San Francisco 2015 v/s Florida 2006

From 'Million Dollar Shack' documentary looks at Bay Area's insane housing market.

A realtor featured in the film named Ken DeLeon doesn't offer much hope. "As crazy as these prices might seem, I think you're going to see them double in the next six to 10 years. The amazing part — I don't think, it's going to end. I think the fundamental lack of supply and strong demand are going to drive this market forever."

Back then, in Florida:

In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."

Note the similarities:

1. Limited supply of land. CHECK.
2. Then "foreigners" now "Chinese". CHECK.
3. Prolong the boom indefinitely. CHECK.

My prediction: BLOODBATH.

The Grand Summary

This blog has pretty much lived out its purpose. It was to document the sheer unabated insanity of journalism in the era of the World's Largest Bubble™.

It's done. It's on the record and its (semi-?) permanent.

Let us summarize everything that has been learnt so far:

Journalists are complete fuckin' idiots when it comes to finance. Let's explore all the reasons:

1. They are bound at the hip to their paycheck as are most humans. They serve the powerful advertising lobbies — in this case it would've been the Real Estate lobby. (On a related note, the NAR has its massive office nearest to the Senate entrance in DC and there are a ton of wonderful fancy restaurants there. One wonders why!)
2. They are numerically illiterate and proud of it! They understand fuck-all about Statistics. They think that three anecdotes and two quotations consist an article.
3. The entirely idiotic idea that one must give credence to the "opposing view". One can almost feel the headline: Earth is Round? Opinions Differ!
4. They fail to understand the importance of self-interest when they seek quotations. Someone who benefits from a certain situation is guaranteed to be biased and will spin the situation in their favor and their "opinion" must be severely discounted if not ignored altogether. Which leads us to:
5. Complete lack of critical thinking. English majors — what can one do? They are not the type to ask forceful follow-up questions which tend to be pretty obvious.

Virtually all financial media is complete and utter tripe. Within three sentences, it is obvious whether to stop reading or not. Heck, sometimes it's so bad that you'd be better served by reading "50 Shades of Gray" or surfing for porn rather than read financial headlines.

The most important point is there is no fix. Why would that be?

The reason is pretty clear.

Analytic, statistically-minded types with penetrating insight are much better served by doing the analysis and profiting from it not documenting it for other people with passive intellects that want to consume data not generate it.

There is smart financial media to be found. It's suitably obscure and it serves the author not to reveal since it acts as a form of IP (Intellectual Property.)

So the world will continue to spin as it always does but this blog will die a slow (passive) death.

It's been FUN though!

Candy Crush

This blog is basically dead but it behooves to write about the economics of a pretty stupid (and addictive) game called Candy Crush.

The idea is simple:

1. You have a few lives.
2. The game is pretty difficult or gets so at specific levels.
3. You can either get more lives by getting "timed out" or "paying for more lives".

(It's a little more complex but this axiom system will work as a first-approximation.)

The idea seems to be that:

1. The game is addictive. (TRUE.)
2. People are stupid. (TRUE.)
3. Some people will "pay" rather than "sit out the timeout".

Remember the firm that makes this only gets paid if Rule [3] is true. Otherwise, they get paid jack diddly-squat for doing all this work and that's not much fun in the real world.

The logical conclusion is that if someone gets too frustrated they will stop playing which brings us to:

1. If they stop playing, you don't get a single fuckin' penny.

Which brings us to the equally logical conclusion:

1. If you sit out long-enough, they will dumb down the game so you can get to the next level.

Once you figure this out, the game is not that interesting any more.

Incidentally, this is what Las Vegas slot-machines do. They are designed to be frustrating but not "too frustrating". They will give you a payout precisely when you are about to walk away forever. Turns out humans are pretty much designed the same way.

We really can't handle the laws of REAL probability which can be endlessly frustrating. Even after extensive training and endless rounds of losses, we are still human and handling tons of losses in a row is hard on the human psyche.

