OECD Warns Fed, BOJ, ECB of Asset Bubbles, “Risks to Financial Stability,” Pinpoints US Stocks & Real Estate

http://wolfstreet.com/2016/09/21/oecd-warns-fed-boj-ecb-of-asset-bubbles-risks-to-financial-stability-pinpoints-us-stocks-real-estate/

Financial instability risks are rising, including from exceptionally low interest rates and their effects on financial assets and real estate prices.”

Low interest rates underpin widespread and substantial increases in asset prices, both internationally and across asset classes, which increases the likelihood and vulnerability of a sharp correction in asset prices.

A reassessment in financial markets of interest rates could result in substantial re-pricing of assets and heighten financial volatility even if interest rates were to remain below long-term averages.

This is as close to code speak by financial authorities that markets are about to crash.

Gold, Euro, Dollar & Where The Chinese Are Buying Real Estate

The first chart indicates the USDollar gaining strength, and that is bearish for gold.  The other charts are bullish for gold.  To those with gold holdings already, the do-nothing approach for now may be appropriate, hoping for lower prices.   But for those with no gold exposure, buying some with the intent to layer in future purchases may be prudent, in case prices continue to rise.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/18_Gold,_Euro,_Dollar_%26_Where_The_Chinese_Are_Buying_Real_Estate.html

Biz Break: iPhone relief in San Francisco; plus: a real estate 'double dip'?

http://www.mercurynews.com/60-second-business-break/ci_16959122?source=email&nclick_check=1

Real Estate Spin Continues by Mainstream Media

http://usawatchdog.com/real-estate-spin-continues-by-mainstream-media/

Is China Betting Against a U.S. Housing Recovery

It looks like the Chinese are backing off the US bond market buffet table, and investing in other assets.

http://oilprice.com/Finance/Economy/Is-China-Betting-Against-a-U.S.-Housing-Recovery.html

Michael Burry on markets, real estate, farmland and gold

http://www.zerohedge.com/article/michael-burry-long-farmable-land-and-agrees-paulson-gold-not-other-recovery-themes

US Treasury bond bubble?

http://www.zerohedge.com/article/marc-faber-and-peter-schiff-take-bond-bulls-rosenberg-faber-gentlemens-bet

As for the Faber-Schiff view, no surprise: Peter encapsulates it best: "the bond market is the mother of all bubbles right now, and when it bursts the losses will dwarf the combined losses of the stock market bubble and the real estate bubble. There is no way for the government to pay this money back."

Schiff notes: "I am afraid is that when people realize we can't pay this money back, we aren't going to be able to roll over all this short-term debt. And so it's not just paying the interest, we are going to have to retire the principal." Peter Schiff is correct that inflating our way out of this debt bubble is a lose-lose proposition. Schiff also notes the stupidity of crowds, by highlighting that 10 years ago everyone was chasing risk, by piling into stock market funds, followed by everyone knows what. The outcome for bond investors is clear: "this decade is going to be the worst decade for bonds in US history. Bond holders are going to get wiped out. Either the government is going to default, or it is going to inflate, but either way the people holding the bonds, are holding the bag."

Faber then joins in: "there isn't much upside in treasuries unless it is for the short term. When I look ten years ahead I don't want to have my money in USTs." His main concern is that due to high budget deficits, there is a good chance that these will go even higher, and as a result the interest payments on government debt will become unbearable. As for the foreign bid, Faber also points out their prior folly: "In 1999/2000 foreigners also wanted to buy the NASDAQ and what happened afterwards is a major collapse. I would not look at foreign buying as a very intelligent leading indicator." In other words Faber just called the Chinese, UK and Japanese permabid in UST moronic. Faber is also not a big fan of a 30 year bond market (since 1981). "I would rather buy an asset class that has been in a bear market." Faber would buy farm land, agricultural commodities, and that gold belongs in a portfolio.

Probably the best argument of the debate is Schiff's observation that the government is not expanding the economy with the newly printed money: no money is being invested in productive capacity, it is not expanding the tax base, and as a result the economy is getting weaker.

Faber, is laconic, in saying that the UST market bottomed out in 1981 when yields went over 15% on the 10 Y, and topped in December 2008, at 2.1%, which was "the peak of the bubble."

The Oldest-Established Store Of Value Moves To Center Stage

http://www.zerohedge.com/article/don-coxe-dissects-gold-oldest-established-store-value-moves-center-stage

That gold and the dollar are fundamentally inversely correlated to each other is obvious. One bets on gold because one is deeply skeptical that governments will fulfill their promises.

So why are they both in a mini-bull market?

