James Grant, Wall Street expert and editor of the investment newsletter Grant’s Interest Rate Observer, warns of a crash in sovereign debt, is puzzled over the actions of the Swiss National Bank and bets on gold.
Mr. Grant warns of today’s reckless hunt for yield and spots one of the biggest risks in government debt. He’s also scratching his head over the massive investments which the Swiss National Bank undertakes in the US stock market.
Question: For more than three decades Grant’s has been observing interest rates. Is there anything left to be observed with rates this low?
Grant: Interest rates may be almost invisible but there is still plenty to observe. I observe that they are shrinking and that the shrinkage is causing a lot of turmoil because people in need of income are in full hot pursuit of what little of yields remains.
Question: What are the consequences of that?
Grant: It reminds me of the great Victorian English journalist Walter Bagehot. He once said that John Law can stand anything but he can’t stand 2%, meaning that very low interest rates induced speculation and reckless investing and misallocation of capital. So I think Bagehot’s epigraph is very timely today.
This is the best time in history to invest in real estate
reminds me of the times when extreme headlines like this have marked major turning points in markets. Perhaps the most famous was Business Week’s cover story, “The Death of Equities,” in 1979. That was near the best time to buy stocks in my lifetime.
More recently and at a lesser scale, we have the example of the widely publicized piece by Jason Zweig of the Wall Street Journal proclaiming “Let’s Be Honest About Gold: It’s a Pet Rock.” That was in July of 2015 when gold was near its bottom in the $1100 range. It has been among the best performing asset classes since then.
The headline on the Marketwatch piece has a similar feel. It may well mark a major turning point in the multifamily rental investment market.
But I’m not here to argue that. I simply want to show that the headline and the arguments that Reeves puts forth in support of it, are just wrong. Far from being the best time ever to invest in rental property, the fundamentals are atrocious. It’s a market that has been rigged by the world’s central banks.Ever cheaper financing has pushed multifamily housing prices into the stratosphere, and pushed capitalization rates into the sub-basement of history. This is where the real estate bogeymen live and thrive. If you go there, they will eat you alive.
The uptrend in multifamily housing prices isn’t about improving fundamentals. It’s about central banks constantly making real estate financing cheaper and cheaper, not to mention easier. The chart above shows that as money has gotten cheaper, virtually all of the gains in real estate prices can be attributed to the value of the financing. The market is completely at the mercy of a rise in mortgage rates. Certainly there’s an argument to be made that the Fed would never allow that, but would the assumption that mortgage rates would never rise be a prudent basis for investing today?
Chancellor Angela Merkel has warned Germany’s Turkish population to “develop a high level of loyalty” to their new homeland, in the latest sign of political concern about divided allegiances in the Turkish community.
She also warned both supporters and opponents of the authoritarian Turkish president to avoid stirring political violence. “The freedom of thought and of holding demonstrations is valid in Germany for everybody who lives here, but of course all their differences of opinion must be argued out peacefully.”
Ms Merkel’s unusually tough message is clearly designed to give her conservative CDU party a boost in two regional elections next month — in rural Mecklenburg-Vorpommern and Berlin — where the rightwing anti-migration, anti-Islam Alternative for Germany is gaining ground.
But it also reflects government fears about political radicalisation among the country’s 3m ethnic Turks, who are split roughly 50-50 between German and Turkish citizens. The political controversy could complicate Ms Merkel’s efforts to keep in place the EU-Turkey refugee pact, which is under growing criticism in Germany for the concessions made to Mr Erdogan, including the soft-pedalling of criticism of his post-coup crackdown.
I fail to see how message telling kids or adults to play nice is tough at all. Then again we are talking about someone who welcomed refugees with open arms.
Last fall, financial advisors Anthony and Dina Isola came into our firm to talk shop one afternoon. We were blown away by their passion for saving the retirement portfolios of their clients, many of whom are teachers and professors who are inundated almost daily with bad product pitches at their schools.
Within a few weeks, we were talking about hiring them. It’s one of the best decisions we’ve made so far – an absolute grand slam from a culture perspective.
Tony’s background as a trader-turned-educator-turned-Certified Financial Planner makes him a highly unique animal in our menagerie. He comes to work ready to crush it every day, and he’s armed to the teeth with knowledge about how the machine takes advantage of the investor class at every turn. Dina’s detail-oriented work assures a smooth client experience for all who come to them for help.
Tony’s also got a great blog, called A Teachable Moment. When we set it up for him, we had no idea how consistently good his stuff would be each week.
For example, this bit about the application of history lessons is so crucial:
How can investors act as applied historians and use this skill set to create wealth?
There are several minefields that could easily be avoided with some knowledge of the past:
Most market corrections don’t turn into bear markets.
Using leverage to boost investment returns often ends badly.
The president has very little control over the global economy.
Buying new financial products at market peaks is a poor idea.
Bull markets last much longer than bear markets.
Stocks are six times more likely to be up 20% than down the same amount. (Michael Batnick)
Uncertainty is always present and it is not a wise choice to use it as an excuse not to invest.
Stocks will do the best job of protecting future purchasing power over long periods of time.
Investing in the fastest growing world economies will not guarantee higher investment returns.
New home sales are up huge amounts year-over-year but price is not following. On a seasonally adjusted annualized basis, news home sales are up 18.1% in the south (the largest region), and 40% in the Northeast (accounting for only a small increase in sales).