So is the game bogus? YEP.

Are most humans retards? YEP.

Oh well! The game was fun while it lasted.

Oh, Canada!

Population: 34 million.

Size: Second largest country in the world.

Real Estate: pricier than Central Park West apartments.

Land: Frozen as far as the bleedin' eye can see.

Bubble: Definitely, darlings!

Collapse: Guaranteed.

Timeline: Imminent.

Future: DARK.

The Commodities' Producers Meltdown

Most of "genius" is predicting the timing of meltdowns (even though most rational financial participants know that it's not that important.)

Goodbye, Australian and Canadian housing bubbles. It was lovely knowing you.

Australia is in full-on meltdown mode as we speak. Canada is lagging a little by about six months but that's neither here nor there.

(On a related note, goodbye Chinese investors in Vancouver. And goodbye, Mrs. Watanabe in the currency markets for yield. ありがとう, ありがとう! Your clocks are gonna get cleaned.)

No, you weren't terribly different. Sucks to be you!

Ireland Returns to Traditional Economy - Exporting Irishmen!

Bloomberg reports: Irish Urge Children to Leave as Export Gain Masks Lost Jobs.

Anthony Roche is urging his unemployed son to emigrate to Australia from Ireland to escape joblessness stemming from the country’s economic collapse.

Unemployment may climb to 14.6 percent this year, the central bank forecast on Feb. 2, as companies such as Royal Bank of Scotland Group Plc and Allied Irish Banks Plc prepare to shed more workers.

Irish unemployment tripled to an average 14.2 percent last year from 4.5 percent in 2007, as the economy shrunk by about 15 percent as a real-estate bubble collapsed. Emigration rose to the highest since the 19th century in the 12 months ended last April, with about 76,400 people leaving Ireland during the period, according to the Central Statistics Office.

Worse, over half have been jobless for more than a year and with 30 percent of people aged 24 and under are out of work, the office said in its quarterly employment survey.

When 30% of your younger force is out of work, you are basically doomed.

The correct solution for the Irish would've been to default on the debt as we have talked about many many many many many times but if you're a junior Irishwoman (or Irishman), conditional on the fact that your politicians are fuckin' retards, the best option is to leave.

Which makes the problem bigger, and of course, the default more likely. Which they should've done in the first place!!!

Oh well!

Death Spiral?

Bad mojo in Hungary: EU Says Hungary’s Central Bank Law Holds Key to Aid Talks.

The EU and the International Monetary Fund broke off negotiations on the aid package last month after Hungarian Prime Minister Viktor Orban refused to abandon the central-bank law, which came into force on Jan. 1 as part of a new constitution. The Budapest-based Magyar Nemzeti Bank has said the new law undermines its independence.

“We will decide whether the independence of the Hungarian central bank is fully in line with EU treaties and then of course we will be ready to open the formal talks with the Hungarian authorities on the financial assistance they requested last November,” Olivier Bailly, a spokesman for the EU, told reporters in Brussels today.

Almost every sign screams hyperinflation, and a failed state.

If you were Hungarian, what would you do?

The "Chinese" Manhattan

Bloomberg reports: China Debts Dwarf Official Data With Too-Big-to-Finish Alarm.

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

The planned 15.2 million square meters (164 million square feet) of office space by 2020 in Yujiapu and across the Hai River in Xiangluo Wan, or Conch Bay, is more than one-third of the 450 million square feet in Manhattan.

One-third the size of Manhattan office space, and completely fuckin' empty! Completely!

Ponder that, fuckers, don't just sit there, ponder it.

How can this not end badly?

Anyone who is long the Chinese yuan in any form whatsover (and the EE is looking at you, Jim Rogers!) is going to get their fuckin' clock cleaned.

There is no China miracle. It's all the illusion of debt financing, and when it comes crashing down (no later than mid-2013 and most likely sooner), remember you heard it here a long time ago.

Ditto for India and Brazil. There is no "Indian miracle" or "Brazilian miracle". It's all the smoke 'n mirrors of a ton of debt.

