Housing

Signs Of The Time, Part 82

I had a tough choice to make earlier tonight- either watch President Obama’s 2015 State of the Union Speech, or finish up doing laundry.

After all my clothes were put away, I saw on my Internet service provider’s home page some jibberish about how some “shadow of crisis” had passed. I pulled up a transcript of the President’s speech tonight and sure enough there was this:

America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this:

The shadow of crisis has passed, and the State of the Union is strong.

At this moment — with a growing economy, shrinking deficits, bustling industry, and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth. It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come…

Mark my words. The “shadow of crisis” hasn’t passed. It was merely papered over. Keynesian “enlightenment,” government intervention, bailouts, stimulus packages, quantitative easing, QE 1, QE 2, QE 3, willing-and-able presstitutes, and what do we have? The Not-So-Great Recovery. Answer me this- if the economy is so strong, why have interest rates been effectively at zero for how many years now? “But Janet Yellen and the Federal Reserve are going to start raising interest rates soon.” We’ll see, but if they do, I suspect rates will be raised incrementally, and I can’t help but wonder if the next few years won’t resemble the early part of last decade when a housing bubble inflated (and eventually popped) under the guise of a strong economy, but with the Fed slow on the trigger to raise rates and take way the punch bowl. This time around, we could even have multiple asset bubbles (in bonds? housing? stocks?) formed before the next installment of the longer financial crash arrives. Who knows exactly how the next crisis will play out, but I’m pretty sure the end result will be much uglier than the last episode. Not many bullets left for Uncle Sam and the central bank to use.

One more thing. “We have risen from recession freer to write our own future than any other nation on Earth.” God forbid anyone scratch the surface to reveal how many more trillions of dollars of debt has been piled on our financial house of cards in order to kick the can down the road a little bit more. There’s no escaping the fact that the United States is the world’s largest debtor nation. And another inconvenient fact happens to be that taking on significant debt is akin to slavery.

“Freer to write our own future.” If only it were true. Financial reckoning day is more like it.

I’ll leave Survival And Prosperity readers with this. Back in the early 1990s while attending the University of Illinois in Urbana-Champaign I remember listening to a recording of “The Rat Pack” in action. Frank Sinatra was chiding Dean Martin and Sammy Davis, Jr. Now, the “Chairman Of The Board” made an observation that better describes the situation we’re in than what the President Of The United States said this evening:

You’ve had your fling and you flung it.

Enjoy the “good times” while they last, then prepare to batten down the hatches.


Scene from The Final Countdown (1980)
YouTube Video

Note that it’s not the end of the word I’m talking about here. But things will definitely suck for a while before the economy and society gets better again. By that time, we’ll probably be well on our way to having passed the baton to China.

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

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Peter Schiff: Buy Gold, Silver To Prepare For Bursting Of This ‘Much Bigger Bubble’ Than Housing, Dot-Com

The first installment of Peter Schiff’s Gold Videocast for the new year is out on YouTube. And Euro Pacific Capital’s Schiff recapped gold’s performance in 2014 and shared his outlook for the precious metal- along with silver- in 2015. He told viewers:

I think the sentiment situation, the markets, the technicals, are really poised for a very, very big year up in the precious metals in gold and silver for 2015. And nobody is expecting this. We had the sentiment completely in the opposite direction. All the bears were piled onto the same side of the boat. And now it turns out that they got it wrong. And I think they’re going to have to scramble to get to the other side as this illusion rapidly fades. Again, I’ve said this many times, that I’ve never seen a bigger disconnect in the markets- the stock market, the currency market, the precious metal market- between reality and perception. What everybody believes is wrong. And soon, these widely-held beliefs are going to be questioned in a major way and then abandoned. Just like they were with the housing market and subprime when that bubble burst. And just like they were with in dot-com market when that bubble burst. Except that this is a much bigger bubble, and the damage and the fallout on the financial markets will be much greater when this bursts. And therefore, it’s that much more important that investors be properly prepared. And part of that preparation is owning gold and silver.


