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The Builder And Financier Both Want A Sale On Their Books By Any Means Necessary

An editorial from the Merced County Times in California. “Lest anyone forgot, Merced was the poster-child for the American sub-prime mortgage nightmare (2007-2010). In the end, Merced housing and commercial real estate collapsed with some of the highest foreclosure rates and family displacements in the nation. The impact is still seen throughout Merced and Atwater after 12 years; blighted business corridors, vacant commercial spaces, forgotten building lots and a cityscape still littered with unused roads, addled utilities, taxpayer financed land/building fiascoes and missing or destroyed landscapes.”

“Yet things are incredibly better than even a few years ago. The Merced 2020 Project is projected to drop $1.3 billion in public-private investment into this town of 83,000. How much of that construction money actually stays here long-term is unknown though. Many people naturally want another Merced real estate boom declared in the frenzy.”

“So if school is out, the University is expanding and Bay Area buyers have cash – is it time for everyone to go into debt and buy Merced real estate again? What is the same and what changed since the last real estate free-for-all? The Merced real estate market top was October 2005, when the median sale price of an existing detached Merced home was $344,615. By January 2010, that same statistical house bottomed to $96,666 and that does not include an unprecedented era of un-marketed shadow inventory held by the banks.”

“According to the California Association of Realtors (CAR), the median price of a Merced home increased by 6.6% within the last year alone to $276,000 with the total number of County sales increasing over 22% for the same period. These general statistics won’t tell you the things that matter though; location, price per bedroom, cost per square foot, lot size, which school district or local crime rates. Real estate sales are also seasonal with Summer being the high so comparing late Spring to December does not a reportable trend make. Speculating on annual house appreciation alone is what got Merced into trouble in the first place. So let’s consider some other bigger ideas impacting Merced real estate.”

“Furthermore, the CAR benchmarks a First-time Buyer Housing Affordability Index (FTB-HAI). This measure attempts to describe households making a first-time purchase of a ‘starter-home’ — those 667+ new homes popping-up around Merced. Often these buyers exploit special builder or government incentives and lower down payments.”

“An even murkier issue is new buyers are closing through the builder and those transactions are not all captured through the CAR/Multiple Listing Service system for analysis. So while ‘the real estate numbers’ point in a cautiously positive direction, that perspective is still divorced from the emotional and financial reality of finding, looking at, negotiating for and purchasing a home.”

“Pretend you are a home builder and you finally pay for permits on 100 new homes. Not only do you have to get your construction loan, build the infrastructure, deal with subcontractors and hire sale agents, but you also have to hope your buyer closes within weeks of final construction. In this environment, the builder might want to extend their own financing — especially if they can get a 20+% premium for their product — rather than relying upon an outside bank to finish the job.”

“This ‘in-house’ finance practice is supported by piles of money available from hedge funds, money market managers and the like — all offering terms competitive or ‘faster and better’ than a buyer’s traditional commercial bank. In time though, underwriting can become lax as the builder and financier both want ‘a sale’ on their books by any means necessary — increasing risks for everyone long-term.”

“This was the genesis of the sub-prime meltdown as this shadow finance system grew to become counter-parties in funding and securities markets. While commercial banking was greatly reformed post Great Recession, the shadow banking sector remains opaque and ready for business at consumers’ long term expense and risk. Adjustable rate mortgages and other sub-prime products still exist. The national foreclosure rate was at a historic low – right before the subprime meltdown. There was no canary in the coal mine or slow melt-up in risk.”

“It’s also worth looking at what is actually being sold as a ‘starter home’ in Merced these days and compare to established neighborhoods. Look through the models and the first thing you will notice is how indeed small the lots and bedrooms have become over the years. Factor in the prices verses the square footage and you will see how costly smaller homes can be for new families.”

“The neighborhoods being approved by the City today are not the same as the ones you grew-up in. Now the front door is 14 feet from the curb of a busy street, your yard is the minimal set-back. Street parking is further strained as densities creep up and lot sizes shrink. Beyond that, the City may allow new homes to be built without trees, or not match existing neighborhoods, no alternating elevations or even different exterior paint colors. Patches of stained wood-chips now substitute for lawns – only to be overgrown with weeds within weeks of closing.”

“I would suggest the Merced middle class – the real core audience for new home purchases is still being squeezed financially. Bay Area speculators and record stock price headlines does not a local economy make. With the cost of new home construction rising 35% from 10 years ago (along with that drive-thru combo meal), ask yourself how many middle class household incomes have really kept pace with inflation?”

