by Jamie Lee
“Bulls make money, Bears make money, but Pigs go to slaughter”
“Trees don’t grow to the stars and neither do markets”
“Timing isn’t everything, it’s the only thing”
“You’re either at the table or on the table”
“In this game you either Prey or Pray”
Old Wall Street adages.
For over 30 years, beginning in 1985, I worked on, in and around Wall Street right as the over the counter NASDAQ market was getting started. I began my career as a clerk at the New York Stock Exchange before computers took over all trading activities. In 1991, I started my own company after working for two investment banks as an institutional sales trader.
Back in the 1990’s it was still a good ol’ boys network where women were not even allowed to go into the 7th floor bar at the NYSE after the markets closed. We knew mostly who the buyers and sellers were since the trading of stocks was done through known institutions. It took several days just to clear and settle trades and brokerage companies were mostly transparent due to strict regulatory oversight. Hedge funds were just getting started thanks to the end of fixed commissions while derivatives and computer generated high frequency trading, etc. were non-existent.
The government and regulators promoted “level playing fields” so that all investors, especially the small time mom-and-pops, had fair and equal access to information to make decisions on where to invest their life savings.
There were many investment boutiques as well as large investment houses along with brokerage firms but no large banks because of the Glass Stegall Act, which kept banks from manipulating the stock market like they had done to crash the markets in 1929. All changed in 1999 when President Clinton gutted Glass Stegall, allowing banks to cross the “Wall of China” and use their own capital as well as manage client capital creating serious conflicts of interest.
Today, all financial markets are owned and controlled by a very, very few. With nearly everyone’s wealth and 401k’s tied to stocks and bonds, what happens to stocks affects us all. Through this concentration of wealth and control by a few banks, and complete compliance of the U.S. Treasury and Federal Reserve, they can crash markets in a matter of seconds (2010 flash crash 1,000 pt. drop in minutes).(Source)
Market Fundamentals 101
“You can not reduce debt obligations by creating more debt”
They can, and do this through actions by secret market manipulators like the not-so-secretive “Plunge Protection Team” (Source) or they can pump up markets by creating money out of thin air using completely absurd actions like “Quantitative Easing” that has increased our obligated debt to some $16 TRILLION dollars and our yearly debt to $1 Trillion in this country.
Additionally, all money policy, which directly affects all markets by stimulating or reducing money supplies, is directed by central banks of each country. In 2007 U.S. General Wesley Clark (Ret.) identified the “rogue states” that were on the U.S. target list. They included Iraq, Syria, Lebanon, Libya, Somalia, Sudan, Iran and later named North Korea, Cuba and Afghanistan. It is not a coincidence that the countries we are interested in regime changing are the same ones without membership to the globalist banking system. (Source)
What all these countries had in common was that they did, or do not currently, have central banks and were not members fo the World Trade Organization and the criminal Bank of International Settlements, which is used to launder Black Op drug money. (Source)
The introduction of the computers to investing and wealth accumulation has led to ever greater ‘quant’ trading, to the point now over 70% of all trading on major stock exchanges are done by High Frequency Traders who make guaranteed profits, at lightning speeds, running ahead of most stock investing customer orders.
Few understand how greatly this change in how markets move occurs and even the quant geeks themselves don’t really understand either. For a great explanation of how today’s markets are manipulated and can crash on a moments notice, see this excellent video:
Nearly everyone I know in the investment community is astounded and amazed how this charade has continued for so long. Most of us thought 2008 was the final market top yet the Fed massive money creation scheme bought them another few years.
Us old timers in the market like to cite facts like our Treasury has been buying over 70% off all the debt the Federal Reserve issues for years. Think about that for a moment. The Fed’s issue debt, which our government buys, with money it borrows…from itself. WTF?
The past few weeks we have seen natural gas prices rise by 59%, countries like Argentina see a 15% devaluation in its currency and massive unabated civil unrest in Thailand, Ukraine, Mexico, China, Russia, Turkey, Iraq, Greece and Sudan (Source).