So why didn’t inflation come roaring back when Bernanke doubled the Monetary Base and M-2 was climbing at double-digit rates?

And why didn’t inflation come back when central banks across the OECD were growing their monetary bases and money supplies were climbing? And why did gold take off to record levels when money supply growth began to dwindle and actually turn negative?

We believe that Gold’s recent rise began when investors sought a classic inflation hedge, but its real run came when deflation risks were far more obvious than any evidence of inflation.

As we have written in these pages, gold is the classic store of value. It should retain its value under both inflationary and deflationary conditions.

That means a great time to buy gold to make capital gains is when inflation is rising.

It also means a great time to buy gold to conserve existing wealth is when (1) prospective risk-adjusted returns on bonds and stocks look unattractive because the economic outlook is for slow growth with (2) a risk of a renewed downturn that would hammer the value of stocks—particularly financial stocks—and real estate anew, and (3) bond yields are too low given the endogenous risks in the currencies in which they are issued and (4) the range of future fiscal deficit forecasts is from grim to ghastly.

What we believe is unfolding is a rush into gold by individual investors who look at the astronomic growth in financial derivatives—particularly collateralized debt swaps—and government deficits at a time when the effects of demographic collapse are finally being understood. According to some guesstimates we have heard, the supply of outstanding financial derivatives may be in the $70 trillion range, dwarfing the combined value of money supplies and debts. The total value of gold is so minuscule in comparison to the supply of these software-spawned instruments that it cannot be any real help in stabilizing global finances—but it can be a haven for investors seeking to protect themselves against an implosion of majestic proportions.

That is why gold and the dollar can—if only for a brief time—rise together, as investors see that the only major currency alternatives to the dollar—the yen and the euro—are backed by rising national debts, rising numbers of pensioners, falling working-age populations, falling real estate prices, and a falling OECD share of global GDP.

So…as a store of value for future generations,

If you can no longer believe in residential real estate,
and you can no longer believe in bank deposits,
and you can no longer believe in the dollar,
and you can no longer believe in the yen,
and you can no longer believe in the euro…
What can you believe in?
How about gold?

It’s so old, it’s new again.

It can’t be synthesized.

It’s been despised by every liberal economist since Keynes.

Real estate in the sand states

http://realestate.yahoo.com/promo/us-cities-in-free-fall

Beware of tax consequences from short sales

Each state handles it differently.

http://www.mercurynews.com/real-estate-news/ci_14766648

The stages of a bubble

http://pragcap.com/where-are-we-in-the-bubble-process

According to this article, after the bursting of the equities and real estate bubbles, both markets will have a tough road ahead, with high volatility.

However, it seems to me that the decline of gold in late 2008 was a bear trap, and that gold is about to enter it's mania phase.

Disclosure: long biotech and gold and silver shares

Timothy Geithner, real estate investor

This video about Tim Geithner's home for sale is hilarious--typical Jon Stewart humor--snarky, smart, and true.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Home Crisis Investigation
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

Warren Buffett calls these instruments weapons of financial destruction

If the imploding of credit default swaps didn't put the fear of God in markets, this should:

Derivatives Market

The Bank for International Settlements (BIS) is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks.

According to BIS statistics, as of June, 2008 (before the financial meltdown), interest rate derivatives totaled $458 trillion, foreign exchange derivatives totaled $63 trillion, credit default swaps totaled $57 trillion, commodity derivatives totaled $13 trillion, equities-linked derivatives totaled $10 trillion, and unallocated derivatives $82 trillion. Total worldwide derivatives market: $684 trillion!

A quick glance at the figures reveals that credit default swaps, while huge in nominal numbers, is very small relative to interest rate derivatives (stock market derivatives are even smaller). If mispriced CDS can wreak such havoc on financial markets worldwide, what would happen if interest rate derivatives (fixed-income, i.e. bond markets) implode?

To connect the dots, easy monetary and fiscal policies arguably created the tech bubble, which burst 2000-2002. Those same ill-advised policies created a real estate and mortgage bubble, which popped in 2007-2008. Today, the government is embarking on another attempt to ease the credit crisis, but the unintended consequence is the creation of another bubble--the US Treasury bond market. But this time the magnitude of the interest rate bubble is orders of magnitude larger than the toxic credit default swaps which "insure" against US homeowners defaulting on their mortgages. The problem with CDS' is that they are not backed by any collateral (hence the ability to obscenely leverage up).

When the US Treasury bond bubble collapses--and interest rates soar, God help us all.