“How many Mercedians (and UC students) are still receiving emergency food assistance? When you consider the greatest metric for Merced housing growth are 500 net new students each year – most of which subsist under financial aid programs – these students are apartment and room renters – not single family home buyers. The core basis of home purchasers (40%) used to be ‘move-up’ buyers – trading their first house for a larger one.”

“These folks have been shell-shocked with negative equity for a decade and only now are considering a break – if their incomes and job skills give them mobility. This macro-condition is forcing people to stay in their existing homes longer – from and average of seven years to nearly 11. And if you move, where do you move to that makes better financial sense – Texas and Washington?”

“Now more than ever the Merced real estate buyer needs to be aware. Like it or not, Merced has a dubious history with real estate. Hopefully strategic planning and smart growth will prevail over duplicating the usurious past.”

“Politicians, brokers and media pundits want to sell Merced’s ‘1% vacancy crisis’ to justify more annexation, more government intervention, more building, higher prices and greater profits for a few – Crisis Capitalism at its best. Speculating on real estate, especially as a long-distance landlord is fraught with risk – witness the Great Recession.”

“Don’t get emotional about buying that first (or any) home. Brokers and builders alike want you to get into that emotional confusion head-space gamblers call ‘on-tilt’ – where you will do anything to ‘win’ – and take that mortgage. Often the difference between monthly solvency and foreclosure is a few hundred dollars – lose part of your income and you are six months away from losing everything.”

“Always remember debt is NOT money. Debt is a tool for certain smart people under the right circumstances, but the operative word here is ‘smart.’ Mortgage is an old French translation for ‘death pledge’ (mort gage) – think before you sign. Let us not repeat the real estate mistakes we collective made leading to the Great Recession and after.”

Eric Moore is a former real estate appraiser, banker, developer and advocate for the people of Merced. He has lived in Merced for 10 years.

This Post Has 122 Comments
      1. “Often the difference between monthly solvency and foreclosure is a few hundred dollars – lose part of your income and you are six months away from losing everything.”

        This is likely the reality for many recent homeowners.

      2. Yup. good read.

        The neighborhoods being approved by the City today are not the same as the ones you grew-up in. Now the front door is 14 feet from the curb of a busy street, your yard is the minimal set-back. Street parking is further strained as densities creep up and lot sizes shrink – could you play catch in your backyard with your kids the way you did when you were growing up?

        1. Many cities I track have tightening inventory. W the 10yr at 1.78% September will be wild. Followed by the winter of discontent .

    1. “Sadly, the Republic might be quietly reverting into a nation of permanent renters among younger less-stable people. Add exploding student loan debts – now over $1.5 trillion – and you might have a long-term issue impacting housing, never-mind the loss of home equity retirement savings. The real world adjustment has been a gradual increase in household sizes across America – as older children move back in with their parents and three generations of family begin again to live under one roof – just the same way families lived prior to World War 2.”

      It was easy to live with several generations and some dysfunction while living on a farm. The same formula will likely become exacerbated in a spec home neighborhood.

      1. It was easy to live with several generations and some dysfunction while living on a farm.

        Hmmm. Yeah, out on the farm when you don’t get visitors too often everybody can usually maintain their composure in front of company for a few hours and then go back to dysfunction the rest of the time. When your walls are close all the dysfunction in the neighborhood can combine and reach critical mass…

    2. “While commercial banking was greatly reformed post Great Recession, the shadow banking sector remains opaque and ready for business at consumers’ long term expense and risk. Adjustable rate mortgages and other sub-prime products still exist. The national foreclosure rate was at a historic low – right before the subprime meltdown. There was no canary in the coal mine or slow melt-up in risk.”

      I’m pretty certain that the taxpayers will be on the hook for the blue eye’s shadow banking liabilities.

  1. ‘the University is expanding and Bay Area buyers have cash’

    Here we go again…

    ‘In this environment, the builder might want to extend their own financing — especially if they can get a 20+% premium for their product — rather than relying upon an outside bank to finish the job’

    So they just loaned 20% more than the shack is “worth”.

    ‘This ‘in-house’ finance practice is supported by piles of money available from hedge funds, money market managers and the like — all offering terms competitive or ‘faster and better’ than a buyer’s traditional commercial bank. In time though, underwriting can become lax as the builder and financier both want ‘a sale’ on their books by any means necessary — increasing risks for everyone long-term’

    Does anyone remember the very first subprime loans to crack last decade? Beazer Homes loans. In 2014 I saw billboards in Texas offering zero-down builder loans for $900,000 shacks north of Dallas.