These countries are all out of “Hopium” for their citizens and people are voting with their feet to take down the respective regimes and it is only time before all markets fall hard, very hard from their artificial levels, especially in the U.S., since we are the country with the greatest debt the world has ever seen and manufactures very little.
And the biggest elephant in the room, China is dominating the oil, energy, currency, gold and military markets like never before. Last year, the BRICS countries (Brazil, Russia, India, China, and South Africa) even have gone so far to start their own banking system. As other countries gain power the U.S. is the direct loser. (Source).
The U.S. dollar is finished as the world’s only reserve currency as the dollar has lost 98% of its value since 1930’s (Source). Consumer debt, student debt, mortgage debt has increased exponentially while savings by individuals in this country is nil or negative for years. True unemployment in this country is above 20% with little hope of jobs going forward due to business’ continual outsourcing and now the “Robotic Revolution” is replacing jobs everywhere, so now they are calling this a “jobless recovery”!
Getting cash, getting out of debt, greatly reducing your exposure to stocks and real estate investments as well as investing in critical food and water supplies may be critical now.
It’s been a lovely ride since 2008 for those who have believed in cyclic markets, based on fake stimulus using massive debt increases. Heck, it’s been a lovely century for investing in Wall Street but its over. In the past stock market appreciation occurred as our country created its wealth through needed goods and services to others. Since 2008, the rallies have all been through social engineering stocks, who provide no real wealth creation, only “Ap’s and Add-ons” through ever-increasing borrowing.
Going to cash, getting out of or greatly reducing debt, exposure to stocks, and real estate investments is critical now. Investing in critical life supplies like community, food and water supplies is essential. One always here’s some other in the business say “This time its different” and markets go in cycles yet they fail to realize that A) monetary policy based on debt always throughout history has collapsed and B) there are cycles within cycles within cycles over time.
In December, the Federal Reserve announced it was “tapering” its Quantitative Easing of over a Trillion dollars to date since 2008. They followed this announcement by goosing the markets using the Plunge Protection Teams actions but now that ship has sailed.
Then end of money creation by the Fed’s signals the end of the game of wealth creation by the printing money.
It’s over, get out.
Ken Jorgustin of Modern Survival Blog writes:
Is there a major financial crash in our near future? You must check out this stunning analogy between the current day Dow Jones Industrial Index compared with the time period 1928-1929 leading up to the memorable stock market crash…
The pattern of stock price movements looks VERY close to the lead-up to the 1929 top.
A lead-up to just any old top is one thing, but the 1929 top was followed by a memorable decline, which makes it all the more worthy of our attention…
For Those Who Believe in Cycles….
“Ken stops short of predicting that stock markets will do the same thing this January as they did in 1929, but take a look at this amazing comparison and decide for yourself if it’s possible that this whole thing will break wide open on or around January 14th of 2014:
Chart by McClellan Financial Publications via Modern Survival Blog
Critical Knowledge (or Knowing where the Ledge is!)
What it means if the U.S. Gov’t stops funding its Debt?
Quantitative Easing: “Keeping the Ship Afloat”
In a bitter irony, while the Wall Street financial institutions were the recipients of the bailouts, they are also the creditors of the federal government, which had been precipitated into a structure of deficit financing controlled by Wall Street. This deficit financing –which was facilitated by Quantitative easing– is distinct from the Keynesian framework. It is controlled by the creditors. It does not create employment, it is not expansionary. It has little bearing on the real economy.
This post 2008 fiscal structure has had a fundamental impact on the process of debt formation. Tax and other federal government revenues had been assigned in 2008-2009 to bailing out the banks while relentlessly funding the war economy including the financing through black budgets of a growing number of Private military and security companies (PMSC).
