Tag Archives: Wall Street

Extreme bear market coming, says Jim Rogers

Jim RogersWhen Jim Rogers talks, investors listen. One of the world’s most famous investors, Rogers is known for his no-nonsense style and investment wisdom. He is the author of several best-selling books, such as “Hot Commodities” and “Street Smarts: Adventures on the Road and in the Markets.” ETF.com recently spoke with Rogers about the latest financial market developments, including why he sees a big downturn taking shape in the next year or two.

 

ETF.com: You recently said you see the worst stock market correction of your lifetime coming next year. What’s going to cause that?

Jim Rogers: I can give you lots of possibilities. These things always start small and with nobody noticing.  For instance, in 2007, Iceland went bankrupt when most people didn’t know there was an Iceland, much less that it could go bankrupt. And then the next thing you knew, Bear Stearns collapsed; and then Lehman Brothers collapsed. Finally, everybody said, “Oh, there’s a problem.”

That happened slowly over a year. That’s probably what’s going to happen this time. It may have already started. There are companies going bankrupt in China. The whole banking system in Latvia collapsed recently.  Who knows what will cause it? I don’t. Rising interest rates, trade wars, real wars— many things could cause it. But it will be gradual. The worst collapse in my lifetime doesn’t happen in a day. It will evolve over a year or two.

ETF.com: Why do you think the next downturn will be so extreme?

Rogers: Historically, we’ve always had economic setbacks and bear markets. In 2008, we had a problem because of too much debt worldwide. Since then, the amount of debt has skyrocketed everywhere in the world. Why would people think the next collapse—whenever it comes—won’t be worse than the last one?  (NORM ‘n’ AL Note: Our emphasis here.)

ETF.com: How much confidence do you have in your forecast?

Rogers: I have enormous confidence. When the bear market comes, it has to be the worst in my lifetime, because the debt is much, much higher than it’s ever been in history.  Plus, there are dramatic changes taking place. Retail shops are liquidating all over the U.S.  Somebody is going to be left holding a very big bag eventually as those stores go out of business. Many pension plans are under water. The state of Illinois, Connecticut and several others are essentially bankrupt now. There are many things that are going to be very, very serious going forward.

ETF.com: How do you think investors should position themselves ahead of the downturn?

Rogers: You should only invest in things that you, yourself, know about. The worst mistake is being invested in something you don’t really know about, because when things start going wrong, you really get whipsawed and get hurt.
If you know a lot about investing, you might sell short, you might buy agriculture, or you might buy some countries that will not suffer so badly. There are ways to get through this.

ETF.com: What agricultural commodities and countries will best weather the storm?

Rogers: I would look at the ones that are the most depressed; something like sugar is probably going to come through OK just because it’s so beaten up. It’s down dramatically, more than 70% from its highs, so something like is probably going to do OK.  Russia will probably be fine, compared to most of the world, in the next bear market. Venezuela will probably do OK, only because it’s been a total disaster. Same thing with Colombia.

ETF.com: It sounds like you’re suggesting the cheapest and most depressed countries are the place to be.

Rogers: Didn’t your mother teach you to buy low and sell high? Yes, that’s what I’m saying.

ETF.com: How do you think traditional safe havens like Treasuries and gold will fare?

Rogers: The Treasury market bottomed in 1981 and has been going up ever since, until the last year or two. In other words, we had a 36-year bull market in Treasuries that’s coming to an end or may have already ended.  I wouldn’t want to put money in U.S. Treasuries, because in the past America has had multidecade bull markets and multidecade bear markets. I suspect we’re now in a multidecade bear market for Treasuries.

ETF.com: Won’t Treasuries rally if the economy and markets enter a big downturn?
Jim Rogers:
Maybe in the short term. I own a lot of U.S. dollars, but not because the U.S. dollar is sound—it’s one of the most flawed currencies in the world. But when times of turmoil come, people look for a safe haven, and many people think the U.S. dollar is a safe haven for historic and comparative reasons.  Nobody’s going to buy the euro or the pound sterling, so the U.S. dollar is probably a place to be for a while.

