Saturday, December 14, 2013

Mike Rowe On The Broken Education System In The United States

Mike Rowe, host of Discovery Channel's Dirty Jobs, sums up the interview below eloquently in the opening statement:

"If we are lending money that ostensibly we don't have to kids who have no hope of making it back in order to train them for jobs that clearly don't exist, I might suggest that we've gone around the bend a little bit."

Student loan debt, which is over $1 trillion in size, has recently surpassed credit cards as the most troubled debt category in America. The number of student loans over 90 days delinquent has risen to 11.8%.

"There is a real disconnect in the way that we educate vis-a-vis the opportunities that are available. You have - right now - about 3 million jobs that can't be filled," he says, talking about openings in traditional trades ranging from construction to welding to plumbing. "Jobs that typically parents' don't sit down with their kids and say, 'Look, if all goes well, this is what you are going to do.'"

Wednesday, December 11, 2013

Las Vegas Real Estate Begins To Tremor

Las Vegas has been the poster child for the real estate bubble in the United States. The chart below shows the epic rise in prices during the first bubble, the first collapse, and the second bubble that began to build steam early last year.

I discussed the economic fundamentals behind the rise in Las Vegas home prices a few months ago (there are none) in Behind The Curtain Of The Artificial U.S. Residential Home Market. This week we received a real time update on the Las Vegas market from Mark Hanson, who is tracking the data in real time.

Las Vegas housing demand has crashed.  "Crash"...there is no other word to use.  This is not hyperbole.  "Crashed" is absolutely the appropriate word to use here given sales are suddenly the weakest levels since Armageddon 2009.  I mean come on...sales at the same pace as when the stock market was in the midst of one of the greatest plunges in history speaks least to me.  Volume precedes price.
Supply is surging in Vegas with "months-supply" back to nearly 7 months (over 7 for condos), and at 2010/11 levels.  There certainly is NO LACK OF SUPPLY in this market.  And ponder about this for a minute...and apply it to all these other "investor-centric" regions around the nation.  That is, in Vegas there are 10s of thousands of single-family houses being readied for rent by new-era "investors".  This flood of freshly rehabbed "for rent" supply will competes at some level with resale and builder "for sale" supply.  Even if it competes at a factor of .4, then Las Vegas "normalized" month's supply could right now be back to a year.
Lastly, houses are as expensive on a monthly payment basis -- and relative to the income needed to qualify for a loan -- then they were at the peak of the bubble in 2006.  But, this is a fact masked over for the past year by the plethora of all-cash buyers who are not governed by employment, income and safe & sound mortgage lending requirements.  Like Sacramento, Phoenix, regions in the Inland Empire, and a dozen other "hot" real estate markets around the nation -- that, "not"-coincidentally are the regions in which private and new-era "investors" swarmed with cash regularly paying 10% to 20% over appraised value / list price using flawed cap rate models as a guide -- when the stimulus go-go juice ran out this market hit a literal "brick wall" the size of 2007.
With house as expensive on a monthly payment basis than they were in 2007, when this market turns back towards "organic" being the incremental demand driver (people that can only buy as much house as their job, earnings, and mortgage qualifications dictate) serious double-digit percent points of house price downside will occur.  That's in the process of happening now.
The next year in Vegas could easily bring a 50% retracement of the past two years historic annualized gains, which to all the investor models predicting 10% appreciation in perpetuity, will feel like a crash.
h/t Zero Hedge

David Stockman Bloomberg Interview

Monday, December 9, 2013

A Cyclical Bear Market Within The Secular Bull Market In Commodities

The following chart from the Short Side Of Long shows the performance of the commodity index since the secular bull market began in 2000. After reaching a peak and falling during the 2008 crisis, the index reached a new all time high in 2011. It has since experienced a relentless fall downward.

Most now believe that the secular bull market in commodities that began in 2000 ended in 2011. The following shows the performance of individual commodities within the index. The price of oil (red) has held up the best, while most other commodities have taken a beating since 2011.

Since mid 2012 the commodities charts have been an almost mirror image of U.S. stocks. As stocks rise relentlessly day after day, commodities have continued to fall. This makes investors far more excited about the future potential for stocks and makes them hate and sell out of commodities positions.

The daily sentiment readings toward U.S. stocks have reached over 90% bullish during the past few weeks and months while the daily sentiment index on silver hit 9% on two consecutive days last week (91% percent of investors believe that silver will move lower from here).

After selling out of all their long positions, hedge funds have now piled on short positions for the worst performing commodities. This is the exact opposite of what is occurring in the U.S. stock market where there is now the greatest leveraged long position in history.

I believe that we entered a secular bull market for commodities in the year 2000 which has not ended. I believe this is a cyclical bear market cycle within the larger bull market trend. Supply/demand data combined with record low sentiment and a steady supply of printed currency around the world (chasing a stable or falling supply of commodities) paints an incredible picture for the future.

I believe we entered a secular bear market for stocks in the year 2000 and the rally since 2009 has been a cyclical bull market cycle within the larger bear market trend. At the end of cyclical rallies there are no believers remaining that stocks could possibly fall or commodities could ever rise again. That is close to where we are today. Opportunities like this rarely present themselves during secular bull and bear markets.

For more see: Jim Rogers On The Secular Bull Market In Commodities

Central Banks Around The World Are Providing Code Red Monetary Policy

I had the opportunity over the past few weeks to read John Mauldin's new book Code Red. The book is far and away the best finance and economics book released this year.

It provides a phenomenal background on how we got here with central bank policies, the impact on the markets today and how we will move forward in the future.

There are chapters on Japan, leading economic indicators and previous Fed forecasts. Mauldin walks through the reasons why quantitative easing programs are not helping the real economy, and why they are boosting paper asset prices (a topic I discussed briefly in How Quantitative Easing Raises Stock Prices & Why Stock Prices Will Fall).

The following is an excellent interview with Mauldin and Steve Forbes discussing a few of the topics found within the book, which should be at the top of your list if you have some reading time during the holidays.