A Bitter Pill

Over at Investment Watch Blog, a sobering article was presented regarding the state of the economy with an emphasis on inventories, particularly versus sales.

First, a pie chart presented some dire data regarding Americans savings accounts, which shows any meaningful recovery, particularly for the lower income families, is fiction.

“It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” said Cameron Huddleston, a personal finance expert and columnist for GOBankingRates. “It suggests that they likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends, and family, or even their retirement accounts to cover unexpected expenses.”

In addition to these findings, along with restaurant and retail getting crushed, we find a hideous divergence between year over year wholesale sales and inventories.

With the administration working every angle for "working families", we find “the poorest Americans have stopped shopping, except for necessities,” said Britt Beemer, chairman of ARG.

As IWB notes, "inventories-to-sales at recessionary peaks…"

Imagine that!

The entire recovery has been a fraud.

Sadly, with a genesis to the current debacle found in the last months of the Bush administration, the Obama administration has used the crisis to increase government control over the segment of society making the engine turn, most notably through actions like Dodd-Frank.

Additionally, the banks have been bailed out, and wealth has been stolen from the citizenry.  While rates are low, borrowing restrictions have escalated, and seniors on fixed income have been crushed.

Ironically, with the DOW reaching news highs, folks will point to the stock market as success. However, the money supply has been increased five fold, indicating losses on purchasing power versus a 300 percent increase in the market.

And about the stability of the market, Zero Hedge reports infiltration by central banks, propping up the indexes. Those in the know recognize the jig is about up, as evidenced by the short squeeze witnessed over the last few days.

Via Zero Hedge

Something will have to give, and make no mistake, the end result ramifications will be a bitter pill for the American economy to swallow. When it occurs, please remember who has been in charge for the last eight or so years; a group aiming to curtail economic freedom and increase dependency on government.

We recommend you visit ZeroHedge.com and InvestmentWatchBlog.com frequently to keep up to speed!

Free Markets, Not Affordable Housing, Cure to Housing Crisis

Numerous articles have recently appeared describing an alarming prospect for renters moving forward.

The Atlantic describes a "bleak future for renters" and Zero Hedge noted the "missing" inflation is located in rental rates, which have been on a historic rise. Bloomberg noted "the rent crisis is about to get much worse."

Many have used the fallout of the housing crisis to advance an agenda centralized on the transformation of wealth. An orchestrated series of events, from the FED's ZIRP (zero interest policy), quantitative easing (the printing of money) and the bailout of the nations banking system has led to an inflated stock market where counter party risks have escalated and an increasing disconnect between the worlds of equity and fixed income has emerged. Hypothecation is certain to be an upcoming buzzword.

The economic policies of the left have left those seeking to move up the ladder of prosperity shackled to the ground. Potential home buyers are unable to pull the trigger on purchases of new or existing homes, as median income is stagnant and full time employment growth is non-existent.

In fact, home ownership is at a 40 year low.

Chart via ZeroHedge.com

Left leaning policy wonks, who never let a crisis go to waste, think the government has opportunities to correct the situation, by stepping in to ensure affordable housing.  Stepping in to correct the "situation" they created?  One thing I know; it is not prudent to engage those who caused the problem to fix the problem.

“The economy alone is not going to solve this problem," said Andrew Jakabovics, senior director of research at Enterprise Community Partners, said in a conference call to discuss the findings. "It brings us back to the need to expand affordable housing.”

False.

Presently, consumers are boxed in with historic rises in rental rates (inflation), with little avenue of escape.

More government intervention in the market is the opposite of what is needed. As Ronald Reagan once said, The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.'

For the problem to be solved, regulation and taxation must retract to allow increases in full time employment, median incomes and entrepreneurship. Further, QE, which devalues the currency, must cease and interest rates must rise.

As the brilliant Thomas Sowell appropriately notes upon the visit of Pope Francis to America, "Pope Francis’ own native Argentina was once among the leading economies of the world, before it was ruined by the kind of ideological notions he is now promoting around the world".

Without question, free market capitalism is the best path to prosperity, where most who achieve it significantly expand their participation in charity efforts. This is not only true in America, but across the globe.

Providing an environment for potential home buyers to escape from being trapped in rental homes is essential to solve the housing problem, and a integral part of that landscape would be free market capitalism unleashing the entrepreneurial spirit of the individual, placing the federal government back operation within its means and a reduction in punitive regulatory and taxation burdens.

As former Rep. Thaddeus McCotter, R:MI, noted, "Reagan trusted in Americans' entrepreneurial spirit, innovative talents, and industriousness, and he agreed with Adam Smith's insight that freedom and prosperity are inextricably entwined and mutually reinforcing. The flexibility of our markets is endangered by excessive regulation, onerous litigation, and government redistribution of wealth".

The blueprint to solve all the nations economic ills has already been written, if our elected leaders chose to engage it.  The current group will not, choosing to increase power over the citizenry through increasing tyranny utilizing divisive policies laced with socialism.

In November of 2016, we have A Time for Choosing.

Devastation of the Family Home

In the field of economics, one of the most difficult items to estimate is the ripple effect associated with major events that significantly affect the economic and social welfare of a community. The recent housing crash, for which our economy is still reeling from, is a classic example.

In my estimation, the entire response from our federal government was in error, as government intervention took the place of free market capitalism to create devastating economic consequences which continue to this very day.  While some may conclude the government was attempting to help in a time of "crisis", I am reminded of another of the timeless quotes from Ronald Reagan: "The most terrifying words in the English language are: I'm from the government and I'm here to help".

 

The housing crisis established a house of cards, pun intended, where lending institutions gave mortgages to anyone with a pulse, packaged the loans into mortgage backed securities and sold them as A rated to investors.  With the leverage unsustainable, bank failures emerged and the devastation began.

Rather than letting the market cleanse itself out, where those who invested in error or without proper due diligence, or both, paid the price, the government initiated bailouts of the major lending institutions. These government investments in the banking sector have come with a heavy price for the lending institutions, including appraisal regulation that has significantly impaired the industry.

The government now has an embedded regulatory mechanism within the banking sector, and Fannie Mae and Freddie Mac continue to run inefficiency, with these government sponsored enterprises possibly needing more bailouts.  The housing market, although now seemingly stabilized and improving slightly in some markets, remains a shell out itself.

Home ownership is at historically low levels, in large measure to stagnant wage growth, with the worker actually losing ground annually. Many former homeowners are joining the millennials, where a majority unable to purchase a home are forced to rent, pushing rent levels to historic highs.

Much of the government interaction in the aftermath of the potentially orchestrated housing crash has limited free market principles, prohibiting the market from returning to optimal health.  Perhaps it is part of the war the progressives have on suburbs, maybe a vehicle in the transformation of wealth or quite possibly it is Orwellian in that gave the government an a prime opportunity to seize control over a large portion of the economy, and the citizenry.

Most in the economic world who embraces free market principles knew the path of quantitative easing and government interaction and control in markets was most problematic. While we await the next crash, which we forecast to come right around the presidential election, the devastation the crash has left on families across the nation is troubling and sad.

Many feel the great American dream is no longer obtainable.  Without question, if you have yet to obtain wealth, the degree of difficulty in achieving it has risen sharply under President Obama due to the infiltration of government regulation and taxation.

It seems 99 Homes may focus on the trial and tribulation of a family whose life was turned upside down at the drop of a hat as the housing crisis placed a stranglehold on the US economy back in 2008.

My professional activities, involving residential real estate appraisal, rental property management and as collateral risk analyst have given me a front row seat throughout.  When 99 Homes hits theaters, I will be there to grab a front row seat.