The Miami Beaches Market Pulse – February 2016 vs. February 2015

The Miami Beaches Market Pulse – February 2016 versus February 2015

The Miami Beaches
The Miami Beaches, Intra-coastal Waterways & North Biscayne Bay

Welcome to this month’s edition of the Miami Beaches Market Pulse!  I apologize for the delay, as it was my original intention to publish the January results circa the middle of February, however, recent business did not allow for the time and concentration required to perform a reasonably decent analysis; and THEN I seemed to have lost all the data files for the month of January!

Recent evidence suggests that the 16+ month long market correction on the beach has even impacted the luxury market.  I witnessed & read an article in February where the both famous & beautiful Anna Kournikova sold her Miami home for a tremendous 2 million under ask price! See Details of this here!  Even the famous “Jills” (arguably the de facto sales associates for the rich & famous) are feeling the pain (from a “typical” commission of 3-6% perspective) of a $60,000-$120,000 dollar  “loss” in projected commission revenue!  This saddens me, of course, as every Realtor® wants to be participating in a thriving market and given the usual Co-Broker nature of the business we generally all want to see each other succeed and make more money.  They are great agents with an excellent reputation, so if you choose not to use me, I would definitely look into using them for your luxury residential real estate needs.

Over the past month I have been speaking to a number of experienced real estate investors and brokers.  The general consensus is that a larger dip in the real estate market is forthcoming after the election.  I will not, at this point venture to guess the future as I am a data driven individual; however, I do see certain underlying, and as-of-yet, unquantifiable threats to the residential real estate market.  These “threats” are, admittedly, in one respect, conjecture; only because none of us are omnipotent, but the possibilities are significant enough to, at the very least, justify maintaining a watchful eye and remain cautiously optimistic at best.  In this issue I begin with the usual publication of the comparative numbers (February 2016 versus February 2015) by zip code, and provide commentary.  Then I go into what I perceive to be the top 4 threats to the South Florida Real Estate Market, something I should have probably expounded upon some time ago.

Reports by Zip Code

33139 – South Beach

Median Est. Home Value: $385K, Up 0.3%; Median Est. Listing Price: $275K, Up 1.8%; Median Days in RPR: 117,  Down –7.1%; Sales Volume: 80, Down –27.3%

Click here to receive the Market Activity Report – 33139!

Click here to receive the Neighborhood Report – 33139!

As I published in the December Report, I saw the market, specifically in Bal Harbour, showing signs that the Beaches were reaching an inflection point.  It does not surprise me that the downward trend in the data has been leveling off, after all, how low can it go?  This is Miami Beach!  However, let us keep in mind that the data you are seeing is suggesting that Sales Volume (for MLS related sales only) is down 27% year over year, and it is currently at a 3 year low.  Last year, this number was showing a drop (from 2014 year over year) as well, into the -30-50% range.  This indicates the Market Sales Volume is actually off by as much as 75% when compared to the Sales Volumes of the years 2013 & 2014.  The long and short of it is: yes, we are seeing an uptick; but to get back to normal conditions we need to see a sustained surge in transactions on existing home sales, which is the benchmark for home valuations.  Valuations being supported at lower volume, to me, indicates weakness in the market and market vulnerability to surges in new inventory.  Current Listing Volume (see the Neighborhood report for this) has passed the 3000 mark, a 3 year high.  So we have the most supply in three years, and the least demand in three years.  For sure, I believe prices are susceptible to further correction, especially if any of the “threats” I discuss later in this article begin to weigh on the market more heavily than they already have.

33140 – North Beach

Median Est. Home Value: $484K, Up 5.3%; Median Est. Listing Price: $426K, Up 20.9%; Median Days in RPR: 114, Down –20.3%; Sales Volume: 35, Down –41.7%

Click here to receive the Market Activity Report – 33140

Click here to receive the Neighborhood Report – 33140

Following suit with 33139, Sales Volume for 33140 is down a whopping 41.7%, a 3 year low; and Listing Volume is at nearly 1500, a 3 year high!  I do not think much commentary is needed given my commentary for 33139.  We are certainly seeing an uptick, which arguably could be seasonal, or due to an influx of retirees etc.  One thing remains certain, the market is nowhere near it’s recent “healthiest” which we saw in 2013 & 2014.

