We got a rare moment today its what Im
going to call a truth nugget. Anyone who reads this column or any one of
several hundred others already knows this, but as you all well know there is
nothing to see until the mainstream press declares it to be so. Today we were
finally told that no, there will be no exit from the not-so-USFeds
quantitative easing program. Ever. Like I said before, this is no revelation;
anyone with even the slightest of brainwaves could easily figure this out
without the watchful, benevolent guidance of CNBC.
Please dont tell us youre
going to make us endure another one of those the fed is evil
type columns? Nope. This week were going to talk about housing and
sequestration and connect some dots. Before anyone gets the wrong idea, I am
not going to write about which political figure did or said what. Frankly, I
couldnt care less. I truly mean that.
The headlines read: These
are the worst of times. I do believe
its true.
Those of you who have been around from the beginning know that
occasionally I like to tie song lyrics into these columns. It makes it a bit
more interesting for the reader and allows me to indulge in a rare moment of
nostalgia from (usually) younger days. This weeks
throwback is The Best of Times, an early
1980s ballad by Styx.
We have never before seen such a dichotomy in terms of the information
being provided to us by governments, banks, and media outlets on a global
scale. When they want cover to embark upon or continue absurd policies they
tell us the world is ending. However, when they want to goose markets or get
re-elected, then weve got a robust economic recovery
going on. PLEASE go spend some money and yes, borrow it if you have
to. There are a couple of shams I want to discuss this week. The first is
this robust housing recovery we have going on. The second is the sequester
that is allegedly supposed to start later this week. The word going into the
close of markets today, Thursday February 28, is that there will be no deal
and that the sequester will go on as planned at least for a
while.
Housing Act Two of the
Great Repo
In all honesty, this probably isnt the worst time to buy a house.
The worst time (so far) was about 5 years ago. I say that with tongue in
cheek and a qualification or two. The first is that now is an absolutely
terrible time to mortgage a property. What? Mortgage rates are at all-time
lows, and you can even get a no money down mortgage! How can this be a bad
time to buy the home of your dreams?
Believe it or not the answer to this question goes all the way back to
the first few sentences of this essay. But before we get to that, lets
consider a few things. First is the fact that we have below-equilibrium
interest rates. Theyre going to go up. So those of you
who are hoping to buy in now and then do a refinance in a year or three to
get some cash and/or a lower payment - forget about it. The low rates are
part of the enticement and the trap.
It is also abundantly clear that the media has no clue about supply
and demand either. They also dont understand demographics. I
wouldnt expect much from the National Association of
Realtors either. Their job is to pump up the market. The picture below is
yours truly in Ocean City, Maryland in August of 2007 posing in front of a local
real estate office. If you think your local realtor really understands what
is going on, forget that too. There are a few who get it, but these folks
make their living by selling properties, not by chasing buyers away with the
truth.
Another long-forgotten drag on the housing market are the baby
boomers. Assisted living facilities are going up all over the country. The
days of the nuclear family are pretty much over. That means that instead of
mom and dad going to live with kids, theyre going into
assisted living, then nursing homes. This means theyre
going to be selling their primary homes. Or if they give them to their kids,
the kids will be selling theirs. No matter how all the particulars work
out, there is going to be modest downward pressure on prices for an extended
period of time at a bare minimum. And dont forget we
still have publicly owned homebuilders out there who are under fiduciary
obligation to their shareholders to engage in their stated business, which in
this case means theyre adding to the problem.
Additionally, dont forget that many boomer
properties are not paid off. Mortgage expenses are one of the many factors
hounding todays American baby boomers, most of whom say they are
nowhere near retiring. According to the National Center
for Policy Analysis:
From
1990 to 2010 the share of expenditures on housing including principal,
mortgage interest, taxes, maintenance and insurance for both age groups
increased 25%. Interestingly, the 55 to 64 year olds saw half of the
increase in the interest portion
of housing expenditures even though mortgage interest rates have dropped over
time. (emphasis mine) From the report:
Are baby boomers buying more home than they can afford or are prices
for a basic home simply outpacing income growth? The median house size
has increased from 2,080 square feet in 1990 to 2,392 square feet in 2010.
Since the mid-1990s, the Federal Housing Authority allowed more borrowers to
qualify for loans with lower down payments. This action began a proliferation
of loans that required little or no down payment. Furthermore, after 2000,
home price growth outpaced income growth, peaking in 2004 and 2005. Home
prices began falling dramatically by the end of 2008, but many households
were underwater, owing more on their mortgages than their homes were worth.
Even in Australia, 25% of baby boomers are still paying mortgages. Myself and many others have remarked
countless times since the housing bubble burst that the entire exercise was
nothing more than a property grab. Now, go back to the first paragraph and
read about the not-so-USFed and its never-ending QE program. Theyre
buying, among other things, the mortgages for residential real estate. Your
mortgage. Your neighbors mortgage.
