According to The Atlanta Fed’s GDPNow forecast, US Q3 GDP is on target to grow 25.57% QoQ.
Today’s housing starts numbers actually slowed Q3 GDP growth from 26.2% to 25.6%.
According to The Atlanta Fed’s GDPNow forecast, US Q3 GDP is on target to grow 25.57% QoQ.
Today’s housing starts numbers actually slowed Q3 GDP growth from 26.2% to 25.6%.
Love & Hip Hop: Atlanta star Maurice Fayne is back home after he was arrested for allegedly using a $2 million PPP coronavirus loan to buy luxury items and make child support payments.
The reality star, 37, was pictured taking a phone call outside of his home in Georgia over the weekend.
Fayne was sitting upon a slick red BMW and drinking a soda as he pressed the phone against his ear, appearing deep in thought.
Fayne was dressed comfortably in a white T-shirt and flashy red sweatpants.
Fayne was sipping from the soda bottle as he listened intently to the call, before eventually returning back inside his house.
Authorities say Fayne used an emergency loan from the federal government to lease a Rolls Royce, make child support payments and purchase $85,000 worth of jewelry.
Fayne, who goes by Arkansas Mo on the VH1 show ‘Love & Hip Hop: Atlanta,’ was arrested Monday on a charge of bank fraud, the Department of Justice said in a news release.
Fayne is the sole owner of transportation business Flame Trucking and in April he applied for a loan that the federal government was offering to small businesses decimated by the coronavirus pandemic, officials said.
In his application, Fayne stated his business employed 107 employees with an an average monthly payroll of $1,490,200, the release said.
Fayne requested a Paycheck Protection Program loan for over $3,000,000 and received a little over $2,000,000, officials said.
He used more than $1.5million of the loan to purchase jewelry, including a Rolex Presidential watch and a 5.73 carat diamond ring, the release said.
Fayne also leased a 2019 Rolls Royce Wraith and paid $40,000 in child support.
‘At a time when small businesses are struggling for survival, we cannot tolerate anyone driven by personal greed, who misdirects federal emergency assistance earmarked for keeping businesses afloat,’ said Chris Hacker, Special Agent in Charge of FBI Atlanta.
When he met with investigators last week, Fayne denied spending the loan on anything besides payroll and business expenses.
But last Monday, federal agents searched Fayne’s home and seized the jewelry and around $80,000 in cash, including $9,400 Fayne had in his pockets, the release said.
Fayne’s attorney Tanya Miller said there was ‘considerable confusion’ about PPP guidelines and over whether owners could ‘pay themselves a salary’ when asked about the charges by CNN.
She added that she hopes these ‘issues’ will be better explained in the near future.
He was released on $10,000 bond.
Fayne appeared on several episodes of ‘Love & Hip Hop: Atlanta’ as the love interest of Karlie Redd, a longtime cast member, news outlets reported.
Lyrics to “Living In A Ghost Town”:
I’M A GHOST
LIVING IN A GHOST TOWN
I’M A GHOST
LIVING IN A GHOST TOWN
YOU CAN LOOK FOR ME
BUT I CAN’T BE FOUND
YOU CAN SEARCH FOR ME
I HAD TO GO UNDERGROUND
LIFE WAS SO BEAUTIFUL
THEN WE ALL GOT LOCKED DOWN
FEEL A LIKE GHOST
LIVING IN A GHOST TOWN
ONCE THIS PLACE WAS HUMMING
AND THE AIR WAS FULL OF DRUMMING
THE SOUNDS OF CYMBALS CRASHING
GLASSES WERE ALL SMASHING
TRUMPETS WERE ALL SCREAMING
SAXOPHONES WERE BLARING
NOBODY WAS CARING
IF IT’S DAY OR NIGHT
I’M A GHOST LIVING IN A GHOST TOWN
I’M GOING NOWHERE
SHUT UP ALL ALONE
SO MUCH TIME TO LOSE
JUST STARING AT MY PHONE
EVERY NIGHT I AM DREAMING
THAT YOU’LL COME AND CREEP IN MY BED
PLEASE LET THIS BE OVER
NOT STUCK IN A WORLD WITHOUT END
PREACHERS WERE ALL PREACHING
THIEVES WERE HAPPY STEALING
WIDOWS WERE ALL WEEPING
THERE’S NO BEDS FOR US TO SLEEP IN
ALWAYS HAD THE FEELING
IT WOULD ALL COME TUMBLING DOWN
I’M A GHOST
LIVING IN A GHOST TOWN
YOU CAN LOOK FOR ME
BUT I CAN’T BE FOUND
WE’RE ALL LIVING IN A GHOST TOWN
LIVING IN A GHOST TOWN
WE WERE SO BEAUTIFUL
I WAS YOUR MAN ABOUT TOWN
LIVING IN THIS GHOST TOWN
IT ISN’T ANY FUN
IF I WANT A PARTY
IT’S A PARTY OF ONE
My Self-Isolation Quarantine Diary
Day 1 – I Can Do This!! Got enough food and wine to last a month!
Day 2 – Opening my 8th bottle of Wine. I fear wine supplies might not last!
Day 3 – Strawberries: Some have 210 seeds, some have 235 seeds. Who Knew??
Day 4 – 8:00pm. Removed my Day Pajamas and put on my Night Pajamas.
Day 5 – Today, I tried to make Hand Sanitizer. It came out as Jello Shots!!
Day 6 – I get to take the Garbage out I’m So excited, I can’t decide what to wear.
Day 7 – Laughing way too much at my own jokes!!
Day 8 – Went to a new restaurant called “The Kitchen”. You have to gather all the ingredients and make your own meal. I have No clue how this place is still in business.
Day 9 – I put liquor bottles in every room. Tonight, I’m getting all dressed up and going Bar hopping.
Day 10 – Struck up a conversation with a Spider today. Seems nice. He’s a Web Designer.
Day 11 – Isolation is hard. I swear my fridge just said, “What the hell do you want now?”
Day 12 – I realized why dogs get so excited about something moving outside, going for walks or car rides. I think I just barked at a squirrel.
Day 13 – If you keep a glass of wine in each hand, you can’t accidentally touch your face.
Day 14 – Watched the birds fight over a worm. The Cardinals lead the Blue Jays 3–1.
Day 15 – Anybody else feel like they’ve cooked dinner about 395 times this month?
IS THIS YOU, yet?
About 2.9 million people die in the United States each year from all causes. Monthly this total ranges from around 220,000 in the summertime to more than 280,000 in winter.
In recent decades, flu season has often peaked sometime from January to March, and this is a major driver in total deaths. The average daily number of deaths from December through March is over eight thousand.
So far, total death data is too preliminary to know if there has been any significant increase in total deaths as a result of COVID-19, and this is an important metric, because it gives us some insight into whether or not COVID-19 is driving total death numbers well above what would otherwise be expected.
Indeed, according to some sources, it is not clear that total deaths have increased significantly as a result of COVID-19. In a March 30 article for The Spectator, former UK National Health Service pathologist John Lee noted that the current number of deaths from COVID-19 does not indicate that the UK is experiencing “excess deaths.” Lee writes:
The simplest way to judge whether we have an exceptionally lethal disease is to look at the death rates. Are more people dying than we would expect to die anyway in a given week or month? Statistically, we would expect about 51,000 to die in Britain this month. At the time of writing, 422 deaths are linked to Covid-19—so 0.8 per cent of that expected total. On a global basis, we’d expect 14 million to die over the first three months of the year. The world’s 18,944 coronavirus deaths represent 0.14 per cent of that total. These figures might shoot up but they are, right now, lower than other infectious diseases that we live with (such as flu). Not figures that would, in and of themselves, cause drastic global reactions.
How do these numbers look in the United States? During March of 2020, there were 4,053 COVID-19 deaths according to Worldometer. That is 1.6 percent of total deaths in March 2019 (total data on March 2020 deaths is still too preliminary to offer a comparison). For context, we could note that total deaths increased by about four thousand from March 2018 to March 2019. So for March, the increase in total deaths is about equal to what we already saw as a pre-COVID increase from March 2018 to March 2019.
As Lee notes, total COVID-19 deaths could still increase significantly this season, but even then we must ask what percentage of total deaths warrants an international panic. Is it 5 percent? Ten percent? The question has never been addressed, and so far, a figure of 1 percent of total deaths in some places is being treated as a reason to forcibly shut down the global economy.
Meanwhile there is a trend toward to attributing more of those pneumonia deaths to COVID-19 rather than influenza, although this doesn’t actually mean the total mortality rate has increased. The CDC report continues: “the percent of all deaths with Influenza listed as a cause have decreased (from 1.0% to 0.8%) over this same time period. The increase in pneumonia deaths during this time period are likely associated with COVID-19 rather than influenza.” This doesn’t represent a total increase in pneumonia deaths, just a change in how they are recorded.
This reflects an increased focus on attributing deaths to COVID-19, as noted by Lee:
In the current climate, anyone with a positive test for Covid-19 will certainly be known to clinical staff looking after them: if any of these patients dies, staff will have to record the Covid-19 designation on the death certificate—contrary to usual practice for most infections of this kind. There is a big difference between Covid-19 causing death, and Covid-19 being found in someone who died of other causes. Making Covid-19 notifiable might give the appearance of it causing increasing numbers of deaths, whether this is true or not. It might appear far more of a killer than flu, simply because of the way deaths are recorded.
Given this rush to maximize the number of deaths attributable to COVID-19, what will April’s data look like? It may be that COVID-19 deaths could then indeed number 10 or 20 percent of all deaths.
But the question remains: will total deaths increase substantially compared to April 2019 or April 2018? If they don’t, this will call into question whether or not COVID-19 is the engine of mortality that many government bureaucrats insist it is.After all, if April’s mortality remains “about the same” as the usual total and comes in around 230,000–235,000, then obsessive concern over COVID-19 would be justified only if it can be proven April 2020 deaths would have plummeted year-over-year had it not been for COVID-19.
Meanwhile the CDC is instructing medical staff to report deaths as COVID-19 deaths even when no test has confirmed the presence of the disease. In a Q and A on death certificates published by the CDC on March 24, the agency advises:
COVID-19 should be reported on the death certificate for all decedents where the disease caused or is assumed to have caused or contributed to death. Certifiers should include as much detail as possible based on their knowledge of the case, medical records, laboratory testing, etc. If the decedent had other chronic conditions such as COPD or asthma that may have also contributed, these conditions can be reported in Part II. [emphasis in original.]
This is extremely likely to inflate the number of deaths attributed to COVID-19 while pulling down deaths attributed to other influenza-like illnesses and to deaths caused by pneumonia with unspecified origins. This is especially problematic since we know the overwhelming majority of COVID-19 deaths occur in patients that are already suffering from a number of other conditions. In Italy, for example, data shows 99 percent of COVID-19 deaths occurred in patients who had at least one other condition. More than 48 percent had three other conditions. Similar cases in the US are now likely to be routinely reported simply as COVID-19 cases.
Source: Total death and flu/pneumonia death data via National Center for Health Statistics (www.cdc.gov/flu/weekly/weeklyarchives2019-2020/data/nchsData12.csv). COVID-19 totals via Worldometer COVID stats.
Unfortunately, because total death data is not reported immediately, we have yet to see how this plays out.
We do know historically, however, that deaths attributed to flu and pneumonia over the past decade have tended to make up around five to ten percent of all deaths, depending on the severity of the “season.” Last week (week 14, the week ending April 4) was the first week during which COVID-19 deaths exceeded flu and pneumonia deaths, coming in at 11 percent of all death for that week. The prior week, (week 13, the week ending Mar 28) COVID-19 deaths made up 3.3 percent of all deaths.
Until we have reliable numbers on all deaths in coming weeks, it will be impossible to know the extent to which COVID-19 are “cannibalizing” flu and pneumonia deaths overall. That is, if the COVID-19 totals skyrocket, but total deaths remain relatively stable, than we might guess that many deaths formerly attributed simply to pneumonia, or to flu, are now being labeled as COVID-19 deaths. Potentially, this could also be the case for other patients, such as those with advanced cases of diabetes.
As pro-establishment mouthpieces downplay the efficacy of hydroxychloroquine to treat COVID-19 as “anecdotal” with “little evidence that the treatment is effective,” yet another doctor treating has claimed dramatic improvement in coronavirus patients within hours of taking the anti-malaria drug in combination with two other medications.
Los Angeles doctor Anthony Cardillo says he’s seen very promising results when the Trump-touted drug is combined with zinc for severely-ill coronavirus patients.
“Every patient I’ve prescribed it to has been very, very ill and within 8 to 12 hours, they were basically symptom-free,” Cardillo told Eyewitness News, adding “So clinically I am seeing a resolution.”
Cardillo, CEO of Mend Urgent Care, says that the drug must be used in conjunction with Zinc, as the hdroxycholoroquine opens a ‘channel’ for the mineral to enter cells and prevent the virus from replicating.
Commonly used for lupus and arthritis, hydroxychloroquine has been approved by the FDA for limited emergency authorization to treat COVID-19 patients.
That said, Cardillo warns that the treatment should only be reserved for those with moderate to severe symptoms due to concerns over shortages.
“We have to be cautious and mindful that we don’t prescribe it for patients who have COVID who are well,” he said, adding “It should be reserved for people who are really sick, in the hospital or at home very sick, who need that medication. Otherwise we’re going to blow through our supply for patients that take it regularly for other disease processes.”
This coronavirus fraud is being labeled a war by the ruling powers, but this is no war on any virus, it is war against humanity. How many obvious signs are necessary before the frightened American sheep will pull their heads out of the sand? Because the general population hides from the truth in order to avoid reality, a governing takeover of epoch proportions is being implemented at a lightening pace. Every single day brings forth more tyrannical measures, and these measures are meant to be permanent. Are Americans really as ignorant as this government thinks they are?
Please look around at what is happening. Consider that this is no virus, but a false flag event long planned in order to facilitate an economic collapse that was already imminent due to corrupt banking and government policies. This might be the reason the reaction by so many countries is in concert with one another, as all major countries have destroyed their economies by monetary expansion, debt creation, and redistribution of wealth, which placed the bulk of assets in the hands of a concentrated few. In this country, there has also been perpetual indoctrination and aggressive war, and these factors combined have led to class separation, division, and enhanced dependence on government. Because of this, control over society is becoming a reality, and this control is necessary in order for those now so powerful to retain that power and more importantly, to expand and retain control of an obedient proletariat.
What has happened in just a few weeks is staggering to say the least, but this top-down takeover is just beginning. This tyranny was allowed to escalate due to fear of a so-called flu strain in China that allegedly killed 3,322 out of 1.45 billion people. That is a mortality factor of .00000229, or to put that in perspective, 1 death out of every 436,000 Chinese people. From Global Times:
“An analysis led by Chinese scientists published in the Lancet Public Health in September 2019 found that there were 84,200 to 92,000 flu-related deaths in China each year, accounting for 8.2 percent of all deaths from respiratory diseases.”
So the average number of common flu deaths in China is 26 times the number of deaths due to this so-called coronavirus, or Covid-19, but pneumonia deaths alone as of 2010 in China were an additional 125,000. Why is there panic and why is there chaos? The answer to this question is obvious if any logic is considered. This panic was not due to any virus strain, but to the purposeful political and media hype of a planned event meant to frighten the general population into believing that some fake pandemic was a threat to all life on earth. Approximately 3 million people die every year in the U.S., or 8,000 every day, with alleged total deaths due to coronavirus being 6,000 for the entire season. This is even with what are certainly vastly overstated numbers of deaths due to this “virus.” That is less than the number of deaths in one day in this country.
So what is really going on here? This is a planned takeover of people, and the fake virus scare is the excuse being used to advance a new totalitarian state that can monitor every aspect of our lives, monitor movement, surveil everything, control all monetary processes, behavior, travel, communication, and social contact. This dystopia is already here, but can get much worse if not stopped.
Travel and movement is becoming less possible every day. Most of this country has voluntarily locked themselves up in home prisons. Fear is rampant, and neighbors have become the eyes of the very police and security forces bent on controlling them. There is talk and plans to digitize all money, which in and of itself would destroy freedom. Distancing mandates have been implemented, but are also being promoted for the future. The entire economy is virtually shut down with no end in sight, food shortages are evident, and psychological and health problems are increasing at an alarming rate. Necessary surgeries are being cancelled even though many hospitals are empty. Mortgages are defaulting, and millions will lose their homes, this while unemployment will most likely affect a third or more of the people in this country.
In addition to all this, GPS tracking devices are being ordered in some areas for any who have tested positive for coronavirus, and Google is releasing location data to “authorities” so they can check and monitor all those in state mandated lock downs. Calls for forced vaccination abound, with all the social scoring and embedded devices to prove vaccination history not only being discussed, but also planned for the near future. Those like the evil eugenicist and population control advocate Bill Gates that have the ear of powerful politicians, are promoting full shutdowns, forced vaccination, tracking of all, and at the same time Gates is funding seven new vaccine factories, and tattoo ID tracking at MIT, and those conflicts are obvious and criminal.
The bottom line is that a massive plan to build a new monetary, economic, and social structure worldwide is being advanced. A new global order is being constructed that will replace our current system with a technocratic rule that will be all encompassing at every level of life. The financial systems due to fraud and corruption will fail and that failure will be blamed on this fake pandemic. This economic collapse will break the back of this country, and then the promise of universal income, universal healthcare, increased automated production, and smart living will be pursued, along with totalitarian rule.
None of this is accidental, and none of this is due to this virus. This coup has been planned for a long time, and those plans were exposed on many occasions in the past. Most thought that the ideas of prescient thinkers were far-fetched and that the loss of all freedom was not possible. Therefore, those that recognized the scope of this plot long ago were ignored and cast aside as conspiracy theorists, when in fact they were right all along. One look around today will bring to light that truth.
The threat of absolute rule is upon us, and little time is left to stop the onslaught of this dictatorial regulation of society by government and its masters. The decimation of freedom is at hand, so dissent by every able-bodied man is necessary to halt this terror. Political remedies are no longer possible in my opinion, so a real revolution is now necessary. An apocalypse is coming, and hell is coming with it.
“Disobedience is the true foundation of liberty. The obedient must be slaves.”
~ Henry David Thoreau, Thoreau and the Art of Life: Precepts and Principles
Source: Is the coronavirus a false flag? Undoubtedly. From Gary D. Barnett at lewrockwell.com
The biggest U.S. mall owner, Simon Property Group, has furloughed about 30% of its workforce, CNBC has learned, as the company copes with all of its properties being temporarily shut because of the coronavirus pandemic.
The furloughs impact full- and part-time workers, at its Indianapolis headquarters and at its malls and outlet centers across the U.S., a person familiar with the situation told CNBC. The person asked to remain anonymous because the information has not been disclosed publicly.
Simon permanently laid off some employees also, but the exact number could not be immediately determined.
CEO David Simon will not receive a salary during the pandemic, the person said. Salaries of upper-level managers at the real estate company will be cut by up to 30%.
As of Dec. 31, Simon had roughly 4,500 employees, of which 1,500 were part time, according to its latest annual filing. About 1,000 of those people worked from Simon’s Indianapolis headquarters, it said.
A representative from Simon did not immediately respond to CNBC’s request for comment.
To date, hundreds of thousands of workers in the retail industry have been furloughed because of COVID-19, between recent announcements from J.C. Penney, Macy’s, Kohl’s, Gap, Loft-owner Ascena and others.
Luxury retailer Neiman Marcus is furloughing most of its about 14,000 workers.
With a $4.3 billion debt load, Neiman Marcus has been on many analysts’ so-called bankruptcy watch lists, as it is in more financial distress than some of its peers. The coronavirus will prove to be a bigger burden for these companies already fighting to stay in business.
“Unlike past recessions, this does not seem like companies are trying to figure out how to run their businesses on lighter operations … or adjust their expense structure to their revenue base,” BMO Capital Markets analyst Simeon Siegel told CNBC. “This seems like companies are trying to press pause on the world.”
Department store chain Macy’s said Monday it is moving to the “absolute minimum workforce needed to maintain basic operations.” It has furloughed the majority of its workforce, which is roughly 130,000 people.
“While the digital business remains open, we have lost the majority of our sales due to the store closures,” a Macy’s spokeswoman told CNBC in an emailed statement.
Kohl’s, meantime, said Monday it will be furloughing about 85,000 of its approximately 122,000 employees.
Penney announced Tuesday it is furloughing the majority of its hourly store workers, effective Friday. Starting Sunday, the company said a “significant portion” of workers at its headquarters in Texas will be furloughed. It had previously started furloughing workers for its supply chain division and at its logistics centers. And Penney said Tuesday that these furloughs will continue.
Apparel maker Gap is furloughing the majority of its store teams in the U.S. and Canada, or roughly 80,000 people, pausing pay but continuing to offer “applicable benefits” until stores reopen, it said.
Ascena Retail Group, which owns Ann Taylor and Loft, said it is furloughing all of its store workers and half of its corporate staff. As of Aug. 3, Ascena employed 53,000 people.
Tailored Brands, which owns Men’s Warehouse and Jos. A. Bank, has furloughed all of its store workers in the U.S., in addition to a “significant portion” of workers in its distribution centers and related offices.
Urban Outfitters said Tuesday it is furloughing a “substantial” number of store, wholesale and home office employees for 60 days, effective this Wednesday.
Nordstrom, Victoria’s Secret parent L Brands, David’s Bridal, Steve Madde and Designer Brands are among the other retailers that have announced their plans to furlough workers, amidst the coronavirus pandemic, where already so far at least 164,610 cases have been reported in the U.S., according to the latest data from Johns Hopkins University.
As retailers are working to slash costs, the furloughs are more akin to “Band-Aids” than a “structural shift” in these retailers’ business models, Siegel said. “Ultimately Band-Aids don’t heal.”
The layoffs and furloughs at Simon show the commercial real estate industry is not immune to this, either.
Similar cuts are expected to happen at other U.S. mall owners in the coming weeks, or days. Simon on March 18 announced it would be closing all of its properties temporarily, to try to help halt the spread of COVID-19. Others, such as Taubman Centers, Washington Prime Group and Unibail-Rodamco-Westfield, have followed suit.
These landlords are grappling with the fact that countless retailers and restaurants, with their stores temporarily shut, will not be able to pay April rent. High-end mall owner Taubman, however, has sent a letter to its tenants saying they must still meet their lease obligations.
Talks between many tenants and their landlords remain ongoing, as some are trying to work out abatements or deferrals. Mall owners still have their own obligations, such as utility bills and mortgage payments, that must be met.
The Cheesecake Factory, which has 294 locations in North America, has already said publicly that it will not be paying rent in April. Simon has 29 Cheesecake Factory locations, more than any of its peers, according to an analysis by RBC Capital Markets and CoStar Realty.
Simon on March 16 announced it had amended and extended its $6 billion revolving credit facility and term loan, giving it additional liquidity.
Simon shares have fallen more than 60% this year. It has a market value of about $17.3 billion.
The gold / silver ratio. It’s simple: Take the price of an ounce of gold and divide it by the price of an ounce of silver. Presto; the resulting number is the gold / silver ratio.
The ratio is most useful at its extremes. When the ratio has topped 80, it has signaled a time when silver was relatively inexpensive relative to gold. Silver went on to rally 40%, 300%, and 400% the last three times this happened.
Likewise, the three times the gold / silver ratio has fallen below 20 in the past, it has marked a period when gold was relatively inexpensive compared to silver.
This is the best of savvy investment strategy; take a simple mathematical equation and track historical price behavior. When relative valuations hit extremes and then revert to historical means time and time again, we seek to buy these temporary under valuations and wait for their inevitable pendulum swing in the opposite direction.
(BullionStar.com) In the last month, from 14 February 2020 to 14 March 2020, we have seen a record number of orders, record order revenue and a record number of visits to our newly renovated and extended bullion centre at 45 New Bridge Road in Singapore.
For the above-mentioned period, we have served 2,626 customers with a sales revenue of more than SGD 50 M, which is 477% higher compared to the same period last year.
The last few days have been our busiest days of all time. Our staff members have been doing a fantastic job in going out of their way to serve as many customers as possible.
Gold & Silver Shortages – Supply Squeeze
The enormous increase in demand is straining our supply chains. BullionStar has supplier relations with most of the major refineries, mints and wholesalers around the world. Most of our suppliers don’t have any stock of precious metals and are not taking orders currently. The U.S. Mint for example announced just this Thursday that American Silver Eagle coins are sold out. The large wholesalers in the U.S. are completely sold out of ALL gold and ALL silver and are not able to replenish.
We are already sold out of several products and will sell out of additional products shortly if this supply squeeze continues. All products listed as “In Stock” on our website are available for immediate delivery. For items listed as “Pre-Sale”, the items have been ordered and paid by us with incoming shipments on the way to us.
Paper Gold vs. Physical Gold
As we have repeated frequently over the years, only physical gold is a safe haven.
It’s noteworthy that the paper price of gold, although up 5.7% Year-to-Date denominated in SGD, has been trading downward in the last few days.
Paper gold is traded on the unallocated OTC gold spot market in London and on the COMEX futures market in New York. Both of these markets are derivative markets and neither is connected to the physical gold market.
This means that the physical gold market is a price taker, inheriting the price from the paper market, and that the derivative markets are the exclusive and dominant price makers. The entire market structure of this financialized gold trading is flawed. So while there is unprecedented demand for physical gold, this is not reflected in the gold price as derived by COMEX and the London unallocated spot market.
By now it is abundantly clear that the physical gold market and paper gold market will disconnect.
If the paper market does not correct this imbalance, widespread physical shortages of precious metals will be prolonged and may lead to the entire monetary system imploding.
And with progressive central banks in Eastern Europe and Asia having stocked up on gold in the last three years, gold will likely be the anchor of the new monetary system arising out of the ashes.
Mainstream media assertions that “Gold has been stripped of its Safe Haven Status” are utterly ridiculous and distorted beyond belief, when in fact the complete opposite is true. Unbacked paper gold and silver may be stripped of safe haven status, but certainly not real physical gold bullion.
Physical Premiums & Spreads
The current supply squeeze and physical bullion shortage has caused and is causing an increase in price premiums. It’s currently difficult and expensive for us to acquire any inventory. We have therefore had to increase premiums on products to compensate for the constraints. We have endeavored to also raise our prices offered to customers selling to us, but with the extreme volatility and wild price fluctuations, the spread between the buy and sell price may temporarily be larger than normal. It is regrettable that premiums and spreads are larger than normal but it is outside our control that the paper market is not reflecting the demand and supply of the physical market. As many of you know, we are one of the largest critical voices of the LBMA run paper market and its bullion bank members in London.
Please note that premiums are likely to be higher on weekends when the markets are closed compared to weekdays.
We do not take lightly the decision to alter premiums but feel that it is a better alternative than to stop accepting orders altogether during weekends. Likewise it is a better alternative than to stop accepting orders when the paper gold market is in turmoil and failing to reflect the demand and supply realities of the physical bullion market.
Currently, we are completely sold out on BullionStar Gold Bars, BullionStar Silver Bars and are running low on several other products which we are not able to replenish for now. Several stock items will therefore likely go out of stock shortly. This is despite us having been aggressively buying bullion to create a buffer reserve inventory.
One family’s crusade to break from the unbearable bondage of royalty is finally over, or in other words, Megxit is a done deal.
Prince Harry and Meghan Markle, also known as the Duke and Duchess of Sussex, will no longer use the titles His and Her Royal Highness “as they are no longer working members of the Royal Family” Buckingham Palace announced Saturday, as part of an agreement that lets them build a life away from intense media scrutiny as members of the royal family.
“Following many months of conversations and more recent discussions, I am pleased that together we have found a constructive and supportive way forward for my grandson and his family,” Queen Elizabeth II said in a statement.
“Harry, Meghan and Archie will always be much loved members of my family,” she said. ” I recognize the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life.”
As disclosed in the agreement, Harry and Meghan “understand that they are required to step back from Royal duties, including official military appointments. They will no longer receive public funds for Royal duties.”
They also shared their wish to repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage, which will remain their UK family home.
With Brexit no longer dominating the British press, the announcement that the couple wished to step back from the royal family had thrown Britain’s monarchy into turmoil and dominated the headlines. Even though Harry has only a remote prospect of becoming king – he’s sixth in line, behind his father, brother, nephews and niece – there was outrage that, with his wife, he wanted to become financially independent and “carve out” a “progressive new role.”
Still, as the following chart summarizing the net worth of UK’s royalty shows the former “Duke and Duchess” should be just fine.
According to Statista, Prince William and Prince Harry have similar incomes and net worth, and reportedly earn $6.6 million annually from the Sovereign Grant, which they split, and each have an estimated net worth that ranges around $40 million. Prince Harry’s income could fluctuate once his title is renounced. Rumors claimed Markle, who had a net worth of about $5 million before marrying Harry thanks to her acting career, was already inking up a deal with Disney to do voiceovers for future projects, though the money will reportedly go to charity.
In a separate statement, earlier this week the queen discussed the wishes of Harry and Meghan, a former actress, with her immediate family. The queen at the time described the talks as “very constructive.”
The Queen said the recent discussions led to a “supportive way forward for my grandson and his family.” She said she was “particularly proud of how Meghan has so quickly become one of the family.”
It now appears that it took Meghan even less time to leave the family.
A senior official at China’s central bank announced at the China Finance 40 Group meeting today that the country will soon roll out its central bank digital currency (CBDC.)
Mu Changchun, Deputy Chief in the Payment and Settlement Division of the People’s Bank of China (PBOC,) stated that the CBDC prototype exists and the PBOC’s Digital Money Research Group has already fully adopted the blockchain architecture for the currency. China’s CBDC will not rely entirely on a pure blockchain architecture, as this would not allow the currency to achieve the throughput required for retail usage.
According to Changchun, the currency has been in the research and development phase since 2014. At the meeting on Saturday, he said, “People’s Bank digital currency can now be said to be ready.”
The CBDC will employ a two-tier operational structure, per Changchun:
The People’s Bank of China is the upper level and the commercial banks are the second level. This dual delivery system is suitable for our national conditions. It can use existing resources to mobilize the enthusiasm of commercial banks and smoothly improve the acceptance of digital currency.
A two-tier system is preferable due to China’s complex economy, vast territory and large population. “From the perspective of improving accessibility and increasing public willingness to use, a two-tier operational framework should be adopted to deal with this difficulty,” Changchun said. He also welcomed the resources, talent and innovation capabilities of commercial businesses who will partner with the PBOC to roll out the currency. Finally, this system will help avoid concentration of risk and financial disintermediation.
At the same meeting, China UnionPay Chairman Shaofu Jun said that the goals of China’s CBDC would be difficult to achieve. While a CBDC could solve issues related to cross-border transactions, long lag times and legacy inefficiencies, the lack of clear operational processes and a detailed regulatory framework across countries will be challenging to overcome.
A lawyer, who had a wife and 12 children, needed to move because his rental agreement was terminated by the owner, who wanted to reoccupy the home.
When he said he had 12 children, no one would rent a home to him because they felt that the children would destroy the place.
So he sent his wife for a walk to the cemetery with 11 of their kids.
He took the remaining one with him to see rental homes with the real estate agent.
He loved one of the homes and the price was right. The agent asked, “How many children do you have?”
He answered, “Twelve.”
The agent asked, “Where are the others?”