“State of the Gold Market 2015: Exclusive Forecast & Charts”
YouTube 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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Robert Shiller On Housing: ‘I Feel A Little Bit Of Anxiety About The Market’

When I want to get an idea of where the U.S. housing market is heading, I turn to Robert Shiller, the Yale professor who correctly-called the “dot-com” and housing busts. And these days, the “crash prophet” is a bit anxious about residential real estate. Dr. Shiller appeared on CNBC this morning, and told viewers the following:

I look at the market as looking on track with expectations but fragile. I worry that- one thing I’ve learned in forecasting home prices is that they’re different from stock prices. If the rate of appreciation is very steady and if it starts slowing down, that could be a sign of a turning point. I’m not calling a turning point yet, but I feel a little bit of anxiety about the market.

(Editor’s note: Bold added for emphasis)


“Robert Shiller: Housing market fragile”
CNBC 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, December 30th, 2014 Crash Prophets, Housing No Comments

Institutional Investors In Chicago-Area Homes On Verge Of Cashing Out?

It’s been a while since I’ve talked about the Chicago-area housing market on Survival And Prosperity. But my Sunday paper contained two articles that shed some light on one reason the Chicagoland residential real estate market has been rebounding the last couple of years, and why recent price appreciation looks endangered. First, Mary Ellen Podmolik wrote in yesterday’s Chicago Tribune:

By one estimate, institutional buyers that acquire distressed homes and convert them into rentals bought about 9,500 properties in the Chicago area in a 32-month period that ended in August…

But several housing markets, including Chicago’s, are considered prime places for institutional buyers to cash out if they choose, walking away with tidy profits, according to an analysis by RealtyTrac…

Institutional investors, defined as buyers who acquired 10 or more homes during a year, spent an average of $161,252 to acquire a home here, and that home now has an average market value of $210,126, according to RealtyTrac. That’s a gain of 30 percent. Meanwhile, the S&P/Case-Shiller home price index puts the Chicago area’s home price gain between January 2012 and this past September at 22 percent

(Editor’s note: Bold added for emphasis)

Now, a few pages into the Tribune’s “Real Estate” section, Mary Umberger wrote:

The last one out should turn off the lights. The housing-research firm RealtyTrac says Orlando, Fla., is primed to see the horde of investors who bought up houses during the downturn start heading for the exits. They’ve made their profits, according to the researchers, who calculated that the investment properties’ values increased by 23 percent since January 2012. Price increases in that market are beginning to slow, suggesting that a sell-off may be coming, particularly from the so-called institutional investors who bought foreclosures by the dozens — even by the hundreds — when prices were ebbing. (In addition, RealtyTrac suggested that institutional investors soon may be similarly heading for the doors in Chicago; Columbus, Ohio; Indianapolis; Atlanta; Charlotte, N.C.; and in Jacksonville and Brevard County, Fla.)

(Editor’s note: Bold added for emphasis)

It’s my opinion that the Federal Reserve is still desperately trying to re-inflate the housing bubble (among others) from the last decade. I don’t think this economic “recovery” is on as solid ground as Washington, the Fed, and others want the rest of America to believe. I expect additional stimulus in the coming year(s), and nominal asset prices could remain elevated/go higher as a result. Housing included. So there may not be a mass exodus of institutional investors from residential real estate right around the corner. Of course, something else could always spook these guys and have them running for the exits. Time will tell…


Infamous Housing Bubble TV Commercial
YouTube 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.)

Sources:

Podmolik, Mary Ellen, “Investors find fewer bargains in Chicago housing market.” Chicago Tribune. 23 Dec. 2014. (http://www.chicagotribune.com/classified/realestate/ct-mre-1228-podmolik-homefront-20141222-column.html). 29 Dec. 2014.

Umberger, Mary. “Florida housing trends may be an early-market barometer.” Chicago Tribune. 22 Dec. 2014. (http://www.chicagotribune.com/classified/realestate/sc-cons-1225-umberger-20141222-column.html). 29 Dec. 2014.

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Nouriel Roubini: ‘Mother Of All Asset Bubbles’ To Pop In 2016

One of the original “crash prophets” of the 2008 global economic crisis is now sounding the alarm over what he sees in 2016.

I first mentioned Nouriel Roubini, a former Treasury official under the Clinton administration, a professor of economics at NYU, and chairman of Roubini Global Economics, in my old blog Boom2Bust.com several years ago. Roubini correctly-predicted the financial crisis, but “Dr. Doom”- as the financial media likes to call him- had become more optimistic this year. On May 14, 2014, he “debated” fellow “prophet” Peter Schiff on CNBC’s Fast Money, saying:

We’re printing a lot of money but it’s not creating credit. It’s not creating inflation. And if we had not done this policy, this Great Recession would have become a Great Depression. So, inflation is going to stay low. Gold prices are going to fall. And I don’t believe that the dollar’s going to collapse. Actually, I believe the dollar’s going to become stronger in the next few years- just the opposite of what Peter thinks.

