Crude Oil Production, Change This Year. Are The Saudi's Winning By Maintaining High Production/Low Prices & Taking (Back) Market Share?

[Real Estate] Can't Go Down? Think Again.

"Can’t Go Down? Think Again

By Harry S. Dent Jr., Senior Editor, Economy & Markets

The richest people I know or meet always tell me the same thing: prime cities in the developed world simply can’t go down!

New York, London, Paris, San Francisco, Vancouver, Singapore, Sydney – they’re all invincible! Or so these guys would have you believe.

If there’s any two things history doesn’t support, it’s that the biggest cities always reign supreme… and that the ultra-rich always remain rich.

There’s a reason all good mothers tell their children to become doctors or lawyers. People in those professions will likely end up in the 1% to 10% bracket where they make their money more systematically – like from high salaries. They might not make it into the top 0.1% to 1%, where incomes and net worth are totally unstable, but they’ll make a hell of a living, and have stability to boot. The guys at the top? They may get rich off some radical new business or IPO or from Wall Street speculation. But they might burn out just as quick.

That’s just how they work. Radical innovators, speculators, and even conquerors “live and die by the sword.” They’re too invested – both emotionally and financially.

I get it. But as one of those people who started a radically different business and took huge risks, you’d be shocked by how much my income and wealth has varied over the last 20 years. You’re not on top forever!

So for these people who think they’re going to be rich forever and that they can park millions in cash in prime real estate and get away scot-free, they’ve got another thing coming.

There were two points when the top 1% controlled near 50% of the net worth in the U.S. – 1928 to 1929, and 2007 to 2015. The very top, the 0.1%, control as much as 25% at these peaks.

But those peaks don’t last, as the bubbles that create such extreme wealth don’t last. Their wealth tends to get cut in half in the years and decades to follow.

This has devastating consequences to the real estate prices in huge cities where these global elite park their cash.

They see such cities as the safest place to park large amounts of money. Where else can you buy a 4,000 to 9,000 square-foot penthouse for $20 to $120 million? They can go for as much as $13,000 a square-foot! Try buying a big block of stock for that amount without moving the markets against you. You can’t! So real estate in such megacities seems like a great idea.

But here’s what that assumption might cost them by simply looking back at history. This chart shows how Manhattan – the greatest district in the great city in the world! – fared in the Roaring 20s… then the Great Depression.

The high-end peaked the latest (and most dramatically) in 1929, then crashed 67% into 1939. That’s twice what the average house fell by from 2006 to 2012, and more than twice what the Case-Shiller index shows for top cities that went down into 1933! Even the low-end went down 58% after peaking in 1927.

For comparison in Washington, DC, the median house – the true middle market representing the average American – went down only 26% from 1925 to 1933.

The Case-Shiller index shows the top cities hit new highs again in 1943 – 10 years after its bottom. In DC, the median house recovered back to its highs by the 1940s. But in Manhattan, real estate was still down near its lows in 1939. Sources claim it didn’t reach new highs again until 1953 – others claim 1960!

How could it possibly take as much as 30 years to recover!?

Simple – the greater the bubble, the greater the burst!

The question is, who’s buying these properties at such outrageous prices?

Buyers on the highest end are often foreigners just looking to get a stake and park (or launder) money out of their country – they more often than not don’t really live there.

In any major coastal city you go to, the high-end buyers tend to be affluent Chinese, Russians, Brazilians, or Mid-Easterners. But with the way oil has collapsed, hitting the currencies of Russia and the Mid-East… and the way the commodity collapse has hit Brazil and its currency over 50%... it’s now more down to the Chinese.

...China’s government is finally getting serious about cracking down on money leaving the country under the guise of real estate – as I’ve been predicting would have to happen, the way money’s been fleeing out of China at an unprecedented rate.

Suddenly, those foreign buyers won’t be around anymore – at least not to the extent they have been. Remember the Japanese affluent buying up real estate globally in the late 1980s? They disappeared almost overnight when their real estate bubble collapsed and their wealth with it. And that will leave nothing left to stop this bubble from bursting.

Luxury home builder Toll Brothers and top real estate agents are reporting to Bloomberg that they see Manhattan’s high-end starting to taper off rapidly.

One of Toll Brothers’ executives, David Von Spreckelsen, said: “The days of super pricing and of raising prices every other week, I think, are probably past.” They’re switching gears from the larger apartments to smaller units in the $2000 per-square-foot range… imagine that!

Then Ziel Feldman of Manhattan-based HFZ Capital Group says: “I don’t want to be hostage to a $10-to-$20 million condo market.” As of second quarter, 50% of new development listings were over $5 million. That will not last.