33141 – North Bay Village

Median Est. Home Value: $270K, Up 9.8%; Median Est. Listing Price: $245K, Up 1.7%; Median Days in RPR: 101 Down –17.2%; Sales Volume: 35, Down –66.7%

Click here to receive the Market Activity Report – 33141

Click here to receive the Neighborhood Report – 33141

I stand by my comments regarding this area from my December analysis; this area, I believe, has the greatest potential for long-term gains.  It is ideally situated, and a wonderful town to live in.  It is also the most affordable housing in the Miami Beaches by far.

Following suit (I rarely repeat myself as a practice of good writing, but I have a feeling I will be saying that statement another two times in this article; and I cannot understate, therefore must emphasize, the market action of the past 16 months plus), 33141’s Existing Home Sales Volume for MLS listed homes is off by a massive 66.7%.  Considering that is circa how much it was off this time last year as well, it means the sales volume is off by as much as 80-85% versus the 2013 & 2014 numbers.  The Realtors in the area must be hurting!  Sales Volume is currently at 35, a 3 year low, and Listing Volume is over 1500, a 3 year high!

This begs the question why so many people, when they find out I am in real estate, say “Oh, you must be doing great then!”.  It is truly amazing how long the sentiment created by the bounce of 2010 into 2013/2014 is lasting; and I find it surprising how many are simply unaware of the more-than-a-year-long correction in the Real Estate Market…even other agents & brokers (surely they have to notice they are not making as much money?!).  The fact is that my real “bread & butter” is commercial real estate.  I practice in residential real estate because I truly enjoy it; and residential Realtors® throw parties!  Nothing like a good Broker’s Open House 🙂

33154 – Bal Harbour

Median Est. Home Value: $665K, Up 22%; Median Est. Listing Price: $469K, Up – (flat); Median Days in RPR: 119, Down –7.8%; Sales Volume 31, Down –44.6%

Click here to receive the Market Activity Report – 33154

Click here to receive the Neighborhood Report – 33154

Incredibly, the Median Estimated Home Value is up a tremendous 22% year over year.  How this is possible against the backdrop of a market correction evades me (for right now).  I am going to call my reporting company and see if they can tell me how they are calculating Median Estimated Home Values.  As of right now, I do not know; but I will.  Regardless of this, the same thing holds true in Bal Harbour as it does on the previously reported zip codes.  Sales Volume is at a 3 year low (down by 44.6% year over year) and Listing Volume is at a 3 year high with just under 900 units currently listed on MLS.

33160 – Sunny Isles Beach

Median Est. Home Value: $345K, Down –0.3%; Median Est. Listing Price: $285K, Up 10%; Median Days in RPR: 115, Down –11.5%; Sales Volume: 132: Up 11.9%

Click here to receive the Market Activity Report – 33160

Click here to receive the Neighborhood Report – 33160

Sunny Isles Beach is where I call home.  Surprisingly, Sunny Isles Beach has bucked the trend of the rest of the zip codes on Miami Beach!  Sales Volume is actually up, a first in more than a year of looking at these specific reports.  I believe this may be due to something unusual skewing the data, such as Pre-Constructions and unsold New Constructions being listed on MLS, and therefore when the sales of these new projects ultimately close, they get logged.  Most pre-constructions and new constructions are never listed on MLS as they are typically absorbed by the market via the Builder’s own sales office.

Listing Volume is at a 3 year high, and Sales Volume, while not at a 3 year low, is close to the 3 year low.  Median Sales Price has spiked, markedly from the low 200Ks to the high 700K range.  This tells me that one or more VERY expensive properties sold this past month.  Regarding Sales Volume, please keep in mind that most of last year (you can check my May 2015 report and others) regularly demonstrated, month after month. Sales Volume being off by 50+% every month year over year.  While this spike in activity is encouraging, as I said before, we will need to see a sustained surge in market activity before anyone can begin declaring the market correction is over.

An article in Real Deal recently came out demonstrating how home prices in South Florida are still substantially off of their peak.  It also goes into some of the things I touch on later in this article.  The article is entitled “South Florida Home Prices Still Far From Peak: Report – Price Growth Could Continue To Slow Due To Global Macroeconomic Uncertainty”.

Lastly, I do not believe that Home Values have truly begun to reflect the market correction.  When I find more on how this is being calculated, I will update this article further and, with any luck, have something cogent to share regarding Home Values respective of actual market activity.

