Did Trump’s SALT Deduction Limit Trigger A New Housing Glut In NYC?

In April, an op-ed in The Wall Street Journal titled “So Long, California. Sayonara, New York,” published by conservative economists Arthur Laffer and Stephen Moore, warned about a provision within the brand- new tax bill that could trigger a mass migration of roughly 800,000 people — fleeing California and New York for low-tax states over the next several years.

https://www.zerohedge.com/sites/default/files/inline-images/manhattan-real-estate-market.png?itok=Qn9jr73s

Now that the SALT subsidy is passed, how bad will it get for high-tax blue states, and more specifically New York?

New evidence suggests that New York City could be the first visible region where the mass migration could begin. Take, for example, the number of homes listed for sale in Manhattan, Brooklyn, and Queens had a parabolic spike in May, with inventory across 60 percent of the boroughs reaching all-time highs, according to the latest StreetEasy Market Report. While residential inventory traditionally peaks at the end of May, this year — the supply set new record highs and could continue through summer.

Laffer and Moore’s prophecy (above) of the great migration from New York – triggered by Trump’s new tax bill could be the most logical explanation of why NYC homeowners are rushing all at once to sell their homes.

Housing inventory in Manhattan rose 16.7 percent compared to last year, the largest y/y increase on StreetEasy record. Brooklyn and Queens saw similar spikes, with inventory up 23.4 percent and 42.8 percent, respectively.

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-22-at-9.07.17-AM.png?itok=N4jLv7Tg

With housing inventory piling up across much of the boroughs, the total number of sales declined for the third consecutive month. StreetEasy said sales plummeted in every submarket across Brooklyn, Manhattan, and Queens; with more significant declines visible in the Upper East Side, Midtown and the Rockaways. Despite the flood of new inventory threatening to stall the market, the StreetEasy Price Index advanced in all three boroughs since last year.

“Sellers are betting on a wave of demand from the peak shopping season, but this summer’s market has turned out to be a crowded one,” says StreetEasy Senior Economist Grant Long.

“However, prices are high and continue to rise. More affordable homes are the hardest to find, and are sure to sell quickly. But higher-end homes, particularly those joining the market from the ongoing stream of new development, will be pressured to lower prices or linger on the market.

This summer is poised to offer an excellent negotiating opportunity for buyers with big budgets.”

As Bloomberg notes, the abnormal amount of supply hitting the NYC residential markets is not sufficiently being met with demand, which could eventually be problematic for prices and serve as a potential turning point. Recently, the mainstream media cleverly changed their narrative and called the ‘housing shortage,’ a ‘housing affordability crisis,’ as it sure seems that the housing bubble, or whatever you want to call it, is in the later innings.

May 2018 Key Findings — Manhattan

  • Sale prices rose in all submarkets but one. The StreetEasy Manhattan Price Index increased 0.6 percent to $1,157,995. Prices rose in four of the five submarkets, led by an increase in the Upper East Side, where the median home price rose 1.9 percent to $1,038,046. Prices in Downtown Manhattan remained flat at $1,691,204.
  • Inventory rose at a record pace. Sales inventory in Manhattan rose 16.7 percent year-over-year. The Upper East Side experienced the largest increase, with inventory up 20.2 percent since last year.
  • One out of every six homes received a discount. Sixteen percent of homes for sale were discounted, an increase of 3.6 percentage points year-over-year.
  • For-sale homes spent less time on the market. Units in the borough spent a median of 55 days on the market, a three-day dip from last year. The Upper East Side and Upper West Side were the only submarkets where homes lingered longer — up 10 days and 17 days, respectively.
  • Rents rose in every Manhattan submarket. The StreetEasy Manhattan Rent Index [iv] rose 1.4 percent to $3,183. Rents in Upper Manhattan rose the most — up 2.5 percent to $2,307.
  • Fewer rentals offered a discount. Sixteen percent of rentals in Manhattan were discounted in May, a decrease of 1.6 percentage points from last year.