The public debt has increased by almost 70 percent in five years, from 9.9 trillion in 2008 to 16.7 trillion in 2013 (October 2013 estimate of the debt ceiling, see graphs above).
The various phases of Quantitative Easing (QE) throughout the Obama presidency were largely intended by Wall Street to keep the ship afloat, with an increasingly larger share of the debt owned by the Federal Reserve (in the form of Treasury bills). The Fed has largely been involved in propping up its assets.
Under QE, tens of billions of dollars are injected into financial markets. Quantitative easing has not resulted in a positive stimulus of the real economy. “The real goal of the Federal Reserve is to guarantee the continual profitability of Wall Street and the personal incomes of the super-rich.”
The Fed is not a publicly owned central bank; it is a network of 12 private US banks, with the New York Federal Reserve Bank playing a key role. Operating under a semi-secret veil, major Wall Street financial institutions (including the big four) are the “stakeholders” of the Federal Reserve, which ultimately call the shots on Capitol Hill. At the outset of the Obama administration in 2009, The Federal Reserve Banking system (which is an unaccountable private entity) has been granted increased authority in its management of the US economy, overshadowing the prevailing system of public regulation of the financial system, as well as reinforcing the subordinate role of the US Treasury in relation to Wall Street.
Policies pertaining to the shutdown of the government and the statutory debt ceiling are determined by Wall Street and the Federal Reserve, the US government’s largest creditor. The Federal Reserve banks currently holds $2.1 trillion of US public debt. Japan and China respectively own 1.1 trillion and 1.3 trillion of the US public debt. Based on Jun 2012 figures, The Federal Reserve owns 16 percent of the Federal Debt held by the Public.
HSBC is paying $2 billion, or 5 weeks’ worth of its profit, to avoid criminal charges in drug cartel laundering case
Concerns about an imminent bank crash were further fueled today at news that HSBC are restricting the amount of cash that customers can withdraw from their own bank accounts. Customers were told that without proof of the intended use of their own money, HSBC would refuse to release it. This, and other worrying signs point to a possible financial crash in the near future.
HSBC is scrambling to manage a seemingly terminal liquidity crisis (a lack of hard cash) that could see the bank become the next Northern Rock – and trigger a bank crash. The analyst’s advice is for shareholders to sell HSBC investments, and customers to move their accounts elsewhere before the crash.
This from the Telegraph:
Forensic Asia on Tuesday began its coverage of Britain’s largest banking group with a ‘sell’ recommendation, warning the lender had between $63.6bn (£38.7bn) and $92.3bn of “questionable assets” on its balance sheet, ranging from loan loss reserves and accrued interest to deferred tax assets, defined benefit pension schemes and opaque Level 3 assets.
According a report by the BBC’s MoneyBox Programme, HSBC customers have gone to withdraw cash from their accounts, only to find HSBC would not release the funds. Customers were told to make a bank transfer instead, unless they provided documentation proving the intended use of the money. Stephen Cotton attempted a withdrawal and told the programme:
“When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved.”
Mr Cotton says the staff refused to tell him how much he could have: “So I wrote out a few slips. I said, ‘Can I have £5,000?’ They said no. I said, ‘Can I have £4,000?’ They said no. And then I wrote one out for £3,000 and they said, ‘OK, we’ll give you that.’ “
He asked if he could return later that day to withdraw another £3,000, but he was told he could not do the same thing twice in one day.
As this was not a change to the Terms and Conditions of your bank account we had no need to pre-notify customers of the change”
He wrote to complain to HSBC about the new rules and also that he had not been informed of any change.
The bank said it did not have to tell him. “As this was not a change to the Terms and Conditions of your bank account, we had no need to pre-notify customers of the change,” HSBC wrote.
In early 2013 the country of Cyprus locked down private banking accounts and restricted access to depositor funds. It was the first widely documented instance of a “bail-in,” as bank officials and European regulators determined that bad loans taken on by the banks were now the responsibility of the banks’ customers. This led to a country-wide confiscation of 10% or more of all customer funds. In the heat of the Cyprian financial panic banks limited cash withdrawals to around $300 and ramped up security to prevent angry Cypriots from breaking down the doors.