 

Potential Market Threats

First and foremost in my mind is the result of the appreciation of the US Dollar against virtually every other currency in the world; and in many respects, currency appreciation is a good thing (unless you are and exporter or producing goods to sell abroad, which equates to your goods & services being more expensive than similar goods and services produced in a nation with a weaker currency).  However, after the mortgage crisis, foreigners “ran towards the blast” (Peter Schiff, Las Vegas Money Show Lecture – 2013).  As a result of this substantial foreign direct investment, our currency has been enjoying a “propping up” effect.  I will explain further but for a really good (and funny) analysis, I recommend clicking the Money Show Link above.  I do believe that this recent boost in the dollar is temporary as our increasingly socialist policies have put the Dollar in a downtrend starting as far back as the 1960s.  Here is a long-term chart of the US Dollar:

US Dollar remains in a long-term downtrend
US Dollar remains in a long-term downtrend

Several years ago there was a deluge of foreign direct investment into the United States (especially in South Florida) as foreign nationals sought to:

1) take advantage of the distressed asset market which was the result of the 2008-2010 mortgage crisis,

2) expatriate capital from more socialist countries where the government risk to their capital is greater (reference the austerity measures in Cypress, where nearly every wealthy citizen with more than 100,000 USD equivalent on deposit in the country saw an overnight, and substantial, haircut out of their bank accounts), and escape ludicrously abusive tax policies to fund their extraordinary entitlement programs,

3) gain permanent resident status (“Green Card”) via the United States EB5 program (or other methods) by investing substantial (at the time, 500K and 1M dollar investments) amounts of capital into the United States.

5 Year Chart of the Canadian Dollar versus the US Dollar
5 Year Chart of the Canadian Dollar versus the US Dollar

Threat #1 – Currency Risk:  In many cases, international financing was used, typically 50% equity & 50% financing.  When this occurred (for example purposes we will use a Canadian citizen using Canadian Dollars), the Canadian Dollar was par with the US Dollar (meaning one US Dollar was equal in value to one Canadian Dollar.  This has changed significantly over the past couple of years.  Now, the Canadian Dollar is approximately one half the value of the US Dollar.  Understand that US Dollars were borrowed, and now it takes nearly 2 times the number of Canadian Dollars to pay for each US Dollar that was borrowed.  In this non-fiction example, the drop in commodities prices, specifically oil, has crushed the Canadian Dollar versus the US Dollar over the past several years.

The example is +/- true & valid with numerous currencies throughout the world, such as the Russian Ruble (rightwhich “fell out of bed” in late

The Russian Ruble versus the US Dollar - 5 Year Chart
The Russian Ruble versus the US Dollar – 5 Year Chart

2014 into early 2015),  Brazilian Real (rightmajor political upheaval in progress as a decade plus of corruption and embezzlement is being exposed AND the fall in commodity prices, especially sugar, has weighed substantially on their currency, which has also moved into double digit inflation!), the Argentinian Peso (belowwhere long standing socialist policies have made the currency virtually worthless), and the Venezuelan Bolivar (belowwhose chart clearly demonstrates the effects of communism).

The Venezuelan Bolivar versus the US Dollar - 5 Year Chart
The Venezuelan Bolivar versus the US Dollar – 5 Year Chart

To make matters potentially darker, these international loans have a 3-7 year lifespan.  They are NOT 30 year mortgages!  At the very least, even if only 5% of all international borrowers get

The Brazilian Real versus the US Dollar - 5 Year Chart
The Brazilian Real versus the US Dollar – 5 Year Chart

hammered by the result of the Currency Risk they are now getting burned by, we are still looking at thousands of distressed assets flowing onto the marketplace nationwide; especially here in Southeast Florida, which has rapidly grown into a top international destination that has attracted billions of dollars in foreign direct investment!

The Argentinian Peso versus the US Dollar - 5 Year Chart
The Argentinian Peso versus the US Dollar – 5 Year Chart

I should note that my firm’s best opportunities & customers are Argentinian and Venezuelan groups who are, for lack of a more accurate term, “Crowd Funding”, and bringing large amounts of capital into the United States.  These investors are doing everything they can to expatriate money from their home nations and invest in the United States; which begs the question in our own political forum; “If Socialism works so well, why are so many people trying to come to the United States to escape it?”.  It should be obvious in the charts that socialism is not healthy for a nation’s currency.  This leads me to my next “threat”.