May 2018 Key Findings — Brooklyn

  • Prices reached new highs in North Brooklyn. The StreetEasy North Brooklyn Price Index increased 11.1 percent to $1,229,838, a record high for the submarket despite the looming L train shutdown. Borough-wide, prices rose by just 1.1. percent since last year, to $720,555.
  • The number of homes with a price cut reached an all-time high. The share of sales with a price cut reached an all-time high of 12.4 percent, a rise of 3.3 percentage points from May 2017.
  • Sales inventory continued to climb, except in North Brooklyn. Sales inventory in the borough reached a record high — up 23.4 percent over last year. Inventory rose the most in South Brooklyn, which saw a 44.7 percent increase over last year. North Brooklyn was the only submarket where inventory dropped, by 6.7 percent since last year.
  • Brooklyn homes spent more time on the market. Homes stayed on the market for a median of 53 days in the borough, 6 more days than last year. North Brooklyn homes are coming off the market after an average of 43 days — 26 days faster than last year.
  • Rents rose in all submarkets except North Brooklyn. The StreetEasy Brooklyn Rent Index increased 1.4 percent year-over-year to $2,562. South Brooklyn experienced the largest spike: up 2.6 percent to a median rent of $1,885. North Brooklyn was the only submarket where rents stagnated, likely because of the L train shutdown starting in April 2019. Rents in the submarket remained flat at $3,062.

May 2018 Key Findings — Queens

  • Price cuts rose to an all-time high. The share of homes with a price cut reached a new high in Queens at 11.1 percent, an increase of 3.5 percentage points over last year.
  • Sales inventory swelled. Queens saw the largest year-over-year increase in inventory, rising 42.8 percent. All five submarkets in the borough saw a surge in inventory.
  • Queens homes are selling slightly faster than last year. The median number of days on market for Queens homes was 56, down 2 days from last year. Homes in Northeast Queens and Northwest Queens took longer to sell than last year, with an increase of 12 days and 6 days on the market, respectively.
  • Rents remained flat. The StreetEasy Queens Rent Index held at $2,113. But rents in South Queens rose 6.9 percent year-over-year, to a median of $1,775.
  • Queens was the only borough with an increase in the share of discounted rentals. Seventeen percent of Queens rentals offered discounts: up 2.9 percentage points over last year, and the highest share of the three boroughs analyzed.

Source: ZeroHedge

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Father of Paris Hilton to Sell Historic 16th Century Roman Mansion for Bitcoin

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Rick Hilton, who is the father of Paris Hilton and chairman of Hilton & Hyland, is all set to sell a 16th-century Roman mansion for cryptocurrencies. The auction for the property will be held on June 28, and it will make history as the first ever property to be auctioned on blockchain.

The 11-bedroom house is, reportedly, worth upwards of $35 million. The sale will go online on Propy.com, which is a global property store with decentralized title registry.

Realtors Love Cryptocurrencies and Blockchains

In 2017, at least 20 homes were sold for cryptocurrencies globally. This year, the bar could be set much higher.

Hilton said: “The auction shows real estate’s growing trust in blockchain and provides crypto investors an opportunity to diversify and solidify their portfolio with a trophy asset.”

The priciest home ever sold using cryptocurrencies was a seven-bedroom Miami estate. It was sold for 455 Bitcoins or approximately $6 million. The Roman mansion could easily break this record and set a record high.

A Listing Beyond Compare

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The Palazzetto, which is a grand mansion designed and built by Michelangelo’s collaborator Giacomo Della Porta, is an Italian landmark. Della Porta was also involved in the building of St. Peter’s Dome, which is another famous landmark in Rome, Italy.

The mansion is composed of two independent but connected luxury units. The property boasts of multiple entrances, an in-house theater, a secret garden, a wellness spa, and a gym.

The rooftop offers 360-degree views of the city and bird’s eye view of the neighborhood along with the Altar of the Fatherland. It has 11 bedrooms, 15 and a half bathrooms, three kitchens and multiple living and dining rooms, complete with four parking spots.

Source: by Viraj shah | Blokt

Truffles: The Most Expensive Food in the World

What Are Truffles and Why Are They So Expensive?

Truffles, the darling of the food scene, are not the chocolate treats that bear the same name. Not dessert truffles, true truffles are a rare delight and not an opportunity to be missed. While they are typically considered expensive food, there are ways to get your truffle fix in the United States through avenues such as truffle oil.