Public Funds At Risk
We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels. This research seeks to provide investors with some lead indicators as to when the current disinflationary forces erupt into a destructive deflation. Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations.Indeed, when key prices are already falling across the globe, one should expect one key major credit event to occur.
Three times since 1997 inflation has fallen below 1% with very negative impacts for equity investors. On all three occasions an existing low level of inflation was forced lower by dramatic events: the bankruptcy of Russia and collapse of LTCM in 1998; the terrorist attacks of 11 September 2001; and the bankruptcy of Lehman Brothers in September 2008. While nobody would attribute the 11 September atrocity with extant global deflationary forces, the other two episodes can clearly be associated with such forces. So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation.
Could the success of “The Wolf of Wall Street” signal that the market is near a top?
Carter Worth, chief market technician at Oppenheimer, argues that the Oscar-nominated movie should indeed give bulls pause. After all, he said, interest in the film shows that interest in the market has gone mainstream—an observation bolstered by measures of participation in the stock market.
“When mass media or broad media picks up on something, typically that thing is reaching an end
stage,” Worth said.
For him, looking at movies is a modern-day version of the classic magazine cover indicator, which holds that the market tends to do the opposite of what a cover states about it. For instance, a technical analyst who believes in the magazine cover indicator would take a bear on the cover of Forbes as a bullish sign for equities.
Today, with more eyes on films than on magazines, what might be called the “Hollywood indicator” could prove to be a better tell.
Worth points out that the track record for stocks around the release of a major movie about Wall Street has not been good. In 1987, the market crashed suddenly in October, two months before the release of “Wall Street.” In 2000, “Boiler Room” was released as the market was peaking.
The most damning piece of evidence may be the timing of the first “The Wolf of Wall Street.” An otherwise unrelated film by the same name, it was released in February 1929 (and was produced by Paramount, which distributed the 2013 film)—months before the horrific crash of that year.
“There is some rhythm here, some rhyme,” Worth said.
When this indicator of global trade rises, everything is rosy and reams of asset-gatherers and talking-heads wil quote it as indicative of how great the world is. When it drops – silence. There’s always an excuse – over- or under-capacity, too many ships, too few ships, etc. However, the last 2 weeks have seen a 35% collapse in the cost to ship bulk. There is a relative seasonal pattern over the holiday period – with shipping costs rising into the holiday and falling after but… this is the biggest drop from a Christmas Eve since at least 1984, 30 years! Seems like the inventory stacking of Q4 had absolutely no follow-through whatsoever…
Sales of Computers and Electronics at 1993 Levels
2013-12: 20,313 Million of Dollars
Monthly, Seasonally Adjusted, Updated: 2014-01-28 7:36 AM CST
But in recent years, bubbles have taken on a new significance. It would not be exaggeration to say that the American economy has been running on bubbles for two decades now. The dotcom bubble of the 90s gave way to the housing bubble of the Bush era and now the Bond bubble of Chairman Ben’s QE insanity. This is not an isolated occurrence of hysteria, but a prolonged period of financial illusion. As fast as one bubble deflates, a new one is inflated. It gives the impression of a steadily growing economy subject to the occasional setback, but in reality the economy is being supported by a string of carefully crafted fictions.
Sadly, as with every other fiction, the story has to end at some point. And when this era of bubble creation ends, vast swathes of the public stand to lose everything they have. That’s why it’s important to identify, understand and avoid the bubble trap. Because as hard as it is to believe, it’s not always possible to see the bubble while you’re inside of it. In fact, this is one of the ways that a bubble economy operates: by convincing you that this time it isn’t a bubble at all, it’s a “new normal” that’s rewriting the laws of economics.