But these days, Dr. Roubini is starting to sound gloomy again. Last week, I happened to come across a Yahoo! Finance interview with Roubini from earlier this month. From an exchange with editor-in-chief Aaron Task:

TASK: Nouriel Roubini is often referred to as “Dr. Doom”- affectionately of course- but the NYU professor and chairman of Roubini Global Economics is not always downbeat. He prefers “Dr. Realist,” and in February 2013 Roubini told Yahoo! Finance and this reporter that, “The mother of all asset bubbles had begun, and would eventually be bigger than the 2003-2006 bubble.” Since that time the S&P 500 is up about 40 percent, so Nouriel, that was a great call if you were long, and bubbles are great if you’re long and you get out in time. Where do you see- what inning, if we use the baseball analogy, are we in in this bubble from your point of view?
ROUBINI: We’re in middle-later innings. Next year we’ll have economic growth. We’re still easy money. I think that this frothiness that we’ve seen in these financial markets is likely to continue- from equities to credit to housing. And in a couple of years, most likely, this asset inflation is going to become asset frothiness. And eventually, an asset and a credit bubble. And eventually, any booming bubble ends up a bust and a crash. I don’t expect that happening next year, but I would say that valuations in many markets- whether its government bonds or credit or real estate or some equity markets- are already stretched. They’re going to become more stretched as the real economy justifies a slow exit, and all this liquidity is going into more asset inflation. And so, two years down the line for them to shake out, but not before then.
TASK: A couple of years down the line, okay.
ROUBINI: Yeah. 2016 I would say.

(Editor’s note: Bold added for emphasis)


“Roubini: U.S. equities will be strong until 2016”
Yahoo! Finance Video

Dr. Roubini gave this advice to investors:

At this point, I would be neutral or underweight U.S. equities compared to other markets.

As for “best bets” in 2015, he told viewers:

Several I would say. I would say, dollar strength relative to the euro, relative to the yen, relative to the commodity currencies, relative to fragile emerging markets. And a bet on commodities further another leg down, certainly industrial metals like copper and others linked to China. Those will be two of the stories for 2015.

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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Stephen Roach Warns Fed Headed Down ‘Highly Dangerous Path’

“Dow industrials mark their fifth fastest 1,000-point rise in history”

-MarketWatch.com, December 23, 2014

Shortly after my old blog Boom2Bust.com, “The Most Hated Blog On Wall Street,” debuted on Memorial Day Weekend 2007, I shared a warning from the former chairman/chief economist of Morgan Stanley Asia, Stephen Roach. Brett Arends wrote in the Boston Herald’s “On State Street” column on November 23, 2004:

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he’s saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic “armageddon.”’

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach’s presentation. A stunned source who was at one meeting said, “it struck me how extreme he was – much more, it seemed to me, than in public.”

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that “we’ll muddle through for a while and delay the eventual armageddon.”

The chance we’ll get through OK: one in 10. Maybe…

A decade later, it’s safe to say Roach got those calls about the slump and muddling through for a while correct (give it time on that “armageddon” bit still).

But now, Stephen Roach is sounding the alarm again.

He wrote on the Project Syndicate website earlier today:

America’s Federal Reserve is headed down a familiar – and highly dangerous – path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic

(Editor’s note: Bold added for emphasis)

Roach noted that the U.S. central bank remains steadfast in keeping the federal funds rate near zero, before warning:

This bears an eerie resemblance to the script of 2004-2006, when the Fed’s incremental approach led to the near-fatal mistake of condoning mounting excesses in financial markets and the real economy. After pushing the federal funds rate to a 45-year low of 1% following the collapse of the equity bubble of the early 2000s, the Fed delayed policy normalization for an inordinately long period. And when it finally began to raise the benchmark rate, it did so excruciatingly slowly.

