War and Profits- NEW UPDATE JUNE 20, 2014

Real Estate is nowhere near where it was during the boom and may start down again soon.

 

 

Marc’s Notes:

(Quick note before I begin; I have been waiting for Dave’s Water Service in GV to show up here and add calcite to my water tank. It’s been over 3 months and half a dozen calls and still this guy still doesn’t show. How does he stay in business!

Does anyone out there want to come over for a small fee and do this for me? I have a bad back right now and need help on this. Email me your fee to do this. I will get the calcite unless you wish to sell it to me).

 

Now on to the news:
Hope everyone enjoyed the show on WAR yesterday! I received quite a few calls. If you would like to listen, just log into moneymanagementradio.com and order up the show.

In the markets, Argentina says they will default on their next bond payment. Another country in trouble due to bad fiscal government policy. Policy like our Fed Chief Janet Yellen just confirmed with her statement this week to continue on with ultra-low interest rates and printing up 35 billion (with a b) a month and giving that money to the banks and the Treasury to spend.

Meanwhile inflation is picking up and even the Government statisticians are admitting it.

Expect even more soon.

On the subject of real estate, in a recent article I read on real estate, the author summed up his views by saying “It’s a good time to buy and sell”.

Only three reasons exist for someone issuing this statement:

They either make their living on real estate, they are purposely stating a falsehood or don’t understand free market dynamics.

Regardless of the asset in question, it is either a good time to sell OR a good time to buy but never both. There cannot exist in free markets a buyer AND sellers markets at the same time.

Free markets are always in flux and for it to be a good time to buy AND sell at the same time would mean the market is in perfect equilibrium. That would mean prices are neither rising nor falling which in a free market is a condition that rarely exists if ever and when it does exist, market mechanisms quickly revert prices back moving again in either one direction or the other.

If prices were truly stable (in equilibrium) and not going up or down (such as would have to occur for it to be a good time to sell AND buy), potential buyers would hold off buying until the perfect time for them to purchase occurred. In real estate, it would be waiting for that perfect house or waiting until their financial condition was absolutely as good as it could be. Not fearing price increases, they would have all the time in the world.

This delay in turn would dampen demand. The same condition would exist for sellers. Since they could always obtain the same price, there would be no rush to sell fearing lower prices later.

In this fairy tale condition of market equilibrium, there would be no rush to move by either party. This delay by both buyers and sellers would obviously SLOW sales and that would then show up in the market in falling prices, a state of disequilibrium once again.

Since disequilibrium is the state where prices are rising or falling, we defer to which   direction prices are moving to determine whether it is a good time to be a buyer or a seller.

We only have to review the old economic adage of “sell when everyone is buying and buy when everyone is selling” to learn when it is a sellers’ market or a buyers’ market.

Simply put, a buyers’ market exists when prices are falling due to increased supply and/or falling demand. A sellers’ market exists when prices are rising and/or supply is dwindling.

Just think back to the real estate boom before the bust. Demand for homes was skyrocketing due to the mania yet homebuilders could not build homes fast enough.

Although you were told it was a good time to buy AND sell, the market truth soon became know. Since it can never be (and it wasn’t) a good time to sell AND buy, homebuyers found out the bubble was in actuality a SELLERS market and buyers got left holding the proverbial bag.

Free market dynamics (without intervention of course) always work to balance out imbalances in supply and demand. Increased demand will raise prices making prices (homes in this example) less affordable and therefore slow demand. Meanwhile suppliers, seeing increased profit will increase production (homebuilders in this example) and the added supply will also put a damper on rising prices.

In cases where demand falls or supply increases, prices will fall in response. This fall in prices will then start increasing demand back up again, once again in a market attempt to correct the supply and demand factors.

Although prices are always seeking equilibrium they will not remain there for long. The constant and ongoing movement of supply and demand will constantly cause prices to move one way or another.

Since prices will never stay the same for long in a free market, the state of equilibrium, whether it is in real estate, bananas or what–have-you cannot exist. This is why it is impossible for it to be a good time to buy and a good time to sell simultaneously, let alone in a major asset group like real estate. For anyone to claim this is absolute nonsense.

To find out whether it is a seller or buyers’ market in the asset you’re looking at, find out at which way prices, demand and supply are headed and ignore the hype from slick haired salesmen looking to make a buck from you.


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Don’t look now but we have another bubble building. Banks and big money Wall- Streeters are once again packaging up loan bundles of questionable quality and selling them all over the globe, all while making obscene commissions and satisfying the governments demands to get the economy and some key corporations moving again.

I’m talking about the government’s ultra-low interest rates being forced there by the Federal Reserve, which is doing what low interest rates always do: entice many Americans to borrow more than they can afford and go into hock, piling debt upon even more debt and lighting the fuse to another potential bank crisis.

This time it’s in toxic automobile debt, called “subprime auto loans”. The car companies, much like the home builders a while back, love the business of course, raking in record profits and incidentally keeping those profits.

Remember just a few years back they used your tax payer money to make them whole again, and now keep the newly acquired profits, but that’s a story for a different day.

GM , Chrysler, Ford, Honda, Toyota and Nissan among others are knocking it out of the park, selling cars they did in the mid 2000’s and it’s all because interest rates from the Fed are so low and lending standards have dropped much like they did for home buyers. If you have a pulse, you can pretty much drive away in a brand new car.

Longer terms, lower payments, no money down and rebates all entice more and more people to buy that new car, stretching their finances even farther to get that brand new car smell and the latest in automobile technology.

The government of course, much like they did during the housing boom is asleep at the switch, paying no attention to the rising rate of defaults from subprime auto owners, and so the billions in debt pile up on bank and pension balance sheets.

The stinking piles are once again distributed like bad seeds, sprinkled everywhere and leveraged up to squeeze a few extra million out of each package. Its madness all over again, but don’t expect the government to be proactive and put a stop to it. The auto lobby is huge with big campaign bucks and like the housing boom, you won’t see or hear about the implosion until it’s already upon us. Add in the student loan fiasco and into the trillions again in debt we go (again) and much of it is going sour. It’s only a matter of time until you the taxpayer will be asked to pick up the pieces again thru more bailouts and haven’t we’ve seen this movie before.

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That’s all for now,

The next Money Matters Show airs July 3rd Thursday at noon PST. on KVMR FM and worldwide on www.kvmr.org.

 

Do you wish to go over your portfolio with me? Email me, I have some time in early July.

marc