Calculating Your Personal Cost If Stock, Bond And Home Prices Return To Average

We currently have well above average prices for stocks, bonds and homes. This raises a simple question – what would happen to the average retirement account and to home equity for the average homeowner, if valuations were to return to what long term averages show us are normal valuations?

Using decades of valuation information on stocks, bonds and homes, this analysis develops numbers in each category that show how much of current national stock, bond and home prices represents average values, and how much is a premium above normal valuations.

Using those historical values and the illustration of an example homeowner and retirement account investor, it is demonstrated that the current premium is around 59% above long term average valuations. How the loss of such a premium could have life changing implications for tens of millions of homeowners and retirement account investors is reviewed.

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Fed’s Foundering Follies

As September rolled into October, the US central bank’s monetary madness blew all over us like a fountain of foam in a windstorm. First, the Fed burst into $75 billion in overnight funding operations due to obvious shortages all over the map in bank reserves. Then the surge spread beyond that into longer-term temporary funding of $30 billion twice a week because the overnight loans were not up to the needs. That still not being enough to end the troubles, the Fed’s rapidly expanded the overnight operations to $100 billion and doubled the term operations to $60 billion. Those operations still did not end the troubles the Fed’s tightening had created, so the Fed decided to flood the murky money pools of this world with $60 billion in frothy treasury purchases.
Although this money was permanent reinflation of the Fed’s balance sheet (unlike the temporary overnight and term repos), the Fed told us they are not QE (never mind that exactly like all previous QE, they give new fiat money with interest to primary treasury dealer banks that buy treasuries from the US government). The banks rushed in with more than four times the offers to resell treasuries they had purchased from the government to the Fed than what the Fed was willing to buy.

The Housing Market In 2006-2007 And 2018-2019

As can be seen in the graph below, there is an almost uncanny similarity between housing prices at the 2006-2007 peak, and current home prices.

The biggest difference is that current home prices are substantially higher. Should we be worried about a repeat scenario – and another six year decline in home values?

This analysis explores in detail the similarities between 2006-2007 and current home prices, on a national average basis. When we dig beneath the surface, we also find some major differences as well, which means that the next round could be quite different than the last round.

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The Relentless Road to Recession

By David Haggith – Re-Blogged From The Great Recession Blog 

“Show me the data,” demand those who cannot see a recession forming all around them and who keep parroting what they are told about the economy being strong because it is what they want to believe; yet, the data look like an endless march through a long summer down the road to recession.

And that is what you are going to get in this article, a seemingly endless parade of data along the recessionary road. This is for the data hounds.

As we end the summer of our discontent when few would deny that most economic talk turned toward recession and, as we begin the time when I said the stock market appears it may fulfill my prognostication of another October surprise, it’s time to lay out — again — the latest data that support my summer recession prediction. We’ll have to wait until next year for the government to officially declare a recession if one did start in September. (Yes, September is a summer month.) In the meantime, the data stream is a long line of confirmation.

Why are Bonds Going for Broke?

One argument for last week’s extraordinary plunge in bond prices, which I explored as something that might happen this time of year in one of my earlier Premium Posts, was that bond prices could get crushed by the supersized US treasury auctions planned for September and October as the government makes up for its inability to issue new debt during the debt-ceiling standoff.

While pointing out the concern to patrons, I decided in the end for my own investment purposes that the Fed’s termination of quantitative tightening and its return to reducing interest rates would likely offset the impact of the government’s sudden debt expansion. Evidence is solid so far that the ballooning treasury auctions have not been the cause of the sudden collapse in bond prices (rise in yields).

(I also got out before the carnage of last week.)

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Dancing Closer to the Exits

By Rick Mills – Re-Blogged From Ahead of the Heard

When Americans elect or re-elect a president in the fall of 2020, there is a very good chance the closest thing to their hearts – their wallets – will be top of mind.

 

That’s because many are predicting the longest-running economic expansion in US history is about to slam on the brakes. It’s been over a decade since The Great Recession of 2007-09 plunged the world into monetary despair. That downturn was particularly bad because it combined an economic slowdown with problems in the financial system, rudely exposed by the sub-prime mortgage crisis.

 

In this article we are asking, what is the best indicator for predicting the next recession? What does the current data say about a recession?

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The Economy Continues To Deteriorate

By Dave Kranzler – Re-Blogged From Gold Eagle

Trump’s trade advisor, Peter Navarro, was on CNBC today asserting that the economy was expanding at an unprecedented rate.  Either Navarro is tragically ignorant or an egregious liar. Either way he looks like an idiot to those us who study the real numbers and understand the truth.

The Global Manufacturing PMI (Purchasing Managers Index) dropped to 50.4 – the lowest since July 2016. It’s been falling almost nonstop since mid-2017. The current period of decline is the longest in the 20-year history of the index. The index includes the purchase of inputs for the manufacturing of consumer goods, investment goods (capex material) and intermediate goods (semi-finished goods used as inputs for final goods).

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