In the 24 months from June 2004, the FOMC raised the federal funds rate from 1% to 5.25% in 17 increments of 25 basis points each. Meanwhile, housing and credit bubbles were rapidly expanding, fueling excessive household consumption, a sharp drop in personal savings, and a record current-account deficit – imbalances that set the stage for the meltdown that was soon to follow.

A “meltdown” that might be in store for us again (even worse than last time around?) if the Federal Reserve doesn’t veer from the path it’s on, says Roach.

It’s a disturbing read, which is available in its entirety on the Project Syndicate website here.

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

Source:

Arends, Brett. “Economic ‘Armageddon’ Predicted.” Boston Herald. 23 Nov. 2004. (http://www.fromthewilderness.com/free/ww3/112304_economic_armageddon.shtml). 23 Dec. 2014.

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Jim Rogers On Best Ways To Invest In Agriculture

On Monday, I blogged about well-known investor, author, and financial commentator Jim Rogers and his steadfast belief that agriculture is where big money will be made in the future.

Late last night I was on the website of the Wall Street Daily website listening to an interview of Rogers that was conducted by Robert Williams, founder of the Baltimore, Maryland-based investment research/market commentary service. Considering what I just wrote, it was what the commodities “guru” had to say about the best ways to invest in agriculture that grabbed my attention. From their exchange:

WILLIAMS: Jim, what’s the most effective route into agriculture for our readers interested in playing this long-term bull market?

ROGERS: Well, there are many ways to do it. The best way is to buy a farm- become a farmer if you really want to get rich because I explained before, some of the serious, serious, key fundamental problems in agriculture. So if you like the outdoors, if you think you’d be good at it, you might consider becoming a farmer.

Now most of your readers are probably not going to become farmers, but that’s the way. Or buy a farm and lease it to a farmer- somebody who’s competent. You can buy stocks. Certainly you can buy stocks. If you buy the right stocks- seed companies, fertilizer companies, or whatever- you’ll make a lot of money.

You can buy countries. Some countries are more agriculturally-oriented than others. Pakistan is a country that lives and dies on cotton more than anything else. So it depends on the country.

If you’re going to buy a lake house, I would buy my lake house in Oklahoma, not in Massachusetts, because stocks are at all-time highs. And we just discussed what’s been happening in commodities. So lake houses in Oklahoma or Nebraska are probably a lot cheaper than in Massachusetts. You can get a Lamborghini dealership in Iowa, because the farmers are going to be driving Lamborghinis, in my view, in the future.

Or you can buy- for most people, obviously the best way is to buy an index. Many studies have shown that index investing is far and away the best way to invest in anything- stocks, bonds, currencies, commodities, anything else. And there are plenty of exchange-traded products where it makes it very easy these days to invest in commodities.

On buying a lake house in Oklahoma or Nebraska, the former investing partner of George Soros said something similar in an May 23, 2003, interview on the Wall $treet Week with FORTUNE TV program. Nailing the U.S. housing bubble a couple years before it burst, Rogers talked property (with an eye towards natural resources) with co-anchor Karen Gibbs. From the interview:

GIBBS: How about real estate?

ROGERS: Well, real estate, Karen, depends on where you are. There is a mania, a housing bubble going on. But if you’re going to buy a second home, buy a lake house in Iowa, because Iowa is a natural-resources-based state. I’m bullish on agriculture. I’m bullish on natural resources. So houses in Iowa will probably do well. Don’t buy it in Boston. Boston is a financial town. I’m not that optimistic on financial companies or financial areas. So buy in Oklahoma, buy in Colorado, buy in states where the economy is going to get better. Stay away from places like New York and Boston — where I live — because real estate there will probably not do well.

In a Barron’s interview that appeared on the publication’s website on October 12, 2013 (blogged about here), the Singapore-based investor who correctly-called the commodity bull market that began in 1999 expanded:

I could buy farmland and become a farmer—although I would be hopeless at it—or buy farmland and lease it out. Buy shares in farms, farm equipment, fertilizer and seed companies that trade on exchanges around the world. Stock markets in agriculture-producing countries should do better than those in agriculture-importing ones. Retailers, restaurants, banks in agricultural areas will do well. Buy a vacation home on a lake in Iowa, not Massachusetts.

Good stuff. You can listen to/read (transcript provided) that recent Wall Street Daily interview on their website here. And for a trip down memory lane, that Wall $treet Week with FORTUNE exchange here.

(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.)