Threat #2 – Our Government:  The Democratic Party candidates, Hillary Clinton and Bernie Sanders have either stated (Bernie) or all but stated (Hillary), they wish to lead our nation down the same path (to ruin it would appear).  This year is an election year, and I believe that the United States is at a precipice, and never before has an election carried such weight on both the near and far future of our economy; and socio-economic stability.  These two candidates wish to create and expand entitlement programs, to be fueled by greater taxation and use of our nation’s printing press.  Members of the Democratic Party and Congressmen have floated ideas on doing away with your ability, as a homeowner, to deduct the interest you pay on your mortgage from your taxable income.  To do away with it entirely would be catastrophic to average households throughout the United States!  Others have suggested “modifying” it further than it already has been; and in my experience the government has a short-sighted habit of throwing boulders into a lake not realizing the tsunami it creates at the other side of that proverbial lake.

Consider this, a $200,000 home at 4%, on the first year of purchase, would allow you to deduct $8,000 from your taxable income; and this benefit allows you to essentially save $2,000 on your tax bill if you are in the 25% tax bracket (making between 37,650 and 91,150 if you are a single filer.  See picture for more detail below).  These two politicians would have you believe that the US Economy is recovering due to the policies their party supports; however, data suggests otherwise. Money Magazine published an article in September 2015 entitled “Typical American Family Earned $53,657 Last Year”.  It is good reading and can certainly help put things into perspective, especially when evaluating how, if we should see yet another Democratic Party Candidate ascend to the Presidency, home values & net incomes may be effected.

http://taxfoundation.org/article/2016-tax-brackets
Source: http://taxfoundation.org/article/2016-tax-brackets

This equates to about 3-5% of total gross income FOR THE YEAR for the average tax paying citizen!  That $2,000 is extremely important to many American families; and even if it is not (for some), it has a wide array of better uses than in the Federal Government’s hands!  This is money that can be invested (for college, retirement etc), or can be spent on goods & services, thus further fueling our economy and increasing our economy’s Velocity of Money, which today is abysmally and historically low (see chart from 1959 until end of 2015 below):

The Velocity of Money Chart
Gross Domestic Product Adjusted for Monetary Base
Velocity of Money Chart
Velocity of Money Chart

 The Democrats/Liberals/Progressives/Socialists (all synonyms) claim that the 100+ Billion dollars that would be generated in tax revenues by eliminating deductions for the “rich” could be used to reduce the national debt, and they are correct; those revenues could be used in such a manner.  However, all of them have been pontificating about expanding entitlements and creating new ones.  In my view, should they move ahead with further reforms, they will find new and interesting ways of squandering our nation’s (your) wealth.  In addition, once you start taking money away from the “rich”, a better term for them would be “The Employer Class”, they (the “rich”) begin to pull back (i.e: they start firing people and cutting expenses and limiting new investments which create jobs), and so goes the cascading tsunami across the lake (borrowing from my previous analogy). Furthermore, according to the National Association of Realtors, home values would see upwards of a 15% decline, on average, throughout the country if this is done away with.

Lastly, these candidates have a “print more money” policy, as if this does not have consequences.  Every nation in the world has begun hedging away from the US Dollar as it is nearly obvious to anyone with a reasonable amount of education that The Dollar’s status as a Reserve Currency is in serious jeopardy.  The media deliberately does not put this in front of you, but the fact remains you can only print money for so long before it becomes valueless.  If the United States continues on this path, it will eventually find itself (sooner than later many reputed economists believe) in the midst of a Currency Crisis.  To explain this; if I had a way of turning all the sand of Florida’s beaches into gold, how valuable would gold be?  I conclude “Threat #2” with the chart below which depicts the United States Money Supply.

The United States Money Supply has gone hyperbolic!
The United States Money Supply (our monetary base) has gone hyperbolic!

Threat #3 – New Construction & Glut of New Inventory

Last summer I read an article in the Miami Herald.  It is entitled:  At least a dozen new South Florida condo projects in limbo amid changing market conditions.  I have been hearing rumblings that pre-sales have slowed, and while it could be the market pulling back to do some digesting, it could also be the “inflection point” they mention in the last paragraph of the article; meaning we have possibly seen the peak of this real estate cycle.  In either case, we have many thousands of new units on hand in inventory, and should it be the end of the most recent boom in the market, developers will rush to finish their projects as fast as possible and dump the new inventory on the market.  If we are not at the end of the boom, we have already seen over 3000 new units come online, over 10,000 more currently being built, and a projected 28,000 in the planning stages.  Should all of these come online, it will only put further pressure on the existing home sales, and in my opinion, drive prices down as listing volume rises and sales volume continues to plummet due to already deteriorating global macroeconomic fundamentals.