The lawyer, with his best courtroom sad look, answered, “They’re in the cemetery with their mother.”
MORAL: It’s not necessary to lie; one has only to choose the right words. And don’t forget, most politicians are lawyers.
New Jersey residents are fleeing their state in droves thanks to the over taxation and immense financial burden placed on them by their socialist state government. In addition to the already sky-high federal tax that we are all forced to pay, those in New Jersey are struggling to make enough money to live after the state also steals a cut of their income.
The SALT (state and local tax) cap has hit high-tax states like New York, California, and New Jersey particularly hard because these states steal a higher portion of an individual’s income. As a result, affected residents have begun to move to other states – a trend that experts expect to accelerate, according to Fox Business.
They can’t tax us anymore, the middle class is getting wiped out,” former “Saturday Night Live” cast member and New Jersey resident Joe Piscopo told FOX Business’ Neil Cavuto on Friday, adding that wealthy individuals are leaving the state “in droves.” This is always the case, as governments all seek to find ways to steal more from the producers to fund their corruption. This problem is only going to get worse too and New Jersey Democrats are attempting to pass a state wealth tax.
Democratic Governor Phil Murphy renewed a push to implement the state tax (with a top rate of 10.75 percent) on people with incomes over $1 million. However, amid disagreements with the state legislature, which threatened to shut down the state government, Murphy said he will sign a budget over the weekend. State Democrats sent Murphy a budget proposal last week, which did not include the tax increase on people with more than $1 million. Murphy, however, has been a strong advocate for implementing the tax and it has been one of his top campaign promises.
Therefore, most residents have a difficult time believing that the issue has been completely put to rest. So instead, they’ve taken action and made the decision to leave the state entirely taking their wealth with them rather than having it stolen by tyrannical fascists.
New Jersey Rep. Josh Gottheimer was one of several lawmakers from states including New York, Illinois, and California who took to Capitol Hill on Tuesday to air out their grievances against the new SALT cap. Gottheimer called the cap a “double-taxation grenade” that was “lobbed at New Jersey and other high-tax states” by so-called “moocher states.” The average SALT deduction claimed in Bergen County, New Jersey, was more than $24,700 before the implementation of the cap. -Fox Business
Piscopo says that a handful of states in the U.S. are already socialist. And those are the states people continue to flee in droves and are facing homeless epidemics.
“I’m telling you right now, If Gov. Murphy, if Steve Sweeney does a primary, and I don’t mean inside around the rest of the country, but this is huge in Jersey because Jersey, New York, and California are now socialist states,” he told FOX Business‘ Neil Cavuto on Friday.
In “Parasites on Parade,” Larken Rose (author of “The Most Dangerous Superstition” and “The Iron Web”) uses his own direct experiences with bureaucratic and judicial stupidity, intrusion and corruption to illustrate why, everywhere and at all times, in every situation and at every level, government sucks!
This snarky, flippant look at the mentality and tactics of various state busybodies also provides an important lesson regarding the true nature of political “authority,” and the problems and abuses it naturally creates. – Parasites on Parade
Source: by Mac Salvo | ZeroHedge
(by Jeff Clark) The data is in: based on a review of reports from multiple consultancies, the silver market has officially entered a supply/demand imbalance. The structure now in place sets up a scenario where a genuine crunch could occur.
The silver price has been stuck in a trading range for five years now. But behind the scenes, an imbalance has been forming that could potentially lead to price spikes based solely on the inability of supply to meet demand.
That statement isn’t based on some far-out projection or end-of-world scenario. It comes solely from the latest supply and demand data. As you’ll see, it demonstrates just how precarious the state of the silver market is. And as a result, how easily the price could ignite.
Here’s a pictorial that summarizes the current state of supply and demand for the silver market. See what conclusion you draw…
Annual supply is in a major decline. And the downtrend is getting worse.
Check out how the amount of new metal coming to market has rolled over and continues to fall.
As the US housing market deteriorates, the shift to a buyer’s market accelerates, says Knock, a home trade-in online service. The 2Q19 National Knock Deals Report predicts that U.S. markets will have the highest percentage of homes that sell at discount versus the list price, in many years.
Knock projects that 75% of current listings will sell below their list price within the current quarter. While this is slightly lower than the 1Q19 forecast of 77%, it reflects a significant y/y increase (7% y/y) as the housing market starts to turn.
“The Q1 Forecast, which may have seemed to be a big jump over 2018, was actually much closer to the reality of home sales in Q1 2019 than home sales at the same time last year, or even at the end of 2018,” said Jamie Glenn, Co-Founder and COO at Knock. “It’s clear that we’re at an inflection point in the shift to more of a buyer’s market, and the Q2 Forecast provides insights into where and how buyers can capitalize on that.”
Six out of the ten cities on the list were located in Southern markets. Knock said the increase of Southern markets is a 40% increase over the last quarter.
Providence, RI; Cleveland, OH; New York, NY; and Chicago, IL were the other four markets that made the list.
The report noted that the four markets in Florida ( Miami, Tampa, Jacksonville, and Orlando) were hit the hardest by price reductions.
In Miami, the report says about 88% of single-family home sales in 1Q19 sold below original list prices. Average days on the market of Miami homes sold in 1Q19 were 82, which plays a significant role in discounting.
“This seems like an interesting telltale that the market is shifting in favor of buyers,” Knock Chief Executive Officer Sean Black told Bloomberg in a phone interview. “Florida is a popular secondary home destination so it tends to drop faster in a downward market because it’s losing buyers, both domestically and internationally. Everybody needs a primary home. Not everybody needs a second home.”
Back in September, we outlined that “existing home sales have peaked, reflecting declining affordability, greater price reductions, and deteriorating housing sentiment.”
Greater price reductions, more inventory, and more days on the market is a recipe for a significant downward impulse in home prices across the country.
So if you haven’t called your realtor – maybe now is the time before the market goes bust.
(Source: by Victor Whitman | Scotsman Guide) Changes are likely to come soon that will make it harder for prospective borrowers to obtain Federal Housing Administration (FHA) loans. It’s all part of an effort to dial back loosening credit standards that have seen FHA borrower debt loads and cash-out refinancing activity rise to record levels, top officials with the U.S. Department of Housing and Urban Development (HUD) told reporters on Thursday.
“We will be making some additional changes soon,” said FHA Commissioner Brian Montgomery during a morning conference call. HUD released its fiscal 2018 annual report to Congress on the health of the FHA insurance fund.
“I couldn’t give you an exact date, but again we want to find that critical balance between providing people with the opportunity for sustainable home ownership, but again we have to maintain the right balance and protect taxpayers against risk.”
Montgomery didn’t reveal any specific plans on where the tightening may occur, but indicated cash-out refinancing activity was in the cross-hairs of the agency.
In a year where refinances dropped dramatically, FHA’s cash-out counts rose 6percent, to 150,883, in fiscal 2018.
“Cash-out refinances, both as a percentage of our over all business and our refinance endorsement volume, are growing astronomically,”Montgomery said. Cash-out refinances comprised nearly 63 percent of all refinance transactions in fiscal 2018, up from nearly 39 percent last year, he said.
“The increase in cash-outs presents a potential future risk for us, but also challenges the core tenants of FHA’s taxpayer-backed mission.”
Montgomery said rising debt-to-income (DTI) ratios are another major concern.
“Almost a quarter of our forward-purchase business was comprised of mortgages in which a borrower had a DTI ratio above 50 percent,”he said. “That is the highest percentage since 2000. When you couple that with a trend of decreasing average credit scores — 670 this year versus 676last year and the lowest average since 2008 — most underwriters and housing-finance experts will say that managing this type of risk without corresponding scrutiny becomes problematic.”
Montgomery also said HUD has concerns about the jurisdictional right and the extent to which government entities, such as state housing-finance agencies, provide down payment assistance to FHA borrowers.
Montgomery also indicated that HUD will not be cutting FHA insurance rates in the near future.
“While the [insurance] fund is sound at this point in time,I think we are still far away from being in a position to consider any reduction in our mortgage-insurance premium,” he said.
HUD’s insurance fund ended the 2018 fiscal year in September in better shape than the end of fiscal 2017. The net worth of the fund increased to $34.9 billion, up $8.12 billion at the end of fiscal 2017. The fund’s capital ratio, a closely watched metric that compares the net worth of the fund to the dollar balance of all active insured loans, stood at a 2.76 percent, up from 2.18 percent at the end of fiscal 2017. This was the fourth-consecutive year that the capital ratio has been above Congress’s mandated 2 percent threshold, a level it considers sufficient to sustain losses without government intervention.
The overall fund, however, was once again dragged down by FHA’s reserve-mortgage program, known as the Home Equity Conversion Mortgage (HECM). Reverse mortgages are loans that allow seniors to tap their home equity and remain in their homes for life. They represent a small portion of all FHA-insured loans, but have had an out sized impact on the risk to the fund.
The FHA portfolio of HECM-insured mortgages was estimated to have a negative value of $16.3 billion. The reverse portfolio also had a negative capital ratio of 18.83 percent.
By contrast, FHA’s regular forward-loan portfolio — loans commonly taken out by first-time home buyers — had an estimated positive value of $46.8 billion and a healthy positive capital ratio of 3.93 percent.
Montgomery and HUD Secretary Ben Carson, who also joined the morning call with reporters, said that elderly borrowers in the reverse program are being subsidized to an unsustainable degree by the typically lower-income,often minority, first-time home buyers in the FHA’s forward-loan program.
“We are committed to maintaining a viable HECM program, so seniors can continue to age in place, but we can’t continue to see future HECM books being subsidized by our forward-mortgage programs,” Montgomery said. “It is not beneficial to anyone, including taxpayers.”
HUD has taken steps to tighten the program already,including most recently requiring a second appraisal on homes where the value could have been inflated. Montgomery said FHA is working on a plan to conduct a census of all families who live in homes with a HECM mortgage.
Mortgage Bankers Association President Robert Broeksmit said HUD’s scrutiny of FHA’s credit standards was “prudent.”
“We are glad to see that FHA is closely monitoring the increasing risk in the forward portfolio, indicated by rising debt-to-income ratios, declining credit scores, and the increasing use of down payment-assistance programs,” Broeksmit said. “While current FHA delinquencies are quite low, it is prudent to keep an eye on these trends to ensure the program does not face undue challenges if, and when, the economy and job market cool.”
Broeksmit also noted that MBA has previously drawn attention to the HECM portfolio’s drain on the fund, and supported recent tightening moves.
“Policy makers should continue considering ways to insulate the forward program from the volatility in the reverse program,” he said.
That HUD might crack down on FHA-lending standards is worrisome for non-banks, however. Non-banks are now originating the bulk of FHA loans today. Reacting to the report, non-bank trade group the Community Home Lenders Association (CHLA) said HUD should loosen restrictions on the program by eliminating an Obama-era requirement that borrowers hold FHA insurance for the life of the loan.
“CHLA also renews its call for a cut in annual premiums, a move justified by FHA’s strong financial performance,” CHLA Executive Director Scott Olson said.
Downtown Vancouver Skyline
A new “secret” police study has found that Chinese crime networks could have laundered over $1B through Vancouver homes in 2016 alone, and that a surge in the city’s home prices are simultaneously tied to a surge in opioid deaths.
The report examined over 1,200 luxury real estate purchases in British Columbia’s Lower Mainland during that year, and concluded that over 10% were tied to buyers with criminal records. Crucially 95% of those transactions could be definitively traced by police intelligence back to Chinese crime networks.
While the study only looked at property purchases in 2016, an analysis by Global News suggests the same extended crime network may have laundered about $5-billion in Vancouver-area homes since 2012. —Fentanyl: Making a Killing
Since 2016 we’ve chronicled the “dark side” behind the Vancouver real estate bubble, which it turns out has long been a bubbling melange of criminal Chinese oligarch “hot money”, desperate to get parked offshore in any piece of real estate, but mostly in British Columbia regardless of price.
A number of investigations have since uncovered extensive links – including money laundering and underground banking – between China’s criminal underworld and British Columbia drug and casino cash and VIPs, as well as their connections to China, Macau and the notorious triads. These investigations have found much of the B.C. real estate bubble can be explained as nothing more than the “layering” and “integration” aspect of a giant money laundering scheme involving billions of dollars of Chinese hot money and the criminals behind it.
On Monday the new bombshell study revealed just how extensive and growing this Chinese underworld racket remains and how it continues to impact average citizens and regular home buyers, as well as fueling the continuing opioid crisis across the US and Canada, which has claimed tens of thousands of lives across North America, including nearly 4,000 Canadians in 2017 alone. The figures are so stunning that what is “known” years after the story first came to light could merely be the tip of the iceberg.
The study published by Canada’s Global News begins by painting a disturbing scenario that suggests some of Vancouver’s priciest homes are nothing more than a new “Swiss bank account” of sorts providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow from initial criminal transactions overseen for Chinese crime syndicates — all the while fueling Metro Vancouver’s housing affordability crisis.
The ultimate end result of the sophisticated and massive money laundering scheme is that middle-class families have been priced out of the city, per the report:
The stately $17-million mansion owned by a suspected fentanyl importer is at the end of a gated driveway on one of the priciest streets in Shaughnessy, Vancouver’s most exclusive neighborhood.
A block away is a $22-million gabled manor that police have linked to a high-stakes gambler and property developer with suspected ties to the Chinese police services.
Both mansions appear on a list of more than $1-billion worth of Vancouver-area property transactions in 2016 that a confidential police intelligence study has linked to Chinese organized crime.
Nine Vancouver properties subject of a prior Globe and Mail investigation linking them to fentanyl laundering. Via The Globe and Mail
Previous investigations had quoted concerned residents describing that: “Vancouver seems to be evolving from a residential city into almost like a lockbox for money… but I have to live among the empty houses. I’m a resident, not just an investor.”
The snapshot that the new police study provides is based on analysis of a sample of about 1,200 high-end sales in 2016. Investigators cross-referenced databases of criminal records and confidential police intelligence with those high-end property records, which revealed the shocking 10% organized crime ties figure.
But the implications for prior years going all the way back to the early 2000’s and even into the 1990’s, when Canadian police believe the current kingpins of fentanyl — which is the powerful and extremely addictive narcotic added to heroin to increase its potency (said to be 100 times more potent than morphine) — began to dominate Canada’s heroin markets, are equally as startling.
For starters, the report finds, fentanyl-related money laundering which funnels illicit funds through the luxury housing market has been so pervasive that researchers “didn’t have the time or resources to study the over 20,000 transactions”. During the course of these some 20,000 transactions home prices in Vancouver have tripled since 2005.
From the new “Fentanyl: Making a Killing” extensive report
And further illustrating just how extensive the whole scheme remains, there is this bombshell section from the report:
While the study only looked at property purchases in 2016, an analysis by Global News suggests the same extended crime network may have laundered about $5-billion in Vancouver-area homes since 2012.
At the centre of the money laundering ring is a powerful China-based gang called the Big Circle Boys. Its top level “kingpins” are the international drug traffickers who are profiting most from Canada’s deadly fentanyl crisis.
The crime network, according to police intelligence sources, is a fluid coalition of hundreds of wealthy criminals in Metro Vancouver, including gangsters, industrialists, financial fugitives and corrupt officials from China.
The report is so full of specific examples of multi-tens of million dollar homes that are actually money laundering conduits for fentanyl drug kingpins that it puts President Trump’s recent accusations against China for fueling the opioid crisis into fresh perspective.
At that time Trump attempted to lay out the case that Chinese suppliers had been fueling America’s opioid crisis, saying in part “It is outrageous that Poisonous Synthetic Heroin Fentanyl comes pouring into the U.S. Postal System from China.”
However judging by breadth and depth of figures merely from one major North American city (some American cities have been named in other investigations), it appears that Trump’s words actually understated the role of China and Chinese organized crime, of which it appears Beijing authorities have long been only too happy to look the other way while it takes deep roots on the American continent.
After all we can’t imagine China’s all-pervasive advanced surveillance systems and powerful domestic intelligence apparatus could miss this: “Police say that almost every drug seizure they now make in Vancouver turns up some form of synthetic opioid produced at factories in China,” according to the report.
(Lowest Since 1995)
For many decades now, the US Mint American Silver Eagle coin has remained the #1 choice for most physical silver bullion buyers worldwide.
In terms of annual sales volumes and total US dollars sold versus other silver bullion government mint and private mint competitors, the 1 oz American Silver Eagle coin is still the most highly purchased form of silver bullion worldwide (find updated US Mint sales data here).
Not surprising, with this recent downturn in precious metal prices, available silver bullion inventories are beginning to sell out and back order.
We foresaw and wrote about this shrinking silver bullion supply situation coming a weeks ago in SD Bullion’s new research blog.
Thus today, the following communication issued by the US Mint’s Branch Chief was not surprising to us:
Date: Wed, 5 Sep 2018
Subject: 2018 American Eagle Silver Bullion Coins Temporarily Sold Out
This is to inform you that due to recent increased demand, the United States Mint has temporarily sold out of its inventories of 2018 American Eagle Silver Bullion Coins.
All orders received prior to this communication shall be honored and settled according to pre-agreed upon value date arrangements.
The United States Mint is in the process of producing additional 2018 American Eagle Silver Bullion Coins. We will make these coins available for sale shortly.
Please let me know if you have any additional questions.
Jack A. Szczerban
Branch Chief, Bullion Directorate
United States Mint
Of course this latest US Mint sell out only pertains to Silver Eagle coins.
US Mint American Gold Eagle coin supplies still stand at reasonable, albeit recently lightened levels.
For seasoned bullion buyers, this latest sell out of US Mint 1 oz American Silver Eagle Coins is not a new phenomenon.
We have seen this happen in various years past, including periods of bullion product rationing, sell outs, etc.
What is different this time around is the low Silver Eagle coin volumes being sold by the US Mint month on month, compared to somewhat recent years of 2009 through 2016.
It appears like much of our industry, perhaps the US Mint has cut down on staffing, even silver planchet inventory levels, and other resources required to meet this latest spike in silver bullion product demand.
Typical to past US Mint silver sell outs and coin rationings, product and price premiums usually also increase in order to meet the silver bullion supply demand equilibrium. Smart bullion dealers are not going to sell out of their shrinking inventories without a reasonable profit to match.
You can see various 1 oz American Silver Eagle coin premium price over spot spikes in the following chart below.
The price premiums spike coincide with the fall 2008 fiasco where virtually any and all bullion dealers ran out of bullion inventories, the early 2013 allocation rationing, and the middle 2015 sell out and order shut down.
Historically price premium spikes for American Silver Eagles tend to flow into other silver bullion product premiums. In other words, if the price premiums for Silver Eagles pops higher, you can expect various price increases and sellouts in competing silver bullion products to also ensue.
Yet even most industry onlookers and bullion buyers do not know that a small change to US law was made in 2010. It allows the Secretary of the US Treasury by fiat, and not outright public demand per say, to alone determine what quantities of American Silver Eagle coin supplies are sufficient to meet ongoing demand.
(e)Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand,
(e)Notwithstanding any other provision of law, the Secretary shall mint and issue, in qualities and quantities that the Secretary determines are sufficient to meet public demand,
We do not expect the recent sell out of Silver Eagle coins to the be the highest priority of Secretary of the Treasury at the moment.
Bullion buyers should expect further silver bullion supply constraints both currently and ahead, especially if silver spot prices dip into the $13 or $12 oz zone some respected technical analysts have been calling for weeks / months in advance.
The following US Mint Silver Eagle coin annual sales chart encompassed the entire history of the US Mint American Eagle Bullion Coin Program. As you can see, the 2008 global financial crisis took the program to another level entirely.
Even 10 years after the greatest financial crisis started, the worst since the 1929 depression, there are still both new and an already established base of silver bullion buyers who continue to aggressively buy silver bullion on spot price dips.
This recent US Mint sell out is just one example of that fact.
The following US Mint tour video was cut in 2014, but it’s still applicable to the way in which the American Silver Eagle coins are produced today. The only real difference is that the US Mint is currently selling less than ½ the volume it was then, yet still having issues meeting demand spikes in the short term.
More than likely the US Mint is currently dealing with a shortfall of silver planchets on hand.
The silver used in the program does not have to be mined in the USA as that law too was amended many years back. The US Mint does use silver coin planchet suppliers from Australia as well as domestic suppliers like the Sunshine Mint.
In terms of silver bullion on hand, don’t expect the Secretary of the US Treasury to have any available as they rely on private silver planchet suppliers and ‘just in time’ delivery for their program.
As most bullion buyers know, en masse the US government figuratively sold silver out in 1964.
The fact that the US government’s often clunky silver bullion coin program remains the largest in the world, illustrates just how tiny the silver bullion industry remains in the grand scope of global finance and economic financialization.
Sneaky law amendments aside, it does not take much silver bullion demand to break the industry’s small supply demand equilibrium.
(Forbes) Despite the volatility and brief correction earlier this year, the U.S. stock market is back to making record highs in the past couple weeks. To many observers, this market now seems downright bulletproof as it keeps going higher and higher as it has for nearly a decade in direct defiance of the naysayers’ warnings. Unfortunately, this unusual market strength is not evidence of a strong, organic economy, but of an extremely unhealthy, artificial bubble economy that will end in a crisis that will be even worse than we experienced in 2008. In this report, I will show a wide variety of charts that prove how unsustainable the current bull market is.
Since the Great Recession low in March 2009, the S&P 500 stock index has gained over 300%, taking it nearly 80% higher than its 2007 peak:
The small cap Russell 2000 index and the tech-heavy Nasdaq Composite Index are up even more than the S&P 500 since 2009 – nearly 400% and 500% respectively:
The reason for America’s stock market and economic bubbles is quite simple: ultra-cheap credit/ultra-low interest rates. As I explained in a Forbes piece last week, ultra-low interest rates help to create bubbles in the following ways:
The chart below shows how U.S. interest rates (the Fed Funds Rate, 10-Year Treasury yields, and Aaa corporate bond yields) have remained at record low levels for a record period of time since the Great Recession:
U.S. monetary policy has been incredibly loose since the Great Recession, which can be seen in the chart of real interest rates (the Fed Funds Rate minus the inflation rate). The mid-2000s housing bubble and the current “Everything Bubble” both formed during periods of negative real interest rates. (Note: “Everything Bubble” is a term that I’ve coined to describe a dangerous bubble that has been inflating in a wide variety of countries, industries, and assets – please visit my website to learn more.)
The Taylor Rule is a model created by economist John Taylor to help estimate the best level for central bank-set interest rates such as the Fed Funds Rate. If the Fed Funds Rate is much lower than the Taylor Rule model (this signifies loose monetary conditions), there is a high risk of inflation and the formation of bubbles. If the Fed Funds Rate is much higher than the Taylor Rule model, however, there is a risk that tight monetary policy will stifle the economy.
Comparing the Fed Funds Rate to the Taylor Rule model is helpful for visually gauging how loose or tight U.S. monetary conditions are:
Subtracting the Taylor Rule model from the Fed Funds Rate quantifies how loose (when the difference is negative), tight (when the difference is positive), or neutral U.S. monetary policy is:
Low interest rates/low bond yields have enabled a corporate borrowing spree in which total outstanding non-financial U.S. corporate debt surged by over $2.5 trillion, or 40% from its peak in 2008. The recent borrowing boom caused total outstanding U.S. corporate debt to rise to over 45% of GDP, which is even worse than the level reached during the past several credit cycles. (Read my recent U.S. corporate debt bubble report to learn more).
U.S. corporations have been using much of their borrowed capital to buy back their own stock, increase dividends, and fund mergers and acquisitions – activities that are known for boosting stock prices and executive bonuses. Unfortunately, U.S. corporations have been focusing on these activities that reward shareholders in the short-term, while neglecting longer-term business investments – hubristic behavior that is typical during a bubble. The chart below shows how share buybacks and dividends paid increased dramatically since 2009:
Another Federal Reserve policy (aside from the ultra-low Fed Funds Rate) has helped to inflate the U.S. stock market bubble since 2009: quantitative easing or QE. When executing QE policy, the Federal Reserve creates new money “out of thin air” (in digital form) and uses it to buy Treasury bonds or other assets, which pumps liquidity into the financial system. QE helps to push bond prices higher and bond yields/interest rates lower throughout the economy. QE has another indirect effect: it causes stock prices to surge (because low rates boost stocks), as the chart below shows:
As touched upon earlier, low interest rates encourage stock speculators to borrow money from their brokers in the form of margin loans. These speculators then ride the bull market higher while letting the leverage from the margin loans boost their returns. This strategy can be highly profitable – until the market turns and amplifies their losses, that is.
There is a general tendency for speculators to use margin most aggressively just before the market’s peak, and the current bull market/bubble appears to be no exception. During the dot-com bubble and housing bubble stock market cycles, margin debt peaked at roughly 2.75% of GDP. In the current stock market bubble, however, margin debt is nearly at 3% of GDP, which is quite concerning. The heavy use of margin at the end of a long bull market exacerbates the eventual downturn because traders are forced to sell their shares to avoid or satisfy margin calls.
In the latter days of a bull market or bubble, retail investors are typically the most aggressively positioned in stocks. Sadly, these small investors tend to be wrong at the most important market turning points. Retail investors currently have the highest allocation to stocks (blue line) and the lowest cash holdings (orange line) since the Dot-com bubble, which is a worrisome sign. These same investors were the most cautious in 2002/2003 and 2009, which was the start of two powerful bull markets.
The chart below shows the CBOE Volatility Index (VIX), which is considered to be a “fear gauge” of U.S. stock investors. The VIX stayed very low during the housing bubble era and it has been acting similarly for the past eight years as the “Everything Bubble” inflated. During both bubbles, the VIX stayed low because the Fed backstopped the financial markets and economy with its aggressive monetary policies (this is known as the “Fed Put“).
The next chart shows the St. Louis Fed Financial Stress Index, which is a barometer for the level of stress in the U.S. financial system. It goes without saying that less stress is better, but only to a point – when the index remains at extremely low levels due to the backstopping of the financial markets by the Fed, it can be indicative of the formation of a dangerous bubble. Ironically, when that bubble bursts, financial stress spikes. Periods of very low financial stress foreshadow periods of very high financial stress – the calm before the financial storm, basically. The Financial Stress Index remained at extremely low levels during the housing bubble era and is following the same pattern during the “Everything Bubble.”
High-yield (or “junk”) bond spreads are another barometer of investor fear or complacency. When high-yield bond spreads stay at very low levels in a central bank-manipulated environment like ours, it often indicates that a dangerous bubble is forming (it indicates complacency). The high-yield spread was unusually low during the dot-com bubble and housing bubble, and is following the same pattern during the current “Everything Bubble.”
In a bubble, the stock market becomes overpriced relative to its underlying fundamentals such as earnings, revenues, assets, book value, etc. The current bubble cycle is no different: the U.S. stock market is as overvalued as it was at major generational peaks. According to the cyclically-adjusted price-to-earnings ratio (a smoothed price-to-earnings ratio), the U.S. stock market is more overvalued than it was in 1929, right before the stock market crash and Great Depression:
Tobin’s Q ratio (the total U.S. stock market value divided by the total replacement cost of assets) is another broad market valuation measure that confirms that the stock market is overvalued like it was at prior generational peaks:
The fact that the S&P 500’s dividend yield is at such low levels is more evidence that the market is overvalued (high market valuations lead to low dividend yields and vice versa). Though dividend payout ratios have been declining over time in addition, that is certainly not the only reason why dividend yields are so low, contrary to popular belief. Extremely high market valuations are the other rarely discussed reason why yields are so low.
The chart below shows U.S. after tax corporate profits as a percentage of the gross national product (GNP), which is a measure of how profitable American corporations are. Thanks to ultra-cheap credit, asset bubbles, and financial engineering, U.S. corporations have been much more profitable since the early-2000s than they have been for most of the 20th century (9% vs. the 6.6% average since 1947).
Unfortunately, U.S. corporate profitability is likely to revert to the mean because unusually high corporate profit margins are typically unsustainable, as economist Milton Friedman explained. The eventual mean reversion of U.S. corporate profitability will hurt the earnings of public corporations, which is very worrisome considering how overpriced stocks are relative to earnings.
During stock market bubbles, the overall market tends to be led by a smaller group of high-performing “story stocks” that capture the investing public’s attention, make early investors rich, and light the fires of greed and envy in practically everyone else. During the late-1990s dot-com bubble, the “story stocks” were tech stocks like Amazon.com, Intel, Cisco, eBay, etc. During the housing bubble era, it was home builder stocks like Hovanian, D.R. Horton, Lennar, mortgage lenders, and alternative energy companies like First Solar, to name a few examples.
In the current stock market bubble, the market is being led by a group of stocks nicknamed FAANG, which is an acronym for Facebook, Apple, Amazon, Netflix, and Google (now known as Alphabet Inc.). The chart below compares the performance of the FAANG stocks to the S&P 500 during the bull market that began in March 2009. Though the S&P 500 has risen over 300%, the FAANGs put the broad market index to shame: Apple is up over 1,000%, Amazon has surged more than 2,000%, and Netflix has rocketed over 6,000%.
After so many years of strong and consistent performance, many investors now view the FAANGs as “can’t lose” stocks that will keep going “up, up, up!” as a function of time. Unfortunately, this is a dangerous line of thinking that has ruined countless investors in prior bubbles. Today’s FAANG phenomenon is very similar to the Nifty Fifty group of high-performing blue-chip stocks during the 1960s and early-1970s bull market. The Nifty Fifty were seen as “one decision” stocks (the only decision necessary was to buy) because investors thought they would keep rising virtually forever.
Investors tend to become most bullish and heavily invested in leading stocks such as the FAANGs or Nifty Fifty right before the market cycle turns. When the leading stocks finally fall during a bear market, they usually fall very hard, as Nifty Fifty investors experienced in the 1973-1974 bear market. The eventual unwinding of the FAANG stock boom/bubble is going to burn many investors, including institutional investors who have gorged on these stocks in recent years.
How The Stock Market Bubble Will Pop
To keep it simple, the current U.S. stock market bubble will pop due to the ending of the conditions that created it in the first place: cheap credit/loose monetary conditions. The Federal Reserve inflated the stock market bubble via its record low Fed Funds Rate and quantitative easing programs, and the central bank is now raising interest rates and reversing its QE programs by shrinking its balance sheet. What the Fed giveth, the Fed taketh away.
The Fed claims to be able to engineer a “soft landing,” but that virtually never happens in reality. It’s even less likely to happen in this current bubble cycle because of how long it has gone on and how distorted the financial markets and economy have become due to ultra-cheap credit conditions.
I’m from the same school of thought as billionaire fund manager Jeff Gundlach, who believes that the Fed will keep hiking interest rates until “something breaks.” In the last economic cycle from roughly 2002 to 2007, it was the subprime mortgage industry that broke first, and in the current cycle, I believe that corporate bonds are likely to break first, which would then spill over into the U.S. stock market (please read my corporate debt bubble report in Forbes to learn more).
The Fed Funds Rate chart below shows how the last two recessions and bubble bursts occurred after rate hike cycles; a repeat performance is likely once rates are hiked high enough. Because of the record debt burden in the U.S., interest rates do not have to rise nearly as high as in prior cycles to cause a recession or financial crisis this time around. In addition to raising interest rates, the Fed is now conducting its quantitative tightening (QT) policy that shrinks its balance sheet by $40 billion per month, which will eventually contribute to the popping of the stock market bubble.
