You are not signed on; if you are a visitor please register for a free account!
|The Market Ticker Single Post Display (Show in context)||
User: Not logged on
|User Info||Beaker! (Podcast); entered at 2020-01-12 10:20:57|
Registered: 2017-06-27 Gone West
it is interesting the corner that we have painted ourselves into. i have commented in the past that the high equity values raised the price of the capital assets necessary for life and career such as business or tools of the trade, limiting inter-generational competition for many years, sometimes decades.|
the problem is that fixing the problem of inflationary practices crushes what is left of middle class investors' retirement assets as well as real estate. for the small business this exposes them to being upside down on any financing, immediate exposure to competition from their workers and others and no ability to retire on the major capital assets of their businesses through outright sale or lease.
in other words everyone must get hurt to fix the problem, so no one desires to fix things. even those of us sitting on lots of house equity should in a sane economy face a major reduction especially in urban areas, easily sixty percent if not more. then the tax base crashes for anything ad valorem. this further screws the obligations of counties and cities.
the cure is almost as bad as the disease. everyone would rather die of a thousand cuts than face the music. how would society triage the massive upending. most real estate around me is upside down at around twenty five percent reduction in value, some worse. what happens when the inflation plug is pulled? or no one can sell to retire and/or seek lower cost of living or job relocation?
what i think is going to happen is that the Trump-gasim after the elections will provide a lot of psychological energy to things. he is going to win without much effort and Democrats are going to lose seats most probably. Trump does not wish this crash to be a part of his legacy, so he will promote anything to keep the music playing; rates stay low. he only knows one thing which is to cater to the asset class of the mega rich, middle class with equity assets such as real property and business real property and the aspiring investor class. thus without any logic he will double down regardless of the result. there will be no other arrows in the quiver, so he will double down on the only tool that he has. his age cohort will be hoping to make it to retirement and cash out as they have no other recourse.
what will happen in about two years or so is that Trump will lose control and start to get diminishing returns for more and more inflationary input. the equity markets will retrace without immediate crash and lower rates will provide the last gasp of the real estate liquidation with some price spiking. this is why we are beginning to see a sigh of relief or wishful thinking that the millennials are beginning to buy houses. everyone will want to give them low rates or innovative financing, and they will want such. they held off family formation and house purchases for longer than usual. it will be more hope than reality or at least the reality that they desire.
in my real estate market i am noticing something and it is verified by a very trusted contact in a law firm that sees a lot of this. Chinese purchasers of residential real property are getting sixty year mortgages from Asian lenders. the people who ultimately live in the houses are not the purchasers but Chinese ancestry tenants who work in menial industries and, quite noticeable in my area, collect massive amounts of recyclables for deposit return. they are in very nice neighborhoods, not slums at all. one group that does not do the recyclable thing purchased a house one neighbor away from mine. nice quiet people, single family house, they completely renovated a below grade cellar as their living space and rent out the main house to municipal workers who live in the house as traditionally intended in its construction. what's going on here???
it seems to me that two Asian (Chinese) interests are looking for safe havens much like the Japanese did here decades ago. one is their investor class looking to own performing assets in a safer country in the long term mortgages being paid by a reliable source with affinity to them. the other interests are working class Chinese who are becoming landlords while hoping for equity gains over the long term or at least preferring cash income on a mortgaged property that will never be paid off. wonder how much of that cash income is declared? there is always the potential that some Chinese mainland interest is involved here seeking a foothold for some long term plan, but it is not easy to know the players to that level with shells and LLCs.
my advice to anyone is to as Karl says reduce burn rate, including cost of living even if it requires a move within the next two years or less. the best hedge against not having safe investments in which to outpace inflation is to manage to live on net lower effort. it becomes a personal buffer. any cash gained by liquidating assets becomes an emergency buffer and opportunity lever that people will not have as things unfold.
one must remove the specter of rising property taxes, especially if one has a mortgaged property. even without financing, property taxes are an increasing threat and the only tool for wealth extraction that people cannot avoid by not working.
when the market finally calls bull**** rates might not go up. the problem is that economic activity slows to a crawl. no one does anything because he cannot. how can rates be raised with declining economic activity according to the market mavens. so what will happen is that people who are securely employed can take advantage of lower rates which is what i am observing now. the problem will be more and more people working who can barely afford anything. it is called middle class bye and government/favored industry workers doing well.
what the Medicaid expansion states did was to keep people making just above the poverty level from revolting softly. this is why Bloomberg supports Obamacare. it is a taxpayer and inflation transfer to keep people working in urban areas where they could normally not afford to live. economically it is a circular firing squad. without Obamacare there was going to be a giant sucking sound as businesses and workers in the coverage hole above Medicaid stopped working or left or dropped out somehow. so we keep the mismanaged urban areas solvent with inflation. remember as i said above, everyone gets cut in an actual fix. healthcare admin is a major upper class employment in my market. what happens when these people cannot keep their assets and can never replace their income?
even if we fully fixed healthcare as Karl recommends, there will be massive changes in municipal areas, perhaps permanent. this is asset destruction and the society might not be able to tolerate it.
there are two years, no doubt, to make a change. get a sense of urgency and do not try to wait until the end.