Threat #4 – The Weather

Hurricane Wilma in the Gulf of Mexico, October 23rd 2005
Hurricane Wilma in the Gulf of Mexico, October 23rd 2005

I believe I am stating the obvious here, however, it is worth mentioning as it is a factor.  It has been over 10 years since the last major hurricane struck South Florida.  In that time tens of thousands of people from all over the nation, and the world, have moved here to make Florida their home.  I was here during the 2000s, and I can tell you that after Hurricane Wilma (October 2005), the entire South Florida Real Estate Market completely stalled, as the shock and awe of the event set in to the population.  I am fairly confident that a strong Category 2, to (God forbid) a Category 5 hurricane making landfall between Homestead, FL and West Palm Beach, FL would create a rush to sell in this region as there are many people who will be panicked after such an event, and currently cannot comprehend the vast power of one of these storms.  Following such a storm, they will strongly reconsider their wanting to live in a place where such a beast is possible.  While I hope the current pattern holds and these storms continue to remain out at sea, we are fast approaching Hurricane Season 2016 (beginning in June).

That concludes my analysis for this month.  If you have any questions, comments, feedback or would like to explore purchasing a home; give me a call any time.  Keep in mind you can always use http://REBroker.Miami to browse Homes for Sale and For Rent on the Miami Association of Realtors MLS.

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On the Federal Reserve: Repeating the Insanity

One of the biggest problems the average working American Citizen has these days is Information Glut.  We are constantly bombarded with information be it on the TV, on our phones, on the side of a bus, and sometimes on a nice clear day at the beach, in the Sky!  Unfortunately, and in fact, few Americans; even prior to the Information Age, paid much attention to the happenings in Washington DC.  Even fewer have the education level needed to truly understand the Who/What/Why/How(s) of what (and whom) they are voting for and how a single person’s (or group’s) policies can ripple-effect through the very fabric of our existence living in this country.  We live in a litigious society that is slanted towards entitlement, and has very little understanding of the consequences it will face tomorrow for actions taken today; particularly when it comes to the insanity of our monetary & fiscal policies.  As the old saying goes, “Those who do not learn from history are doomed to repeat it”.

To better establish my case and point, I will establish the timeline of the irresponsible fiscal & monetary policy our current regime is moving ahead with at full steam:

In 2006, conveniently ahead of the implosion of our economy and near economic collapse of the nation (and the resulting money printing bonanza), the Federal Reserve ceased publishing M3 which includes the total of M1, M2 and Long Term Time Deposits.  Tim McMahon wrote an excellent article on this back in 2006 that strongly questions why the Federal Reserve would do this as well as portrays a logical, cogent theory (in short, they are cooking the books!) as to why they did this:

What is the Government Hiding? by Tim McMahon, March 16th 2006

Hindsight being 20/20, it is my view that they saw the inevitable, bursting of the real estate bubble and shifted further towards a policy of less transparency so they could continue the masquerade and postpone the pain, suffering and related consequences of irresponsible fiscal & monetary policy.

Also in 2006, Peter Schiff predicted the forthcoming 2008/2009 economic collapse in extreme detail, but he had also published a book predicting what the Federal Reserve would do as a result of this collapse.  Unfortunately, the Federal Reserve has done EXACTLY what Peter was afraid they would do (read his book! Crash Proof: How to Profit From the Coming Economic Collapse).

See his TV debate:  from 2006 versus Art Laffer.

How many of you called him, or people like him “crazy” or “conspiracy theorist” at the time?  How many of you saw the implosion of 2007-2009 coming?  I know I did; and I can prove it (I was trading my 401K at the time, shifting money between funds, and as a result, I was flat the first half of 2008, by the end of 2008 had lost 16% because I was actively buying the decline, shifting money from bonds – which had gone up a bit as “people ran towards the blast” – Peter Schiff, but then I saw 40+% and 30+% gains in 2009 and 2010 as a result of my trading/re-weighting of the portfolio.  I continue to retain these records).

However, it was not just the fundamentals & technicals in the market that tipped me off the most (I use a method of market evaluation called Rational Analysis, ie: where Fundamental & Technical Analysis overlap, which I learned from studying the work of John Bollinger); it was the fact that, for years, I had been attending several monthly social affairs, and came to the realization (in 2006) that when I first began going to these functions (2001/2002), one person was a Doctor, another a Lawyer, another a Dentist, still another a Police Officer etc…now, in 2006, I was the only person at the affair who was NOT a mortgage broker or a real estate agent.  Historically speaking, scenarios like this favor the Contrarian.

