Turn on the tube and economic ignorance seems to be everywhere. There is constant shilling for more government. Business is demonized. Man is said to be trashing the environment. “Workers and women are oppressed” is the constant mantra.And members of the clueless media nod their heads in unison.Only John Stossel has provided the fresh air […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
It might sound like the latest new product from Apple, but IPAB is actually the newest major legal challenge to Obamacare.Recently, a three-judge panel in the 9th Circuit Court of Appeals in San Francisco heard arguments about the Independent Payment Advisory Board, or IPAB, a 15-member panel created by the Affordable Care Act and empowered […]
Americans have come to believe that the IRS and the income tax are inevitable parts of our lives. After all, most everyone alive today has lived his entire life under federal income taxation.It wasn’t always that way. For some 125 years, the American people lived without having any tax imposed upon their income.The obvious question […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
I want to share some insight and give you a front-row seat to America’s next big shale play.Let’s get to it…Over the past 10 years, the U.S. has turned the ship around, quite literally.We’ve gone from a country that was expecting to import massive amounts of oil and gas — to a country that’s sitting […]
Whatever your views on the role of government, one thing is clear: There will be no way to pay for it if the economy doesn’t grow. And I’m not talking by a measly percentage point or two. If we can’t find our way back to 5% annual economic growth or above soon, America’s accumulated federal […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Politicians love raising the minimum wage because they don’t have to ask voters to pay more in taxes. They just dump the costs onto shop owners. But they don’t act like politicians and go into debt to pretend like they have all the money in the world. They face real world situations. And sometimes that means replacing workers with more affordable options...
Regulation is supposed to keep you safe and make the economy function smoothly. At least that’s what they tell you in the news. But there’s another cost to regulation. One that you won’t hear about unless you have to deal with directly. And for the people in the economy who do, they’re the ones who have to pay the final cost.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
According to some estimates, one man - whose name you're probably not familiar with - has saved over a billion lives. Who is he? And how has he influenced the current crop of innovators? Josh Grasmick explains...
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
You can count the number of people who went to jail over the 2008 financial crisis on one hand. Which is strange considering the U.S. loves to put people away in jail. But as one author discovered in his most recent book, having the right connections and a big enough bank account, can protect you from even the worst crimes.
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
When Michael Lewis’ new book Flash Boys came out, the author caused a stir while making the media rounds to promote it. “The stock market is rigged,” he told 60 Minutes flatly. His comments set off a firestorm of debate as to whether sharp techies and their fast computers are screwing small investors.As titillating as […]
Last November, when the Environment Protection Agency (EPA) proposed moderating years of escalating mandates by reducing the amount of ethanol that must be mixed into gasoline, a top ethanol lobbyist seemed perplexed. “We’re all just sort of scratching our heads here today and wondering why this administration is telling us to burn less of a […]
Some pretty big names in the financial prognostication business are recommending that investors start buying houses. Jim Grant has devoted lots of space in Grant’s Interest Rate Observer to the idea. Marc Faber, Donald Trump, Warren Buffett and our own Chris Mayer all like sticks and bricks.
Five years ago, the unthinkable began to happen. It got worse and worse. By the end, housing prices nationwide were down 35%. In some markets like Las Vegas, where I spent time as a banker, the shellacking has been much worse. The bulls figure now’s the time to buy. You know, buy low and sell high.
In a piece for The Daily Reckoning, Mr. Mayer talks about how affordable housing is in the U.S. He points to the ratio of median home price to median income. The lower the ratio, the more affordable the market is. Hong Kong is an unaffordable 12.6, while a number of U.S. cities come in at less than 2, especially in economically ravaged Michigan (maybe because these cities are bankrupt and municipal services are sketchy). But U.S. bargain hunters must steer clear of expensive Honolulu and Boulder.
“I turned bullish on US housing in January 2011,” writes Mayer. “I did this after being a housing bear for about a decade. But the housing bubble that I feared has long since popped. Good bargains abound.”