There are white and black truffles, and they’re as different as night and day. There are some similarities – they’re both a subterranean fungus that grows in the shadow of oak trees. However, there are over seven different truffle species found all over the world, from the Pacific Northwest to China to North Africa and the Middle East.

Truffles can be found concentrated in certain areas around the world, with the Italian countryside and French countryside being rich places of growth. Black truffles grow with the oak and hazelnut trees in the Périgord region in France. Burgundy truffles can be found throughout Europe in general, like the black summer truffle.

White truffles are typically found in the Langhe and Montferrat areas of northern Italy around the Piedmont region. Additionally, the countrysides of Alba and Asti are popular truffle hunting areas. White truffles are also found in the hill regions of Tuscany in Italy near certain trees.

Not just localized to Europe, however, New Zealand Australia also see truffles growing. The first black truffle produced in the Southern Hemisphere was in New Zealand in 1993. In Australia, Tasmania was the origin of the first truffle harvests and the largest truffle from Australia, weighing in at 2 pounds, 6 ounces) was harvested by Michael and Gwynneth Williams.

In the Pacific Northwest of the U.S., four species of truffles are commercially harvested: the Oregon black truffle, the Oregon spring white, Oregon winter white truffle, and the Oregon brown truffle.

In the South, the pecan truffle is often found alongside fallen pecans. While farmers once discarded them, the gourmet food scene is slowly starting to incorporate them into seasonal dishes.

Depending which country they hail from, they’re sniffed out by specially trained dogs or pigs, then dug up by the “hunter”. They’re located through the natural aroma they release when they interact with certain plants, mammals, and insects. These interactions also encourage new colonies of the truffle fungus to appear through spore dispersal.

https://i0.wp.com/cdn0.wideopeneats.com/wp-content/uploads/2016/08/Croatia-London-5452-1024x1024.jpgWhite Truffle fresh from the hunt

Both white and black truffles share the same appearance, that of a lumpy potato, but it’s in taste and shelf-life they differ.

Each kind of truffle is firmly in the “umami” category of taste – very earthy and doesn’t need a lot of salt to trip your tastebuds.

The black truffle is far more common, even in haute cuisine. Available for six to nine months a year, it has a stronger taste and pungent aroma that often needs acquiring. I’ve experienced a black truffle-and-olive tapenade, a perfect use for it, because it evokes a black olive-type taste.

Because of the long season and easier odds of being found, black truffles are more affordable. They’re also freezable, making a less-risky purchase for a restaurant, further enabling them to keep prices down.

On the flip-side are white truffles, Earth’s gold. Typically valued at as much as $3,000 per pound, they inspire a big black market. Even legally, they can be outrageous in price. The Atlantic writes“In 2010, Macau casino tycoon Stanley Ho spent $330,000 on two pieces that weighed 2.87 pounds.”

Internationally, white truffles are big industry. Autumn may yield a truffle experience for you even here. The USA is currently third world-wide for truffle harvest volumes. Stick to truffle towns where restaurants hunt their own, and you maybe be surprised at bargains you find. I was shocked to only spend $20 for my white truffle meal in Croatia.

White truffles cannot be frozen and have a short shelf-life, up to about 10 days. They’re best devoured as soon as possible. Their season is short too – only three to four months each year, September through to as late as January.

I’ve heard of their seasons ending as early as November, though. They’re more elusive to find, often in different forest clusters than their black counterparts. All this computes to costing big bucks.

Even if you dislike black truffles, try fresh white truffles if you ever can. They’re a completely different flavor profile. Instead of black olives, think Parmesan cheese meets mushrooms. It’s a delicate, aromatic flavor – still earthy, but far from overbearing.

Wine and food pairings must let the white truffle take center stage, lest they overpower it. Think polenta with lots of Parmesan and excessive shavings on top.

If you can’t have the real truffle experience, you can buy truffle products flooding the market. These include truffle-infused oils, jams, tapenades, and so forth. Some will use extracts, which are as authentic to the real thing as any extract is. Think orange or lemon or almond extracts. Are they true to the real experience? Not really, but they have their own appeal.

With a growing popularity on the world market, cunning agriculturalists and truffle hunters are trying to farm truffles with mixed results. So far it seems truffles are Earth’s alchemy – a rare treat to remain rare.