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

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Robert Shiller On Stocks: ‘I’ve Been Wondering If I Should Pull Out’

I haven’t mentioned Robert Shiller, the Yale professor credited with correctly-calling the “dot-com” and housing busts, on Survival And Prosperity since August. The “crash prophet” had just penned “The Mystery of Lofty Stock Market Elevations” on The New York Times website on August 16 and warned:

The United States stock market looks very expensive right now. The CAPE ratio, a stock-price measure I helped develop- is hovering at a worrisome level…

That being said, Dr. Shiller appeared on CNBC Tuesday morning and told viewers the following when asked what he’s doing with his own money:

I worry about valuation in the stock market. And I’ve been wondering if I should pull out. But I have not. And in fact I’m still thinking that even at the CAPE ratio of 27, the expected return is still higher than you expect to get on either housing, on real estate, or fixed income. So it still seems like- I feel a little trepidation because I know my own indicator is looking kind of scary. I wouldn’t over go into the market, but I wouldn’t be completely out either.


“Scary market indicator: Shiller”
CNBC Video

Shiller mentioned that the CAPE ratio is now 27. It should be noted that in that August 16 Times piece he added:

I wrote with some concern about the high ratio in this space a little over a year ago, when it stood at around 23, far above its 20th-century average of 15.21. (CAPE stands for cyclically adjusted price-earnings.) Now it is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks.

(Editor’s note: Bold added for emphasis)

I’d feel a little trepidation too knowing what’s happened to the stock market when that CAPE ratio surpassed 25.

By 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:

Shiller, Robert. “The Mystery of Lofty Stock Market Elevations.” The New York Times. 16 Aug. 2014. (http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=1&abt=0002&abg=0). 10 Dec. 2014.

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Wednesday, December 10th, 2014 Bonds, Crash Prophets, Housing, Investing, Stocks No Comments

Illinois Named Worst-Run State In America In 2014

“‘We don’t have the time to mess around. We are in deep, deep trouble financially,’ [Illinois Governor-elect Bruce] Rauner told a meeting of the Illinois Farm Bureau at a downtown Chicago hotel. ‘The next 24 months are going to be rough. And I apologize. I ain’t going to be Mr. Popularity for a little while. That’s OK. Four years from now I think, though, everybody will appreciate what we did.’”

-Chicago Tribune website, December 8, 2014

Talk about lists you don’t want to be on. In 2012 and 2013, Illinois was the 3rd worst-run state in the annual best- and worst-run states in America survey conducted by New York City-based financial news and opinion organization 24/7 Wall St.

So how did the “Land of Lincoln” fare in 2014? From the 24/7 Wall St. website on December 3:

How well run is your state? Assessing a state’s management quality is hardly easy. The current economic climate and standard of living in any given state are not only the results of policy choices and developments that occurred in the last few years, but can also be affected by decisions made decades ago, and by forces outside a state’s control.

Each year, 24/7 Wall St. attempts to answer this question by surveying various aspects of each state. To determine how well states are managed, we examine key financial ratios, as well as social and economic outcomes. This year, North Dakota is the best-run state in the country for the third consecutive year, while Illinois replaced California as the worst-run state

(Editor’s note: Bold added for emphasis)

Ouch. Worst part is, the people who brought us this mess are the same ones still in charge, more or less. It will be interesting to see how much of a difference Governor-elect Rauner- who ran on the Republican ticket- can make in the Democrat-controlled state.

24/7 Wall St. went into more detail about my home state’s latest “honor.” From the piece:

Illinois is the worst-run state in the nation. Like many other low-ranked states, more people left Illinois than moved there. Illinois lost more than 137,000 residents due to migration between the middle of 2010 and July 2013. A poor housing market may partly explain the exodus. Median home values fell 16.2% between 2009 and 2013, the second largest drop nationwide. Illinois has extremely poor finances by many measures. Just 39.3% of Illinois’ pension liabilities were funded as of 2013, worse than any other state. Further, the state’s reserves are estimated at just 0.5% of its general fund expenditure, the second lowest reserves rate nationwide. Both Moody’s and S&P gave Illinois the worst credit ratings of any state, at A3 and A- respectively. According to Moody’s, the state’s rating reflects its low fund balances and high pension obligations, as well as its “chronic use of payment deferrals to manage operating fund cash.”