    1. It wasn’t that long ago I had a shack north of Dallas.. and it was almost 90,000 ($89,900 to be exact, 1900 sq ft, 3/2/2 in Dallas suburb) … How big and gaudy were those shacks?

  2. SO much talk and doom about a crash. That maybe true for luxuyry and high end properties, but for the average Joe schmuck middle class and below the housing will not come done… when and if it does, it will be a minuscule 15-20% drop, which will be ate up with inflation, thus being a PAR in the end.

    It’s Sad and tough for a lot of people, while a few lucky ones are smiling

      1. I don’t need three. I just need One for my family. But, now the rents and houses are rising in the California Central valley along the 5 and 99, while they are decreasing on the coasts.

        Can’t afford to live on the coasts, but it going up inland… my money is still in my pocket… waiting for the cratering to happen.

        1. “waiting for the cratering to happen”

          Good, it will work out then … “You can.knot.DIRECTY.pur$ue.happine$$” … $eems you’re on that pathway$ … (Keep.from.thee.di$traction$!)

    1. You may be right for practical purposes. Historically bubbles can last longer than a human adult lifetime, although it is unusual. But 20% is not paltry when you consider median down payments are less than 10%. In SoCal, 20% of the median priced house is 120k$ which is about 300 times the median bank account balance. Also, if you consider that US housing stock is valued at over 30 trillion$, a 20% decline would wipe out over 6 trillion$ of housing “equity” alone, not to mention the effect it would have on the stock market. A 20% decline in housing prices would require another large scale bail out or inevitably result in an all out deflationary spiral.

      1. ‘Historically bubbles can last longer than a human adult lifetime’

        You gotta link for that?

        1. I think the Korevaar study of Holland real estate described two booms/bubbles between 1600-1800 that each lasted about 40-50 years.

          1. But you don’t really know. Around 1984 I went to study real estate at UT Arlington. First semester one class was with the dean of the school. He was also a VP Emeritus at a large Dallas brokerage and was Dutch, but had lived his adult life in the US. The first day of class he got out a chart of Amsterdam house prices – it went back 600 years. He explained they were very meticulous about keeping records of things like that. His point was to show how steady housing prices had been over the centuries. A very slow creep up, basically in line with inflation. Except one blip up, then down. That period he said coincided with the Tulip bubble. And it was something like ten years or less. I’m only saying what I saw.

            But it was interesting that despite his lesson, he was clueless as we all were. Dallas had been on a tear: culminating with 5 years straight as the hottest real estate market on the planet – that year. A little over a year later it was all over but the crying.

          2. “The last major boom-bust cycle started in 1760, with the bust being particularly significant. After the Batavian Revolution in 1795, which made the Republic almost entirely dependent on France, prices declined in the following five years on average by 11% per year in nominal terms and 13% in real terms. By 1810, nominal house prices had declined by more than 70% relative to 1786, and real prices even by 75%.”

            1760-1810 is a 50 year cycle from beginning to reversion.

          3. His methodology may be garbage, MF, but merely saying so doesn’t make it so. Also this is an interesting comment coming from someone who puts a great degree of faith in statics rom Zillow. If his methodology is garbage, please explain your reasoning. It may be convincing.

          4. If there is other data that contradicts, the study to which I referred, no problem. I’m not emotionally attached to the conclusion. Just stated what I remembered from looking at it.

        2. Another example may be the financial boom created in northern Italy by the “creative” booking keeping employed by the Lombard banking system.

    2. This comment doesn’t even make sense. Inflation would further work against the “real” value of the home, making the drop in real value even worse than 20%…

      1. Excuse moi mister Economist.

        I just see big major drops on million dollar houses, and see 5K drops in 500K< .

        Just like the stock market, up 200, down 27 – then it goes up 150, down 13 – and then it's dark day and it drops 600 points, only to go on a 8 week up and up at 100+ points per day.

        1. “The market can remain irrational longer than you can remain solvent.” – John Maynard Keynes

          Eventually things will correct. But the bubble can last longer than many would think (and I myself would hope for).

        2. ” only to go on a 8 week up and up at 100+ points per day. ”

          Look @ the Dow @ say, 9/19/18
          Now look @ the Dow.n @ 8 /6/19

          Now, forget all that. … Focu$ on what YOUR goal$ are.