When the high-end cracks, it will crack in many bubble cities driven by foreign buyers. And when this next real estate bubble bursts, it will happen on a much more global scale – much more severe than the last one.

Don’t say we haven’t been warning you... ."

A Buffett Indicator Variant: Wilshire 5000 to GDP

"...The Wilshire Index is a more intuitive broad metric of the market than the Fed's rather esoteric "Nonfinancial corporate business; corporate equities; liability, Level". This Buffett variant is at an interim high."

Full Article

Carl Icahn/Danger Ahead. Experience Speaks. Absolutely Outstanding Advice. Listen to the Whole 15 Minutes!

Look Around! Deflation Has Arrived? Your Assets Are Next?

Hint? "This has NEVER happened before. Previously even a hint of monetary loosening was enough to make stocks rally hard. This time around the Fed clearly acted to support the markets and the markets didn’t respond."

"...Which brings us to today.

Stocks have cratered, slicing through the 50-week moving average with little difficulty. The Fed, unable to announce a new QE program due to political pressure (the media has picked up the narrative that QE increases wealth inequality) decided to deal with this by maintaining interest rates at zero at a time when over 80% of economists thought it was time to raise them.

Despite this, stocks barely bounced and began to break down again.

This has NEVER happened before. Previously even a hint of monetary loosening was enough to make stocks rally hard. This time around the Fed clearly acted to support the markets and the markets didn’t respond.[Emphasis added.] 

A TECTONIC shift has begun in the markets, if they no longer respond to the Fed's efforts to boost them, then it is GAME. SET. MATCH. for the Fed and its policies.

At that point, the END GAME will begin... ."

Graham Summers, Phoenix Capital Research

Source (edited)

Oxford Economics: Global Trade Slows Significantly on Weak Demand

New Home Sales Per 10,000 People in the U.S. (Painfully Slow Progress)

Historically, new home sales have been one of the first indicators to lead the way out of recession.

Private Debt Service Ratio's Since 2008--Prepared for China's Hard Landing?

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It Would Be Nice If Bubbles Went Through "Beautiful Deleveraging", But Historically, THEY BURST!

Gee Whiz It's Hard to Hide Another Bubble Under That Lumpy Rug! (San Francisco Rent Graph)

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Mark Spitznagel: "...if August was scary for people, they ain't seen nothin’ yet." "...what we're witnessing today is the slow death of one of the great myths in human history: this idea that centrally planned command economies work, that they're even feasible, and that they can be successful."

"7 in 10 Baby Boomer women will become widows. Shouldn't life insurance be part of your financial plan." (LIMRA)

China Activity Proxy vs. Official GDP: Gap Widens

World Giving Index Map - Charities Aid Foundation

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The Reality of Debt-Fueled Risk Has Returned?

Subprime Auto Loan Bubble Continues to Expand (Until it Bursts)

And You Thought Your Credit Union Was Conservative and Safe--Is It?

"This is...why the Fed had the regulators drop accounting standards for derivatives..."

"2008 Was a Crisis… It Was Not THE Crisis

The 2008 crash was a warm up.

Many investors think that we could never have a  financial crash again. The 2008 melt-down was a one in 100 years episode, they think.

They are wrong.

The 2008 Crisis was a stock and investment bank crisis. But it was not THE Crisis.

THE Crisis concerns the biggest bubble in financial history: the epic Bond bubble… which as it stands is north of $100 trillion… although if you include the derivatives that trade based on bonds it’s more like $500 TRILLION.

The Fed likes to act as though it’s concerned about stocks… but the real story is in bonds. Indeed, when you look at the Fed’s actions from the perspective of the bond market, everything suddenly becomes clear.

Bonds are debt.  A bond is created when a borrower borrows money from a lender. And at the top of the financial food chain are sovereign bonds like US Treasuries.

These bonds are created when someone lends the US money. Why would they do this? Because the US SPENDS more money than it TAKES IN via taxes. So it issues debt to cover its extra expenses.

This cycle continued for over 30 years until today, when the US has over $16 TRILLION in size. Because we never actually pay our debt off (or rarely do), what we do is ROLL OVER debt when it comes due, so that investors continue to receive interest payments but never actually get the money back… because the US Government doesn’t have it… because it’s still spending more money than it takes in via taxes.

This is why the Fed cut interest rates to zero and will likely do everything in its power to keep them low: even a small raise in interest rates makes all of this debt MORE expensive to pay off.

This is also why the Fed had the regulators drop accounting standards for derivatives… because if banks and financial firms had to accurately value their hundreds of trillions of derivatives trades based on bonds, investors would be terrified at the amount of leverage and the margin calls would begin.

The bond bubble is also why the Fed started its QE programs. Because by buying bonds, the Fed put a floor under Treasuries… which made investors less likely to dump bonds despite bonds offering such low rates of return.