Is housing the low-hanging fruit that Mayer and others think it is? Housing prices bounced in the first six months of this year, bolstering their case. But housing is anything but on fire. Prices are rising because resale inventory is at eight-year lows and new-home inventories haven’t been this low since the Census Bureau started tracking that data, in 1963.
There are always people looking for houses, because life circumstances change. However, the only reason this tepid demand is moving the price needle at all is the lack of supply. As Nick Timiraos writes in The Wall Street Journal,
Low inventory isn’t necessarily a sign of strength. One problem is that many sellers can’t or won’t become buyers. Millions still owe more than their homes are worth, and even more — about 45% of all homeowners with a mortgage, according to data firm CoreLogic Inc. — have less than 20% in equity.
Mr. Timiraos has put his finger on the housing market’s problem that the bulls are turning a blind eye to. Upwards of 16 million homeowners are underwater. They owe more on their mortgage than their home is worth. In some cases, the amount is hundreds of thousands of dollars. These folks are imprisoned by their debt. They have been told all their lives they must honor their debts no matter the cost.
They desperately keep paying to protect their precious credit rating, handing their savings and their futures over to wards of the state Fannie Mae and Freddie Mac or too-big-to-fail zombies like Wells Fargo and Bank of America.
Many homeowners naively go to their banks and try to negotiate a modification of their loan. They are stunned when the lender either ignores them or refuses to consider a rewrite if the loan is current. Eventually, many give up. But they don’t go anywhere. They just stop paying.
Bank servicers are overwhelmed and don’t file defaults for months, sometimes years. In Las Vegas alone, there are hundreds of thousands of borrowers who haven’t made a mortgage payment in years. Timiraos writes that its ironic that “prices are rising fastest in markets that have the most underwater borrowers because so few homes are for sale.”
The latest numbers in Las Vegas reflect an inventory that has dwindled to 3,981 units, compared with more than 11,000 a year ago. Last month, 44% of all sales were short sales. And currently, “About 85% of homes under contract are short sales waiting for lender approval,” reports Hubble Smith for the Las Vegas Review-Journal.
“We’re really struggling with inventory,” Robyn Yates of Windermere Prestige Properties in Henderson told the Review-Journal. “That’s the challenge. Even though it’s great that prices are going up, it’s not great from the perspective of real estate firms and buyers. It’s very frustrating.”
Many states have passed laws requiring that lenders provide proof they have standing to foreclose. Many can’t provide it. During the boom, most mortgages were assigned electronically through MERS (Mortgage Electronic Registration Systems). Judges like to see actual paper-and-ink assignments.
This legal tangle is keeping the market from clearing. Literally millions of homes are just waiting to be sold, foreclosed upon, or liquidated. This is not the sign of a recovering market. Instead, the clogged foreclosure pipeline artificially elevates prices.
Timiraos makes the point that mortgage rates are at historic lows. If you can qualify for the money, that is. Qualified buyers are few and far between, post crisis. However, for those that do qualify, “Mortgage rates allow borrowers to take out about 12% more in debt without increasing their monthly payment,” writes Timiraos. This boost in sales and prices will not last once rates go back up.
And to top all of this off, wages and employment are just not growing enough to spark a rally in home prices. The only thing bringing down the unemployment percentage is people giving up on finding work. This would have been fine back in the NINJA (no income, no job, no assets) loan days. Bankers are again tightfisted.
There could come to be a time when houses are a good investment, but that day has not arrived. Now is the time to walk away if you’re underwater and forget about buying.
In the new edition of my book, Walk Away: The Rise and Fall of the Home-Ownership Myth, I examine the U.S. government’s constant cheerleading for and subsidy of homeownership. Every argument against walking away is considered and rejected. Also, I take a careful look at the neuroscience of why people continue to pay and battered-homeowner syndrome.