As for our neighbors, Indiana is ranked 28th and Wisconsin comes in at 26th in 2014- down from 19th and 21st- respectively.

That’s quite a hit (9 places) the Hoosiers took from last year. Wonder what’s behind the drop?

Curious as to where 24/7 Wall St. ranked your state in 2014? Head on over to their website here.

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

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Marc Faber, Peter Schiff Issue Another Bubble Warning

“I think we are in a gigantic financial asset bubble.”

-Marc Faber on Bloomberg Television’s Street Smart, January 14, 2014

“We have an entire economy that is supported on a foundation of bubbles.”

-Peter Schiff in a MoneyShow Las Vegas presentation, May 12, 2014

These days, the U.S. economic landscape feels a lot like 2007- if you ask me. There’s a tremendous amount of bullish sentiment out there from rising asset prices. Likewise, a number of threats are simmering in the economy and larger financial system- as was the situation seven years ago.

And just like in 2007, “crash prophets” Marc Faber and Peter Schiff are again sounding the alarm on asset bubbles.

Remember- while most other financial types were predicting clear sailing ahead back then for the U.S. economy and housing market, Faber and Schiff correctly-forecast the bursting of the U.S. housing bubble and the financial crisis that reared its ugly head by the autumn of 2008.

Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, wrote the following on his company’s website Wednesday:

The truth is the Fed knows the economy needs zero percent rates to stay afloat, which is why they have yet to pull the trigger. The last serious Fed campaign to raise interest rates led to the bursting of the housing bubble in 2006 and the financial crisis that followed in 2008. This occurred despite the slow and predictable manner in which the rates were raised, by 25 basis points every six weeks for two years (a kind of reverse tapering). At the time, Greenspan knew that the housing market and the economy had become dependent on low interest rates, and he did not want to deliver a shock to fragile markets with an abrupt normalization. But his measured and gradual approach only added more air to the real estate bubble, producing an even greater crisis than what might have occurred had he tightened more quickly.

The Fed is making an even graver mistake now if it thinks the economy can handle a measured reduction in QE. Similar to Greenspan, Bernanke understood that asset prices and the economy had become dependent on QE, and he hoped that by slowly tapering QE the economy and the markets could withstand the transition. But I believe these bets will lose just as big as Greenspan’s. The end of QE will prick the current bubbles in stocks, real estate, and bonds, just as higher rates pricked the housing bubble in 2006. And as was the case with the measured rate hikes, the tapering process will only add to the severity of the inevitable bust

According to “Doctor Doom” Marc Faber, the extent of the bubbles goes even further than what Schiff identified. Appearing on CNBC’s Squawk Box earlier today, the publisher of the monthly investment newsletter The Gloom Boom & Doom Report warned viewers:

Today, the good news is we have a bubble in everything, everywhere- with very few exceptions. And, eventually, there will be a problem when these asset markets begin to perform poorly. The question is- what will be the catalyst? It could be a rise in interest rates not engineered by the Fed, because I think they’ll keep interests rates at zero on the Fed funds rate for a very long time… We could have essentially a break in bond markets at some point. We also could have a strong dollar. A strong dollar has already happened in the last two months signifies that international liquidity is tightening. And when that happens, usually it’s not very good for asset markets.

By 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.)

Source:

Schiff, Peter. “A New Fed Playbook for the New Normal.” Euro Pacific Capital. 17 Sep. 2014. (http://www.europac.net/commentaries/new_fed_playbook_new_normal). 19 Sep. 2014.

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Posting Resumes Next Week

I’ve been tied up with some personal matters the last couple of days, so I haven’t been able to blog on Survival And Prosperity as much as I’ve wanted to.

New posts are scheduled to be published next week starting Sunday.

Have a terrific weekend!

Christopher E. Hill
Editor

Friday, August 22nd, 2014 Housing No Comments

Marc Faber On Stocks: ‘A Rebound Is Underway’

Swiss-born investment advisor and money manager Marc Faber is uncharacteristically bullish these days. “Doctor Doom” told CNBC Squawk Box viewers this morning:

Now, a rebound is underway, in my opinion. But, I doubt we’ll make new highs…

In general, I think we’ve moved into a very low growth environment. And given the inflated asset markets- real estate, equities, and bonds- I think the future returns will be very low.


