Thursday, July 23, 2015

The Top of Housing Bubble 2.0 is Being Called

The chart and article above introduced me to the concept of Fibonacci Retracements.  As someone who has always been fascinated with the truth telling aspects of mathematics it was interesting to see yet another piece of evidence to show that it's never "different this time."  The FED was able to create a very temporary mathematical advantage that fostered Housing Bubble 2.0.  This quite effectively moved distressed inventory from the banks to private equity.  With Mission Accomplished, so to speak, we are now ready to see the first FED rate raise in almost 9 years.  Isn't that amazing to ponder.  A whole group of Johnny-Come-Lately specuvestors are about to face a smidgen of economic reality.  What level of velocity will power this correction.  After all, we are less speaking of families looking to stay in their homes than we are of institutional investors and REITs whose cap rates are about to be destroyed through demographic and interest rate changes.  Houses are about to get cheaper as the cost of money gets more expensive.  Specuvestors have left the market.  Young families never entered it.  Some Boomers who may not live to see the next market top will be looking to cash out before any further declines.  And lest we forget the world economy is on the brink of sustained contraction if Oil Prices, Caterpillar sales and the Chinese stock indexes are to be believed.  Doesn't seem to me like it's a great time to buy a house you can rent for 20% less...

Note: Just getting this thing started but I'm gonna try and up the amount of posts.  Anything you guys might find interesting let me know in the comments!

Tuesday, July 14, 2015

Donald Trump Wants YOU To Have Affordable Housing!

There are two major factors that have made housing in America so unaffordable to most.  The first is of course the destruction of the dollar by the FED.  However this could be offset by wage inflation which brings us to our second factor, declining wages and joblessness.  As the FED is clearly responsible for the devaluation of the dollar, so is international trade the cause of wage destruction fro American workers.  One of the candidates for president understands this quite succinctly.

From The Donald's 2016 Presidential Announcement...

"They can’t get jobs because there are no jobs because China has our jobs and Mexico has our jobs.  ...And the people are saying ‘What’s going on? I just want a job. I don’t need the rhetoric, I just want a job.'
  I tell you I’ll bring back our jobs from China, from Mexico, from Japan, from so many places. I’ll bring back our jobs, and I’ll bring back our money.  Free trade can be wonderful if you have smart people.  But we have people that are stupid. We have people that aren’t smart, and we have people that are controlled by special interests and it’s just not going to work...

Now Ford announces a few weeks ago that Ford is going to build a $2.5 billion car and truck and parts manufacturing plant in Mexico.  $2.5 billion. It’s going to be one of the largest in the world.  ...I would call up the head of Ford, who I know. If I was President I’d say ‘Congratulations, I understand that you’re building a nice, $2.5 billion dollar factory in Mexico and that you’re going to take your cars and sell them to the United States. Zero tax - just across the board.’  And you say to yourself, ‘How does that help us, right? Where is that good.’ It’s not  So I’d say ‘Congratulations, that’s the good news. Let me give you the bad news. Every car, and every truck and every part manufactured in this plant that comes across the border, we’re going to charge you a 35% tax. Okay? And that tax is going to be paid simultaneously with the transaction, and that’s it."

I'm not suggesting Donald Trump will be president.  But much like Ross Perot 24 years ago Trump understands the perilous position international trade places the American worker.  Trump has the advantage of speaking with hindsight as opposed to Perot's foresight.  American labor has been devastated by NAFTA, China's favored nation status and every other shit trade deal that has been rammed through since Clinton.  Donald Trump has the potential to be Ron Paul, Bernie Sanders and Ross Perot rolled into one.  With the expanded media exposure of non-political celebrity to spread the message.  It is a message average Americans need to hear and clearly understand.  Housing is paid for with wages and Donald Trump wants you to earn a higher wage.

Housing, nor any other asset or commodity can never be truly affordable nor endure true price discovery unless America pulls back from the faux-free-trade and fiat money abyss. The Pauls, Sanders, Perot and others have tried to spread this message but their stage was to small.  Donald Trump is the first person with his level of celebrity and influence to tackle what is the core problem in our nation.  The income and opportunity disparity in America that has it's roots in the destruction of our manufacturing base and currency.

Perhaps this whole campaign is an ego trip for a most eccentric billionaire.  Even if that proves true, Donald Trump is now working Americans loudest voice in the 2016 presidential campaign.  He seems to be reveling in the role.

Read his entire announcement speech here: 
NY Daily News - Transcript of Donald Trump’s 2016 presidential announcement

Friday, July 10, 2015

Comment system fixed...

Clicking save when you change your blog settings is a good idea LOL!  Anonymous posts now allowed with whatever handle you choose.  I'll be on the lookout for my Dr. HB friends handles.  Have a great Friday everyone!

Wednesday, July 8, 2015


The Greek people vote resoundingly to reject being Germany's debt serf in perpetuity.  Debt servicing on hundreds of billions of dollars in Euro denominated bonds is at extreme risk.

The Communist Party of China is taking complete control of the tanking Chinese stock market. A toxic combination of QE, price/market controls and other totalitarian measures are likely to come as the PROC attempts to forestall deflation.

Microsoft terminated over 20,000 employees in the last year.  The tech company which makes products that are actually used to enhance business productivity at one time took pride in never having laid off a single employee.  

Meanwhile a relatively modest 4 bedroom 3 bath home in Upland, CA sold for $685,000.  Assuming a modest 10% down payment the monthly nut is over $3700.  That's before likely PMI.  Now I'm aware that this could be a move up buyer with some equity rollover, but let's assume if not this property there's another that someone is just squeezing into with similar math.  Assuming $600 in additional monthly debt, say a car payment plus credit card, a 50% DTI requires over $100k household income.   Being that most households have an uneven distribution of income your likely looking at a $60k to $70k earner in the equation.  Here is where the aforementioned "Panics" come into play.

Entrepreneurship has been on the decline in this country for decades.  Where once we had small business owners who were savvy and prudently prepared for downturns, we now have high earning W2 employees in administrative positions that are one bad quarter away from pink slips.  If our hypothetical Upland 70k earner works in the logistics hubs near Ontario he is EXTREMELY vulnerable to world macro events.  Bulls who opine over the "special" real estate market in SoCal completely ignore that the high earners of the region are really no more secure than their minimum wage counter parts.   In fact they are even less so because in an environment where labor has already been stripped to the bone, administrative and IT are all that's left to cut.  Unlike the entrepreneurs of old who could whether a percentage drop in their business, the high income administrative worker loses 100% of his income in a downturn.  His skills may not be obsolete, but they are completely unnecessary when there are multiple BA degrees applying for every opening.

Do cuts in high earning positions in California and other bubble areas happen this year?  In 2016?  2017???  None of us can say for sure.  However with VIX still at historic lows (though the NYSE shoutdown today led to a 16% jump) complacency rules the economics of the day.  History has shown that when the consensus is "Nothing can go wrong" it rarely doesn't.

One more thought on our hypothetical Upland buyer.  Interest only short term loans are still quite accessible for the credit worthy and income verifiable through banks and private financing.  A $100K household could very easily find it in their interests to lock in a low interest only payment on a 5 year term.  After all, they can now lease that new Mercedes and that next raise and promotion is surely right around the corner.   Just look at the stock and RE markets ascent.  What could go wrong?