A couple of stories from the world of personal credit are noteworthy as the world enters the third quarter of 2020 hoping for improvement but fearing a repeat of the second quarter from the same enemy which ran roughshod over the world economy.
It's not the virus that people fear, but government response to it in terms of restricted mobility, business operations, and general closures of everything from schools and churches to bars and hair salons.
While the planet and government managers struggle with the virus and their chances in the upcoming US elections in November, credit issues are popping up like daffodils in Springtime. Huge numbers of Americans are foregoing rent and mortgage payments, citing unemployment as the main cause for a diminished cash flow, and delinquencies are piling up not only on mortgages (which are vitally important), but on car loans and leases, student debt, credit cards, and personal loans.
It's because of these issues, or perhaps in spite of them, that FICO (Fair Isaac Corporation) wants to rate your resilience and ability to pay back borrowed money in a recession or economic downturn. The company and its affiliate credit scorekeepers - Experian, TransUnion and Equifax - are looking back at credit histories from the GFC in 2007-09 for hints of riskiness in borrowers.
Their findings, which won't be relevant for at least a few more months, could affect how consumers are judged when applying for any kind of credit, from mortgages to car loans. If economic conditions remain below par, many people with poor resilience scores could find themselves out of luck getting credit.
Countering FICO's foray into past performance of borrowers, Chime continues to innovate in the banking and credit space with the launch of the Chime Credit Builder Visa Credit Card.
Actually a debit card that works like a credit card, users can transfer funds from a secure Chime account to a Visa card, and use that money to charge anything, including everyday items like food, gas, clothing or general expenses. The charges are paid by the card automatically, and the results reported to the credit bureaus. The goal is to improve credit scores for mainly younger folks, who favor debit cards over credit, but who need to establish or improve their credit history.
If it sounds like cheating, it very well may be. This is reporting of purchases made with essentially a debit card being reported as a credit card. The credit bureaus are likely to balk at this methodology. A clash between the old standard bureaus and the upstart Chime might make for some interesting developments in how credit and individual risk are measured down the road.
Tuesday's hands-down big winner was silver, which rocketed up by more than two percent in the futures space, vaulting over the psychologically-challenging $18 mark and holding around $18.20. Gold's little sister has a lot of catching up to do and if this price maintains, should signal that a run up to resistance in the $20-21 range is imminent. Correlated closely to the S&P index (for God only knows what reason), if stocks falter and silver holds or goes even higher, that would qualify as a major development. Keep eyes peeled on that space.
Stocks continued their rally from Monday into Tuesday, which was the final day of the month and of the second quarter, an important milestone, since GDP for the quarter - heavily affected by the coronavirus and state-by-state lockdowns and business closures - is expected to check in with a very negative number on a scale likely never seen before. Estimates for second quarter GDP range between -25% to -52%.
Current stock valuations seem to be suggesting that investors are leaning toward the upper end of that range. A decline of 30-35% might actually be seen as a positive for markets because it will be viewed as a one-off event followed by a rapid recovery, though the jury is still out on whether economic recovery will look like a "V", "W", or an "L".
Any view of the stock market indices over the past five months clearly show a "V" shape, with stocks declining and rising at the same frenetic pace. The recovery pattern for stocks can hardly be taken as definitive by any measure of economic activity. Stocks were skyrocketing off their lows as millions of people were losing their jobs, the government and Federal Reserve exercising emergency measures, and the general economy entering a recession.
A "W" pattern goes along with the "second wave" theory of the virus, already being engineered by increased testing and renewed calls for shutdowns, lockdowns, face masks, social distancing and all the assorted recommendations which were successful only in wrecking the Main Street small business economy.
The "L" pattern is the one most despised by money managers, banking executives, and financial central planners because it offers no realistic hope for the immediate future. The "L" concept implies that the economy falls and stays down for an extended period. Like just about everything else the experts at the biggest banks and financial institutions predict, contrarian view has the slow recovery "L" pattern front of mind and it is actually the most likely pattern - not for stocks or any other asset classes - for the general economy in terms of GDP, personal income, and employment.