This is also why the Fed is terrified of deflation. Deflation makes future debt payments more expensive. So the Fed prefers inflation because it means the dollars used to pay off debt down the road will be cheaper than Dollars today.

Again, when look at the Fed’s actions through the perspective of the bond market… everything becomes clear.

The only problem is that by doing all of this, the Fed has only made the bond market even BIGGER. In 2008, the bond market was $82 trillion. Today it’s over $100 trillion. And the derivatives market, of which 80%+ of all trades are based on interest rates (Treasury yields), is at $700 TRILLION.

The REAL Crisis will be when the bond bubble bursts. When this happens, it will be clear that real standards of living have been falling since the ‘70s and that sovereign nations have been papering over this through social spending and entitlements (a whopping 47% of US households receive Government benefits in some form).

Imagine what will happen to the markets when the Western welfare states finally go broke? It will make 2008 look like a picnic...."

Graham Summers, Phoenix Capital Research

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The Four Most Dangerous Word in Finance: "This Time It's Different" (after Jon Templeton)

"The Casino Economy: Here’s How The Fed Lost Half Its Bet in One Week

Never Say Never

By Harry S. Dent Jr., Senior Editor, Economy & Markets

Since the financial crisis, central banks have injected trillions of dollars into the global economy. Their goal: to offset the natural downturn from slowing demographic trends and the crushing debt loads of the greatest credit bubble in history.

The Federal Reserve alone has created $4 trillion in QE since late 2008. They tried to solve an unprecedented debt crisis by adding more debt.
A toddler can tell you how backwards that is!

It’s killed investors looking for safe, long-term yields, while empowering Wall Street and hedge funds to lever up at low costs, and bet the casino on never-ending Fed stimulus.

Likewise, corporations buy back their own stocks to increase their earnings per share. It’s bogus accountant voodoo magic. It’s got nothing to do with fundamentals like growing your business. What a novel concept!

And yet, this is the world we live in today: a world in which governments buy back their own bonds, corporations buy back their own stocks, and Wall Street lives on speculation rather than real lending and investment.

As the Fed and other central banks bought trillions of their own bonds, they drove down interest rates to encourage more borrowing and spending.

But as it turns out, they were a little late to the party!

Consumers and businesses had already over-spent and over-borrowed in the great bubble boom leading up to the financial crisis.

As David Stockman puts it, we had already reached peak debt and excess capacity by 2007. Since we can’t go any higher, there’s just one direction left: building up financial bubbles, then deflation when they inevitably burst. It’s happened every single time in history!

I’m sure Lacy Hunt would agree! He has the most astute understanding of economic history of anyone I know.... 

But despite this peak debt, central banks can create more free money at no credit rating limitations. And the largest, most credit-worthy corporations can borrow at near-zero long-term rates easier than we mere consumers or small businesses can, especially after the great recession.

So, these corporations buy back their own stocks to increase earnings per share, even if such earnings are slowing. Even if earnings remain the same, if you reduce the numbers of shares outstanding ­­– bam! More earnings per share! All it takes is rigging the system.

Stock options further incentivize the top executives to do this. If the stock goes up, they benefit, whether they expand the business or not.

What a sweet deal! Why didn’t we think of this before!?

Probably because, decades ago, this mal-practice was quasi-illegal. Corporations used to be prosecuted for this downright manipulation of their stock prices. But not now, when the Fed needs anything to keep this out-of-control bubble going and consumer and investor confidence rising so Humpty Dumpty doesn’t fall again.

These guys will look like idiots in a few years. They’ve bought their own stocks near the top of this bubble, and increased their debt burdens at the worst time in history. They’re not setting themselves up to win, as the challenging downturn ahead will quickly determine which companies survive, and which thrive – just like the 1930s.

The only time the Fed did QE to a substantial degree was during World War II when we had to raise a boatload of money to support a war during a time of rising inflation.

That was a true emergency effort worth taking the risk for. We won the war and moved into one of the greatest peace-time booms in history. We had booming demographics and demand. We paid the high debt ratios and QE off rapidly.

This is not such a worthy effort. And such a recovery won’t happen this time around. We have slowing demographics through the next several years, and a weaker boom to follow.

It was one thing to use QE for a short period to keep the banking system from overreacting and breaking down.

It’s another to make it a long-term policy that perverts everything our free market’s been based on since the Industrial Revolution – the economy won’t be able to rebalance as it’s meant to!

So, let’s add it up…

The Fed creates near $4 trillion in free money to stimulate the economy by buying their own bonds and pushing down longer term yields to near zero risk-free rates…

As a direct effect, corporations buy back their own stocks to the tune of $2.3 trillion…

The oil frackers and other high-risk ventures borrow money at super-low rates to take greater and greater risks for another $1 trillion mal-investment…

And in late August, the first 10% crash in stocks that bubbled up dramatically as a result of QE, sees over $2 trillion of wealth disappear in one week!

