I get a lot of decent news from HousingWire (HW) even though Paul Jackson, et al., are predominately pawns of Lender Processing Services (Black Knight – BKFS). Today, though, was one of those days wherein the parroting of that which HWs Masters wanted out on the Street was too much, even for me. Jacob Gaffney broke my contemplative mood around 1331EDT with his Goldman Sachs Cheerleader Article. As usual, one of the most sleazy financial juggernauts was out stumping about how everything was in proper order with the US Economy and, “Oh, there is absolutely no bubble in the real estate sector.” The caveat at the end, though, is worth citing. Now, I couldn’t quite interpret whom Gaffney was quoting, but it would appear to be linked to Goldman Sachs Chief Economist Jan Hatzius and Co Head Jari Stehn.
“Despite these intuitive results and the high levels of statistical significance of some of our explanatory variables, crisis prediction remains a difficult exercise. Even on an in-sample basis, our models generate significant numbers of both type I errors (missed crises) and type II errors (false alarms). The implication is that models such as ours can play a useful role for policymakers, but only as part of a broader monitoring regime for financial stability.”
On a 50 day average, gold and silver are up. Common stock shares have been dumped and exited from. So, in essence, the shorts on the precious metals are going potentially prove problematic to cover. What generally follows is that the bottom falls out on the dollar. Throw in what I anticipate to be a 10% or so correction to the Market (Read: Bear Market) on the not so distant horizon and you have the foundation for 2007 on steroids. To understand this and I have no doubt that Hatzius, et al., are far more adept than I at such nuances, we need to understand that Russia, Mexico, Italy and US Economies are all in clinical recession. GDP has been in the negative for two quarters now. Look, when you have Alexei Ulyukayev publicly admitting such, you know there is going to be trouble. We haven’t even begun to discuss the fragile Eurozone. With the Sanctions in play over the downing of Flight MH17/MAS17 make no mistake whatsoever that Russia is going to jack the price of petrol (that’s petroleum in Eurospeak). With a winter coming in early and guaranteeing Snowpacolypse 2014, we set the stage for a global quagmire.
We have predominately entered into a rental based society. The US Census Bureau is reporting a vacancy rate as low as 5.8% in some areas for Q2 2014. The fiction that homes are selling like hotcakes is precisely that: fiction. Well, property has been selling, but the vast majority of the sales have been cash purchases. I will not bore you with the dangers of that. What I will do is terrify those of you whom understand Modern Money Mechanics by stating that the Blackstone’s of the world were the predominate purchasers up through Q4 2013. Now that they fattened up on the Zero Percent Quantitative Easing Institutional Loans, they are getting quietly out of the Market. They couldn’t be content, though, with just that.
Even after creating the Meltdown; the Sub Prime Crisis; even after getting the FHA monies back and then 1099ing the homeowners; even after buying the homes they stole for pennies on the dollar, they had to stick it in one more time. Just like a rapist whom becomes more and more emboldened when they beat the rap, Blackstone, et al., went ahead and securitized the rents ironically being extracted from those whom were paying mortgages days earlier. Through this securitization process, Blackstone, et al., created bond offerings backed by the rental revenue stream.
This is the true definition of a criminal predator. Unlike, though, the Sub Prime Crisis wherein the homes could be converted into the short term rental, now there is nowhere left to go. Dystopia on steroids. Ferguson, Missouri, except the victim here is the Taxpayer.
Those on Capital Hill are not so enamored, either. The Federal Reserve Board’s (FRB) rule on bailing out their Bankster Buddies is written in Section 1101 of the Dodd – Frank Wall Street Reform and Consumer Protection Act (Dodd – Frank). Dodd – Frank is 848 pages of bullshit that most legislators don’t even understand. To put Dodd – Frank into perspective, only ONE THIRD of the legal mandates have been put into play. The implementation of the FIRST ONE THIRD of the mandates require more man hours per year to fulfill than the combined total of man hours it took to build the Panama Canal! With that said, Section 1101, even after it was neutered by the limp dick politicians beholden to Goldman Sachs and their Bankster Buddies, looked to potentially prevent FRB from yet another Bailout for financially failing institutions that in real capitalism would be long gone.
