Canada Takes Next Step in Trade War

Trump is getting the war he wanted, except it’s with our closest allies.

Canada officially implemented tariffs on about $12.5 billion worth of US goods Sunday, the latest offensive in the growing trade battle between the United States and other major economic powers. US exports of steel and other metal products now face a 25-percent tax, while other products—such as milk, ketchup, beef, and yogurt—will be taxed at 10 percent.


Historic Housing “SPIKE,” (Don’t Call it a Bubble!)

We have a fresh batch of Case Shiller Index information, and it’s showing what many have been suspecting for a while: housing prices are now blowing past prior housing bubble prices, and have rocketed upwards of 60% from the post-bubble bursting days of 2011 and 2012.  People are finally starting to recognize we are in a bubble:

Others are busy trying to figure out how to make some final money off the bubble:

If we dig down into the numbers, the data shows household income lagging behind the pace of inflation since mid-2012. That is actually a bit of a worry for many analysts.

But you can make money from the surging price of homes while analysts panic…

In places like New Jersey, people are feeling the pain:

A new Rutgers-Eagleton poll found that almost all residents believe the cost of housing is a “very” serious (51 percent) or “somewhat” (35 percent) serious problem. The challenges New Jerseyans face in finding a reasonably priced home follows a similar overall pattern: 49 percent feel it is “very difficult,” and another 38 percent say it is “somewhat difficult.” Just six percent say it is “not very difficult,” and three percent say it is “not difficult at all.”



Economic Alarms are Going Off

President Trump today announced $50 billion in tariffs against China.  Meanwhile the price of oil has started to fall as supply concerns seem to be disappearing, and Canadians have cancelled their vacations to the US after President Trump insulted Canadians for no reason.  But hey, that’s about normal in our current society.  This news was expected, and the market is reacting accordingly.

However, the market does not seem to be digesting the recent interest rake hike by the Federal Reserve, as well as the indication from the Fed that it anticipates two more rate hikes this year.  The market’s reaction:

Treasury yields rose, but the yield curve temporarily flattened to its lowest level since September 2007 after the Fed announcement, signaling fears of future economic weakness or a policy mistake by too aggressive central bank tightening. Simply put, that means short-end yields, like the 2-year, rose faster than the longer duration, or 10-year yield.

What does the “tightening yield curve” mean?

Meanwhile, a measure of the so-called yield curve, the differential between two-year and 10-year Treasurys, stood at 36.2 basis points, or 0.362 percentage point, holding at the tightest spread since 2007.

The yield curve, which reflects the rate gap across all Treasury maturities and tends to slope higher because investors generally demand richer yields for lending for a longer period, has been an accurate predictor of recessions.



Currency Failures and Warning Signs

Venezuela continues to struggle with its currency failure brought about by what some argue is massive corruption and incompetence, and others argue was brought about by US and other interests seeking to put an end to state control of the Venezuelan oil business.

Meanwhile, we are now seeing a new currency crisis unfold in Brazil.  The government has made three attempts recently to stop the downward spiral of the Brazilian real.  Initially they appeared to work, but now Brazilian’s real is once again starting to destabilize and fail:

Brazil’s central bank intervention to support the Brazilian real apparently failed. The real initially perked up after Brazil’s central bank sold an additional 30,000 contracts in FX swaps (on top of 15,000 already planned), but slumped again to plumb new 52-week lows.

This is happening just a week or two after a massive trucker strike that some say almost led to a military coup and caused wide-spread panic in the country.  The Brazilian economy, like Venezuela, is being hit over the head (for whatever reason) due to fluctuations in the oil market.

Meanwhile in Turkey, efforts to stabilize the plummeting currency there by jacking up interest rates appear to have worked, for now. But a few days ago, things were looking grim.

Though not as dire, the Mexican peso and the Canadian loonie have also been taking it on the chin due to the ongoing dispute with the Trump administration over trade.  It’s not clear whether that will lead to real damage.  The peso has been hit a bit harder than the loonie, but neither are facing what we’ve seen in Brazil or Turkey over the last few weeks.

Stay tuned.