ETF.com: What about gold? A lot of people run into gold when the market sells off.

Rogers: I own gold, but I haven’t bought any in quite a while. If you look back at previous bear markets, usually gold gets swept up in the bear market. It has a big drop, and then it’s a great buy.  My plan—if I get it right—is when the U.S. dollar goes up and gets overpriced, gold will go down, so I’ll just switch my U.S. dollars into gold.

ETF.com: Do you own any ETFs?

Rogers: I own ETFs, including on China, Vietnam, Korea and Indonesia. ETFs are good for lazy people like me.

By the way, they’re going to make the next bear market worse because since we all own ETFs, we all own the same things—the same shares, bonds, commodities, etc. When we liquidate, the liquidation in those is going to be dramatic and painful.

 

[From an article published by ETF.com]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

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US government still pretending all is well while it uses disinformation, devious machinations, fraudulent accounting, and taxpayer money to cover up its criminality, lies, and the true state of the American economy

There were a few different stories coming out over the last few days that reveal the true nature of government and the apparatchiks who use disinformation, devious machinations, fraudulent accounting, and taxpayer money to cover up their criminality, lies, and the true state of the American economy. The use of government accounting tricks to obscure the truth about our dire financial straits is designed to keep the masses sedated and confused.

A few weeks ago, to great fanfare from the fawning faux journalists who never question any Washington D.C. propaganda, they announced the lowest annual deficit of Obama’s reign of error.

For the fiscal year that ended Sept. 30 the shortfall was $439 billion, a decrease of 9%, or $44 billion, from last year. The deficit is the smallest of Barack Obama’s presidency and the lowest since 2007 in both dollar terms and as a percentage of gross domestic product.

Jack Lew, the Treasury Secretary, and Obama were ecstatic as they boasted about this tremendous accomplishment. I find it disgusting that our leaders hail a $439 billion deficit as a feather in their cap, when until the mid-2000’s the country had never had an annual deficit above $300 billion. After 183 years as a country, the entire national debt was only $427 billion in 1972. Now our beloved leaders cheer annual deficits above that figure. What a warped, deformed, dysfunctional nation we’ve become.

c-annual-US-federal-government-budget-surplus-or-deficit-1967-2009

When the government reported this tremendous accomplishment, there was no way to verify the number against the national debt figures, as the government stopped reporting the daily national debt figure because of the debt ceiling impasse with Congress. The farce of these Kabuki Theater exercises in government incompetence is almost beyond comprehension.

The Treasury Department pretends the national debt is not increasing, even though they continue to spend $1.43 billion more per day than they are bringing into their coffers. Future generations see their debt obligation rise by $59.6 million per hour and we act like this is a reasonable and normal situation. The idiocy of these Keynesian extremists is enough to make a rational person’s head explode.

Once the two heads of one party agreed to raise the debt limit to infinity, the Treasury decided to update the National Debt figure. They stopped counting in mid-March at $18.151 trillion. When they resumed counting on November 2 it skyrocketed by $341 billion to $18.492 trillion. Then it jumped another $40 billion on November 3 to $18.532 trillion.

US-Gross-National-Debt-1972-2015

It takes a little addition and subtraction to estimate the true fiscal 2015 increase in the National Debt, so most of graduates of our government controlled public education system would be helpless, as they are concentrating the crucial issues of social justice, celebrating diversity, and declaring global warming non-debatable.

It seems the National Debt increased by $1.43 billion per day while they weren’t counting, so using that figure for the 205 days leaves you with a National debt of $18.444 trillion on September 30, 2015. The year began with a National Debt of $17.824 trillion. Therefore, the TRUE fiscal 2015 annual deficit of the country was $620 billion. As a reminder, interest doesn’t accrue against reported government accounting deficits. It accrues against the true increase in the national debt.

If you were paying attention earlier in this article you might remember Obama and Lew announced a $493 billion deficit, not a $620 billion deficit. A critical thinking person might wonder why the National Debt went up by 26% more than the deficit officially reported by our trustworthy leaders. This is where the hocus pocus of government accounting enters the picture.

