Housing

Jeremy Grantham: ‘U.S. Market Will Rally Once Again To Become A Fully-Fledged Bubble Before It Breaks’

Last week, I blogged about the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $104 billion in client assets). While it was an interesting read, I noted that I was a little disappointed that Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, didn’t talk about two themes he’d brought up in recent newsletters. I wrote:

Two things I’m dying to know from Mr. Grantham right now:

1. Does he still expect “the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016”?

2. Does he/GMO “still believe that bubble territory for the S&P 500 is about 2250”? The S&P was really marching towards 2,250 for a while before the index went south.

Last night, I saw that Grantham penned a piece on the Barron’s website that answered those questions (for the most part). From the article:

Looking to 2016, we can agree that uncertainties are above average. But I think the global economy and the U.S. in particular will do better than the bears believe it will because they appear to underestimate the slow-burning but huge positive of much-reduced resource prices in the U.S. and the availability of capacity both in labor and machinery. So even though I believe our trend line growth capability is only 1.5%, our spare capacity and lower input prices make 2.5% quite attainable for this year. And growth at this level would make a major market break unlikely. As discussed elsewhere, this situation feels at worst like an ordinary bear market lasting a few months and not like a major collapse. That, I think, will come later after the final ingredients of a major bubble fall into place

(Editor’s note: Bold added for emphasis)

Concerning the U.S. stock market, Grantham wrote:

The U.S. equity market, although not in bubble territory, is very overpriced (+50% to 60%) and the outlook for fixed income is dismal… I still believe that, with the help of the Fed and its allies, the U.S. market will rally once again to become a fully-fledged bubble before it breaks. That is, after all, the logical outcome of a Fed policy that stimulates and overestimates some more until, finally, some strut in the complicated economic structure snaps. Good luck in 2016…

(Editor’s note: Bold added for emphasis)

In the section entitled “U.S. equity bubble update,” he added:

On the evaluation front, the market is not quite expensive enough to deserve the bubble title. We at GMO have defined a bubble as a 2-standard-deviation event (2-sigma). We believe that all great investment bubbles reached that level and market events that fell short of 2-sigma did not feel like the real thing. (In our view, 2008 was preceded by an unprecedented U.S. housing bubble – a 3-sigma event.)

Today a 2-sigma U.S. equity market would be at or around 2300 on the S&P, requiring a rally of over 20%; even from the previous record daily high it would have required an 8% rally…

On the more touchy-feely level of psychological and technical measures, the U.S. market came closer to bubble status but, still, I think, no cigar

(Editor’s note: Bold added for emphasis)

So to answer my two questions from last week:

1. Grantham believes U.S. stocks will rally once again to become a bubble (no mention of “a serious decline around the time of the US elections in late 2016” though).

2. He also believes bubble-territory for the S&P 500 is no longer 2,250, but a tad higher “at or around 2,300.”

As highlighted at the bottom of the “Crash Prophets” page, Jeremy Grantham has an impressive track record with his financial forecasts:

• In 1982, said the U.S. stock market was ripe for a “major rally.” That year was the beginning of the longest bull run ever.
• In 1989, called the top of the Japanese bubble economy
• In 1991, predicted the resurgence of U.S. large cap stocks
• In 2000, correctly called the rallies in U.S. small cap and value stocks
• In January 2000, warned of an impending crash in technology stocks, which took place two months later
• Saw the 2008 global financial crisis coming. In April 2007, said we are now seeing the first worldwide bubble in history covering all asset classes.

As such, it’s difficult to dismiss this latest one.

Check out Grantham’s piece on Barron’s website here if you have time. I only scratched the surface, and it’s an insightful read.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Confidence In U.S. Government Plummeting?

Last night in a discussion about gold, I brought up Martin Armstrong, economist at Armstrong Economics (and former chairman of Princeton Economics International Ltd.) and the creator of the Economic Confidence Model, and something he said about the yellow metal two weeks ago. From his January 14 blog post:

I have stated this many times, so here it goes again: Gold rises when people lose confidence in government.