In that spirit, I offer you three of the bubbles of our present era, and the best way to position yourself for their inevitable popping….(More…)
Here are some useful stats to keep in mind that show how sudden and savage the 2008 market collapse was:
- Week of Oct 6, 2008 – The Dow Jones drops 18%; its worst week ever in terms of both absolute and percentage loss.
- March 6, 2009 – The nadir for the stock market. By this date, 5 months after the crisis began, the Dow was down 54% since October
The takeaway here is that the wealth destruction caught most investors flat-footed. Most were unprepared – both psychologically as well as with their portfolio positioning – to react.
Many investors thought themselves savvy and nimble enough to avoid the losses they ultimately suffered, telling themselves an ill-fated narrative similar to what Charles Prince told his shareholders:
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”
Most readers remember how Citigroup’s price dropped from over $500/share, when Prince made this comment, to $10/share in March 200
The Big Fed Tightrope
by Paul Craig Roberts, former economic advisor to Ronald Reagan
The conclusion is obvious. QE helps the big banks, and manipulation of the gold price downward protects the US dollar from its dilution by QE.
The Fed’s reduced bond purchasing announced for the New Year still leaves the Fed purchasing $900 billion worth of bonds annually, so obviously the Fed does not think that everything is OK. Moreover, the Fed has other ways to make up for the $120 billion annual reduction, assuming the reduction actually occurs. The prospect for tapering is dependent on the US economy not sinking deeper into depression. Massaged “success indicators” such as the unemployment rate, which is understated by not counting discouraged workers, and the GDP growth rate, which is overstated with an understated measure of inflation, do not a recovery make. No other economic indicator shows recovery.
Until a whistleblower speaks, we cannot know for certain, but my conclusion is that the Fed understands that it must protect the dollar from being driven down by QE and that the orchestrated takedowns of gold are part of protecting the dollar’s value, and perhaps also the cutback in QE is a part of the protection by signaling an end of money creation. The Fed also understands that it cannot forever drive down the gold price and that it cannot forever pour liquidity into stock and bond markets. To retreat from this policy without crashing the edifice requires successful orchestrations. Therefore, we are likely to experience more of them in the days to come.
When it comes to reckless money creation, it turns out that China is the king. Over the past five years, Chinese bank assets have grown from about 9 trillion dollars to more than 24 trillion dollars
. This has been fueled by the greatest private debt binge that the world has ever seen. According to a recent World Bank report, the level of private domestic debt in China has grown from about 9 trillion dollars in 2008 to more than 23 trillion dollars today.
As MIchael Hudson has informed us, the goal of the financial sector has always been to convert all income, from corporate profits to government tax revenues, to the service of debt. From the bankers standpoint, the more debt the richer the bankers. Rubin, Summers, Paulson, Geithner, and now banker Treasury Secretary Jack Lew faithfully serve this goal.
The Federal Reserve describes its policy of Quantitative Easing — the creation of new money with which the Fed purchases Treasury debt and mortgage backed securities — as a low interest rate policy in order to stimulate employment and economic growth. Economists and the financial media have parroted this cover story.
In contrast, I have exposed QE as a scheme for pumping profits into the banks and boosting their balance sheets. The real purpose of QE is to drive up the prices of the debt-related derivatives on the banks’ books, thus keeping the banks with solvent balance sheets.
Dave, aka ‘Dark Cloud’ is a former colleague who used to sit on a trading desk with a few other friends way back when…he is the ‘lone’ shorter left…a sure sign of the top when a the “Last Short Seller” is ridiculed and outed for sticking to his investment objectives for his customers.
And his performance speaks volumes for his talents and success over the long term:
“Mr. Davidson says he cleaned up in the crashes of 2000 and 2008, which leads to one reason he doesn’t feel pressured. He’s isn’t working just to put food on the table. “I’m one of the people who put a bunch of money away when I made a bunch.” So he can afford to hold out against the losses.