You just don’t count things that would make the deficit bigger. You pretend the SSI and SSDI entitlement programs aren’t running deficits. You pretend you are being paid back by Fannie and Freddie, when it is just meaningless accounting entries. And this doesn’t even scratch the surface of the true annual deficits. Laurence Kotlikoff, professor at Boston University, is one of the few honest men in academia when it comes to economics and our dire financial straits. Using true accrual accounting, our annual deficits are really $5 trillion per year. His recent testimony before the Senate laid out the truth:

“Our country is broke. It’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today. Indeed, it may well be in worse fiscal shape than any developed country, including Greece. In reality we’re facing a fiscal gap of $210 trillion. That’s 16 times larger than official U.S. debt, which indicates precisely how useless official debt is for understanding our nation’s true fiscal position, and almost 12 times the current GDP of $18 trillion.”

This brings us to the other stories hitting the wires this week that tie into the deficit deception being perpetrated on the American people. One of the major reasons the government has been reporting declining deficits are the $239 billion of “payments” from Fannie Mae and Freddie Mac to the U.S. Treasury. But those “payments” were not cash. They were phantom journal entries. It’s really very simple.

In March 2009, at the stock market lows, Bernanke and Geithner threatened the weenie accountants at the FASB and forced them to suspend their mark to market accounting rules so that bankrupt insolvent Wall Street banks, along with Fannie and Freddie, could falsify their financial statements by valuing worthless toxic mortgage sludge at 100% of their book value. It’s amazing how profitable a financial institution can be if they fake their financial statements.

So over the last few years, criminal Wall Street banks have produced fake profits, which they then used to “pay back” their TARP funds to the U.S. Treasury. Fannie and Freddie have been able to announce hundreds of billions in fake profits, which they have used to pay fake dividends back to the U.S. Treasury. If they were real profits their stocks wouldn’t be lingering at $2 per share, down 95% from their 2007 highs. Essentially, most of the deficit reduction over the last few years, lauded by the Obama administration, has been nothing but an accounting ruse cooked up by the Fed, the Treasury, Wall Street, and the captured housing mortgage entities.

The announcement this week marks an end to this charade. Freddie Mac lost $475 million in the third quarter and Fannie is also expected to report a big loss. No more phantom paybacks to the U.S. Treasury to reduce the deficits. It is now highly likely these pitiful excuses for business enterprises will require billions in taxpayer bailouts in the foreseeable future. When this latest Fed induced housing bubble pops for the second time in a decade, Fannie and Freddie will lose $187 billion again in the blink of an eye.

WASHINGTON (MarketWatch) — Fannie Mae and Freddie Mac are at risk of needing an injection of Treasury capital after the latter reported its first quarterly loss in four years, the director of the Federal Housing Finance Agency said Tuesday.

FHFA Director Mel Watt issued a statement following mortgage-finance company Freddie Mac’s $475 million third-quarter loss, its first quarterly loss in four years.

“Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the senior preferred stock purchase agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward,” Watt said.

Freddie Mac said its loss was driven by interest rate changes that soured the value of derivatives it holds.

It seems the deviants in Washington D.C. have run out of tricks. The treat will be soaring deficits, as entitlements, Obamacare, war expenditures, and a myriad of other goodies promised by corrupt politicians of both parties, overwhelm the nation. The projection for fiscal 2016 is already higher than 2015, and this is before the current recession’s impact on tax revenues has been taken into account. The $1 trillion deficits of a few years ago are coming back shortly.