Finally, queueing the start of the third quarter in the typical doublespeak manner, ADP's June Employment Report showed a gain of 2,369,000 jobs in the non-farm private sector. This follows a decline of 2,760,000 in May, with June just about covering all those job losses. ADP saw 19.5 million people lose their jobs in April, another 2.8 million lost jobs in May (which has now been revised to +3.065mm!). It's almost as if many of those 20 million people filing continuing unemployment claims don't exist, which is fine, since we're all living in bizarro-world now.
At the Close, Tuesday, June 30, 2020:
Dow: 25,812.88, +217.08 (+0.85%)
NASDAQ: 10,058.77, +184.61 (+1.87%)
S&P 500: 3,100.29, +47.05 (+1.54%)
NYSE: 11,893.78, +116.69 (+0.99%)
Showing posts with label student loans. Show all posts
Showing posts with label student loans. Show all posts
Wednesday, July 1, 2020
Tuesday, February 7, 2017
Debt Notes: Inflation Over The Next 18 Months Is Very Doubtful, Unless...
There's been plenty of chit-chat the past few weeks about how President Trump's infrastructure initiative (we haven't had even a sniff of what this might be, besides the Mexican wall) and tax cuts are going to spur inflation, but there hasn't been any solid data upon which to rest the thesis.
Notwithstanding the minor upticks in CPI and PPI, there's little evidence to suggest that any kind of rampant inflation is on the immediate or even the future horizon, and there are plenty of good reasons for that.
Industry and international trade has been slow since the Great Recession of 2008-09 and our bouncy "recovery" hasn't made any real dent in the actual number of hours worked nationally. Sure, the BLS always tells us more and more jobs are being created and the unemployment figure is near historic lows, but they always fail to point out that people who have dropped out of the labor force aren't counted any more, so those figures are worth about what we all pay to read them... essentially, ummmm, nothing.
Now there is going to be inflation in some things, like it or not, and those things today are, in no particular order, health care, housing, autos, and higher education. Food prices in the USA are, and always have been, relatively stable. Notably, beef prices are far lower than they were just a few years ago.
From all indications, retailers closing up shops nationwide seems to be saying there isn't much demand for clothing. Household goods, ditto. So, where's the inflation coming from if demand is waning?
Simple answer. It's not. The Federal Reserve needs to run the narrative that inflation is upon us so they can jack up their abysmally-low federal funds rate. That's because their experiment in quantitative easing (printing money) and ZIRP (Zero Interest Rate Policy) have proven to be dismal failures. Of course, they will never admit to that, or to the fact that roughly $14 trillion has been wasted or funneled directly or indirectly to the top 1% wealthiest people.
Bottom line is that without demand for goods and services, there can be no price inflation, because, using the standard metric of inflation being more money chasing fewer goods, while there's certainly more money out there, there's also no shortage of goods and services. In fact, were the economy not in such a dreadful state, more people would be opening new businesses, simply because there would be money to be made and not much in the way of competition.
As it stands today, most of the needs of the average, below average, and above average US citizen are pretty easily met. Food and clothing are cheap, and that's two of the three essentials for survival. The third, housing, is largely dictated by geography, so, in big cities, it's expensive. Out in the boonies, not so much.
All of this brings us to the real question, where is all the money coming from?
Another simple answer: debt, though it's not exactly as cut-and-dried as many would believe. Outstanding credit card debt continues to rise, but it's just a shade below $1 trillion, and, as for home equity loans, many people, and many bankers, learned a lifetime lesson in the Global Financial Crisis (GFC). Where the real money is coming from is debt related to car loans and higher education, aka, student loans, both of which reached all-time highs in the 4th quarter of last year.
Strange as it may seem, both are at higher nominal levels than credit card debt, at $1.407 trillion for car loans and $1.11 trillion in student loans. It seems odd that there would be more in just these two categories than everything that could be purchased with credit cards, which is, actually, everything. You can even pay taxes or register your car with a credit card, so it's readily apparent that there's an oversized appetite for new cars and degrees from colleges.
It doesn't really make sense. The vehicles on the road today may be the latest with all the greatest gadgets and widgets, but they're not much better than cars made in the past fifteen years, many of which are still reliably on the road. as for a college education, that has to be a societal miscalculation, because a degree in liberal anti-establishment cultural studies or whatever isn't going to pay for itself any time soon. It's a conundrum, a mismatch, a MALINVESTMENT, of which there are many, everywhere.
