Three years ago I wrote a an article on housing titled: Residential Housing: Why it Doesn’t Stand a Chance. In it, I speculated that the targeted centrally planned price recovery in residential real estate would fail to materialize in any meaningful manner, and my rationale was the younger generations would be unable to afford a new home and would instead move in with their parents. As a result, I speculated that household formation would plunge and housing values would not move higher. I was wrong.
Well I was partially wrong. While I was right about young kids being too broke and saddled with debt to buy homes, I was definitely wrong about the price direction of residential real estate. My error was that I failed to anticipate private equity money coming in and outbidding average Americans in their quest to become feudal slumlords. I also failed to anticipate the U.S. government allowing billions upon billions of dollars of foreign laundered money in the market. Simply put, like so many other things, the fundamentals of the market demanded one thing and central planning demanded another. Central planning won in the near-term.
While central planning has seemingly achieved its goal, they have merely created another bubble. A bubble in which fundamentals will have their day and a completely unsustainable societal situation has emerged. Rising rents and falling incomes. For example, in Minnesota we find that “since 2000, rents have risen about 6 percent statewide, but renter incomes have dropped about 17 percent.” More from local news channel WXOW:
ST. PAUL, Minn. (AP) — A new report says there’s a shortage of affordable rental housing in most Minnesota counties.
The analysis from the Minnesota Housing Partnership says that in all but three of the state’s counties there are more low-income renters than affordable units.
Researcher Leigh Rosenberg tells Minnesota Public Radio News (http://bit.ly/14t5sKv ) that since 2000, rents have risen about 6 percent statewide, but renter incomes have dropped about 17 percent.
As I said yesterday on Twitter:
The new American Dream is to one day be able to move out of your parent’s basement and rent from Blackstone.
Full article here.
A couple of months ago one of my closest friends in the business spontaneously described the financial markets as “The Farce.” I took to it immediately and from that day on pretty much every morning our first conversation over Bloomberg begins with “so how’s the farce today?”
Long time readers know that I am under no illusions that the markets were ever “free” in our investment lifetimes. Let’s be real. A small group of 12 Central Planners determine the most important price signal in the economy, ie interest rates. They admittedly use this tool to manipulate behavior and markets. So in some ways the financial markets as long as we have had fiat money and the Federal Reserve has always been a farce in the near-term.
That said, the prior farce is very distinct from the current farce. At least in those days interest rates would manipulate behavior but beyond that basic macro backdrop the Central Planners allowed markets to generally do whatever they wanted until in their infinite wisdom they decided to pull the plug. Ever since the banksters blew up the world in 2008, our Central Planners clearly made a decision that a new playbook was needed. They needed to manage markets much more aggressively in order to “save the system” and restore confidence to the ponzi scheme that is the global financial system. This increased manipulation was obvious to anyone paying attention in the markets, but investment managers were so terrified they justified it and largely continue to do so.
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The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.
Each central bank… sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
- Carroll Quigley (Bill Clinton’s mentor at Georgetown) from his 1964 book Tragedy and Hope
Crime Once Exposed Has no Refuge but in Audacity.
Central Planning for Dummies: There Will Be QE
For several years now I have been sounding the alarm that if you want to be engaged in the financial markets you need to assume that markets are being managed (rigged) more aggressively than at any moment in any of our lives. The Bernank and others on Wall Street and the District of Criminals understand that the situation is pretty much hopeless. Ever since 2008 they have had one strategy. From a monetary and fiscal standpoint, that strategy has been to pump massive amounts of liquidity into the system while at the same time borrow enormous amounts of money. The thinking was that this would stabilize the situation, create confidence and thus ultimately a dynamic sustainable recovery. They certainly bought a few years with this plan but confidence has not returned, nor has there been any sustainable recovery. What we need to understand at the moment is that The Bernank and all of his fellow Keynesian Central Planning magicians know that they have failed. This is why he is running around on college campuses presenting his sad and intellectually dishonest presentation of propaganda that even a six year old could refute. In fact several people have done just that. Here is one good article on it. Moreover, Jim Grant recently gave an incredible speech at the belly of the beast itself -The New York Federal Reserve –where he completely undresses the Fed right to their face. You must read this one.
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