Speaking for myself, I was sure I’d hate the pungent fungus, but I felt obligated to try them. Black truffles were a taste I could grow to appreciate, but I’m not a big fan of black olives either. I had decadently expensive dark chocolate-and-black truffle ice cream, though, and that was tasty.

Still, I long for the day I cross paths with white truffles again. The simple dish of polenta and white truffles stands as one of the greatest meals of my life.

There’s a reason they’re sometimes literally worth more than their weight in gold.

Source: By Steffani Cameron | Wide Open Eats

 

New York Judge Rules Consumer Financial Protection Bureau An Unconstitutional Construct…

The CFPB was constructed by Elizabeth Warren and her progressive ideologues as an extra-constitutional government agency.  This was entirely by design.

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The CFPB had two primary, albeit unspoken, functions.  First, it was structured as a holding center for fines and assessments against any financial organizations opposed by progressives.  Second, it was a distribution hub for the received funds to be transferred to political allies and groups supportive of progressive causes.

To pull off this scheme Elizabeth Warren et al ensured it was structured to allow no congressional oversight; however, it was also structured to have no executive branch oversight – and the funding mechanism for the CFPB budget was directly through the federal reserve.  The lack of any legislative or executive branch oversight made the entire scheme unconstitutional according to an earlier court decision.

The CFPB defenders then appealed the decision to a select appellate court in Washington DC to continue the construct.  The Warren crew won the appeal; but today, in an unrelated jurisdictional ruling a New York judge affirmed the minority opinion setting up a possible supreme court pathway to get a final decision.

NEW YORK (AP) – The U.S. government’s beleaguered consumer finance watchdog agency is unconstitutionally structured, a judge said Thursday as she disqualified the agency from serving as a plaintiff in a lawsuit.

U.S. District Judge Loretta A. Preska in Manhattan reached the conclusion about the Consumer Financial Protection Bureau in a written decision.

Her ruling related to a lawsuit brought against companies loaning money to former National Football League players awaiting payouts from the settlement of a concussion-related lawsuit and to individuals slated to receive money for injuries sustained when they helped in the World Trade Center site cleanup after the Sept. 11, 2001, terrorist attacks.

She let claims brought by the New York State attorney general proceed, but dismissed those that were brought by the CPFB, saying it “lacks authority to bring this enforcement action because its composition violates the Constitution’s separation of powers.”

In ruling, Preska sided with three judges who dissented from the six-judge majority in a January ruling by the U.S. Court of Appeals in Washington. The majority found that the agency director’s power is not excessive and that the president should not have freer rein to fire that person.  (read more)

CFPB Interim Director Mick Mulvaney has already said the CFPB needs to be disassembled.

Taking the agency down is perfectly ok with the Trump administration.

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By Sundance | The Conservative Tree House

Recent Canadian Home Sales Plunge Most Since 2008 American Financial Crisis

  • Rising rates? Check.
  • Chinese capital controls and a slump in foreign buyers? Check.
  • Trade war with the US? Check.

Things are not looking good for Canada’s national housing market, which as VCG reports, continued its sluggish performance in the month of May. Despite the warmer weather and usually busy spring selling season, buying activity has been awfully quiet. New mortgage regulations which are now in full swing have stymied fringe buyers, particularly millennials. According to new data from credit bureau TransUnion, new mortgage originations among millennials in Canada fell by 19.5% between the last quarter of 2017 and the first three months of 2018.

That has also been showing up sales data. 

As shown in the chart below, national home sales in Canada plunged by 16% Y/Y for the month of May. This was the worst decline since the great financial crisis in 2008 when home sales dipped 17% that May. Furthermore, total home sales of 50,604 marked the lowest total since May 2011.

https://www.zerohedge.com/sites/default/files/inline-images/Year-over-Year-Change-in-Home-Sales-May.png?itok=Fy7a4zl_

Seasonally adjusted home sales edged 0.1% lower on a month over month basis, and 15% on a year over year basis. Or, as Steve Saretsky put it, “either way you slice it not a great month for one of the worlds most resilient housing markets.”

