Real Estate – Hedge Against Economic Totalitarianism
QUESTION:
Martin,
I live in the Intermountain West. Our local real estate market has been in the toilet for years. One local broker has noted that her office typically has two homes in sales process this time of year. This spring they have twenty-two homes in process — eleven times the recent average. I think FED rate hike chatter has convinced people to get off the fence and buy before rates take off. Do you think this has the potential to blow up the bond market?
JAJ
ANSWER:
In an earlier post, I mentioned how we sold my mother’s house in one week. Mortgage rates are currently low, and we are heading into the peak of this ECM. Historically, now is the time to sell if you need the cash or want to move to get closer to global warming. If you are a buyer, lock it in before you cannot. Do not borrow on any floating rate scheme. The mortgage market will dry up when the banks get in trouble once again. They bribed Congress to repeal the reforms so we are back to full transactional banking. They will lose money once again in the debt markets.
The high end of the market is going crazy. This is largely CASHtransactions and here we have money desperately trying to get out of banks and the smart money is starting to worry about ECONOMIC TOTALITARIANISM by eliminating paper money and then they can just take whatever they want from your account whenever. To survive, they are moving into art, antiquities, and real estate big time.
You Can Do Anything If You Do Not Think of the Consequences
I had a very interesting discussion with a top investigative journalist in Germany who was different from most. The journalist inquired,“How could you advise on trillions of dollars in a crisis when others are in a state of panic?” It made me think and reflect on what I was doing differently. Yes, there were plenty of studies showing that the more money you gave a fund manager, the lower his performance. Why? He could not change his trading strategy to accommodate the increase in money. It was like driving a VW bug and a Ferrari on the autobahn in Germany. You cannot drive a VW bug at 180 mph.
I engaged in some self-reflection and responded, that I could do the job only because I did not think about how much money that was in the real world – it was all just phone numbers to me. I could handle size because I knew the depth of the market and how to accomplish what needed to be done. But I never thought about the scope of what I was doing in terms of one’s personal life. I could be called into a portfolio that was $1 trillion+ or $100 million and deal quickly to resolve the crisis without thinking about how much money it really was in purchasing power. I replied, “I just did not think about the consequences of what I was doing – I just did the job.”
The reply back was telling as she saw the connection between what I was doing, and what others were doing in different fields. She explained that she interviewed a renowned brain surgeon. The surgeon said he never thought about what could happen if he made a tiny mistake, he never thought about the person possibly never speaking again or whatever the consequence might be. The surgeon responded, when he thought about the implications of what he was doing, he had to retire for he could not act so decisively ever again.
I found the conversation interesting. It indeed caused me to reflect upon my own decision process. Perhaps this was why I was moving to computer models to eliminate that personal opinion. You can do anything if you have no fear – but you cannot do anything if you fear everything to the point you cannot act. It is the paradox of someone who would love to see the world, but is too afraid of dying so they cannot get on an airplane.
NEVER be afraid to question and always ask “WHY?” I use to drive my parents nuts, for I always kept asking “WHY” something would function in such a manner, no matter what the subject matter. The first report I wrote back in 1979 I named for this very quest to know answers – the WHY REPORT.
Successful forecasting, as well as trading, means ALWAYS assuming you are wrong. That forces you to constantly double check. It is equally important to never marry a position. This is what the REVERSAL SYSTEMfocuses on. You cannot forecast or trade without knowing where you are RIGHT, while also knowing where you are WRONG.
People keep trying desperately to attack me, claiming I am wrong on something or other. They miss the entire point. Nobody can be always right from the perspective of opinion, for there is a whole world out there to monitor. The key is NEVER try to forecast or trade anything in isolation. Everything is connected.
So it is interesting that this journalist compare me to a brain surgeon. If you think about what you are doing, you may not be able to do the job. This is a curious paradox. Perhaps this is why we need computer models to eliminate that human emotional aspect altogether.
Nyenrode University
Yesterday, I spoke by invitation at the prestigious Dutch Nyenrode Business University, which is situated on a 13th century estate with its own genuine castle, moat, and draw bridges. This is the only university of its kind with such a unique atmosphere and remains the only private university in the Netherlands which explains the invitation.
The questions were interesting to say the least and we focused on how the economy had changed post-Bretton Woods reaching the point that central banks no longer have control over the economy that people assume. Nations borrow because the old theory was rather simple. If a nation borrowed it was deflationary for they were removing capital from the system. If you had government bonds, banks were prohibited by law from lending money on them, Hence, it did shrink the money supply reducing the VELOCITY (deflationary).
However, post-Bretton Woods, debt became money. If you wanted to trade futures, you put your money into AAA government TBills and posted that as collateral. The central bank lost Keynesian control of the money supply for raising interest rates had NO EFFECT upon those in government. They would continue to spend money and that eventually even collapsed Bretton Woods originally.
We discussed how people would like to believe in the central bank is the Financial God of the economy, but in reality, they cannot control anything when the bulk of the money is created through government borrowing, which has become printing money that pays interest.
There was great skepticism about the Euro surviving. I explained that indeed it may be too late to even consolidate the debts to save Europe. Nevertheless, Brussels will fight to the last drop of blood of the private sector because if the Euro fails, then there is no need for Brussels. This is now a battle for their bureaucratic jobs – not to save or manage Europe. This is now why they want a European army. They need to defend their system no matter how economically unfeasible it has been constructed.
We also focused upon the thinking process and my favorite quote from Einstein. There is little hope that the ECB will wake up here for they continue down the same course of thinking that has created the current crisis. They keep lowering interest rates under the delusion that at some point this will stimulate demand to borrow. They are wiping out the elderly, destroying pensions that are compelled often by law to invest in government bonds, and producing a lost generation among the youth who cannot find jobs for there is nobody creating new small business.
Those in government CANNOT think out of the box. Japan lowered interest rates for more than 20 years and it utterly failed. You cannot follow this course of thinking for it wipes out all savings and renders the entire socialistic system dysfunctional. I previously wrote years ago that real estate would decline UNTIL the first uptick in mortgage rates. I received a flood of emails saying oh how I was dead wrong again showing just how much people are brain-washed. When I make such statements, this is not some personal opinion for it is based upon correlating the markets and trends – it’s fact.
People are not stupid. The Japanese ran out and bought whatever they were waiting for to buy just ahead of the sales tax increaseto the point it almost looked like japan had recovered. The same was true with interest rates. People are NOT as stupid as these theories portray. Why should someone buy a house as long as mortgages rates continue to decline? You save money by waiting. At the first sign of an uptick in rates, people will rush out to borrow for it will then be cheaper to borrow today rather than waiting until tomorrow.
Just correlate the stock market to interest rates and you will see that there too the pundits and theories are DEAD WRONG. Stocks historically RISE with RISING interest rates and rates plummet with every decline like 1929-1932 or 2007-2009. You will see the US share market RISE with RISING interest rates and the central bank will be compelled to keep raising rates because they are trapped within the corridors of this thinking process that is simply wrong.
We are lost in these theories and I honestly cannot understand how people repeat the same nonsense over and over yet nobody bothers to do the slight bit of investigation to validate what they are saying. So to me, what I am saying is based upon fact that is supported by correlating the world. It is not some personal opinion or how I”think” the world works. That is just a delusion. If we are going to ask a question or adopt a policy, why can’t we actually do the research to answer authoritatively? Economics is plagued by too many Economists who postulate only what they think, not what the research independently. I love the ones who proclaim you cannot define the business cycle so whatever I say is dubious. They will not prove me wrong – they just think.