That's not to mention that the median cost of a new home is at another all-time high, but, as mentioned earlier, that's largely a local issue, but it bears notice that the average monthly payment of principle and interest (PI) for that median home is over $1000 a month.
So, if you find yourself all bollixed up over high credit card balances with high interest rates, don't worry. There are plenty of college graduates living in nice, new homes driving new cars who are in much worse shape than you.
If you're one of those people, we're all sorry, and we're having a drink to your ultimate demise, telling the bartender, "charge it."
At The Close, Tuesday, February 7, 2017:
Dow: 20,090.29, +37.87 (0.19%)
NASDAQ: 5,674.22, +10.66 (0.19%)
S&P 500: 2,293.08, +0.52 (0.02%)
NYSE Composite: 11,236.17, -27.94 (-0.25%)
Notwithstanding the minor upticks in CPI and PPI, there's little evidence to suggest that any kind of rampant inflation is on the immediate or even the future horizon, and there are plenty of good reasons for that.
Industry and international trade has been slow since the Great Recession of 2008-09 and our bouncy "recovery" hasn't made any real dent in the actual number of hours worked nationally. Sure, the BLS always tells us more and more jobs are being created and the unemployment figure is near historic lows, but they always fail to point out that people who have dropped out of the labor force aren't counted any more, so those figures are worth about what we all pay to read them... essentially, ummmm, nothing.
Now there is going to be inflation in some things, like it or not, and those things today are, in no particular order, health care, housing, autos, and higher education. Food prices in the USA are, and always have been, relatively stable. Notably, beef prices are far lower than they were just a few years ago.
From all indications, retailers closing up shops nationwide seems to be saying there isn't much demand for clothing. Household goods, ditto. So, where's the inflation coming from if demand is waning?
Simple answer. It's not. The Federal Reserve needs to run the narrative that inflation is upon us so they can jack up their abysmally-low federal funds rate. That's because their experiment in quantitative easing (printing money) and ZIRP (Zero Interest Rate Policy) have proven to be dismal failures. Of course, they will never admit to that, or to the fact that roughly $14 trillion has been wasted or funneled directly or indirectly to the top 1% wealthiest people.
Bottom line is that without demand for goods and services, there can be no price inflation, because, using the standard metric of inflation being more money chasing fewer goods, while there's certainly more money out there, there's also no shortage of goods and services. In fact, were the economy not in such a dreadful state, more people would be opening new businesses, simply because there would be money to be made and not much in the way of competition.
As it stands today, most of the needs of the average, below average, and above average US citizen are pretty easily met. Food and clothing are cheap, and that's two of the three essentials for survival. The third, housing, is largely dictated by geography, so, in big cities, it's expensive. Out in the boonies, not so much.
All of this brings us to the real question, where is all the money coming from?
Another simple answer: debt, though it's not exactly as cut-and-dried as many would believe. Outstanding credit card debt continues to rise, but it's just a shade below $1 trillion, and, as for home equity loans, many people, and many bankers, learned a lifetime lesson in the Global Financial Crisis (GFC). Where the real money is coming from is debt related to car loans and higher education, aka, student loans, both of which reached all-time highs in the 4th quarter of last year.
Strange as it may seem, both are at higher nominal levels than credit card debt, at $1.407 trillion for car loans and $1.11 trillion in student loans. It seems odd that there would be more in just these two categories than everything that could be purchased with credit cards, which is, actually, everything. You can even pay taxes or register your car with a credit card, so it's readily apparent that there's an oversized appetite for new cars and degrees from colleges.
It doesn't really make sense. The vehicles on the road today may be the latest with all the greatest gadgets and widgets, but they're not much better than cars made in the past fifteen years, many of which are still reliably on the road. as for a college education, that has to be a societal miscalculation, because a degree in liberal anti-establishment cultural studies or whatever isn't going to pay for itself any time soon. It's a conundrum, a mismatch, a MALINVESTMENT, of which there are many, everywhere.
