Weekly Article 05-02-2018

Many people will laugh when I say that they will give homes away. This seems an absurd statement when home prices are overall rising and all appears to be well. Of course, looks can be deceiving.

There was an article on Zerohedge where many municipalities will pay people to move into their areas. Of course, there are some conditions- like staying there for 2 years and having a marketable skill that they are looking for. In other areas homes are being sold for $2000.00- like I have written about in the past in Minnesota. Don’t forget about the brownstones in Baltimore where they were sold for $1.00 in the 1990s and became worth hundreds of thousands in the 2000s. The reason: To get people paying taxes again! This is why I believe you will see this happen in many places in the near future.

Anyone who thinks that this can’t happen where you are try this: Don’t pay your property taxes for 2 or 3 years and you will find out the REAL owner of “your” home. Clue- it’s not you!

This may be the best opportunity to pick up assets at prices that we can’t imagine today if we are prepared and have purchasing power at that time.

Why are prices rising? Look at who is buying. Hedge funds, sovereign wealth funds, etc. This is a managed recovery that is getting long in the tooth. Who will be the buyers when it is time to cash out?

Anyone who owns a home is happy if the value of that home rises. On the other side, however, are those who want to purchase a home. Many are finding that home ownership is out of their grasp because of rising prices, previous debts (like student debt, car loans, etc.) that make it hard to save for a down payment.

Fannie Mae, the quasi-government agency that backstops mortgages just made a statement that the problem is that people cannot afford rents or purchases. Wow! I have been saying that for years. This is what happens when prices rise and incomes do not rise along with them. How do you carry the extra costs? Lower interest rates provide some relief but now that rates are rising fewer people will qualify for mortgages going forward.

Zero down to 3% down mortgages are making a comeback. This is part of what led to the downturn in 2008. Basically, most who have been able to get a conventional mortgage already have one. There is not sufficient demand to keep the banks humming along without gimmicks.

The auto industry is also in trouble as there are massive layoffs at Ford- where they will stop production of all sedans except the Mustang and Focus as well as at Fiat where demand appears to be slowing down across the board. The subprime loans in this area are already hitting troubling levels of defaults. Many of these loans that are defaulting now have been packaged up and sold off to investors starving for yield.  Sound at all familiar?

The debt-based monetary system that we are currently in needs debt to keep growing exponentially to avoid a pullback or collapse.  This is why there has been unprecedented growth in student debt, auto loans and other types of debt to make up for mortgages and other types of debt that may be stagnating.

Generally, when the economy is humming along and there is sufficient loan demand we see the M2 money supply increasing. This is a signal that all is well in debt-land. Currently, M2 money supply is decreasing and the velocity of money (how fast the money is changing hands in the economy) is also at historical lows. These two pieces of information provide us with a clue that the economy is not humming along as we are being led to believe- as if we needed more information about that.

I saw an interview with Chris Martenson on USA Watchdog and he stated that we need $12.50 of new debt to get $1.00 of GDP growth. I am not sure it is quite that high but anything that is higher than $1.00 is troubling because that would make it appear that the debt being counted as growth has outlived its usefulness.

This makes me recall the saying that there will come a time when they can print all they want and it won’t help. If that $12.50 is actually correct we may be nearer to the fiscal cliff than many imagine.

Actually, based upon the level of intervention in both the stock and bond markets it appears to me that we are at the point where only exponentially growing interventions will have any effect on these markets at all.

Just recently- yesterday as a matter of fact- the major US markets were substantially lower across the board. Low and behold- late in afternoon trading “someone” came in and bought a LOAD of equities- leading to slight gains in the S&P and Nasdaq and a lesser loss in the Dow. Earlier in the day there was substantial buying of US Treasuries which is not only to keep the yields low but also prop up the stock markets. (Greg Mannarino)

The most important thing that I see here is that these interventions- at least in the last 2 months have NOT led to higher highs- they have just forestalled what appears to be a major correction that the market appears to deem necessary. Ultimately, I believe the market will win- the only question is when.

If the interventions continue to grow I believe dollar weakness will be a symptom. If the interventions are static or even decreased I believe the dollar may strengthen and the risk-on assets could be in trouble. Only time will tell.

As the dollar has caught a bid for the first time in 16 months or so gold and silver have been under pressure because of a strengthening dollar and, of course, the usual 2AM and other time raids where massive amounts of paper gold are sold in a market order (don’t care about the price!) to keep the price subdued.

While the waiting for all of this to play out is difficult I believe that those who have patience will be greatly rewarded going forward. I believe ALL assets will be repriced to a level where buying and selling decisions can once again be based upon fundamentals and not who is printing “money from nowhere” and buying assets to drive up the prices of those assets or keep the value of other assets subdued to keep the illusion that the fiat currencies are strong.

While the financial game shows continue the “Now is the time to buy” mantra- take a step back and look at what is happening. The idea is to buy low and sell high. With stocks near all-time record valuations how can anyone say they are low? With interest rates near all-time lows and bonds near all-time highs how are they a bargain?

With all of the financial shenanigans taking place and money “printing” and purchasing of assets off the charts how could anyone think that real assets are high?

Think about a few headlines at ZeroHedge:

“The US Just Borrowed $488 billion in one quarter- the most since the Financial Crisis”

“ADP-Weakest Job Growth since 2011- After March’s Biggest Miss in 7 Years

“Moving Average Bounces Getting Weaker” Mike Shedlock

“We’re Full Of Crises Right Now- Egyptian billionaire Piles Into Gold”

“Goldman Fined $100 Million For Improperly Rigging The Forex Market”

“Inflation Warning Lights are flashing Everywhere as Prices Soar the Most Since 2011”

“Apple-$22.8 Billion in Stock Buybacks” (Hey when sales go south just bribe the shareholders!)

Are these the stories the Financial Game Shows are talking about?

By the way- How would one “improperly” rig the FX market???

Mike Savage, ChFC, Financial Advisor

2642 Route 940 Pocono Summit, Pa. 18346

(570) 730-4880

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