Survival And Prosperity readers are probably familiar with the myriad of poll/survey results showing Main Street has been fed up with the nation’s policymakers for some time now. But this morning, I’m going to examine if that confidence may be eroding more significantly than in recent times. I do this because:

1. I just came across some disturbing survey results in my research this week which suggests confidence in the U.S. government may be plummeting

2. If this confidence is almost to the point of being “shot,” then perhaps gold is getting closer to another sustained run-up in price

Aimee Picchi reported on the CBS News website Tuesday under the headline “Americans hate the U.S. government more than ever”:

A handful of industries are those “love to hate” types of businesses, such as cable-television companies and Internet service providers.

The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans’ satisfaction level in dealing with federal agencies –everything from Treasury to Homeland Security — has fallen for a third consecutive year, reaching an eight-year low.

The declines represent some backsliding for the U.S. government, given that satisfaction saw some improvement in 2011 and 2012, which may have been the result of spending in the wake of the recession. While the comparison with private enterprise isn’t apples to apples given the nature of government services, the findings have some implications for bureaucrats.

“Satisfaction is linked to broader goals in the political system that it wants to maximize, like confidence and trust,” said Forrest Morgeson, director of research at the ACSI. “It’s much more difficult to govern if the entire population dislikes you.”

(Editor’s note: Bold added for emphasis)

Picchi noted more than 2,000 people took part in that survey.

It’s not just confidence in government that may be in real trouble these days. Yale economist Robert Shiller, who correctly-called the dot-com and housing busts of the last decade, was interviewed last week in Davos, Switzerland, by Tom Keene of the Bloomberg TV show Bloomberg Surveillance. From their exchange:

KEENE: What is the state of our confidence now in our economics and business system?
SHILLER: It’s kind of obvious that it’s weakening.
KEENE: It’s fragile.
SHILLER: It’s fragile, and things that ought to be good news like lower oil prices are disruptive in the short run. But people are over-focused on them in valuing long-term assets like corporate stocks. So I think that the markets are driven by these perceived important facts. I think China is not as important to the U.S. economy as it appears to be. And one thing that news media people have to do- I assume you do this- is resist some of this over-hyping…

(Editor’s note: Bold added for emphasis)


“Yale’s Shiller: Markets Over-focused on China, Oil”
Bloomberg Video

Interesting comment about China. I pointed out earlier this week that Shiller’s fellow “crash prophets” Jim Rogers and Peter Schiff think the Chinese are being made scapegoats by the U.S. for Wall Street’s dismal performance this year.

And how about Dr. Shiller getting in a shot at the news media for their “over-hyping”? Serves them right considering the grief they gave the now Nobel Prize winner for having the “audacity” to point out the U.S. housing bubble last decade.

But getting back to the task at hand. Confidence in both government and the economy appears to have taken a hit lately. And a resurgent gold bull market looks promising if Martin Armstrong is correct in his assertions.

Stay tuned…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

Source:

Picchi, Aimee. “Americans hate the U.S. government more than ever.” CBS News. 26 Jan. 2016. (http://www.cbsnews.com/news/americans-hate-the-u-s-government-more-than-ever/). 28 Jan. 2016.

Robert Shiller’s recently-revised (January 2015) third edition of Irrational Exuberance

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Jeremy Grantham: ‘It May Well Be Necessary To Our Survival That We Become More Realistic’

Continuing yesterday’s discussion on investing, last night I finally got the chance to read the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $104 billion in client assets). Here’s what December’s installment (covering the third quarter of 2015) consisted of. From “Give Me Only Good News!”:

I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics…

(Editor’s note: Bold added for emphasis)

Grantham discussed those “propositions” and went on to conclude:

This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff “that just ain’t so.” We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news

(Editor’s note: Bold added for emphasis)

While an interesting read, I was a little disappointed that Grantham (who’s individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry) didn’t talk about the following in his latest letter. From an August 9, 2015, post:

However, Grantham has now offered up a potential timeframe for a “major decline” in equities.

