated in the wake of the manufactured 2008 collapse, will be slowly transformed into the desired outcome.

Moreover, I have been warning the reader to wrap their minds around the thought that we do not need another economic collapse until after the time of tribulation is already underway. The whole time, the demoralized remnant will watch in disbelief as the world gets richer and they get poorer. This is not because they studied to the Bible, but rather because they were lazy and fearful and listened to the disingenuous shilling of the Judas-goat alt-financial media and the alt-media charlatans. Few of these alt-personalities have any formal economics training, let alone a deep understanding of the Conspiracy like we do.

Beware of wolves in sheep’s clothing

Getting back to the above referenced article; even ZeroHedge’s writers mislead on the title as the National Association of Realtors proclaim that home prices in the fourth quarter have risen at the fastest rate since 2005. According to Case Shiller, home prices eclipsed their former 2005 highs almost five years ago.

This latest piece of ZeroHedge anti-West propaganda is designed to demoralize and nail the coffin shut on trying to empower you to look for a way out of the system. Imagine being a person who is not well versed with statistics and data, and has relied on this anti-West propaganda and shilling for the past 12 years. That coincides with ZeroHedge’s formation. It’s a funny thing about coincidences with the March 2009 S&P low of 666.

I used to be able to pull up a plethora of ZeroHedge propaganda articles from about five to six years ago regarding the demise of the Western monetary system and the housing market in particular, and my Google searches always yielded a ton of evidence. But this time around, I noticed that ZeroHedge scours its website of its past. Google will yield up some search results, but when the links are clicked I receive a “404” error message, indicating the link has been removed.

Perhaps, too many people are getting wise to the propaganda placement of ZeroHedge. Or perhaps, too many people read my stuff and realized that ZeroHedge has not been the trusted ally they once thought. I do scan the ZeroHedge Twitter feed under a pseudonym, since they blocked my  @chrispirnak handle, and see that their following has been exploding in size. The vast majority of these people have become addicted to the propaganda that ZeroHedge dispenses on a daily basis to its unwitting subscribers.

With its continual tweets like “Millions Of Texans Freeze As ‘Grid Chaos’ Sparks Massive Rolling Blackouts,” ZeroHedge has proven its worth in spearheading the anti-West demoralization campaign of the post-Soviet era. Gone are the days of Soviet TASS, or Soviet-era Pravda. In this age of ubiquitous social media, ZH is much more effective in spiritually weakening its readers.

If Bloomberg, CNBC, and MarketWatch follow ZeroHedge, and frequently refer to it, it’s safe to say that it is not there to help you.

2/14 Update – A response to a reader; Is trading and speculating a sin?

Do you consider stock trading to be gambling? Do you think gambling is a sin? (I do, but only when i lose). Have you ever made big mistakes?

The thing about gambling is you’re a genius when you’re right and the biggest fool in the world when you’re wrong.

H

Here is my response.

With regards to your concerns over trading and gambling; I often get asked this question. Is trading a sin? Is speculating a sin?

Here is what I have determined, and this takes my understanding of the monetary and financial systems into account. It also incorporates the underpinnings of our social policies as well, and how they are funded. Social benefit recipients, please take note of this conversation.

The short answer is “yes,” but….
Despite what we hear or think, there are no essential differences between the two

The short answer to your question is yes, but we all engage in it, or are benefitting from it in a number of ways.

What is the difference between holding a stock for 10 minutes and hoping to profit, and flipping a piece of real estate? How do we categorize investors who spot real estate opportunities to profitably buy and sell within 24 months? How about if they specifically hold it over the 12-month minimum to benefit by paying less in taxes, since it is now considered long-term cap gains? What is the difference between this type of speculation and one in which we hold for an hour?

Is there a rule in the Bible that states thou shalt not speculate short-term? Of course not. Everything is playing the odds, especially in buying assets; Even those who profess to be Godly will buy gold and silver to speculate under this monetary system hoping to profit from a collapse. What do we hear from the gold shills all time time? We can buy for easy gains as they gamble that the PTB are losing control.