Another reason to be bullish on gold

First, the Fed has dropped short-term interest rates down to 0%. Then, the Treasury is injecting up to $7.4 trillion in additional capital, literally out of thin air, to support ailing (and failing) industries.

Capacity issues are creeping in, as farmers lose crops due to drought, mines dry up, and exploration for new resources are stalled due to the financial crisis. All these factors point to inflation. However, fears of deflation rule the day.

Yet, gold prices keep trending up. Shares of gold mining companies have shot up even more--up 100% in some cases.

The markets are betting on deflation of asset values, including equities and real estate. Hence, both are likely to remain low for some time. And crude oil and other energy sectors have been battered. Agreed.

But looking forward (instead of through the rearview mirror), oil won't remain below $40/barrel forever. And when that dynamic reverses course, inflation will rule of the day.

And today, we had other things to worry about. Palestinians are shooting rockets at the Israeli border. Pakistani troops have abandoned the Afghanistan border and re-aligning themselves along the Indian border. The price of gold shot up over $20/oz within minutes of the news.

Today, we found out gold is not only a great hedge against inflation, it is also the currency of last resort in times of financial and geopolitical crises.

Why "quantitative easing" will work, but at what cost?

The tandem of the Federal Reserve and the Treasury have taken extraordinary measures to solve the credit crisis. They've lowered interest rates as low as they can go (Treasury bills temporarily dipped below 0% yield recently), providing the markets with plenty of credit. The problem was no lenders were lending, and no borrowers were borrowing. Lenders used the swaps to shore up their balance sheets, dumping bad assets for Treasuries, but they weren't lending.

The Treasury stepped up by pumping the system with trillions of dollars, injecting capital in hopes of stimulating spending. It worked, so we can expect them to step up their efforts. It's one thing to extend credit; now the government is literally printing money out of thin air.

This is, by definition, inflationary. It's necessary to avert a category 5 Great Depression, but it will prove to be problematic down the road when hyperinflation rears its ugly head. Printing money also debases the local currency, as the US Dollar continues to plummet. This flight to quality and perceived safety (short-term T-Bills and long-term T-Bonds) is bumping interest rates down to historical lows, due to the high demand for Treasuries. The operative word is "perceived" as I will soon explain.

My investment thesis is that this low-interest environment will eventually reverse course, as investors demand higher rates of return once they realize how flimsy the US Dollar is. Parking money in Treasuries at such low rates will prove to be disastrous, as inflation asserts itself, accompanied by higher interest rates. Finance 101: when interest rates rise, bond prices decrease.

With borrowing costs so low, we are to the point where any asset other than cash seems too irresistible to pass up. Having said that, with fears of deflation and blood in the streets, temporary irrational pessimism could cause markets to undershoot more than they have. Therefore, despite snapback rallies, further lows could be tested in equities and real estate in this secular bear market.

It is impossible to time market bottoms or tops, but there is value for the patient. My contention is that inflationary monetary policy will eventually lead to inflation, and that precious metals will resume their secular bull market. Equities and other commodities will follow suit within the new couple years, and real estate will recover within 3 - 5 years. I am unsure of the timing, but the direction will reverse course eventually. In other words, I can't call the bottom, but we are closer to the bottom than a top, as many have already taken a 50% haircut on their portfolios and 30% on their home values.

Hence, my current positions are long gold, long the Japanese yen (short the US Dollar), short Treasury Bonds (10 - 30-year maturities). With inflation and rising interest rates, bond prices will plummet going forward.

For those favoring income and dividends, I believe high-quality corporate bonds are extremely attractive relative to Treasuries. A handful of shares are attractive, including companies with leading market share, high cash reserves, strong cash flow, and no debt. For the non-faint of heart, some high-yielding (junk) bonds may also be profitable due to their extreme spreads (20 points above Treasury yields). But be prepared for high default rates.

Please consult your investment and tax professional before investing.

Unfortunately for some, I feel vindicated...

This is not a case of schadenfreude, as I don't relish in this, but I've had many naysayers, including friends and family, who did not agree with my recommendations of home equity planning, and the implementation of index-based annuities and index-based maximum-funded universal life contracts. Unfortunately, it's been "I told you so."

Fortunately, I helped a few other family members and friends escape the majority of the carnage, as the IUL's have a mininum floor guarantee of 1%. The best part is that when the market recovers, they'll be able to participate in the majority of run up as well--tax-free. But avoiding the carnage is huge, and they sleep at nite. Even better is that due to the resetting of the new starting point, the next year going forward should actually give them tremendous upside. So they are thriving even in this perfect storm of plummeting asset values, whether stocks or real estate.