October 31st Update; The only reason asset prices keep rising

15 year chart; The 5-Year Breakeven Inflation Rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity and 5-Year Treasury Inflation-Indexed Constant Maturity. The latest value implies what market participants expect inflation to be in the next 5 years, on average. The 5-Year, 5-Year Forward Inflation Expectation Rate is a measure of expected inflation (on average) over the five-year period that begins five years from today.

Even though longer-term (5-10 years) inflationary expectations remain elevated, the prevailing longer-dated UST yields remain low.

With regards to residential real estate, rent rates continue to skyrocket, while financing and discounting rates offer excellent opportunities for investors to earn superior internal rates of return. While capitalization rates may have dropped by as much as 100 to 300 bps over the past few years, the prospects of escalating rent roles ameliorate much of the ostensible sticker shock. This rosy outlook has been the catalyst behind the higher prices that institutional investors are paying to increase rental housing stock inventory.

While the U.S. median rental price increased 13.6% year-over-year in September, the rents of single-family properties have risen even further. In many areas of the United States, home prices, based on discounted cash flows, still offer value to the investor.

Unless a meteor strike wipes out Washington D.C., the stock market finds itself situated with some of the most auspicious circumstances in history. The above chart tells it all, and this was truly the only reason why I predicted much higher asset prices in the wake of the covid stimulus program announcements in March 2020.

Of course, the movements on the lines in this chart were only made possible with many trillions in stimulus. Without this stimulus, the yield curve and economy would have both blown out. There are too many Great Reset objectives yet to be achieved, and busting bond yields are not yet in the cards.

While inflation helps to raise corporate revenue and earnings, the normally higher bond yields and interest rates operate to adversely impact the discounting of corporate cash flows. So far, the Fed has been able to engineer an almost perfect outcome for stocks here. Even growth stocks continue to shine.

If the supply chain issues and labor market drag caused by the unvaxxed leaving the workforce have not been able to derail this bull market, I doubt there is anything, save higher real bond yields, that can halt the slow climb to Dow 40,000.

10/19 Update; A subscriber asks about gold, silver, and bitcoin

Hello Chris

You [mention] in your blog [post about] stocks and real estate. I am interested in your opinions on gold, silver, and bitcoin for the short and long terms as investments.

Thank you
A

Here was my response:

Bitcoin

I refer to all three (gold, silver, bitcoin) from time to time, and specifically recommend gold and btc. I own both, but do not dabble in the other alt-coins too much, other than the well known ones, as I do not know many specifics about the crypto sector. Owning bitcoin provides me exposure to the sector without having to overly dwell on the crypto sphere.

I have always said that there is something unique about btc as its origins are shrouded in mystery. I believe it has a special purpose in the future and with all the derivative products trading against it (e.g. COMEX futures, and BITO ETF), this shows me it has official sponsorship. It has received massive publicity in the MSM over the years. That speaks volumes and provides us a clue about its future.

(Click to enlarge). Double top rules are often ignored with btc; rather the introduction of btc derivative trading vehicles often coincide with a top. The commencement of BITO ETF trading is coinciding with a double top. Which way will we go?

I am certainly not as bullish on btc right now as I was a couple months ago, but with an impending double top forming on the daily chart, we could see a big breakout run to the upside. Although, I normally sell away my trades on other assets at a  double top, this is bitcoin, and btc more often than not breaks this rule. What I do find interesting is that when a new btc derivative product commences trading, btc usually sells off after a huge anticipatory runup.

Any breakout could help the alt-coins like bch, eth, ltc, etc., on a trade. BTC futures must take out the ATH 65520 if we are to see a serious shot at much higher prices (100,000). If it fails here, would could see it retrace to the 50-day sma (48725).

Gold & silver

Gold (Au) was always preferred by wealthier people over silver (Ag), as Au is specifically a monetary metal. Ag is an industrial metal and exhibits wild price swings. Large dollar amounts of Au are easier to hold than with Ag. Spreads are usually much smaller with Au than with Ag. I do like Ag, but I prefer Au over it.

I always say that I own 1 oz. US gold eagles, but recommend people to hold the 1 oz. version of whatever their country produces. So, Canadians should hold maple leafs.

I think the PTB want to keep Au in this range for now (close to the 50- and 100-week sma).  I do see a large move on the horizon, but it could come in either direction.  The 200-week sma is about 1550. The ATH is 2089. I accumulate as I get the available liquidity to buy. I stated in the past that btc was created to also keep Au from rising too much. They are partial substitutes.