I know I may be rationalizing, and I do understand that on some level, we do gamble. But, I know when to speculate and trade and when to sit on my hands. I think of it as a business and a way to fatten up my cash portion of my personal balance sheet. But the PTB who have shackled us to this monetary system make it a necessity to do so.

Every time we invest; whether we buy stocks, bonds, real estate, PMs, farm land, or cryptos; and regardless of the holding period, we are speculating for gain. Somebody may tell you otherwise and pretend not to be speculating, but he or she will gladly take the gains when they accrue.

We are now a nation of speculators; regardless of our time frame

There are people out there reading this who think I am a hypocrite, but will gladly take their capital gains in gold, owner-occupied real estate, or bitcoin, and pat themselves on the back for making large profits. But these same individuals will look down on day traders with disdain. If they truly wanted to be righteous, perhaps they should kick back their capital gains to the person from whom they initially purchased their assets. I am sure they wouldn’t.

It’s all essentially a gamble. I have two crypto trading accounts and they went up about 20% since Friday. Is it a sin to gain from that? If we impute any morality into the equation, we would have to stop buying everything.

Many traders and speculators do not find it gambling

Okay, do not take this trading stuff personally. Do not attach any emotion or morality to it. If you do, that is a one way ticket to losses. It’s better off to never engage in it. I never feel like a hero or loser. I get frustrated if I deviate from my algorithms and lose; for rarely do I gain if I deviate. That to me is gambling, and if we view it as gambling we are doomed to fail, because the house always wins. It took me 35 years to get to the point where I am at right now. I look at it as if I am just drinking a cup of water from a spring-fed stream.

As for those who benefit from government largess, I have one sobering concept to add here. The government ultimately always wins with all these speculative gains, because while our gains may just be keeping up with inflation, the tax authorities always get their cut. This is why I like real estate; I get to keep more. Regardless, the governing authorities encourage profitable speculation, because these tax jurisdictions increase their tax revenue.

The worst trading mistake I ever made was when I lost about $25k in one trade in early 2001. Now, that may sound catastrophic, but taken in the context of gaining about $500k in day trading profits during that 12-month period, I was able to put it into perspective. My account started out with about $5,000 in 1998.

I look back and consider that initial profit as a Godsend, because it led me down the path to financial and spiritual self-sovereignty. I quit my job in 2001 and began my spiritual journey, which continues today. For the first several years, the road was very arduous and lonely, but without these initial gains, I would still be toiling away on Wall Street in total ignorance of the truth. I would be essentially one of the many billions of lost souls, doomed to perdition.

2/12 Update; How much time is left?

Hi Chris,

How much time do we have left?

S

Use this opportunity to get our financial houses in order

This is a great question, and while nobody knows for sure, we can contemplate some probable outcomes.

There are a number of trends I am tracking. Let me enumerate a few:

One: The artificial suppression of interest rates for this prolonged period of time is allowing us to make as much money as we can before the plug is pulled. I do not know how long these propitious opportunities will last, but the Fed has indicated it intends to keep this dovish policy intact for a while.

I have decided to keep my trading profits as liquid cash reserves for any future uncertainties.

As long as inflation poses no imminent threat, we should find ourselves with this auspicious period to make money and build up a balance sheet.

Once inflation begins to rise beyond any comfortable range, I would suggest we unwind our trading positions and liquid investments before everyone else does.

Two: The manufactured covid narrative still poses a potential distressing time for us going forward. I am still of the opinion that this crisis will continue to for an extended period, and that the calls for vaccinations will grow. While we may never be forced to receive the multiple doses of vaccines the governing powers are contemplating, we may never be able to travel and do many of the things we once viewed as normal.

As time goes on, and as this manufactured covid crisis progresses, there will be greater calls for us to all take whatever vaccines are mandated. Those who do not take these mRNA vaccines will be considered outlaws and impediments to returning the world back to normal. We will be bullied into submission. Social media is a great tool for the NWO engineers.

Unfortunately, the world will never return to its former self. The PTB have other objectives in mind, and remnant Christians and anti-vaxxers will not be welcomed as participants of this new utopia.

Three: Instead of crashing this current monetary system as many fear, I expect the NWO architects to continue transforming it gradually into its desired outcome. Crashing the system would only awaken people and that is not what the PTB have in mind. The system is durable enough to accomplish the task.