Robin Wigglesworth reported on the Financial Times (UK) website Thursday:

A well-known fund manager who foresaw the Japanese crash, the dotcom bubble and the global financial crisis has predicted that markets will be “ripe for a major decline” some time in 2016, potentially triggering government bankruptcies.

Jeremy Grantham , founder and chief investment strategist of GMO, a $118bn investment house based in Boston, expects the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016.

The famously bearish and often prescient money manager said this could trigger a “very different” type of crisis, because many governments had become considerably more indebted and much of the liabilities had shifted to the balance sheets of central banks.

Given that central banks were able to create money to recapitalise themselves, this “could be a crisis we could weather”, Mr Grantham said. “If not, then we’re talking the 1930s, where you have a chain-link of government defaults.”

(Editor’s note: Bold added for emphasis)

And from a May 4, 2015, post about his first quarter 2015 letter:

On the Federal Reserve and asset bubbles, Grantham noted:

In the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully-fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity bubble and housing bubble in U.S. history. Yellen, like both of her predecessors, has bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect. Thus far, she seems to also share their view on feeling no responsibility to interfere with any asset bubble that may form. For me, recognizing the power of the Fed to move assets (although desperately limited power to boost the economy), it seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet

To remind you, we at GMO still believe that bubble territory for the S&P 500 is about 2250…

(Editor’s note: Bold added for emphasis)

Two things I’m dying to know from Mr. Grantham right now:

1. Does he still expect “the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016”?

2. Does he/GMO “still believe that bubble territory for the S&P 500 is about 2250”? The S&P was really marching towards 2,250 for a while before the index went south.

You can read the latest Grantham letter over at the GMO website here (.pdf format).

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Peter Schiff: U.S. Stocks In Bear Market, Economy In Recession, ‘Going To Be Longer And Deeper Than The Great Recession of 2008-2009’

The last “crash prophet” I’ll be talking about today is Euro Pacific Capital CEO Peter Schiff. Earlier Monday I watched Graham Ledger interview Schiff, who correctly-called the housing bust and economic crisis last decade, on the January 21 installment of The Daily Ledger show (One America News Network). From their exchange:

LEDGER: Do we have the indicators right now of a bear market?
SCHIFF: Well, sure, not only are we in a bear market in stocks. I think we’re in a recession, economically. When you played the clip from President Obama’s State of the Union- when he talked about people peddling fiction I thought he was talking about me. But I’m the one who’s selling reality. He’s peddling a bill of goods trying to pretend this recovery is real. But whatever it was- it’s over. And I think the recession that we’re in now is going to be longer and deeper than the Great Recession of 2008- 2009. And of course, all bear markets begin as corrections. But they don’t officially call it a bear market until it’s down 20 percent. The Russell 2000 is down 25 percent, the Dow Transports are down 30 percent, many individual sectors and stocks are down a lot more than 20 percent. And so it sure feels like a bear market even though officially Wall Street hasn’t declared it a bear market. But if the Fed doesn’t come up with a QE 4. Which I think it’s going to do. I think it’s a mistake. They shouldn’t do it. They shouldn’t have done 1, 2, and 3. But the only way to stop an official bear market will be for the Fed to reverse course, reduce rates, and launch another round of QE. That’s it.


“Market Tanking After Fed Pricked Their Own Bubble”
YouTube Video

Schiff went on to talk about how the U.S. auto “bubble” has burst, the U.S. housing market is also a “problem,” and that he predicts “a lot of people are going to lose their jobs in this recession.” Regarding the Federal Reserve and Janet Yellen? They’re going to try and keep this thing afloat until November. From the interview:

Obama’s whole claim to fame is that he inherited a disaster, and now everything is great. The truth is, he inherited a disaster, and now it’s a bigger disaster. But he doesn’t want the voters to know that in November. And I think Janet Yellen is a team player. I think she looks at herself as a member of the Obama administration. She is a very partisan, liberal Democrat. And she doesn’t want this thing to collapse until the election is over. Now, I don’t know if she’s going to succeed. I think she’s going to try though.