Volatility is the name of game for the new home sales report where July’s headline surged, up a monthly 12.4 percent to a 654,000 annualized rate. A very small offset is a very modest 10,000 downward revision to June which now stands at 582,000. May is unrevised at 572,000. All these levels are at cycle highs while the sequential gains hint at sky-high momentum.
The surge in sales is apparently getting a big boost from seller discounting as the median price fell 5.1 percent to $294,600. The year-on-year price is suddenly in the negative column at minus 0.5 percent. These results confirm other indications of price softness, including recent FHFA and Case-Shiller data.
Lack of supply, in light of the sales gain, is becoming an even more pressing issue for housing. New homes on the market fell 7,000 in the month to 233,000 with monthly supply falling very sharply, to 4.3 months at the current sales rate from 4.9 months in June. In July last year, this reading was 5.2 months.
Strength in this report comes from the largest region which is the South where sales rose 18.1 percent to a 398,000 annualized pace. The Northeast, which is a very small region for new homes, surged 40.0 percent in the month but to only a 35,000 rate.
Housing data have been moving higher but not uniformly. Starts and permits data have been bumpy as has construction spending. But this report, together with data on sales of existing homes, are moving decisively to cycle highs and are pointing to housing as possibly the biggest positive surprise of the 2016 economy.
Sales of newly built homes account for less than a tenth of total U.S. homebuying activity. Also, data on such purchases are volatile from month to month and subject to later revision. July’s increase came with a margin of error of plus or minus
The regional manufacturing reports are not having a good go of it this month. The Richmond Fed Region took a huge dive from +10 to -11. New orders lead the collapse, down a whopping 35 points to -20. The Empire State and Philly Fed reports were also weak.
Richmond Fed Synopsis
Index Down 21 points to-10
Shipments down 21 points to -14
New orders down 35 to -20
Order Backlog down 22 points to -1
Capacity utilization down 22 points to -19
Wages Up 7 points to +21
Finished goods inventories up 9 points to+21
Raw materials inventories up 4 points to +27
Inventories up, employment up, wages up. Shipments and new orders plunged. What a disaster, and it’s not just this regional report.
The PMI Manufacturing report came in at 52.1 compared to a Bloomberg Econoday consensus estimate of 53.2, in a range of 52.7 to 53.5. New orders and employment showed particular weakness.
Weakness in orders and employment were unfortunate themes of last week’s Empire State and Philly Fed reports and likewise headline the manufacturing PMI report. The PMI, which is based on a nationwide sample of manufacturers, slowed by 8 tenths in the August flash to 52.1, a reading only modestly above breakeven 50 to indicate no more than limited expansion in composite activity.
Output is the month’s best strength but one that won’t last very long if orders remain soft. The sample is cutting back on inventories this month which, like the slowing in employment, hints at caution over the business outlook. Price trends are stagnant in yet another sign of softness in demand. One positive in the report is strength in export orders which, after a long run of weak readings, is suddenly near a 2-year high.
Exports aside, the strength in this report is limited and does not point to second-half strength for manufacturing.
The manufacturing PMI firmed to 52.9 in the July, a moderate rate near breakeven 50 but still the best showing in 9 months and a reminder of how soft the factory sector has been this year. New orders, including those for exports, were strong in July which points to strength for production in August. Forecasters see the August flash coming in slightly higher at 53.2.
Comments from Chris Williamson, Markit’s Chief Economist
The August drop in the PMI is a disappointment but less worrying when looked at in the context of July’s better than expected reading. Taking the July and August readings together suggests that manufacturing is enjoying its best growth so far this year in the third quarter, and should help drive stronger GDP growth.
With August seeing the largest rise in exports for almost two years, the improved trade performance should
What people across Wall Street cannot figure out is why the Board of JPMorgan Chase, America’s biggest bank by assets, didn’t sack its CEO, Jamie Dimon, at some point between the bank’s first two felony counts in 2014 and its third felony count in 2015. Or, as two trial lawyers, Helen Davis Chaitman and Lance Gotthoffer point out on their web site, during the past five years as JPMorgan Chase racked up $35.7 billion in fines and settlements for “fraudulent and illegal practices.”
JPMorgan Chase’s abuses of its own customers are so vast that Chaitman and Gotthoffer had to create a Wheel of Misfortune to catalog the scams for ease of viewing by the public.
And here’s the worst part: those are just the frauds that the public is allowed to read about. JPMorgan Chase, along with other notoriously abusive banks on Wall Street, is allowed to force claims against it into a private justice system called mandatory arbitration. This system allows systemic abuses to avoid detection for years because claims made by both employees and customers are ushered into Star Chamber tribunals which lack the judicial protections afforded in a court of law.
JPMorgan Chase must be proud of its mandatory arbitration agreement for its employees because we found it at its web site. These are some of the salient points which show the stark contrasts between mandatory arbitration and a public courtroom proceeding where both the public and the press can observe the proceedings:
“The arbitrator, the Parties and their representatives must maintain the confidentiality of the hearings unless the law provides otherwise…
“The decision will be final and binding upon the Parties, and appeal of the decision to a court shall be limited as provided by the FAA [Federal Arbitration Act]…
An ongoing protest by Native American members of the Standing Rock tribe, intended to halt the construction of the Dakota Access Pipeline, got a little celebrity "love" today in Washington D.C. as Bernie supporter, Susan Sarandon, and friends decided to swing by to show their support. In July, the environmental group Earthjustice filed a lawsuit (included in its entirety at the end of this post) on behalf of the Standing Rock tribe, seeking an injunction against the U.S. Army Corps of Engineers, which authorized the pipeline's construction. Judge James E. Boarsberg heard arguments in the case to...
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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