It will be a track-and-trace system based on blockchain. No physical currency, cash, gold, or other assets will be allowed to remain outside this system. In order to use these assets, we will have to register them on the blockchain.

Obviously, any future system will incorporate all of the blockchain aspects and elements that I fear will be used to achieve these goals. While there is no need to collapse this system and disrupt its ongoing transformation, if there is a greater than expected pushback, the elites can just contract credit and collapse the world as we know it.

Based on the degradation of humanity over the past generation, I doubt there will be much resistance to this ever-evolving outcome. A Godless generation will prefer whatever the elites have planned, because it will reward slothfulness.

Four: There is still a lot of work to be done for the elites to achieve their Agenda 2030 goals. I submit that low cost of capital formation is needed to make this a reality in the timeframe they contemplate. If interest rates spike, not only will asset prices across the board decline, but the timeline will have to be pushed out as the commercialization of the needed technology will slow down.

Thus, if inflation or other exogenous factors  impeded these objectives, the elites will just manufacture another crisis. If you doubt their ability to conjure up one, keep in mind that they manufactured 9/11 and the wars based on that lie, the housing bubble that caused the 2008 collapses, and the covid scam of 2020. It really isn’t that difficult to formulate another crisis, given that the population is amoral.

If the elites begin to lose their grip on the direction of their agenda, they can always pull off another armed international conflict. We can never discount anything.

Conclusion

Given the above observations and taking into account the publicly announced timeline for the next phases of the new world order, I suspect we have a few more years left. Please use this as our one last opportunity to fatten up the balance sheets and develop a lifestyle in which we do not have to rely on others for income.

Ultimately, we will all have to pledge our allegiance to the new world order; but for those who can support themselves financially, mentally, spiritually, and medically, they will be able to survive longer than those who are in poor health and depend on an employer or the government for survival.

Please, get your heart right with God as we move forward, and depend on him for what you need. We will need him more than ever before. I wrote this article as this matter was laying heavy on my heart.

2/11 Update; The key to profitable speculation; Always test and question your assumptions

To download the podcast – Right mouse click here (14:20 3:00pm)

-Operating under the right set of assumptions is the key to long-term trading success. Knowing why an asset is moving is the key to a proper trading response.
-It is impossible to trade successfully with a preexisting confirmation bias.
-I observed that during yesterday’s mid-morning flash crash, every asset class dropped. That provides a clue as to what we may expect the next time we see a correction.
-I have received many emails and such asking me about commodities. My response is the same here: All asset classes have moved up remarkably well.
-All asset classes are now in sync and are incumbent on continued Fed action. Don’t mistake the upswing in commodity prices as a litmus test here for USD doom. This action is being intentionally injected by recent Fed policy.
-This is important to understand, because if the Fed reverses its course in any way, look out in all asset classes, especially commodities. Don’t hold to a confirmation bias planted by ZeroHedge that says the dollar is toast. That is a one-way ticket to poverty and massive losses.
-Know when to pull the trigger for profit.

2/08 Market Update – Important observations regarding a market primed for a reversal

I have been observing the ongoing financial market distortions in the wake of the manufactured covid crisis, and I wanted to relay my interpretations of the data and trends that I intend to take advantage of in the coming weeks and months.

I have included two charts that illustrate what I am trying to show to the reader. Please click the charts to enlarge.

Red/green candles, 10-year breakeven inflation rate; Purple, UUP (US Dollar Index Bullish Fund)

The above chart shows how the USDX (UUP:NYSE) has fallen to the low end of its three-year support. The reasons here are very simple to understand. The US Fed has engineered a collapse of the UST yield curve in the wake of covid, yet has allowed domestic inflationary expectations to run hot. As domestic inflation has run hotter than elsewhere in the developed world, the USD’s appeal has waned, given that its correspondent short- and longer-dated yields are remaining intentionally suppressed. Why own the dollar if its real yield is lower than elsewhere?

The Fed’s publicly announced intention was to allow inflation to make up for lost time and that it would force inflationary expectations to move higher for an extended period. As we can see on the chart, the TIPS spread and inflationary expectations have moved higher, and am growing concerned that it has moved higher than even the Fed thought.

