Bubble
News
Domino Effect
One domino falling after another – country to country – driving
down massively overvalued U.S. stock and bond markets
Australia's Luck Has Run Out
Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model.DYI: 26 years is WOW! However, to use an overused word “massive” economic imbalances and distortions are every where in the land down under.
First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities -- primarily iron ore, liquefied natural gas and coal -- that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5 percent annually, driven mostly by immigration) to prop up headline growth.
Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.DYI:
Australia is living in a debt bubble that has
manifested into a housing bubble. Cheap
credit – low interest rates and easy access – will sink this island continent into
a 10 to 15 year economic quagmire.
U.S. peaked at 130%
Annual growth in Sydney house prices the strongest in 14 years
Whether 8 or 12 times gross yearly income anyone purchasing a house at this level has no intention – nor financial ability – of ever paying it off but to sell later to a greater fool willing (and able to handle the payments) to pay an even higher price. Clearly a house of cards ready to fall. Housing just as it is here in the States is considered a sacred right with the Australian government pulling out all of the stops to keep the party going. These maneuvers of easy access plus sub atomic low rates to credit; is by overt design to maintain the house of cards and keep Members of Parliament (MP’s) squarely in their Canberra (capital of Australia) seats.House prices in Sydney are up an unbelievable 18.4 per cent on a year ago. This is the highest annual growth rate in 14 years — since the 12 months ending December 2002 when the housing boom of the early 2000s started to slow.Over the past five years, Sydney house prices have surged 75 per cent.CoreLogic has pegged Sydney house prices at almost 8.5 times higher than gross annual income, based on September 2016 data.But Demographia’s recent International Housing Affordability Survey, released in January, put Sydney’s house price to income ratio as high as 12.2 times.In any case, Sydney’s housing market is severely unaffordable and it doesn’t seem to be simmering.
A domino set to fall.
Update on the Deflating Housing Bubble in Toronto
Alas, “in the spring” – precisely in April – Toronto’s housing bubble peaked with a final and phenomenal melt-up of home prices: The average price had soared 30% year-over-year to C$920,761! And the mood of the housing market was at its most buoyant.
What has gotten hit the hardest is the most expensive segment: The market for detached houses. As sales volume plunged 40% in September, the average price plunged 16% from the April peak to C$1.015 million, which is still very high and still makes Toronto one of the most inflated housing bubbles in the world, but it’s now flat year-over-year – after having been up 33.4% year-over-year in April.
Six stunning numbers about Toronto real estate and your personal finances
Based on the March average price, a house in Toronto cost 11.7 times the median total family income. Back in the day, it was said that a house was affordable when it cost three times your income. You can still pull this off in some parts of Canada, notably in the Atlantic provinces. In St. John's, the average house sold for $262,296 in February, and the median family income was an estimated $98,304.
Ottawa, just 4.5 hours away by car from Toronto, has a much higher median family income and much cheaper housing. Vancouver is king of unaffordable housing with a ratio of average house price to income of 12.5 to one.
So goes Ontario so goes Canada with the
Toronto Metroplex setting the economic tone.
All you need is one number 11.7 – housing cost to income. Once again at that level there is no
intention of ever paying off the house only later to find an even greater fool
willing and able (to handle the payments) to pay an ever increasing price. It appears this house of cards may have begun
to unwind. This dampening of prices has occurred
since Ontario and Ottawa have clamped down with additional housing taxes
directed at foreign purchasers (Chinese).
Politically a smart move; when the crash ensues; Members of Parliament will
have foreign speculators to blame especially those in far off lands.
Puerto Rico Is Running Out of Money
While attention has focused on the commonwealth’s staggering $74 billion debt, Puerto Rico faces a more immediate crisis in the wake of the storm. It’s running short of money for fuel, salaries of recovery workers and food aid. Meanwhile, only 8.6 percent of customers have electricity, mobile-phone service is sharply curtailed and many mountainous rural areas remain inaccessible.
According to Moody’s, Puerto Rico’s debt per capita of $15,637 is more than 10 times higher than the average debt per capita of the 50 states.Puerto Rico is now a failed state. 75 billion and growing as interest continues to compound all brought on by massive stupidity and massive corruption. The only way to turn around the fortunes of San Juan is Statehood and should be a condition – through back channels – for any bail out program work out of the debt and restoration of the island devastated by the hurricane.
To put this in perspective Puerto Rico is
almost double (1.90) the size of Rhode Island and smaller than the State of Connecticut. An island of 3515 square miles with a
population of 3.8 million comparable to Kentucky with 4.4 million. To say the least; this is an island of land
mass magnitude; with a population of size and have been granted statutory citizenship
since 1917. To bring Puerto Rico up to
standard of our 50 states would require close to a trillion dollars and 10 to
15 year time frame – only Statehood fits this criteria.
Another domino ready to fall.
Catalonia Chaos Begins to Squeeze Spain’s Financial Markets
Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist.Breaking up is hard to do! Madrid didn’t take kindly to Catalonia’s vote by sending in their federal police goons. If the vote was illegal it would have had no binding effect; therefore the vote would only been a large scale opinion poll. Madrid’s heavy handed approach had the effect of moving any few residual remain votes to be swayed to leave. Brexit and now Catalonia is only the beginning of the dissolution of countries and the EU.
Another domino ready to fall.
Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Over 60% of global reserves and 80% of global payments are in dollars. The U.S. is the only country with veto power at the International Monetary Fund, the global lender of last resort.
Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defense is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.
Russia, China and their spheres of influence
will soon be brought on line in an effort to breakaway from dollar hegemony. Once this is up and running “the cat will be
out of the bag” with many other countries within America’s sphere of influence
trading both dollars and Russia/China gold platforms. Over the next months and years this will drive
down the value of the dollar destabilizing our stock, bond, and real estate
markets. Gold of course will have a big
boost in price as the almighty buck no longer the world’s reserve currency will
be seen as a depreciating (fiat) currency.
U.S. stock and bond markets flying high with
extreme valuations. Stocks as measured
by Shiller PE10 are at a nose bleed level of 31.11 times earnings. And interest rates are at sub atomic low
levels (10 yr T-bonds 2.37%). When you are on top of the
mountain no matter what direction you go - its down!
So…Hang onto your gold and cash better values
are ahead – as the dominoes’ fall one by one.
Updated Monthly
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