October 18th Update – A response to an email; Investing according to the objectives of the Great Reset

Note to reader: I added a “contact” page to the website, and my email address is chris@knowyouradversary.com. Please feel free to ask me any questions. I will respond to them, either privately or via a post. If I publish a post, I won’t use your real name.

Investing successfully during the Great Reset

A reader comments and asks:

Your perspective and interpretation of the current events is bang on! I enjoy the Christian perspective and scripture quotes you refer to, along with some of your followers. As a Born-Again Christian I am very blessed to read your site. It is heartbreaking to see many of my fellow believers brainwashed by what is going on and fast asleep regarding the current events.

1) Regarding finances: What do we do now? I sold all my Real Estate holdings due to the craziness here in Canada. I only hold US stocks and some blue chip dividend paying Canadian stocks. Armstrong still says “DOW 40,000”. But….HE SAID ON HIS SOCRATES AI SYSTEM THAT ON MARCH 8th OF 2022 THERE WILL BE A ONE DAY 50% CRASH…….LIKE THE OCTOBER 1987 CRASH. What do you think?

2) Cyber Crash: I have been hearing and reading a lot lately about the great cyber crash that is being planned by the elites that is coming in late fall or coming just before Christmas.

A complete electronic/societal breakdown: no heat, internet, cell phones, gas, electricity, traffic lights, rationed food, no banking access, Visa Cards frozen, no water pumped from utilities to homes etc…..total chaos! I THINK THAT IS WHY BIDEN CALLED HOME THE TROOPS – CROWD CONTROL AND MARTIAL LAW – TOTAL CHAOS FOR A WEEK OR MORE. What are your thoughts and insight on this?

Here is my response:

Success is only possible when we know what we’re up against

Indeed, it is impossible for me to interpret the ongoing “madness” without the understanding of the Bible and my belief as a Christian. Moreover, I would have made the wrong long-term investment decisions and recommendations. Here is my one guiding principal; we must never underestimate our adversary and its ability to achieve its objectives of the new world order. If you think this is not the case, you can listen to the recommendations and fear-mongering of the Health Ranger and Alex Jones. They have plenty of stuff to sell.

Sure, there are some other philosophies and religions out there that can get us a few steps ahead, but those people who subscribe to them will continually underestimate the adversary and overestimate humanity’s ability to recognize the threats to its existence. True remnant Christians should know better.


Here are several questions and observations I ask when making investment decisions:

Question: What would the engineers of the Great Reset gain by crashing the markets now? What would they gain by collapsing the economy?

Answer: The short answer is nothing, but unnecessary uncertainty.  They would only create surplus risks for themselves. If our adversary, the synagogue of Satan, decided to slice the Dow by 20-50%, or collapse the RE market by 30%, there would be several adverse outcomes:

1) The concerted campaign to consolidate the global wealth in the most expedient manner would be delayed, perhaps for years.

The objectives of the NWO are obvious

Since 2012, I publicly discussed how QE was purposely devised to be the primary mechanism for the elites to consolidate the global wealth. Social largesse is nothing but an excuse to soften up the population while simultaneously extracting the global wealth. The money that is created through deficit spending is eventually transferred to those with the income generating assets. While this may help someone who owns a dozen rental properties, for those who control the largest firms, or the central banks, the wealth transfer is beyond comprehension.

2) If the wealth consolidation process is impacted, these NWO engineers would also risk losing the Great Reset narrative in the MSM, medical establishment, governments, NGOs, as well as the educational and military-industrial complexes. It takes tens of trillions of dollars to control these objectives and timelines, and if the elites drop the ball or try to collapse the markets now, they risk losing their position of strength and momentum.

3) If the PTB collapse the markets, they risk undermining their green agenda and ESG investing objectives. These investing theses are complete frauds and are not based on reality. The phony concepts of carbon footprints and ESG can only be supported with negative real interest rates and bond yields. They are not profitable on a stand alone basis, and these lies can only be supported and nurtured with massive QE programs.

4) If the markets are holding up just fine while millions of people are forced out of the workforce from vaccine refusal, I think it’s safe to say the markets will remain in an upward trend. If the powers could effectively shut down the economy for over six months and pay out trillions in “freebies” to the dumbed down and scared livestock, these powers can maintain the markets all the way past Dow 40,000.