In 2008, Peter Schiff was featured on Fast Money and told the Fast Money Team to fade (sell) the Dollar:  

For those chartists out there, you will note that Peter correctly predicted the fall of the Dollar index (Symbol: DXY) which fell from 90 to 75 over the next 12 months.  Since then, there was another rally into the high 80s, a revisiting of the lows, the setting of a new low, and in the last 2 years a feeble climb back into the 80s, which is showing a lot of technical weakness with a recent “double top” this past year.  However, his prediction was not for a short term trade; he still holds the position that the dollar will eventually take a, possibly permanent, dive well below the most recent support of circa 73.  From a technical perspective,  a move below that support level could see the DXY plummet to circa 68, which for the average American, would be very damaging in terms of their purchasing power.  Still worse, a move below the 68 level would be catastrophic to the nation’s, and possibly the global, economy.

For those who are not savvy traders or chartists, consider this: The US Currency is NOT backed by anything.  The value of the USD (and any fiat currency) is completely based on trust & faith.  Like any other asset (like a stock or commodity), the more of it that is available, the less value it will have.  For example, if we had the ability to make every grain of sand on the beach turn into gold, what would gold be worth?  If gold were as easy to produce as the asphalt you drive your car on, or as common as the beach sand you walk on, it would be worth nothing.  Therein lies much of the danger in the US’s “Printing Press Mentality”; and it is the continuous printing of money that pressures the Dollar Index (DXY) lower.  As it moves lower, the American Dollar has less purchasing power.

One of the best analogies to the most recent bubble was also given by Peter Schiff in 2009 where he goes into significant (and hilarious) detail about the Internet Bubble.  The very same reasons/causes of the Internet Bubble were re-implemented by the Federal Reserve to create the Real Estate Bubble.  Furthermore, the very same reasons/causes for the recent Real Estate Bubble and Economic Collapse are still continuing, unabated, via all the Quantitative Easing the Federal Reserve has been doing.  The United States Dollar continues to enjoy Reserve Currency status, however, there are limits.  The Liberals (Democrats/Socialists/Idiots…all synonyms in my opinion) argue that it is “Different this time”.  These are the most dangerous words that can ever be uttered in the financial world, and if you are a person working as a trader, broker or other person who works in a financial institution and is responsible for handling money, these words could get you fired instantly.  Here is our Vice President arguing that we need to print more money (ie borrow more) to get out of debt:

Here Peter demonstrates that It is NOT different this time, and it won’t be any different next time, especially if the current economic crisis becomes a currency crisis (as serious as the subject is, I like Peter because he is able to take what is typically dry material and make it quite humorous…this is a long video, but worth the watch and the laugh):

In 2010, Representative Alan Grayson questioned the Inspector General of the Federal Reserve  (Elizabeth Coleman) regarding 9 TRILLION Dollars in Off Balance Sheet Accounting (isn’t this the sort of shananigans that bankrupted/imploded Enron and MCI Worldcom nearly a decade prior??) and several other subjects related to the Federal Reserve’s balance sheet growth etc.  More than 2 years after TARP was passed, this lady still had not even began a single investigation (and admittedly only just started a “high level review” of Fed Board activities) and could not answer one question.  In fact, she denied certain functions were her/their responsibility, only to be corrected by Rep. Grayson, that such investigation(s) are indeed her responsibility.

To boot, here are Ron Paul‘s comments regarding the printing of more dollars to not only bail out our own banks, but foreign banks as well!  Pay very close attention to what Ron says, as you will hear several common themes that will continue to play out throughout this article.

In 2011, Ron Paul summarizes the conception of the Federal Reserve, and the real and present dangers of the abuses of the Federal Reserve and the current fiat currency system:

It amazes me how complacent we as a nation have become.  The entitlement mentality in this nation has clouded our reasoning and sensibilities to the point where the average person will argue that “oh, that can’t happen here.”, but not be able to make an educated, rational, sensible, cogent argument as to why not.  Currency crises have happened many times over the past century; and have typically been caused by moves towards Liberal/Socialist agendas.  It happened with the Pound Sterling, Argentina, and is arguably happening right now with the Euro.  To think it cannot happen here is absurd, especially considering that our monthly trade deficit exceeds the GDP of most nations!