The other reason almost as simple: “I’ve seen this movie before.”
Talking to Mr. Davidson, one gets the sense of a gold prospector who’s hit paydirt at a certain spot before, twice in fact, and believes there’s another lode there to be uncovered. This past summer’s swoon, when the Fed merely suggested it was thinking about reining in its stimulus programs, was just a hint of what’s to come, he says. “I don’t think this new era we’re in now is sustainable,” he said.
A third reason is this: over the course of 12 years, from 2000 to 2012, his net cumulative return to shareholders has been 55%. “All short,” he said.”
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
Following what billionaires are investing in could help you beat the S&P 500 almost every time.
A new index allows investors to track what the world’s top investors are putting their money into and how well they’re doing each quarter.
The iBillionaire index XX:BILLION , launched Wednesday on the IntercontinentalExchange, freshly merged with the NYSE ICE , tracks the activity of 10 top billionaires on the New York Stock Exchange and so far shows 2013 yearly returns to be seven percentage points higher than the S&P 500′s. Returns for 2012 also beat the S&P 500 by more than seven percentage points, but 2010 saw the S&P 500 beat the iBillioniare index by more than five points.
Right now the index is tracking investments by billionaires Warren Buffett, Carl Icahn, David Tepper, Leon Cooperman, Daniel Loeb, John Paulson, Jorge Lemann, Chase Coleman, David Einhorn and Steve Mandel for the quarter. The next quarter switch is expected to be Nov. 15.
They don’t ring bells at the top, but when a company called Fantex Holdings plans to sell shares in professional athletes and possibly actors and musicians, a chill should race up the spine of investors.
You know this isn’t your grandfather’s market when a company pushing chicken wings (Buffalo Wild Wings) sells at over 40 times earnings. And when a company that dominates retail but doesn’t make any money (Amazon) trades for $350 a share. And when a company that pumps old movies, TV shows, and a sliver of new content to subscribers trades at 280 times earnings (Netflix).
Let’s just say that American industry ain’t what it used to be.
“As General Motors goes, so goes the nation,” was relevant a long time ago. Today’s nation is gaga for something different: fantasy football. Adults lining up players against each other like toy soldiers is a billion-dollar business for the companies facilitating the fun and games.
Bloomberg reports: “About 25.1 million people play fantasy football in the U.S.… About $3.38 billion is spent annually in the U.S. on fantasy sports… [T]hree-quarters of that, or about $2.54 billion, is spent on football.”
““There is also the fact that this should be a special place. This is the home of the Queen. Where is it all going to end?“
The Neveau Riche Are Just Rubbing it in our Faces
Well, if you thought you’d seen all the madness and absurdity that could possibly come out of the financial system by now, you are definitely being caught on the wrong flat foot as we speak. And there can be no doubt that much more of this will be revealed as we go along. Jamie Dimon renting Buckingham Palace to celebrate his $13 billion settlement with US regulators is just the beginning, though it’s a pretty clear statement of just how untouchable too big to fail policies have made Wall Street and the City feel. And they don’t feel that way for nothing, in every sense of the word, count on it.
A Labour spokesman said this about the party at the Palace, which included appearances by the Royal Philharmonic and the English National Ballet: ““There is also the fact that this should be a special place. This is the home of the Queen. Where is it all going to end?“ Well, sir, maybe it’s time to wake up, because the new kings and queens of the world have taken over. And they intend to be loud and proud about it, like any group of conquerors throughout history ever did.
This thing about the Fed paying interest on reserves that banks have with it, is another example of this. We’ve all seen to which extent those reserves originate as directly as possible from the Fed’s own QE policies. They hand that $85 billion a month to Wall Street, much of it in exchange for MBS, so the mortgage debt risk no longer rests with the banks, and then pay interest on what it’s just handed to the banks. And whatever explanations and excuses may emanate from the banks themselves and the financial press that serves them, in essence it’s just another piece of too big to fail folly. Once it’s become acceptable to complain about the interest the Fed pays you on the reserves it’s just handed you, it’s like that Labour guy said about Buckingham Palace: “What’s next”?