The bottom line is that the banking system will sell the same house
ten times over and take a loss ten times after a foreclosure because to them
it really doesnt matter. They dont have to
expend labor to get the funds to engage in this activity. They create it
from nothing. You, on the other hand, work your fingers to the bone to make
payments. Dont ever forget
that. This is not the American Dream; it is a nightmare.
When it all goes bust, instead of creating more funny money and declaring
themselves solvent (which theyve pretty much done anyway), they
put your kids on the hook for the bailout tab through their lackeys in
Congress.
Ill say it one final time: All of these palliatives
to reinvigorate the housing market such as no money down mortgages and
historic low rates are nothing more than another ramp job to con people into
taking on more debt. To make you more of a slave tomorrow than you are today.
The mechanism is already in motion for the banks to come out of this owning
every single piece of mortgaged property in America. And what they dont
get, well end up conveying to the Chinese or another
creditor as a partial settlement for the trillions of external debt. It is already happening. In
conclusion - buyer beware.
We'll take the best, forget the rest. And someday
we'll find these are the best of times.
Sequester the Molester A Study in
Self-Imposed Austerity?
Whatever your opinion on the idea of a sequester, I am pretty sure
there are a couple of common points that almost everyone can agree on. Well,
maybe. And if you dont, thats
your right. Your author still recognizes the Constitution even if your
government doesnt - and hasnt - for a long time.
The curious thing about this particular set of circumstances is that
it is somewhat akin to the government shutdowns of days gone by. Im
sure most if not all of you remember at least once where either your state
government or the Federal government itself shut down for a period of time
because of an argument over a budget specifically the lack thereof.
The last time this happened at the Federal level was 1996. Ironically, that
shutdown happened because of the inability to pass a budget. We no longer
worry about such formalities, preferring to use Continuing Budget Resolutions
(CBRs) instead.
There is much ado about the fact that we simply cannot afford to have
any part of the government out of business, even for a short period of time.
Why is that? Thats an easy one: our government is
WAY TOO BIG. I know, thank you Captain Obvious. However, lets
take a serious look at where were at though. Im
sure you havent heard this from the fine folks at CNBC et al, but
over there in Greece where all this untidy debt mess first reached critical
mass, middle class folks are picking through trash cans in
search of food and multinational pharmaceutical companies are refusing to deliver drugs to
the country because of fear they wont get paid.
When people lock their doors and hide inside, rumor
has it its the end of
paradise
Greece is not some third world cesspool either. It was formerly a
first world nation. It has been destroyed because of greed, avarice,
laziness, and DEBT. Its government is impotent, its people are irresponsible,
and all the while the great banking authorities of the world are more than
happy to continuing lending, knowing full well that those loans will never be
paid back. Its about time people woke up and realized that this
isnt about money, it is about control. And yes, that
applies to your mortgage. And your car loan. And your credit card debt. Are
you starting to get the picture?
History Repeats (Again)
These hatchet men of the global banking syndicate have repeated this
scam time and time again, but nobody hears about it because we are too
worried about which imbecile got the most trophies at the movie awards or
some other such claptrap. They are doing the same thing here during the
period that will become known in history as the Great American Slumber. We
got a little jolt back in 2008 and the deer in the headlights look lasted for
a few months and back to sleep we went. We have the cousins of the very shysters
who have hoodwinked much of the rest of the world hard at work giving America
the Malachi Crunch and by the looks of the bobbleheads on television youd
think it was New Years Even in March because the Dow is
close to punching through the 2007 highs.
Take a snapshot of then and now and tell me which market is more
insane; that of 2007 or today? Which society is more in denial? Let them
sequester. I have no doubt there is some crisis
awaiting us which will undoubtedly be blamed on the sequester, and likely
those of us who clamored for fiscal reform. The sheeple will scream for Mama
government to come to the rescue and the notion of doing away with budget
deficits or even addressing the national debt will become hate speech. Ive
already been called a (expletive) deficit terrorist by a mainstream talk show
host whose name is not worth mentioning.
The saddest part of all of this is that the sequester, no matter how
small, is going to hurt real folks. However, what most Americans fail to
understand is the very real impact that the irresponsibility of the past
half-century has already had on all of us. Weve been sold a
bill of goods that inflation is necessary for economic growth. Well, weve
had a hundred years of inflation courtesy of the not-so-USFed. Weve
had a hundred years of debt accumulation, much of it by our own hands. If
this nation had any real sense of its history, wed
know that despite all the technology and other advances we were much better
off a hundred years ago than we are today. We certainly had more freedom.
Compared to today, liberty abounded. Today liberty is nothing but a cheap
punch line echoed in Winston Smith fashion as
the fireworks go up on July 4th.
The headlines read 'these are the worst of times' I
do believe it's true. I feel so helpless like a boat against the tide. I wish the summer winds could bring
back paradise.
Andrew W. Sutton,
MBA
Chief Market Strategist
Sutton & Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
Sutton & Associates, LLC is a
Registered Investment Adviser in the Commonwealth
of Pennsylvania. This
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