What does this mean? I have to believe that if the covid dilemma wanes over the next several months, the Fed may have to begin removing some stimulus earlier than initially forecasted. I have to believe that this is why we are seeing a floor here in the USDX as those who have been short and bearish on the USD are beginning to reassess what I see.  I find it difficult comprehend that the Fed will allow their current monetary policy to continue unchanged for another year, let alone two.

Okay, what does this mean for the markets overall? Let’s take a look at the next chart. Please click to enlarge.

(Right axis) Purple, Nasdaq 100; Light blue, S&P 500; Red, DJ Commodity Index; Red/Green candles, 10-year breakeven inflation rate; (Left axis) White, 10-year UST yield

It is clearly evident that the collapse in breakeven inflationary expectations, as well as the sharp drop in the 10-year UST yield, corresponded directly to the rise in the Nasdaq 100, S&P 500, and DJ commodity index. We can see from the first chart that the USD, after its initial bump up when covid hit, has taken it on the chin. Based on its reactionary behavior, I believe the USD’s weakness here has less to do with global politics and much more to do with the Fed’s current policy.

I feel it’s very important to show some people what I am looking at here, and I will go out on a limb to make some intermediate-term market predictions.

  • The charts and sentiment are telling us that the USDX has found a floor here, as an increasing number of traders are contemplating that sooner, rather than later, the Fed may have to act to rein in inflation. The Fed may have to speed up its timetable.
  • If this is the case, any dollar-bearish trade will be in jeopardy. This includes the commodity bullish trade, as well as the near-term speculation in stocks.
  • The market pretends not to concern itself with round numbers, but it’s obsessed with them. I think we can begin to see a pullback as the S&P 500 takes on 4,000.
  • I would be concerned that the Fed may have to begin looking at a modification of its policies. This may initially translate into a change in the Fed language at some point that will be sooner than the market expects.
  • After a change in the Fed’s language, they may have to begin to rein in agency-backed mortgage purchases. The Fed needs to keep the USG in business, and the last part will be a reduction in UST buys.
  • The last change in Fed policy will be for an increase in the overnight rates.
  • If the Fed begins to engage in anything considered hawkish, we will see stocks, commodities, and bonds fall in value. The USD will rise, which will hit the monetary metals and, dare to say, bitcoin.
  • This is not a change in the overall trend, but rather a reversal on the way up. I am especially concerned about commodities as I doubt we are yet in a commodities supercycle. These commodity markets are probably the most overstretched I have ever seen, and if we see the speculative money come off the table, these commodity markets could get hit very hard. When everyone is this bullish, I have to take the contra.

Believe me when I tell you this. The Fed can easily say that the covid vaccine campaign is moving along well and that the world is getting back to normal more quickly than they thought. If inflation continues rising much higher here and the inflation gauges (like the TIPS spread) do not stabilize, the wheels could come off the wagon on QE, and the Fed still has it within its grasp to tamp it down.

With this said, the longer the Fed goes without a change to its current policies, the higher asset prices will rise. The longer the Fed waits, the worse the downside will be when it happens.

2/06 Update – Gold vs. real estate; Which one has been a better investment since 2002?

A sobering tale of two investors from 2002

the answer to your query “why do people still listen to him?”

Peter Schiff always emphasises the long view. Someone who actually did what he’s advised for the last couple of decades = bought and held physical gold and silver = is several times better off in purchasing power, than they would have been investing in just about any other asset you can name.

Mr Schiff’s advice is about true investment, NOT speculation
it is edifying to read the comments from viewers on the live feed when Peter Schiff is doing his “act”, from many, many many ! guys thanking him for making them rich by following his advice

Gordon

Let’s see who is the clear winner

Let’s for simplicity sake, say we had two investors in 2002, and both contemplated where to invest $25,000 (BTW investor two is me and the summary below represents my actual experience);

Investor one; This person listened to Peter Schiff in 2002 and bought $25,000 in gold bullion. Let’s assume he purchased 100 1 oz. gold coins selling for $250 each. He holds them to this day.