The JPMorgan settlement, and the shenanigans that surround it, is not an isolated case. It perfectly fits an established pattern. Remember Libor? Here’s the Wall Street Journal’s interpretation of events, with some great graphs. And before we go any further, why not ask yourself how it’s possible that this long term and at times hefty manipulation of an instrument to which according to the WSJ, $800 trillion in securities and loans are linked, results in total fines of just $5 billion or so. But that’s not even what I would like to point out here, that’s a story for another day.
As Water Scarcity Rises, Profits to Go Up Huge
The global water industry is already a $500 billion a year business – and it’s headed to $20 trillion by 2025. That’s 3,900% growth in 12 years, headed for an amount bigger than the $17 trillion U.S. economy.
The reason for this explosive growth?
According to the United Nations, 783 million people today do not have access to water, and a shocking 2.5 billion people lack basic sanitation. That’s why the world is already spending billions of dollars on water.
Now imagine what happens when you add 2 billion more people by 2025. By then, the World Water Organization estimates, water demand will exceed supply by 56%.
Student Loans Greater than All Credit Card Debt and About to Go Market Rate
A bipartisan vote of 392-31 in the House of Representatives has approved a plan that will link student loan interest rates to financial markets via 10-year treasury notes. The plan, originally brought before and approved in the Senate two weeks ago, will eliminate the difference between subsidized and unsubsidized loans and is setting the stage for student loan interest rates to go far higher than current levels.
First-time home buyers, long a key underpinning of the housing market, are increasingly getting left behind in the real-estate recovery. Such buyers, typically couples in their late 20s or early 30s, have accounted for about 30% of home sales over the past year. They represented 40% of sales, on average, over the past 30 years, and accounted for more than 50% in 2009, when recession-era tax credits fueled the first-time market, according to data from the National Association of Realtors. The depressed level of first-time buyers could prove to be a drag on the housing rebound and the broader economic recovery over the longer haul.
November 1, 2013
See the week’s scary housing and jobs data
Week in Charts: Employment, consumer confidence data chartered
Foreign Ownership continues in CA Real Estate
At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar
“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”
The Madness of Crowds
Charles MacKay’s excellent classic reference book, Extraordinary Popular Delusions and the Madness of Crowds, explains the nefarious nature of public manias: They strive to suck in as many participants as possible before collapsing.
We are seeing classic signs of the abandonment of concern by the public in favor of not missing out on ‘easy gains’. In addition to the examples mentioned above, signals that the fear trade has given way to the greed trade are abundant these days:
- Stock chasing – Here’s a quote the WSJ recorded from an actual retail investor buying shares on the first day of the recent twitter IPO: I messed up not buying any Facebook so I want to get some Twitter. I’m just buying because everyone’s talking about Twitter. Not because of its product (which she admitted she didn’t use). Or its business model (which has never been profitable and unclear whether it ever will be). The purchase decision was based purely on hype.
- Priority abandonment – At Peak Prosperity, we speak with professional financial advisers frequently. The advisers we know best focus on risk mitigation and remain skeptical of the sustainability of the prolonged market rally. Many of their accounts signed on after 2008, clearly declaring that they prioritized protection of their capital over everything else. Yet a growing number of these investors are watching the continued rise in financial asset prices and are now pushing for more aggressive management. They’re abandoning the prudence that was so important to them just a few years ago.
- Bear capitulation – The path to a bull market peak is littered with the carcasses of bearish analysts that dared to challenge its rise. As the % bearish Investors Intelligence chart above shows, there are few bears left to be found anymore. Just last week saw a major defection from the bear camp, with the perennially critical Hugh Hendry throwing in the towel, exclaiming:
IF you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream – and not make dreams your master;
If you can think – and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!