The average maturity of our existing debt is about 5 years. Instead of locking our debt in at 30 year rates below 3%, our government has decided to play Russian Roulette with interest rates. A 1% increase in interest rates will drive interest on the debt from $400 billion per year to $600 billion per year, a 50% increase. A normalization of rates to 2007 levels would drive the annual interest on the debt to almost $1 trillion and blow an enormous hole in the budget. Now you know why Madam Yellen can’t bring herself to increasing rates by even a paltry .25%.

debtpath_chart

Lastly, we put the cherry on the cake of governmental incompetence, recklessness, self interest, and foolish disregard for the taxpayer. Fannie and Freddie are again reporting losses. Home prices have been driven by speculators, hedge funds, and foreign money to new record highs. Mortgage rates remain near record lows and will immediately spike when the Fed increases rates. The middle and lower classes have seen their real household income continue to shrink.

The economy is clearly weakening as corporate profits fall, global trade shrinks, layoffs soar, and all economic indicators flash red. Sounds like the best time to lure low income dupes into the housing market with 3% down payment mortgages with no minimum cash contribution – all backed by the U.S. taxpayer. The low income home buyer will instantly be 5% underwater, as it costs 8% to sell a house. The coming 20% to 30% decline in home prices will do wonders for the foreclosure business. At least we have plenty of experience in this arena.

Fannie Mae has announced their latest program – HomeReady:

“HomeReady is designed for creditworthy, low- to moderate-income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities. HomeReady lets you lend with confidence while expanding access to credit and supporting sustainable homeownership.”

Fannie is encouraging fly by night mortgage brokers and shady lenders to dole out subprime mortgages to anyone that can fog a mirror, with the full confidence that the billions in future losses will be picked up by the American taxpayer. Where have I seen this story before? We really need some patriotic Wall Street banks to package these loans into a CMO derivative and sell them to pensions funds across the globe. What could go wrong?

We’ve allowed our nation to be overtaken by a financial elite who have captured the politicians, the judiciary, the mass media, and the economic levers of the state. The issuance of ever increasing levels of debt leads to their enrichment and our impoverishment. If we continue to act like passive sheep, we will forever be ruled by wolves.

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”  ― Thomas Jefferson

 

[This post appeared in David Stockman’s CONTRA CORNER]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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“The life the Fed was trying to breathe into the financial markets was really being sucked out of the US economy”…

The presses are humming...

“If you think the Fed is finished printing money…they’re just getting started.”

 

The printing presses are firing up all over again… err, at least the digital ledgers are, anyway.

Financial expert and infamous goldbug Peter Schiff was interviewed by Fox Business from the floor of the U.S. Stock Exchange.

Schiff warned viewers that “everyone is preparing for the wrong outcome with the U.S. economy.”

That outcome? The financial world has been waiting with feverish anticipation for “the big day” when the Federal Reserve finally raises interest rates – a quiet move big enough to shift economic tectonic plates.

But contrary to conventional wisdom about when the Federal Reserve will raise interest rates, and thus turn the page on a new era of the economy, Schiff says they can’t and won’t raise rates anytime soon – though they should have several years ago.

It didn’t happen months ago when many expected it. It won’t happen now in September, and likely not for a long time.

Why?

Because the Federal Reserve can’t raise rates without collapsing the bubble economy.

“I was saying they weren’t going to raise rates. Not because they shouldn’t, but because they can’t, because they will prick this bubble economy that they worked so hard to inflate,” Peter Schiff told Fox Business.

Instead of letting certain markets fail as they should have, they were propped up by the Fed. And these zombie banks and businesses have been sucking life out of the real economy – at great expense to average people.

“The economy has never been good. We’ve really been in a recession, I think, for the entirety of the recovery. I think the policies that the Federal Reserve has used to prop up the stock market and the real estate market have hurt the real economy. That’s why things are actually getting worse. But on Wall Street, yeah, things look good. But if the Fed takes away those monetary supports, we’re going to be in a bear market. We’re going to be in a deeper recession. We’re going to resume the financial crisis that was interrupted by this monetary policy.”

“The problem is that when the Fed was breathing life, or breathing air, into the financial markets, it was sucking it out of the real economy. That’s why we haven’t had a recovery. But everybody who thinks that the Federal Reserve policy succeeded, there’s no success here. There’s no success until you raise interest rates and shrink your balance sheet. And the Fed can’t do that. That’s why rates have been at zero for seven years. Why didn’t they raise them two or three years ago?”

