Is This Why The Status Quo Disdains Bitcoin? - The "Wrong People Are Getting Rich"

Authored by Charles Hugh Smith via OfTwoMinds blog,

The wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore.

The psychology of money, wealth and speculative manias is endlessly fascinating. Most of what"s written on these subjects focus on the process of building wealth as if it were a quasi-science rather than a psychologically driven process. Only speculative manias attract a psychology-based analysis, usually characterized as some variant of the madness of the herd running off the cliff en masse.

But money and wealth are nothing but more sedate reflections of the same dynamics that drive speculative manias. Much has been written about cognitive biases and thinking fast and slow, but these explorations do not exhaust the psychology underpinning money, wealth and speculative manias.

Few things have unleashed the Monster Id of wealth and money quite like bitcoin and the cryptocurrencies. Compare the speculative manias of the dot-com era (1995 - 2000) and the housing bubble (2002 - 2007) with the crypto-mania: in the first two manias, the status quo embraced the mania as rational and justified: the Internet would continue growing for decades, housing never goes down, etc.

But the status quo has not embraced cryptocurrencies with the same ardor--why? Instead of endless justifications for valuations, the status quo is filled with reports that 97% of all economists view bitcoin as a bubble, and endless articles decrying the bitcoin bubble as a fools game that will deservedly burst, and soon.

Why did the status quo embrace irrationally exuberant bubbles in the 1990s and 2000s, but views the exuberance of cryptocurrencies with disdain? I think this is a fruitful topic to explore, largely because nobody seems to be asking this question.

Here are my suppositions:

1. The status quo reviles cryptocurrencies because the wrong people are getting rich.

2. The status quo reviles cryptocurrencies because the usual insiders (Wall Street and its politico leeches) didn"t get on board early, and they"re deeply offended that they missed the boat.

3. Until the advent of bitcoin futures trading, the usual insiders had no means to skim profits from the exuberance.

To me, these dynamics go a long way in explaining the 97% of the status quo"s visible loathing of bitcoin and the cryptocurrencies.

In other words: why embrace some manias but not all manias? Answer: some manias make the usual insiders filthy rich, others don"t. The dot-com mania generated billions of dollars in profits for Wall Street and the rest of the financier-politico leeches (i.e. the rentier class) via IPOs (initial public offerings), insider deals and vast fees generated by trading the mania with other peoples" money.

The housing bubble generated billions of dollars in profits for Wall Street via the issuance of mortgage-backed securities (MBS), CDOs and other exotic financial instruments based on mortgages and related securities, and realtors (and the rest of the housing industry) banked billions in commissions, fees and other skims.

In both cases, Average Joe and Jane reckoned the manias were their ticket to untold wealth. A relative few Average Joes and Janes did strike it rich, usually by being early employees of companies that went public, and a few others managed the impossible, i.e. buying low and selling high and then exiting the casino with their winnings.

But the vast majority of the Average Joes and Janes were fodder for the chipping machines of Wall Street and the FIRE (finance, insurance, real estate) insiders and elites. Far more people lost money in the period between 1997 and 2003 than won big and kept their winnings. Millions of people gambled on the housing bubble expanding forever and lost everything.

Now compare that to the cryptocurrency mania: Wall Street and the rest of the financier-politico leeches (the rentier class) have virtually no insider skims in the cryptocurrencies--is it any wonder they hate bitcoin with a passion that correlates to their inability to rake in billions of low-risk fees from the mania?

The psychology of FOMO (fear of missing out) is well known; the indignation of those who didn"t get on board before the ship sailed is less well noted. The financier/rentier class has a very high opinion of its own moxie and intelligence, and the fact that they missed the boat entirely on bitcoin et al. is like a knife of wounded pride plunged directly into their greedy hearts.

Those who can see past their own wounded pride are busy investing in blockchain applications and cryptocurrency funds, while those who cannot let go of their wounded pride are raging daily against the bitcoin bubble, and praying nightly to their evil gods for its collapse, to prove themselves right after all.

Every day that bitcoin doesn"t crash to zero is a day of pain for those whose pride was wounded by missing the cryptocurrency boat.

Even worse--if that"s possible for those whose greed is insatiable--the wrong people have gotten rich--techies, nerds, outsiders, rebels, etc.

It"s as if the crypto-rabble rebels just blew up the Financial Empire"s Death Star and got away with it.

Interestingly, few balk when privileged insiders mint fortunes for doing essentially nothing but exploiting their privileges. The corporate media heaps fatuous praise on insiders who reap billions of dollars from others" labor and ideas via IPOs, leveraged buyouts, etc. because of course these rentiers are our bosses and overlords.

It"s dangerous for a mere peasant in the Corporate-State Feudal System (i.e. the status quo) to speak truth to power against the Financial Aristocracy that issues the paychecks.