FRB and their crony capitalists have done more than simply drag their heels on protecting US Taxpayers from the emergency lending authority which FRB has at its discretion. FRB and its crony capitalists have, in my opinion obstructed in attempts to move forward on such. In light of the fact that the US Taxpayer dumped THIRTEEN TRILLION DOLLARS which FRB extorted into financially insolvent Bankster Criminal Enterprises — US and Foreign Financial Institutions — there is now bi partisan support for pretending to jump FRBs proverbial ass.
The reality is that Janet Yellen could give two shits about what Congress thinks. What FRB realizes is that as the Institutional Players have predominately taken their toys (Read: Cash) and went home leaving the Real Estate Market with an elevated valuation WAY OUT OF PROPORTION, the single family purchasers whose 30 year loans ensured stability within the Economy are priced out of the American Dream. To perpetuate the insanity even further, the National Association of Realtors (NAR) is exempted from Anti Money Laundering Provisions. So, enter China, Stage Right. And here is where the true reality of how bad things are globally.
In 2003, China embarked upon a monumental undertaking which began in Ordos which is located in Inner Mongolia and near the Ordos Desert. That undertaking was to create veritable mega cities for which the over One Billion Chinese would flock to occupy. More on point, as China is a Communist Nation — kinda — just about the only thing which Chinese Citizens were legally allowed to invest in was, coincidentally, the real estate boom. With Chinese Government backed loans totaling well over ONE TRILLION DOLLARS today, the Keynesian construction boom has finally blossomed into a bubble — a bubble which many including myself believe has already burst. To truly get an idea of how bad it is, take a read through Darmon Richter’s Bohemian Blog. You will be completely dumbfounded when you find that the Chinese have built obscene network of a megalopolis which easily will accommodate over ONE MILLION PEOPLE when you throw in Kangbashi. Replete with brothels, malls, museums, dining facilities to rival any on Earth the fact of the matter is that they ARE NEARLY EMPTY! I am not bullshitting you! Read Richter’s Blog Link above or simply Google Ordos.
So, as the Chinese have dumped over a trillion dollars into a bottomless pit, even more are flooding the United States with an unendless stream of cash to buy real estate here. The only thing I am able to ascertain is that the once honest and storied global financial institutions must now all be buying the ink for their monetary printing presses from the same distributor.
What is driving the trend of the ultra wealthy and nation state actors and their building and buying frenzy is, in part, fueled by tighter credit standards. True irony. In this, I mean that any government is only as wealthy as its ability to tax its citizenry. Take the Sub Prime Crisis, for example. The US Government could have paid off EVERY SINGLE MORTGAGE; created homeowners with discretionary income to fuel a vibrant economy, and NOT COME CLOSE to the amount of money they gave to the Banksters! Now, in fact, money doesn’t even exist, but that is a conversation best left for another day. The heart of the matter is that with the average consumer anywhere on Earth, but most assuredly here in the United States, unable to buy a home due to either credit or overvaluation, we come full circle to the Rental Agenda.
The dangers incumbent upon creating a renter based society is that no one has a vested interest in the property. Renters look at it as an item which is transient; an item which may be exchanged at whim. Investors look at the property in a manner which does not reward those whom properly maintain the homes. What I mean is that investors know that even if they fix things up nicely — and they ARE NOT and Blackstone is under a tremendous amount of litigation for this — they will ultimately loose out as tenants break things. Further, the very same Mortgage Field Services Industry which brought you the Discoloration Instead of Mold Production moved these properties over into the REO To Rental Market and now the word Mold is front and center — six feet under in the case of some whom have now died from exposure.
Blackstone and the rest of their ilk pawned off their Rental Bonds; their schemes, based upon the fact that they believed that the vacancies would remain low. Their theory is that even if things go South — and they are already going South very rapidly — the consensus is that they would simply sell off the properties. They might sell off a portion of their portfolios, but the problem with that is it would then cause a destabilization in the Housing Market. And remember our good friend Section 1101? Yeah, no help there. Just another endless stream of bailouts for Wall Street while Main Street foots the bill — or we Nationalize.
So, until we bring back laws like Glass – Steagall, the reality is that we are merely moving from one crisis to the next. Our Economic House of Cards is most eloquently displayed when observing how the Debt Ceiling is continually kicked down the road. There is no end in sight. Unfortunately, the United States has reached its zenith; the United States is much like Rome in its time of decline — history categorically repeats itself. There is No Room at the Inn and there is definitely No Light at the End of the Tunnel. Why? The power has been shut off for failure to pay the bill.