And things are sure to get worse before they get better…

Market Watch was among the outlets making excuses for Yellen’s non-decision on raising rates:

The job of easy money isn’t done, and its inflation risks are still way over the horizon. August’s employment report makes that clear, just as the Fed nears its big day. […] sometime around the Fed’s third quantitative easing program in 2012, the purpose of easy money moved from supporting once-more stable markets to the still-shaky real economy.

But the real truth is that the system who created this illusion isn’t about to burst its own bubble, and doesn’t know how to land the thing without a spectacular and shocking crash.

The Fed has little choice at this point but to print ever-greater quantities of money, and inflate the stock market and the broader artificial appearance that all is normal and well. According to Schiff:

“The Federal Reserve caused all the problems that led to the 2008 financial crisis, and now they’ve made them all worse. So all they can do is keep interest rates at zero.

They’re setting up for another round of quantitative easing. People who think the Federal Reserve is finished printing money – they’re just getting started.”

Schiff claims some investors are buying into the U.S. dollar because they are expecting the Fed to reduce its balance sheets and increase interest rates. But nothing could be further from the truth.

“QE4 is coming, and you want to get out of U.S. assets, take advantage of the fact that other people have no idea what the U.S. economy is really going to do, what the Fed’s going to do, and buy foreign assets when they’re on sale. You can buy foreign stocks, you can buy commodities, and yes, you can buy gold.

Bottom line: Hold on for as long as you can to whatever makes the most sense to you.

 

[by Mac Slavo, writing for SHTFplan.com]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

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Bubbles. They grow. They grow bigger. They grow even bigger yet. Then they burst. That’s all bubbles can do.They’re fascinating. They’re beautiful. But they never last, and they burst. And we can never know precisely when the destruction will come.

Bubbles burst. That's what bubbles do.

Are we at or near the end of a stock market bubble to end all stock market bubbles?

Almost everyone in the financial world seems convinced that things are somehow “different” this time around.  Even though by almost every objective measure stocks are wildly overpriced right now, and even though there are a whole host of signs that economic trouble is on the horizon, the overwhelming consensus is that this bull market is just going to keep charging ahead.  But of course that is what they thought just before the last two stock market crashes in 2001 and 2008 as well.  No matter how many times history repeats, we never seem to learn from it.

The chart below shows how the Nasdaq has performed over the past decade.  As you can see, we are coming dangerously close to doubling the peak that was hit just before the last stock market collapse…

NASDAQ since 2005

By looking at that chart, you would be tempted to think that the overall U.S. economy must be doing great.

But of course that is not the case at all.

For example, just take a look at what has happened to the employment-population ratio over the past decade.  The percentage of the working age U.S. population that is currently employed is actually far lower than it used to be…

Employment Population Ratio Since 2005

So why is the stock market doing so well if the overall economy is not?

Well, the truth is that stocks have become completely divorced from economic reality at this point.  Wall Street has been transformed into a giant casino, and trading stocks has been transformed into a high stakes poker game.

One of the ways we can tell that a stock market bubble has formed is when people start borrowing massive amounts of money to invest in stocks.  As you can see from the commentary and chart from Doug Short below, margin debt is peaking again just like it did just prior to the last two stock market crashes…

Unfortunately, the NYSE margin debt data is a month old when it is published. Real (inflation-adjusted) debt hit its all-time high in February 2014, after which it margin declined sharply for two months, but by June it had risen to a level about two percent below its high and then oscillated in a relatively narrow range. The latest data point for January is four percent off its real high eleven month ago.

Margin Debt - Doug Short

So why can’t more people see this?

We are in the midst of a monumental stock market bubble and most on Wall Street seem willingly blind to it.

Everyone knows that the stock market cannot stay detached from economic reality forever.

At some point the bubble is going to burst.

If you want to know what the real economy is like, just ask Alison Norris of Detroit, Michigan

When Alison Norris couldn’t find work in Detroit, she searched past city limits, ending up with a part-time restaurant job 20 miles away, which takes at least two hours to get to using public transportation.