“Perma-bear Marc Faber: We’re seeing a rebound”
CNBC Video

The other week, the publisher of the monthly investment newsletter The Gloom Boom & Doom Report told a CNBC Halftime Report audience:

I rather think that we’ll make a peak sometime between the next 30 to 60 days and then go down meaningfully.

If Dr. Faber doubts new highs will be reached in this rebound, did the peak already come and go, somewhat earlier than originally expected?. It kinds of sounds that way.

By 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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Monday, August 11th, 2014 Bonds, Crash Prophets, Housing, Investing, Stocks No Comments

Peter Schiff On Direction Of Interest Rates, Housing, And Gold

Last Friday, “crash prophet” Peter Schiff added a new entry to his YouTube video blog- The Schiff Report. The CEO/Chief Global Strategist of Euro Pacific Capital warned viewers that the Federal Reserve is bluffing about raising interest rates. Schiff- who correctly-called the bursting of the housing bubble in addition to the 2008 economic crisis- also touched on the direction of the residential real estate market and gold. On interest rates and housing, he pointed out:

The risk is that the Fed doesn’t tighten at all, which is exactly what’s going to happen, because they can’t tighten. If the Fed actually tightens, the recovery is over. The recovery that is supposedly giving them the confidence to raise rates- it can’t exist if they raise rates. In fact, if the Fed could raise rates, they would have already raised them. I mean, it’s been over five years. They’re still at zero. And they’re saying rate hikes are a year way maybe. Why? If the economy is recovering, why can’t the Fed raise rates? Because if the Fed raised rates, we’d be right back in recession. Because it’s a phony recovery. That’s what people have to understand. It’s not real. It’s only here as long as the Fed can artificially sustain it, which she might. The minute they raise interest rates, that party’s over. The stock market’s going down. The real estate market’s going down.

And by the way, we had a plethora of negative numbers all week for the housing market. You could put a fork in this phony housing recovery, because it’s done. The market is going down. Housing prices are heading back down. Housing activity is slowing. I think a lot of layoffs are coming in construction because this market’s grinding to a halt…

The Fed is bluffing. This is all bark and no bite. It is impossible for the Fed to raise interest rates. If they could do it, they would have already done it. If they raise interest rates now, they destroy the very recovery that the low interest rates created. The problem is, if it isn’t a real recovery, it’s phony. If it was real, it wouldn’t need the Fed to support it. The only reason it does need the Fed’s support is because it’s imaginary. It’s phony. Because the actual economy is getting worse.

What the Fed is doing to goose the stock market, and the real estate market, to create this phony wealth effect, is undermining legitimate wealth creation. All the money we’re borrowing to spend is interfering with legitimate, genuine economic growth. And we’re just digging ourselves into a bigger and bigger hole…

The problem is, we’re going to have the next recession, and the Fed’s still going to be at zero. They’re still going to have this bloated balance sheet. And again, it’s not that the Fed is never going to raise rates. They’re just not going to do it voluntarily. They’re not going to do it as a decision. They’re not going to do it until they have to. And it’s not going to be a strong economy that’s going to force them to raise rates. Because I don’t care how strong the economic data is- they ain’t going to raise rates. And it doesn’t matter how bad the inflation data is- they’re still not going to raise rates. They’re not going to raise rates until the dollar collapses. Until foreigners no longer want to hold the dollar, because they understand the predicament that the Fed is in. They understand that it is QE forever. That it is all just talk. There is no exit strategy. There never was. Because exit is too painful. This is the end game of QE. This is the all in. This is the overdose.

On gold, Schiff predicted:

Janet Yellen is not going to wage war against inflation. She has already surrendered to inflation. It’s just that a lot of people haven’t figured that out yet. So, because people think that Janet Yellen might raise interest rates sooner rather than later because of inflation, they sold gold. If they knew the truth, that Janet Yellen isn’t going to care about the inflation, that’s she’s just going to let it get worse because she is too afraid to challenge inflation for fear of what it will do to the economy, to the stock market, to the housing market, the job market. So she is going to allow inflation to not only continue, but accelerate. And that is what’s good for gold.


“Ending QE is Bad, Not Ending it is Worse”
YouTube Video

By 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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Does Robert Shiller See ‘Froth’ In U.S. Housing And Stocks?