Don’t Ignore the Evidence, Americans Are In Big Economic Trouble

President Trump was so eager to announce the unemployment statistics last week that he broke federal law and issued a Tweet talking about how good the numbers were before they were released.  This is the same president who said the employment statistics were “phony” a “fraud” and built on “lies,” when he was running for office and the Black Man™ was in the Oval Office.  Now that Trump is the man in charge, suddenly he can’t stop talking about how great the numbers are.

For millions of Americans that the economy is not doing well.  This is what Trump ran on–the anger felt by millions of Americans who believe their government, economy and business “leaders” have left them to suffer and die in poverty and unable to support their families.  Now that Trump is the president, he also ignores those Americans, and is putting in trade policies that hurt the very Americans who voted for him.  Instead of laughing in his face with his new lies, his supporters only become more eager to kiss his ring.

As Trump dumps out illiterate tweets while sitting on the toilet and the senile and inept democrat “opposition” sits around doing nothing, Rome burns.

The reality for millions of Americans is this:

  • Forty percent of American adults don’t have enough savings to cover a $400 emergency expense such as an unexpected medical bill, car problem or home repair.

  • Forty-three percent of households can’t afford the basics to live, meaning they aren’t earning enough to cover the combined costs of housing, food, child care, health care, transportation and a cellphone, according to the United Way study. Researchers looked at the data by county to adjust for lower costs in some parts of the country.

  • More than a quarter of adults skipped necessary medical care last year because they couldn’t afford it.

  • Twenty-two percent of adults aren’t able to pay all of their bills every month.

  • Only 38 percent of non-retired Americans think their retirement savings is “on track.”

  • Only 65 percent of African Americans and 66 percent of Hispanics say they are “doing okay” financially vs. 77 percent of whites.

Even though people are not doing well, they seem to think they are doing well, and as a result are no longer “saving for a rainy day“:

in the last few years, according to the U.S. Bureau of Economic Analysis, the savings rate has fallen nearly to pre-recession lows, and many of us are back to our old habits.

As people spend more, save less, and fail to increase their earnings, they are more reliant on the government to bail them out when they get old.  But the news keeps getting worse for the American sucker, as we learned today that Medicare will be completely broke by 2026, and Social Security will be completely broke about ten years later.  There will be no safety net left for people like Millennials (who already are far worse off financially than their parents thanks to the Great Recession).

The Medicare trust fund will be depleted in 2026, the administration said. By contrast, the government said last year that the trust fund would be exhausted in 2029.

In a companion report, federal officials said the Social Security Trust Funds for old-age benefits and disability insurance, taken together, could be depleted in 2034, the same year projected in last year’s report.

Another Housing Bubble

What people say these days about increasing house prices is that it is “different this time” because lenders aren’t making bad loans to people who can’t afford them.  Everyone assumes that is what caused the housing crisis last time around.

But recent research says that is not what caused the housing crisis.  Instead, flippers, investors, and people with good credit who kept pulling out cash from their properties as prices went up to buy new properties were the ones that caused the problem.  What they were doing was buying homes as an “investment” or to “flip,” and not to live in.  This artificially made inventory low (because how can you buy a house for your lower middle class family if all the rich or upper class good-credit investors are snatching everything up with their cash?) and made prices go up into outer space.  The investors blew up prices and buried themselves in debt.  Then when things got sour they dumped their investment properties to save their personal homes, creating the crash in the real estate market.

This time around we are seeing the same thing.  You hear the “how to flip houses” ads on the radio.  You hear the non-stop ads about refinancing, pulling out cash, doing anything you can to turn your home equity into cash for you to invest or spend on new toys.   You see the “house flipper” shows featuring the same idiots who have returned to the business after going bankrupt the last time around.  You hear all the reports about the “low inventory” and “high demand” in housing just like we did in 2005.  As interest rates go up, people continue to scramble to buy and lock in the lower rate before it is too late.  Listen to any pod cast about real estate investing and they will tell you they are doing exactly the same thing they did last time: pulling out cash and buying new property, then pulling out cash from that property and buying something else, over and over again.