Norris has to take two buses to her job at a suburban mall in Troy, Michigan, using separate city and suburban bus systems.

For many city residents with limited skills and education, Detroit is an employment desert, having lost tens of thousands of blue-collar jobs in manufacturing cutbacks and service jobs as the population dwindled.

Sadly, her story is not an anomaly. Millions of people in the US today can’t seem to find a decent job no matter how hard they try.

It would be one thing if the stock market was soaring because the U.S. economy was thriving.

But we all know that is not true.

[from an article by Michael Snyder for The Economic Collapse Blog]
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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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“Official unemployment rate is one big lie,” says head of Gallup Poll organization…

Government's unemployment rate "one big lie"...

The chairman of the venerable Gallup research and polling firm says the official U.S. unemployment rate is really an underestimation and a “big lie” perpetuated by the White House, Wall Street and the media.

What CEO and Chairman Jim Clifton revealed in his blog Tuesday about how the Labor Department arrives at the monthly unemployment rate is no secret — including that Americans who have quit looking for work after four weeks are not included in the survey.

The department’s current rate of 5.6 percent unemployment is the lowest since June 2008, with President Obama using his State of the Union address and campaign-style stops across the country to tout an economic recovery.

“Our economy is growing and creating jobs at the fastest pace since 1999,” Obama said in the opening lines of his January 20 address before Congress.“Our unemployment rate is now lower than it was before the financial crisis.”

Clifton says the “cheerleading” for the 5.6 number is “deafening.”

“The media loves a comeback story,” he writes. “The White House wants to score political points, and Wall Street would like you to stay in the market.”

Since the start of the Great Recession, which economists largely agree began in late 2007, the unemployment rate peaked at 10 percent in October 2009 and finally got under 6 percent in September 2014.

Clifton says Americans out of work for at least four weeks are “as unemployed as one can possibly be” and argues that as many as 30 million of them are now either out of work or severely underemployed.

He points out that an out-of-work engineer, for example, performing a minimum of one hour of work a week, even mowing a lawn for $20, also is not officially counted as unemployed.

In addition, those working part time but wanting full-time work — the so-called “severely underemployed” — also are not counted.

“There’s no other way to say this,” Clifton says. “The official unemployment rate … amounts to a big lie.”

His arguments are similar to those made by Washington Republicans after the Bureau of Labor Statistics announced the rate each month during the height of the recession. However, Gallup is an 80-year-old, nonpartisan firm.

The government bureau did not return a request for comment.

Clifton suggests the biggest misconception about the official rate is that it doesn’t denote “good” full-time jobs.

“When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t ‘feeling’ something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class,” he said.

[reported by FOX NEWS]


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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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What we know — and think we know — about the late, great housing bubble…

We are constantly learning new stuff about the housing bubble — and some of the new stuff contradicts the old. This is obviously important, because the bubble led to the 2008-2009 financial crisis and Great Recession. What we don’t understand may one day come back to bite us.

There’s a standard and widely shared explanation of what caused the bubble. The villains were greed, dishonesty and (at times) criminality, the story goes. Wall Street, through a maze of mortgage brokers and securitizations, channeled too much money into home buying and building. Credit standards fell. Loan applications often overstated incomes or lacked proper documentation of creditworthiness (so-called no-doc loans).

The poor were the main victims of this campaign. Scholars who studied the geography of mortgage lending found loans skewed toward low-income neighborhoods. Subprime borrowers were plied with too much debt. All this fattened the revenue of Wall Street firms or Fannie Mae and Freddie Mac, the government-sponsored housing finance enterprises. When home prices reached unsustainable levels, the bubble did what bubbles do. It burst.

Now comes a study that rejects or qualifies much of this received wisdom. Conducted by economists Manuel Adelino of Duke University, Antoinette Schoar of the Massachusetts Institute of Technology and Felipe Severino of Dartmouth College, the study — recently published by the National Bureau of Economic Research — reached three central conclusions.