PS :- It was obvious what drove commodities all along, wasn't it? Please maintain a moment of silence for both Canada and Australia. Ruthless ass-poundin's in technicolor await.

Hunger Bells, Hunger Bells, Hunger All the Time

Source: USDA.

Population Numbers: Census. 2011 data was interpolated.

The Zombiecalypse

Bloomberg reports: Wells Fargo Says 80 May Be the New 65 for Retirees.

Americans are prepared to work longer in order to save enough for retirement, according to a survey by Wells Fargo & Co.

“Eighty is the new 65,” Joseph Ready, executive vice president of Wells Fargo Institutional Retirement & Trust, said in an interview at Bloomberg headquarters in New York before the survey was released today. “It’s a real sea change.”

About 74 percent expect to work in retirement, according to the survey, with about 39 percent working because they’ll need to and 35 percent because they want to. And 25 percent of those surveyed said they expect they’ll need to work until at least age 80 because they don’t have sufficient savings.

Given that life expectancy is about 78 in the United States, there's going to be a lot of zombies walking around for at least two years afterwards!!!

George Romero, eat your heart out!

What is Happiness?

Happiness is a blast from the past.

In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."

BWAHAHAHHAHAHHAHAHAHHAHAHAHAHHHHHHHHHHHHHHHHHHHHHHHHHHHH!!!!!

Europe

It can't be more appropriate that a band called "Europe" wrote this:



Just to be clear this refers to the EMU not Europe. Europe will still be around but will anyone care?

Reading Between the Lines

From the Shanghai Daily: Wen urges banks to support small businesses in trouble.

PREMIER Wen Jiabao has called for stronger financial support for China's small businesses and better regulation of the private lending market.

"Small enterprises should be a priority of bank credit support and enjoy more tax preferences from the government," Wen said during a visit to Zhejiang Province, east China's economic hub, on Monday and Tuesday.

He told banks to lend more to small firms and tolerate high levels of bad debt, while demanding a crackdown on high-interest private lending, Xinhua news agency reported yesterday.

Tolerate high levels of bad debt?

What kinda idiot tolerates high levels of bad debt? The whole purpose of banking is to make "good loans" not "bad ones".

One can read between the lines. The shadow banking system in China consists of private lending. If you trawl through the news items lately, you will read about a spate of suicides inside China.

There is incredible stress within the system.

China is going to have a very hard landing, and anyone that can't see that and keeps stoking the "China miracle" story is pretty much a fool.

The Continental Divide

The EU outlook on GD II: Hope springs eternal.

The US outlook on GD II: Hope dies last.

In Which the EE Scratches His Head

CNN reports: Thousands of protesters to 'Occupy Wall Street' on Saturday.

Egyptians did it for democracy. So did people in Tunisia, Yemen, Bahrain and Syria. Now, activist groups are hoping Americans will launch their own uprising -- in the form of thousands of protesters descending on Wall Street this weekend.

Occupy Wall Street is a "leaderless resistance movement" spearheaded by activist magazine Adbusters. Organizers want people to swarm into lower Manhattan on September 17 and set up camp for two months, then "incessantly repeat one simple demand."

What's that demand? They haven't decided yet. (emphasis: Ed.)

By the way, Wall St. is closed on Saturday.

The Fate of the Euro (with Music!)

Everywhere You Look, It's Sweet Baby-Jeebus!

The AP reports: Manifestation of Christ on Everyday Objects a Recurring Event.

When Jacob Simmons and his finance Gentry Lee Sutherland found a Wal-Mart receipt on the floor of their home, they were stunned to find that the receipt had the resemblance of Jesus Christ on it. KARE 11 News reported that when the couple asked Wal-Mart how this could image could have appeared, they were told heat was the only thing that could have cause the image.