5) By keeping the markets levitated, homeowners, 401(k) participants, and stock and real estate investors, will continue to underestimate the existential threats to their existence. If the globalists decided to crash the stock and real estate markets, they risk having the people wake up from their slumber at the most pivotal moment in history.

If these elites want the livestock humanity to take these mRNA jabs, they need to create an environment of ostensible stability in an otherwise “insane” time. Talk of war, the covid scams, vaccine mandates, etc., can only be ameliorated with high asset prices; not the other way around.


Question: What would be gained by creating a cyber crash now?

Beware of the whistleblowers; paid actors and limited hangout

Answer: We currently have an adversary that is desperately moving to get everyone in the world to receive experimental and unproven mRNA jabs in light of the overwhelming evidence that shows they are pure poison. What would happen to this timeline if the globalists create a cyber crash now? Once again, they risk losing the narrative. I don’t see it, though this has been an ongoing risk in the MSM and alt-media for a decade or so.

Just the talk of cyberterrorism creates the need and excuse to centralize the control of the internet. I view these sham Facebook and social media “whistleblowers” as another act of fakery. These paid actors are placed in the spotlight to help facilitate and accelerate the objectives for tighter control over the web and information/news feed.


Question: Will the markets and economy crash as the people are forced out of the workforce over the vaccine mandates?

Answer: No. Already, the employment data are lagging expectations, and the MSM are wilfully choosing to lie to the people about how businesses cannot find enough workers. The problem is that businesses cannot find enough vaccinated workers. If the shortfall persists, the governments and businesses will just replace all those Western college graduates with third-world illegals.

The shocks to the supply chains are all being manufactured or caused by COVID and vaccine mandates. The elites have centralized the power of the transportation and shipping industries, and cause any types of bottlenecks they choose. Don’t ever think for once that any of us are indispensable. We are all replaceable. The replacement workers will just work to raise rents and prices, while the unaxxed college grads fade into obscurity.

Think I’m kidding? Look at the backlash from the vaccine mandates. There is little to none. Where are the attacks and civil unrest? Where is the infrastructure sabotage? There are none. The only acts of “terrorism” will be engineered by our adversary to blame us Christians and anti-vaxxers.


Toss the “cycles” garbage in to the trash bin

Question: What do I recommend as investments?

Answer: Given what we know regarding the Great Reset timeline and its speed of approach, I think we will see more of the same in the markets. However, the “wall of worry” will be completely fabricated and manufactured as the NWO objectives must be achieved in a limited time frame (e.g. out to 2030). Collapsing the markets now will not help our adversary.  Our adversary has more to lose right now than to gain.

This has nothing to do with cycles and all to do with a centrally-managed economy, monetary system, and asset marketplace. Beware of charlatans trying to take advantage of your confirmation bias to profit by offering you superfluous, but costly, services.

Stocks

Never short Tesla, Facebook, Google, Microsoft, or Netflix. People like Michael Snyder may refuse to recognize the value proposition of Netflix, but its existence has proven vital to the NWO engineers. NFLX has been instrumental in creating a demonic and depraved culture who will embrace the evils of the Great Reset. These firms will always get the cheap financing and inflows of money and business to grow more powerful. The biggest only become bigger.

Look how the Dow and S&P 500 have performed in the face of rising catastrophic risks to the economy. Both retook their 50-day sma. Some catastrophe….

Housing and Real Estate

If mortgage rates rise to 5-6% they would only be matching current official inflation numbers. Real inflation is running at least double that, and given the sharp increases in rents, residential real estate is actually fairly priced in the United States. I can actually provide a thesis that states house prices are still reasonable in many areas of the country.

Real mortgage rates have never been lower in history and even if they rise another 100 bps, inflation is still 150-200 bps greater than the 30-year conforming mortgage.

Already, we are seeing the most liberal aspects in government beginning to scale back their wilfully ignorant ambitions. However, the urge to overspend on social and Marxist programs remain. This upward pressure will remain relentless and if any other “catastrophes” emerge, they will only provide for more catalysts to lower bond yields and ramp up QE.

Whether it was the repo madness of late 2018, which “forced” the Fed to reverse course, or the covid scam, each crisis is met with more QE and lower bond yields. Never underestimate the PTB from engineering another market moving crisis to keep their Great Reset agenda on track.

10/10 Update – A housing bubble? The details of a potential transaction say otherwise

A tenant is giving me an attractive offer; Should I take it?