    3. it will be a minuscule 15-20% drop, which will be ate up with inflation

      You may think that this statement means something. It doesn’t.

      1. Yeah. A 15 year old will be interested in this topic. Come on, I am just a concerned father and husband in my mid-30s. It was just an observation, so far the drops are lux.

        1. ‘so far the drops are lux’

          Bzzz, wrong answer:

          May 14, 2019

          “Metro Phoenix’s new condominium craze took a breather last year. ‘The resale market is selling well for the ‘right’ condos in well regarded buildings, but it has certainly softened a little,’ said David Newcombe, a condo expert.”

          “Paradise Valley’s 85253 ZIP code saw condo prices fall 20% to a median of $325,000. Central Phoenix’s 85003 ZIP code experienced an 18% decline in condo prices. North Glendale’s 85303 area saw condo prices fall 17% to $99,308. Goodyear’s 85338 ZIP code posted a 14% decrease in condo prices. Downtown Phoenix’s 85004 ZIP code saw condo prices drop 9% to $245,000 last year.”

          http://housingbubble.blog/?p=1681

        2. Tiki, you must be new to this blog. As stated many times for years here, the drop always start at the high-end, most desired location (best school/no crime). Then it trickle down like wildfire in the CA hills. First infested the coast (WA, CA, OR) as money launders from China invade, then to inland, then to inner states NV, CO, TX, UT, etc, and finally to east coast. Now there are exceptions as in NY and FL. But be patience, this time is not different.

        3. Well, fair enough. Now make your ob$ervation$ on the chart. Pay clo$e attention to the “negative.de$cent$” … (Eye lived through that chart as a 1$t time U$ed.home.buyer in Nebraska in 1981, age 24 … VA loan @15.5% on a a $27,000 mortgage) … Happy that you are able to find Mr. Ben’s HB.B ll blog. May it guide to a pro$perou$ & wi$e $helter.$hack deci$ion!

    4. I read that as a lot of Joe Schmucks are actually working class or ‘lower’ middle class and don’t realize it, and will still get outbid for along while by those with access to cheap money. It seems that people are between the 20% and 66% mark economically are the group our powers that be are the least concerned with.

  3. ‘An even murkier issue is new buyers are closing through the builder and those transactions are not all captured through the CAR/Multiple Listing Service system for analysis. So while ‘the real estate numbers’ point in a cautiously positive direction, that perspective is still divorced from the emotional and financial reality’

    https://www.newhomesource.com/communityresults/california/merced-area

    Sunflower
    Homes by Legacy Homes
    From $288,110 – $355,990

    Aspire At Bellevue Ranch II
    Homes by K. Hovnanian® Homes
    From $288,240 – $376,990

    Bellevue Ranch
    Homes by Stonefield Home
    From $277,000 – $380,500

    Bellevue Ranch – Chateau Series II
    Homes by Lennar
    From $307,900 – $432,500

    From an ad on that website:

    ‘USDA Home Loan Requirements – Verify Your Eligibility!
    USDA Offers 100% Financing and $0 Down Mortgage!’

    ‘Verification takes 1 minute’

    1. Fake news. Everyone knows they aren’t building spec homes anymore and lending standards are tighter than Nicki Minaj’s yoga pants.

  4. I think the Korevaar study of Holland real estate described two booms/bubbles between 1600-1800 that each lasted about 40-50 years.

  5. During the dot com bubble high tech was self-financing… “It’s deja vu all over again.”

  6. GreenSky Is Latest Online Lender to Tumble

    Shares plunge after online lender says it is exploring a potential sale or merger and after missing profit expectations

    ‘Shares in GreenSky Inc., a financial-tech company that arranges loans for home-improvement projects and medical procedures, fell as much as 37%…Valued at more than $4 billion at its May 2018 public listing, GreenSky shares have plunged by about two-thirds through Tuesday.’

    ‘Rising loan defaults and concerns over future growth opportunities have prompted investors to rethink valuations for a class of companies that uses better technology to determine creditworthiness and offer loans over the internet and mobile phones.’

    https://www.wsj.com/articles/fintech-firm-greensky-explores-possible-sale-11565106584

    1. but.. but.. but.. add “tech” to an existing business model was supposed to be a sure thing! Didn’t they have app for your phone? no human customer support? Realtime dashboards full of glitz? in-app purchases? Weren’t they supposed to be the unicorn that rises above the ‘old way’?

      I am so disappoint.