The 10-Year/2-Year U.S. Treasury bond spread is a helpful tool for determining how close a recession likely is. This spread is an extremely accurate indicator, having warned about every U.S. recession in the past half-century, including the Great Recession. When the spread is between 0% and 1%, it is in the “recession warning zone” because it signifies that the economic cycle is maturing and that a recession is likely just a few years away. When the spread drops below 0% (this is known as an inverted yield curve), a recession is likely to occur within the next year or so.
As the chart below shows, the 10-Year/2-Year U.S. Treasury bond spread is already deep into the “Warning Zone” and heading toward the “Recession Zone” at an alarming rate – not exactly a comforting thought considering how overvalued and inflated the U.S. stock market is, not to mention how indebted the U.S. economy is.
Although I err conservative/libertarian politically, I do not believe that President Trump can prevent the ultimate popping of the U.S. stock market bubble and “Everything Bubble.” One of the reasons why is that this bubble is truly global and the U.S. President has no control over the economies of China, Australia, Canada, etc. The popping of a massive global bubble outside of the U.S. is enough to create a bear market and recession within the U.S.
Also, as the charts in this report show, our stock market bubble was inflating years before Trump became president. I believe that this bubble was slated to crash to regardless of who became president – it could have been Hillary Clinton, Bernie Sanders, or Marco Rubio. Even Donald Trump called the stock market a “big, fat, ugly bubble” right before the election. Concerningly, even though the stock market bubble is approximately 30% larger than when Trump warned about it, Trump is no longer calling it a “bubble,” and is actually praising it each time it hits another record.
Many optimists expect President Trump’s tax reform plan to result in a powerful boom that creates millions of new jobs and supercharges economic growth, which would help the stock market grow into its lofty valuations. Unfortunately, this thinking is not grounded in reality or math. As my boss Lance Roberts explained, “there will be no economic boom” (Part 1, Part 2) because our economy is too debt-laden to grow the way it did back in the 1980s during the Reagan Boom or at other times during the 20th century.
As shown in this report, the U.S. stock market is currently trading at extremely precarious levels and it won’t take much to topple the whole house of cards. Once again, the Federal Reserve, which was responsible for creating the disastrous Dot-com bubble and housing bubble, has inflated yet another extremely dangerous bubble in its attempt to force the economy to grow after the Great Recession. History has proven time and time again that market meddling by central banks leads to massive market distortions and eventual crises. As a society, we have not learned the lessons that we were supposed to learn from 1999 and 2008, therefore we are doomed to repeat them.
The purpose of this report is to warn society of the path that we are on and the risks that we are facing. I am not necessarily calling the market’s top right here and right now. I am fully aware that this stock market bubble can continue inflating to even more extreme heights before it pops. I warn about bubbles as an activist, but I approach tactical investing in a slightly different manner (because shorting or selling too early leads to under performance, etc.). As a professional investor, I believe in following the market’s trend instead of fighting it – even if I’m skeptical of the underlying forces that are driving it. Of course, when that trend fundamentally changes, that’s when I believe in shifting to an even more cautious and conservative stance for our clients and myself.
There is a simple reason why the US housing market is headed for its “broadest slowdown in years“: prices for housing are just too high, a new report suggests. Which is odd considering the conventionally accepted narrative that “rising prices are better for everybody.”
According to a new report from the National Association of Realtors, prices for starter homes are the highest they have been since 2008, just prior to the collapse of the housing market, and when Ben Bernanke infamously said that there is no housing bubble and that “we’ve never had a decline in house prices on a nationwide basis” and therefore we’ll never have one. The housing market suffered its worst crash on record shortly after.
In the second quarter, first time buyers needed 23% of their income in order to afford a typical entry-level home; this was up from 21% in the year prior, and the highest in the past decade.
This, of course, should surprise nobody as price gains in the housing market have long outpaced wages; in fact in most markets the average home price increase is double the growth in hourly earnings.
Now, with the housing market starting to show signs of cooling off, those bearing the brunt of the increases are buyers at the low-end of the market and in areas where supplies are the tightest. This has probably not been helped along by the volatile cost of commodities like lumber which have been impacted by Canadian tariffs, among others.
On top of that, rising interest rates are making mortgage prohibitively expensive for a broad section of the population.
“When prices go up at the entry level, that’s where the affordability issue is most acute,” Wells Fargo economist Charles Dougherty told Bloomberg. “People are hesitant to stretch the amount they’re willing to pay.”
The most expensive markets in the United States were San Francisco and New York City, where Bloomberg reported that the median household needed 65% of its income to buy a house in the second quarter of this year. Similar statistics followed in Los Angeles and Miami, where those numbers were 59% and 55%, respectively.
Perhaps a better way of saying this is that no mere mortal can actually afford to buy there, and the only buyers are members of the 0.01% or those who have an extremely generous mortgage lender.
None of this housing information is discussed at length by the FOMC or the government, which find no problem with a near record number of people getting priced out of the market. Nobody will be surprised when, as prices continue to rise, we are “surprised” by the next housing crisis.
This news comes just days after we reported layoffs taking place at Wells Fargo as a result of the slumping housing market and slower mortgage applications, as a result of collapsing mortgage loan demand. Last Friday, Wells Fargo announced it was cutting 638 mortgage employees as the nation’s largest home lender is hit by a crippling slowdown in the business.
“After carefully evaluating market conditions and consumer needs, we are reducing to better align with current volumes,” Wells Fargo spokesman Tom Goyda said in an emailed statement according to Bloomberg.
As we reported back in March that the “Bank Sector Is In Peril As Refi Activity Crashes Amid Rising Rates” and as interest rates have continued to rise, Wells Fargo has been contending with the end of a refinancing boom that helped push profits to a record.
Brookfield Asset Management has agreed to purchase the lease the office portion of 666 Fifth Ave. in midtown Manhattan from the Kushner family, the WSJ reported.
“Given Brookfield’s experience in successfully redeveloping and repositioning major office assets in New York and other cities around the world, we are well placed to capitalize on that opportunity,” Ric Clark, Brookfield Property Group’s chairman, said in a statement.
The infamous “devil” tower with the “666” sign on the entrance, has been under scrutiny because Jared Kushner is married to Ivanka Trump, and is a senior adviser to the president. When the Kushner Cos acquired the building in 2007 for $1.8 billion, it represented a New York commercial real estate record and was made when Kushner was taking a leadership role in the business. It remained precarious for years, and potential deals became complicated after Mr. Kushner took the senior White House job.
While terms of the deal weren’t disclosed in a statement Friday, the WSJ notes that the proceeds would give the family enough to pay off the more than $1.1 billion of debt on the building and buy out its partner, Vornado Realty Trust, for $120 million so it can transfer 666 Fifth to Brookfield unencumbered.
The sale means that the Kushner family likely won’t make any money on its investment in 666 Fifth Ave.
In recent years, the building hasn’t been generating enough money to pay its debt service. Jared Kushner had already sold his stake in 666 Fifth to a trust controlled by other family members to avoid potential conflicts. Still, the talks between Anbang and his father ignited criticism that Kushner might use his position to help his family salvage its investment.
Brookfield, which is buying the property through one of its private-equity funds, also plans to invest more than $600 million in overhauling the 39-story building, giving it a new lobby, façade and mechanical systems, according to a person familiar with the matter.
The building has seen its rental payments suffer in recent years due to a relatively high vacancy rate but is viewed in real-estate circles as having potential due to its prime location on Fifth Avenue between 52nd and 53rd Streets.
The structure of the deal is different from what Brookfield and Kushner Cos. discussed in the spring. Back then, Brookfield was considering a deal in which it would essentially acquire Vornado’s 49.5% stake in the property and become partners with the Kushner family.
One of the uncertainties about the Brookfield purchase of the 99-year lease is how much of the current debt on the building is going to be repaid. In the 2011 restructuring, the debt was carved into two pieces—a senior piece and a junior piece. The senior piece is worth $1.1 billion and the junior piece has increased since 2011 to over $300 million, because interest on it has been accruing.
Kushner executives have been arguing that only the senior debt on the building has to be repaid, partly because 666 Fifth isn’t worth the total $1.4 billion of debt on the building.
The recent history of the building is remarkable.
The property has taken numerous twists, both financial and political. Kushner Cos. sold a controlling stake in the retail space for more than $500 million a few years after it purchased the tower in 2007, using most of the proceeds to repay debt.
But that wasn’t enough to shore up the property in the post-crash years. In 2011, Kushner Cos. renegotiated what was then $1.2 billion in debt and brought in Vornado as a 49.5% partner.
In 2017, soon after Mr. Trump took office, Mr. Kushner’s father, Charles Kushner, was negotiating with Anbang Insurance Group, a Chinese insurer with connections to Beijing government. The elder Mr. Kushner’s plan at the time was to use Anbang’s capital in a $7.5 billion plan to convert 666 Fifth Ave. into a 1,400-foot-tall mixed use skyscraper with retail, hotel and condominiums.
Soon after, the Anbang talks soon collapsed. Since then, Kushner Cos. has steered clear of any deals with sovereign funds, a decision which has made the firm rein in its ambitious plans for the site. The family also faced a deadline: the debt on the building needs to be repaid next year.
And thanks to Brookfield, that will no longer be Jared’s problem any more.
Some 84 percent of Americans claim that a higher education is a very or extremely important factor for getting ahead in life, according to the National Center for public policy and Higher Education.
So, it’s worth the exorbitant cost, but not everyone can pay, and outsized costs in the U.S. are giving much of the rest of the developed world the higher education advantage.
According to the U.S. Bureau of Labor Statistics (BLS), people with a Bachelor’s Degree earn around 64 percent more per week than those with a high school diploma, and around 40 percent more than those with an Associate’s Degree. In turn, those with an Associate’s degree earn around 17 percent more than those with a high school diploma.
The Federal Reserve Bank of New York says that college graduates overall earn 80 percent more than those without a degree.
There’s also job security to consider.
Individuals with college degrees have a lower average unemployment rates than those with only high school educations. Among people aged 25 and over, the lowest unemployment rates occur in those with the highest degrees.
From this perspective, it’s no surprise that students are willing to bite the bullet and take on a ton of debt to finance education.
About three-fourths of students who attend four-year colleges graduate with loan debt. And this number is up from about half of students three decades ago.
The average student loan debt for Class of 2017 graduates was $39,400, up 6 percent from the previous year. Over 44 million Americans now hold over $1.5 trillion in student loan debt, according to Student Loan Hero.
According to College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities.
The U.S. is one of the most expensive places to go obtain a higher education, but there are pricier venues, too.
If you want a free higher education, try Europe—specifically Germany and Sweden. Denmark, too, doles out an allowance of about $900 a month to students to cover their living expenses. But don’t try to study in the UK on the cheap. The UK is the most expensive country in Europe, with college tuition coming in at an average of $12,414.
In Australia, graduates don’t pay anything on their loans until they earn about $40,000 a year, and then they only pay between 4 percent and 8 percent of their income, which is automatically deducted from their bank accounts, reducing the chances of default.
For Japan—a country that sees more than half of its population go to college—the highly respected University of Tokyo only costs about $4,700 a year for undergraduates, thanks to government subsidies. The Japanese government spends almost $8,750 a year per student because it sees the massive value in having a highly educated citizenry.
For Americans, while student loans may still be a good investment overall, the idea of taking a lifetime to pay off the debt may become increasingly unattractive. And it’s only going to get worse, according to JPMorgan, which predicts that by 2035 the cost of attending a four-year private college will top $487,000.
Plaintiffs charged that BofA lent the scheme an air of legitimacy and provided critical support
Bank of America Corp. was accused in a lawsuit of providing more than 100 accounts used to perpetrate what the U.S. regulators called a $102 million Ponzi scheme.
The class-action suit filed on behalf of people who lost money follows a complaint last week by the Securities and Exchange Commission alleging that five men and three companies defrauded more than 600 investors.
One of the alleged ringleaders once commissioned a song about himself for a party in Las Vegas with lyrics celebrating his $10,000 suits and his partner’s affinity for champagne, according to Monday’s complaint in federal court in Ocala, Florida.
The brother and sister who sued to recover losses from their late father’s investment claim the fraudsters “could not have perpetuated their scheme without the knowing assistance of their primary banking institution, Bank of America, which lent the scheme an air of legitimacy and provided critical support, including at times when the scheme would have otherwise collapsed,” according to the complaint.
Bank of America spokesman Bill Halldin had no immediate comment on the suit.
The lender is accused of failing to spot suspicious activity, including deposits of hundreds of thousands of dollars into accounts with relatively small, negative or nonexistent balances, followed by transfers within the same week to other accounts or investors seeking to cash out.
The architects of the scheme promised they would put investor funds into profitable and perhaps dividend-paying companies, according to the SEC. But they spent $20 million from the investment pool to enrich themselves, made $38.5 million in “Ponzi-like payments” and transferred much of the rest away from the companies that were supposed to receive the money, the regulator said.
(Bloomberg) — The billionaire George Soros has found a new way to make money from personal-injury lawsuits.
Soros Fund Management is pushing into a branch of litigation finance that few hedge funds have entered. His family office is bankrolling a company that’s creating investment portfolios out of lawsuits, according to a May regulatory filing.
The development is the latest twist on the litigation funding market, which has drawn criticism for monetizing and encouraging the lawsuit culture in the U.S. The firm Soros is backing, Mighty Group, bundles cash advances that small shops extend to plaintiffs in personal injury suits in return for a cut of future settlements. Mighty Group’s approach opens the door to another potential development: securitizing individual lawsuit bets for sale to other investors.
“There are all the ingredients there to securitize these things,” said Adrian Chopin, a managing director at legal finance firm Bench Walk Advisors. “A diversified, granular pool with predictable outcomes. The problem is, you can’t yet get these things rated” by credit agencies.
Wall Street has been betting for a while on commercial litigation, which provides financing of big corporate suits with millions or even billions of dollars at stake. Soros is focused on the consumer side, where plaintiffs receive advances of $2,000 on average for legal claims typically tied to auto and construction accidents. The advances are used to cover personal expenses, such as medical bills and rent.
Soros along with Apollo Capital Management are among the first money managers to jump into this niche of the lawsuit-funding market. It offers steady and predictable returns, which historically have averaged about 20 percent a year at relatively low risk, said Chopin of Bench Walk.
“Everybody is looking for yield, and people are also looking for assets that are not correlated with the major equity and debt markets,” said Christopher Gillock, a managing director at Colonnade Advisors, an investment bank that specializes in financial services. “Litigation funding falls into that category.”
Joshua Schwadron, a co-founder of Mighty, declined to comment on the firm’s investors. Michael Vachon, a spokesman for Soros Fund Management, the billionaire’s New York-based family office, declined to comment.
The investments come with risk from both sides of the political spectrum. The U.S. Chamber of Commerce and the insurance industry criticize litigation financing for clogging the courts with frivolous lawsuits and driving up the costs of settlements. Regulators, on the other hand, have taken the side of consumers, moving to rein in the advances, casting them as loans subject to usury laws.
Industry proponents say the funding helps people win appropriate payouts instead of settling for pennies on the dollar under the pressure of medical bills or missed income from work. In addition, plaintiffs don’t have to pay back the advances if they lose their cases.
“These funding companies are allowing the folks who are injured through some accident to be able to stick around long enough to get paid,” said Joel Magerman, chief executive officer of Bryant Park Capital, an investment bank.
The funding companies don’t always get fully paid since other claims on settlements, such as attorney fees, have priority. This risk of underpayment makes advances difficult to bundle into securities, said Eric Schuller, president of the Alliance for Responsible Consumer Legal Funding, an industry trade group. In contrast to advances, most securitizations are backed by tangible items like a home or car.
“If the case goes south, there is nothing there to go after,” Schuller said. “It’s just a piece of paper.”
Mighty, originally a software provider, announced in March it had raised more than $100 million from major institutional investors to help litigation finance firms access capital. The May filing shows that a Soros affiliate agreed to provide Mighty with financing, which can also be used to back lawyers’ contingency fees and medical bills slated to be paid when cases settle.
Soros’s move into consumer legal funding is somewhat akin to another investment his family office made last year. It participated in a joint deal to buy as much as $5 billion of loans from Prosper Marketplace, a pioneer in peer-to-peer lending.
Although this form of litigation financing dates back to the mid-1990s, hedge funds had mostly steered clear because the advances and firms that issued them are so small. Only the largest players have been able to obtain financing from big investment firms. For example Leon Black’s Apollo Capital, through its MidCap Financial affiliate, backs Golden Pear Funding of New York, one of the biggest providers of advances.
Magerman anticipates that more investors will jump in the market. “It’s a small niche asset class,” he said. “There is a lot of additional money that can come in.”
Here’s your need to know about George Soros…
You’re a Hungarian Jew who escaped the holocaust by posing as a Christian.
And you watched lots of people get shipped off to the death camps?
Right, I was 14 years old and I would say that’s when my character was made.
In what way?
That one should understand and anticipate events… It was a tremendous threat of evil. It was a very personal experience of evil.
My understanding is that you went out with this “protector” of yours who swore that you were his adopted godson.
… went out, in fact, and helped in the confiscation of property of the Jews.
That’s right. Yes.
That sounds like an experience that would send lots of people to the psychiatric couch for many, many years. Was it difficult??
Uh. Not at all, not at all. Maybe as a child you don’t see the connection but it created no problem at all.
No feeling of guilt?
For example, “I’m Jewish and here I am watching these people go. I could just as easily be there. I should be there.” None of that?
Well. Of course I could be on the other side. I could be the one from whom the thing is being taken away, uh, but there was no sense I shouldn’t be there because there was – Well, actually, (in a) funny way it’s just like in markets that if I weren’t there (of course I wasn’t doing it) somebody else would be taking it away anyhow. Whether I was there or not (I was only a spectator) the property was being taken away. So – I had no role in taking away that property so I had no sense of guilt.
Are you religious?
Do you believe in God?
President Trump doubled-down on his plan for “immediate” deportation of illegal immigrants this morning, explaining in a tweet that “hiring many thousands of judges, and going through a long and complicated legal process, is not the way to go,” adding that this deterrence approach “is the way to go to stop illegal immigration in its tracks.”
But, as NBC News reports, that hasn’t stopped civil rights attorneys from flocking to the Texas border to ‘protect’ the rights of illegal immigrant parents not to be separated from their children – the exact same policy that is utilized on American parents when they commit a crime with children in tow.
Attorneys have become a lifeline for migrants in detention, responding as would clergy to a disaster or tragedy, as the legal labyrinth of immigration has become more complicated.
Although many are accustomed to the immigration system’s complexities, attorneys are finding the situation created by the Trump “zero-tolerance” prosecutions full of never-before-seen hurdles and restrictions that hamper their access to children and parents and are making their work to ensure those with valid asylum and other claims get to stay more difficult.
Ali Rahnama, an immigration attorney from Washington, D.C. who works on public policy and high impact litigation, said he woke up last Monday and felt he needed to be on the border. He found a private donor to pay for him and a few colleagues to fly to the border.
Another attorney, Sirine Sheboya, is choking back emotion over the lengths mothers and fathers are going to be reunited with their children.
“We have people in there who are considering not continuing on with really strong asylum claims,” she said stopping to catch her breath as the emotion breaks through, “because they think that maybe they will get reunified with their kids faster if they give up their claim. That’s just wrong.“
“We have men and women saying, ‘My 5- and 6-year-old was holding my leg and was taken away,'” said Rahnama, who visited parents and guardians being held in the Port Isabel Detention Center. “They go to court and are told their child will be there when they come back and they come back and there is no child,” he said.
Of course, it’s not just attorneys, Democratic politicians are descending for their moment of social justice and never-Trump warrior glory.
Sen. Elizabeth Warren, D-Mass., spent 2½ hours in the Port Isabel Detention Center on Sunday night. After the visit, she told reporters stationed outside the center that officials of Immigration and Customs Enforcement told her that the center isn’t where parents and children will come together as federal officials have said.
“The [immigration] officials made clear this is not a reunification center. There will be no children brought here. There will be no families brought together in this place,” Warren said. “All that’s happening here is the detention of mothers and fathers who lost their children.”
Warren said she spoke to nine mothers and none the whereabouts of their children or had spoken to them.
“They are crying they are weeping,” she said. “They have said they will do anything … just, please, let them have their babies back.”
One quick question to Ms.Warren – what would you do with the children of an American parent, who took his children along with him as he committed a crime? Do they deserve better or worse treatment under the law than an illegal immigrant – who crosses the border not at a port of entry and then proclaims they are seeking asylum?
NBC News reports that DHS said late Saturday that some of the more than 2,000 children – about 522 – have been reunited with parents. Officials said Port Isabel would be its reunification center.
Sometimes it’s not just children who attorneys have to locate, but some of the parents as well. Efrén Olivares of the Texas Civil Rights Project can no longer find three clients who were part of a group of five parents who complained in a petition filed with the Inter-American Human Rights Commission, part of the Organization of American States, about the child separations.
“They were either released to the U.S. with notice to appear (at a court at a later date) or were deported. We are looking diligently to contact them. We gave them a number and asked them to contact us if they were released,” Olivares said.
“We have not heard from them.”
Here is immigration expert Steve Cortes corrected host Fredricka Whitfield on the reality of family separation at the U.S. southern border during CNN’s Newsroom Sunday (via The Daily Caller)…
The U.S. Border Patrol does not separate immigrant families who claim asylum if they appear at a legal point of entry to the U.S., Cortes, the former head of President Donald Trump’s Hispanic Advisory Council, said.
Until recently, only the families that tried to come into the country outside a point of entry – making them illegal immigrants – were separated.
Trump issued an executive order Wednesday that directed the Border Patrol to detain illegal immigrant families together and to begin reuniting children with their detained parents.
Whitfield asked Cortes how he thought Trump’s plan to reunite “immigrant families” would work out.
“Look, it will be a difficult process, but here’s the thing. The best way for — when you say immigrant families, by the way, it’s important to say illegal immigrant families,” Cortes responded, pointing out the omission. “That’s a very, very important adjective to add in there. Immigrant families have never been separated.”
“Illegal immigrant families have been separated, and I would say separated for a very good reason,” Cotez continued. “Why? Because their parents, unfortunately, or guardians … decided to commit a crime with children in tow. Much like an American committing a crime with children in tow, you get separated from you children. And that’s a terrible consequence for the kids.”
Whitfield defended her characterization of immigrants crossing the border illegally, pointing out that many were crossing the border seeking asylum.
“If you show up to a port of entry in the United States with your children and request asylum lawfully, you are not separated from your family,” Cortes shot back, referring to the difference between applying for affirmative and defensive asylum.
Affirmative asylum applies to immigrants entering the U.S. at a port of entry, or immigrants who apply within a year of entering the U.S., whether or not their entry was legal. Immigrants entering the country illegally can apply for defensive asylum while they are being processed for deportation.
“It’s not [legal]. You have to come to a check point, raise your hand and say, ‘I’m here for asylum,’” Cortes said.
“You can’t sneak across the border and then say, once you’re caught, ‘Oh, I meant to apply for asylum. That’s just not correct.”
Finally, we note another of President Trump’s tweets this morning that sums the state of America and its media up very well…
And while we are well aware that comprehending the facts behind this sudden maelstrom of migrant misery headlines, here is the reality of how this all started courtesy of ‘The Last Refuge’ excellent twitter thread…
1. Once you see the strings on the marionettes you can never watch the pantomime the same way you did before you noticed them.
2. DATELINE – May 2011 – President Obama travels to the Rio Grande sector of the border to push for his immigration platform (ie. Amnesty). He proclaims the border is safe and secure and famously attacks his opposition for wanting an “alligator moat”.
3. November 2012 – Election year campaign(s). Using wedge issues like “War on Women”, and “Immigration / Amnesty”, candidate Obama promises to push congress for “amnesty”, under the guise of “Comprehensive Immigration Reform”, if elected.
President Obama wins reelection.
4. December 2012 – Immediately following reelection President Barack Obama signs an Executive Order creating the “Deferred Action Program“, or DACA. Allowing millions of illegal aliens to avoid deportation.
5. According to White House own internal documents and research, this Deferred Action Program is what the Central American communities immediately began using as the reason for attempted immigration.
7. May 2013 – President Barack Obama visits South America. Following a speech for Mexican entrepreneurs, Obama then traveled to Costa Rica, his first visit as president.
8. cont.. In addition to meetings with Costa Rican President Laura Chincilla, President Obama attended a gathering of leaders from the Central American Integration System, (CAIS).
9. The regional network includes the leaders of Belize, El Salvador, Guatemala, Honduras, Nicaragua and Panama. President Obama meets with the leaders of the Central American Countries.
10. Summer 2013 – Numbers of Illegal Unaccompanied Minors reaching the Southern U.S. border from El Salvador, Guatemala, Honduras, Nicaragua doubles. 20,000+ reach U.S. Southern border by travelling through Mexico. Media primarily ignores. fpc.state.gov/documents/orga…
11. October 2013 – At the conclusion of the immigrant travel season. White House receives notification that tens of thousands of illegal Unaccompanied Minors should be anticipated to hit the Southern U.S. border the following Summer .
12. An estimated 850% increase in the number of Unaccompanied Alien Children (UAC’s) were reported to the White House. fpc.state.gov/documents/orga…
[In 2012 less than 10,000 were projected]
13. January 2014 – In response to the projections, the Department of Homeland Security (DHS) posts a jobs notification seeking bids to facilitate 65,000 Unaccompanied Alien Children. fbo.gov/index?s=opport…
14. IMPORTANT. This job posting was January 2014. The Obama administration was *planning for* 65,000 childhood arrivals. In January 2014 they were taking contractor bids for services to be used later in year. Almost no-one noticed.
15. On January 29, 2014, the federal gov. posted an ad seeking bids for a vendor contract to handle “Unaccompanied Alien Children“. Not just any contract mind you, a very specific contract – for a very specific number of unaccompanied minors: “65,000.” fbo.gov/index?s=opport…
16. [*Two Weeks Later*] February 2014 – President Obama visits Mexico for “bilateral talks”, in an unusual and unscheduled one day visit:
17. Spring 2014 – With a full year of DACA, successful transport and border crossing without deportation – DHS begins to notice a significant uptick in number of criminal elements from El Salvador, Guatemala, Honduras and Nicaragua; which have joined with UAC’s to gain entry.
18. Additionally, 2014 internal administration DHS documents reveal the “refugee” status is now being used by both criminal cartels, and potentially by Central American government(s) to send prison inmates into the U.S.
19. June 2014 – Tens-of-thousands of UAC’s from El Salvador, Guatemala, Honduras and Nicaragua hit the border and the headlines. Despite the known planning, and prior internal notifications, the White House claims it did not see this coming.
20. Internal documents including a –DHS Border Security Alert– show that in March, 2014, fully three months earlier, the White House was aware of what was coming in June.
21. June 20th 2014 – Congressional leadership and key Latino Democrats from the Democrat Hispanic Caucus meet with representatives from El Salvador, Guatemala, Honduras and Mexico. kfgo.com/news/articles/…
22. June/July 2014 – By the end of June the media have picked up the story and it’s called “A Border Crisis”. However, the White House is desperate to avoid exposure to the known criminal elements within the story.
23. July 3rd, 2014 – President Obama requests $3,700,000,000 ($3.7 billion) in supplemental budget appropriations to deal with the border crisis. Only $109 million is for actual border security or efforts to stop the outflow from El Salvador, Guatemala, Honduras, and Nicaragua.
24. Hidden inside the massive budget request is Obama seeking legal authorization to spend taxpayer funds for lawyers and legal proceedings on behalf of UAC’s and their families. Congress is being asked to approve/fund executive branch’s violation of immigration law (DACA).
25. Section 292 of Immigration and Nationality Act prohibits representation of aliens “in immigration proceedings at government expense“. President Obama was seeking authorization to use taxpayer funds to provide Illegal Aliens with government lawyers.
26. July 10th, 2014 – Facing pushback from congress as well as sticker shock at the amount he is requesting, President Obama sends his DHS team to Capitol Hill to ramp up anxiety, and threats of consequences: politico.com/story/2014/07/…
27. “We are preparing for a scenario in which the number of unaccompanied children apprehended at the border could reach up to 90,000 by the end of fiscal 2014,” Johnson’s testimony reads: politico.com/story/2014/07/…
28. Not only did the White House know what was going to happen (as far back as 2012), but White House actually constructed events to fall into a very specific pattern and intentionally did NOTHING to stop the consequences from the DACA executive order issued in December 2012.
29. This is the origin of the crisis. It all started with DACA. Having tracked this issue so closely through the years it often feels futile to discuss. It is an ongoing insufferable political game/scheme within the issue of illegal immigrants and “children”.
30. Massive illegal immigration is supported by both sides of the professional political machine. There are few issues more unifying for the K-Street purchased voices of DC politicians than keeping the borders open and the influx of illegal aliens as high as possible.
31. The U.S. Chamber of Commerce pays politicians to keep this system in place. All Democrats and most Republicans support mass immigration. Almost no DC politicians want to take action on any policy or legislation that stops the influx.
32. There are billions at stake. None of the GOP leadership want to actually stop illegal immigration; it’s a lucrative business. Almost all of the CONservative groups and politicians lie about it.
33. The religious right is also part of the problem. In the past 15 years illegal immigration and refugee settlement has been financially beneficial for them.
34. There is no greater disconnect from ordinary Americans on any singular issue than the policy positions of Democrats and Republicans in Washington DC surrounding immigration.
President Donald Trump is confronting their unified interests.
35. All political opposition to the Trump administration on this issue is structured, planned & coordinated. The issue is a valuable tool for the professional political class to sow chaos amid politicians. The resulting crisis is useful for them; therefore they fuel the crisis.
36. Washington DC and the activist media, are infested with illegal immigration supporters; the issue is at the heart of the UniParty. Follow the money. It’s the Acorn business model:
37. Southwest Key has been given $310,000,000, in taxpayer funds so far in 2018. And that’s just one company, in one part of a year. Prior CTH research showed this specific “Private Company” nets 98.76% of earnings from government grants. taggs.hhs.gov/Detail/RecipDe…
38. Lutheran Immigration and Refugee Service, which provides foster care and other child welfare services to migrant children. “Faith Based Immigration Services” is a code-speak for legalized human smuggling. taggs.hhs.gov/Detail/RecipDe…
39. The “faith-based” crew don’t want it to stop, because facilitating illegal alien import is now the financial bread and butter amid groups in their base of support. taggs.hhs.gov/Detail/RecipDe…
40. The man/woman in the pew might not know; but the corporation minister, preacher or priest (inside the process) surely does. BIG BUSINESS !! taggs.hhs.gov/Detail/RecipDe…
41. These immigration groups, get *MASSIVE* HHS grants and then pay-off the DC politicians and human smugglers. Billions of dollars are spent, and the business end of immigration has exploded in the past six years.
42. It’s a vicious cycle. Trafficked children are more valuable than adults because the organizations involved get more funding for a child than an adult. Each illegal alien child is worth about $56,000 in grant money. The system is full of fraud.
43. Approximately 65% of the money HHS provides is spent on executive pay and benefits, opaque administrative payrolls, bribes, kick-backs to DC politicians and payoffs to the South American smugglers who bring them more immigrants.