That's not to mention that the median cost of a new home is at another all-time high, but, as mentioned earlier, that's largely a local issue, but it bears notice that the average monthly payment of principle and interest (PI) for that median home is over $1000 a month.
So, if you find yourself all bollixed up over high credit card balances with high interest rates, don't worry. There are plenty of college graduates living in nice, new homes driving new cars who are in much worse shape than you.
If you're one of those people, we're all sorry, and we're having a drink to your ultimate demise, telling the bartender, "charge it."
"Compounded interest is the 8th wonder of the world. Those who don't understand it, pay it, and those who understand it, earn it."- Albert Einstein
At The Close, Tuesday, February 7, 2017:
Dow: 20,090.29, +37.87 (0.19%)
NASDAQ: 5,674.22, +10.66 (0.19%)
S&P 500: 2,293.08, +0.52 (0.02%)
NYSE Composite: 11,236.17, -27.94 (-0.25%)
Tuesday, March 31, 2015
Stocks Erase Most of Monday's Gains; Dow Closes Down for the Quarter, Year
Well, that escalated quickly...
After booming on Monday, Tuesday's players must have had a case of buyer's regret, selling back 2/3rds of what was bid up just a day earlier, very odd, considering that the last trading day of the month usually ends up positive, due to "window dressing" by fund managers.
That did not happen today. In fact, the markets reversed course right at the open, but really accelerated the selling in the final hour of trading.
Reasons? The Fed? Mountains upon mountains of un-payable debt? Iran? Yellen? Bueller?
Tracking the foibles and fantasies of the Wall Street crowd on a daily basis can be a thankless task, especially under the conditions which are currently reigning over the market. Levels of uncertainty are reaching a fever pitch, between various conditions in Europe (Draghi's failing QE, Ukraine, Turkey tuning totalitarian, Greece), the Middle East (ISIS, Syria, Iran) or the troubles bourn at home in the US, ranging from gay upset in Indiana, crumbing infrastructure, fracking drillers facing bankruptcy, insolvency of college grads with high student debt loads (a catastrophe waiting to happen), chronic underemployment or a host of other nagging circumstances which don't add up to recovery after six years of waiting.
The good news is that the credit spigots are wide open, though many individuals, having been burned by financial institutions or failed investments in the past have been wary to expend much energy spending money they don't have on things they don't need. Credit card companies have been unduly generous of late, the number of 0% interest cards offered having swelled in recent months.
Additionally, auto loans and leases are becoming as easy to obtain as water from a faucet, but default rates are also rising as consumers continue to be tapped out on the road.
Gas prices are low, sings of Spring are everywhere, but somehow, the major indices - at least for today - are not feeling the love.
Something is wrong, but we're not going to wait around to find out what it is. Anyone who hasn't divorced his/herself, at least in some part, from the credit-debt-tax-cycle-slave-system is missing the proverbial boat, which may sail off into the horizon at any time.
Americans, especially older ones, are becoming more detached from the system as the system disappoints and disillusions many who have played and paid and are seeing their paltry incomes stagnate and savings threatened by seven years of a low-interest regime engineered by the Federal Reserve.
And, with markets closed on Friday, who exactly will be able to react to the March non-farm payroll data? At least tomorrow, ADP will issue their March jobs report, which mirrors the NFP report to a degree.
Making matters worse, the Dow Industrials closed the quarter lower than at the start of the year, the S&P and NASDAQ posting fractional gains (less than one percent) for the quarter and the year so far.
So much to ponder and so little time. Tax day is April 15. What fun!
Dow 17,776.12, -200.19 (-1.11%)
S&P 500 2,067.89, -18.35 (-0.88%)
NASDAQ 4,900.88, -46.56 (-0.94%)
After booming on Monday, Tuesday's players must have had a case of buyer's regret, selling back 2/3rds of what was bid up just a day earlier, very odd, considering that the last trading day of the month usually ends up positive, due to "window dressing" by fund managers.
That did not happen today. In fact, the markets reversed course right at the open, but really accelerated the selling in the final hour of trading.
Reasons? The Fed? Mountains upon mountains of un-payable debt? Iran? Yellen? Bueller?
