Ten Reasons the Real Estate Market WON’T Go Ballistic This Spring
The podcast ends with a critique of a recent Fortune article titled “Ten Reasons the Real Estate Market Could Go Ballistic This Spring” (see below)
What’s Next for the Fed?
3:58-7:36 The Fed has chatted the dollar higher with all the talk of raising interest rates so that if they actually do a rate cut the dollar will fall from a higher level than if they didn’t prepare the markets for it. The Fed is gaining credibility by talking about raising rates after doing the incredible- six years of QE that involved printing $4 trillion to buy U.S. Treasuries and mortgage backed securities.
Impact of a Rate Hike
The Fed is hoping for a miracle or crisis so they don’t have to raise rates. Paradoxically, the end of QE has not led to rising rates but rather lower rates. The Fed MAY do a ceremonial small rate hike to gain credibility then talk about further ones for months. One small rate increase won’t cause the market to crash or a derivatives implosion. The Fed could also enter the derivatives market. A small rate hike will give the Fed all the credibility they need if they have to reverse course, lower rates and implement another round of quantitative easing.
The Fed can’t raise rates significantly while the dollar is getting stronger and other central banks are lowering their interest rates (some into negative territory).
Interest Rate Hikes and the Impact on Real Estate
7:36-9:50 the impact any rate increase might have on credit card, auto and real estate loans.
Four Things Preventing People From Buying Homes
9:50-11:20 Even though interest rates are low, home sales have not picked up not just because homes are over priced but also because of:
Higher property taxes;
Higher health insurance premiums;
Higher car payments; and
Student loan debt.
If wages haven’t grown, (and they haven’t) then meeting the above payments AND a mortgage becomes impracticable or impossible.
Negative Impact of Government Intervention in the Housing Market
9:50-13:50 the deleterious impact of incessant government intervention into markets that only make it worse.
Michael Jackson’s many plastic surgery operations that ruined a perfectly good looking face is discussed as an analogy.
Government “help” is a form of control.
Getting Out Before the Crash
13:50-17:15 discussion how many investors and homeowners will get stuck holding the bag when the stock and real estate market bubbles burst.
Demand for Homes is Strong/Ability To Buy Them Weak
17:15-18:45 home demand is discussed in the context of qualified purchasers. Desire is infinite, ability to fulfill those desires is limited. Every one wants to be Elmer J. Fudd.
Media Driven Job Recovery
18:45-23:45 discussion of how the main stream media constantly touts “job gains”. Marketwatch recently ran a story
The Job Led Recovery!
The media touts job data as “robust” “buoyant” “solid” “evidence of a strengthening job market” “broad based” and “consistent with steady hiring” but never discusses the quality of the jobs.
There is little discussion of the good jobs LOST at Hewlett Packard and in the shale oil industry.
For Reuters, CNBC, Bloomberg and AP the glass is neither half empty nor half full when reporting on the job market. These guys calling for another glass as they portray the job market as overflowing!
Alternative media only reacts to main stream media mischaracterization of the health of the economy. Reuters recently reported: Housing starts at “lofty levels” Housing starts are not at lofty levels. They are at multi-decade lows. The same media also claims there is an “inventory shortage” If true there would be a greater number of new homes being built to meet the demand. There isn’t the demand for more homes.
23:45 – 28:15 discussion of government intervention to try and boost housing sales. Discussion of millennial home buying potential.
Discussion of fixing mistakes via free markets vs government intervention (stimulus, zero and negative interest rate policies). Quantitative Easing has gone from an extraordinary measure to prudent tool of monetary policy. The public and markets now expect the Fed and government to “do something” when markets crash.
Warren Buffet’s Thank You Letter to Uncle Sam
28:15 – 33:45 discussion of this. But for government intervention, Warren Buffet would be referred to today as “former billionaire” or “once one of the richest men in the world”. Economics don’t allow A/B testing. We will never know what would have happened if the government did not engage in bailonomics. They get to say would might have happened but we will never know.
Federal Reserve and Government Intervention in Financial Markets and the Economy
Fed and government intervention has entrenched financial losers and baby boomers. After the stock market crash of 1929 many wealthy people lost their fortunes. After the financial crisis of 2008, the wealthy regained their losses and got richer, thanks to government and Fed intervention.
JP Morgan Fines vs Federal Government Raid of Gibson Guitars’ Manufacturing Plant
In contrast, those that aren’t wealthy and don’t have political contacts get no preferential treatment. Banks like JP Morgan can break the law with impunity and pay multi-billion dollar fines. JP Morgan has paid $35 billion in fines since 2012! Discussion and contrast of SWAT treatment of Gibson Guitars by the US. Government.
JP Morgan’s offices have never been raided in the same fashion.
Mortgage Company Fines
33:45-41:40 one time non recurring, recurring fines are discussed. Discussion of tax collection tactics and a flat tax. Discussion of state and local taxes vs Federal taxes. The majority of spending should be at the local not Federal level, but it’s not.
Death and taxes is a well worn saying. But really in nature only death is inevitable. Discussion of what value people get for their taxes and discussion of the point that taxes paid by citizens don’t come close to covering all the expenses of government.
Discussion of John McCain’s statement that he is ashamed of his country because the United States won’t fund the rebels in Ukraine. Discussion of government spending money overseas vs. spending money in Detroit.
Ten Reasons the Housing Market WON’T Go Ballistic This Spring
41:40 – A Fortune magazine article “Ten Reasons the Housing Market Could Go Ballistic This Spring” is discussed and refuted. You can follow along here. The article could have been titled: “Ten reasons why my gut tells me my guess might be right and the power of positive reporting”
Ten Reasons the Housing Market Won’t Go Ballistic This Spring