    1. The picture of them riding the train in 1975 looks like it was taken in 1905. Because in socialist Cambodia the future is the past

  7. Q: Why did the REALTOR cross the road?

    A: To lie to the used house buyer on the other side of the road.

  8. Will dwindling immigration, a sex recession, and Millennial generation poverty kill future housing demand?

    1. U.S. Births Fell To A 32-Year Low In 2018; CDC Says Birthrate Is In Record Slump
      May 15, 2019 1:21 PM ET
      Bill Chappell
      In 2018, U.S. birthrates fell for nearly all racial and age groups, the CDC says. Here, mothers and babies attend a yoga class in Culver City, Calif., in March.
      Jane Ross/Reuters

      The U.S. birthrate fell again in 2018, to 3,788,235 births — representing a 2% drop from 2017. It’s the lowest number of births in 32 years, according to a new federal report. The numbers also sank the U.S. fertility rate to a record low.

      Not since 1986 has the U.S. seen so few babies born. And it’s an ongoing slump: 2018 was the fourth consecutive year of birth declines, according to the provisional birthrate report from the Centers for Disease Control and Prevention.

      Birthrates fell for nearly all racial and age groups, with only slight gains for women in their late 30s and early 40s, the CDC says.

      The news has come as something of a surprise to demographers who say that with the U.S. economy and job market continuing a years-long growth streak, they had expected the birthrate to show signs of stabilizing, or even rising. But instead, the drop could force changes to forecasts about how the country will look — with an older population and fewer young workers to sustain key social systems.

    2. Planet Money
      The Baby-Less Recovery
      February 12, 2019 10:26 AM ET
      Greg Rosalsky
      Stork delivery
      CSA Images/Getty Images/Vetta

      NOTE: This is an excerpt of Planet Money’s newsletter. You can sign up here.

      Over the last decade, the U.S. fertility rate has dipped to its lowest point in history. Economists expected a short decline in the number of births during the Great Recession, but they believed we would start making kids again once the economy recovered. That hasn’t happened.

      Instead, we’ve seen what Kasey Buckles calls a “baby-less recovery.” Buckles is an economist at the University of Notre Dame who studies fertility. “Usually the fertility rate bounces back quite quickly,” she says. But not this time.

      1. The Baby-Less Recovery

        Anybody looking for root cause would have to also investigate whether maybe it isn’t a real recovery and people are actually doing exactly what you would historically expect them to do in this situation.

    3. Less Sex, Fewer Babies: Blame The Internet And Career Priorities
      August 6, 20194:31 PM ET
      Heard on All Things Considered
      Sam Sanders
      A young woman sits in cafe while text messaging on her smartphone.

      Nate Koch isn’t sure what to make of the online dating scene.

      “There’s no rules,” the 23-year-old Colorado resident says. “We don’t know what to do on these apps. It feels like kind of, like, the Wild West.”

      And it can often feel extremely time-consuming and unproductive, says Koch, a recent college graduate. “I’m literally applying to jobs at the same time that I’m dating. The similarity between the two is a little, like, horrifying to me,” he says.

      The confusion over the rules of romance in the digital age shared by Koch and so many others might explain why millions of Americans are having less sex than previous generations did at the same age. Add in a focus on building a career before having a family, and it all may be contributing to a national birthrate that keeps falling.

      1. Why would a young man take a chance in today’s feminist fueled fake-rape environment? The deck has been stacked against them!

    1. Why Are Young People Having So Little Sex?
      Despite the easing of taboos and the rise of hookup apps, Americans are in the midst of a sex recession.
      Kate Julian
      December 2018 Issue
      Culture

      These should be boom times for sex.

      The share of Americans who say sex between unmarried adults is “not wrong at all” is at an all-time high. New cases of HIV are at an all-time low. Most women can—at last—get birth control for free, and the morning-after pill without a prescription.

      If hookups are your thing, Grindr and Tinder offer the prospect of casual sex within the hour. The phrase If something exists, there is porn of it used to be a clever internet meme; now it’s a truism. BDSM plays at the local multiplex—but why bother going? Sex is portrayed, often graphically and sometimes gorgeously, on prime-time cable. Sexting is, statistically speaking, normal.

      1. Bill Russell: “all’s eye knows about statistics is eye heard a 6’6″ man drowned in 4″ of water”

        Must bee “stealth.sex” … or … some folks are knot being truthful about their sex lives, now why would they be less than honest?