Finally, a full 7 years since the beginning of this article, I conclude with three additional videos.  The first, is another Peter Schiff video.  It is a 20 minute video recording of his presentation at the 2013 Las Vegas Money Show.  The second, is an interview with Jim Rogers, famous investor and billionaire; who is singing the same song/truth Peter Schiff has been professing.  The third video is a dramatized, What If? / Worst Case scenario of the US Dollar was to lose it’s Reserve Currency Status.  Keep in mind, most people will tell you “That cannot happen here”; what they do not know is that it has happened many times, in other countries, over the past century; and in fact it has happened to previous “Reserve Currencies”.

I found this very funny, and if you understand economics, I think you will too; he begins  “It is 2013, but if feels like 2006…”

Interview with Jim Rogers:  

Dramatized What If the US Dollar Collapses?

In a nutshell the problem can be summarized as this:  In the 90s the Federal Reserve lowered rates and created vast sums of cheap money which fueled the Internet Bubble. Then, we had a big bust; but instead of actually have a real recession and allowing Capitalism take over and cleanse the system; there were multiple bailouts, an expansion of government and interest rates were lowered even further.  This fueled another bubble; the Real Estate Bubble.  Once again, government grew massively, there were even more bailouts than before (and bigger than ever before) and interest rates were lowered to zero/near-zero; once again, circumventing the process of Capitalism.  So here we are in 2013, with a Federal Reserve printing tremendous amounts of cash and a government that has decided to try and grow its way out of debt through deficit spending.  We are not only repeating the insanity, we are doing it BIGGER than ever before!  How is more of the same supposed to help our economy grow and thrive?  That is like getting yourself into credit card debt and thinking that by borrowing and spending more you will get your family out of debt.  Millions of Americans tried this already over  the past 10 years, and I do not know of anyone who that strategy has worked out for.  So how will the US Government able to do it on such a massive and complex scale?  Simply put, they cannot.  We ran up debts in the early half of the 20th century, but that money was put into building factories, infrastructure etc.  Today, we are borrowing massive amounts of currency but we are spending it on consumption.  So the government is using its “credit card” to fund consumption, and not investments.  One produces nothing (Buy a meal, it feeds you for a day), the other produces a going concern that services & employs people (Buy/build the restaurant, it feeds you, and others, for a lifetime).

So how does this all relate to real estate?  What if the currency doesn’t collapse?  What if it does?  These are all questions I will touch on in my next article where I will discuss what I perceive to be the state of the real estate market.  Stay tuned!

Cheers,

Christopher Lazaro

Government Corruption & Hypocrisy

Posting to both my blogs:

The Democratic Party is the first to blast the Republicans about “Good Old Boy” practices & mentality.  Look at this crookery:

Source: http://www.snopes.com/politics/business/blum.asp

All In The FamilyThe US has entered into a contract with a real estate firm to sell 56 buildings that currently house U.S.Post Offices. The government has decided it no longer needs these buildings, many of which are locatedon prime land in towns and cities across the country.

The sale of these properties will fetch billions of dollars and a handsome 6% commission to the company

handling the sales. That company belongs to a man named Richard Blum. Who is Richard Blum you ask?

Why the husband of Senator Dianne Feinstein, that’s who. What a bunch of crooks we have running this country!

Senator Feinstein and her husband, Richard Blum, stand to make a fortune. His firm, C.R. I., is the sole real estate company offering these properties for sale. Of course, C.R.I. will be making a 6% commission on the sale of each

and every one of these postal properties.

All of these properties that are being sold are all fully paid for. They were purchased with U.S. taxpayers’ dollars,

and they are allowed free and clear by the U.S.P.S. The only cost to keep them is the cost to actually keep the

doors open and the heat and lights on. The United States Postal Service doesn’t even have to pay property taxes

on these subject properties. Would you sell your house just because you couldn’t afford to pay the electric bill?

Well, the Post Office is.

How does a powerful U.S. Senator from San Francisco manage to get away with such a sweet deal?

A powerful United States Senator’s husband is standing by, all ready to make millions from a U.S. taxpayer

funded enterprise.

No one in the mainstream media is even raising an eyebrow over his 6% commission on the sale of hundreds

of millions of dollars’ worth of quasi-public assets.

It is amazing that the media doesn’t bother looking at stuff like this in very much detail.  For those not in the know, Freedom of the Press does not apply to Television…a reason you do not see 1/100th of the corruption going on in Local, State & especially, Federal, government.

Commentary on Recommended Reading: Investors Business Daily, Tuesday April 16th 2013

On page A3 of yesterday’s edition of Investor’s Business Daily, there is an article I recommend reading. It is entitled “President Reagan Joined Top Substance With Style“.