You can bet that if a Wall Street insider had bought bitcoin in size for $100 each, said insider would be justifying today"s valuations and arguing for higher valuations ahead, just as he/she did in the dot-com and housing manias.

So it all boils down to this: the wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore, not just resentful but indignant that this mania didn"t enrich insiders like it should have.

So sorry about your Death Star. I guess this doesn"t bode well for your bonus and promotion in the Imperial hierarchy.

*  *  *

I"m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20). Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Home Prices In 80% Of US Cities Grow Twice Faster Than Wages... And Then There"s Seattle

According to the latest BLS data, average hourly wages for all US workers in November rose at a stubbornly low 2.5% relative to the previous year, well below the Fed"s "target" of 3.5-4.5%, as countless economists are unable to explain how 4.1% unemployment, and "no slack" in the economy fails to boost wage growth. Another problem with tepid wage growth, in addition to crush the Fed"s credibility, is that it keeps a lid on how much general price levels can rise by. With record debt, it has been the Fed"s imperative to boost inflation at any cost (or rather at a cost of $4.5 trillion) to inflate away the debt overhang, however weak wages have made this impossible.

Well, not really. Because a quick look at US housing shows that while wages may be growing at roughly 2.5%, according to the latest Case Shiller data, every single metro area in the US saw home prices grow at a higher rate, while 16 of 20 major U.S. cities experienced home price growth of 5% or higher: double the average wage growth, and something which even the NAR has been complaining about with its chief economist Larry Yun warning that as the disconnect between prices and wages become wider, homes become increasingly unaffordable.

And while this should not come as a surprise - considering we have pointed it out on numerous occasions in the past - one look at the chart below suggests that something strange is taking place in Seattle, which has either become "Vancouver South" when it comes to Chinese hot money laundering, or there is an unprecedented mini housing bubble in the hipster capital of the world. Also worth keeping an eye on: price appreciation in Sin City has quietly surged in recent months, and in September home prices surged 10.2% Y/Y, the only other double digit price increase in the US after Seattle. Considering that Las Vegas was the epicenter of the last housing bubble when prices exploded higher only to crash, it may be a good idea to keep a close eye on price tendencies in this metro area. 

Confirming the recent jump in home prices, at the national level in Octoner home prices for the Top 20 metro areas rose 6.4% YoY according to Case Shiller, the fastest rate since June 2014. As Bloomberg adds, "a lingering shortage of previously owned homes is keeping housing prices elevated. That’s allowed homeowners to recover the equity lost during the housing collapse and recession a decade ago."

“Home prices continue their climb supported by low inventories and increasing sales,” David Blitzer, chairman of the S&P index committee, said in a statement. But that climb may be interrupted by the Federal Reserve hiking interest rates next year, he said. “Since home prices are rising faster than wages, salaries, and inflation, some areas could see potential homebuyers compelled to look at renting."

Meamwhile, for those looking to buy for the first time, conditions are less favorable. Growth in property values is outpacing wage gains and limiting affordability, representing a headwind for the market.

Finally, putting the above data in context, here are two charts courtesy of real-estate expert Mark Hanson, the first of which shows how much household income increase is needed to buy the median priced home in key US cities...

... while the next chart shows the divergence between actual household income, and the income needed to buy the median priced house.

 

China"s Raging Against Dying Of The Light (Or Why Peak Employment Is Imminent)

Authored by Chris Hamilton via Econimica blog,

China"s working age population is clearly defined as those aged 16 to 50 years old for females (55 for "white collar" females) and 16 to 60 years old for males.  China mandates retirement at these outer age limits.  Perhaps of some interest should be that this working age population peaked in 2011 and has been declining since.  This decline will continue indefinitely as China has a collapsing childbearing population (detailed HERE), net emigration (outflow), and a still decidedly negative birthrate.

There is no evidence to believe the working age declines will abate any decade soon.  As the chart below shows, China"s potential workforce will be shrinking indefinitely... and by 2030 China"s potential workforce will be over 100 million fewer than the 2011 peak (an 11% decline)...and only further down from there.

China has one of the youngest average retirement ages in the developed world.  On average, according to a recent study (HERE), Chinese leave the work force by age 55 compared to age 63 in the US (Norway has the latest average departure at age 67).  So, perhaps China will be raising the retirement age to curb the ballooning 60+yr/old population entering retirement (chart below)?  More on that later.

Comparing the working age population versus the 60+yr/old population (chart below).  A shrinking potential workforce since peaking in 2011 and a rapidly growing elderly population.

Below, that elderly growth versus the working age depopulation as a % of all adults (chart below)...think hockey stick.  After nearly six decades of maintaining a consistent 60+yr/old % of the adult population...the elderly explosion is just beginning.