Investor two (me); Purchased two single-family rental houses with $25,000 out of pocket using two, 90% loan-to-value mortgages.

Please note that they were cash flow positive from day one and no additional money was injected into these investments. The rent paid the mortgage. Since these are long term investments, we don’t have to be concerned with disposition and can ride out any real estate cycles.

Let’s look at what happened to investor one, the gold owner:

I am sure he is happy and will tell his friends he made a 630% total return on his money. Of course, he doesn’t generate any income off his gold holdings, but he is content. He advises others to do the same as he did.

Since we are in post 9/11 world, he must eventually claim his gold sales and will have to pay a sizeable cap gains tax, unless he wishes to will his holdings to his heirs. Of course, he can take his chances when he sells and hope no one figures out he’s a tax evader. He can leave his holdings to his heirs where they can enjoy the stepped-up cost basis as of the day of his death. Other than that, there aren’t any real tax benefits to owning gold, and in order to do anything with these holdings, he will need to declare them to bring them into the system.

Let’s analyze the returns experienced by investor two regarding the two rentals he bought in 2002 and still owns:

Yes, you read these numbers correctly.

Indeed, 2002 was an auspicious time to get involved with both real estate and gold, so we are comparing apples to apples in this instance. But in reality, investor two has returned much more than 2,800% on his original $25,000, because he enjoys a bundle of tax deductions and now generates taxable passive income of about $30,000/year. Moreover, this investor intends to leave these two properties to his heirs. The heirs will benefit from a stepped-up cost basis, which is the market value at the time of investor two’s death. Investors are also allowed to exchange properties tax-deferred, which is why real estate wealth tends to be passed on from generation to generation. It’s easier to avoid paying capital gains taxes than with any other investment.

Of course, investor two generates more in income each year than his original investment. Moreover, he can leverage these assets to buy more properties or tap into for spendable cash. Imagine owning over $700k in real estate that generates over $30k a year and only cost this investor $25k in 2002.

I do recommend holding physical gold for one important reason. It is an unencumbered asset that we hold outside the system. It is a hedge against lawsuits, incarceration, acrimonious divorces, and government liens and other judgements. It truly is something unassailable. I recommend holding up to 10% passively for emergencies and as “startover” funds, but if we hold more than that we suffer terrible opportunity costs.

Unfortunately,  in the post-911 world, holding cash, gold, or bitcoin comes with potential problems. In order to use them we need to bring them into the system, and whenever we do we start an auditable trail. Basically, owning physical gold is not as advantageous as it was in the 1990s. According to the Patriot Acts, investors who own assets outside the system are now viewed as potential enemies and will be treated as such. Your banking institutions will always view you with suspicion when you bring new assets into the mix. Since these banks and brokers have a legal obligation to “know your customer” they will report anything amiss to the US Treasury and DHS.

If you are honest to your depositing institution and tell them your money was derived from gold sales, you now just admitted to engaging in reportable transactions and the IRS will now be included in the mix, especially if you failed to file them on your tax returns. There is no grace period on anything that is deemed to be a wilfull failure to file transaction.

Real estate investors also shield themselves by holding in single or multi-member LLCS. Multi-member LLCs holdings are generally impermeable to attachment from the nonrelated affairs of a single member.

I think we know the clear winner here.

2/05 Market Update; The Fed’s willful ignorance is my primary concern

I came across an article from today’s edition of Barron’s titled, Home-Price Surge Says Inflation Is Real. The FedClings to Illusion It Isn’t, and it got me thinking about the current landscape of the financial markets. (I include a version below as the article is behind a paywall.)

Home-Price Surge Says Inflation Is Real. The Fed Clings to Illusion It Isn’t. _ Barron's

 

But when asked about the housing market—specifically, the jump in prices and what pace of increase might induce a change in the Fed’s $40 billion monthly purchases of agency mortgage-backed securities—[Fed Chair Jerome] Powell demurred from connecting the two.

He called the double-digit annual surge in home prices a “passing phenomenon” related to the pandemic. “There’s a one-time thing happening with people who are spending all of their time in their house. And they’re thinking either I need a bigger or I need another house, and a different house. Or a second house, in some cases. So there’s a one-time shift in demand that we think will get satisfied, also that will call forth supply. And we think that those price increases are unlikely to be sustained for all of those reasons.”