44. As best it can be determined, approximately 35% ($19,000) of HHS funds are spent on the alien/immigrant child; maybe. It gets really sketchy deep in the accounting.
45. All of those advocates gnashing their teeth and crying on television have no idea just who is controlling this process; and immigration idiots like Ted Cruz are only adding more fuel, more money, to the bottom line:
46. By threatening to secure the border, President Trump is threatening a Washington DC-based business model that makes money for a lot of connected interests.
47. Beyond enrichment schemes, the entire process of immigration, and Washington-DC legalized human smuggling, has side benefits for all the participants; child sexploitation, child labor, and yes, much worse (you can imagine).
48. So the next time you see this type of terribly misplaced “crying girl” corporate propaganda:
49. Maybe, just maybe, we can remember the *real* consequences of actual legalized human smuggling that has been created -within the business- by U.S. political policy. This “crying girl”:
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.
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.
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
May 2018 Key Findings — Brooklyn
May 2018 Key Findings — Queens
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.
White 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.
Gold Surges To Record In Turkey and Other Emerging Markets as Currencies Collapse
With just a month until elections, shopkeepers at Turkey’s biggest bazaar say they’re seeing a jump in demand for gold coins.
“Turkish people have an interesting behavior — they buy gold when the prices are rising, they think it’s gonna rise more,” said Gokhan Karakan, 32, who runs a gold exchange office in the heart of Istanbul’s Grand Bazaar. “People think there is a trend here and choose to buy gold until uncertainty is out of the way.”
On Friday afternoon, at the Grand Bazaar — one of the world’s oldest covered markets — shopkeepers said more customers were buying gold, instead of selling it, in hopes that the metal will keep its worth as the value of the lira plunges.
Gold priced in lira is more “expensive” than ever, but that’s not deterring buyers, who are looking for a safe haven.
“Turkish people love gold,” said Tekin Firat, 30, who owns and runs a gold store the bazaar. “People think that it will never lose in the long run.”
Citizens are buying up gold as the lira plunges in latest currency crisis. Recep Tayyip Erdogan, who’s about to launch a re-election campaign that may provide the toughest electoral test of his 15 years in power, is an outspoken advocate of cheap money. He’s up against investors demanding higher returns to fund an economy beset by inflation and a swollen current account deficit.
Gold has a special importance in Turkey. The country is to home the ancient kingdom of Lydia, where the earliest known gold coinage originated in the 7th century B.C.
Turkey imported 118 metric tons of bullion, worth $5 billion at today’s prices, in first four months of this year, the most over that period, according to data going back to 1995 from the Istanbul Gold Exchange. Last year, imports reached a record.
It’s not just consumers that are snapping up gold. Official reserves have also increased over the past year. The central bank doesn’t comment on its gold strategy, but previously said the changes in its holdings are part of an effort to diversify its reserves.
The reported figure may be misleadingly high because the central bank allows commercial banks to deposit gold as part of their reserves. The government last year launched a campaign to get more “under-the-pillow gold” into the formal banking system. About half of the 216 ton inflow since the start of 2017 can be attributed to this alternative source, according to Matthew Turner, a strategist at Macquarie Group Ltd. in London.
Even so, the purchases have happened a year after Erdogan urged Turks to convert their foreign currency savings into liras and gold, and tensions with the U.S. reached a new low.
“The central bank certainly has been more active in the gold market,” said Turner. “It seems the government would like a larger share of its reserves in assets that’s not related to the U.S. dollar.”
In 2017, the central bank withdrew of its 28.7 tons of gold, worth about $1.2 billion, from Federal Reserve vaults. It didn’t say where the gold went, but holdings increased at Borsa Instanbul, the Bank of England and Bank of International Settlements, according to a report released in April.
The decision for any country to withdraw gold from U.S. vaults is rare — happening only a handful of times in the past decade. Since 2011, Germany, the Netherlands, Hungary and Venezuela have repatriated their gold holdings from the U.S.
Turkey’s decision to withdraw gold may have been a reaction to U.S. court cases against Turkish banks for alleged deals struck with Iran, said Cagdas Kucukemiroglu, a Middle Eastern gold analyst at research firm Metals Focus.
“Having the gold physically at home allows countries to feel like they are in control of their reserves,” said Brian Lucey, a professor of finance at Trinity Business School in Dublin.
For gold investors, the rising market volatility is no match for the currently growing economy, with gold holdings slumping to a decade low, according to the World Gold Council (WGC).
The WGC reported that global gold demand fell to its lowest first-quarter level since 2008, falling to 973 metric tons in the first quarter of 2018, a 7% drop compared to the 1,047 metric tons in the first quarter of 2017.
More Luster in Stock Markets
U.S. retail investors are losing their appetite for physical gold as buoyant stock markets offer tempting alternatives, sending sales of newly minted coins to their lowest in a decade.
More and more coins are also being sold back onto the market, further eroding demand for newly minted products.
Gold American Eagle bullion coin sales from the U.S. Mint slumped to a third of the previous year’s level in 2017, their weakest since 2007.
They were down nearly 60 percent year on year in the first quarter. Sales so far this month, at 2,500 ounces, are less than half last April’s total, and a fraction of the 105,500 ounces sold in April 2016.
For starters. retail investors dumping gold coins is a contrary indicator. And if they are dumping gold coins to buy Bitcoin or stock that is a contrary indicator for Bitcoin and Stocks.
What About Demand?
Actually, demand for gold bottomed in December of 2015.
How do I know? By looking at the price.
As noted by the chart, demand for gold peaked in September of 2011. Demand bottomed in December of 2015.
Wait a second, you say, those are prices!
Unlike silver, which is used up industrially, nearly every ounce of gold ever mined is available for sale.
Someone has to own those ounces. The price of gold represents the demand for gold.
Gold Up 31%, Retail Selling
Gold is up 31% but retail investors are selling their coins. That’s a major contrary indicator.
Driver for Gold
The primary driver for the price of gold is faith in central banks. In 2011, there were worries the Eurozone would break up.
In 2012, ECB president Mario Draghi made a famous speech, declaring, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Curiously, he did not do a thing at the time. The speech restored faith.
Gold vs. Faith in Central Banks
Faith on the Wane
Some believe the Fed is way behind the curve. Others thinks a deflationary bust is coming and the Fed will engage in more QE.
Pick your reason, but faith in central banks is on the wane.
Given the amount of global financial leverage, I strongly suggest a deflationary bust is the most likely outcome looking ahead.
“If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years,” said Stanley Druckenmiller.
For details of Druckenmiller’s excellent speech, please see Can We Please Try Capitalism? Just Once?
How will the Fed respond to a deflationary bust?
The obvious answer is more printing and more QE. I expect a move higher in gold similar to the move from 2009-2011.
It wouldn’t be another day in April 2018 if there wasn’t yet another negative Tesla headline hitting the wire.
That’s right – Tesla has once again been sued, this time as it relates to contract workers at its Fremont factory. Tesla is party to a lawsuit that was also aimed at Balance Staffing, a company responsible for staffing workers at Tesla’s Fremont factory. These workers have alleged not only that they are due additional overtime pay, but also that the service that placed them at Tesla encouraged them to accept debit cards instead of paychecks when it came time to get paid.
The article continues, citing the temp agency’s standards for overtime pay:
Nezbeth-Altimore points to Balance Staffing’s policy to illustrate her claims over failure to pay necessary overtime wages and provide proper rest periods. California law requires employees to be paid one-and-a-half times their regular rate of pay if they work more than eight hours a day or 40 hours total in a week. After 12 hours in a day, workers are entitled to double their pay.
In its handbook, Balance Staffing only mentions overtime pay for workers who put in more than 8 hours in a work day or 40 hours in a week, the suit says. It makes no mention of working 12 hours a day, according to the suit, something known to happen at Fremont in the past. (CEO Elon Musk said this week that Tesla will be hiring several hundred workers as part of an effort to run Fremont 24/7 to build more Model 3 sedans.)
“During the relevant time period, Defendants willfully failed to pay all overtime wages owed to Plaintiffs and class members,” the suit says.
Finally, the article notes additional litigation that is outstanding dealing with Tesla’s working conditions, and the obligatory statement from the company, denying it has anything to do with this lawsuit, despite being named a defendant:
Tesla is facing several lawsuits from contract workers over alleged racial bias and abuse at Fremont. One of those cases is moving toward trial, Bloomberg reported last week, as the contract workers aren’t required to settle disputes through binding arbitration, customary for full-time Tesla workers.
In a statement, a Tesla spokesperson said the automaker “goes above and beyond the requirements of California and federal law in providing workers meal and rest breaks and appropriate overtime pay.”
“This is a dispute between a temporary worker and her employer staffing agency, which is responsible for payment of her wages,” the statement said. “There is no specific wrongdoing alleged against Tesla. Regardless, whether Tesla or a staffing agency, we expect employers to act ethically, lawfully and do what is right.”
Is it even possible that both the cash crunch – and the legal issues – at Tesla are getting worse instead of getting better? Regardless, as it relates the company’s finances, those on the short side are starting to smell blood.
Late last week we did a report on Vilas Capital Management – which has a majority of its short book dedicated to Tesla – and its recent reasoning for making its Tesla short such a large percentage of its capital:
We added meaningfully to our Tesla position in the first quarter at prices in the $340 range. We continue to believe that Tesla is extremely overvalued and that it will experience significant financial difficulties over time.
All companies in a capitalistic system need to earn profits and those profits need to be attractive relative to the amount of shareholder capital employed. Tesla has never earned an annual profit. Along with digital currencies and Unicorns, Tesla appears to be caught up in a gold-rush-fever type of emotional response, both from a “they will take over the world” and a “they will save the world” combination of hopes, instead of their owners looking at the numbers.
Tesla bulls will argue that their production will rise to 5000 Model 3’s per week soon and, therefore, the stock will trade meaningfully higher. Given that the company lost $20,000 per Model S and X sold for roughly $100,000 each last year, due to the fact that it cost more to build, sell, service, charge and maintain these cars than they collected in revenue, as it is important to include all costs when evaluating a business, we predict it will impossible for Tesla to make a profit on a $35,000 to $50,000 car.
As anyone with automotive experience knows, profit margins are far higher on bigger, more expensive cars. Therefore, the faster Tesla makes Model 3’s, the more money they will lose.
Roughly five institutions make up nearly 50% of Tesla’s freely floating shares. All it will take is for one of them to realize the likely fact that the company won’t ever earn an annual profit, has been overly optimistic, at best, or quite dishonest, at worst, with their projections of cash flow and profit and Tesla’s shares should fall precipitously. We believe that the CEO’s recent tweet that the company will be profitable and will generate positive cash flow in the second half of the year are likely attempts to artificially inflate the stock and keep creditors at bay.
Given that our calculations show that Tesla needs to raise at least $5 billion of equity, if not closer to $8 billion, to stay solvent in the next 14 months, the company needs to find at least another dozen Ron Baron sized investors.
We do not believe that this will be possible given their expected future losses, working capital and capital expenditure needs, lousy execution with the Model 3, falling demand for their somewhat stale Model S and Model X, tax rebates of $7,500 per car that will start going away shortly, impending competition from Jaguar, Mercedes, Porsche, BMW, Audi, etc., the credit rating downgrade by Moody’s to Caa+ while leaving the credit on watch for further downgrades (Caa+ is basically defined as impending default), the NTSB investigation into the accident caused by the “Full Self Driving” option that they collected $3000 for (which may create a class action lawsuit, fines and the disabling of the feature), the fact that they have had 85 letters and investigations back and forth with the SEC (a very unusual pattern), the fact that their three top finance executives (CFO, Chief Accounting Officer, and Director of Finance) have left the company over the last 18 months leaving huge amounts of awarded by unvested shares on the table, a highly suspicious pattern, and the fact that the company owes suppliers roughly $3 billion of unsecured payments, which could be “called” at any time, similar to a run on a bank.
If Tesla’s suppliers simply asked for their past invoices to be paid and to be paid in cash at the time of their next parts delivery, a likely outcome the worse Tesla’s balance sheet gets, it is clear that Tesla would need to file for protection from creditors. Further, the banks lending Tesla money cannot ignore the balance sheet. They have strict rules that regulators enforce about lending to companies with increasingly negative working capital.
The company’s story about further drawing down lines of credit to finance operating losses and capital expenditure needs may seem plausible to novice investors but, in our opinion, not to suppliers and regulated lenders. In a game of financial musical chairs, it is important to sit down quickly.
Who in their right mind would continue to finance this money losing operation? Up to this point, it has been from growth investors who have likely never owned an auto stock before. Once they figure out the industry and the truth about Tesla’s future, we doubt it will continue.
This second lawsuit and continued scrutiny comes at a time when Tesla is publicly under some of the worst pressure its been under since its founding. The media narrative on the company has certainly has certainly become slightly more skeptical and this has, in turn, triggered Elon Musk to set bigger goals and larger milestones for the future.
The tally of bad press, lawsuits and investigations of recent relating to Tesla is starting to pile up.
Despite this, we’ve been promised by Elon himself that Tesla:
Critics of the company believe that Elon Musk should be a target by the SEC if these goals – once again, easy to promise, not as easy to deliver – aren’t met. They have been the only thing that has kept Tesla’s stock price from falling well below the $300 mark over the last couple of weeks, despite all of the negative press. This new lawsuit is just another negative to add to that pile.
“The sheer magnitude of short carnage will be unreal. If you’re short, I suggest tiptoeing quietly to the exit … “
… It turns out that it is not just analysts that Elon Musk likes hanging up on.
We were not the only ones who were left speechless by Thursday’s Tesla Tanturm: Elon Musk’s bizarre, childish, perhaps intoxicated, meltdown during Tesla’s conference call, in which he interrupted an analysts, cutting him off in the middle of the question for being “boneheaded, boring and dry”
Federal and local law enforcement officials said this week they have seized around 100 Northern California houses they say were being used to grow cannabis tied to criminal organizations based in China.
The raids conducted Tuesday and Wednesday focused on Chinese nationals living in other states who bought homes in seven California counties, the Associated Press reported. Most of the home buyers were legal residents of the United States. They lived as far away as Georgia, Illinois, New York, Ohio and Pennsylvania. The harvested and processed product was shipped back east to those states for distribution.
None of the home owners have been arrested yet. The U.S. Department of Justice called the bust one of the nation’s largest residential forfeiture seizures. None of the homes were in the San Francisco Bay Area, presumably because it’s cheaper to buy a home more inland, the AP report said.
“This criminal organization has put a tremendous amount of equity into these homes through these wire transfers coming in from China and elsewhere,” U.S. Attorney McGregor Scott said in an interview with AP. “We’re going to take it. We’re going to take the houses. We’re going to take the equity.”
More details from the AP:
The Justice Department said the houses tended to use very high amounts of electricity for grow lights and fans. It’s no wonder the sweep was dubbed “Operation Lights Out.”
It said in addition to the homes, agents hauled in 61,000 marijuana plants, 400 pounds of processed buds (worth $600,000 wholesale) and 15 guns.
Worries about competition from a thriving black market in the state have continued to increase since California legalized recreational, retail cannabis and started taxing it at high rates last January.
A report earlier this week found that state and federal taxes on legal cannabis are so high in California that they may be helping the black market thrive, as consumers look for cheaper sources for cannabis and retail businesses scramble to keep in line with regulations while still making a profit.
The largest public pension fund in the United States is the California Public Employees Retirement System (CalPERS) for civil servants. California is in a state of very serious insolvency. We (Martin Armstrong) strongly advise our clients to get out before it is too late. I have been warning that CalPERS was on the verge of insolvency. I have warned that they were secretly lobbying Congress to seize all 401K private pensions and hand it to them to be managed. Mingling private money with the public would enable them to hold off insolvency a bit longer. Of course, CalPERS cannot manage the money they do have so why should anyone expect them to score a different performance with private money? Indeed, they would just rob private citizens to pay the pensions of state employees and politicians.
CalPERS has been making reckless investments with retiree capital to be politically correct with the environment rather than looking at projects that are economically based. Then, CalPERS has been desperate to cover this and other facts up to deny the public any transparency. Then, because stocks they thought were overpriced last year, they moved to bonds buying right into the Bond Bubble. Clearly, California’s economy peaked right on target and ever since there has been a steady migration of residents out of the state.
Meanwhile, Governor Jerry Brown has been more concerned about bucking the trend with Trump effectively threatening treason against the Constitution. The insolvency at CalPERS has exceeded $100,000 owed by every private citizen in California to government employees. It was $93,000 that every Californian owed back in 2016 for their state employees. In January 2017, Jerry Brown wanted a 42% increase in gas taxes to bailout CalPERS. California is an extremely liberal state – but that means they are also LIBERAL in spending the FUTURE earning of residents on public employees.
The pension crisis at CalPERS is getting worse by the day. The State looks to be totally bankrupt by 2021-2022. CalPERS has just decided to increase the contribution of local governments and cities to their fund. The cities say they are approaching bankruptcy because of rising subsidies, but CalPERS itself is approaching insolvency. The problem is that there really is no honest reform in sight. The choice is clear – CUT pension benefits of government employees or RAISE TAXES!
CalPERS simply needs a bailout and very soon. It looks like they are hunting for it by sharply increasing taxes where ever they can get away with it, for state employees to grab whatever they can of your future income for themselves. This is a trend that will bring down Western society as a whole – a Sovereign Debt Crisis of untold proportions.
Board Member Steve Westly even told The Mercury News that a bailout was needed and soon. Currently, CalPERS manages approximately $350 billion of future pension claims of its members. Recently, CalPERS passed an amendment to the statutes, which resulted in higher contributions for the California municipalities. The amount of contributions has been increased several times over the past few years and this time the cities do not appear to be able to handle the increased costs. With the Trump tax reform, the real incompetence of local government is coming to a head.
Once CalPERS was 100% funded with assets under management. In fact, they had a surplus in the good old days before Quantitative Easing. Right now, the system no longer has more than two-thirds of future claims covered. CalPERS itself expects an annual return of 7% on its financial investments when it needs 8% minimum. Most pension funds run by the States are insolvent or on the brink of financial disaster. This is what I have been warning about that the Quantitative Easing set the stage for the next crisis – the Pension Crisis. The Illinois Pension Fund needs to borrow up to $107 billion to meet its payment obligations with no prayer of repayment. Promises to state employees are over the top and off the charts. This is why Janet Yellen at the Fed kept trying to raise rates stating that interest rates had to be “normalized” for this was the crisis she knew was coming. And guess what – Europe is even worse and Draghi will not raise rates for fear that government will be unable to fund themselves. The ECB is creating a vast European Pension Crisis while trying to keep member state governments on life-support. It has purchased 40% of all sovereign debt and appears trapped and cannot reverse this process. The choice is pensions collapse or state collapse.
There is NO WAY OUT of this crisis. The portfolio would have to be completely restructured and benefits reduced. Lame Duck Jerry Brown will do everything in his power to raise taxes and fees to try to hold CalPERS together. That is by no means a long-term solution. If you can transfer to one of the 7 states without state income tax – do it NOW before it is too late.
A new study published in the Journal of Personality and Social Psychology posits there’s a good chance you can tell if someone is rich or poor just by looking at them.
“The relationship between well-being and social class has been demonstrated by previous research,” R. Thora Bjornsdottir, a graduate student at the University of Toronto and co-author of the study, tells CNBC Make It. In general, people with money tend to live happier, less anxious lives compared to those struggling to make ends meet. She and her team demonstrated “that these well-being differences are actually reflected in people’s faces.”
Bjornsdottir and her co-author, psychology professor Nicholas O. Rule, had undergraduate subjects of various ethnicities look at gray-scale photographs of 80 white males and 80 white females. None showed any tattoos or piercings. Half of the photos were of people who made over $150,000 a year, which they designated as upper class, and the other half were people who made under $35,000, or working class.
When the subjects were asked to guess the class of the people in the photos, they did so correctly 68 percent of the time, significantly higher than random chance.
“I didn’t think the effects would be quite as strong, especially given how subtle the differences are” in the faces, Rule told The Cut. “That’s the most surprising part of the study to me.”
“People are not really aware of what cues they are using when they make these judgments,” Bjornsdottir told the University of Toronto. “If you ask them why, they don’t know. They are not aware of how they are doing this.”
But the researchers wanted to know, so they zoomed in on facial features. They found that subjects were still able to guess correctly when they just looked at the eyes, and the mouth was an even better clue. But neither isolated part was as a reliable an indicator as the whole face.
The effect is “likely due to emotion patterns becoming etched into their faces over time,” says Bjornsdottir. The chronic contraction of certain muscles can actually lead to changes in the structure of your face that others can pick up on, even if they aren’t aware of it.
When the researchers showed the undergrads photos of people looking visibly happy, they could not discern socioeconomic status any better than chance. The expressions needed to be neutral for the subtle cues to have an effect.
“Over time, your face comes to permanently reflect and reveal your experiences,” Rule told the University of Toronto. “Even when we think we’re not expressing something, relics of those emotions are still there.”
Finally, to show how these kinds of first impressions could come into play in the real world, they asked the undergrads to decide who in the photos would be most likely to land a job as an accountant. More often than not, they went with people from the upper class, showing how these kinds of snap judgment can create and reinforce biases.
“Face-based perceptions of social class may have important downstream consequences,” they concluded.
“People talk about the cycle of poverty,” Rule said, “and this is potentially one contributor to that.”
Apple CEO Tim Cook has one big hope for the future – that he lives to see the end of money.
“…I’m hoping that I’m still going to be alive to see the elimination of money.”
Speaking at a meeting for Apple shareholders in Cupertino, California earlier this month, Cook made it clear that he is firmly on the side of the war-on-cash establishment.
“Because why would you have this stuff! Why go through all the expense of printing this stuff and then some people steal it, and you’ve got to worry about counterfeits and all these things,” he continued.
As Apple’s CEO talked about the downsides of cash, BI reported your credit card ripped off, I’m sure a lot of you have, I have, it’s not a good experience.”that he became more animated, revealing his real passion about the topic…
“We can provide a solution for the customer that’s simpler, more convenient, you don’t carry around a wallet with a bunch of cards in it, or a purse with a bunch of cards in it,” Cook said.
“And it’s more secure, if you’ve ever had your credit card ripped off, I’m sure a lot of you have, I have, it’s not a good experience.”
The enemies of cash claim that only crooks and cranks need large-denomination bills.
They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counter terrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.
The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.
Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.
So, presto, ban cash. This theme has been pushed by the likes of Bank of England chief economist Andrew Haldane and Harvard’s Kenneth Rogoff, who wrote in the Financial Times that eliminating paper currency would be “by far the simplest” way to “get around” the zero interest-rate bound “that has handcuffed central banks since the financial crisis.” If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses.
All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft.
Cash is also the currency of gray markets—amounting to 20% or more of gross domestic product in some European countries—that governments would love to tax. But the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. The Italian economy might shut down without cash.
By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?
Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.
But the swing to America’s corporatocracy calling for a war on cash is not for your own good ‘Murica.
All of this anti-cash angst from Cook can be summed up in 3 short words – Use Apple Pay – and follows Visa’s Andy Gerlt, who last year proclaimed: “We are declaring war on cash.”
As we detailed previously, the shots fired in the war on cash may have several unintended casualties:
3. Human Rights
As the War on Cash accelerates, many shots will be fired. The question is: who will take the majority of the damage?
Another day, another confirmation that the US economy is heating up just a little more than most expected.
With Wall Street expecting housing starts and permits of 1.234MM and 1.300MM, respectively, moments ago the US Census reported number that blew away expectations, with starts printing at 1.326MM in January, a 9.7% increase relative to the 3.5% expected, while permits jumped by 7.4% from 1.300MM to 1.396MM, on expectations of an unchanged print.
What is notable in today’s number is that single-family units were largely in line, declining for Permits from 881K to 866K, while single-family Starts rose from 846K to 877K, still well below November’s 946K.
So where did the bounce come from? The answer: multi-family, or rental units, which surged for Permits from 382K to 479K, while multi-family Starts surged from 360K to 431K, the highest number since December 2016.
Here is the visual breakdown, first Starts:
While it is very early to infer causality, the jump in rental unit construction could potentially add a modest disinflationary pressure to rents, which in recent months have seen declines across some of America’s largest MSAs. Whether or not this impacts Fed policy is too early to determine.
Critics of “New Age” monetary policy have been predicting that central banks would eventually run out of ways to trick people into borrowing money.
There are at least three reasons to wonder if that time has finally come:
Normally, towards the end of a cycle companies have trouble finding enough workers to keep up with their rising sales. So they start paying new hires more generously. This ignites “wage inflation,” which is one of the signals central banks use to decide when to start raising interest rates. The following chart shows a big jump in wages in the second half of 2017. And that’s before all those $1,000 bonuses that companies have lately been handing out in response to lower corporate taxes. So it’s a safe bet that wage inflation will accelerate during the first half of 2018.
The conclusion: It’s time for higher interest rates.
The past week was one for the record books, as bonds (both junk and sovereign) and stocks tanked pretty much everywhere while exotic volatility-based funds imploded. It was bad in the US but worse in Asia, where major Chinese markets fell by nearly 10% — an absolutely epic decline for a single week.
Normally (i.e., since the 1990s) this kind of sharp market break would lead the world’s central banks to cut interest rates and buy financial assets with newly-created currency. Why? Because after engineering the greatest debt binge in human history, the monetary authorities suspect that even a garden-variety 20% drop in equity prices might destabilize the whole system, and so can’t allow that to happen.
The conclusion: Central banks have to cut rates and ramp up asset purchases, and quickly, before things spin out of control.
So – as their critics predicted – central banks are in a box of their own making. If they don’t raise rates inflation will start to run wild, but if they don’t cut rates the financial markets might collapse, threatening the world as we know it.
Another reason why central banks raise rates is to gain the ability to turn around and cut rates to counter the next downturn.
But in this cycle central banks were so traumatized by the near-death experience of the Great Recession that they hesitated to raise rates even as the recovery stretched into its eighth year and inflation started to revive. The Fed, in fact, is among the small handful of central banks that have raised rates at all. And as the next chart illustrates, it’s only done a little. Note that in the previous two cycles, the Fed Funds rate rose to more than 5%, giving the Fed the ability to cut rates aggressively to stimulate new borrowing. But – if the recent stock and bond market turmoil signals an end to this cycle – today’s Fed can only cut a couple of percentage points before hitting zero, which won’t make much of a dent in the angst that normally dominates the markets’ psyche in downturns.
Most other central banks, meanwhile, are still at or below zero. In a global downturn they’ll have to go sharply negative.
So here’s a scenario for the next few years: Central banks focus on the “real” economy of wages and raw material prices and (soaring) government deficits for a little while longer and either maintain current rates or raise them slightly. This reassures no one, bond yields continue to rise, stock markets grow increasingly volatile, and something – another week like the last one, for instance – happens to force central banks to choose a side.
They of course choose to let inflation run in order to prevent a stock market crash. They cut rates into negative territory around the world and restart or ramp up QE programs.
And it occurs to everyone all at once that negative-yielding paper is a terrible deal compared to real assets that generate positive cash flow (like resource stocks and a handful of other favored sectors like defense) – or sound forms of money like gold and silver that can’t be inflated away.
The private sector sells its bonds to the only entities willing to buy them – central banks – forcing the latter to create a tsunami of new currency, which sends fiat currencies on a one-way ride towards their intrinsic value. Gold and silver (and maybe bitcoin) soar as everyone falls in sudden love with safe havens.
And the experiment ends, as it always had to, in chaos.
A housing bust may be just around the corner. Rates have climbed to a level last seen in May of 2014.
The chart does not quite show what MND headline says but the difference is a just a few basis points. I suspect rates inched lower just after the article came out.
For the past few weeks, rates made several successive runs up to the highest levels in more than 9 months. It was really only the spring of 2017 that stood in the way of rates being the highest since early 2014. After Friday marked another “highest in 9 months” day, it would only have taken a moderate movement to break into the “3+ year” territory. The move ended up being even bigger.
From a week and a half ago, most borrowers are now looking at another eighth of a percentage point higher in rate. In total, rates are up the better part of half a point since December 15th. This marks the only time rates have risen this much without having been at long term lows in the past year. For example, late 2010, mid-2013, mid-2015, and late 2016 all saw sharper increases in rates overall, but each of those moves happened only 1-3 months after a long term rate low.
Not a Drill
So far this month, MBS have stunningly dropped over 200 bps, which easily translates into a .5% or more increase in rates. I’ve been shouting “lock early” for quite a while, and this is precisely why, This isn’t a drill, or a momentary rate upturn. It’s likely the end of a decade+ long bull bond market. LOCK EARLY. -Ted Rood, Senior Originator
Housing Bust Coming
Drill or not, if rising rates stick, they are bound to have a negative impact on home buying.
In the short term, however, rate increases may fuel the opposite reaction people expect.
Those on the fence may decide it’s now or never and rush out to purchase something, anything. If that mentality sets in, there could be one final homebuilding push before the dam breaks. That’s not my call. Rather, that could easily be the outcome.
Completed Homes for Sale
Speculation by home builders sitting on finished homes in 2007 is quite amazing.
What about now?
Supply of Homes in Months at Current Sales Rate
Note that spikes in home inventory coincide with recessions.
A 5.9 month supply of homes did not seem to be a problem in March of 2006. In retrospect, it was the start of an enormous problem.
In absolute terms, builders are nowhere close to the problem situation of 2007. Indeed, it appears that builders learned a lesson.
Nonetheless, pain is on the horizon if rates keep rising.
Price Cutting Coming Up?
If builders cut prices to get rid of inventory, everyone who bought in the past few years is likely to quickly go underwater.
Shares of Gem Diamonds surged +15% on Monday after the miner said it had unearthed one of the biggest diamonds in history. According to Bloomberg, Gem Diamonds Ltd. discovered a massive 910-carat diamond, about the “size of two golf balls” from the Letseng mine in Lesotho, the highest dollar per carat diamond mine in the world.
The diamond is the largest ever recovered from Letseng and is classified as a D color Type IIa diamond, which means it has very few impurities or nitrogen atoms. More importantly, the diamond is the fifth-biggest ever found.
“Assuming that there are no large inclusions running through the diamond, we initially estimate a sale of $40m,” said Richard Knights at Liberum, citing the 1,109-carat Lesedi la Rona discovered in 2015, and it sold for $53 million.
“This would imply a $43m price tag for the Letseng diamond, but we place large caveats on this estimation, given that the pricing is rarely linear,” he added.
Clifford Elphick, Gem Diamonds’ Chief Executive Officer, commented in Monday’s press release:
Since Gem Diamonds acquired Letseng in 2006, the mine has produced some of the world’s most remarkable diamonds, including the 603 carat Lesotho Promise, however, this exceptional top quality diamond is the largest to be mined to date and highlights the unsurpassed quality of the Letseng mine. This is a landmark recovery for all of Gem Diamonds’ stakeholders, including our employees, shareholders and the Government of Lesotho, our partner in the Letseng mine.
The Letseng mine resides in the kingdom of Lesotho, located inside South Africa, and at an elevation of 10,000 feet, it is the world’s highest mine. Perhaps, there is a correlation between the elevation and diamond size and quality since Letseng is famous for its high-quality diamonds.
The company’s official press release on Monday gave very little information surrounding the value of the diamond, or if there was even a buyer.