Tracking the foibles and fantasies of the Wall Street crowd on a daily basis can be a thankless task, especially under the conditions which are currently reigning over the market. Levels of uncertainty are reaching a fever pitch, between various conditions in Europe (Draghi's failing QE, Ukraine, Turkey tuning totalitarian, Greece), the Middle East (ISIS, Syria, Iran) or the troubles bourn at home in the US, ranging from gay upset in Indiana, crumbing infrastructure, fracking drillers facing bankruptcy, insolvency of college grads with high student debt loads (a catastrophe waiting to happen), chronic underemployment or a host of other nagging circumstances which don't add up to recovery after six years of waiting.
The good news is that the credit spigots are wide open, though many individuals, having been burned by financial institutions or failed investments in the past have been wary to expend much energy spending money they don't have on things they don't need. Credit card companies have been unduly generous of late, the number of 0% interest cards offered having swelled in recent months.
Additionally, auto loans and leases are becoming as easy to obtain as water from a faucet, but default rates are also rising as consumers continue to be tapped out on the road.
Gas prices are low, sings of Spring are everywhere, but somehow, the major indices - at least for today - are not feeling the love.
Something is wrong, but we're not going to wait around to find out what it is. Anyone who hasn't divorced his/herself, at least in some part, from the credit-debt-tax-cycle-slave-system is missing the proverbial boat, which may sail off into the horizon at any time.
Americans, especially older ones, are becoming more detached from the system as the system disappoints and disillusions many who have played and paid and are seeing their paltry incomes stagnate and savings threatened by seven years of a low-interest regime engineered by the Federal Reserve.
And, with markets closed on Friday, who exactly will be able to react to the March non-farm payroll data? At least tomorrow, ADP will issue their March jobs report, which mirrors the NFP report to a degree.
Making matters worse, the Dow Industrials closed the quarter lower than at the start of the year, the S&P and NASDAQ posting fractional gains (less than one percent) for the quarter and the year so far.
So much to ponder and so little time. Tax day is April 15. What fun!
Dow 17,776.12, -200.19 (-1.11%)
S&P 500 2,067.89, -18.35 (-0.88%)
NASDAQ 4,900.88, -46.56 (-0.94%)
Thursday, August 8, 2013
The Stock Market Makes Perfect Sense...
...if you are a card-carrying bankster, politician or broker-dealer.
Otherwise, when every available Fed Governor is squealing at the top of his or her lungs that the Fed is going to taper its bond-buying in September ...bond yields should rise.
They keep going down...
And the stock market indices are sitting near all-time highs, or, in the case of the wildly-inflated NASDAQ, 13-year highs.
If you really believe the real estate market is is god shape, unemployment is really 7.4% and that ObamaCare is going to lower premiums and provide for better medical care nationwide, then the stock market at these levels makes perfect sense.
BUY MORE STOCKS.
(The preceding message was brought to you by people who remember when the economy was functioning, when America was a net EXPORTER, and when the federal debt was below $4 billion - which wasn't all that long ago.)
For those of you in your teens and 20s, carrying, or about to embark upon college and student loans, you are toast, debt slaves and completely hoodwinked by people who could care less about your future or the future of this country. Good luck with that four-year degree when you're asking "do you want fries with that?"
That's enough for today. Anybody who can't stand the current economic climate (of uncertainty), post a comment. Or don't. We here at Money Daily don't really care.
BTW: Silver closed above $20 per ounce for the first time since July 29. Will it hold this time? Bear in mind that the London Fix was at $31.75 on February 7 (again, not that long ago). Since then, it's been straight down to around these levels, with a low of 18.61 on June 27. It's still a bargain all the way back to $23 an ounce, and, it's still REAL MONEY.
Dow 15,498.32, +27.65 (0.18%)
NASDAQ 3,669.12, +15.12 (0.41%)
S&P 500 1,697.48, +6.57 (0.39%)
NYSE Composite 9,634.47, +66.21 (0.69%)
NASDAQ Volume 1,641,758,375
NYSE Volume 3,475,672,000
Combined NYSE & NASDAQ Advance - Decline: 4175-2345
Combined NYSE & NASDAQ New highs - New lows: 270-112
WTI crude oil: 103.40, -0.97
Gold: 1,309.90, +24.60
Silver: 20.19, +0.685
Otherwise, when every available Fed Governor is squealing at the top of his or her lungs that the Fed is going to taper its bond-buying in September ...bond yields should rise.