Jesus' image has also appeared on food. Zimbio shows several images of Jesus on a potato chip, a cheese sandwich and a fish stick. According to the site, some of the people who found these images were comforted and inspired by the clear likeness of Jesus' image on the food. Realizing the opportunity to make money, Diane Duyser in 1994 auctioned the cheese sandwich on EBay for $28,000, reports Zimbio.

As we have clearly noted that in a depression, there is both a lack of cash and a rise in religious fervor.

If you see Jeebus on a tortilla then some of that sweet cash might flow your way.

This is entirely predictable and was both predicted and demonstrated a long time ago.

Now, with the rise of religious fervor, there will be a rise of people who will seek to cash in on that ("I'll pray to sweet baby-Jeebus so that some magic money will come your way.")

Why is this even surprising?

The Big-D Bites, Bitches!

From the SF Chronicle: Portion of men who work falling with wages.

Men who do have jobs are getting paid less. After accounting for inflation, median wages for men between 30 and 50 dropped 27 percent - to $33,000 a year - from 1969 to 2009, according to an analysis by Michael Greenstone, a Massachusetts Institute of Technology economics professor who was chief economist for Obama's Council of Economic Advisers.

"That takes men and puts them back at their earnings capacity of the 1950s," Greenstone says. "That has staggering implications."

Welcome to the DEFLATION, baby!

Oh, and incidentally, the "staggering implications" are only "staggering" to MIT professors with embedded "eternal inflation" assumptions twinkling in their statistical datasets.

The Irish Do Hunger Like No Others!

From the Independent: Families in modern Ireland skip food to pay the mortgage.

FAMILIES in modern Ireland are going without food to meet the demand of mortgage debt.

The arrival of the second wave of the economic crisis, giving rise for the first time in many decades to the spectre of hunger, has caused shock across the country.

The decision of homeowners to choose hunger over a fear of eviction helps expose as irrelevant the issue of "moral hazard", the defence of policymakers who resist calls for debt forgiveness.

In a letter to the Irish Times on Friday, MP Mac Domhnaill -- possibly a pseudonym -- an unemployed man from Tralee, wrote of the "anxiety and pain" the economic crisis had wreaked on his family.

The letter writer, who has chosen to use his dole payment to meet a €780 monthly repayment, told of how he had nothing to feed his children except bread and cereal.

One presumes that "mortgage" spells nothing like "potato" but the end result seems to be the same.

Incidentally, the word "mortgage" originates from French (via Latin) meaning "death pledge" which in this case seems to be taken quite literally.

Dude, hand the keys back, and walk away. What are they going to do?

Ironically, the same could be said for the entire nation of Ireland. Just default. What are they going to do?

Oh well, one would think that at rock-bottom, they would "get it".

Of course, it's not serious yet. For that, the Irish would have to stop drinking. Then, we'd be sure.

The Awful Truth

From Bloomberg: Biden Tells Wen ‘You Have Nothing to Worry About’ Over Debt.

Vice President Joe Biden told Chinese Premier Wen Jiabao his government doesn’t need to worry about the safety of Treasuries as the world’s biggest overseas holder of U.S. debt.

"You see here, Wen, good buddy," said Plugs, "we have this thing called an electronic printing press, and my old friend Greenspan assures me that we can never default, we just keep printing. It’s so very simple really, now lets get hammered on some huáng jiǔ, buddy, and forget all this BS."

Bye-Bye, Baby!

From the AMA: 4% drop in U.S. birth rate is largest in 3 decades.

Birth rates nationwide declined by 4% on average between 2007 and 2009, reaching 66.7 births per 1,000 women age 15 to 44, according to a federal report. This is the biggest decrease in more than 30 years.

The relatively sharp decline in birth rates in some states is deeply affecting hospitals and ob-gyns. In Arizona, for instance, the rate declined by 12%, the largest decrease of any state.

That drop was steep enough to force John C. Lincoln Health Network to close its North Mountain Hospital's birthing center in Phoenix in February, according to the health network.

Is There a Mad Russian in the House?