        Match Group stock soars after Tinder shows explosive growth once again

        Match Group Inc.’s Tinder growth engine keeps roaring, as new features and marketing tactics helped the online-dating powerhouse deliver better-than-expected subscriber numbers yet again.

        https://www.marketwatch.com/story/match-stock-soars-after-tinder-shows-explosive-growth-once-again-2019-08-06?mod=mw_theo_homepage

      2. Porn is free. Girlfriends are expensive and that student debt? Unpayable. 300 kids will be forced by me to run an roi analysis on their college picks/major, but the rest? Probably f*cked due to illusions of competence cemented by grade inflation at the secondary level.

  9. Yes, great article some ground level info. and some from the 30K ft. view. Thanks for the post, Ben!

    Some excerpts from the article:

    “The Merced real estate market top was October 2005, when the median sale price of an existing detached Merced home was $344,615. By January 2010, that same statistical house bottomed to $96,666 and that does not include an unprecedented era of un-marketed shadow inventory held by the banks.

    “Speculating on annual house appreciation alone is what got Merced into trouble in the first place.”

    “married households (aged 18-34) with children, dropped from 37% in 1990 to 25% in 2015 – a 32% drop within a generation. So much for the “gig economy” igniting a housing recovery – especially one with historically low interest rates.married households (aged 18-34) with children, dropped from 37% in 1990 to 25% in 2015 – a 32% drop within a generation. So much for the “gig economy” igniting a housing recovery – especially one with historically low interest rates.

    “I would suggest the Merced middle class – the real core audience for new home purchases is still being squeezed financially.”

    “Always remember debt is NOT money. Debt is a tool for certain smart people under the right circumstances, but the operative word here is “smart.” Mortgage is an old French translation for “death pledge” (mort gage) – think before you sign.”

  10. fastFT German economy
    Industrial output drop exacerbates fears over German economy
    June’s figures compound concern that any recovery in Europe’s powerhouse is far off
    Sarah Provan in London
    27 minutes ago

    Industrial production in Germany dropped a greater than expected 1.5 per cent in June, compounding fears that Europe’s biggest economy may face a recession.

    Output fell 5.2 per cent from June 2018, the statistics office said on Wednesday. Analysts in a Reuters poll had estimated output would fall 0.4 per cent during the month compared with May. Production, excluding energy and construction, was down 1.8 per cent.

  11. “Lest anyone forgot, Merced was the poster-child for the American sub-prime mortgage nightmare (2007-2010).”

    There were more poster children than you could shake a stick at…

    1. Bond yields and Wall Street stock market futures are headed the same direction now, which is down.

      Bonds
      August collapse in the 10-year Treasury yield picks up steam, now at just 1.65%
      Published 6 hours ago
      Updated 13 min ago
      Thomas Franck
      Silvia Amaro

      The August slide in the 10-year Treasury yield accelerated on Wednesday to its lowest since 2016 on concerns about the China-U.S. trade war slowing the global economy and following a host of overseas central banks introduced aggressive interest rate cuts.

      The yield on the benchmark 10-year Treasury note, used as a benchmark for mortgage rates to auto loans, was lower at 1.638%, the lowest level since October 4, 2016. The yield on the 30-year Treasury bond bottomed at 2.164%, its lowest since July 14, 2016.

    2. Another day, another 1/2 trillion dollars increase in the global value of negative yielding bonds…

      The world is running out of low risk assets with positive nominal returns!

      Markets
      Negative-Yielding Debt Hits Record $15 Trillion on Trade Woes
      By Cormac Mullen
      August 5, 2019, 5:17 PM PDT

      The latest escalation in the U.S.-China trade war has sent investors rushing once more to haven assets, pushing the world’s stockpile of negative-yielding bonds to another record.

      1. The world is running out of low risk assets with positive nominal returns!

        Sure am glad I was already holding a bunch of them!

    3. The Financial Times
      Markets Briefing
      Sovereign bonds
      Government bonds rally amid mounting economic gloom
      Steep fall in German industrial output adds fuel to global bond-buying spree
      US government bonds are typically seen by investors as a haven in times of market stress © Reuters
      Philip Georgiadis and Adam Samson in London and Alice Woodhouse in Hong Kong
      2 hours ago

      Investors piled into government bonds on Wednesday after a trio of central banks slashed interest rates, China’s currency weakened further and fresh warning signs emerged over the health of the German economy.

      US Treasuries, which benefit from looser monetary policy and are typically seen by investors as a haven in times of market stress, extended their recent rally, with the yield on the 10-year benchmark bond falling 11 basis points to as low as 1.625 per cent, its lowest level since October 2016.

