I love the smell of denial in the morning.
Over the weekend, presidential hopeful Donald Trump laid out his concerns about a massive recession coming, but almost as quickly as the words were out of his mouth, the media started hammering that Trump was off-the-mark.
For example, take a look at this CNBC piece: “Trump predicts massive recession but economists say he’s wrong…”
Having a pretty good track record around here, of calling the market, I’d be more inclined to put my money on Trumps outlook than the me-too “economists” who are standing up to proclaim Trump is wrong.
There are three really important reasons why Trump might actually be right.
1. The democrats have pulled out all the stops (along with the Obama wing of the GOP led by house speaker Paul Ryan) pretending that the current, and very real, problems of the economy are over-stated.
As I see it, they are not.
For one, the GOP did a complete lay-down on the just passed federal budget. There was not so much as a whimper. There was no mandate to the Border Patrol to stop playing the “catch and release” game. There was no hardcore spending cuts on inefficient programs.
But the real fix was in pushing what WOULD have been embarrassing increasing in Obamacare back to 2017.
Reason? So the crooked politicians who are looking to feather their nests – on both sides of the aisle – will be able to retain their easy-chair lives and roll-up more congressional pension bennies that come with additional terms.
2. Long wave economic theory – which recognizes that recessions and Depressions are cyclical in nature, show a distinctive parallel to the run-up from 1921 to 1929’s blow-off peak.
As I told Peoplenomics.com subscribers recently, the only thing missing is a gallon of gasoline to be thrown on the fire. Something to drive a Super Bubble.
I also urged subscribers to read the Salon article “Donald Trump’s Social Security heresy: Taking on Paul Ryan and the privatization push.”
That’s because in most of the privatization schemes for both pensions and Social Security, there would be huge inflows into the stock market. And that causes – naturally – a massive stock bubble.
Trump is a businessman extraordinaire. Like him, or not, he knows what follows a bubble.
A Crash.
Which we’ve been patiently explaining should follow our fifth and final surge up in the markets between now and election time. This is something I’ve been predicting since January, including calling the market turn up in February, when the internet charlatans were predicting the End of the Financial World.
Didn’t happen.
3. One of the surest way to think about economics is to learn to deal with your timeframes correctly.
I’ll show you what I mean:
Suppose you are a working man, or woman (or here lately, some mix) and you are looking after your own investments.
If you are worried about having enough money to make rent come the end of the month, you likely have a net worth of somewhere from an ugly negative number to perhaps $25,000.
On the other hand, if you have a positive net worth in the $25,000 to, oh, $100,000, you are statistically more likely to worry about successfully saving for some big project that you have in mind. Remodeling a kitchen, going on a serious vacation. But you KNOW you have the rent or house/condo payment covered. Financial thinking timeline extends a ways.
Now, what happens when your net worth goes up even more? When your net worth is $100,000 and up, you begin to think about how to most effectively put your money to work. You buy INVESTMENTS and manage them well. Rental home, an assortment of stocks or bonds, precious metals, collectibles like guns, antiques, art, and so on.
When you get to the $1,000,000 net worth mark, you are usually figuring out how to become your own business owner. Grow your own company. Get on the map in a big way. When this happens, things begin to look really solid for you. Time horizons extend even further.
Now, you see what has happened here?
If you are poor, your time scale is very short. Payday.
As your wealth goes up, your time scale lengthens.
And when you get into the billionaire class like Trump has done in real estate, your investment horizon is on the order of 5-10 YEARS.
That is because when a fellow like Trump, who has forgotten more about real estate deal-making than your or I are likely ever to learn, makes a decision, his time scale in minimally 5 years.
Here’s why: The first year of a project (like in rental mega complexes (if you read Art of the Deal) is eaten up by rounding up the money, the additional investors, finding the ground, acquiring the dirt, doing the impact statements, and so on.
Somewhere at 12-18 months the project is green-lighted and building gets underway. It may take six months – and if issues arise, it could be longer. This is not 90-day spec home country. This is large scale commercial.
And then, 24-30 months out, the building is done and now you have to fill it up with long-term tenants.
And then you operate for a year or two so you can work out whatever depreciation and tax angles.
THEN the property goes on the market. Let’s say at the 36-month level.
The resulting sale might happen anywhere from 36-months to 60-months – and if the economy is very bad, it might take years to offload a piece of property.
You can see very clearly why Trump (and his ilk) tend to live 5-10 years in the future.