And as sales continue to slide inventory is beginning to build. For sale inventory crept up by 4% year over year, increasing for the first time in three years, and the highest May increase since 2010.

https://www.zerohedge.com/sites/default/files/inline-images/Year-over-Year-Change-in-Inventory-May.png?itok=QxM59913

In light of the above, it is not surprising that the average sales price dipped 6% year over year in May, which however was not nearly as bad as April when year over year declines registered a head turning 11% decline.

But more troubling is that when looking at the smoothed out index of the MLS HPI prices showed the smallest possible increase of just 1% year over year in May, the lowest since September 2009. Not only did this mark the 13th consecutive month of decelerating year over year gains per the Canadian Real Estate Association, but at the current rate of slowdown, next month Canada will record the first annual drop in home prices since the global financial crisis.

https://www.zerohedge.com/sites/default/files/inline-images/Screen-Shot-2018-06-19-at-12.34.41-PM-696x474.png?itok=BhmwUGHt

The silver lining: condos continue to hold up well as buyers tumble down the housing ladder; here prices posted a 13% increase from May 2017.

CREA’s chief economist Gregory Klump shouldered much of the blame on tighter borrowing conditions, “This year’s new stress-test became even more restrictive in May, since the interest rate used to qualify mortgage applications rose early in the month. Movements in the stress test interest rate are beyond the control of policy makers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”

Klump’s theory stacks up well with recent data which suggests fringe borrowers are being pushed towards the private lending space, particularly in Ontario. Mortgage originations at private lenders in the Q1 2018 rose to $2.09 billion in Ontario, a 2.95% increase from last year. The market share of private lending went from 5.71% of originations in Q1 2017, to 7.87% in Q1 2018, despite originations at other channels dropping.

In other words, there is a surge in unregulated, non-bank lending, just as the housing bubble pops, precisely what happened the last time there was a full-blown financial crisis.

Source: ZeroHedge

President Trump Drops $200 Billion M.O.A.T on Red Dragon (Beijing)…

When you plant your tree in another man’s orchard, you might end up paying for your own apples; it’s a risk you take…

….and President Trump knows how to use that leverage better than anyone could possibly fathom; because in this metaphor Beijing relies upon the U.S. for both the seeds and the harvest. President Trump drops the $200b M.O.A.T (Mother of All Tariffs):

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White House – On Friday, I announced plans for tariffs on $50 billion worth of imports from China. These tariffs are being imposed to encourage China to change the unfair practices identified in the Section 301 action with respect to technology and innovation. They also serve as an initial step toward bringing balance to our trade relationship with China.

However and unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports. China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.

This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable. Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.

Therefore, today, I directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced. If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods. The trade relationship between the United States and China must be much more equitable.

I have an excellent relationship with President Xi, and we will continue working together on many issues. But the United States will no longer be taken advantage of on trade by China and other countries in the world.

We will continue using all available tools to create a better and fairer trading system for all Americans.

~ President Donald Trump

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Historic Chinese geopolitical policy, vis-a-vis their totalitarian control over political sentiment (action) and diplomacy through silence, is evident in the strategic use of the space between carefully chosen words, not just the words themselves.

Each time China takes aggressive action (red dragon) China projects a panda face through silence and non-response to opinion of that action;…. and the action continues. The red dragon has a tendency to say one necessary thing publicly, while manipulating another necessary thing privately.  The Art of War.

President Trump is the first U.S. President to understand how the red dragon hides behind the panda mask.

It is specifically because he understands that Panda is a mask that President Trump messages warmth toward the Chinese people, and pours vociferous praise upon Xi Jinping, while simultaneously confronting the geopolitical doctrine of the Xi regime.

In essence Trump is mirroring the behavior of China while confronting their economic duplicity.

President Trump will not back down from his position; the U.S. holds all of the leverage and the issue must be addressed.  President Trump has waiting three decades for this moment.  This President and his team are entirely prepared for this.

We are finally confronting the geopolitical Red Dragon, China!

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The Olive branch and arrows denote the power of peace and war. The symbol in any figure’s right hand has more significance than one in its left hand. Also important is the direction faced by the symbols central figure. The emphasis on the eagles stare signifies the preferred disposition. An eagle holding an arrow also symbolizes the war for freedom, and its use is commonly referred to the liberation fight of righteous people from abusive influence. The eagle on the original seal created for the Office of the President showed the gaze upon the arrows.