They keep going down...
And the stock market indices are sitting near all-time highs, or, in the case of the wildly-inflated NASDAQ, 13-year highs.
If you really believe the real estate market is is god shape, unemployment is really 7.4% and that ObamaCare is going to lower premiums and provide for better medical care nationwide, then the stock market at these levels makes perfect sense.
BUY MORE STOCKS.
(The preceding message was brought to you by people who remember when the economy was functioning, when America was a net EXPORTER, and when the federal debt was below $4 billion - which wasn't all that long ago.)
For those of you in your teens and 20s, carrying, or about to embark upon college and student loans, you are toast, debt slaves and completely hoodwinked by people who could care less about your future or the future of this country. Good luck with that four-year degree when you're asking "do you want fries with that?"
That's enough for today. Anybody who can't stand the current economic climate (of uncertainty), post a comment. Or don't. We here at Money Daily don't really care.
BTW: Silver closed above $20 per ounce for the first time since July 29. Will it hold this time? Bear in mind that the London Fix was at $31.75 on February 7 (again, not that long ago). Since then, it's been straight down to around these levels, with a low of 18.61 on June 27. It's still a bargain all the way back to $23 an ounce, and, it's still REAL MONEY.
Dow 15,498.32, +27.65 (0.18%)
NASDAQ 3,669.12, +15.12 (0.41%)
S&P 500 1,697.48, +6.57 (0.39%)
NYSE Composite 9,634.47, +66.21 (0.69%)
NASDAQ Volume 1,641,758,375
NYSE Volume 3,475,672,000
Combined NYSE & NASDAQ Advance - Decline: 4175-2345
Combined NYSE & NASDAQ New highs - New lows: 270-112
WTI crude oil: 103.40, -0.97
Gold: 1,309.90, +24.60
Silver: 20.19, +0.685
Monday, March 4, 2013
Central Bank Bubbles Cause Dow to Hit 2nd-Best All-Time Closing High
There's been an ongoing debate over whether there is a bond bubble and whether - and when - it will finally burst.
With the Fed carrying the water for the US Treasury to the tune of 40-45% of all new debt issuance there's abmple evidence that Chairman Bernanke and his henchmen and women have had the bubble-blowing pipes surgically implanted into their collective mouths. They've managed to keep all interest rates at historically-low, bargain basement prices for the past four years, though the net results of their efforts have been widely different depending upon one's perspective.
For the nation's largest banks, Fed largesse has meant easy money with which to rebuild their badly-damaged balance sheets after the real estate debacle which ended in the 2008 crash. This easy money has also inspired rampant speculation by those very same banks and has trickled down to hedge funds, the marginal buyer in this runaway stock market.
Whether the bond bubble will eventually burst is a matter of conjecture and even more speculation, though one can be relatively assured that if such a bubble exists and does burst, rates will escalate higher in a disorderly fashion which will make any previous stock market crash look like a summer picnic. In sum, higher interest rates would wreck the global economy. Everyone from the marginal student lender to the great sovereign nations of the world would be unable to service debt at higher - and rising - interest rates. Cue the oompah band from the days of the Weimar Republic.
Where there exists a bona fide, can't miss, no-doubt-about-it bubble is in stocks. Friday will mark the four-year anniversary of the bottom of the 2008-09 slide into the abyss. In those four short years, the major indices have embarked upon one of the longest uninterrupted stock rallies in global history. The Fed's insistence to throw $85 billion per month at the market through the purchase of Treasury and mortgage-backed securities is like traders drinking from an endless champagne fountain, drunk in the knowledge that any slight pullback will be shortly erased by the ungodly amounts of capital flowing into the markets.
Because the Fed has crushed interest rates (and with them, savers), stocks are the only financial instruments by which one can expect a return in excess of inflation, which is, after all, the key to maintaining and developing a wealth portfolio.