So when someone like Trump (who effectively lives out 5 years ahead of the rest of us) makes a prediction I would play really close attention.
The most common real estate cycle is 11 years. Here lately, there are some analysts who are promoting the ideal of the “18-year real estate cycle.” In that one, as you will see over on this site, that would make the next mega crash somewhere out in the 2024 area.
What Trump, though, has more likely worked through is that the 11-year cycle may be in play. And if that’s the case, we would see the collapse begin in 2019, or even earlier if we get an accelerated blow-off top.
Now this is NOT the kind of stuff that comes through in the hyena media. This is what comes from not only listening to someone with deep knowledge in an area (long term investing) but also extracting the meaty heart of things.
Ure’s applicable axiom is #6:
Poor people plan a few minutes, or at most a couple of weeks ahead.
Rich people plan YEARS ahead.
So, when the media bash Trump on sharing his concerns, remember that the real top in the real estate market occurred in 2006-2007 and that means the real top in prices could easily come along in 2017-2018. And the National Ugly Depression we’ve been talking about could follow shortly thereafter.
I’m immensely heartened by Trump’s outlook.
What’s disheartening is how few people understand the economic context of it.
But then poor media types can’t be expected to have a prosperous investors time scale. Otherwise, I’d be out of the axiom business.
Note to Idiots in the Press: The obvious follow-on was missed! It should have been “What is it you see? Implosion from a bubble in an asset class, or the cumulative impact of compound rates of growth simply becoming unsustainable. Or Both? Cut us working people some slack and do tell more!
The dull witted press blew this big-time.
Note to self: When billionaires talk, ask them to elucidate more. Not go “O’Reilly” on them!
Sideways or Down?
In the meantime, we have this week’s passing headlines to consider. Some are more revealing than others.
If you were a subscriber, I would be pointing you to the glacial-speed stories that really matter. Like how Janet Napolitano “University of California president proposes privatization of pension fund.”
You remember Janet, right? Former Arizona Governor and ex head of Homeland Security?
If you were a subscriber, I would suggest Janet as an example of how bright people tend to move way, way in advance of secular events. What does she know, what does she see? It’s lost on the Neanderpress.
So instead, let’s look at short-term,. shall we?
Stock futures are up 11-points going into the open.
The Baltic Dry shipping index has moved up to the 450 level from its previous high 300’s so the trade world thinks things will continue. Harpex is still sluggish, however.
Gallup Consumer Spending number is just crossing:
This is exactly what we would expect if Ures truly is right about one more blast into the financial heavens.
Later this morning, factory orders which should show a few signs of a pulse.
Tomorrow, international trade. Petroleum data comes Wednesday, Thursday afternoon has a biggie: Consumer debt (which they call “credit” because they are creditors). Wholesale trade and oil rig counts Friday.
All in all, it’s a Monday. What can I say?
And in Other News
We can skip most of the presidential nonsense.
Greece Begins Sending Refugees Back as EU Deal Takes Effect is somewhat interesting, since it will increase pressure – and who knows, maybe set up a conflict line – between the Middle East and Europe.
An airline mega-merger is in the works with Alaska Airlines Parent to Buy Virgin America for $2.6 Billion in Cash.
And the MinWage is going up as the “:California governor set to sign $15-an-hour minimum wage law.”
Now the Really Important Stuff:
The UK Guardian has the real details over here and this is a biggie. Outs colleagues of Vlad Putin and their offshore dough. Lots of other global officials are outed, as well.
In the end, we already know what the simple take-way is: The world is run by a corrupt layer of the uber-rich who are feathering their own nests at the expense of the working class.
The 1% of the 1% are making a killing.
Of course, you’ve always know that there is global corruption, this just makes it more clear and how much dough is involved.
We will await the data scanning to see if any US presidents or formers (or currently running) get implicated.
If so, then the fun has only just begun.
It’s the kind of story that makes getting up on Monday worthwhile.
Good column today!
I agree. Causes me to check my own logic.
Hi George,
Regarding the Panama Papers, we hear that they exist, yet after searching carefully all over the net, I’ve yet to find where we, as individuals, can download the 2.6 terabyte dump. I have the hard drive space available and will clear my connection, but I want real data, not massaged nonsense from someone trying to sell a newspaper. I’m sure you feel that way too. Do you are anyone know where or even IF the real info exists, without commentary, so we can each come to our own conclusions? The longer the delay, the more likely that any leak of the leak will be modified to the benefit of those leaking.