Who is Nikolai Kondratieff?

Why should we care?

As always, the blog has been roughly two years ahead of the curve so expect this name to start getting bandied about roughly in 2013.

(Technically, he was a product of an earlier age, and phrased his theory in terms of fixed years -- a product of the gold standard -- but it really has to do with the "peak debt" of debt cycles.)

Food Stamp Update

From the Chicago Tribune: A record 45.8 million American using food stamps.

Nearly 15 percent of the U.S. population relied on food stamps in May, according to the United States Department of Agriculture.

The number of Americans using the government's Supplemental Nutrition Assistance Program (SNAP) -- more commonly referred to as food stamps -- shot to an all-time high of 45.8 million in May, the USDA reported. That's up 12% from a year ago, and 34% higher than two years.

This is a sharp acceleration from the chart posted earlier.

Let's rephrase the evidence. 1.5% of Americans have been falling into poverty every single year. Absent this government handout, they would starve.

Why Housing Will Not Be Bouncing Back (For A While)

There is the "obvious" reason that after a bubble, everyone shuns that asset class but we are here to observe "fundamentals".

There are three principal reasons:

Rents are still cheaper than prices.

Demographics will be working against housing.

Global wage-arbitrage.

The first reason, of course, is a classic. It was the argument based on "fundamentals" that there was a bubble in the first place.

The second and third are subtle, and the interaction of the two is equally subtle.

Basically, most of the money that Baby-Boomers need for retirement is in their houses. They have to sell that to someone in order to retire in the first place. That someone cannot be a younger person since they simply don't have the income to support the outlandish prices.

Yes, this is just a repeat but most of economics is the same ol' shit that you have to repeat again and and again and again and again till you are blue in the face because it never changes but somehow people never ever seem to get it.

Bring the Good Times Back!

On warm lazy summer days, one waxes nostalgic for the times when the blog used to be fun.

In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."

Oh baby! Those were the good times. When you didn't have to work hard for a whine-fest-worthy quote. It's all doom and gloom these days.

Gotta grind harder during the Big-D, yo!

Any Fool Could See This!

People can't understand the difference between "inflation" or "deflation" because they keep focusing on the wrong things (like prices.)

Inflation in a fiat economy is the increase in credit. Deflation is default of past credit.

What do they have in common though?

Lack of purchasing power.

However, for entirely different reasons.

In, inflationary economies (US 1970's, India 2011, China 2011), you are losing purchasing power because your salary is not keeping track of the money printing machines (= prices.)

In deflationary economies (US today, Greece 2011, Spain 2011), you are losing purchasing power because your wages are collapsing relative to prices.

Yes, it can be coincidental. It's called "money flow". What's inflation for one economy is the deflation for the rest and vice-versa.

In the US, we are still very much (and shall continue to be) in the Big-D!

The Goldawn Glory (Minus the Gloworm Gleam)

We need to revisit the classics, bro.
It's not fun unless you do that, yo!
Link.

“If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Mr. Bernanke said.

Two QE's later, and the unemployment rate is larger than that of the quote (Feb 2009.)

How are those academic theories working out, professor?

That D-Word in Labor

MSNBC reports: Major grocer getting rid of self-checkout lanes.

Albertsons LLC, which operates 217 stores in seven Western and Southern states, will eliminate all self-checkout lanes in the 100 stores that have them and will replace them with standard or express lanes, a spokeswoman said.

"We just want the opportunity to talk to customers more," Albertsons spokeswoman Christine Wilcox said. "That's the driving motivation."

Wilcox said the replacement of automated checkout lanes with human-operated lanes likely would mean more hours available for employees to work.

Must call BULLSHIT on the "want to talk to customers more". Nobody does. Not even the customers!

Labor is cheaper than the machines. That's all there is to it.

Sounds like a depression to me!

SNAP

44,647,861 on food stamps. (Source.)

Sorry, it's not called food stamps any more. It's the Supplemental Nutrition Assistance Program.