It is amazing how quickly a culture can change, how short sighted we are as a collective species, and how easy we forget the past. After making many mistakes in the “Age of FDR”, what I like to call “The Age of Entitlement”, it took a powerful communicator; and honest man, to take charge and reverse the damages created by the excesses of Liberalism. Now here we are again, 25 years after Reagan left office, and all of the gains & progress we made under his administration are eroding under a constant siege of Liberal Idealists who believe that printing more money is the solution to everything. To quote Reagan, “Inflation – that is the price we pay for those government benefits everybody thought were free.” The Federal Government can massage, and then publish all the numbers they like citing that Real Inflation is actually quite low. This is deceptive. I am not sure how many of you do your own shopping, but I can tell you that not 3 years ago I could buy 10 Yogurts at Publix Supermarkets for about $5.00; $4.00 when they were on sale. The SAME yogurts are now $8.00. Milk is also almost twice as expensive as it was just a few years ago. The problem is not isolated to dairy products either. At Costco, not 2 years ago, I was buying frozen fish (salmon, cod, mahi-mahi) bags for between $10 and $20.00. The same bags of fish are now 50% more expensive! Has anyone else noticed that a large number of products have gotten more expensive while the portion size has decreased? My typical Costco shop used to be $300-$400 dollars; now it can top $600, and I buy the exact same stuff I always have. Lets not forget fuel prices! Our country is actually quite rich in terms of fossil fuels; too bad Liberals consistently stand in the way of developing those resources further; instead preferring to transfer some 750 Billion Dollars per year to other oil rich nations, many of whom flirt with the idea of causing a nuclear holocaust on American soil.  It goes without saying that their are alternative methods of generating energy both cleanly and efficiently; however, the dominant special interests of our era will always seek to stand in the way of such progress so they can further exploit out-dated, wasteful, and even harmful technologies.

Today’s regime spent the first two years of their administration traveling the world and apologizing for America’s success. Then, to make things worse, they decided to implement a lot of legislation that could not be better designed to create a hostile business & investment environment. To quote Ronald Reagan again, “Government Programs, like Old Soldiers, never die, but neither do they fade away.” I do not believe his intent was comical, but rather an ominous warning.

Critics will argue “So where is the hyper-inflation Conservatives have been touting would be coming?”.  Aside from the fact that prices have increased significantly over the past decade for a great number of things; it is very hard to have hyperinflation in an environment where the workforce & workforce participation continues to decline, and job openings are still scarce. Furthermore, the very thing that would create more jobs would be the extension of credit to smaller companies. As it turns out, there is an article on the front of the IBD Newspaper, (entitled Builders Sell Off On Sentiment, Broad Stock Market Retreat) also Tuesday’s edition, that discusses the stock price declines some of the larger, publicly traded home builders took yesterday as the market begins its often predictable Summer decline and/or correction. It specifically goes into the facts that your larger corporations have the capital, and access to credit, yet the smaller home builders do not. It was a no brainer to read that the vast majority of home builders do not have the most positive outlook about the future, however and quite obviously, the larger companies do see more of a rosy picture of the future. With that said, it is small business that, historically, employs 65-75% of the workforce. No credit & no jobs equals no inflation. To boot, certain new Healthcare “reforms” will create a lot of additional pain and suffering for small employers. You gotta love this…not only is all the entitlement spending “spreading the wealth”, but our current regime has. via a healthcare law, found a way to “Spread the Jobs”. We are on tract to becoming a nation of Part Time Workers as a result of all of this.

The Punch Line:

One final quote from the great Ronald Reagan; “Every time the government shifts to the left, the decimal point in taxes shifts to the right“.  This reminds me of a story my broker told me last week about his grand daughter.  Her elementary school class was assigned to write a speech and each of them would get up in front of the class and present their argument to be elected President of the class.  Several kids got up and touted better lunches, longer recess periods, better books and more interesting activities.  His grand daughter got up and said “If I am elected President of this class I promise Ice Cream will be served EVERY day”.  She won by a landslide.  When asked by the teacher “How will you pay for the Ice Cream?” she simply responded “I don’t know”; when asked additional questions about the logistics of having ice cream served in class every day, she simply smiled and said “I don’t know”.

This sort of idealism is adorable in a 7 year old, but in a President of the United States?  I say this because unless I was watching a different channel than the rest of you, this is precisely what happened in our last election.  The President has promised the American Public their fill of ice cream, but does not have a clue how to pay for it.

Cheers,

Christopher Lazaro