Its value will be determined by the size and quality of the polished stones that can be cut from it. Lucara Diamond Corp. sold a 1,109-carat diamond for $53 million last year, but got a record $63 million for a smaller 813-carat stone it found at the same time in 2015.
Shares of Gem, which list in London, advanced 14.25%, valuing the company around £126.59M. Since 2012, a lack of significant discoveries coupled with deteriorating financials has declined London shares more than -78%. Monday’s press release of the discovery could bolster the company’s cash position upon the sale of the diamond.
“The successful sale of this stone will be supportive for Gem’s balance sheet and push the company into a free cash flow positive position this year,” said Richard Hatch of RBC Capital Markets.
Last week, the company recovered 117-carat and 110-carat rocks from its mine. The three significant discoveries back-to-back could be an upward turn for the company and allow investors to ‘b-t-f-d’.
Here are some diamonds recovered by Gem include:
Bloomberg identifies the world’s largest diamond finds:
The biggest diamond discovered is the 3,106-carat Cullinan, found near Pretoria, in South Africa, in 1905. It was cut to form the Great Star of Africa and the Lesser Star of Africa, which are set in the Crown Jewels of Britain. Lucara’s 1,109-carat Lesedi La Rona is the second-biggest, with the 995-carat Excelsior and 969-carat Star of Sierra Leone the third- and fourth-largest.
Weaker demand for diamonds, coupled with a growing supply glut, has pushed the IDEX diamond index lower and lower. With the industry in free-fall, has Gem with its monstrous 910-carat rock produced an artificial bottom or is this a head fake?
Petrodollars have dominated the global energy markets for more than 40 years. But now, China is looking to change that by replacing the word dollars for yuan.
Nations, of course, have tried this before since the system was set up by former US Secretary of State Henry Kissinger in tandem with the House of Saud back in 1974
Vast populations across the Middle East and Northern Africa quickly felt the consequences when Iraq’s Saddam Hussein decided to sell oil in euros. Then there was Libya’s Muammar Gaddafi’s pan-African gold dinar blueprint, which failed to create a splash in an oil barrel.
Fast forward 25 years and China is making a move to break the United States petrodollar stranglehold. The plan is to set up oil-futures trading in the yuan, which will be fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets.
The Shanghai Futures Exchange and its subsidiary, the Shanghai International Energy Exchange (INE), have already run four simulations for crude futures.
It was expected to be rolled out by the end of this year, but that looks unlikely to happen. But when it does get off the ground in 2018, the fundamentals will be clear – this triple oil-yuan-gold route will bypass the mighty green back.
The era of the petroyuan will be at hand.
Still, there are questions on how Beijing will technically set up a rival futures market in crude oil to Brent and WTI, and how China’s capital controls will influence it.
Beijing has been quite discreet on this. The petroyuan was not even mentioned in the National Development and Reform Commission documents following the 19th National Congress of the Communist Party last October.
What is certain is that the BRICS, the acronym for Brazil, Russia, India, China and South Africa, did support the petroyuan move at their summit in Xiamen earlier this year. Diplomats confirmed that to Asia Times.
Venezuela is also on board. It is crucial to remember that Russia is number two and Venezuela is number seven among the world’s Top 10 oil producers. Beijing already has close economic ties with Moscow, while it is distinctly possible that other producers will join the club.
“This contract has the potential to greatly help China’s push for yuan internationalization,” Yao Wei, chief China economist at Societe Generale in Paris, said when he hit the nail firmly on the head.
An extensive report by DBS in Singapore also hits most of the right notes, linking the internationalization of the yuan with the expansion of the grandiose Belt and Road Initiative.
Next year, six major BRI projects will be on the table.
Mega infrastructure developments will include the Jakarta-Bandung high-speed railway, the China-Laos railway and the Addis Ababa-Djibouti railway. The other key projects will be the Hungary-Serbia railway, the Melaka Gateway project in Malaysia and the upgrading of Gwadar port in Pakistan.
HSBC has estimated that the expansive Belt and Road program will generate no less than an additional, game-changing US$2.5 trillion worth of new trade a year.
It is important to remember that the “belt” in BRI is a series of corridors connecting Eastern China with oil-gas rich regions in Central Asia and the Middle East. The high-speed rail networks, or new “Silk Roads”, will simply traverse regions filled with, what else, un-mined gold.
But a key to the future of the petroyuan will revolve around the House of Saud, and what it will do. Should the Crown Prince, Mohammad bin Salman bin Abdulaziz Al Saud, also known as MBS, follow Russia’s lead? If it did, this would be one of the paradigm shifts of the century.
Yet there are signs of what could happen. Yuan-denominated gold contracts will be traded not only in Shanghai and Hong Kong but also in Dubai. Saudi Arabia is also considering issuing so-called Panda bonds, with close ally, the United Arab Emirates, taking the lead in the Middle East for Chinese interbank bonds.
Of course, the prelude to D-Day will be when the House of Saud officially announces it accepts the yuan for at least part of its exports to China. But what is clear is that Saudi Arabia simply cannot afford to alienate Beijing as one of its top customers.
In the end, it will be China which will dictate future terms. That may include extra pressure for Beijing’s participation in Aramco’s IPO. In parallel, Washington would see Riyadh embracing the petroyuan as the ultimate red line.
An independent European report pointed to what might be Beijing’s trump card – “an authorization to issue treasury bills in yuan by Saudi Arabia” as well as the creation of a Saudi investment fund and a 5% share of Aramco.
Nations hit hard by US sanctions, such as Russia, Iran and Venezuela, will be among the first to embrace the petroyuan. Smaller producers, such as Angola and Nigeria, are already selling oil and gas to the world’s second largest economy in Chinese currency.
As for nations involved in the new “Silk Roads” program that are not oil exporters such as Pakistan, the least they can do is replace the dollar in bilateral trade. This is what Pakistan’s Interior Minister Ahsan Iqbal is currently mulling over.
Of course, there will be a “push back” from the US. The dollar is still the global currency, even though it might have lost some of luster in the past decade.
But the BRICS, as well as the Shanghai Cooperation Organization, or SCO, which includes prospective members Iran and Turkey, are increasingly settling bilateral and multilateral trade by bypassing the green back.
In the end, it will not be over until the fat (golden) lady sings. When the beginning of the end of the petrodollar system becomes a fact, watch out for a US counter punch.
While many on the left have celebrated California’s push to legalize marijuana as a victory for a progressive, harm-reduction approach to combating addiction and crime, the pullback in the number of low-level prisoners entering the state’s penal system is leaving the California Department of Forestry and Fire Protection.
Court mandates to reduce overcrowding in the state’s prisons – combined with the legalization of marijuana, the most commonly used drug in America (aside from alcohol, of course) – have led to a sharp drop in the number of prisoners housed at state facilities in recent years. Interestingly, one byproduct of this trend is it’s creating headaches for the state officials who are responsible for coordinating the emergency wildfire response just as California Gov. Jerry Brown is warning that the severe fires witnessed this year – the most destructive in the state’s history – could become the new status quo.
To wit, since 2008, the number of prisoner-firemen has fallen 13%.
As the Atlantic reports, California has relied on inmates to help combat its annual wildfires since World War II, when a paucity of able-bodied men due to the war effort forced the state to turn to the penal system for help. More than 1,700 convicted felons fought on the front lines of the destructive wildfires that raged across Northern California in October.
While communities from Sonoma to Mendocino evacuated in the firestorm’s path, these inmates worked shifts of up to 72 straight hours to contain the blaze and protect the property residents left behind, clearing brush and other potential fuel and digging containment lines often just feet away from the flames. Hundreds more are on the fire line now, combating the inferno spreading across Southern California.
But over the course of the last decade, their ranks have begun to thin. As drought and heat have fueled some of the worst fires in California’s history, the state has faced a court mandate to reduce overcrowding in its prisons. State officials, caught between an increasing risk of wildfires and a decreasing number of prisoners eligible to fight them, have striven to safeguard the valuable labor inmates provide by scrambling to recruit more of them to join the force. Still, these efforts have been limited by the courts, public opinion, and how far corrections officials and elected leaders have been willing to go…
With dry conditions expected to persist for the foreseeable future, California will need to adjust to this new reality. Meanwhile, the fate of the inmate-firefighting program lies in the balance between two trends: the increasing need for cheap labor, and the pending decline in incarceration.
The push to reduce overcrowding is a reaction to the rising incarceration rates of the 1990s, when President Bill Clinton declared gangsters and criminals “superpredators” and authorized stiff penalties for relatively minor drug offenses.
For inmates, the reduction in state prison populations that first nudged that balance was long overdue. In the 1990s and 2000s, increasingly severe overcrowding in California prisons compromised medical services for prisoners and led to roughly one preventable death each week. A federal court ruled in 2009 that the inadequate health care violated the Eighth Amendment’s embargo against cruel and unusual punishment, and ordered the state to reduce its prison population by just shy of 27 percent – a cut of nearly 40,000 prisoners at the time of the ruling. California appealed the decision, but the Supreme Court upheld it in May 2011.
As one might expect, the push to reduce overcrowding has had the greatest impact on the population of inmates in minimum security prisons. Typically, state officials prefer to recruit minimum security inmates who are already serving relatively light sentences and thus have the most incentive to cooperate and not cause problems (like disappearing into the wilderness).
Also, state guidelines prohibit the recruitment of certain violent criminals and, of course, sex offenders.
The pool of potential recruits was limited long before the courts’ mandate. It comprises only inmates who earn a minimum-custody status through good behavior behind bars and excludes arsonists, kidnappers, sex offenders, gang affiliates, and those serving life sentences. To join the squad, inmates must meet high physical standards and complete a demanding course of training. They also have to volunteer.
“But,” cautioned David Fathi, the director of the ACLU’s National Prison Project, “you have to understand the uniquely coercive prison environment, where few things are clearly voluntary.” In the eyes of criminal-justice reformers, corrections officials recruit inmates under duress. “In light of the vast power inequality between prisoners and those who employ them,” Fathi continued, “there is a real potential for exploitation and abuse.”
Aside from the shrinking inmate population, a handful of inmate deaths this year while battling the NorCal wildfires is causing some low-level offenders to reconsider whether the incentives being offered by the state – credit toward parole, and a generous wage (at least by prison standards) – are really worth the risks.
Many inmates join the force to escape unpalatable prison conditions. In doing so they take on great personal risk, performing tasks that put them in greater danger than most of their civilian counterparts, who work farther from the flames driving water trucks and flying helicopters, among other activities. By contrast, inmates are often the first line of defense against fires’ spread, as they’re trained specifically to cut firebreaks—trenches or other spaces cleared of combustible material—to stop or redirect advancing flames. The work can be fatal: So far this year, two inmates have died in the line of duty, along with one civilian wildland-firefighter. The first, 26-year-old Matthew Beck, was crushed by a falling tree; the second, 22-year-old Frank Anaya, was fatally wounded by a chainsaw.
“Obviously this is not something that everyone is willing to volunteer for,” said Bill Sessa, a CDCR spokesman. “We’ve always been limited by the number of inmates who were willing to volunteer for the project.” Even when state prisons were at their most crowded, the camps where inmate firefighters live weren’t filled to capacity. And as the pool of qualified prisoners has contracted, he said, corrections officials have had to “work harder now than we did before to bring the camp to the inmates’ attention.”
In an effort to entice more recruits to join up, state officials are trying to emphasize the benefits of volunteering to fight the blazes: Volunteer firefighters can receive visits from family out in the open, instead of behind a thick pane of glass. It also allows them to escape the confines of the prison – for a brief time at least.
But with legal marijuana rapidly draining the ranks of low level offenders, a sizable shortfall will likely to persist in the years to come.
And after the death and devastation wrought by this year’s fires, many inmates have good reason to reconsider.
After all, you can’t enjoy visits with family and friends when you’re dead.
Los Angeles residents have apparently had just about enough of their city’s excessive home prices, un-affordable rents, crushing personal and corporate tax rates, overly burdensome regulations, polluted air, etc. and are increasingly leaving for a better life in Sin City. As Los Angeles Times columnist Steve Lopez puts it, “the rent steals so much of your paycheck, you might have to move back in with your parents, and half your life is spent staring at the rear end of the car in front of you.”
As Jonas Peterson points out, his family made the move from LA to Las Vegas in 2013 and were able to double the size of their house while lowering their mortgage payment all while enjoying the added benefits of moving from one of the most over-taxed states in America to one of the lowest taxed.
Las Vegas is one of the most popular destinations for those who leave California. It’s close, it’s a job center, and the cost of living is much cheaper, with plenty of brand-new houses going for between $200,000 and $300,000.
Jonas Peterson enjoyed the California lifestyle and trips to the beach while living in Valencia with his wife, a nurse, and their two young kids. But in 2013, he answered a call to head the Las Vegas Global Economic Alliance, and the family moved to Henderson, Nev.
“We doubled the size of our house and lowered our mortgage payment,” said Peterson, whose wife is focusing on the kids now instead of her career.
Part of Peterson’s job is to lure companies to Nevada, a state that runs on gaming money rather than tax dollars.
“There’s no corporate income tax, no personal income tax…and the regulatory environment is much easier to work with,” said Peterson.
Of course, while many residents of metropolitan areas like Los Angeles get addicted to the ‘large’ salaries they can earn in big cities, others, like Michael Van Essen who recently made a move from LA to Mason City, Iowa, realize that the purchasing power of your income is far more important that the nominal dollars printed on the front of your paycheck.
You’d like to think it will get better, but when? All around you, young and old alike are saying goodbye to California.
“Best thing I could have done,” said retiree Michael J. Van Essen, who was paying $1,160 for a one-bedroom apartment in Silver Lake until a year and a half ago. Then he bought a house with a creek behind it for $165,000 in Mason City, Iowa, and now pays $500 a month less on his mortgage than he did on his rent in Los Angeles.
“If housing costs continue to rise, we should expect to see more people leaving high-cost areas,” said Jed Kolko, an economist with UC Berkeley’s Terner Center for Housing Innovation.
Of course, Los Angeles isn’t the only place where residents are increasingly fleeing in search of greener pastures. As we’ve pointed out before, there is a growing wave of domestic migrants that are abandoning over-taxed and generally unaffordable metropolitan areas like San Francisco, New York, Chicago and Miami in search of better lifestyles in the Southeast and Texas.
Not surprisingly, the dark areas on the map above seem to match perfectly with the dark areas on this map which indicate those with the highest state income tax rates.
Tack on a rising violent crime rate and things in Illinois have grown so unbearable that the state is losing 1 resident every 4.6 minutes.
Of course, while liberal politicians often bemoan the existence of the Electoral College, these domestic migration trends could spell disaster for their opponents in national elections over the long-term as pretty much every major migratory pattern involves a mass exodus from blue states, like New York and California, into Red or Purple states like Texas, Florida, Arizona and Nevada.
How do we create value in an economy that is increasingly dependent on knowledge? The answer is complicated by the reality that knowledge is increasingly digital and “unkownable” and therefore almost free.
Financialization as a substitute for creating value has run its course.
The crony-capitalist answer is always the same, of course: bribe the government to create and enforce private monopolies. This process has many variations, but a favored one is to deepen the regulatory moat around an industry to the point that competition is virtually eliminated and innovation is shackled.
Businesses protected by the regulatory moat can charge whatever they wish, becoming monopolistic rentiers that are parasites on the consumer and economy.
State-crony-capitalism destroys democracy and the economic vitality of the nation. I’ve covered this many times, and there is no solution to this oppressive marriage of state and monopoly other than innovations that open wormholes in the monopoly.
This is where knowledge comes in, as new forms of knowledge (not just technical innovations, but new business models), once digitized, can be distributed at near-zero cost.
This almost-free knowledge creates another problem: how do we create value in a knowledge economy when knowledge is increasingly free?
Correspondent Dave P. offered one answer: static knowledge is indeed increasingly free, but dynamic information (such as market conditions) generates value to those who need actionable, timely information.
One example of this might be a Bloomberg terminal, which delivers a flood of information for a monthly fee.
Another source of value is generated by firms offering a warehouse of free knowledge–for example, YouTube. The instructional videos are free to the user, but YouTube skims an advertising income from every view.
I would add a third type of value: curation of almost-free knowledge/ information. What is the value proposition in blogs and media outlets, when “news” is essentially free? The value is created by the curation of insightful commentary, charts, histories, etc.
Anyone who successfully curates the overwhelming torrent of free info/knowledge into useful, manageable troves has provided a very valuable service.
A fourth type of value is created by systems such as bitcoin which are structured to keep transactional information transparent: add in that there are a limited number of bitcoins that can be mined, and this digital information (the blockchain) becomes valuable.
Correspondent Bart D. recently described another source of value in a world in which knowledge is nearly free: the social capital of who you know, and what all the people in your social-capital circle know.
A person could perform well in school and obtain a university degree signifying acquisition of knowledge, but their successful leveraging of that new knowledge often boils down to the social and cultural capital they acquired in their home, neighborhood, city and wider social circles.
Disadvantaged people tend to stay disadvantaged not just from a lack of knowledge but from a lack of cultural and social capital–habits of work, ability to sacrifice today to meet long-term goals, and access to a successful circle of people who can act as mentors or collaborators in a knowledge-based economy.
I describe the eight essential skills needed to build social and cultural capital in my book Get a Job, Build a Real Career and Defy a Bewildering Economy.
So How do we create value in an economy that is increasingly knowledge-based? There is no one size fits all answer, but we know this:
1. Value flows to what’s scarce. Unskilled labor and financial capital are both abundant, and hence have near-zero scarcity value: cash in the bank earns nothing.
2. Experiential knowledge that cannot be digitized will retain scarcity value even as knowledge and expertise that can be digitized become essentially free.
This is the basis of my suggestion to acquire skills, not credentials. Credentials are increasingly in over-supply; problem-solving skills remain scarce.
While we await the full details of the Senate bill, moments ago the House Ways and Means Committee released the Amended House GOP tax bill, as well as its summary.
Here are the key highlights from the Amendment (link), first in principle:
Amendment to the Amendment in the Nature of a Substitute to H.R. 1 Offered by Mr. Brady of Texas The amendment makes improvements to the amendment in the nature of a substitute relating to the maximum rate on business income of individuals, preserves the adoption tax credit, improves the program integrity of the Child Tax Credit, improves the consolidation of education savings rules, preserves the above-the-line deduction for moving expenses of a member of the Armed Forces on active duty, preserves the current law effective tax rates on C corporation dividends subject to the dividends received deduction, improves the bill’s interest expense rules with respect to accrued interest on floor plan financing indebtedness, modifies the treatment of S corporation conversions into C corporations, modifies the tax treatment of research and experimentation expenditures, modifies the treatment of expenses in contingent fee cases, modifies the computation of life insurance tax reserves, modifies the treatment of qualified equity grants, preserves the current law treatment of nonqualified deferred compensation, modifies the transition rules on the treatment of deferred foreign income, improves the excise tax on investment income of private colleges and universities, and modifies rules with respect to political statements made by certain tax-exempt entities.
And the details, from the summary (link):
The amendment provides a 9-percent tax rate, in lieu of the ordinary 12-percent tax rate, for the first $75,000 in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income through a pass-through business. As taxable income exceeds $150,000, the benefit of the 9-percent rate relative to the 12-percent rate is reduced, and it is fully phased out at $225,000. Businesses of all types are eligible for the preferential 9-percent rate, and such rate applies to all business income up to the $75,000 level. The 9-percent rate is phased in over five taxable years, such that the rate for 2018 and 2019 is 11 percent, the rate for 2020 and 2021 is 10 percent, and the rate for 2022 and thereafter is 9 percent. For unmarried individuals, the $75,000 and $150,000 amounts are $37,500 and $75,000, and for heads of household, those amounts are $56,250 and $112,500.
The amendment preserves the current-law rules on the application of payroll taxes to amounts received through a pass-through entity.
The amendment preserves the current law non-refundable credit for qualified adoption expenses.
The amendment requires a taxpayer to provide an SSN for the child in order to claim the entire amount of the enhanced child tax credit.
The amendment would allow rollovers from section 529 plans to ABLE programs.
The amendment preserves the current law tax treatment for moving expenses in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order.
The amendment lowers the 80-percent dividends received deduction to 65 percent and the 70- percent dividends received deduction to 50 percent, preserving the current law effective tax rates on income from such dividends.
The amendment provides an exclusion from the limitation on deductibility of net business interest for taxpayers that paid or accrued interest on “floor plan financing indebtedness.” Full expensing would no longer be allowed for any trade or business that has floor plan financing indebtedness.
The amendment provides that distributions from an eligible terminated S corporation would be treated as paid from its accumulated adjustments account and from its earnings and profits on a pro-rata basis. The amendment provides that any section 481(a) adjustment would be taken into account ratably over a 6-year period. For this purpose, an eligible terminated S corporation means any C corporation which (i) was an S corporation on the date before the enactment date, (ii) revoked its S corporation election during the 2-year period beginning on the enactment date, and (iii) had the same owners on the enactment date and on the revocation date.
The amendment provides that certain research or experimental expenditures are required to be capitalized and amortized over a 5-year period (15 years in the case of expenditures attributable to research conducted outside the United States). The amendment provides that this rule applies to research or experimental expenditures paid or incurred during taxable years beginning after 2023.
The amendment disallows an immediate deduction for litigation costs advanced by an attorney to a client in contingent-fee litigation until the contingency is resolved, thus creating parity throughout the United States as to when, if ever, such expenses are deductible in such litigation. Under current law, certain attorneys within the Ninth Circuit who work on a contingency basis can immediately deduct expenses that ordinarily would be considered fees paid on behalf of clients, in the form of loans to those clients, and therefore not deductible when paid or incurred. This provision creates parity on this issue throughout the United States by essentially repealing the Ninth Circuit case, Boccardo v. Commissioner, 56 F.3d 1016 (9th Cir. 1995), which created a circuit split on this issue.
The amendment generally preserves current law tax treatment of insurance company deferred acquisition costs, life insurance company reserves, and pro-ration, and imposes an 8% surtax on life insurance income. This provision is intended as a placeholder.
The amendment strikes Section 3801 so that the current-law tax treatment of nonqualified deferred compensation is preserved.
The amendment clarifies that restricted stock units (RSU) are not eligible for section 83(b) elections. Other than new section 83(i), section 83 does not apply to RSUs.
The amendment provides for effective tax rates on deemed repatriated earnings of 7% on earnings held in illiquid assets and 14% on earnings held in liquid assets.
foreign corporations; election to treat such payments as effectively connected income. The amendment modifies the bill’s international base erosion rules in two respects. First, the provision eliminates the mark-up on deemed expenses. Second, the amendment expands the foreign tax credit to apply to 80% of foreign taxes and refines the measurement of foreign taxes paid by reference to section 906 of current law rather than a formula based on financial accounting information.
The amendment ensures that endowment assets of a private university that are formally held by organizations related to the university, and not merely those that are directly held by the university, are subject to the 1.4-percent excise tax on net investment income.
While everyone continues to focus on stocks, a much larger, far more important situation is fermenting for wine lovers: global wine production crashes to 50-year low.
New data from the International Organization of Vine and Wine (OIV) indicates total world output is projected to hit 246.7 million hectoliters in 2017– an 8% drop compared with 2016 “one of the lowest levels for several decades”.
According to the drinks business,
Global wine inventories were already slightly tight going into 2017, but the decline in production in these key European producers will mean that the global wine industry is going into 2018 with inventories that are likely to be at least 20m hectolitres lower than they were going into 2017 – equivalent to nearly 8% of total global wine consumption. Wine available for consumption around the world will be at its lowest point in decades.
Why is there a global wine shortage?
A new report issued from OIV indicates lower production levels were blamed on ‘extreme weather’ in Italy, France, and Spain– top 3 producers in the world. Meanwhile, Portugal, Romania, Hungary, Austria, the U.S. and countries in South America have seen a rise in production compared with 2016.
BBC indicates wildfires in California occurred after the harvest and will have minimal impact besides a 1% drop in production.
Output in the US – the world’s fourth-largest producer and its biggest wine consumer – is also due to fall by only 1% since reports indicate wildfires struck in California after the majority of wine producers had already harvested their crops.
2017 Wine production in the main producing countries
The VINEX is an independent web-based exchange connecting major buyers and sellers who trade bulk wine in high producing countries. VINEX Global Price Index (VGPI) shows bulk wine prices soaring in the past 1.5-years.
In addition to skyrocketing wine prices, world wine consumption (demand) continues to weaken from a 2008 peak, along with printing underneath the mean. Estimated wine consumption for 2017 is in the range 240.5 to 245.8 mhl.
The bottom line for wine lovers is higher prices in the future. You’re witnessing one item a central bank cannot control = food price inflation. Just remember, food price inflation has toppled empires. You’ve been warned.
The IRS will pay Equifax $7.25 million to verify taxpayer identities and help prevent fraud under a no-bid contract issued last week, even as lawmakers lash the embattled company about a massive security breach that exposed personal information of as many as 145.5 million Americans.
A contract award for Equifax’s data services was posted to the Federal Business Opportunities database Sept. 30 — the final day of the fiscal year. The credit agency will “verify taxpayer identity” and “assist in ongoing identity verification and validations” at the IRS, according to the award.
The notice describes the contract as a “sole source order,” meaning Equifax is the only company deemed capable of providing the service. It says the order was issued to prevent a lapse in identity checks while officials resolve a dispute over a separate contract.
Lawmakers on both sides of the aisle blasted the IRS decision.
“In the wake of one of the most massive data breaches in a decade, it’s irresponsible for the IRS to turn over millions in taxpayer dollars to a company that has yet to offer a succinct answer on how at least 145 million Americans had personally identifiable information exposed,” Senate Finance Chairman Orrin Hatch (R-Utah) told POLITICO in a statement.
The committee’s ranking member, Sen. Ron Wyden (D-Ore.), piled on: “The Finance Committee will be looking into why Equifax was the only company to apply for and be rewarded with this. I will continue to take every measure possible to prevent taxpayer data from being compromised as this arrangement moves forward.”
The IRS defended its decision in a statement, saying that Equifax told the agency that none of its data was involved in the breach and that Equifax already provides similar services to the IRS under a previous contract.
“Following an internal review and an on-site visit with Equifax, the IRS believes the service Equifax provided does not pose a risk to IRS data or systems,” the statement reads. “At this time, we have seen no indications of tax fraud related to the Equifax breach, but we will continue to closely monitor the situation.”
Equifax did not respond to requests for comment.
Equifax disclosed a cybersecurity breach in September that potentially compromised the personal information, including Social Security numbers, of more than 145 million Americans — data that security experts have described as the crown jewels for identity thieves. The company is one of three major credit reporting bureaus whose data determine whether consumers qualify for mortgages, auto loans, credit cards and other financial commitments.
The company has subsequently taken criticism for issuing confusing instructions to consumers, which contained language that appeared aimed at limiting customers’ ability to sue, as well as tweeting out a link to a fake website instead of its own security site. The Justice Department later opened a criminal investigation into three Equifax executives who sold almost $1.8 million of their company stock before the breach was publicly disclosed, Bloomberg has reported.
Former Equifax CEO Richard Smith, who stepped down after the breach, endured a bipartisan shaming Tuesday at a hearing of a House Energy and Commerce subcommittee. The full committee’s Republican chairman, Greg Walden of Oregon, proclaimed: “It’s like the guards at Fort Knox forgot to lock the doors.”
Reps. Suzan DelBene (D-Wash.) and Earl Blumenauer (D-Ore.) separately penned letters to IRS Commissioner John Koskinen demanding he explain the agency’s rationale for awarding the contract to Equifax and provide information on any alternatives the agency considered.
“I was initially under the impression that my staff was sharing a copy of the Onion, until I realized this story was, in fact, true,” Blumenauer wrote.
The IRS, which has suffered its own embarrassing data breaches as well as a tidal wave of tax-identity fraud, has taken steps to improve its outdated information technology with the help of $106.4 million that Congress earmarked for cyber security upgrades and identity theft prevention efforts.
Hatch questioned the agency’s security systems in a letter to Koskinen last month. Hatch said he was concerned that the IRS lacked the technology necessary “to safeguard the integrity of our tax administration system.”
Week 1 of the NFL season had plenty of important stories worth following, but maybe the most entertaining was the mostly empty stadiums in Los Angeles and Santa Clara.
Latest discussion on how the SJW’s are destroying pro football below …
Putin reveals ‘fair multipolar world’ concept in which oil contracts could bypass the US dollar and be traded with oil, yuan and gold…
The annual BRICS summit in Xiamen – where President Xi Jinping was once mayor – could not intervene in a more incandescent geopolitical context.
Once again, it’s essential to keep in mind that the current core of BRICS is “RC”; the Russia-China strategic partnership. So in the Korean peninsula chessboard, RC context – with both nations sharing borders with the DPRK – is primordial.
Beijing has imposed a definitive veto on war – of which the Pentagon is very much aware.
Pyongyang’s sixth nuclear test, although planned way in advance, happened only three days after two nuclear-capable US B-1B strategic bombers conducted their own “test” alongside four F-35Bs and a few Japanese F-15s.
Everyone familiar with the Korean peninsula chessboard knew there would be a DPRK response to these barely disguised “decapitation” tests.
So it’s back to the only sound proposition on the table: the RC “double freeze”. Freeze on US/Japan/South Korea military drills; freeze on North Korea’s nuclear program; diplomacy takes over.
The White House, instead, has evoked ominous “nuclear capabilities” as a conflict resolution mechanism.
On the Doklam plateau front, at least New Delhi and Beijing decided, after two tense months, on “expeditious disengagement” of their border troops. This decision was directly linked to the approaching BRICS summit – where both India and China were set to lose face big time.
Indian Prime Minister Narendra Modi had already tried a similar disruption gambit prior to the BRICS Goa summit last year. Then, he was adamant that Pakistan should be declared a “terrorist state”. The RC duly vetoed it.
Modi also ostensively boycotted the Belt and Road Initiative (BRI) summit in Hangzhou last May, essentially because of the China-Pakistan Economic Corridor (CPEC).
India and Japan are dreaming of countering BRI with a semblance of connectivity project; the Asia-Africa Growth Corridor (AAGC). To believe that the AAGC – with a fraction of the reach, breath, scope and funds available to BRI – may steal its thunder, is to enter prime wishful-thinking territory.
Still, Modi emitted some positive signs in Xiamen; “We are in mission-mode to eradicate poverty; to ensure health, sanitation, skills, food security, gender equality, energy, education.” Without this mammoth effort, India’s lofty geopolitical dreams are D.O.A.
Brazil, for its part, is immersed in a larger-than-life socio-political tragedy, “led” by a Dracula-esque, corrupt non-entity; Temer The Usurper. Brazil’s President, Michel Temer, hit Xiamen eager to peddle “his” 57 major, ongoing privatizations to Chinese investors – complete with corporate gold mining in an Amazon nature reserve the size of Denmark. Add to it massive social spending austerity and hardcore anti-labor legislation, and one’s got the picture of Brazil currently being run by Wall Street. The name of the game is to profit from the loot, fast.
The BRICS’ New Development Bank (NDB) – a counterpart to the World Bank – is predictably derided all across the Beltway. Xiamen showed how the NDB is only starting to finance BRICS projects. It’s misguided to compare it with the Asian Infrastructure Investment Bank (AIIB). They will be investing in different types of projects – with the AIIB more focused on BRI. Their aim is complementary.