Like fellow “crash prophet” Jim Rogers, Schiff believes China is being used as a scapegoat for America’s latest financial woes.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Chicago’s Property Tax Hike To Hammer Small Business, Renters?

Looks like my girlfriend and I may have dodged yet another bullet moving out of our Chicago rental when we did (no pun intended). Hal Dardick and Bob Secter reported on the Chicago Tribune website yesterday morning:

Mayor Rahm Emanuel has framed his record $588 million property tax hike plan around the notion that it will include breaks for those of modest means, but hundreds of thousands of renters who fit that description are still likely to pay more because they can’t benefit from the mayor’s safeguards.

The mayor has vowed to make sure “that the burden is borne by those who can best afford it,” evoking images of thriving downtown businesses and fancy high-rise condominiums. But also in the crosshairs of the tax hike would be mom-and-pop businesses and a large number of apartment dwellers whose landlords typically build property tax expense into the rent

(Editor’s note: Bold added for emphasis)

I’m not going to steal Dardick’s and Secter’s thunder, so head on over to the Tribune website here to read the entire article (registration required).

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Thursday, October 8th, 2015 Business, Debt Crisis, Government, Housing, Taxes No Comments

Robert Shiller: Stocks Look ‘Pretty Frothy,’ Home Prices ‘Getting High By Historical Standards’

Last investment-related piece for the day. Yahoo! Finance Editor-In-Chief Andy Serwer recently interviewed Yale economist Robert Shiller in a “Market Pulse” segment. Serwer brought up the stock market and housing in his chat with the Nobel Prize winner, who correctly-called the dot-com and housing busts of the last decade. These days, Dr. Shiller once again has concerns about both. From their discussion published September 25 on the Yahoo! Finance website:

SHILLER: I think there’s a little bit of over-exuberance in the stock market at the present time.
SERWER: Right. Even with this recent correction?
SHILLER: The correction that we had in August brought the market down 10 percent. But it’s halfway back up again. So it’s still looking pretty frothy

(Editor’s note: Bold added for emphasis)

Dr. Shiller added later:

The market is highly-priced by traditional- well, this isn’t a traditional measure this is a measure that I and my colleague John Campbell developed. On top of that, I have survey data showing that people think the market is overpriced. The percent who think that is quite high now. So, I think this creates a little bit of fear that there could be a correction. When we saw the correction in August of this year there was I think some anxiety thrown into people’s hearts when they also feel that the market almost tripled between 2009 and 2014- it’s really pretty high. And I think there could be a further correction. I certainly am not forecasting that because nobody really knows what the stock market will do. But I think we’re in some danger of that. My instinct would be not to take any extreme moves, not to pull out completely. But also not to be heavily exposed to the market. I think it’s worrisome at this point. Worrisome but not horrible. I think you keep something in the market. But not too much.

(Editor’s note: Bold added for emphasis)

On housing, there was this exchange:

SERWER: We’re seeing the housing market heating up again. Do you think that this is a sustainable recovery?
SHILLER: Well, home prices have been going up. But they’re still not in real terms close to the previous peak in most cities… Is this sustainable? I’m starting to worry a little bit. It’s getting high by historical standards. And it’s another cause for concern. But it’s not like the stock market yet in terms of valuation.

(Editor’s note: Bold added for emphasis)


“Shiller: Stocks and housing are overvalued—here’s what to do about it”
Yahoo! Finance Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Tuesday, September 29th, 2015 Crash Prophets, Housing, Investing, Stocks No Comments

Peter Schiff: ‘Inevitable’ QE 4 Will Lead To U.S. Dollar Crisis

On August 28, 2015, Euro Pacific Capital’s Peter Schiff spoke at The Jackson Hole Summit, “the first ever event to discuss monetary and fiscal policy at the same time as the Central Bankers are discussing policy,” according to sponsor American Principles Project. Schiff, who correctly-called the housing bust and economic crisis last decade, warned those in attendance that because the Federal Reserve isn’t allowing market forces to fix imbalances in the financial system, the United States is ultimately heading towards a dollar crisis. From the presentation:

The Fed needs to raise interest rates right now. Not because the economy can take it, but because it can’t. Because, again, it is a bubble that needs to be popped. The sooner we pop it, the better. But of course we’re going to find out that the Fed didn’t save us from the financial crisis. They simply interrupted it. And they kicked the can down the road. And we’ve now caught up to the can. And, the problem is, because we’ve delayed solving the problem- see, the financial crisis was the beginning of the solution. And the Fed interrupted it. The market was trying to fix what the Fed broke. Real estate prices coming down were part of the solution. Banks failing was part of the solution. That recession was part of the solution. And the Fed interrupted it. And instead they gave us an even bigger bubble. And now we’re going to have to deal with that…

All the real economic recovery is being prevented. The Fed has got it all dammed up with its monetary policy. But it’s afraid to release the dam because it’s going to unleash all of these forces, this creative destruction that is so necessary, because we cannot have this genuine economic recovery that would actually lift living standards and create good jobs for the American people. We can’t do that unless we allow this phony economy that’s been resurrected on the foundation of cheap money collapse. But nobody is going to allow that to happen…

And then they’re going to launch QE 4. Which nobody really understands. I think it’s inevitable. I said this from the beginning. I said that when they launched the very first round of quantitative easing that they had walked into, checked into, a monetary roach motel. That there was no way out. Once they went down this line, that we were in for the duration. You live by QE, you die by QE. I said we’d have more QEs than Rocky movies. And I think they had six of those. And of course they got progressively worse. And so I think QE 4 is going to be even worse than the last rounds. And ultimately… ultimately, where we are headed is to a dollar crisis…


“Peter Schiff at Jackson Hole Summit: The Monetary Roach Motel”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Peter Schiff: ‘The Whole U.S. Economy Is One Gigantic Bubble At This Point’

Back to finance and investing matters. In 2012, “crash prophet” Peter Schiff predicted Ben Bernanke and the Federal Reserve would attempt to inflate another asset bubble to revive the U.S. economy.

The CEO and chief global strategist of Euro Pacific Capital underestimated how successful they would be- in terms of inflating multiple bubbles.

Schiff, who correctly called the housing bust and 2008 economic crisis, was on the phone with Free Talk Live discussing the student loan bubble last Sunday when he told listeners:

I think we have a much bigger bubble. The bubble in student loans is a small part of what’s actually going on. The government has managed to reflate the housing bubble, the stock market bubble, but we have a bond market bubble, a dollar bubble, a consumer loan bubble. The whole U.S. economy is one gigantic bubble at this point. That’s all we’ve got left. And that’s why interest rates have been at zero percent for almost seven years because the Fed is desperately trying to keep the air in these bubbles. It doesn’t want them to deflate. It doesn’t want to pop them. That’s why I don’t believe they’re actually planning on raising interest rates. I think they recognize that they cannot prick this bubble because it will be much worse than the bursting of the housing bubble or the dot-com bubble. But there is no avoiding this. The government has created this disaster and there’s no way around it. They’re just trying whatever they can to delay the inevitable. But because they’ve succeeded in delaying it, they’ve just made it much, much worse. It’s going to be a lot worse. So people really have to protect themselves from this. More so than I think in past crises…

Owning gold is one way to protect yourself. But people should also diversify. They shouldn’t only have gold. But they should definitely have some gold. But they should also invest internationally.


“The US Economy Is One Giant Bubble”
YouTube Video

Schiff later warned:

So there’s a lot, I think, that’s going to happen to really upend the status quo. And I think a lot people are going to go broke in this next crisis. And if you’re not prepared for it, you could suffer that fate. So I think it’s more important now, even than with the dot-com bubble or the housing bubble because this one is going to have much more profound consequences for typical Americans when it bursts. I think we’re going to see a big loss of value of the dollar, not just internationally and not just for tourists going to Europe. But as Americans try to buy things here in America. Things that they used to be able to afford are going to be completely unaffordable for the vast majority of Americans.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Chicago’s Financial Reckoning Day Has Arrived

Chicago readers of Survival And Prosperity were warned that the City of Chicago’s poor financial health would result in a sustained hunt for much more revenue (new and higher fees/fines/taxes) for the foreseeable future.