Meanwhile, the number of refinances are going down because why would any sane person (who is only refinancing to lower their mortgage or maybe get rid of PMI) refinance now at 5% when they could have done it a year ago at 4%?  If you’re an investor though and just need the cash, you would do the refi anyway.  And it turns out that is exactly what is happening.  As the number of refis go down, the share of refinances that are just about cashing out on the equity is going up to the same huge levels it was at before the housing bubble burst in 2008.

As of the fourth quarter of last year, the share of all refinances that were cash-outs rose to the highest since 2008, according to Freddie Mac data. Rates have churned higher since the presidential election in late 2016, though they spent much of 2017 reversing the immediate post-election surge.

If it’s different this time because lenders aren’t making bad loans to poor people, but that isn’t even what caused the bubble in the first place, then how exactly is this bubble different than the last one?  On the other hand, if we assume that the bubble last time was built by investors and people with “good credit” who were pulling cash out of their real estate left and right, they are doing it again this time.  All it will take is a little recession, which has to come sooner or later, to shake things up.

U.S. Housing Prices Continue To Blast Off Into Outer Space

The news today is that housing prices continue to increase rapidly in the United States.  Supply is tight and the public seems to think that the prices will continue to fly into the sky with apparently limitless potential. The optimism, as one report notes, is very similar to what people were feeling in 2005 right before the housing market crashed back down to earth:

The level of optimism is edging closer to the 70% of adults in 2005 who said prices would continue rising. That, of course, was less than one year before the peak of the housing market bubble in early 2006, which was largely fueled by a wave of subprime lending. (Roughly one-quarter of respondents in both 2005 and 2018 said they believed house prices would remain the same.)

Fears of a 2008 housing crash though are tempered with data that screams, “But it’s different this time!”  For example, during the housing crises ten years ago, in Tampa Bay, Florida, 43% of homes were “seriously underwater,” with owners owing at least 25% more than the home’s value on their mortgage.  Today, 9.4% of homes with mortgages fall into the “seriously underwater” category.

On the other hand, in an interview with the Tampa Bay Times, Daren Blomquist, senior vice president of ATTOM Data Solutions, said that “evidence anecdotally is the return of subprime mortgages, which they are now calling ‘non-prime’ mortgages, and I think more companies are doing them.”  Blomquist also said that “On the grapevine, we’re hearing a little more about people interested in mortgage-backed securities. That’s one of the hallmarks that helped inflate the housing bubble last time around.”

Meanwhile, the Dallas, Texas, housing market, that has been burning hotter than the flames of hell in recent years, seems to be “leveling off.” According to Melissa Hailey, President of the Collin County Realtor’s Association, “We’re definitely still seeing buyers and sellers with lots of new listings on the market and lots of homes going under contract, but the prices are definitely holding more steady then they have been.”

Meanwhile in Laguna Beach, California, long-time locals seem to be growing disgruntled at how local housing prices have sky-rocketed into outer space.  Advertisers, who forget that some long-term residents bought before all the homes in the area became multi-million dollar cribs, send out ads that some residents are finding annoying.

One ad summed up the housing situation in Laguna Beach to a “T”.

“Original Greenwich Village artist loft for sale: 20-foot ceilings, north facing windows with a large entertainment area. $5,295,000.” Just like the situation in Laguna; there aren’t a lot of artist’s left, only expensive artistic housing selling at inflated prices based on a branding concept that no longer has any basis in reality.

The market on the lower end (“entry level”) continues to suffer from supply shortages and too many potential buyers.  On the luxury end of the market, things are very different.  In fact, New York’s most expensive listing (an $85 million penthouse) has been sitting on the market for five years.  The motivated seller has tried to sweeten the deal with three luxury cars and a yacht, but no dice.  Now the seller is throwing something else in: a free trip to outer space

“Someone not from New York can [move here and] have a New Yorker’s lifestyle and point of view,” Neiditch told the Post. “In a way, I’m offering my lifestyle.”

But local real estate professionals aren’t buying it, “People only pile up giveaways when they won’t reduce the price. It has never made a lot of sense to me,” an unnamed Manhattan broker said.  The Real Estate price boom appears to be the free trip to outer space people in all economic classes can experience.  Enjoy the ride.