On the global stage, the BRICS are already a major nuisance to the unipolar order. Xi politely put it in Xiamen as “we five countries [should] play a more active part in global governance”.
And right on cue Xiamen introduced “dialogues” with Mexico, Egypt, Thailand, Guinea and Tajikistan; that’s part of the road map for “BRICS Plus” – Beijing’s conceptualization, proposed last March by Foreign Minister Wang Yi, for expanding partnership/cooperation.
A further instance of “BRICS Plus” can be detected in the possible launch, before the end of 2017, of the Regional Comprehensive Economic Partnership (RCEP) – in the wake of the death of TPP.
Contrary to a torrent of Western spin, RCEP is not “led” by China.
Japan is part of it – and so is India and Australia alongside the 10 ASEAN members. The burning question is what kind of games New Delhi may be playing to stall RCEP in parallel to boycotting BRI.
Patrick Bond in Johannesburg has developed an important critique, arguing that “centrifugal economic forces” are breaking up the BRICS, thanks to over-production, excessive debt and de-globalization. He interprets the process as “the failure of Xi’s desired centripetal capitalism.”
It doesn’t have to be this way. Never underestimate the power of Chinese centripetal capitalism – especially when BRI hits a higher gear.
It’s when President Putin starts talking that the BRICS reveal their true bombshell. Geopolitically and geo-economically, Putin’s emphasis is on a “fair multipolar world”, and “against protectionism and new barriers in global trade.” The message is straight to the point.
The Syria game-changer – where Beijing silently but firmly supported Moscow – had to be evoked; “It was largely thanks to the efforts of Russia and other concerned countries that conditions have been created to improve the situation in Syria.”
On the Korean peninsula, it’s clear how RC think in unison; “The situation is balancing on the brink of a large-scale conflict.”
Putin’s judgment is as scathing as the – RC-proposed – possible solution is sound; “Putting pressure on Pyongyang to stop its nuclear missile program is misguided and futile. The region’s problems should only be settled through a direct dialogue of all the parties concerned without any preconditions.”
Putin’s – and Xi’s – concept of multilateral order is clearly visible in the wide-ranging Xiamen Declaration, which proposes an “Afghan-led and Afghan-owned” peace and national reconciliation process, “including the Moscow Format of consultations” and the “Heart of Asia-Istanbul process”.
That’s code for an all-Asian (and not Western) Afghan solution brokered by the Shanghai Cooperation Organization (SCO), led by RC, and of which Afghanistan is an observer and future full member.
And then, Putin delivers the clincher;
“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”
“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.
Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold.
This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan.
Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.
The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.
RC – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now.
Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).
Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.
Sections of the War Party in Washington bent on instrumentalizing India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.
Punch Line: The U.S. Dollar Index (DXY) Chart
It’s not just you and your Page – according to new research by BuzzSumo, the average number of engagements with Facebook posts created by brands and publishers has fallen by more than 20% since January 2017.
BuzzSumo analyzed more than 880 million Facebook posts from publisher and brand Pages over the past year, noting a clear decline in engagements since early 2017.
That’s likely no surprise to most Facebook Page managers – organic reach on Facebook has been in decline since late 2013, according to various reports, with continual changes to the News Feed algorithm re-aligning the priority of what users see.
Indeed, in the past year, Facebook’s News Feed algorithm has seen a range of updates which could contribute to this decline:
But then again, none of those changes individually correlates to the decline noted by BuzzSumo, which, as you can see, shifts significantly in January.
As listed above, the January News feed update focused on ‘authentic content’ is not likely to have been the cause of this drop – that was more aimed at weeding out posts that artificially seek to game the algorithm by asking for Likes, and on pushing the reach of real-time content. Maybe Facebook’s increased focus on live, real-time material has had some impact, but it would seem unlikely that it’s the cause of that January drop.
What’s more likely is actually another News Feed update introduced in June 2016, which put increased emphasis on content posted by friends and family over Page posts. Facebook’s always looking to get people sharing more personal updates, and those updates generate more engagement, which keeps people on platform longer, while also providing Facebook with more data to fuel their ad targeting.
In terms of News Feed shifts, this one appears to be the most significant of recent times, but then again, the impacts of that would have been evident earlier in BuzzSumo’s chart. Maybe Facebook turned up the volume on this update in January? It’s obviously impossible to know, and Facebook’s doesn’t reveal much about the inner workings of their News Feed team.
In terms of which posts, specifically, are driving engagement (or not), BuzzSumo found that:
“The biggest fall in engagement was with image posts and link posts. According to the data video posts had the smallest fall in engagement and videos now gain twice the level of engagement of other post formats on average.”
Again, video is king – if you’re concerned about declines in your Facebook reach, then video is where you should be looking. Of course, video posts are also seeing reach declines in line with the overall shift, but they’re outperforming all others, and are likely to be your best bet in maximizing your reach on the platform.
So what can you do? However you look at it, Facebook is a huge driver of referral traffic for a great many websites, with many now having an established reliance on The Social Network to push their numbers.
For one, these figures again underline why putting too much reliance on Facebook is a strategic risk. Diversifying your traffic sources and building your own e-mail list is sometimes easier said than done, particularly given Facebook’s scale, but the figures do underline that it’s important to consider how you can maximize your opportunities outside of The Social Network.
In terms of how to improve your Facebook performance, specifically, there are no definitive answers.
Some brands have seen success in posting less often – back in May, Buffer explained that they’ve been able to triple their Facebook reach while reducing their output by 50%. Less is more is an attractive strategy, but whether that’ll work for your business, it’s impossible to say.
Others have switched to posting more often, something Facebook recommends in their own documentation on how journalists can make best use of the News Feed.
“Post frequently – Don’t worry about over-posting. The goal of News Feed is to show each person the most relevant story so not all of your posts are guaranteed to show in their Feeds.”
In fact, Facebook notes that some Pages post up to 80 times per day, which seems excessive, but when you consider both the reach restrictions (less than 5% of your audience will see each of your posts) and the fact that most people will see your content in their News Feed, as opposed to coming to your Facebook Page, the chances of you spamming fans by over-posting or re-posting are far more limited than they used to be.
If you post more often, and you get less engagement per post, that could still average out to increasing your overall numbers – though you need to watch your negative feedback measures (unfollows and unlikes).
Really, no one has the answers, because it’ll be different for each Page, each audience. The only real way to counter such declines is to experiment, to encourage engagement, to spark conversation and generate more reach through interaction. That takes more work, of course, and you then have to match that additional time investment with return.
Again, it’ll be different for every business, there’s no magic formula. But Facebook reach is clearly declining. Worth considering how that impacts your process.
Former Navy SEAL, and top motivational speaker David B. Rutherford explains his motivational training program to help forge an individual’s Self-Confidence and inspire him or her to live a team orientated lifestyle.
Sin City’s projected 5,000 new apartment units for this year makes no noise nationally in the latest real estate craze. “In 2017, the ongoing apartment building-boom in the US will set a new record: 346,000 new rental apartments in buildings with 50+ units are expected to hit the market,” writes Wolf Richter on Wolf Street. That is three times the number of units that came on line in 2011.
Richter continues, “Deliveries in 2017 will be 21% above the prior record set in 2016, based on data going back to 1997, by Yardi Matrix, via Rent Café. And even 2015 had set a record. Between 1997 and 2006, so pre-Financial-Crisis, annual completions averaged 212,740 units; 2017 will be 63% higher!”
I’ve written before about the high-rise crane craze in Seattle, but that’s nothing compared to New York and Dallas, that are adding 27,000 and 25,000 units, respectively. Chicago is adding 7,800 units despite a shrinking population and rents decreasing 19 percent.
Not surprisingly, Fannie Mae and Freddie Mac are financing this rental housing boom. I wrote recently, the GSEs made 53% of all apartment loans in 2016, down from their combined 68% market share in 2012. “So, their conservator, The Federal Housing Finance Agency (FHFA), recently eased the GSE’s lending caps so they can crank out even more loans.”
Mary Salmonsen writes for multifamilyexecutive.com, “Currently, Fannie and Freddie are particularly dominant in garden apartments [and] in student housing, with 62% and 61% shares, respectively. The two remain the largest mid-/high-rise lenders but hold only 35% of the market.”
Mr. Richter warns us, “Government Sponsored Enterprises such as Fannie Mae guarantee commercial mortgages on apartment buildings and package them in Commercial Mortgage-Backed Securities. So taxpayers are on the hook. Banks are on the hook too.”
But, for the moment, it’s build them and they will come; first renters, then complex buyers. Wall Street giant “The Blackstone Group acquired three Las Vegas Valley apartment complexes for $170 million, property records show,” writes Eli Segall for the Las Vegas Review Journal. “Overall, it bought 972 units for an average of $174,900 each.”
Sales like this has developers going as fast as they can. I heard an apartment developer say Vegas has at least four more good years left in this cycle and is scrambling for new sites. In the land of Starbucks, Microsoft and Amazon, it’s thought the boom will never end. Richter writes, “the new supply of apartment units hitting the market in 2018 and 2019 will even be larger. In Seattle, for example, there are 67,507 new apartment units in the pipeline.”
However, while no one was paying attention, “the prices of apartment buildings nationally, after seven dizzying boom years, peaked last summer and have declined 3% since,” Richter writes. “Transaction volume of apartment buildings has plunged. And asking rents, the crux because they pay for the whole construct, have now flattened.”
As usual, cheap money entices developers to over do it, and the fall will be just as painful.
Why is it so hard to do the things that are in line with our goals but not with our desires at that moment? How can we harness the power of our minds to create a steady fountain of self-discipline each day?
I believe happiness is 10% circumstances and 90% attitude.
How you react to your circumstances makes the biggest impact – and the way you choose to deal with negative people is no exception.
As the ruler of a vast empire, Marcus Aurelius had to deal with negative people on a daily basis. In his writings – the self-addressed Meditations – Aurelius provides us with a quote about dealing with negative people that I find to be an incredibly helpful reminder for setting my attitude.
With about 150 projects starting this year or in the pipeline just in the core of the city, construction is as frenzied as ever.
(The Seattle Times) For the second year in a row, Seattle has been named the crane capital of America — and no other city is even close, as the local construction boom transforming the city shows no signs of slowing.
Seattle had 58 construction cranes towering over the skyline at the start of the month, about 60 percent more than any other U.S. city, according to a new semiannual count from Rider Levett Bucknall, a firm that tracks cranes around the world.
The designation has come to symbolize — for better or worse — the rapid growth and changing nature of the city, as mid-rises and skyscrapers pop up where parking lots and single-story buildings once stood.
And the title of most cranes might be here to stay, at least for a while. The city’s construction craze is continuing at the same pace as last year, while cranes are coming down elsewhere: Crane counts in major cities nationwide have dropped 8 percent over the past six months.
During the last count, Seattle had just six more cranes than the next-highest city, Chicago. Now it holds a 22-crane lead over second-place Los Angeles, with Denver, Chicago and Portland just behind.
Seattle has more than twice as many cranes as San Francisco or Washington, D.C., and three times as many cranes as New York. Seattle has more cranes than New York, Honolulu, Austin, Boston and Phoenix combined.
At the same time, Seattle’s construction cycle doesn’t look like it’s letting up. Just in the greater downtown region, 50 major projects are scheduled to begin construction this year, according to the Downtown Seattle Association. An additional 99 developments are in the pipeline for future years. And that’s on top of what is already the busiest-period ever for construction in the city’s core.
“We continue to see a lot of construction activity; projects that are finishing up are quickly replaced with new projects starting up,” said Emile Le Roux, who leads Rider Levett Bucknall’s Seattle office. “We are projecting that that’s going to continue for at least another year or two years.”
“It mainly has to do with the tech industry expanding big time here in Seattle,” Le Roux said.
Companies that supply the tower cranes say there’s a shortage of both equipment and manpower, so developers need to book the cranes and their operators several months in advance. It costs up to about $50,000 a month to rent one, and they can rise 600 feet into the air.
Most cranes continue to be clustered in downtown and South Lake Union, but several other neighborhoods have at least one, from Ballard to Interbay and Capitol Hill to Columbia City.
(True Activist) As consumers become more educated on the benefits of marijuana — both recreational and medicinal, it continues to be decriminalized at an increasing pace. So far, 29 states (and DC) in the United States have legalized cannabis for medicinal use and eight for recreational. With the freedom to cultivate the herb and utilize it in numerous ways, entrepreneurs have started experimenting with cannabis and infusing it into a variety of edibles — such as baked goods, candies, soda and now… wine.
That’s right, cannabis-infused wine (otherwise known as Canna Vine) is finally available for sale in California. According to the Los Angeles Times, the beverage is made from organically grown marijuana and bio-dynamically farmed grapes. Because the product is low in THC — the primary psychoactive compound found within cannabis — it delivers a mellow “body high” without large effects.
The innovative wine was developed by cancer survivor Lisa Molyneux, who owns the dispensary Greenway in Santa Cruz, and Louisa Sawyer Lindquist, who owns Verdad Wines in Santa Maria. Molyneux, particularly, was inspired to invent the wine to aid fellow cancer survivors.
There’s a reason Canna Vine costs anywhere from $120 to $400 for half a bottle. The process to make the product begins with one pound of marijuana. After the weed is wrapped in cheese cloth, it is added to a barrel of wine where it sits for approximately one year to ferment and repose.
Though the concept of cannabis-infused wine is nothing new (in ancient China, it was prescribed for pain relief), the fact that it can be legally procured in the modern age is.
The founders of Canna Vine are presently experimenting with the green wine (literally) to find the best balance of Sativa and Indica. Their ultimate aim is to sell a wine that creates “uplifting and relaxing sensations.”
“What’s nice about it is how subtle it is. There’s a little flush after the first sip, but then the effect is really cheery, and at the end of the night you sleep really well. It really is the best of both worlds; you get delicious wines with medicinal benefits.”
Melissa Etheridge, — a prominent advocate of Canna Vine — credits the beverage with helping her through chemotherapy. She said,
“When I was in my deepest, darkest, last throes of chemo,” says Etheridge, “I couldn’t smoke or use a vaporizer — and I was never really an edibles eater; I didn’t want to be ‘out of it.’”
“It lands in a really beautiful place,” she added.
First of all, the infused wine is only legal to purchase in California. Second, one needs a medical marijuana license to purchase the product.
California is presently the only place one can procure alcohol infused with weed. Even states like Washington, Oregon, and Colorado don’t allow the combination to be produced or sold.
Presently, both Molyneux and Lindquist seek to refine the wine to position themselves in the market of high-quality cannabis-infused products. Said Lindquist,
“Cannabis wine has been so effective as a stress reliever, as a mood elevator, and as a medicineI have no idea what the market will be like for it, but whatever I make I want to be safe, made from pure ingredients and, hopefully, delicious.”
Back on February 27, when bitcoin was trading in the mid-teens, we wrote “Step aside bitcoin, there is a new blockchain kid in town.”
In recent days, the world’s second most popular digital currency, Ethereum, has been surging (despite its embarrassing hack last June when some $59 million worth of “ethers” were stolen forcing the blockchain to implement a hard fork to undo the damage), prompting many to wonder if some big announcement was imminent. It appears that yet again someone “leaked” because on Monday, an alliance of some of the world’s most advanced financial and tech companies including JPMorgan Chase, Microsoft, Intel and more than two dozen other companies teamed up to develop standards and technology to make it easier for enterprises to use blockchain code Ethereum – not bitcoin – in the latest push by large firms to move toward the holy grail of a post-central bank world in which every transaction is duly tracked: a distributed ledger systems.
Commenting on the sharp – for the time – rise in ETH price (which had moved from $13 to $15), we said “the move may be just the beginning if most corporations adopt Ethereum as the distributed ledger standard: Accenture released a report last month arguing that blockchain technology could save the 10 largest banks $8 billion to $12 billion a year in infrastructure costs — or 30 percent of their total costs in that area.” Since then most corporations have indeed adopted Ethereum as the distributed ledger standard.
* * *
Three months later, and with Ethereum 15x higher at $230, Bloomberg today writes: “Step aside, bitcoin. There’s another digital token in town that’s winning over the hearts and wallets of cryptocurrency enthusiasts across the globe.”
It’s not just the lede that is familiar, it’s everything else too, especially the forecast.
The value of ether – the digital currency linked to the ethereum blockchain – could surpass that of bitcoin by the end of 2018, according to Olaf Carlson-Wee, chief executive officer of cryptocurrency hedge fund Polychain Capital who was interviewed by Bloomberg.
“What we’ve seen in ethereum is a much richer, organic developer ecosystem develop very, very quickly, which is what has driven ethereum’s price growth, which has actually been much more aggressive than bitcoin,” said Carlson-Wee, in an interview on Bloomberg Television Tuesday.
As we previously reported, while Ethereum suffered an embarrassing hack last summer resulting in the theft in millions of ether, the cryptocurrency has drawn the interest of industries from finance to health care because its blockchain does far more than let bitcoin users send value from one person to another. “Its advocates think it could be a universally accessible machine for running businesses, as the technology allows people to do more complex actions in a shared and decentralized manner.“
Which is why ethereum is gaining increasingly more converts. Carlson-Wee wasn’t the first to forecast a bright future for ethereum. Fred Wilson, co-founder and managing partner at Union Square Ventures, laid out an even more ambitious timeline for the cryptocurrency in an interview earlier this month.
“The market cap of ethereum will bypass the market cap of bitcoin by the end of the year,” said Wilson, who is also chairman of the board at Etsy.
In fact, if one looks at the relative market share of various cryptocurrencues, and extrapolates current trends, ethereum could surpass bitcoin in just a few months.
Bitcoin currently dominates a little less than half of the digital currency market, down from almost 90 percent three months ago, according to Coinmarketcap.com data. Meanwhile, ethereum has quadrupled its share, which now represents more than a quarter of the pie.
Indicatively, as of this moment, the market cap of Bitcoin is $37 billion, 75% higher than Ethereum. If the optimsitic forecasts are accurate, Ethereum, which is currently offered at $230, will cost roughly $400 next time we look at it, if not more. What is more interesting is that while bitcoin hit an all time high of approximately $2900 one week ago, it has failed to recapture the highs, even as ethereum has continued surging ever higher, perhaps a sign of a broad momentum shift from the legacy “cryptocoin” to the “up and comer.”
“We’re absolutely still in the infrastructure building phase,” Carlson-Wee said. “But I do think within one to two years, we’ll start to see the first viral applications that are user facing.”
In any case, for readers interested in putting money into either extremely volatile crypto, be prepared, in fact assume, a complete loss of your investment as chasing such speculative manias rarely has a happy ending. Then again, trying to time the peak of any bubble is a fool’s endeavor. Just look at the S&P.
Bitcoin’s growth has started to catch up to its fundamentals, which is likely what has been driving its astronomical gain as of late, he said. Others have attributed the surge to speculation, as well as increased interest in Asia and adoption by established companies.
Impressive performance aside, more than $150 has been knocked off bitcoin’s price since late last week amid concerns about transaction speed, safety and a possible price bubble.
Sound money advocates scored a major victory on Wednesday, when the Arizona state senate voted 16-13 to remove all income taxation of precious metals at the state level. The measure heads to Governor Doug Ducey, who is expected to sign it into law.
Under House Bill 2014, introduced by Representative Mark Finchem (R-Tucson), Arizona taxpayers will simply back out all precious metals “gains” and “losses” reported on their federal tax returns from the calculation of their Arizona adjusted gross income (AGI).
If taxpayers own gold to protect themselves against the devaluation of America’s paper currency, they frequently end up with a “gain” when exchanging those metals back into dollars. However, this is not necessarily a real gain in terms of a gain in actual purchasing power. This “gain” is often a nominal gain because of the slow but steady devaluation of the dollar. Yet the government nevertheless assesses a tax.
Sound Money Defense League, former presidential candidate Congressman Ron Paul, and Campaign for Liberty helped secure passage of HB 2014 because “it begins to dismantle the Federal Reserve’s monopoly on money” according to JP Cortez, an alumnus of Mises University.
Ron Paul noted, “HB 2014 is a very important and timely piece of legislation. The Federal Reserve’s failure to reignite the economy with record-low interest rates since the last crash is a sign that we may soon see the dollar’s collapse. It is therefore imperative that the law protect people’s right to use alternatives to what may soon be virtually worthless Federal Reserve Notes.” In early March, Dr. Paul appeared before the state Senate committee that was considering the proposal.
“We ought not to tax money, and that’s a good idea. It makes no sense to tax money,” Paul told the state senators. “Paper is not money, it’s a substitute for money and it’s fraud,” he added, referring to the fractional-reserve banking practiced by the Federal Reserve and other central banks.
After the committee voted to pass the bill on to the full body of the Senate, Dr. Paul held a rally on the grounds of the state legislature, congratulating supporters of the measure and of sound money.
Paul told the crowd that “they were on the right side of history” and that even though those working to restore constitutional liberty to Arizona and all the states “had a great burden to bear,” there are “more than you know” working toward the same goal.
Referring to the bill’s elimination of capital gains taxes on gold and silver, the sponsor of the bill, State Representative Mark Finchem, said, “What the IRS has figured out at the federal level is to target inflation as a gain. They call it capital gains.”
Shortly after the vote in the state Senate, the Sound Money Defense League, an organization working to bring back gold and silver as America’s constitutional money, issued a press release announcing the good news.
“Arizona is helping lead the way in defending sound money and making it less difficult for citizens to protect themselves from the inflation and financial turmoil that flows from the abusive Federal Reserve System,” said Stefan Gleason, the organization’s director
As a reminder, in 1813 Thomas Jefferson warned, “paper money is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.” This is also why the men who drafted the Constitution empowered Congress to mint gold and silver, sound money, and why they included not a single syllable authorizing the legislature to “surrender that critical power to a plutocracy with a penchant for printing fiat money.”
Slowly, states may be summoning back the days when money was actually worth something. At least 20 states are currently considering doing as Arizona is about to do and remove the income tax on the capital gains from the buying and selling of precious metals: some state legislatures, including Utah and Idaho, have taken steps toward eliminating income taxation on the monetary metals. Other states are rolling back sales taxes on gold and silver or setting up precious metals depositories to help citizens save and transact in gold and silver bullion.
If we accept that our financial system is nothing but a wealth-transfer mechanism from the productive elements of our economy to parasitic, neofeudal rentier-cartels and self-serving state fiefdoms, that raises a question: what do we do about it?
The typical answer seems to be: deny it, ignore it, get distracted by carefully choreographed culture wars or shrug fatalistically and put one’s shoulder to the debt-serf grindstone.
There is another response, one that very few pursue: fanatic frugality in service of financial-political independence. Debt-serfs and dependents of the state have no effective political power, as noted yesterday in It Isn’t What You Earn and Owe, It’s What You Own That Generates Income.
As Aristotle observed, “We are what we do every day.” That is the core of fanatic frugality and the capital-accumulation mindset.
For your amusement: a few photos of everyday fanatic frugality (and dumpster-diving).
The only leverage available to all is extreme frugality in service of accumulating savings that can be productively invested in building human, social and financial capital.
Debt is serfdom, capital in all its forms is freedom. Waste nothing, build some form of capital every day, seek opportunity rather than distraction.
Debt = Serfdom (April 2, 2013)
How Frugal Are You? (August 7, 2010)
By Parke Shall
That is our simple bitcoin advice. “Buy one and forget about it for a while.” Your loss today is going to be capped at about $1400 but, as was said in Back to the Future, “if this thing hits 88 miles per hour, you’re going to see some serious s***.”
We wanted to take the time to write a small note today about our continued thinking on bitcoin and why we think a small investment in perhaps just one bitcoin could be a prudent strategy for asset diversification for any investor.
Hopefully, our track record on the digital currency also helps our credibility today. In the past, we have advocated for buying any and all dips in the digital currency making the argument time and time again that we believed bitcoin would continue to appreciate regardless of small aberrations that have occurred along the way. For instance in December of last year, we predicted bitcoin would soar through $1200 this year.
The conclusion has generally been the same in each of our bitcoin articles: we expect demand for bitcoin to continue to rise and, with a limited supply, and we expected this demand will push the price significantly higher. This is the dynamic we have seen during the course of bitcoin’s life cycle thus far,
Many people have been deterred from investing or purchasing bitcoin at these levels because of how much the prices has appreciated so far. This is akin to not wanting to buy a stock while it is on its way up, despite its best years possibly being ahead of it. If you didn’t buy at $700 like we advocated, then yes, you missed out on a double. But who is to say that if you don’t buy here at around $1400 you won’t miss another double? In fact, we think the reality is that an investment in bitcoin today could pay off many multiples in the future as long as, as an investor, you have patience.
We also don’t think owning gold is a bad idea either. We are not sure why this argument of gold versus bitcoin started, but we own both. We like to think of them as our “old-school” and our “new school” hedges. Gold is an “old-school” hedge because it is actually a physical asset that you can reach out and touch that has been intertwined with economics for thousands of years. It has a great track record of demand and comes in finite amounts, therefore making it a great hedge against anything and everything that is “new school” in the market, from Keynesian theory to bitcoin.
Bitcoin obviously has the biggest track for potential appreciation, we believe. While gold may not go up 10 times in the event of a catastrophe or a risk off event, it still may appreciate significantly. We believe bitcoin, on the other hand, actually has the potential to appreciate over 100 times in the future, if it holds up. By that, we mean that there is definitely a theoretical case for the asset to appreciate this much, although there is probably a cautious likelihood of it happening. In other words, and not to sound hyperbolic, Bitcoin going to $1 million may not prove to be a total impossibility.
This appreciation may occur without a catastrophe or without a risk off event. In other words, we like bitcoin not only as an investment in the financial technology and not only as an investment in a digital currency but also as an investment in a hedge against central banks and the markets.
1. We know that blockchain is at the core of what makes Bitcoin tick. Companies and governments have continued to invest in blockchain, and we believe that owning Bitcoin is another way to invest in one of the earliest and possibly the most well known blockchain project out there. Therefore, an investment in Bitcoin is an investment in Blockchain.
2. Not unlike gold, people use Bitcoin because they want less government and less regulation in their lives. Buying Bitcoin is a way to, at least for now, shore up a method of transacting value outside of the “system”. Gold offers the same benefits and is tangible, which is why we like owning both gold and Bitcoin as hedges against the “system”.
We have gotten numerous questions over the last year or so about what our strategy would be if we were new to investing in bitcoin. Put simply, the strategy would be to “buy one bit coin and just leave it”. One of a couple scenarios are going to happen.
The first situation is the worst. Let’s assume bitcoin winds up going to zero eventually and is somehow either rejected as a digital currency or disproven as a financial technology. In that case, you take a 100% loss. Sorry. At least your risk was defined.
The second situation is one where bitcoin is adopted in somewhat of the same fashion as it has been adopted of recent. Its use starts to drift from outside the mainstream to inside the mainstream and the price continues to appreciate. This is a case where you’d likely see appreciation in a bitcoin that you purchased today.
Finally, the third situation. We call this the grand slam. Bitcoin is unanimously excepted as the first and only prominent digital currency. It becomes a full-scale hedge, adopted by a significant portion of the population, against central banking systems and finance as we know it today. Given the fact that only about 20 million bitcoin will be issued in total, there will be a severe dry up in supply as billions of people worldwide look to get their share of the digital currency. This is a situation where the currency could appreciate 100 times what its worth now or more. Obviously, this is the most speculative of the three situations but could be a reality if an investor has enough patience to wait it out. This type of situation could take 15 to 30 years and this is why the title of this article is “buy one bitcoin and forget about it“.
Again, bitcoin does not come without risk.
Relative to other assets you may hold, like stocks, options and other currencies, Bitcoin is going to be extraordinarily volatile. Due to the fact that it is easily in the digital currency’s life cycle and that it has yet to be proven on a wide scale, investors can expect significant volatility, sometimes 20%+ in one day’s time, for the capital they have invested in Bitcoin.
Also, it is an all digital currency meaning that it needs digital infrastructure to survive. In a catastrophic scenario where our infrastructure is compromised, we have no idea what would happen to bitcoin. It isn’t tangible and you can’t physically hold it, which are two of its major detracting points versus gold. However, we see buying bitcoin at $1400 as a speculative investment that could yield immense results in the future if you have the wherewithal and you have the strength to hold it over time.
Nearly every company performed worse than expected, and expectations were down across the board.
Reuters reports Automakers’ April U.S. Sales Drop; Wall St. Fears Boom is Over.
“GM said its consumer discounts were equivalent to 11.7 percent of the transaction price. The automaker also said its inventory level rose to 100 days of supply at the end of April versus around 70 days at the end of 2016. Recent levels have worried analysts, and GM has promised inventories will be down by the end of 2017.”
Bloomberg reports Auto Sales Fall for Fourth Straight Month
Quote of the Day
The U.S. market is plateauing, Mark LaNeve, Ford’s vice president of U.S. marketing, sales and service, said on a call with analysts and reporters.
“I’m not discouraged by the number,” he said. “In this kind of industry, there’s going to be these kinds of months.”
I discussed complacency yesterday in Three Big Red Flags for Auto Sales.
The three red flags according to Automotive News are leasing, incentives, and inventory. I added a fourth: complacency in the face of falling demand and rising incentives.
Effect on GDP
Auto sales make up about 20% of consumer spending. The big second quarter GDP bounce economists expect is highly unlikely, to say the least.
Back in 2007/2008, Wall Street drastically pulled back on mortgage origination for their own balance sheets while ramping up their issuance of RMBS securities. Of course, the goal was very simple: package up all the mortgage-related nuclear waste on your balance sheet into a pretty package, tie a ribbon around it with that AAA-rating from Moody’s and sell it all to unsuspecting pension funds and insurance companies around the globe.
Now, despite all the ‘harsh penalties’ that Obama imposed on Wall Street after the mortgage crisis, like that $1.8 billion settlement where we showed that Goldman will actually make money from their ‘punishment’, it seems as though the exact same scheme is currently underway with auto loans. Per Bloomberg:
Both banks have grown more reluctant to make new subprime loans using money from their own balance sheets. Wells Fargo tightened its underwriting standards and slashed the volume of all loans it made to car buyers in the first quarter by 29 percent after greater numbers of borrowers fell behind on payments. JPMorgan’s consumer and community banking head Gordon Smith earlier this year said the bank had cut its new lending for subprime auto loans “dramatically.”
At the same time the firms are indirectly funding billions of dollars of the loans by helping companies like Santander Consumer USA Holdings Inc. borrow in the asset-backed securities market, essentially shunting money from bond investors to finance companies. Wall Street banks packaged more loans from finance companies into bonds in the first quarter than the same period last year, and Wells Fargo and JPMorgan remained two of the top underwriters of the securities.
Of course, with only ~$200 billion of auto ABS outstanding, compared to $9 trillion in RMBS, the auto loan market hardly represents the same “systemic risk” to the financial industry today as mortgage loans did back in 2007. That said, deterioration in lending standards could certainly wreak havoc on consumers, investors and the auto industry which will undoubtedly have ripple effects throughout the economy.
The risks to Wall Street firms from subprime auto bonds are smaller. Big banks provide lines of credit to finance companies that make subprime loans, but these tend to be a small part of major firms’ balance sheets. The auto loan bond market is much smaller, too: there were just $192.3 billion of securities backed by auto loans, including prime and subprime, outstanding at the end of March according to the Securities Industry and Financial Markets Association, compared with around $8.9 trillion of residential mortgage bonds at the end of last year.