    4. Stocks are cratering too quickly for the MarketWatch headline writers to keep up.

      Dow drops 400 points as investors fret about global growth outlook
      By William L. Watts
      Published: Aug 7, 2019 9:34 a.m. ET

      U.S. stocks opened with substantial losses Wednesday, with investors shunning equities and other assets perceived as risky for havens like Treasurys and gold amid rising worries about global growth prospects. The Dow Jones Industrial Average (DJIA, -2.10%) was down 412 points or 1.6%, at 25,617, while the S&P 500 (SPX, -1.78) fell 40 points, or 1.4%, to 2,841. The Nasdaq Composite (COMP, -1.53%) dropped 1.3% to 7,729. Stocks sank as U.S. Treasurys posted a sharp rally, sending yields tumbling, following bigger-than-expected rate cuts by central banks in New Zealand and India and an unexpected easing by Thailand’s central bank.

    1. Nonetheless, every gainfully employed young American I know has a college degree.

      Go figure!

      1. Nonetheless, every gainfully employed young American I know has a college degree.

        But keep in mind you are in a place where people can honestly say that not a single person they know voted for Nixon :-).

      2. I think we’re just starting to see the needed shift away from college as a necessity.

  12. Dear Professor, I wonder if you missed something when you dismissed this viewpoint as, “lame”?

    “Those that do not accept the reality the Trump is a pied piper are desperately trying to conjure some kind of logical rational for Trump’s actions as well as the Fed’s actions. They won’t find anything logical until they recognize that the Fed is deliberately triggering a crash and that Trump and conservatives (or populists) are meant to take the fall for it.”…

    Globalists Have Set Operation ‘Blame The Populists’ In Motion – by Brandon Smith.

    1. Those that do not accept the reality th[at] Trump is a pied piper

      I’m not inclined to consider seriously an author who considers his perception as reality.

      1. “I’m not inclined to consider seriously an author who considers his perception as reality.”

        Based upon your previous comments, I’m a bit surprised by your statement. Anyway, what else is reality, except perception? Yeesh, an apple falls from the tree, and you jump up and say, “that’s unreal”?

        You can do better than that, I think. Maybe?

        1. The point was that you used a logical fallacy, the “loaded question” or “complex question”. You (or whoever originally said it) assumed that Trump was in fact a pied piper. You may believe it but it’s not a proven fact and therefore the rest wasn’t taken seriously.

          1. I’ve been here since 2004, or whenever this blog started, I take nothing at face value, I consider the facts, Jack. When you say, “it’s not a proven fact” I wonder, have you considered the uncomfortable facts, as presented by Mr. Smith in his article.
            It’s bizzare how I feel like it’s 2005 all over again and I’m saying things that are uncomfortable, er, at least posting links to such, and getting zero feedback about facts, and nothing more than personal & abstract attacks. I expected far far better from you all after all these years of reading what you all had to say. Address what Mr. Smith has to say. and respond with facts, please. I am the messenger.

          2. I haven’t read the article and wasn’t planning to, but at your insistence I’ll try to make time for it.

            But regardless of what Smith said, YOU (the messenger) presented it as a logical fallacy. That’s the point being made here by everyone but you. To me it would make sense for you to correct that before insisting that everyone else listen to the rest of what you are trying to say.

          3. So on reading the article, I see it was him who made the pied piper statement so he’s originally at fault for the fallacy. Not sure why you repeated it with no qualification that it was his opinion, but whatever.

            To me the article reads like a whole bunch of speculation, not as facts. I may agree with some of the speculation but I’m confused about what part of it you consider to be important. To me it just seems like some dude pontificating on things he may or may not know anything about.

          4. Thanks for your reply, Carl Morris. I appreciate your effort, your honesty, and your up front opinion. I wish my delivery were better.

        2. Anyway, what else is reality, except perception?

          We’re not talking about the law of gravity. We’re talking about perceptions of Trump as president (reality). I think it’s pretty clear that people’s perceptions of Trump vary widely. Smith’s assumption that his perception is reality ignores this, shuts down consideration or discussion otherwise, and insults any reader who doesn’t share his perception.

          I’m not familiar with his author. Has he made a compelling case for Trump as a pied piper before this article? I don’t think any of us will know conclusively for many years to come. I do know that after three years I’m tired of the vitriol.

          1. what else is reality, except perception

            And for the majority of people this so-called reality is simply what their voices of authority have told them to perceive as real. Works fine until actual reality hits you over the head. What in the world does it mean anyway that the President is a Pied Piper?