I recently received an offer from a tenant to purchase a property I own in which she currently leases. Given the recent increases in residential real estate prices, I was willing to consider this ostensibly attractive offer. Let’s run through the numbers to see if it is a deal worth entertaining.

Keep in mind that while this offer is about $20,000 below full market value, it would be an “as-is” offer. Since it is considered a private transaction, I also would avoid broker commissions of about 4%.

The following table enumerates the general financial data behind the proposed transaction on this particular single family house, and illustrates the most likely amounts of taxable and after-tax capital gains.

 

Okay. The table above shows that the effective capital gains tax rate will be about 20% (15% federal cap gains rate for 2020, 5% for state), and will amount to about $48,000 . Ouch.

But let’s see if the proposed sale at the offer price, which is about 129% greater than my current cost basis, still provides me with a good deal. Keep in mind the longer an investor owns a property the larger the depreciation recapture amount will be. I will thus have over six years worth of depreciation recapture.

[(Sales price: $425,000) – (cost basis: $185,500)] / $185,500 =  1.29 = 129%

The numbers that matter

As an investor, we are interested in what’s behind the numbers. Thus the  current market value only tells us part of the story. We need to see how the rental market has performed over this time frame. While we may not be getting full market rent, other investors will price real estate off this potential amount.

As we can see in the above example, the full market rent that this house provides a potential landlord has climbed by nearly $1,000 a month. This is a substantial increase, and given this incredible climb, I view the ostensibly attractive offer by this tenant as an inadequate return on my total investment experience.

Though the capitalization rate has dropped slightly over the past six to seven years, it has not fallen that much. The drop in the cap rate is, in fact, surprisingly small, and when we consider the opportunity costs of losing the potential cash flow, as well as the rather substantial capital gains tax liability, I will reject the offer.

I predict that the capitalization rate on this single-family detached house could approach 3-4% if bond yields stay in their historically low range for the longer-term. The capitalization rate on this house in the mid-aughts was about 4%. Moreover, given the trajectory of rent rates, I look for more rental rate increases over the years as more immigrants pour into the local area.

Final thoughts in a post-covid world

Of course, I am basing my purchase/sale decision solely on the financial merits of this potential transaction and am not considering the exogenous factors regarding the state of the post-covid world. These two sets of factors should be treated separately, though both are important, given your personal situation.

I have one final thought here to provide the reader. If I believed that residential single-family real estate ownership is in peril for those who remain unvaxxed, I can always borrow against these homes. Thus, I can cash out to remain liquid, while encumbering the property. This would deter the authorities from confiscating this cash cow.

The new world order and how it destroyed the middle-class lifestyle

1971 was an important year for the monetary system… and the labor market
Effective goods trade balance; Balance on Merchandise Trade (blue, dark green) was discontinued in 2014; Trade Balance Goods, Balance of Payments Basis (dark green, light green) commenced in 1992. Their overlap (dark green) is essentially identical. and are both used to illustrate the long-term trend of the nation’s goods trade imbalance. Levels are quarterly.

As we can see, the goods trade deficits began to widen by the mid-1970s. With regards to the widening trade imbalances, the catalysts for this long-term trend were established and set in motion 50 years ago, in 1971.

Let’s look at the changes to the demographics of the labor pool since then.

Our government sellout; The 50-year transformation of the labor market pool and the destruction of the middle-class

When it comes to analyzing the long-term demographic trends in the labor market, we should consider the causes behind the long-term trends in the goods trade balance as the independent variable, while everything else depends on these causes to the changes to the goods trade balance.

I submit that the causes of the long-term explosion in the goods trade deficit were directly responsible for the transformation of the United States’ labor market and college industry, while degrading its citizens’ standard of living relative to the rest of the world.

When I compare the 1971 middle-class lifestyle to today, I’m being deliberate in the selection of this time frame. Of course, the lifestyles of 1971 pertain to those of 50 years ago. But 1971 was also a watershed year for our monetary system and the global economy.

The United States throws the American worker under the bus

In 1971, President Nixon shut the gold window to international transactions, while Henry Kissinger began to hold secret meetings with Zhou Enlai, with the express purpose of building up CCP China and its economy.

Subsequent to Nixon’s meeting with the heads of the CCP in 1972, the global corporations were encouraged to begin offshoring manufacturing jobs to mainland China. In return, China would accept US dollars for as long as the globalists demanded.