Inquiring minds want to know!
Been thinking about this myself – April Fools Joke?
https://panamapapers.icij.org/20160403-panama-papers-global-overview.html This is the group that released the information they have an excellent overview. https://www.documentcloud.org/public/search/Source:%20%22Internal%20documents%20from%20Mossack%20Fonseca%20(Panama%20Papers)%22/p3 And this is the link for the initial release of information. These documents you can download or view. There is not 11 million documents released yet, what it appears was released was an initial offering to show the quality of what is contained in the rest of the files. Even though it’s a small amount they are very interesting in themselves and seem to show different groups that have been hiding large sums of money. I am not sure but the tone of one of the gentlemen involved would seem it could be tit for tat revenge for wrongs done to him. If true what is revealed right now is larger than Snowden. One can only hope that they rest are released immediately. There is already a very swift reaction to claim they are not real. I found it interesting that while overseas the immediate reactions seemed to be outrage while domestically since the overseas news accepted them the big MSM focused mostly on the Russian revelations (even though even the Russians did not downplay then in their media) and tonight there is now people claiming it’s gotta be fake. I looked at them and am convinced of the truth of them. They mostly appear to be supporting documents pulled from files that begs the question since they had access, What else is there?
Oops, should have researched better, the president of the law firm that created the tax havens has admitted that the files are real and he says that they were stolen and should not be released, and to put another thing into perspective the Prime Minister of Iceland who was named first claimed they were lies now admits that it is true but legal finessing to put assets in his wife’s name to avoid disclosure. Nothing to see here move along. HAHAHA
First of all, Trump is not a successful businessman…why do people insist that he is. Has he made some money? Sure…Daddy’s initial $44 million given to him in the 80’s, was a nice boost. A monkey could probably be rich today of he had a $44 million head start. He is just continuing the scare tactic theme…offering doom and no substantial positive solutions. A political leader has two options…Win or Fail. Lately, everyone wants to ride the failure bandwagon, because it’s easier and requires far less work and intellectual thought leadership.
Second, the 2006-2007 real estate market was not part of a regular cycle. It was a man made, debacle of loans given to people that they had no business of getting in the first place. If you put a dog in a room full of food, it will eat itself to death…Middle to lower class America ate itself into defaults and foreclosures and that scenario will never happen again…Especially in the residential market, where 30% of home purchases are all cash and the rest of the population averages 25% down. With average home prices increasing around 7% annually, 10% in high net worth metro’s…most homeowners today are sitting on very positive equity positions…Now…even if there is a slight recession, we won’t have the same real estate scenario that we did in 2008, because of two important things…First, while there may be defaults, due to people unable to pay their mortgages because of loss of jobs or incomes, the likelihood of foreclosures will be practically nonexistent. These homeowners will always have a way out and that is to sell their home at a profit. And there always will be buyers…which brings me to point number 2.
Downturns always create tremendous opportunities for investors. And…in a global economy, the investors will be diverse and worldwide. There will always be a market for American real estate. In terms of commercial properties, when vacancy rates go up, PPSF rents go down…creating new opportunities for entrepreneurs to move from garage to office space. And…that’s especially true here in the Silicon valley…We have cycled more than most and each time merged stronger than before.
Now outside my utopia…I do see middle America sinking deeper and deeper into oblivion. Small service town cities like St. Louis, Memphis, Louisville, Wichita…most, if not all of the southeast outside of Atlanta…will become irrelevant…and it is not surprising that this is where Trumps supporters are from. These are all minor league cities in a major league economy…devoid of innovation and purpose…other than to be servicing outposts for larger, international conglomerates worldwide. Even when they do innovate, the innovators usually pack up and leave for the major league cities. Case in point is Twitter. Started in St. Louis…Jack Dorsey couldn’t move fast enough to San Francisco to reap his rewards. Companies like these will always follow the money.
The key to the survival of these middle America cities is to accept their role as a feeder to the major metros…always innovating…always moving forward…rather than squawk about how they let the big fish get away. St. Louis is really the poster child of middle America. It always wanted to be something it is not…It loses Anheuser Busch to InBev, Ralston Purina to Nestle, twitter to San Francisco, the football Rams to L.A…etc. And…that’s ok. don’t sulk…which if you read the local papers..it is all doom and gloom and a lot of denial…They need to just …Accept…re-focus…and move forward…
Thank you, Hillary.
