Will they or won’t they? Will the congress and President cave and continue the massive stimulus that has, so far, headed off a total implosion of our economy? While I can’t answer that right now, I can say two things that I am very confident of.
#1 If they fail to continue “extra” payments and stipends you can bet the foreclosures of homes, the evictions of renters and the bankruptcies of all size businesses to increase in a meaningful way QUICKLY.
Actual spending has made a comeback even though 50 million people have now filed unemployment claims in the last 17 weeks. Obviously, earned income is not making this possible but “money” from nowhere that still has some perceived value.
Some people are spending the “extra”, others are using it to pay bills and stay afloat.
Even with the extra stimulus people are fleeing the cities that have become more of a liability than a benefit. My daughter rents an apartment near the Freedom Tower in NYC. One year ago they raised the rent and when she asked that they keep it the same the answer was “If you don’t want it someone else will take it”. Right now, in a 75-unit building there are 14 tenants left. She is moving out next Saturday leaving 13 of 75 units rented. That was quick!
The Mortgage Bankers Association reports that 8.2% (4.1 MILLION LOANS) are currently in forbearance. These are loans that WOULD be considered delinquent in a normal environment. This is kind of like not counting the 90 million plus people who have permanently stopped looking for work when determining the unemployment rate. Despite this fact, mortgage delinquencies are historically and concerningly high. Many real estate experts are predicting a lot of inventory and far lower prices in 2021.
It appears that rural areas and suburbs may see a short-term spike in prices because of the before-mentioned exodus from the cities. Look out when many jobs don’t come back and a likely tsunami of foreclosures and bankruptcies start to occur.
There is a fellow named Ken McElroy who has put out some interesting videos on what he expects to see going forward and I find what he is saying to be very believable. The fact that his real estate portfolio is over a billion dollars gives him some serious credibility in my book.
Housing may become a real problem for many but may provide some opportunities for those that are prepared in advance.
For those who see rising prices for goods and are having trouble paying the bills how much discretionary shopping are they going to do- putting more pressure on already struggling retailers not to mention on the property owners who are depending upon those retail rents to pay their notes to the bank.
If the consumer goes down (already happening), many retailers go down (happening already in record amounts for the third year in a row) then landlords suffer and many will likely also go down. If all this takes place the banks will take the final blow as the loans they made go POOF. Of course, they will then own the property but what is a property worth if the cash flow stops and there is virtually no demand for the space?
The pain of stopping “extra” payouts will, in my opinion, be too painful- especially in an election year. I believe the pain would be fast and the destruction would likely take years to recover from.
#2 If the “extra” payments are continued, which I believe will happen in some form, look for more US dollar weakness and, in my opinion, a real supply chain problem and far higher prices going forward.
Many people are aware that as “money” is conjured up from nowhere it dilutes that value of existing “money”. What many don’t seem to think about is that not only is there trillions of currency units being conjured up out of nowhere but it also produces nothing.
As people are sitting on their couches “earning” more than when they were working there is a whole lot of “things” that aren’t being produced. This could have a profound impact going forward. I read an article yesterday about an aluminum can shortage here in the USA. I have personally seen the shelves at many markets being understocked and some areas actually bare. In the beginning most items were available other than toilet paper, paper towels and disinfectant wipes but today the meats are far more expensive and the supply is lower. I have had trouble from time to time getting eggs, flour and other basics.
Not only are the countries of the world “printing” their “money” into oblivion but because of the lack of productive output in the economy there will likely be shortages of almost everything at some point. This is likely not years away- but months.
This is another reason not to erase history. The Soviet Union was in similar shape with similar circumstances with their “leaders” putting out numbers that made things seem far better than they were right before the implosion.
Keep in mind this “money” that is being conjured up right now out of nowhere is being used to purchase real assets to keep stocks propped up and bond yields low so countries can keep borrowing and spending on social programs. Most of the spending on social programs means that this “money” is created, spent or consumed, and we are left with the debt and interest payments. This is about as unproductive as new debt could be.
In looking at the major banks their financial reporting really wasn’t too bad for the last quarter. Looking closer, however, the reason the numbers weren’t too bad was because of outsized profits from their trading desks (which skims from the real economy) and not from lending (which would aid the actual economy). In addition, all have increased loan reserves (money set aside for loan losses). Many, including myself, believe that even though they are setting aside tens of billions they are grossly underestimating what may actually be coming.
Trillions of dollars were funneled to the major banks from September 2019 to now- long before Covid was a thing. Of course, that is now the excuse for everything.
Regardless of the path we take from here there will be pain either way. I have mentioned many times that gold is an asset that can thrive in deflation (which would be likely with less stimulus) because debt gets harder to carry and defaults go way up. The lack of trust in the borrowers leads to lower bond prices. This would lead to a general distrust of counterparties and drive people to an asset that has no counterparty risk- gold.
If the authorities continue to “inflate or die” as they have been doing for over a decade (one of the reasons I don’t see it stopping now) the ultimate endgame is likely the destruction of the fiat (backed by nothing and created in unlimited amounts at virtually no cost) currencies around the world. In this scenario any hard asset would likely rise substantially in those currencies terms.
We all seem to be on the same path that led Venezuela, Zimbabwe, Brazil, Argentina and Weimar Germany to their hyperinflations and destruction of not only their currencies but of their societies overall.
I believe a lot of this violence we are seeing break out everywhere is a direct result of the debasement of our “money” and the creation of “haves” and “have nots” rather than a civil society. There may be some brainwashing also but the lack of integrity throughout society is actually frightening at this time.
What we are currently seeing is, in my opinion, the complete destruction of our current monetary system and a reset that, according to many, will happen in 2021. As a matter of fact, the World Economic Forum which will take place in Davos, Switzerland in early 2021 is being called “The Great Reset”.
Keep in mind that if confidence is lost in these fiat currencies the folks in charge need to re-instill confidence in whatever the new system is. In the past gold has been the asset used most of the time to re-instill confidence in the masses. Most know gold can’t be “printed” into oblivion and has held value as money for over 5000 years. Even if there is a crypto answer it will need to be backed by something tangible. I believe that this is one reason that the major banks, central banks and many billionaires have been buying gold in record amounts for the last 3 years. Actually, many banks were buying for the last decade at a torrid pace. If you wish to join them the timeline for AFFORDABLE gold and silver may be contracting quickly.
Always watch what they do- not what they say!
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