First, mortgage lending wasn’t aimed mainly at the poor. Earlier research studied lending by Zip codes and found sharp growth in poorer neighborhoods. Borrowers were assumed to reflect the average characteristics of residents in these neighborhoods. But the new study examined the actual borrowers and found this wasn’t true. They were much richer than average residents. In 2002, home buyers in these poor neighborhoods had average incomes of $63,000, double the neighborhoods’ average of $31,000.

Bigger home, bigger mortgage.

 Second, borrowers were not saddled with progressively larger mortgage debt burdens. One way of measuring this is the debt-to-income ratio: Someone with a $100,000 mortgage and $50,000 of income has a debt-to-income ratio of 2. In 2002, the mortgage-debt-to-income ratio of the poorest borrowers was 2; in 2006, it was still 2. Ratios for wealthier borrowers also remained stable during the housing boom. The essence of the boom was not that typical debt burdens shot through the roof; it was that more and more people were borrowing.

Third, the bulk of mortgage lending and losses — measured by dollar volume — occurred among middle-class and high-income borrowers. In 2006, the wealthiest 40 percent of borrowers represented 55 percent of new loans and nearly 60 percent of delinquencies (defined as payments at least 90 days overdue) in the next three years.

If these findings hold up to scrutiny by other scholars, they alter our picture of the housing bubble. Specifically, they question the notion that the main engine of the bubble was the abusive peddling of mortgages to the uninformed poor. In 2006, the poorest 30 percent of borrowers accounted for only 17 percent of new mortgage debt. This seems too small to explain the financial crisis that actually happened.

It is not that shoddy, misleading and fraudulent merchandising didn’t occur. It did. But it wasn’t confined to the poor and was caused, at least in part, by a larger delusion that was the bubble’s root source.

During the housing boom, there was a widespread belief that home prices could go in only one direction: up. If this were so, the risks of borrowing and lending against housing were negligible. Home buyers could enjoy spacious new digs as their wealth grew. Lenders were protected. The collateral would always be worth more tomorrow than today. Borrowers who couldn’t make their payments could refinance on better terms or sell.

This mind-set fanned the demand for ever bigger homes, creating a permissive mortgage market that — for some — crossed the line into unethical or illegal behavior. Countless mistakes followed. One example: The Washington Post recently reported that, in the early 2000s, many middle-class black families took out huge mortgages, sometimes of $1 million, to buy homes now worth much less. These are upper-middle-class households, not the poor.

It’s tempting to blame misfortune on someone else’s greed or dishonesty. If Wall Street’s bad behavior was the only problem, the cure would be stricter regulatory policing that would catch dangerous characters and practices before they do too much damage. This seems to be the view of the public and many “experts.”

But the matter is harder if the deeper cause was bubble psychology. It arose from years of economic expansion, beginning in the 1980s, that lulled people into faith in a placid future. They imagined what they wanted: perpetual prosperity. After the brutal Great Recession, this won’t soon repeat itself. But are we now forever insulated from bubble psychology? Extremely doubtful.

[by Robert J. Samuelson, writing for The Washington Post]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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Here’s what some pretty smart folks think 2015 is going to bring…

Will 2015 be a year of financial crashes, economic chaos and the start of the next great worldwide depression?

Over the past couple of years, we have all watched as global financial bubbles have gotten larger and larger.  Despite predictions that they could burst at any time, they have just continued to expand.  But just like we witnessed in 2001 and 2008, all financial bubbles come to an end at some point, and when they do implode the pain can be extreme.  Personally, I am entirely convinced that the financial markets are more primed for a financial collapse now than they have been at any other time since the last crisis happened nearly seven years ago.  And I am certainly not alone.  At this point, the warning cries have become a deafening roar as a whole host of prominent voices have stepped forward to sound the alarm.  The following are 11 predictions of economic disaster in 2015 from top experts all over the globe…

#1 Bill Fleckenstein: “They are trying to make the stock market go up and drag the economy along with it. It’s not going to work. There’s going to be a big accident. When people realize that it’s all a charade, the dollar will tank, the stock market will tank, and hopefully bond markets will tank. Gold will rally in that period of time because it’s done what it’s done because people have assumed complete infallibility on the part of the central bankers.”