The warnings were constant, and issued over the last couple of years.

So the following headlines on the websites of the two major local papers should not have come as a surprise to the courageous Chicagoans who’ve continued to read this blog on a regular basis despite the steady barrage of depressing news coming out of the “Windy City” lately.

“Emanuel to seek $500 million property tax hike”
Chicago Sun-Times website, September 2, 2015

“Emanuel set to call for largest property tax hike in modern Chicago history”
Chicago Tribune website, September 3, 2015

By the looks of things, Chicago’s financial reckoning day has arrived.

Time to pay the taxman.

Hal Dardick and Bill Ruthhart reported on the Tribune website this morning:

Mayor Rahm Emanuel is set to call for the largest property tax increase in modern Chicago history to raise enough money to make a major pension payment for police and firefighters next year, the mayor’s City Council floor leader and a City Hall source told the Chicago Tribune late Wednesday.

The mayor also plans to push a new garbage collection tax, a new per-ride fee on taxis and ride-hailing services such as Uber and a new tax on electronic cigarettes and smokeless tobacco products…

(Editor’s note: Bold added for emphasis)

The Chicago Sun-Times’ Fran Spielman broke all this down brilliantly last night. The City Hall Reporter wrote:

Sources said the 2016 budget that Emanuel will present to the City Council on Sept. 22 will include a $450 million property tax increase for police and fire pensions the mayor once hoped to shore up with revenues from an elusive Chicago casino.

In addition, Emanuel will ask aldermen to adopt a separate levy of $50 million to bankroll school construction and pay off old projects…

Emanuel has offered to raise property taxes by an additional $170 million for the schools, but only if teachers accept the equivalent of a 7 percent pay cut and the state reimburses CPS for “normal” pension costs…

Together, the increases for both the city and CPS have the potential to raise the annual property tax bill for the owner of a home valued at $250,000 by nearly $700.

(Editor’s note: Bold added for emphasis)

“Home valued at $250,000 by nearly $700.”

Holy crap. That’s some pretty serious coin.


PSA from Alderman Al Czervik, Chicago City Council
YouTube Video

Keep in mind this hit to Chicago property owners doesn’t account for that other recent property tax hike I wrote about on August 27:

There are so many new and increased fees, fines, and taxes being proposed and implemented around the Chicagoland area these days, it’s hard to keep track of all of them. But here’s one Chicago tax hike that’s just been approved that’s making local headlines. Juan Perez, Jr., reported on the Chicago Tribune website last night:

Mayor Rahm Emanuel’s school board on Wednesday unanimously approved a budget that relies heavily on borrowed money and the hope of a nearly $500 million bailout from a stalemated Springfield, with the specter of disruptive cuts in January if that help fails to materialize.

The $5.7 billion spending plan contains another property tax hike — an estimated $19-a-year increase for the owner of a $250,000 home — as well as teacher and staff layoffs. The Chicago Board of Education also prepared to go to Wall Street to issue $1 billion in bonds and agreed to spend $475,000 so an accounting firm can monitor a cash flow problem so acute that Chicago Public Schools mulled skipping a massive teacher pension payment at the end of June…

(Editor’s note: Bold added for emphasis)

So there it is. And if Chicagoans think this major tax increase is some sort of one-off, well, I know of a certain bridge for sale out east. Like I’ve been warning all along, emphasizing it as recent as August 21:

New/higher fees, fines, and taxes, coupled with reduced government services

I also added in that post:

Chicago readers of this blog- what are you planning to do about the crisis? Or, what are you already doing? Maybe you don’t think a crisis exists? Please share your thoughts or experiences in the “Comments” section of this post, as I’d really like to talk more about this going forward.