“The 1% of the 1% are making a killing” which could be reversed and solve lots of problems?! But then–we’re all corrupt in one aspect or another; So–no one will do it. IOW, grin & bear it! :)
My commodity broker just sent me an email informing that the commercials net long position in the S & P and the Dow is one of the smallest that it has been in years. And that they are likely to unload on new highs in the market.
2000 IS BACK!!
Ron
Great column today
Re: panama papers. That leak was done over a yeat ago. Checkout the Corbett Report for an interesting take on it.
Sidebars look much better with the gradient.Thanks.
Sorry for inconvenience, but have to retweak a bunch of stuff today./..
George, I am in your 1MM+ category and I am frankly terrified. More so now than even two to three years ago. Two big-dippers in August and January/February make me think that any simple negative news can knock a good 10% off the market. What if there is some day “bad” news? What if China shows a 2% growth rate next year? What if the USA decides to take a breather and go 0% for 2017? We need (NEED) an ability to take a 0% growth year with ease and say “let’s get back to it next year”. The minute the arrow points flat, the sky is falling. This is NOT how to manage a world economy.
If we see a 2% GDP negative growth, why not just have a 4% down market? a negative 2% GDP would take 20% off the market. 3% down in China would take 30% off world markets. This is not a world we want to live in but it is the trap door our world markets have setup.
Do you ever wonder what brought it back up over the last few weeks?:
http://www.zerohedge.com/news/2016-04-01/inside-janet-yellens-diary-stunning-discovery-two-phone-calls-saved-world
What happens when the millionaire sees 20% downside? Still has 80% of the wealth. If the market really goes down 20%, business owners will layoff thousands to millions of employees. Does the government swoop in to help them? If they do, it is with printed money, devaluing the dollar even further.
One fix is to get more working. I think a lower tax rate would do it – for corporations and individuals. Could companies keep jobs in the USA, more workers working and send more money to washington with a reworked tax system? I think so. 24% corporate taxation rate, some removal of subsidies, lower slope of personal income tax by 2% across the board and then maybe we get a few Apple factories in the USA, a few more USA-made vehicles and stronger jobs. The real issue then becomes how many people will leave their soft domiciles, stop playing video games and get out there and work for their incomes? The government needs to figure out how to keep people “off disability” and wanting to work.
LOL did you read the new spending bill that was passed.. LOL …Need I say more… LOL.. twenty percent.. that is a beautiful figure but not realistic .. join the middle class and poor and enjoy the view from under the bus.. and this might be a shock.. I didn’t even get to watch tv for over thirty years or play a video game.. I was to busy working two plus jobs in the eighties I was working six.. I literally lived with an egg timer for breaks.. and there are many many more like me everywhere.. so the image of the average laborer sitting and playing games is nice but really not realistic..
Buy Puts for insurance.
Hmmm.. the monkey has built the 44 million to a few billion.. granted.. inflation etc.. and in defense of his outlook. It is in his best benefit to make sure that the dollar stays strong.. that way instead of having enough money to buy a truck load of bread he would have enough to keep flying his helicopter or plane etc..
Now consider this.. there were a few presidents that gave tax kickbacks to the general public to stimulate the economy through the years.. two hundred here two hundred there.. then they initiated the EIC tax credit to get money into the hands of the general public with kids and elderly because for the most part they spend money..
Now check out these news stories and consider this.. you can’t spend money if you don’t have money.. on the radio just about an hour ago there was a story that in doing a general scan of wealthy people keeping offshore accounts so they didn’t have to pay taxes on the money .. the list of names was 11000 pages long.. Hmm.. so put the burden on the backs of the middle class and the poor and see just how the economy reacts..
http://www.wsj.com/articles/china-tax-on-overseas-purchases-set-to-kick-in-1459439096
funny how we give tax breaks on people importing and they are going to start taxing imports from us.. Hmm why didn’t we think about it.. maybe because there are a few billionaires out there that want so much that they can’t see the logic of slow growth..
http://www.cbpp.org/research/house-gop-budget-gets-62-percent-of-budget-cuts-from-low-and-moderate-income-programs
http://www.cbpp.org/research/food-assistance/house-2017-budget-plan-would-slash-snap-by-more-than-150-billion-over-ten
Obamacare is not care, it’s some kind of psychotic insurance.
It’s Obamainsurance.