If we take the now declining total potential working age population vs. China"s still rising total number of employed individuals (according to Statista)...the chart below shows that if China adds just a mere million employees a year (about a third of the annual average employment growth seen from "06 through "16)...that by 2030 China"s employment will exceed 100% of the potential workforce.  Wait...what?!?  Or perhaps working from the premise that people who don"t exist can"t be employed...it"s time to start considering China"s employed population is set to begin falling.

This idea that there are "millions upon millions of Chinese just waiting to be incorporated into the workforce"...not so much.  While a continuing shift from rural to urban is likely, China has already or will soon experience peak employment. Simply put, there will be fewer consumers of everything (homes, cars, appliances, etc.) every year than the year before. 

Whatever overcapacity exists now will be joined by massive increases in excess housing, excess production, excess shopping malls as this depopulation plays out over the coming years and decades.

Five big points here:

1) China ends one child policy, with little to no impact...

• 
  

  Although China implemented its one child policy in 1979 and officially phased it out in 2015, China"s birthrate was actually consistently higher than most of the other major economies in East Asia (Japan, S. Korea, Taiwan, Singapore...chart below) and only N. Korea"s fertility rate is currently higher.

  
  

• 
  

  None of these other East Asia nations ever implemented birth restrictions.  Instead, their populaces chose not to replace themselves responding to the availability of birth control, surging costs of child rearing, and inclusion of females into the workforce, etc.  Simply put, the one child policy was inevitable and has now organically gone global.  The phase out of this policy will have little to no impact of China"s fertility rates.

  
  

2) China to raise retirement age, but no time soon...

• 
  

  In early 2015, China suggested it would detail in 2017 (which I still have not seen) a gradual, multiyear process to raise the retirement age (China"s version of political suicide).  Suggestions focused on slowly, incrementally, raising female retirement ages to match males and likewise, pushing retirements out by a month or two per year.  However, none of this was even suggested to start within the next five years and like most things, almost surely be back-end loaded so any real impacts are overstated.  Regardless Communist or "Capitalist" politicians, the game is the same.  A little "razzle-dazzle" that ensures any negative policy impacts never occurs on your watch.

  
  

3) China to institute Universal Pension Plan...

• 
  

  In late 2015, China said "We will achieve a basic pension for all employees nationally".  Currently, about 800 million of China"s 1.3 billion are eligible for state pensions.  According to Sinosphere, pensions for non-state employees vary widely, as high as 3000 RMB ($480) month in Beijing to as little as 80 RMB for rural farmers.  Civil Servants pensions are generally higher than those of non-state employees.  The party statement said, China would be;

  
  
  • 
    

    “Building a fairer and more sustainable social welfare system.

    
    
    
    

    Implementing plans for every person to take part in social insurance.

    
    
    
    
    
    

    Diverting capital from state-owned enterprises to social security funds.

    
    
    
    
    
    

    
    

    Offering all urban and rural residents insurance for serious illness.”

    
    

    
    
    
    
  
  

4) Chinese wages & average per capita disposable income rising but gains are hugely variable...

• 
  

  While Chinese factory wages in tier 1 urban areas are now inline with Portugal or S. Africa, this terrific rise has created it"s own problems.  The rise in wages has been met with inflationary spikes in rents, fuel, food, etc. etc.  Average disposable income has risen in the urban areas but flat at best across rural China.  However, the response of employers to the spectacular rising wages has been automation, a shift away from labor intensive production, and outsourcing to lower cost countries.  This is at odds with the generally low skill/low education rural population looking for opportunity in the urban areas.  The breadth and size of further gains in disposable income is likely to be limited.  Economically, a declining total number of workers making marginally more money will not provide the desired growth.

  
  

5) China cannot export its way out of this...

• 
  

  The annual change to the 0-64yr/old combined populations of the 35 OECD nations (US, Canada, Europe, Japan, S. Korea, Australia/NZ) plus China, Brazil, and Russia begin declining in 2018 (chart below).  The core populations of the nations responsible for consuming 80%+ of all Chinese exports have peaked and begin shrinking.  Fewer consumers every year than the year before, indefinitely.  As for the nations that are doing all the growing, India and Africa, they consume about 4% of all Chinese exports.  BTW, the chart below shows when each nation/region 0-64yr/old population began declining.

  
  

Simply put, China is offering to increase and broaden it"s pension system to a ballooning population of elderly but will have a decreasing potential number of employees from which to pay for that increase?!? 

How will China achieve this?  Well, as the chart below shows, as Chinese core population growth has been decelerating, Chinese debt growth has been accelerating. 