Not much of a response was received (save for Mihail- thanks buddy). Anyone care to chime in now? Vent a little perhaps? Keep it civil, of course.

One more thing. With the cat out of the bag concerning the property tax hike and renewed attention on Chicago’s fiscal issues, I wonder what the impact will be on Chicago’s housing market (which had some positive momentum) going forward?

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Dardick, Hal and Ruthhart, Bill. “Emanuel set to call for largest property tax hike in modern Chicago history.” Chicago Tribune. 3 Sep. 2015. (http://www.chicagotribune.com/news/local/politics/ct-rahm-emanuel-property-tax-hike-met-0903-20150902-story.html). 3 Sep. 2015.

Spielman, Fran. “Emanuel to seek $500 million property tax hike.” Chicago Sun-Times. 2 Sep. 2015. (http://chicago.suntimes.com/news/7/71/928338/emanuel-seek-500-million-property-tax-hike). 3 Sep. 2015.

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Robert Shiller: Stock Plunge ‘Might Create Aftershocks In Either Direction In The Short Run’

Robert Shiller, the Yale professor credited with correctly-calling the “dot-com” and housing busts last decade, has been voicing his concerns about U.S. stock prices for quite some time now. I blogged back on December 1, 2013:

These days, Dr. Shiller is worried about U.S. stocks once more. Madeline Chambers reported on Reuters.com this morning:

An American who won this year’s Nobel Prize for economics believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.

Robert Shiller, who won the esteemed award with two other Americans for research into market prices and asset bubbles, pinpointed the U.S. stock market and Brazilian property market as areas of concern.

“I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets,” Shiller told Sunday’s Der Spiegel magazine. “That could end badly,” he said.

“I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable,” he said, describing the financial and technology sectors as overvalued.

“Our economy is still weak and vulnerable.”

My thoughts exactly- though I wish it weren’t so.

While Dr. Shiller doesn’t say U.S. stocks are in a bubble, I wonder if he wouldn’t consider them relatively “frothy”?

(Editor’s note: Bold added for emphasis)

With U.S. equities in a correction for the first time since 2011, I’ve been curious what the author of the 2000 book Irrational Exuberance (now in its 3rd edition) is thinking these days. Dr. Shiller was on the CNBC TV show Squawk on the Street Friday and said:

I’m not surprised. I don’t know if this is a big story. But my story has been, you’re correct, that valuations are high, quite high, by historical standards. There’s only been a few other episodes in U.S. history when they’ve been this high.

(Editor’s note: Bold added for emphasis)

When asked how much more of a “shakeout” he sees, Shiller told viewers:

Here’s the problem. We really find it very difficult to predict short-term changes. The easier thing to predict is volatility, and I think that the shocks that we just saw yesterday might create aftershocks in either direction in the short run. We’ve been in a low volatility era. And this is a big move down, but it’s not the end of the world. I’m not sure there will be a huge reaction to it.

(Editor’s note: Bold added for emphasis)


“Historically valuations are high: Robert Shiller”
CNBC Video

While I didn’t see this part of the interview, Zack Guzman added on the CNBC website Friday:

While Shiller conceded the possibility that the selloff could “create aftershocks in either direction in the short-term,” he highlighted a psychological bias for those in the periphery to “over focus on the latest news.”

“When people who don’t normally pay attention to the market are brought in, it can feed on itself like an epidemic,” he said.

With a long-term view in mind, however, Shiller reminded investors a correction would not be the end of the world, citing confidence China would see renewed growth and the comeback of a healthy U.S. housing market…

(Editor’s note: Bold added for emphasis)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Source:

Guzman, Zack. “Market ‘aftershocks’ are coming: Robert Shiller.” CNBC. 21 Aug. 2015. (http://www.cnbc.com/2015/08/21/market-aftershocks-are-coming-robert-shiller.html). 23 Aug. 2015.

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Sunday, August 23rd, 2015 Asia, Crash Prophets, Housing, Investing, Stocks No Comments
Survival And Prosperity
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