I first blogged about Robert Shiller, the Yale professor credited with correctly-calling the “dot-com” and housing busts, on Survival And Prosperity way back on December 29, 2010. I wrote:

Back when the housing bubble was fully-inflated, I happened to catch a CNBC special on housing in which Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller Home Price Indices, appeared with a number of individuals tied to the housing industry. When it was Professor Shiller’s turn to speak, he warned that there was a bubble in residential real estate.

The other panel members subsequently ripped Shiller a new one.

Subsequently, those panelists were made to look like major asses as the bubble turned into a bust, while Dr. Shiller was vindicated.

So what does Shiller think of the recent run-ups in U.S. stock and housing prices?

You make the call.

From a piece he penned and which appeared on The Guardian (UK) website Tuesday:

We have had only three salient global crises in the last century: 1929-33, 1980-82, and 2007-9. These events appear to be more than just larger versions of the more frequent small fluctuations that we often see, and that Stock and Watson analysed. But, with only three observations, it is hard to understand these events.

All seemed to have something to do with speculative price movements that surprised most observers and were never really explained, even years after the fact. They also had something to do with government policymakers’ mistakes. For example, the 1980-82 crisis was triggered by an oil price spike caused by the Iran-Iraq war. But all of them were related to asset-price bubbles that burst, leading to financial collapse.

Those who warn of grave dangers if speculative price increases are allowed to continue unimpeded are right to do so, even if they cannot prove that there is any cause for concern. The warnings might help prevent the booms that we are now seeing from continuing much longer and becoming more dangerous

(Editor’s note: Bold added for emphasis)

Personally, I think Robert Shiller may see the current housing and stock market booms as being “frothy.” Consider what I noted back on December 1, 2013- the last time I really brought him up on this blog:

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.

(Editor’s note: Bold added for emphasis)

And now, several months later, as I keep reading/hearing the term “new all-time record” in the financial mainstream media outlets?

Yep. I’d venture to guess he’d say frothy- at the very least.

You can read his entire piece on The Guardian website here.

By 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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Peter Schiff: ‘We Have An Entire Economy That Is Supported On A Foundation Of Bubbles’

Tonight I watched Peter Schiff’s presentation at the MoneyShow Las Vegas back on May 12, 2014. The CEO and Chief Global Strategist of Euro Pacific Capital shared his current assessment of the U.S. financial landscape in “Too Big to Bail: Why the Next Financial Crisis Will Be Worse Than the Last”- as well as where he thinks we’re heading. Schiff warned attendees:

There is no economic recovery in the United States at all. There is no evidence of an economic recovery. The U.S. economy is in far worse shape than it was on the eve of the 2008 financial crisis. We have never been in as worse shape as we are right now. But they say, “Whoa! But the stock market went up.” Yeah, of course the stock market went up. You print enough money, you can make the stock market go up. Yes, the Federal Reserve succeeded in reflating the stock market bubble. But that’s all that it did. That isn’t evidence of a strong economy. Stock prices went up from 2002 to 2007. Does that mean we had a sound economy? No. We were on the verge of a complete implosion. The main difference though between the stock market bubble that we have today and the one that blew up, let’s say, in 2000, is that fewer individuals are participating. This is the bubble for the 1 percent. This is for the hedge funds, the private equity guys… The overwhelming concentration of buyers are very wealthy people. The average American is not participating in the stock market to the extent that he was in the 1990s. And so the Fed is not getting the boost to consumption that you would normally have from the wealth effect because a lot of people aren’t feeling the effects of the wealth because they don’t own stocks.

The same thing is happening in the real estate bubble, which the Fed has managed to reflate. The difference again between the real estate bubble we have now and the real estate bubble that popped in 2007 is again- the average American isn’t participating. Home ownership rates are at 19-year lows. You have hedge funds and private equity companies that are buying up real estate. Last month, I think 43 percent of all the properties purchased in America were purchased for cash. These are not typical Americans buying houses to live in. These are investors buying houses to flip, buying houses to rent out. This is not a healthy market. It is an extremely speculative real estate market thanks to the Federal Reserve.

So the Federal Reserve has managed to reflate two bubbles simultaneously.

And of course, the biggest bubble of them all is the bubble in the bond market.

So we have an entire economy that is supported on a foundation of bubbles…


“Peter Schiff at Las Vegas Moneyshow 2014”
YouTube Video

By 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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