One method by which one can identify a bubble is by watching the dips and subsequent rebounds. In the stock market, this phenomenon is readily apparent. Just looking at today's intraday loss of 61 points and the middday reversal and eventual positive close is evidence enough that - turning an old adage on its side - what goes down will go up.
Last week's 200-plus-point drop on Monday was snuffed out and overwhelmed in the next two days of trading. The pattern is unmistakable and repeatable throughout the four years of excessive Federal Reserve easing and zero interest rate policy. To say that such extraordinary measures are unsustainable would be the understatement of the millennium. Never before in recorded history have interest rates been held so artificially low for such an extended period of time.
The problem with the Fed's policies are that they are reckless and untried in practice. Based entirely upon a groupthink methodology of Keynsian economic theory, the Fed has taken a free-market demand economy and turned it into a manipulated, command-driven socialism experiment, and the results are not and will not be understood until there is an attempt to undo whatever good or damage has been done and return to a semblance of "normalcy," a term becoming more quaint and misunderstood each passing day.
Other than stocks and bonds, the Fed has created - with ample assistance from the inept federal government apparatus - a bubble in student loans, which last year exceeded the total amount of credit crad debt outstanding, approaching a trillion dollars.
One can argue that an education is a worthwhile investment, though, comparing to credit cards, at least most people would have something tangible to show for their monthly statement of debt-slavery. For the graduates and soon-to-be grads, they have a peice of paper attesting they have some rudimentary knowledge in some broad field of endeavor. In an economy long on promise and short on actual paying jobs, those sheepskins are, and maybe become even more, worthless.
The US Federal Reserve is not alone in blowing bubbles, though one can rest assured they were cheering the Chinese all the way toward creating what now must be considered the most massive real estate bubble in the history of the world, dwarfing the sub-prime fiasco by a matter of degrees.
As mentioned by many over the year and documented by CBS' 60 Minutes on the Sunday, March 3rd broadcast, the Chinese have created at least a dozen "ghost cities" complete with high-rises, shopping malls, streets and thoroughfares, infrastructure and amenities, just no people. The simple fact is that the Chinese people were sold a bill of goods by their own versions of snake oil salesmen, buying up properties in developments on the outskirts of most major cities, even though the apartments, housing and commercial rental units are far beyond the reach of the average Chinese working-class individual or family. The 12-minute clip is embedded below.
Whether the timing of the 60 Minutes report was coincidental or just dumb luck (being of the conspiracy mind, we think it's the former), the Chinese central government has imposed new rules designed to slow down the real estate frenzy or the piercing of the bubble, which will, without a doubt, eventually burst. The question is simply a matter of how long and how well Chinese officials can lie and obfuscate the reality that they have created a bubble that has - during the buildup - resonated worldwide, and will do the same as it deflates.
The new measures, which involve higher down payments and higher interest rates on second home buyers and a 20% capital gains tax on the sale of any housing unit that is not a primary dwelling. The Shanghai Composite lost 3.7% on the day, with a number of property development firms down the maximum allowable one-day drop of 10%.
With those results in tow, US stocks began the day lower, but, thanks to our own financial fantasy-land bubble machine, ended higher.
Once again, it seems the three most basic tenets of investment practice have been ignored: buy low, sell high, and do your own due diligence. People never seem to learn.
Oh, well. It's only money.
With the Fed carrying the water for the US Treasury to the tune of 40-45% of all new debt issuance there's abmple evidence that Chairman Bernanke and his henchmen and women have had the bubble-blowing pipes surgically implanted into their collective mouths. They've managed to keep all interest rates at historically-low, bargain basement prices for the past four years, though the net results of their efforts have been widely different depending upon one's perspective.
For the nation's largest banks, Fed largesse has meant easy money with which to rebuild their badly-damaged balance sheets after the real estate debacle which ended in the 2008 crash. This easy money has also inspired rampant speculation by those very same banks and has trickled down to hedge funds, the marginal buyer in this runaway stock market.
Whether the bond bubble will eventually burst is a matter of conjecture and even more speculation, though one can be relatively assured that if such a bubble exists and does burst, rates will escalate higher in a disorderly fashion which will make any previous stock market crash look like a summer picnic. In sum, higher interest rates would wreck the global economy. Everyone from the marginal student lender to the great sovereign nations of the world would be unable to service debt at higher - and rising - interest rates. Cue the oompah band from the days of the Weimar Republic.