            And who is the “Empire”? Good grief!

            Anyway, I’ve spent some time where the legend of the Pied Piper originated, and saw the 400 year old inscription on the front of the “Rat’s Tail” or maybe it was the house next to it. A local historian told me they actually believe that the so-called Pied Piper was hired to lead the “children” to a far off place where they would be safe from plague or hunger.

          2. Pied Piper

            Definition of pied piper
            1: one that offers strong but delusive enticement
            2: a leader who makes irresponsible promises
            3: a charismatic person who attracts followers

            Examples of pied piper in a Sentence

            Recent Examples on the Web

            Forced into the political wilderness, much of Siege feels like a relevance play—Bannon using Wolff to cast himself as Trump’s pied piper.
            — Alex Shephard, The New Republic, “Is There a Right Way to Cover the Trump White House?,” 6 June 2019

            This had a pied piper effect — visitors curious about where the band might be headed naturally followed.
            — Carolina A. Miranda, latimes.com, “Experimental vocalist Carmina Escobar led an ethereal performance while floating on Echo Park Lake,” 31 Jan. 2018

  13. Ben Jones has pointed out numerous times that the worldwide housing bubble rose, and is falling, in tandem. Brandon Smith mentions how, “Suddenly, the blame for the latest stock plunge is being attributed to Trump rather than the Fed. How convenient for the central bankers…” The two observations seemed linked, anyone else notice? It sure would be nice if Trump was, “da maddle fanger”, however; the facts, as oulined by Mr. Smith in the above article, suggest otherwise.

    1. the worldwide housing bubble rose, and is falling, in tandem

      As in one follows the other? Not much food for thought.

      1. Perhaps I phrased that wrong, BlueSkye. The housing markets worldwide rose at the same time, then fell at the same time, obviously suggesting Central Bank collusion and price fixing, it didn’t appear to happen by chance, can the same be said of the latest stock plunge being attributed to Trump rather than the Fed? I don’t know, was just asking some questions. Did you read Mr. Smith’s article and consider the facts he points out? I thought it would be of more interest to some than of some lost watches. Oh well. Like it matters, same as it ever was.

        1. Globalists Have Set Operation ‘Blame The Populists’ In Motion – by Brandon Smith

          I think that when horses are in tandem, one is harnessed behind the other. If you mean that all the markets went up, following some one thing them I understand.

          I skimmed the article. I have to admit that I don’t care much about The Market and I don’t think national policy should either. Granted that inhabitants of Wall Street think they are at the center of the universe.

          A grand conspiracy theory is not necessary to explain what Trump or the Fed are doing. Trump said the Chinese position was weak and we shouldn’t continue to let them take unfair advantage of us. He said he was going to raise tariffs unless certain concessions were made. There were promises from China which weren’t kept and so there were consequences. Too bad if the China Miracle and the Wall Street grifters all swoon at the throttling of their gravy train? Their gains have been at my expense, and at the expense of my honest neighbors.

          1. I feel like I should say, thank you, for at least skimming the article, and giving a reasoned response. I don’t care much about The Market, either. I care do about people, individuals. You lost me when you said, “unfair advantage of us” I guess that’s a blind spot for those who choose to not understand comparative advantage (most people are blind to that) and the real way of life created by the much misaligned free markets, it’s par for the course these days, blinders everywhere. I mean, when you say “unfair advantage of us” is it as if they are twisting our arms behind our backs and forcing us to buy thier crap?
            One thing it seems that we half-way agree upon, maybe all the way, i don’t know, “Their gains have been at my expense, and at the expense of my honest ne’ighbors.”
            So, maybe, ask yourself, who is “they” and what are thier true goals? It’s a question our overlords do not want you to contemplate. I sure do wish what was appearant on the surface was true. How-freaking-ever; the opposite seems more likely as time goes by. I.D.K.

  14. Not housing related but interesting BROOKFIELD — The Brookfield Police Dive Team found two Apple Watches Tuesday after a training exercise in Candlewood Lake, police said on Twitter.

    This is not the first time the team has recovered lost items in the lake. Three Apple Watches were also found in September 2018.

    Both watches found Tuesday were in working condition and returned to their owners, police said. They were recovered from under 25 feet of water, where they had been for two weeks.

    https://www.newstimes.com/local/article/Lost-Apple-Watches-recovered-from-Candlewood-Lake-14286747.php

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