#2 John Ficenec: “In the US, Professor Robert Shiller’s cyclically adjusted price earnings ratio – or Shiller CAPE – for the S&P 500 is currently at 27.2, some 64pc above the historic average of 16.6. On only three occasions since 1882 has it been higher – in 1929, 2000 and 2007.”

#3 Ambrose Evans-Pritchard, one of the most respected economic journalists on the entire planet: “The eurozone will be in deflation by February, forlornly trying to ignite its damp wood by rubbing stones. Real interest rates will ratchet higher. The debt load will continue to rise at a faster pace than nominal GDP across Club Med. The region will sink deeper into a compound interest trap.”

#4 The Jerome Levy Forecasting Center, which correctly predicted the bursting of the subprime mortgage bubble in 2007: “Clearly the direction of most of the recent global economic news suggests movement toward a 2015 downturn.”

#5 Paul Craig Roberts: “At any time the Western house of cards could collapse. It (the financial system) is a house of cards. There are no economic fundamentals that support stock prices — the Dow Jones. There are no economic fundamentals that support the strong dollar…”

#6 David Tice: “I have the same kind of feel in ’98 and ’99; also ’05 and ’06.  This is going to end badly. I have every confidence in the world.”

#7 Liz Capo McCormick and Susanne Walker: “Get ready for a disastrous year for U.S. government bonds. That’s the message forecasters on Wall Street are sending.”

#8 Phoenix Capital Research: “Just about everything will be hit as well. Most of the ‘recovery’ of the last five years has been fueled by cheap borrowed dollars. Now that the US dollar has broken out of a multi-year range, you’re going to see more and more ‘risk assets’ (read: projects or investments fueled by borrowed dollars) blow up. Oil is just the beginning, not a standalone story.

If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system.”

#9 Rob Kirby: “What this breakdown in the crude oil price is going to spawn another financial crisis.  It will be tied to the junk debt that has been issued to finance the shale oil plays in North America.  It is reported to be in the area of half a trillion dollars worth of junk debt that is held largely on the books of large financial institutions in the western world.  When these bonds start to fail, they will jeopardize the future of these financial institutions.  I do believe that will be the signal for the Fed to come riding to the rescue with QE4.  I also think QE4 is likely going to be accompanied by bank bail-ins because we all know all western world countries have adopted bail-in legislation in their most recent budgets.  The financial elites are engineering the excuse for their next round of money printing . . .  and they will be confiscating money out of savings accounts and pension accounts.  That’s what I think is coming in the very near future.”

#10 John Ing: “The 2008 collapse was just a dress rehearsal compared to what the world is going to face this time around. This time we have governments which are even more highly leveraged than the private sector was.

So this time the collapse will be on a scale that is many magnitudes greater than what the world witnessed in 2008.”

#11 Gerald Celente: “What does the word confidence mean? Break it down. In this case confidence = con men and con game. That’s all it is. So people will lose confidence in the con men because they have already shown their cards. It’s a Ponzi scheme. So the con game is running out and they don’t have any more cards to play.

What are they going to do? They can’t raise interest rates. We saw what happened in the beginning of December when the equity markets started to unravel. So it will be a loss of confidence in the con game and the con game is soon coming to an end. That is when you are going to see panic on Wall Street and around the world.”

In addition, there are many other economic cycles that seem to indicate that we are due for a major economic downturn.  I discussed quite a few of these theories in my article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

But just like in 2000 and 2007, there are a whole host of doubters that are fully convinced that the party can continue indefinitely.  Even though our economic fundamentals continue to get worse, our debt levels continue to grow and every objective measurement shows that Wall Street is more reckless and more vulnerable to collapse than ever before, they mock the idea that a financial collapse is imminent.

Stay tuned.

[ from an article appearing in THE ECONOMIC COLLAPSE BLOG]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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