Where there exists a bona fide, can't miss, no-doubt-about-it bubble is in stocks. Friday will mark the four-year anniversary of the bottom of the 2008-09 slide into the abyss. In those four short years, the major indices have embarked upon one of the longest uninterrupted stock rallies in global history. The Fed's insistence to throw $85 billion per month at the market through the purchase of Treasury and mortgage-backed securities is like traders drinking from an endless champagne fountain, drunk in the knowledge that any slight pullback will be shortly erased by the ungodly amounts of capital flowing into the markets.
Because the Fed has crushed interest rates (and with them, savers), stocks are the only financial instruments by which one can expect a return in excess of inflation, which is, after all, the key to maintaining and developing a wealth portfolio.
One method by which one can identify a bubble is by watching the dips and subsequent rebounds. In the stock market, this phenomenon is readily apparent. Just looking at today's intraday loss of 61 points and the middday reversal and eventual positive close is evidence enough that - turning an old adage on its side - what goes down will go up.
Last week's 200-plus-point drop on Monday was snuffed out and overwhelmed in the next two days of trading. The pattern is unmistakable and repeatable throughout the four years of excessive Federal Reserve easing and zero interest rate policy. To say that such extraordinary measures are unsustainable would be the understatement of the millennium. Never before in recorded history have interest rates been held so artificially low for such an extended period of time.
The problem with the Fed's policies are that they are reckless and untried in practice. Based entirely upon a groupthink methodology of Keynsian economic theory, the Fed has taken a free-market demand economy and turned it into a manipulated, command-driven socialism experiment, and the results are not and will not be understood until there is an attempt to undo whatever good or damage has been done and return to a semblance of "normalcy," a term becoming more quaint and misunderstood each passing day.
Other than stocks and bonds, the Fed has created - with ample assistance from the inept federal government apparatus - a bubble in student loans, which last year exceeded the total amount of credit crad debt outstanding, approaching a trillion dollars.
One can argue that an education is a worthwhile investment, though, comparing to credit cards, at least most people would have something tangible to show for their monthly statement of debt-slavery. For the graduates and soon-to-be grads, they have a peice of paper attesting they have some rudimentary knowledge in some broad field of endeavor. In an economy long on promise and short on actual paying jobs, those sheepskins are, and maybe become even more, worthless.
The US Federal Reserve is not alone in blowing bubbles, though one can rest assured they were cheering the Chinese all the way toward creating what now must be considered the most massive real estate bubble in the history of the world, dwarfing the sub-prime fiasco by a matter of degrees.
As mentioned by many over the year and documented by CBS' 60 Minutes on the Sunday, March 3rd broadcast, the Chinese have created at least a dozen "ghost cities" complete with high-rises, shopping malls, streets and thoroughfares, infrastructure and amenities, just no people. The simple fact is that the Chinese people were sold a bill of goods by their own versions of snake oil salesmen, buying up properties in developments on the outskirts of most major cities, even though the apartments, housing and commercial rental units are far beyond the reach of the average Chinese working-class individual or family. The 12-minute clip is embedded below.
Whether the timing of the 60 Minutes report was coincidental or just dumb luck (being of the conspiracy mind, we think it's the former), the Chinese central government has imposed new rules designed to slow down the real estate frenzy or the piercing of the bubble, which will, without a doubt, eventually burst. The question is simply a matter of how long and how well Chinese officials can lie and obfuscate the reality that they have created a bubble that has - during the buildup - resonated worldwide, and will do the same as it deflates.
The new measures, which involve higher down payments and higher interest rates on second home buyers and a 20% capital gains tax on the sale of any housing unit that is not a primary dwelling. The Shanghai Composite lost 3.7% on the day, with a number of property development firms down the maximum allowable one-day drop of 10%.
With those results in tow, US stocks began the day lower, but, thanks to our own financial fantasy-land bubble machine, ended higher.
Once again, it seems the three most basic tenets of investment practice have been ignored: buy low, sell high, and do your own due diligence. People never seem to learn.
Oh, well. It's only money.
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