Home-Price Surge Says Inflation Is Real. The FedClings to Illusion It Isn’t, Barron’s, February 5th

A chart is worth a thousand words

In a linear environment, if we were to look at the chart below and plot the differences between the 30-year conforming mortgage rate and the 10-year UST yield, I would see nothing amiss. Indeed, the Fed engineered a collapse in the 10-year UST yield during the onset of the COVID crisis, while the drop in mortgage rates were more muted. In order to narrow the differences between the two rates, the Fed embarked upon a $40bil/month MBS purchase campaign that persists to this day.

Once these initiatives were announced last March, I predicted house prices would begin to rise much higher than expected, regardless of missed rent payments and financial blood in the streets. This seems to be coming to pass. (Please note that I suspect that the Fed also knew this would be the result, and was hoping to goose house values, so that people would have an asset into which they could tap to help spending and adjust to the new normal.) 

The TIPS spread compares the yield of the Treasury Inflation Protection Securities (TIPS) and the yield of regular U.S. Treasury securities with the same maturity dates. The difference between the two is that the TIPS payments adjust for inflation, while U.S. Treasury payments do not. The TIPS spread is an indication of the market’s outlook for inflation. Therefore, the TIPS spread has a high influence on investors’ expectations and opinions of the market economy. If the TIPS spread is wide, this means that investors have high hopes for the security, and inflation is expected to rise significantly.

As we can see from the chart above, the yield spread between the 10-year TIPS and the regular 10-year UST (green line) is at the high-end of the 10 year range. It currently stands at 2.19%, and the direction of movement is what I find troubling.

The second most concerning aspect of the data here is simple; the yield on the regular 10-year UST (red line) is far below the TIPS spread and inflation expectations (green line). A difference this large does not persist for lengthy periods and will eventually have to return to the normal range. How that returns is something we need to contemplate.

The Fed can’t continue supporting the UST and the MBS markets with massive ongoing purchases, while letting inflation continue moving much higher with UST yields this low. The non-inflation yield of the TIPS is stuck at -1% and this simply cannot persist forever.

As the Barron’s article points out, the fed’s willful ignorance may prove costly if the Fed refuses to acknowledge that inflation is becoming a problem.

What if the Fed grows concerned about inflation?

I try to stay one step ahead of the crowd here and if the Fed starts to voice its concern that inflation is becoming a concern;

  • UST yields will rise here as will the mortgage rates, regardless of Fed purchases.
  • This will then cause the world to bid up the US dollar as domestic interest rate and bond yield differentials prove too tasty to pass up.
  • This will in turn, cause pressure in the overnight lending markets, which will have to be addressed by the Fed. The Fed may have to shorten its timeline of zero rate policy.
  • This will, of course, put tremendous pressure on stock prices, too.
  • As for real estate, I can’t make a dire prediction yet. The genie is out of the bottle and inflation has a way of boosting house prices even if mortgage rates rise. Furthermore, There is still some wiggle room for the 10-year UST to rise before mortgage rates rise in lock step.
  • This much is certain, The Fed needs to address inflation as the 10-year expected rate of inflation or the TIPS spread is almost as high as the 30-year mortgage rate.

The Fed cannot remain wilfully ignorant here and if it refuses to act properly, we will continue to see a run up in asset prices until it’s too late. We will then get another down cycle in asset prices like in late 2018. Anyway we slice it, the S&P 500 is close to 4,000, so a correction wouldn’t be such a bad thing. I am betting that it will be caused by Fed policy.

Of course, we may get another manufactured crisis, which will just solve the Fed’s dilemma without having to do anything about rising prices.

2/04 Update – A response to a reader; How our theories work in the real world

Debt is the deflationary part of QE; income-generating assets help us stay ahead

…The alt financial media seems to fail to ever mention in their analysis that total outstanding debt (public and private) still dwarfs by many magnitudes the number of dollars in existence capable of servicing that debt, which is deflationary. This means there is still a lot more money printing to be done to solve the debt trap dilemma, and perhaps it’s no solution b/c every dollar printed requires a dollar of debt to be created. This is why even more US debt is needed, to create enough dollars to service debts both public and private (i.e., the hamster wheel).