Around the same time, Kissinger cut a similar deal with OPEC for global oil supplies. Thus, during the early 70’s, the world began to be flooded with U.S. dollars. Although these international dollars were no longer guaranteed with gold; theoretically speaking, if these dollars could remain overseas, domestic price inflation would not rise as quickly as monetary inflation. Although investor resistance to these new programs resulted in rising price inflation throughout the 70s, these experiments ultimately worked, and by 1980, price inflation and interest rates/bond yields began to ebb.

In essence, the United States elite were willing to accept ever widening balance of payments and trade deficits in return for transforming the U.S. dollar into the global reserve currency. This phenomenon is featured as the cornerstone of the Triffin paradox. We could say that the elites running the United States were more than eager to throw the American workers under the bus in order to achieve the objectives of the new world order.

The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was identified in the 1960s by Belgian-American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfil world demand for these foreign exchange reserves, leading to a trade deficit.

Wikipedia – Triffin paradox

As anyone can see, the trade deficits here in the states began to widen in the mid 1970s, and by the end of the Carter regime, these trade and balance of payments deficits began to grow for the first time in the nation’s history.

A demoralized labor pool and how the college industry was born
Trying to keep up is often a losing battle; The growth of the civilian labor force level with bachelor’s degree or higher (blue) is greater than the growth of the labor force at large (green).

The middle-class lifestyle from 50 years ago is now worth a million bucks, and two income earners can no longer achieve the lifestyle that one wage once provided.

When comparing middle-class lifestyles over various time frames, we should consider both the quantitative and qualitative aspects in our analysis. When we view through this lens, it becomes increasingly clear that the qualitative advantages that people enjoyed previously are now very costly in monetary terms today.

Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade.

Wikipedia – Supply-side economics

With the advent of the supply-side shenanigans and Reaganomics, which were just bogus theories that enabled the globalists to offshore the dollars and transfer the wealth and power to ChiComm China, the media and government began to promote job retraining and college education as a way for the American worker to stay competitive in an ever evolving workforce.

By the time the early 80s rolled around, high school students who previously didn’t need a college degree, were actively being encouraged to attend college. Previously to all of this, a college education wasn’t required to succeed in the workforce. The jobs that had been offshored to China and the other developing nations were previously available to Western citizens. For most of these jobs, there was no need obtaining a college education. But in order to achieve the objectives of the new world order, while masking the monetary inflation of the Western fiat currencies, the elites needed to export inflation while importing deflation. As a result, these once precious jobs were exported to cheaper global outposts, where cost-advantage arbitrage became the objective of free trade.

While the causal relationship may be imprecise, the long-term trends are clear. I propose that if the trade and balance of payments deficits were eliminated by re-importing the manufacturing jobs that were lost to “free-trade”, the student loan “crisis” would cure itself on its own.

For example, living the middle-class lifestyle of 1971 meant that the family could afford to let the mother stay home and care for the children. When I was a young child 50 years ago, my mother didn’t work, nor did any of my friends’ mothers. Perhaps a couple mothers worked part time 15-20 hours a week, but they were always home for the children when school got out.

My friends’ mothers were the cub scouts den leaders. None of my friends’ parents had college degrees, nor did my parents. My father dropped out of high school at 16, and we were able to make ends meet and still own a house on Long Island. We had large families and plenty of food.

Today, in order to achieve these goals, both parents normally need at least a bachelor’s or graduate degree, and if the mother stays home, the husband better make good money, and have plenty saved up for retirement, because the defined benefit plans and pensions are gone. Moreover, the purchasing power of the monthly Social Security payment has been nibbled away over the decades.

Thus, based on just domestic temporal changes to PPP, I estimate that by the time the primary income earner has reached his mid to late-40s, the balance of a household’s defined contribution assets should be about $500k to make up for these retirement benefit changes.

Thus, the genesis of the current dilemmas we face regarding escalating college costs and the degradation of the wage base can be traced all the way back to the early 70s with the transfer of the country’s manufacturing base to our existential enemy.

While the manufactured feminist campaign during the 70s encouraged women to leave the house and enter the workforce, the transformation of housewives into working drones was borne out of necessity. Fathers could no longer earn enough to maintain the same middle-class lifestyle of just several years prior. To make matters worse, women and men now both compete for the same jobs, which just works to suppress wages further. Adding mass immigration into this mix just creates an additional burden that impacts wage base growth. It is no longer uncommon for some family units to possess three wage earners.

So, how do we turn this around? The answer is, we can’t. But, if we recognize the dilemmas, at least we can work to overcome them. This was the primary reason why I always recommended owning income-generating assets.