Month: April 2012

Thought of the Day – House Flipping in Colorado

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I overheard a very interesting conversation in a local coffee shop today between a realtor and a prospective client.  It was the sales pitch that really shocked me as I could have sworn I was transported back to early 2005.  She was using lines like “you’d be a fool not to buy with rates this low,” while also peppering the conversation with anecdotes about this “person she knew” that had just flipped a home for a 40k profit in just a few weeks.  America is back folks.

Does this conversation translate into any actionable investment ideas?  Not really, but it relates back to what I wrote several weeks ago regarding the equity markets.  That people that know better are once again drinking the kool-aid.  The one thing I do feel strongly about is despite ubiquitous prognostications of real estate brokers everywhere, housing is going to be in a deep slump for a very long time (unless we get hyperinflation of course, where anything is better than paper dollars).  Despite all attempts to revive housing and trillions of dollars printed and then spent by the government, all housing has done is bounced around the bottom.  Ex-hyperinflation I expect another major leg down within the next couple of years and even in hyperinflation I expect real estate will do poorly in real terms (ie versus gold).

It is at this point that I’d like to direct you to read a piece I wrote in March 2010 titled: Residential Housing: Why it Doesn’t Stand a Chance.  One of the focal points of this piece was that Americans would become a lot more like the Madrilenos that I lived with during my study abroad in Spain.  Basically a huge percentage of the population lived at home until marriage or even after and there is no reason that cannot happen here.  Not to mention the fact that the youth in America are not only likely to rent but also to simply shove more people in the same space.  All of the secular trends I identified back then hold true today and with over $1 trillion in student debt you better believe it is only going to get worse.  There is also the fact that household formation generally, ie marriage, is also likely to enter a secular decline much like has happened in Japan.  It has been and is my view that household formation in America is about to take a drastic turn lower and this will be the biggest headwind for the market.

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Are Pawn Shops Running Out of Gold?

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My Two Cents: Last Thursday, EZCORP Inc., a pawn shop owner and operator in the United States, reported earnings and in that release they had some very interesting things to say that relate to the gold market.  Take this line from their press release where they discuss why they are lowering guidance. This revision in … Read more

Tom Friedman Begs for More Government Power in Latest Op Ed

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My Two Cents:  Ten years ago I actually liked Tom Friedman.  Perhaps it was because of my sheeple state or perhaps it was because I thought From Beirut to Jerusalem was a great book.  In any event, in recent years I have come to really dislike the man.  What initially made me annoyed with him was his complete lack of understanding of how the global financial and monetary system functions, yet his consistent platitudes on how economies and governments should work without understanding the real macro backdrop of it all.  I have also noticed he tends to salivate about more government power and his latest from the NY Times does that in spades.  While I totally agree that special interest groups and lobbyists have way to much influence on policy, at the end of the day it is the politicians that choose to take the payoffs.  Furthermore, he states that there are so many checks and balances nothing can get done!  Really?  It seems they have no problems passing things like the NDAA that allows for the indefinite detention of American citizens without a trial.  Or what about the provision in the recently passed Senate Bill 1813 that will permit the U.S. government to take away your passport if the IRS claims you might be doing something wrong.  Oh and this same bill also mandates black boxes in all new cars. It seems to me that Constitution shredding legislation flies right through, but yeah Friedman we need more government power.  I think you’ve spent too much time in the Middle East pal.

Friedman disturbingly asks: has American gone from a democracy to a “vetocracy” — from a system designed to prevent anyone in government from amassing too much power to a system in which no one can aggregate enough power to make any important decisions at all?

Then of course he takes a shot at the Internet and blogosphere for making it harder for shady political deals: In addition, the Internet, the blogosphere and C-Span’s coverage of the workings of the House and Senate have made every lawmaker more transparent — making back-room deals by lawmakers less possible and public posturing the 24/7 norm.

The he quotes historian Frank Fukuyama as if this guy is the be all end all of political discussion: If we are to get out of our present paralysis, we need not only strong leadership, but changes in institutional rules,” argues Fukuyama. These would include eliminating senatorial holds and the filibuster for routine legislation and having budgets drawn up by a much smaller supercommittee of legislators — like those that handle military base closings — with “heavy technocratic input from a nonpartisan agency like the Congressional Budget Office.”

Did you notice that too?  Heavy technocratic input.  Remember that word and don’t forget it.  It means unelected.  Greece and Italy have technocratic unelected bankster heads of state and believe me that is the plan for here as well.

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Thought of the Day – The Incredible Shrinking Size of Sunscreen

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As most of you reading this are probably well aware, the insidious tax that is inflation can come in many shapes and sizes.  The two main ways that it is manifested in our everyday lives is via price increases and shrinking portion sizes/lower quality.  I have noticed a lot of both in recent months but it is becoming apparent to me that the shrinking portion strategy has taken off into the stratosphere, at least for me in my everyday life.

It is this latter method of passing on inflation that really drives me up the wall.  While transparent price increases are clearly annoying, at least it is fairly clear to the consumer and he or she understands what has happened and that there may or may not be an economic choice at hand.  In the case of shrinking portion sizes, the price signal is much more subtle if present at all.  You may notice yourself going back to the grocery store more often but that might be all you recognize at first.  It is especially hard to notice in the early phases of inflation when the package size may shrink by 3% and the price increase 2% for example.  It’s only in the intermediate stages of the inflation that you really start to notice you are being screwed.  I believe we have entered that phase.

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Anonymous Letter to Senator Shelby…Gotta Read This One

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So I received the following email from a reader in Alabama and he gave me the go ahead to post it anonymously.  This is what we are dealing with.  We need to start getting much more involved and active and hold these people’s feet to the fire. Every second of every minute of every day.  … Read more

Inaugural Thought of the Day – The Farce

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The Farce
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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Welcome to Liberty Blitzkrieg

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He said to his friend, “If the British march By land or sea from the town tonight, Hang a lantern aloft in the belfry arch Of the North Church tower as a signal light, One if by land, and two if by sea; And I on the opposite shore will be, Ready to ride and … Read more

American Airlines Cuts 1,200 More Jobs – Welcome to the Recovery!

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My Two Cents:  Although the article is not clear, it appears that a certain amount of these jobs will be replaced with outsourced (ie, cheaper) workers.  This is just part of a larger structural trend that many have discussed regarding the fact (which is evident from tax receipts) that the jobs being “created” are increasingly lower paid or part-time.  While I have no … Read more

The Spanish King Hunts Elephants While Madrid Burns

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My Two Cents:  In a modern twist on Nero’s fiddling, the Spanish King, Juan Carlos, was caught elephant hunting in Botswana while the Spanish bond market imploded.  The best part is he would never have even been caught if not for the fact that his royal ass fell out of bed and he broke his hip.  Not only was he was … Read more