The irony seems to be that the money printing does not actually find its way into the hands of debtors to service that debt, but rather into the hands of speculators to enrich themselves further.

All the money printing (which creates debt as a condition of the money printing, which maintains the deflationary debt overhang) appears to gets channeled into asset price appreciation, which does not improve the velocity of money, which is necessary for a robust economy and any possibility of consumer price inflation.

For some reason, these shills seem obsessed with the magical quality of gold as the sole hedge against money printing, but fail to notice that stocks are also an asset. All the price inflation that could be caused by the money printing is largely being directed into stocks as the appreciating asset that benefits from money printing, not gold etc. It’s the reason why the market rebounded from the 2020 covid sell off and why any further dip will be bought….

TSE

It is all very straightforward and logical
This all fits together like the game pieces in Tetris

The alt-finance world seems to think that both the debt and monetary printing are inflationary; they like to have it both ways. The debt, however, is very deflationary. The net result is that we have disinflation.

As the reader points out, the velocity of money continues to decline as aggregate economic potential is further devoted into servicing the ever-rising levels of old and outstanding debt. It doesn’t even matter what the prevailing interest rates are, as long as the principal balance continues to climb, economic potential falls. This means the velocity of money will fall, too. While the velocity in and of itself doesn’t mean much to us, its falling measure is a verification to our theories at work.

I read the stuff coming out of GATA and they seem to think that it’s “heads they win and tails they win.”

The theories we discuss have seemed to work, at least for the past 10 years. Of course, it is incumbent on the elites using their MSM to properly market QE to the masses, and they did a very effective job. If they didn’t, interest rates would have risen while asset prices would have fallen.

I was confident enough with my theories to relay them to my shortwave show listener and the readers of my blog. I was able to make large long-term financial decisions. We’re not talking about short-term trades here, we are talking about redirecting our mindset for large-scale investment decisions to change our lives for the better. Life is hard enough and if we have to concern ourselves with paying monthly bills we will never be able to move forward in this distracting world.

The manufactured 2008 collapse was the catalyst for a new monetary system

The collapses of 2008 presented the world with an existential dilemma. Essentially, the world economy reached its debt limit under the old system as the nation-states lost their ability to continue funding and servicing all of the outstanding debt. As a result of the manufactured catastrophe, the central banks then stepped in and provided the means for the nation-states to continue borrowing with little ostensible ramifications for this prior debt limit.

The elites just needed to scare us first into trying a new system that otherwise would have been rejected. This is why they manufactured the housing bubble.

Once the investor at-large accepted this new mechanism of what is now called quantitative easing (QE), the problem of debt limits was essentially solved. However, the only way it could be maintained was if interest rates dropped over time, because the debt balloon continues to rise and economic potential, by function, is then devoted on an ever-greater scale to servicing old and outstanding debt.

But the actual operations of QE essentially solves the potentially fatal problem of rising interest rates. QE is disinflationary by nature and causes demand in the aggregate to remain below potential. Concomitantly, these low interest rates help to enhance aggregate supply as the firm’s cost of capital falls. Thus, micro-economically speaking; despite the explosive rise in money stock measures, we see muted equilibrium price growth in the supply/demand curve.

Lower interest rates also translate into rising asset prices, and these investment dollars essentially go to the wealthiest and are thus taken out of the consumption equation.

We’ve talked about this on my blog for at least five years now. This is why I have recommended buying income-generating assets. These are the only assets that are guaranteed to keep up with the ballooning debt pile created under QE.

Those who do not own income-generating assets are confronted with this rising debt burden, but have no offsetting income and assets to remain in place or move ahead. While we all have to contend with this higher debt burden, and the worsening quality of life it entails, those with the income-generating assets can stay ahead of it. Essentially, we see a tsunami coming, but instead of running away from the wave on foot, those who own the proper assets have a sports car to drive.

And for anyone who thinks this can’t be maintained, take a look at the past 12 years. You clearly do not know your adversary.