HALF of the QE lost in ONE WEEK. Think about that.

Does it sound like the Fed’s $4 trillion bet will pay off? Does this sound like a plan to you?

I think stocks alone will lose $7 to $10 trillion in the years ahead. Don’t even ask me about real estate and junk bonds.

And don’t get me going on China. What they’ve done is much, much worse. Talk about excessive debt and overinvestment!

Every credit and financial asset bubble in history has crashed. Some in a few years. Some a matter of months.

Get safe now on any bounces in the market. The great crash has already begun...."

China's Economic Troubles Spreading in Asia? South Korea's Exports Fall ~15% (1 Chart)

Perspective: Global CPI (33 Countries) Nearing 2009 Lows

Foreign Private Buying of U.S. Treasuries Filling Any Gaps Created by China (others) Selling (1 chart)

Shiller Dow 11000: "I think this is a dangerous time...there is a risk of a substantial decline..."

"A Road Map For How the Crash Will Play Out"[?] Historical Principles...

"Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.

What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it. 

However, this process will not be fast by any means.

Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).

There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.

The reasons for this are:

1.     Investor psychology and faith in the current Central banking system

2.     As mentioned before, Central Banks and the political elites will do everything they can to prop up the system and remain in power.

Regarding #1, investors have been conditioned for over 30 years to believe that there is no problem that Central Banks cannot fix.

In the last 20 years alone, we’ve experienced the Asian financial Crisis (1997), the Russian Ruble Crisis (1998), the Argentinian Crisis (1999-2002), the Tech Crash (2000-2002), and Housing Bust (2006-2008) the 2008 Meltdown (2008-2009), and finally the Euro Crisis (2010-present).

By hook or by crook, Central Banks have managed to pull the financial system back from the brink for all of these. The end result has been that we are now sitting on the single largest asset bubble in history: the $100 trillion global bond bubble (well, really it’s $555 trillion if you include derivative exposure to bonds). 

From the perspective of investor psychology, an entire generation of professional fund managers and investors have become pillars of the establishment without seeing Central banks fail at propping up the system (a fund manager who started working at age 22 in 1997 is currently 39… and the pros who actually lived through 1987 are now well into their 50’s if not older). Heck, less than 33% of traders have even seen a rate hike before!

Because of this, when crises do actually happen, it takes considerable time for investor psychology to shift from the euphoria associated with financial bubbles to initial concern, then from initial concern to outright worried, and from outright worried to panic.

By way of example let us consider the details surrounding the Tech Bubble: the single largest stock market bubble of the last 100 years.

In this case, the Bubble pertained to just one asset class (stocks).  In fact, the bubble was relatively isolated to one specific sector, Tech Stocks.

And to top if off, it was absolutely obvious to anyone that it was a Bubble: note that the Cyclical Adjusted Price to Earnings or CAPE ratio for the Tech Bubble dwarfed all other bubbles dating back to 1890.

Stocks were so obviously overvalued that it was truly absurd.

And yet, despite the fact that this bubble was absolutely obvious and involved only one asset class, it still took investors well over six months after the initial 20% crash to realize that the top was in and the bubble had burst.

Moreover, during this six month period in which the single largest stock market bubble of all time burst, stocks did NOT go straight down. In fact, they were an absolute ROLLER COASTER with more than EIGHT price swings of 16% or greater.

Let that sink in for a moment. Stocks were clearly in a bubble. Indeed, it was literally THE stock bubble of the last 100 years. And yet, when it burst, there was no clear consensus as to where the market was heading. 

In a six month period, investors moved stocks down 19%, up 8%, then down 27%, then up 21%, then down 22%, then up 34%, then down 17%, then up 16%, then down 28%, then up 16%, and finally down 17%. Only at that point did stocks break their trendline for the bubble (the blue line) and it became obvious that the bubble had burst.

My point with all of this is that even when the bubble was both very specific AND obvious, the collapse was neither quick nor clean. There were several large 20%+ crashes, but overall, it was a roller coaster with jarring rallies that gradually wore its way down.

Indeed, it took stocks another TWO YEARS to bottom even AFTER the bubble had burst:

And when you extend the collapse from peak to trough, the whole collapse took nearly three years. And this process was actually accelerated by the Fed actively cutting interest rates and flooding the financial system with liquidity.

To return to my initial point: the coming collapse in the financial markets will take its time. However, this process HAS started. And before it ends, we expect stocks to be 50% lower than they are now...."

Graham Summers, Phoenix Capital Research