The Eagle and the Arrow – An Aesop’s Fable

An Eagle was soaring through the air. Suddenly it heard the whizz of an Arrow, and felt the dart pierce its breast. Slowly it fluttered down to earth. Its lifeblood pouring out. Looking at the Arrow with which it had been shot, the Eagle realized that the deadly shaft had been feathered with one of its own plumes.

Moral: We often give our enemies the means for our own destruction.

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“Markets”

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… all in deep contrast with what the past American Presidential Administration were focused on (video)

Source: by Sundance | The Conservative Tree House

A Hard Rain’s A-Gonna Fall

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Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response. “The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?” He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial markets. Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented force feeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

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In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon. And everyone learned to love the ‘Fed put’ and stop worrying.

But as King Louis XV and Bob Dylan both warned us, what’s coming next will change everything.

The Deluge Approaches

This halcyon era of ever-higher prices and consequence-free backstopping by the central banks is ending. The central banks, desperate to give themselves some slack (any slack!) to maneuver when the next recession arrives, have publicly committed to ‘tightening monetary policy’ and ‘unwinding their balance sheets’, which is wonk-speak for ‘reversing what they’ve done’ over the past decade.

Most general investors today just don’t appreciate how gargantuanly significant this is. For the past 9 years, we’ve become accustomed to a volatility-free one-way trip higher in asset prices. It’s been all-glory with no risk while the ‘Fed put’ has had our backs (along with the ‘EBC put’, the ‘BOJ’ put, the ‘PBoC put’, etc). Anybody going long, buying the (few, minor) dips along the way, has felt like a genius. That’s all over.

Based on current guidance from the central banks, “global QE” is expected to drop precipitously from here:

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With just the relatively tiny amount of QE tapering so far, 2018 has already seen more market price volatility than any year since 2009. But we’ve seen nothing so far compared to the volatility that’s coming later this year when QE starts declining in earnest. In parallel with this tightening, global interest rates are rising after years of flat lining at all-time lows. And it’s important to note that our recent 0% (or negative) yields came at the end of a 35-year secular cycle of declining interest rates that began in the early 1980s.

Are we seeing a secular cycle turn now that rates are creeping back up? Will rising interest rates be the norm for the foreseeable future? If so, the world is woefully unprepared for it. Countries and companies are carrying unprecedented levels of debt, as are many households. Rising interest rates increases the cost of servicing that debt, leaving less behind to invest or to meet basic operating needs.

Simon Black reminds us that, mathematically, rising interest rates result in lower valuations for stocks, bonds and housing. But so far, Wall Street hasn’t gotten the message (chart courtesy of Charles Hugh Smith):

https://static.seekingalpha.com/uploads/2018/1/15/saupload_DJIA1-18a.jpg(Source)

So we’re presented with a simple question: What happens when the QE that’s grossly-inflating markets stops at the same time that interest rates rise? The answer is simple, too: Prices fall.

They fall commensurate with the distortion within the system. Which is unprecendented at this stage.

But Wait, There’s More!

So the situation is dire. But it gets worse. Our debt that’s getting more expensive to service? Well, not only are we (in the US) adding to it at a faster rate with our newly-declared horizon of $1+ trillion annual deficits, but we’re increasingly antagonizing the largest buyers of our debt.

This is most notable with China (the #1 Treasury buyer), whom we’ve dragged into a trade war and just announced $50 billion in tariffs against. But Japan (the #2 buyer) is also materially reducing its Treasury purchases. And not to be outdone, Russia recently dumped half of its Treasury holdings, $47 billion worth, in a single fell swoop. Should this trend lead, understandably, to lower demand for US Treasures in the future, that only will put further pressure on interest rates to move higher.

And this is all happening at a time when the stability of the rest of the world is fast deteriorating. Developing (EM) countries are getting destroyed as central bank liquidity flows slow and reverse — as higher interest rates strengthen the USD against their home currencies, their debts (mostly denominated in USD) become more costly while their revenues (denominated in local currency) lose purchasing power. Fault lines are fracturing across Europe as protectionist, populist candidates are threatening the long-standing EU power structure. Italy’s economy is struggling to remain afloat and could take the entire European banking system down with it. The new tit-for-tat tariffs with the US aren’t helping matters. And China, trade war aside, is seeing its fabled economic momentum slow to multi-decade lows.