Banks might not get hurt much by subprime auto securities, but for investors who buy them, the risks are growing. Subprime borrowers are falling behind on their car loan payments at the highest rate since the financial crisis. General Motors Co. expects car prices to drop 7 percent this year and auto lender Ally Financial Inc. reported last month that prices fell that much during its first quarter, so the value of the loans’ collateral is dropping. Even Wells Fargo’s analysts who look at bonds backed by car loans cautioned in March that it may be a good time for investors to cut their exposure.
And while JPM and Wells are pulling back on their own auto loan underwriting, we wonder whether they’re sharing these details regarding auto loan delinquencies with new buyers of their sparkling auto ABS securities?
Or the fact that loss severities are also starting to rise…
Oh well, losses are never possible on those highly-engineered, complex wall street structures…until they are.
It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children. The program was enacted by Congress in the 1980s, but president Obama promoted it heavily.
The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis.
Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.
Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.
As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.
“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” says Toby Merrill of Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”
The number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.
The financing fueled a surge in college enrollment. Between 2005 and 2010, enrollment grew 20%, the biggest increase since the 1970s. The Obama administration supported such lending in an effort to widen access to college education.
Nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting, according to a Wall Street Journal analysis of data from credit-rating firm Equifax Inc. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.
Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress.
In 2005, president Bush signed the bankruptcy reform act of 2005 making student loans not dischargeable in bankruptcy.
President Obama came along next and encouraged parents who had no idea what they were getting into to sign loans to put their kids through college.
Parents plus their kids are mired in debt that cannot be paid back. Thank you Congress, President Bush, and President Obama.
Surefire Way to Discharge the Loans
There is one way to get rid of these loans. Die.
Stop the Madness
Wherever government meddles, costs rise dramatically.
The solution is to stop the meddling: Stop all the loan programs, stop all the aid programs, stop insisting that everyone needs to go to college, and start accrediting programs and course offerings from places like the Khan Academy.
Not a single student aid program aided any students. Rather, escalating costs went to teachers, administrators, and their pensions as student debt piled sky high.
We have frequently noted the precarious state of the U.S. mall REITs (see “Myopic Markets & The Looming Mall REITs Massacre” and “Is CMBS The Next “Shoe To Drop”? GGP Sales Suggest Commercial Real Estate Crashing“), but the epic collapse of the Galleria at Pittsburgh Mills paints a uniquely horrific outlook for mall operators. The 1.1 million square foot mall, once valued at $190 million after being opened in 2005, sold at a foreclosure auction this morning for $100 (yes, not million…just $100). According to CBS Pittsburgh, the mall was purchased by its lender, Wells Fargo, which credit bid it’s $143 million loan balance, which was originated in 2006, to acquire the property.
Pittsburgh Mills mall auctioned off for a hundred bucks. Bid by Wells Fargo which is holding 149 Mill. Debt on mall.
— PAUL D. MARTINO (@PMARTKDKA) January 18, 2017
Like many malls around the country, Pittsburgh Mills has suffered the consequences of weak traffic amid tepid demand from the struggling U.S. consumer resulting in massive tenant losses. According to the Pittsburgh Tribune, the mall is only 55% occupied and was last appraised for $11 million back in August.
The value of the mall has been plummeting since it opened in July 2005. Once worth $190 million, it was appraised at $11 million in August.
The mall has lost a number of key tenants over the years, including a Sears Grand store. The mall’s retail space is nearly half empty, with about 55 percent occupied.
Of course, New York Fed President Bill Dudley laid out a very compelling case for retailers yesterday if he can just convince American homeowners to commit the same mistakes they made back in 2006 by repeatedly withdrawing all of the equity in their homes to fund meaningless shopping sprees. So it’s probably safe to keep buying those mall REITs…after all those 3% dividend yields are amazing alternatives to Treasuries and you’re basically taking the same risk…assuming you overlook the billions of property-level debt that ranks senior to your equity position.
The California housing market is expected to grow increasingly un-affordable next year, driving would-be home buyers away from high-cost coastal regions and toward the more inexpensive inland stretches of the state, according to an industry forecast.
The California Assn. of Realtors on Thursday predicted that sales will be more robust in the Central Valley and Inland Empire as families look for a home they can afford.
And as more and more families struggle to afford a home, price increases are expected to be more muted than in years past. The state’s median price is projected to end this year at $503,900, up 6.2% from last year. In 2017, prices should climb 4.3% to $525,600.
“Next year, California’s housing market will be driven by tight housing supplies and the lowest housing affordability in six years,” Pat Zicarelli, the association’s president, said in a statement.
The high cost of housing in California has become a growing political issue within the state. And it has spurred calls for increased funding for subsidized housing, as well as efforts to loosen building regulations so the private sector can quickly construct more residential units.
This week, two studies — one from UC Riverside and another from UCLA — warned that the state’s housing shortage threatens to put a drag on economic growth.
Despite those and other fears, the Realtors association predicted that the economy will keep improving and produce enough demand to nudge statewide home sales up 1.4%, compared to 2016.
In contrast, sales this year are projected to inch down 0.4% from 2015.
“The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity,” the association’s chief economist, Leslie Appleton-Young, said in a statement.
The second installment of Cook County property tax bills were due August 1. That includes the city of Chicago, where property owners got their first taste of a record increase the city council passed last year. Some property owners are facing double-digit increases.
After paying the highest property taxes ever levied in the city, many Chicago homeowners had the same complaint.
“For the amount of taxes that my neighbors and myself are paying, we’re not getting the proper services like other neighborhoods get,” West Side resident Steve Lucas said.
That’s because the taxes are not paying for added services. The Chicago portion of the property tax bill – which was increased by nearly 70 percent -will pay for police and firefighter pensions and school construction. Add that to what’s become an annual hike in the CPS operating budget levy.
“Increased every year. (Every year they’re increasing?) Yes, every year,” North Side resident David Chang said.
“(00:15:35)We are much better off today than we were five years ago,” said Alexandra Holt, Chicago budget director.
At Chicago’s City Club, Holt said Chicago’s looming $137 million deficit looks a lot better than $654 million projected at this time five years ago. Mayor Rahm Emanuel said the city had no choice but to raise money for pensions to spare the operating budget.
“There is a real financial cost and economic cost to the city if you don’t address the problem,” Emanuel said.
Former Gov. Pat Quinn has a petition drive underway to appoint a consumer advocate to help homeowners appeal their tax charges.
“The best way to do it is at the ballot box by gathering signatures on petitions like this one,” said former Illinois Gov. Pat Quinn.
The city has scheduled three more tax increases for police and fire pensions and still has not addressed a deficit in the retirement fund for city workers, not to mention a newly-authorized property tax hike to pay for teacher pensions.
“The city says they might have to go up again. Yes, and I might not be able to stay where I’m staying. I’ve been there 40 years and I don’t know if I can stay any longer,” South Chicago resident Doris Hood said.
The city council has approved a plan to rebate a few hundred dollars to the lowest-income homeowners if they apply. It should also be noted that the Chicago School Board is expected to approve a $250 million property tax increase for teacher pensions at its meeting later this month.
According to the Clerk’s office, citizens of Chicago who paid an average tax bill of $3,220.32 in 2014, will pay an average of $3,633.19 on their 2015 bills, an increase of $412.87.
Cook County property taxes are paid in arrears, meaning the bill for 2015 is paid during 2016.
The Clerk’s office says that this substantial increase is due the city being reassessed in 2015, which resulted in a 9.3 percent increase in the equalized assessed value citywide. The equalized assessed value, or EAV, is a multiplier used in calculating property taxes to bring the total assessed value of all properties in Cook County to a level that is equal to 33.3 percent of the total market value of all the real estate in the county.
The Clerk’s office is quick to note that a majority of Chicago’s tax increase is due to the city increasing the pension portion of its levy by $318 million. As a result of the reassessment, the Clerk’s office says the city tax rate actually increased less than one percent compared to 2014.
Cook County is divided into three areas, Chicago, northern suburbs, and southern suburbs, which are reassessed every three years. The southern suburbs were reassessed in 2014. Chicago was reassessed in 2015. The northern suburbs will be reassessed in 2016.
Tax bills for Cook County property owners are due August 1, 2016.
As you probably assumed anyway, due to Betteridge’s Law, we aren’t currently in a homeownership trough. The recent homeownership rate posting of 62.9% for the second quarter of 2016 is not the lowest in history, nor is it even the lowest in recorded US history. However, it is the lowest post in 51 years(!) – not since the third quarter of 1965 have we seen homeownership rates this low.
And why are we at DQYDJ bothering to look now?
Donald Trump, the Republican nominee for President sent this Tweet a couple days back:
The History of the Home Ownership Rate
A while back, we did a two-part deep dive into the history of the 30 year mortgage and the history of the (recorded) home ownership rate in America. That research dug up some very interesting information.
First, long-dated mortgages of 15, 20 and longer years started in the mid 1930s. Second, private mortgage insurance (which was mostly done in by the Great Depression) started up in 1957 with the Mortgage Guaranty Insurance Company.
Those innovations brought homeownership to the masses – no longer did you have to be able to afford a huge, short-term loan with a massive down payment. Extending Mr. Trump’s graph back to 1890 you can see the effect of the innovations (and of the Great Depression and Recession) on homeownership rates:
(Note that until the 60s there wasn’t as much resolution in the series – see our historical research for details).
The longer dated series lets us state a few interesting facts:
Why Is the Home Ownership Rate Dipping?
Oh, you won’t accept ‘people are renting more’ as an answer?
Yes, the run up in real estate prices in many areas of the country (so soon after the Great Recession!) is a huge factor. But, so too are the massive demographic changes underway in our country.
As we have pointed out many times, the millennials (of which I count myself as an older member) now makeup roughly 25% of the workforce. Millennials have different living arrangements than past generations – a greater propensity to live at home, a seeming desire to be free to change jobs (and areas!) more often, and, yes, more expensive housing options. That last point, of course, prices many millennials out of the market – renting makes much more sense when you look at the home prices in many metros in the United States.
Can It Change? Will We See the Rate Rise Again?
Yes – as of right now, I don’t see the drive towards renting (and living at home) to be a sort of permanent desire. Already there are countering trends – the so-called “Tiny House” movement one of them (and, yes, I have been searching for a place to name-drop it!). It’s safest, at this point in time, to assume millennials will tend to be similar to their parents – eventually leaving the city to marry, have kids and buy homes. You know, like yours truly.
However, we’re looking into the future here. Marriage is trending towards being an institution for older and older couples, along with kids. If these trends keep up, we might start to get into uncharted territory here – I’d love your input on whether you think homeownership rates will recover, or high-60s was an anachronism.
Will we see an increase in homeownership led by the millennials?
It appears that ‘group think‘, ignorance and cognitive dissonance have come to dominate the argument around whether Canada’s housing market is in bubble territory and poised to burst sometime soon. Struggling U.S. hedge funds, many of which missed out on the ‘big short‘ of book and movie fame, have been betting heavily on an epic Canadian housing meltdown by shorting Canada’s major banks, but to date have incurred considerable losses.
Then you have the chorus of economists, analysts and investors who have been claiming that not only has a massive real estate bubble formed in Canada but that it is poised to burst. In many cases, these proclamations go back as far as 2009 and despite being reiterated by naysayers now for close on seven years, a housing bust has yet to occur. Many including acclaimed investor Canada’s own Prem Watsa have stated that Canada’s housing market resembles that which existed in the U.S. during the run-up to the subprime crisis.
These claims rest upon a broad-range of assertions that a number of one-off, disruptive and unsustainable factors are driving Canadian housing prices ever higher, creating the perfect storm that will cause the bubble to burst in a spectacular manner. These claims, many of which have been voiced for some years now, include:substantial amounts of foreign (read Asian) investment;
However, it appears that many investors, particularly those based in the U.S. are ignoring the fundamental differences between the two markets and local attributes that will not only prevent an epic meltdown but backstop prices for some time to come. Let’s take a detailed look at some of the major myths that are regularly wheeled out by those who claim that a massive housing bubble exists in Canada and is poised to burst any time.
#1 There is a massive economy wide housing bubble
One of the main drivers of the massive U.S. housing meltdown was that frothy prices were not restricted to specific regional markets or segments but instead constituted an economy-wide housing bubble that was highly speculative in nature. And the risk that this posed to the U.S. financial system and economy was magnified by the prevalence of non-traditional and substandard lending practices as well as considerable volumes of inferior mortgage backed securities.
Yet in the case of Canada, overheated or bubbly housing markets are restricted to a small number of regional markets and market segments, with the growth of housing prices either slowing or falling across other regions. By the end of June 2016 it was only a handful of markets including Toronto, Vancouver and Hamilton-Burlington that experienced double-digit growth.
In fact, it was the considerable increase of house prices in those markets which for June rose by 16.8%, 11.4% and 14.2% year-over-year respectively, which was responsible for the Canadian national average growing by 11%. Other regional markets such as New Brunswick and Quebec grew at more modest rates of around 3%, whereas Novia Scotia remained flat. Then you have Alberta and Saskatchewan, which are among the most affected by the prolonged slump in crude, where house prices fell by 1.4% and 1.6% respectively.
It is these points which indicate that Canada’s housing market on whole, is starting to cool with the growth in the national average house price predominantly being driven by Toronto and Vancouver. This does not necessarily mean that either of those housing markets have entered bubbles with a range of market specific dynamics responsible for the ongoing price growth.
#2 A massive influx of foreign investment is responsible for higher housing prices
Probably one of the biggest myths regularly bandied about by those that claim the market is in rarefied bubble territory and ready to burst, is that the tremendous inflow of foreign investment, particularly from China, is driving prices to unrealistic levels, particularly in Toronto and Vancouver. While it is certainly undeniable that these markets are attracting considerable amounts of attention from foreign investors this is not the only or most important factor in causing prices to surge in those markets.
Even naysayers such as Capital Economics economist Paul Ashworth believes that surging house prices are not being caused by foreign investment but rather by Canadians taking advantage of cheap credit and relaxed lending standards.
In fact, according to a range of reports and research conducted by a number of economists there is very little evidence to support the assertion that foreign money is driving up housing prices. According to an article from Canada’s National Post earlier this year, vacancy rates in Vancouver are on average 2% which then increases to 7.5% for condos, with very few of those vacant properties being foreign owned. The same article goes onto state that it is the laws of supply and demand that are responsible for higher housing prices rather than foreign money.
Recent data from the B.C. government shows that between June 10 and June 29 only 3.3% of all real estate deals in Vancouver involved foreign nationals and as a share of sales by value they only amounted to 5.1% of all sales. This is a far cry from the figures to be expected from a market where foreign money is responsible driving property prices into a bubble.
Indeed, if we take a closer look at the property markets of Vancouver and Toronto it is possible to identify specific market dynamics that are responsible for higher prices and these factors will continue to push them higher for some time to come.
#3 Toronto and Vancouver are in bubble territory
According to the naysayers, Canada’s housing market is now truly defying common sense and that a colossal housing crash is on its way, with the housing markets in Vancouver and Toronto caught in massive bubbles. This they claim is supported by factors such as Canada being judged to have the most overvalued housing market among developed economies and that global investors are increasingly betting against Canadian housing in record numbers.
Nonetheless, there are also a range of factors that indicate that these claims are alarmist and inaccurate, with no evidence to support the view that housing bubbles exit in either market. Will Dunning, chief economist of industry group Mortgage Professionals Canada, believes that prices are sustainable and not representative of a property bubble, stating that this talk has been going on since 2008 with no evidence of one existing. He even went on to state:
Housing bubbles do not exist in Canada, . . .
If we turn to what defines an economic or market bubble it becomes apparent that Dunning could certainly be right. For a housing bubble to exist people have to be buying houses for purely speculative reasons and this has to be across a considerable portion of the market. Then to illustrate that a bubble exists there has to be expectations of self-fulfilling price growth and that those unrealistic expectations are leading to increased and excessive activity in the housing market.
The theories postulated by Nobel award winning economist Joseph Stiglitz also supports these notions, he defines a bubble as where the reason that the price is high today, is only because investors believe that the selling price will be higher tomorrow.
None of these factors in their entirety apply to Canada’s housing market nor those of Vancouver or Toronto. If anything it is far more mundane market specific factors that are driving housing prices ever higher. A group of academics from the University of British Colombia while proposing placing a tax on vacant properties in order to reduce the level of foreign investment in Vancouver have stated that the fundamental drivers of higher prices are higher demand and limited supply. Upon taking a closer look at the markets of Vancouver and Toronto this becomes very apparent.
You see, Toronto and Vancouver are defined as global gateway cities that sees them cast in the same light as global cities such as London, New York, Paris and Hong Kong that have far more expensive real estate markets. This makes them important destinations for immigrants, with them accepting around half of all external immigrants to Canada.
The reasons for this are predominantly economic with both cities, particularly because of the prolonged slump in oil prices, have the greatest concentration of jobs in Canada, with around 25% of total employment in Canada. And according to economists’ from Bank of Montreal these two cities accounted for all of Canada’s job growth in 2015.
It is these factors which according to National Bank economist Stefane Marion are responsible for the working age population in Toronto and Vancouver to be growing at a rate that is 70% faster than the national average.
The prolonged slump in oil has magnified this phenomenon, with the deep economic slump in Canada’s oil patch significantly impacting the economies of Alberta and Saskatchewan. This has not only made those regions less appealing to immigrants but triggered a marked uptick in the number of households seeking to relocate because of higher unemployment and falling wages.
Meanwhile, The Economist has theorized that this rapidly growing demand is placing considerable pressure on housing supplies particularly because of their unchanging supplies, stating:
The supply of housing is rather inelastic, so in the short term house-price inflation is driven more by demand factors, such as the number of households, disposable income, interest rates and the yield available on other assets. In recent years all of these have helped to push house prices steadily upwards, especially in big cities.
The constrained supply situation caused by limited inventories in both cities is easy to see. As the chart below illustrates, Toronto’s housing inventory by June of this year was at less than half of its 10 year average and a third lower than the previous year.
Source: Canadian Real Estate Association.
When turning to Vancouver it is possible to see that for the same period inventories are around 60% lower than the 10 year average and a third lower than a year earlier.
Source: Canadian Real Estate Association.
With expanding populations, driven by growing internal and external migration, causing demand to swell coupled with extremely limited housing supplies in Toronto and Vancouver there is considerable support for higher prices, which means there won’t a correction in those markets anytime soon.
#3 The Conditions in Canada are similar to those in the U.S. prior to the financial crisis
One of the biggest myths concerning Canada’s housing market is that the conditions that exist are similar to, if not the same as those that existed in the U.S. in the lead-up to the massive housing meltdown that almost caused the U.S. financial system to collapse in 2007.
According to ratings agency Moody’s:
. . rising levels of Canadian household debt relative to income, along with rapidly increasing house prices, have created conditions similar to those in the United States prior to the financial crisis of 2008.
Then there is Steve Eismann who rose to fame betting against the U.S. housing market in the lead-up to the subprime crisis. He is making similar claims to Moody’s but was doing so way back in 2013 and has been recommending that investors bet against Canada’s mortgages lenders and banks.
However, there are a range of reasons why Canada is not a repeat of what was occurring in the U.S. back in 2006, key among these is far higher underwriting standards for loans and a distinct lack of subprime mortgages.
It appeared that way back in 2006, anyone with a pulse could obtain a mortgage with mortgage underwriting standards relaxed to levels that were ridiculously low. Then there was the huge influx of fraudulent applications and an extremely lax approach to checking applications for accuracy. This easy money helped to fuel ever rising house prices and give a leg up to the next round of frenzied speculation. No one, from mortgage brokers, to the major banks wanted the merry-go-round to end as they all sort to cash in on the growing frenzy.
Clearly, Canada has not reached this stage yet and in fact it is doubtful that it ever well, with its property market certainly not caught in the same type of speculative frenzy.
Furthermore, it was the presence of considerable volumes of subprime mortgages that essentially precipitated the U.S. housing meltdown. It is estimated that they made up somewhere between 18% and 21% of all mortgages originated in the run-up to the housing crash. Whereas, in Canada subprime mortgages are estimated to make-up less than 5% of the market, and that was when the market was at its peak. With Bank of Canada pushing for tighter mortgage underwriting standards since this figure was released, it will certainly have fallen.
Aside from these key differences there are also a range of other Canada specific factors to consider including:
As a result, these differences mean that the market is not exposed to the same degree of risk nor the same volume of rapid defaults that forced U.S. lenders in 2006 and 2007 to flip repossessed properties as quickly as possible, causing prices to cascade ever lower.
The differences between Canada’s housing market and that which existed in the U.S. in the run-up to the housing meltdown, which almost caused the U.S. financial system to collapse, are strikingly important. They highlight that not only is a sharp correction or housing meltdown unlikely but that in marked contrast to the claims of naysayers that there is in fact no evidence of a housing bubble. If anything while some regional markets are cooling, Vancouver and Toronto’s ever higher housing prices can be attributed to demographic pressures, higher demand and constrained supply. These factors will push prices higher in those markets for some time to come and backstop prices if there is a sharp economic downturn. For all of these reasons it is difficult to envision an epic Canadian housing meltdown occurring any time soon.
Confidential briefing for CRA auditors outlines strategy to tackle suspected tax cheats who do not report global income or who ‘flip’ homes – but reveals that last year, there was only one successful audit of global income for all of British Columbia
A secret strategy briefing for Canada Revenue Agency auditors has revealed plans to crack down on real estate tax cheats in Vancouver, with 50 auditors being assigned to investigate purchases funded by unreported foreign income.
Presentation notes for the seminar, delivered to auditors on June 2 and leaked to the South China Morning Post, show that only one successful audit of worldwide income was conducted in British Columbia in the past year, in spite of Vancouver’s reputation as a hotspot for immigrant “astronaut families” whose breadwinners often work in mainland China and Hong Kong.
The plans, which come amid a furore over the role of Chinese money in Vancouver’s runaway housing market, were provided by a Canada Revenue Agency employee who attended the June 2 briefing. The briefing is identified as a “protected B” confidential document on the cover.
But the employee feared the sweep would prove inadequate. “Sure, they’ve upped the numbers because it’s hitting the papers,” they said. But on average, they estimated, each redeployed income auditor would only be able to conduct 10 to 12 audits per year – about 500 or 600 in total. “This is nothing,” compared to the likely scale of the cheating, they said.
That estimate is in keeping with the briefing text which says the crackdown will “review the top 500 highest risk files within our region”.
The briefing lists four areas being targeted for audit under the CRA’s “real estate projects”, launched in response to “significant media attention”: unreported worldwide income, property “flipping”, under-reporting of capital gains from home sales, and under-reporting of Goods and Services Tax (GST) on sales of new homes.
‘High-end homes, minimal income’
The time-consuming global income audits will tackle “individuals living in high-valued areas in BC who are reporting minimal income not supporting their lifestyle”, as well as those who buy “high-end homes with minimal income being reported.”
The presentation includes a photo of a luxury home supposedly bought for C$5.8million whose owner claimed the “working income tax benefit” for low earners. It also lists the tuition fees of Vancouver private schools.
Property flippers who swiftly resell homes for profit will meanwhile be audited to see if their properties truly qualify for exemption from capital gains tax, granted to people selling their principal residence.
The briefing describes various excuses given by owners who moved out of newly purchased homes, including a negative feng shui report, the “bad omen” of tripping over a crack in the sidewalk, and a painter dying in the home.
It cites the highly publicized case of a well-kept 20-year-old, C$6million mansion that was simply torn down after being bought, prompting community outrage.
Yes, we are getting a response now, but the government has known about this issue for a few years. They held back
The briefing does not say the owners of this home, or the $5.8 million home, are tax cheats and nor does the SCMP suggest so.
The CRA employee said the briefing, which was streamed online, was delivered by CRA’s Pacific region business intelligence director, Mal Gill.
Gill declined to discuss the briefing. “I cannot confirm anything to you,” he said, referring the SCMP to a CRA communications manager.
A spokeswoman said: “The CRA cannot comment or release information related to risk assessment or non-compliance strategies.”
However, she said real estate transactions in Toronto have been the subject of greater scrutiny, for some years. “More recently, the CRA has been actively monitoring and auditing real estate transactions in British Columbia,” she said.
“For the year ending March 31, 2016, the CRA completed 2,203 files [in BC and Ontario] related to real estate,” she said.
In addition to the 50 redeployed income auditors, the leaked briefing says CRA is assigning 20 GST auditors and 15 other staff to the real estate project in BC.
The CRA source said they leaked the material because, “like many people, I’m pretty disgusted by what’s happening here [in the Vancouver real estate market], and a lack of enforcement has been a part of the problem. Yes, we are getting a response now, but the government has known about this issue for a few years. They held back.”
The employee said they were surprised to discover that only one successful audit of global income had been conducted in BC in the year to March 31. “That’s the ludicrousness of this. I was shocked when I saw this, and they only got C$27,000 in tax revenue out of it,” they said.
Asked whether this might show a widespread problem with undeclared worldwide income did not exist in BC, the source said: “No, what it shows is that inadequate people and resources have been put to the task. These [tax cheats] are highly sophisticated individuals, with good representation from their lawyers and accountants, and we are sending out our least experienced people to catch them. That’s the problem.”
Census data from 2011 has previously shown that 25,000 households in the City of Vancouver spent more on their housing costs than their entire declared income, with these representing 9.5 per cent of all households.
But far from being impoverished, such households were concentrated in some of the city’s most expensive neighborhoods, where homes sell for multi-million-dollar prices.
The source suggested CRA bureaucrats previously feared being labelled racist if they targeted low-income declarers buying real estate “because the vast majority of these cases, involving high real estate values, involve mainland Chinese”.
The crackdown was not intended for public knowledge, and instead was to satisfy “people from high up” in the CRA and government who wanted to know “what are you guys doing about this…there’s stuff hitting the papers every day”, the source said. Yet the briefing says the crackdown “will not address the major concerns about affordability of real estate”.
“The vast majority of these [undeclared global income] cases, involving high real estate values, involve mainland Chinese”
The source said there had previously been little done to check whether taxpayers were secretly living and working abroad while supporting a family in Vancouver. “There’s virtually no liaising done with immigration. The common auditor would never check when people are actually coming and going, to check whether they might be going back to China or wherever to work. You can be lied to, to your face: ‘Oh no, I live here [in Canada] full-time’.”
The leaked documents show that in in addition to the single audit on global income in the last fiscal year, CRA in BC conducted 93 successful audits on property flips, 20 on capital gains tax and 225 on under-reported GST. The audits yielded C$14.4 million in new tax, of which C$10million was GST. There was C$1.3 million in fines.
As of April 29, there were 40 audits of global income under way, 205 related to flipping, 34 related to capital gains and 428 related to GST.
The average Vancouver house price now sits around C$1.75million for the metropolitan region, while the Real Estate Board of Greater Vancouver’s “benchmark” price for all residential properties is C$889,100, a 30 per cent increase over the past year. However, incomes remain among the lowest in Canada, making Vancouver one of the world’s most un-affordable cities .
The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email firstname.lastname@example.org or on Twitter, @ianjamesyoung70
“The idea that Wall Street came out of this thing just fine, thank you, is just something that just grates on people. They think you didn’t just come out fine because it was luck. They think you guys just really gamed this thing real well.”
So said then-Senator Edward E. Kaufman, a Democrat from Delaware, at the Congressional hearing in the spring of 2010 where assorted members of Congress lambasted Goldman Sachs’ activity in the run-up to the financial crisis.
But it turns out two members of Congress actually made money from that crisis, according to publicly available documents. During the crisis years, two now-senators, Mark Warner (D-Va.) who was the governor of Virginia until his Senate term began in 2009, and Bob Corker (R-Tenn.), who took office in 2007, were invested in a fund that appears to have made sizable profits from Goldman products that were designed to bet against the real estate market.
There’s no evidence either Senator was aware of the specific strategy, although both have reported millions of dollars of income from the fund. A little bit of ancient history: Back in the spring of 2010, the SEC charged Goldman Sachs with fraud over a deal called Abacus 2007-AC1. Abacus 2007-AC1 was a so-called CDO, which in essence requires investors to wager against each other. One set of investors was betting that homeowners would continue to pay their mortgages. Others, who were short, were betting there would be massive defaults.
In this particular deal, Goldman allowed a hedge fund client, Paulson Capital Management, to take the short position and help choose which securities would go into it. The SEC alleged that Goldman hadn’t told the long investors that Paulson’s team essentially had designed the CDO to fail. According to a report done by the US Senate Permanent Subcommittee on Investigations, three long investors together lost about $1 billion from their Abacus investments, while the Paulson hedge fund profited by about the same amount.
Goldman paid $550 million to settle the SEC’s charges in the summer of 2010. A young vice president who had worked on the deal, Fabrice Tourre, was eventually found liable in a civil suit brought by the SEC, making him one of the few to face any repercussions from the crisis era.
But Abacus 2007-AC1 wasn’t unique. In fact, it was merely the last in a series of Abacus CDOs. According to the Senate report, these were “pioneered by Goldman to provide customized CDOs for clients interested in assuming a specific type and amount of investment risk” and “enabled investors to short a selected group” of securities. Many of the Abacus deals were tied in part to the performance of subprime residential mortgage-backed securities, but some were also tied to the performance of commercial mortgage-backed securities.
Because AIG provided insurance on at least some of the Abacus deals, the Abacus deals were also part of the collateral calls that Goldman made to AIG, and part of the reason that taxpayers ended up bailing out AIG. Plenty of well-known hedge funds availed themselves of Goldman’s Abacus deals, according to a document Goldman provided the Financial Crisis Inquiry Commission. The list of those who were short various Abacus deals includes Moore Capital Management, run by billionaire Louis Bacon; Magnetar, an Illinois-based fund run by Alec Litowitz; Brevan Howard, a European hedge fund management company; and FrontPoint Partners (which shows up in the movie “The Big Short”).
There are also some lesser known names in the document, including Pointer Management, a Tennessee-based fund which was founded in 1990 by Joseph Davenport, a Chattanooga area businessman and former Coca-Cola executive, and Thorpe McKenzie, also from Chattanooga, according to the Campaign for Accountability.
Specifically, Pointer took short positions in an Abacus deal called ABAC07-18, as did FrontPoint Partners and several others. According to several sources, this Abacus deal was based entirely on securities tied to commercial real estate, rather than residential real estate. While few people have heard about this particular Abacus deal, it too resulted in Goldman making a collateral call on AIG. According to a document Goldman submitted to the FCIC, it looks as if by late 2008, AIG had posted a total of $308 million in collateral to Goldman in connection with Abacus 2007-18.
And it too was controversial — so controversial that at a meeting of the Financial Crisis Inquiry Commission on October 12, 2010, the commissioners voted to refer the matter to the Department of Justice, citing “potential fraud by Goldman Sachs in connection with Abacus 2007-18 CDO.”
In its write-up, the FCIC quoted Steve Eisman, the FrontPoint trader whose character figures prominently in “The Big Short.” According to his interview with the FCIC, Eisman seemed to feel that Goldman might have gamed the rating agencies, and might have brought in outside investors so that the firm could justify marking the deal down immediately, meaning long investors would suffer and short sellers would make money.