You can get US population monthly estimates here. 2011 data was interpolated.


That's 14.3%. One in seven!!!

Nothing to see here folks, move along. It's not a depression.

SNAP!!!

What a Difference a Year Makes!

From HeraldNet a year ago: Snohomish County Business Journal Executive of the Year.

In today's chaotic banking world, where crashing waves of economic change have swept away dozens of famous-name banks and restructured much of the nation's financial community, First Heritage Bank is stabilizing and creating a positive new image as “The Greatest Small Business Bank.”

With $215 million in assets in September 2009, the bank noted that more than 90 percent of its $174.6 million loan portfolio was in real estate. The bank lost $5.9 million in the first nine months of 2009, compared to a profit of $992,000 in the same period in 2008.

First Heritage Bank's President and CEO, Cathy Reines, has loved banks — particularly community banks — for many years, and it shows.

From TheStreet.com: Washington Bank Fails; 2011 Tally Now 44.

State regulators Friday shut down First Heritage Bank of Snohomish, Wash., bringing this year's total number of U.S. bank failures to 43.

The Washington State Department of Financial institutions took over First Heritage Bank and then appointed the Federal Deposit Insurance Corp. receiver. The FDIC then sold all of the failed bank's deposits (approximately $163.3 million) for a 0.75% premium to Columbia State Bank of Tacoma, Wash. Columbia State Bank also agreed to assume the failed bank's assets, which total roughly $173.5 million.

Rock on, Cathy! Your "love" of banking is shining through and through!!!

Where's my "Rapture", Dude?

Feel vaguely miffed about it all.

Bubble Watch

There's a new bubble in town - agricultural property.

Prime agricultural land in the US is going for $10K per acre.

Do the math. After all the equipment, seeds, fertilizer, at current yields, and current prices, you're not going to make up that up in 100 years.

And before you scream "inflation", please note that the afore-mentioned "inflation" affects equipment (metals, energy, manpower), seeds, and fertilizer (energy) at the same rate. There is no "magic" here that allows you to get out.

Also, there's a super-secret, sizzling sauce that is gonna crush the above with deflationary forces. (Hint: it's called Africa.)

GAH! This is getting boringly predictable.

On the Poor Use of Statistics

Newsmax.com reports: FBI: 100 Percent Chance of WMD Attack.

The probability that the U.S. will be hit with a weapons of mass destruction attack at some point is 100 percent, Dr. Vahid Majidi, the FBI’s assistant director in charge of the FBI’s Weapons of Mass Destruction Directorate, tells Newsmax.

Sorry, this is bollocky pseudo-science amd bogus statistics at its very best.

The probability that all us will be dead "at some point" is also 100%, and hence it's not a very interesting statistic.

What matters is what is the probability of you, the reader, dying within one year, five years, ten years, etc. is.

This is a totally lame effort to sound scientific when in fact there is absolutely no reasoning or science involved.

One should stick a fork in the eye of the bitch just on general principle. All he's doing is justifying his job at the taxpayer's expense.

Now, that you can be sure of has 100% probability!

The Law of Mechanical Theorems

Yeah, yeah, yeah, the Portuguese are gonna get raped quickly. We all know that.

What we want to know is who's gonna get mauled a year ahead of time.

Irish per capita debt: $550K

Dutch per capita debt: $226K

Expect a mauling same time next year!

BORINNNNNGGGGGGGGGGGGGGGGGG!!!

The Irish Curse

A year ago, we visited the Irish saga: link.

Here's the recap:

Ireland

Population: 6.1 million

Debt: $1.8 trillion

That's trillion with a T. And the population is half of that of Mumbai.

Quick long division later, that's $448K for each man, woman and child.

That's a fuckload of Riverdance tickets they are going to have to sell. Or they could just institute a penny-tax per pint, and they'll pay it back in a year.

What would the EE advise the Irish?

Get drunk!

About the only option you've had for millenia. You think you can beat that by borrowing a crapload of money?