It began as Hillaryinsurance
Unfortunately you won’t ever get Congress to pass a no discrimination bill.. no price gouging, no borders, instead they passed a bill saying we couldn’t negotiate for lower prices from other countries..and the insurance offered to you locally isn’t and never will be available to me.. the reason.. there are lobbyists with a lot of power and influence that will keep it this way so that the companies that offer them to you can make higher profits..plain and simple follow the money..
“Ure’s applicable axiom is #6:
Poor people plan a few minutes, or at most a couple of weeks ahead.
Rich people plan YEARS ahead.”
Being a bottom feeder myself.. you are right in a lot of ways.. Not that I don’t plan ahead.. I budget every penny and make budgets for following years to come. these usually have to be amended with changing costs.. two weeks ago we had a meeting with our electric company.. they brought up that this year they were only going to raise the primary connection fee to twenty dollars per household.. but next year we should start doing stretching exercises so we will be able to grab out ankles cause it is coming with the new regulations..
I promptly see this as a big deal and have been in discussions with the wife to expand our solar power system.. ( gotta pay it so why not pay it to yourself.. the first batch paid for itself in five years)
The problem that the vast majority of us go through though is the unreliability of income and being at the bottom you never have enough so you live paycheck to paycheck…. working in a right to work state..you never know when hours will be cut will there be more hours than you can handle and wages are low.. just check out the big battle over minimum wage…here is an average simple budget.. 800.00 for rent.. ( that is with rent assistance) 400.00 for groceries.( that is shy I usually budget the cost of one happy meal per person per day)
150.00 for electricity give or take
65.00 for water
20.00 for grabage service
250.00 minimum for a car
50.00 for car insurance
400.00 for health insurance ( if your employer offers it other wise it is two to three times more)
fuel another 120.00 a month
heat another 75.00 a month
no clothes.. because if you are making minimum wage.. around here the average wage is 8.50 to 11.00 an hour.. as you can plainly see.. without even calculating it.. the budget is lop sided.. so you can only work by the seat of your pants without making any long term plans..and if your not ready to give up you family rely on public programs if they are available.. if you don’t have children or your not old they don’t apply to you since the living wage is 1000.00 per household it was 750.00 to be eligible for public programs like heating assistance rent assistance etc..
Darn I thought someone would toss up the why not buy a house.. the government gives away so much money to people to own homes.. I got that a lot.But wait for it…….I NEVER MADE ENOUGH MONEY TO QUALIFY FOR ANY OF THOSE FREE MONEY PROGRAMS … the banker isn’t crazy he has the same payments everyone else does..He knows that you could and will pay for a car short term and will loan you money for one.. but with income levels that low he will only loan you money on a used car where you will pay the same as you would for a new car.. housing its a long term investment and the odds are that you will probably run into financial difficulties along the way with low wages.. you just can’t rob peter to pay paul for very long its similar to kiting a check or being the federal reserve printing money eventually it will catch up to you then oh holy Hades will erupt..That is where tiny homes comes in. the banker will loan you money for a tiny home. because it is something short term.. ( no thirty year mortgage there five year with a balloon) both of my houses started out with a tiny home then after I got over half way I built the house I wanted by getting a short term loan by myself yup every board nail screw .. higher interest.. shoot I am paying seven percent now..and feel I am getting a bargain compared to the eleven percent I was paying. But as a bottom feeder with an average income that is what you deal with it doesn’t make any difference
Note to all: Just because someone uses an off shore tax shelter does not mean they are a criminal or even breaking he law.
When I say “too small to save” I mean anyone who is not contributing to the bottom line of the .5%. You middle class wealthy still have a little breathing room because you still have some assets to harvest for their bottom line. But I sense you scrambling like rats on a sinking ship, hoping for a scenario where you don’t get harvested, a scenario where this does not exist unless you simply go all in on metal and go underground.
Don’t think paying taxes does anything for them, or for you. It is simply a tool to monitor how compliant you are to authority. They can simply print all the money they want. It is no different than mafia protection money.
And keep in mind, that if you have not visited one of the top 5 areas that Americans are expatriating to, what you believe about expatriation is what someone else wants you to think, and I guarantee you they do not have your best interests at heart.
HI GEORGE,
My son is looking at buying his first home.
Do you think it’s an ok time to buy?
And if he does and a crash happens, what will happen next?
Thanks
Tania (New Zealand)
Is it just me or a sheer coincidence that the ‘Hunger games’ trilogy events took place in a nation called “Panem”. The movie is the message!