According to Eisman’s testimony, he said to the Goldman traders, “So you put this stuff together and you went to the agencies to get a rating and the biggest issue with the rating is the correlation of loss, and you presented a correlation analysis that was lower than you actually thought it was but the rating agencies were stupid, so they’d buy it anyway. So assuming your correlation analysis was correct, you took the short side, sold it to the client, and then [did the deal with me to get a mark].” One of the Goldman traders responded, according to Eisman’s testimony, “Well, I wouldn’t put it in those terms exactly.”
Eisman went on to say he believed Goldman “wanted another party in the transaction so if we have to mark the thing down, we’re not just marking it to our book.” He added that, “Goldman was short, and we [FrontPoint] were short. So when they go to a client and say we’re marking it down, they can say well it wasn’t just our mark.”
The FCIC noted that if Goldman did agree with Eisman’s characterization, this could raise legal issues for Goldman as to whether the firm deliberately misled the rating agencies, thereby leading to a material omission in the offering documents for Abacus 2007-18 and violating securities laws. The FCIC also noted that if Goldman indeed knew it was expecting to lower the value of the security as the firm was creating it, and brought in other investors only to make that look more genuine, that could be another potential violation of securities laws. Anyway. Nothing came of this, just as nothing came of any of the FCIC’s other referrals to the Justice Department.
According to a document Goldman submitted to the FCIC, the short investors did very well: Pointer appears to have been paid $120 million in “termination payments” in 2008 and 2009. (Although commercial real estate held up fairly well in the end, prices also collapsed in the crisis.) The documents don’t make it clear what, if any, upfront investment was required; the monthly coupon rate was small.
“This amount of money that’s going into AIG, there is no upside now,” Corker told Politico in early 2009 about the taxpayer bailout of the company. “This is all just like gone money.”
Gone where? Well, what is clear is that Corker especially, but also Warner, made money from their overall investments in Pointer. According to his disclosure forms, Corker’s investment in Pointer first shows up in 2006. He put the value of his investment between $5 million and $25 million. In July 2007, several months before the effective dates for Pointer’s Abacus deals, he put an additional $1 million to $5 million into Pointer. From 2006 to 2014, he reported total income from Pointer of between $3.9 million at the low end and $35.5 million at the high end (including funds from the sale of part of his stake in the fund in 2012.) He sold the rest of his stake in 2014 and reported a cash receivable from Pointer of between $5 million and $25 million that year.
According to Warner’s disclosure forms, he first invested in Pointer in 2007. He assigned his stake the same value range as Corker did his: between $5 million to $25 million. Warner, who sold his entire position in 2012, reported total income from Pointer of between $1.5 million and $10 million. There’s no evidence that either senator knew that a fund in which they had invested was shorting the real estate market.
A letter from Pointer’s chief compliance officer says that Corker “can neither exercise control nor have the ability to exercise control over the financial interest held by Pointer.” Nonetheless, Corker and the principals of Pointer have known each other for a long time. According to the Campaign for Accountability, in 2004, Corker named Joseph Davenport among his co-chairs of his campaign committee ahead of his 2006 election; Pointer employees and their spouses have contributed $76,840 to Corker’s campaigns and $55,000 to his Rock City PAC, says CfA. And several business entities tied to Corker list the same address as Pointer. There aren’t any obvious ties between Warner and Pointer.
Pointer did not return a call for comment. A spokesperson for Warner declined to comment. Corker’s spokesperson says, “This is yet another ridiculous narrative being peddled by a politically-motivated special interest group that refuses to disclose its donors. This dark money entity has an abysmal track record for accuracy, and just like the other unfounded claims they have leveled against Senator Corker, this too is completely baseless.” (They are apparently referring to the Campaign for Accountability, although this story was sourced from publicly available documents.)
It’s also a little ironic that Corker and Warner were the co-sponsors of the Corker Warner bill, which set out to reform the housing finance system. Let’s give them some credit. Since they already benefited from the last crisis, maybe they’re trying to protect us from the next one?
“Why didn’t Acme Co. accept our offer?”
“Why should I hire you over somebody else?”
“Where do you see this relationship going?”
“Where do babies come from?”
Questions. Sometimes they’re as innocuous as “What’s up?” and other times they get our hearts pumping and our mouths stuttering.
Part of being a man is knowing how to improvise, and part of improvisation is being able to think on your feet. It’s a skill that includes the ability to give impromptu remarks, as well as to answer unexpected and difficult questions.
People ask pointed questions to obtain information, but there are often other reasons behind their queries as well. What they really want, in many cases, is to get a feel for your attitude towards a certain subject, and how calm, confident, and trustworthy you seem.
So the ability to answer difficult questions is built on two tenets: 1) possessing ample knowledge and giving the right information, and 2) delivering that information in a poised manner.
The number of potential questions you might be asked is so infinite and context-specific that it’s not possible to learn a scripted response for each. But it is possible to hone your improvisation skills by learning methods that will allow you to give a smooth answer, no matter what you’re asked.
These methods come from the surprisingly handy Thinking on Your Feet by Marian K. Woodall and we’ll be sharing them with you today.
When someone aims a question our way, we’re tempted to jump on it as if it’s a live grenade. We fear that even a bit of silence will be read as hesitation, and perhaps even shiftiness. So we rush in…only to be forced to stick our feet in our mouths.
The answer you blurt out on impulse is unlikely to be the best response, and you’ll kick yourself later while mulling over the things you wished you had said.
So the biggest thing you can do to improve your responses to difficult questions is to buy yourself more time to come up with answers. Even a few extra nanoseconds gives your brain a chance to do a little more processing and pull out the pertinent information and needed words.
Allowing yourself a tiny pause to collect your thoughts is completely fine. Just don’t fill that gap with an “Uhhh…” or “Ummm…” which makes you sound halting and unsure. A moment of silence, on the other hand, will lend you a thoughtful air.
You can also repeat the question before launching into your answer. Speaking the question and then the answer offers a fuller response; it also helps others in a large audience who may not have heard the question when it was first asked.
In addition to embracing the silent pause or repeating the question, there are other techniques that will not only buy yourself extra processing time, but have other benefits as well. Let’s take a look at how they work.
Questions come in many forms, and you’re not always lucky enough to get the short, clear, focused variety; sometimes, you’re presented with a vague, complex, rambling, and downright impenetrable query.
Don’t guess at what information the inquirer is looking for; misinterpreting their question may end up causing offense, or at least invoking an irritable response: “That’s not what I asked you.”
The much more effective approach is to clarify the question — to essentially get yourself a better one — before giving your response. This will not only make the question easier to answer, but will create a delay that gives your brain more time to think.
Woodall recommends several ways to nudge the inquirer into giving you a better, easier-to-handle question:
1. Ask them to repeat the question.
Just as you often wish you could take back an answer, people frequently wish they could reword their question because they aren’t happy with how it came out. Here you give them the chance for a do-over. Their second take is likely to be shorter, clearer, and more focused than the first.
Asking to have a question repeated has something of a formal air; I suppose we associate it with job interviews or courtrooms or something. So keep in mind that this is a tactic which is more natural in professional settings than casual conversation.
2. Ask for clarification.
If a question is vague and/or all over the place, respond with a question of your own that seeks to clarify and specify what the seeker is trying to get at. Which product is he referring to? What timeframe does she have in mind? Which aspect of something are they thinking about?
An especially effective way to focus the question is by asking the inquirer to select between choices:
3. Ask for a definition.
Even when everyone is using the same words, they can mean different things to different people. To avoid talking past each other, ask the questioner how they define key words in their inquiry.
Woodall points out that when someone has asked a question with the purpose of cornering you, asking them to define their terms can turn the tables and stump the stumper. For example, someone may ask, “Why do you think hunting is manly?” To which you reply, “Well, first of all, how do you define manliness?” Oftentimes, the person isn’t actually sure what they’re asking, in which case they may either withdraw the question, or, tangle themselves up in such knots that the original question is forgotten. If they do come up with a definition, well, now you’re both on the same page, and you gained extra time to think about your response.
4. Clarify or define a point yourself.
One way to take greater control of an interaction is to define the question as you see it within your response:
The downside of asserting your own definition of things is that the other party may not see it that way, and may become frustrated by your response.
Sometimes questions are relatively clear, but they’re inappropriate, and you don’t wish, for various reasons, to answer them in full. Your response must then be hedged. Hedging has a somewhat unsavory reputation, as it’s associated with dishonesty and manipulation. But it need not be used for nefarious purposes. Sometimes you really can’t give someone the answer they seek, whether it’s because that information is classified, private, sensitive, or isn’t appropriate for a particular audience. You’re not obligated to talk about private things you don’t want to talk about.
Furthermore, sometimes people ask questions that have a hidden agenda or are simply off-topic, and will sidetrack you from your own agenda in a meeting or class. It’s important to know how to keep your remarks on track with what you want to accomplish.
Yet, you also typically don’t desire to offend or make the inquirer feel embarrassed. So, while a straight “That’s none of your business,” is all that’s needed in some scenarios, it’s oftentimes in your best interest to deliver your “noneya” in much more diplomatic terms. An artful hedge will at the least spare the inquirer from feeling like a toad, and at best, leave the seeker feeling that their question was in fact answered.
Here are techniques Woodall recommends for pulling off a successful indirect response:
1. Respond to one aspect of the question/line of questioning.
If a question is multi-faceted, and there are some aspects you don’t want to address, but at least one you’re comfortable speaking to, focus your response on that part:
While you might think failing to answer each of a seeker’s questions will leave them unappeased, you’d be surprised how often they’ll let it go at your single answer. Sometimes an inappropriate question slips out, and the inquirer is actually relieved when you ignore it. And oftentimes folks who ask a particularly long-winded, multi-faceted question aren’t exactly sure what they want to know; they’re just feeling generally concerned. A simple answer that demonstrates positivity and confidence will leave them satisfied.
If the seeker is not satisfied, however, and wants to circle back to the unanswered parts of their question, that’s fine; by forwarding the initial exchange, you gave your brain a couple more minutes of subconscious processing time to figure out how to respond to the more difficult bits.
2. Refocus the question.
If there’s a part of a question you can’t, or don’t think it’s a good idea to speak to, focus on an aspect that you are able to discuss. You do that, Woodall writes, by taking “one word from the question (usually not the main topic word) which you are willing to talk about, and [building] a strong, supported response around it.”
3. “Discuss” the question.
Sometimes it seems like people are looking for a specific answer to a question, when really they just want to have their question discussed. There really isn’t a singular answer to give. They want to hear both sides of an idea, or they just want to know that you’ve been thinking about it too, or they simply want acknowledgement that their question is something it’s okay to wonder about. In many cases, these inquiries are answered with a question that tries to probe deeper into the topic at hand.
4. Build a bridge.
With this technique you build a bridge from what the question asked to what you really want to talk about. This technique is similar to the refocusing strategy, but the break between the content of the question and that of your answer is sharper.
If you’ve ever watched politicians on TV news shows and candidates in debates, you’ll be very familiar with the bridging technique. A politician will be asked about their stance on the war, and they’ll answer, “The war is an important issue that needs to be addressed. But I really want to talk about the tax hike my opponent is proposing.”
The bridge response can be infuriating, and I certainly don’t recommend dodging important questions with it. But it can also be essential in sticking to your agenda when you’re presented with off-topic queries in a meeting you’re leading, a Q&A you’re facilitating, or a lecture you’re giving.
The trick is to bridge to your talking points as smoothly as possible so the transition isn’t very awkward or noticeable. To do this, first acknowledge the significance of the question’s subject, and then look for a logical pivot point towards what you think is the more important issue:
5. Use a funnel.
With the bridge technique, you pivot entirely away from the question’s main subject. But sometimes you just want to narrow the field of discussion, while also encouraging follow-up questions and continued conversation on one certain aspect. With the funnel approach, you can accomplish this by acknowledging the larger issue and then using narrowing words to direct your audience’s attention to the area you most want to spotlight:
The key with all these hedging strategies is delivery. Hesitating and acting sheepish will render them wholly ineffective. Demonstrating confidence and strength will lend you the air of a captain directing a tour boat; people will enjoy coming along for the ride. Remember, when people ask questions, they’re not just looking for answers; they want to get a sense for what you’re like and how you handle pressure.
Sometimes the best way to answer a difficult question is to give a totally straightforward answer. This forthrightness can be refreshing and disarming.
Now, I know some of you are thinking (in a cowboy drawl voice): “You should always shoot from the hip! A real man doesn’t hedge.”
That certainly sounds nice, but as with most bumper-sticker-esque maxims, it’s basically complete poppycock.
We all hedge our answers to questions every single day. Else, when someone asks, “How’s it going?” you answer with, “Well, I had a big fight with my wife last night, and my truck needs new brakes…” We all refocus and only partially answer the questions that are regularly put to us.
The art of improvisation simply requires knowing how and how much to respond in widely varying circumstances; when to pull the accordion out, and when to contract it. Learning this skill, and buying yourself extra time to deploy it, assures that you won’t blurt out answers you’ll spend the next month wishing you could take back, and that your confident, smooth responses will help you navigate your relationships and career like a sir.
The dollar extended its slide for a second day as traders ruled out the possibility that the Federal Reserve will raise interest rates at its meeting next
The currency fell against all of its major peers, depressed by tepid U.S. job growth and comments by Fed Chair Janet Yellen that didn’t signal timing for the central bank’s next move. Traders see a zero percent chance the Fed will raise rates at its June 15 meeting, down from 22 percent a week ago, futures contracts indicate. The greenback posted its largest losses against the South African rand, the Mexican peso and the Brazilian real.
“There’s a bias to trade on the weaker side in the weeks to come” for the dollar, which will probably stay in its recent range, said Andres Jaime, a foreign-exchange and rates strategist at Barclays Plc in New York. “June and July are off the table — the probability of the Fed deciding to do something in those meetings is extremely low.”
The greenback resumed its slide this month as a lackluster jobs report weakened the case for the Fed to boost borrowing costs and dimmed prospects for policy divergence with stimulus increases in Europe and a Asia. The losses follow a rally in May, when policy makers including Yellen said higher rates in the coming months looked appropriate.
The Bloomberg Dollar Spot Index declined 0.5 percent as of 9:31 a.m. New York time, reaching the lowest level since May 4. The U.S. currency slipped 0.4 percent against the euro to $1.1399 and lost 0.5 percent to 106.83 yen.
There’s a 59 percent probability the central bank will hike by year-end, futures data showed. The Federal Open Market Committee will end two-day meeting on June 15 with a policy statement, revised economic projections and a news conference.
“Until the U.S. economy can make the case for a rate rise, the dollar will be at risk of slipping further,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. The Fed’s “economic projections are going to be key, as well as Ms. Yellen’s news conference — if they were to sketch an even shallower path of rate rises next week, that would add fuel to the dollar’s selloff.”
The impact of record-keeping on the course of history cannot be overstated. For example, the act of preserving Judaism and Christianity in written form enabled both to outlive the plethora of other contemporary religions, which were preserved only orally. William the Conqueror’s Domesday Book, compiled in 1086, was still being used to settle land disputes as late as the 1960s. Today there is a new system of digital record-keeping. Its impact could be equally large. It is called the blockchain.
Imagine an enormous digital record. Anyone with internet access can look at the information within: it is open for all to see. Nobody is in charge of this record. It is not maintained by a person, a company or a government department, but by 8,000-9,000 computers at different locations around the world in a distributed network. Participation is quite voluntary. The computers’ owners choose to add their machines to the network because, in exchange for their computer’s services, they sometimes receive payment. You can add your computer to the network, if you so wish.
All the information in the record is permanent – it cannot be changed – and each of the computers keeps a copy of the record to ensure this. If you wanted to hack the system, you would have to hack every computer on the network – and this has so far proved impossible, despite many trying, including the US National Security Agency’s finest. The collective power of all these computers is greater than the world’s top 500 supercomputers combined.
New information is added to the record every few minutes, but it can be added only when all the computers signal their approval, which they do as soon as they have satisfactory proof that the information to be added is correct. Everybody knows how the system works, but nobody can change how it works. It is fully automated. Human decision-making or behavior doesn’t enter into it.
If a company or a government department were in charge of the record, it would be vulnerable – if the company went bust or the government department shut down, for example. But with a distributed record there is no single point of vulnerability. It is decentralized. At times, some computers might go awry, but that doesn’t matter. The copies on all the other computers and their unanimous approval for new information to be added will mean the record itself is safe.
This is possibly the most significant and detailed record in all history, an open-source structure of permanent memory, which grows organically. It is known as the block chain. It is the breakthrough tech behind the digital cash system, Bitcoin, but its impact will soon be far wider than just alternative money.
Many struggle to understand what is so special about Bitcoin. We all have accounts online with pounds, dollars, euros or some other national currency. That money is completely digital, it doesn’t exist in the real world – it is just numbers in a digital ledger somewhere. Only about 3 per cent of national currency actually exists in physical form; the rest is digital. I have supermarket rewards points and air miles as well. These don’t exist physically either, but they are still tokens to be exchanged for some kind of good or service, albeit with a limited scope; so they’re money too. Why has the world got so excited about Bitcoin?
To understand this, it is important to distinguish between money and cash.
If I’m standing in a shop and I give the shopkeeper 50 pence for a bar of chocolate, that is a cash transaction. The money passes straight from me to him and it involves nobody else: it is direct and frictionless. But if I buy that bar of chocolate with a credit card, the transaction involves a payment processor of some kind (often more than one). There is, in other words, a middle man.
The same goes for those pounds, dollars or euros I have in the accounts online. I have to go through a middle man if I want to spend them – perhaps a bank, PayPal or a credit-card company. If I want to spend those supermarket rewards points or those air miles, there is the supermarket or airline to go through.
Since the early 1980s, computer coders had been trying to find a way of digitally replicating the cash transaction – that direct, frictionless, A-to-B transaction – but nobody could find a way. The problem was known as the problem of ‘double-spending’. If I send you an email, a photo or a video – any form of computer code – you can, if you want, copy and paste that code and send it to one or a hundred or a million different people. But if you can do that with money, the money quickly becomes useless. Nobody could find a way around it without using a middle man of some kind to verify and process transactions, at which point it is no longer cash. By the mid 2000s, coders had all but given up on the idea. It was deemed unsolvable. Then, in late 2008, quietly announced on an out-of-the-way mailing list, along came Bitcoin.
On a dollar bill you will see the words: ‘In God we trust.’ Bitcoin aficionados are fond of saying: ‘In proof we trust’
By late 2009, coders were waking up to the fact that its inventor, Satoshi Nakamoto, had cracked the problem of double spending. The solution was the block chain, the automated record with nobody in charge. It replaces the middle man. Rather than a bank process a transaction, transactions are processed by those 8,000-9,000 computers distributed across the Bitcoin network in the collective tradition of open-source collaboration. When those computers have their cryptographic and mathematical proof (a process that takes very little time), they approve the transaction and it is then complete. The payment information – the time, the amount, the wallet addresses – is added to the database; or, to use correct terminology, another block of data is added to the chain of information – hence the name block chain. It is, simply, a chain of information blocks.
Money requires trust – trust in central banks, commercial banks, other large institutions, trust in the paper itself. On a dollar bill you will see the words: ‘In God we trust.’ Bitcoin aficionados are fond of saying: ‘In proof we trust.’ The block chain, which works transparently by automation and mathematical and cryptographic proof, has removed the need for that trust. It has enabled people to pay digital cash directly from one person to another, as easily as you might send a text or an email, with no need for a middle man.
So the best way to understand Bitcoin is, simply: cash for the internet. It is not going to replace the US dollar or anything like that, as some of the diehard advocates will tell you, but it does have many uses. And, on a practical level, it works.
Testament to this is the rise of the online black market. Perhaps £1 million-worth of illegal goods and services are traded through dark marketplaces every day and the means of payment is Bitcoin. Bitcoin has facilitated this rapid rise. (I should stress that even though every Bitcoin transaction, no matter how small, is recorded on the blockchain, the identity of the person making that transaction can be hidden if desired – hence its appeal). In the financial grand scheme of things, £1 million a day is not very much, but the fact that ordinary people on the black market are using Bitcoin on a practical, day-to-day basis as a way of paying for goods and services demonstrates that the tech works. I’m not endorsing black markets, but it’s worth noting that they are often the first to embrace a new tech. They were the first to turn the internet to profit, for example. Without deep pools of debt or venture capital to fall back on, black markets have to make new tech work quickly and practically.
But Bitcoin’s potential use goes far beyond dark markets. Consider why we might want to use cash in the physical world. You use it for small payments – a bar of chocolate or a newspaper from your corner shop, for example. There is the same need online. I might want to read an article in The Times. I don’t want to take out an annual subscription – but I do want to read that article. Wouldn’t it be nice to have a system where I could make a micropayment to read that article? It is not worth a payment processor’s time to process a payment that small, but with internet cash, you don’t need a processor. You can pay cash and it costs nothing to process – it is direct. This potential use could usher in a new era of paid content. No longer will online content-providers have to be so squeezed, and give out so much material for nothing in the hope of somehow recouping later, now that the tech is there to make and receive payment for small amounts in exchange for content.
We also use cash for quick payments, direct payments and tipping. You are walking past a busker, for example, and you throw him a coin. Soon you will able to tip an online content-provider for his or her YouTube video, song or blog entry, again as easily and quickly as you click ‘like’ on the screen. Even if I pay my restaurant bill with a card, I’ll often tip the waiter in cash. That way I know the waiter will receive the money rather than some unscrupulous employer. I like to pay cash in markets, where a lot of small businesses start out because a cash payment goes directly to the business owner without middle men shaving off their percentages. The same principle of quick, cheap, direct payment will apply online. Cheap processing costs are essential for low-margin businesses. Internet cash will have a use there, too. It also has potential use in the remittance business, which is currently dominated by the likes of Western Union. For those working oversees who want to send money home, remittance and foreign exchange charges can often amount to as much as 20 per cent of the amount transferred. With Bitcoin that cost can be removed.
Some of us also use cash for payments we want kept private. Private does not necessarily mean illegal. You might be buying a present for your wedding anniversary and don’t want your spouse to know. You might be making a donation to a cause or charity and want anonymity. You might be doing something naughty: many of those who had their Ashley Madison details leaked would have preferred to have been able to pay for their membership with cash – and thus have preserved their anonymity.
More significantly, cash is vital to the 3.5 billion people – half of the world’s population – who are ‘un-banked’, shut out of the financial system and so excluded from e-commerce. With Bitcoin, the only barrier to entry is internet access.
Bitcoin is currently experiencing some governance and scalability issues. Even so, the tech works, and coders are now developing ways to use block chain tech for purposes beyond an alternative money system. From 2017, you will start to see some of the early applications creeping into your electronic lives.
One application is in decentralized messaging. Just as you can send cash to somebody else with no intermediary using Bitcoin, so can you send messages – without Gmail, iMessage, WhatsApp, or whoever the provider is, having access to what’s being said. The same goes for social media. What you say will be between you and your friends or followers. Twitter or Facebook will have no access to it. The implications for privacy are enormous, raising a range of issues in the ongoing government surveillance discussion.
We’ll see decentralized storage and cloud computing as well, considerably reducing the risk of storing data with a single provider. A company called Trustonic is working on a new block chain-based mobile phone operating system to compete with Android and Mac OS.
Just as the block chain records where a bitcoin is at any given moment, and thus who owns it, so can block chain be used to record the ownership of any asset and then to trade ownership of that asset. This has huge implications for the way stocks, bonds and futures, indeed all financial assets, are registered and traded. Registrars, stock markets, investment banks – disruption lies ahead for all of them. Their monopolies are all under threat from block chain technology.
Land and property ownership can also be recorded and traded on a block chain. Honduras, where ownership disputes over beachfront property are commonplace, is already developing ways to record its land registries on a block chain. In the UK, as much as 50 per cent of land is still unregistered, according to the investigative reporter Kevin Cahill’s book Who Owns Britain? (2001). The ownership of vehicles, tickets, diamonds, gold – just about anything – can be recorded and traded using block chain technology – even the contents of your music and film libraries (though copyright law may inhibit that). Block chain tokens will be as good as any deed of ownership – and will be significantly cheaper to provide.
The Peruvian economist Hernando de Soto Polar has won many prizes for his work on ownership. His central thesis is that lack of clear property title is what has held back so many in the Third World for so long. Who owns what needs to be clear, recognized and protected – otherwise there will be no investment and development will be limited. But if ownership is clear, people can trade, exchange and prosper. The block chain will, its keenest advocates hope, go some way to addressing that.
Smart contracts could disrupt the legal profession and make it affordable to all, just as the internet has done with music and publishing
Once ownership is clear, then contract rights and property rights follow. This brings us to the next wave of development in block chain tech: automated contracts, or to use the jargon, ‘smart contracts’, a term coined by the US programmer Nick Szabo. We are moving beyond ownership into contracts that simultaneously represent ownership of a property and the conditions that come with that ownership. It is all very well knowing that a bond, say, is owned by a certain person, but that bond may come with certain conditions – it might generate interest, it might need to be repaid by a certain time, it might incur penalties, if certain criteria are not met. These conditions could be encoded in a block chain and all the corresponding actions automated.
Whether it is the initial agreement, the arbitration of a dispute or its execution, every stage of a contract has, historically, been evaluated and acted on by people. A smart contract automates the rules, checks the conditions and then acts on them, minimizing human involvement – and thus cost. Even complicated business arrangements can be coded and packaged as a smart contract for a fraction of the cost of drafting, disputing or executing a traditional contract.
One of the criticisms of the current legal system is that only the very rich or those on legal aid can afford it: everyone else is excluded. Smart contracts have the potential to disrupt the legal profession and make it affordable to all, just as the internet has done with both music and publishing.
This all has enormous implications for the way we do business. It is possible that block chain tech will do the work of bankers, lawyers, administrators and registrars to a much higher standard for a fraction of the price.
As well as ownership, block chain tech can prove authenticity. From notarization – the authentication of documents – to certification, the applications are multi fold. It is of particular use to manufacturers, particularly of designer goods and top-end electrical goods, where the value is the brand. We will know that this is a genuine Louis Vuitton bag, because it was recorded on the block chain at the time of its manufacture.
Block chain tech will also have a role to play in the authentication of you. At the moment, we use a system of usernames and passwords to prove identity online. It is clunky and vulnerable to fraud. We won’t be using that for much longer. One company is even looking at a block chain tech system to replace current car- and home-locking systems. Once inside your home, block chain tech will find use in the internet of things, linking your home network to the cloud and the electrical devices around your home.
From identity, it is a small step to reputation. Think of the importance of a TripAdvisor or eBay rating, or a positive Amazon review. Online reputation has become essential to a seller’s business model and has brought about a wholesale improvement in standards. Thanks to TripAdvisor, what was an ordinary hotel will now treat you like a king or queen in order to ensure you give it five stars. The service you get from an Uber driver is likely to be much better than that of an ordinary cabbie, because he or she wants a good rating.
There will be no suspect recounts in Florida! The block chain will also usher in the possibility of more direct democracy
The feedback system has been fundamental to the success of the online black market, too. Bad sellers get bad ratings. Good sellers get good ones. Buyers go to the sellers with good ratings. The black market is no longer the rip-off shop without recourse it once was. The feedback system has made the role of trading standards authorities, consumer protection groups and other business regulators redundant. They look clunky, slow and out of date.
Once your online reputation can be stored on the block chain (ie not held by one company such as TripAdvisor, but decentralized) everyone will want a good one. The need to preserve and protect reputation will mean, simply, that people behave better. Sony is looking at ways to harness this whereby your education reputation is put on the block chain – the grades you got at school, your university degree, your work experience, your qualifications, your resumé, the endorsements you receive from people you’ve done business with. LinkedIn is probably doing something similar. There is an obvious use for this in medical records too, but also in criminal records – not just for individuals, but for companies. If, say, a mining company has a bad reputation for polluting the environment, it might be less likely to win a commission for a project, or to get permission to build it.
We are also seeing the development of new voting apps. The implications of this are enormous. Elections and referenda are expensive undertakings – the campaigning, the staff, the counting of the ballot papers. But you will soon be able to vote from your mobile phone in a way that is 10 times more secure than the current US or UK systems, at a fraction of the cost and fraud-free. What’s more, you will be able to audit your vote to make sure it is counted, while preserving your anonymity. Not even a corrupt government will be able to manipulate such a system, once it is in place. There will be no suspect recounts in Florida! The block chain will also usher in the possibility of more direct democracy: once the cost and possibility of fraud are eliminated, there are fewer excuses for not going back to the electorate on key issues.
Few have seen this coming, but this new technology is about to change the way we interact online. The revolution will not be televised, it will be cryptographically time-stamped on the block chain. And the block chain, originally devised to solve the conundrum of digital cash, could prove to be something much more significant: a digital Domesday Book for the 21st century, and so much more.
There was a small ray of hope just after the Lehman collapse that one of the most lamentable characteristics of US society – the relentless urge to build massive McMansions (funding questions aside) – was fading. Alas, as the Census Bureau confirmed this week, that normalization in the innate American desire for bigger, bigger, bigger not only did not go away but is now back with a bang.
According to just released data, both the median and average size of a new single-family home built in 2015 hit new all time highs of 2,467 and 2,687 square feet, respectively.
And while it is known that in absolute number terms the total number of new home sales is still a fraction of what it was before the crisis, the one strata of new home sales which appears to not only not have been impacted but is openly flourishing once more, are the same McMansions which cater to the New Normal uber wealthy (which incidentally are the same as the Old Normal uber wealthy, only wealthier) and which for many symbolize America’s unbridled greed for mega housing no matter the cost.
Not surprisingly, as size has increased so has price: as we reported recently, the median price for sold new single-family homes just hit record a high of $321,100.
The data broken down by region reveals something unexpected: after nearly two decades of supremacy for the Northeast in having the largest new homes, for the past couple of years the region where the largest homes are built is the South.
While historically in the past the need for bigger housing could be explained away with the increase in the size of the US household, this is no longer the case, and as we showed last week, household formation in the US has cratered. In fact, for the first time In 130 years, more young adults live with parents than with partners…
…so the only logical explanation for this latest push to build ever bigger houses is a simple one: size matters.
Furthermore it turns out it is not only size that matters but amenities. As the chart below shows, virtually all newly-built houses have A/Cs, increasingly more have 3 or more car garages, 3 or more bathrooms, and for the first time, there were more 4-bedroom than 3-bedroom new houses built.
In conclusion it is clear that the desire for McMansions has not gone away, at least not among those who can afford them. For everyone else who can’t afford a mega home or any home for that matter: good luck renting Blackstone’s McApartment, whose price incidentally has soared by 8% in the past year.
For those curious for more, here is a snapshot of the typical characteristics of all 2015 new housing courtesy of the Census Bureau:
Of the 648,000 single-family homes completed in 2015:
The median size of a completed single-family house was 2,467 square feet.
Of the 320,000 multifamily units completed in 2015:
The median size of multifamily units built for rent was 1,057 square feet, while the median of those built for sale was 1,408 square feet.
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Of the 14,000 multifamily buildings completed in 2015:
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Of the 501,000 single-family homes sold in 2015:
The median sales price of new single-family homes sold was $296,400 in 2015, compared with the average sales price of $360,600.
The median size of a new single-family home sold was 2,520 square feet.
The type of foundation was a full or partial basement for 80% percent of the new single-family homes sold in the Midwest compared with 8% in the South.
109,000 contractor-built single-family homes were started in 2015.