All players on the chessboard are weakening.

The Timing Is Becoming Clear

Yes, the financial markets are currently still near all-time highs (or at the high, in the case of the NASDAQ). And yes, expected Q2 US GDP has jumped to a blistering 4.8%. But the writing is increasingly on the wall that these rosy heights won’t last for much longer.

These next three charts from Palisade Research, combined with the above forecast of the drop-off in global QE, paint a stark picture for the rest of 2018 and beyond. The first shows that as the G-3 central banks have started their initial (and still small) efforts to withdraw QE, the Global Financial Stress Indicator is spiking worrisomely:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_GlobalStressIndicator.png

Next, one of the best predictors of global corporate earnings now forecasts an imminent collapse. As go earnings, so go stock prices:

https://static.seekingalpha.com/uploads/2018/6/17/saupload_SKEG.png

And looking at trade flows — which track the movement of ‘real stuff’ like air and shipping freights — we see clear signs that the global economy is slowing down (a trend that will be exacerbated if oil prices rise as geologist Art Berman predicts):

https://static.seekingalpha.com/uploads/2018/6/17/saupload_Alt_MeasuresofWorldTrade.png

The end of QE, higher interest rates, trade wars at a time of slowing global trade, China/Europe weakening, EM carnage — it’s like both legs of the ladder you’re standing on being sawed off, as well all of the rungs underneath you.

Conclusion: a major decline in the financial markets is due for the second half of 2018/first half of 2019.

Actions To Take

Gathering clouds deliver a valuable message: Seek shelter before the storm.

Specifically, it’s time to:

  • Get liquid. When the rug gets pulled out from under today’s asset prices, ‘flat’ will be the new ‘up’. Simply not losing money will make you wealthier on a relative basis — it’s the easiest, least-risky strategy for most investors to prepare for what’s coming. “Cash is king” in the aftermath of a deflationary downdraft, when your dry power can be then used to purchase high-quality income-producing assets at excellent value — fractions of their current prices. And in the interim, the returns on cash are getting better for investors who know where to look. We’ve recently explained how you can now get 2%+ interest on cash stored in short-term T-bills (that’s 30x more than most banks will pay on cash savings). If you’re sitting on cash and haven’t looked seriously yet at that program, you really should review our report. With more Fed tightening expected in the future, T-bill rates are likely headed even higher.
  • Get your plan for the correction into place now. In addition to your cash, how is the rest of your portfolio positioned? Do you have suitable hedges in place to mitigate your risk? Does your financial advisor even acknowledge the risks detailed in the above article? The last thing you want to do in a market downdraft is make panicked decisions.
  • Nibble into commodities. The commodities/equities price ratio is the lowest it has been in 47 years. That ratio has to correct some point soon. Much of that correction will be due to stocks dropping; but the rest will be by commodities holding their own or appreciating. While it’s true that commodities could indeed fall as well during a general deflationary rout, that’s not a guarantee — especially given that many commodities are now selling at prices close to — or in some cases, below — their marginal cost of production. The easiest commodities to own yourself, the precious metals, are ‘dirt cheap’ right now (especially silver), as explained in our recent podcast with Ronald Stoeferle. And with Friday’s bloodbath, they just got even cheaper.
  • Assess and address your biggest vulnerabilities before the next crisis hits. Are you worried about the security of your current job when the next recession hits? Are rising interest rates causing you to struggle in deciding whether to buy or sell a home? Are you trying to come up with a plan for a resilient retirement? Are you assessing the pros and cons of relocating? Do you have homesteading questions? Are you trying to create new streams of income?

We’re lurching through the final steps of familiar territory as the status quo we’ve known for the past near-decade is ending. The mind-mindbogglingly massive central bank stimulus supporting asset prices are disappearing. Interest rates are rising. It’s hard to overemphasize how seismic these changes will be to world markets and the global economy. The coming years are going to be completely different than what society is conditioned for. Time is running short to get prepared. Because when today’s Everything Bubble bursts, the effect will be nothing short of catastrophic as 50 years of excessive debt accumulation suddenly deflates.

A hard rain indeed is gonna fall.

Source: by Chris Martenson | Seeking Alpha