While China"s GDP and energy consumption have led the world, they have not responded in kind to China"s debt explosion and exponentially more will be necessary to continue to show "growth".  Over a third and perhaps half of all the debt has been mal-invested in a housing bubble for a population that is never coming. 

What comes next isn"t going to be good for China nor the rest of the world as China looks to flood a depopulating nation with new debt only creating more housing overcapacity... China will look to beat the Japanese at the debt game.

For instance, the Chinese public-pension system as of 2014, took in 2.33 trillion yuan in revenue and paid out almost 2 trillion...with 3 trillion in net funds.  The net outflows and drawdown of those net funds is imminent.

But not to worry, the Communist Party explained that..."We will look at some opportunities with higher yields but will contain risk".  Again, no details were offered.  However, one asset it is clear the Chinese will not be buying...US Treasury"s (chart below, showing the net purchases since the debt ceiling debate of July 2011 according to TIC).  Since that date, China has been a net seller of US Treasury debt despite running record US dollar surplus" (BLICS = Belgium, Luxembourg, Ireland, Cayman Island, Switzerland).

From 2000 "til July 2011, China recycled 50% of its dollar trade surplus into US Treasury debt accumulating over $1.3 trillion.  Since July 2011, China has net sold over $100 billion and as of October, held about $1.2 trillion (chart below).

But I"m pretty sure those dollars aren"t sitting fallow and are finding their way into some asset, probably one in particular that is selling on the cheap about right now.

 

Swedish Housing Bubble Pops As Stockholm Apartment Prices Crash Most Since June 2009

Even though Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest with prices up roughly 6-fold since starting its meteoric rise in 1995.

Of course, as we noted last month when the SEB"s housing price indicator, which measures the difference between those who believe prices will rise and those who expect them to drop, took its first substantial tumble, the era of the steadily inflating housing bubble in Stockholm may finally have come to an end.

Now, it seems that the "hard data" is aligning with the "soft data" as Swedish home prices across the Nordic country posted their first decline since the spring of 2012, down 0.2% year-over-year and 2.9% sequentially.  Per Bloomberg:

The property market in the largest Nordic economy is rapidly cooling after years of price increases that were driven largely by housing shortages and ultra-low interest rates. Supply is now outstripping demand and stricter mortgage rules, as well as growing apprehension among households, are driving prices lower. The drop is being led by high-end apartments in Stockholm.

 

According to Maklarstatistik’s number, nationwide apartment prices fell a monthly 3 percent in November, adding to October’s 1 percent drop. House prices fell 1 percent in the month, after being unchanged in October. Apartment prices in greater Stockholm fell 3 percent in the month and were down 4 percent from a year earlier, the first such decline in almost six years.

Worse yet, the slump in Stockholm specifically is even more dramatic with apartment prices down 4.2% sequentially, the steepest since October 2008, and 6.0% year-over-year, the biggest June 2009.

Not surprisingly, the sudden pricing collapse has sparked a bit of a panic supply boost as sellers attempt to beat the bursting of the bubble.  Of course, we"re sure this strategy will work out perfectly, as it always does, because nothing helps correct an over-supplied market like a massive flood of even more supply. 

Greater supply “has resulted in buyers having more to choose from and taking longer before buying,” Hans Flink, head of sales and business development at Maklarstatistik, said in a statement. “The sellers are therefore starting to adjust their prices to the tougher competition, which is pushing prices down somewhat.”

Luckily, Bloomberg was able to find at least one economist who dug up some "rather encouraging" signs amongst the wreckage...

But there may be glimmers of hope. Andreas Wallstrom, an economist at Nordea Bank AB in Stockholm, said data for the last few weeks from property-listings website Booli “are rather encouraging,” as they indicate that prices have leveled out since mid-November and up until the first week of December. Average prices per square meter have even increased somewhat in both Stockholm and in the country as a whole in that period, he said.

 

“Our tentative call for December is that home prices will stay unchanged compared to November,” Wallstrom said. “In all, we forecast relatively stable home prices from here. To see a sustained downturn in prices, it will likely require a change in households’ housing costs. As long as mortgage rates remain low, which we expect, it is difficult to see a marked decline.”

Of course, we remember some Bear Stearns analysts who saw similarly "rather encouraging" signs in the U.S. housing market back in 2008...

Toronto"s Housing Bubble Is Crushing The Strip Club Industry

Until now, Canada"s soaring housing prices were just another innocent asset bubble spawned by low interest rates and an endless supply of Chinese cash that needed to get laundered.  That said, massive bubbles are almost always followed by severe unintended consequences that can have a crippling impact on society as a whole...and in Toronto those unintended consequences are now manifesting themselves in the form of a rapidly deteriorating supply of strip clubs.

As Bloomberg points out today, the soaring value of Toronto real estate has made it all but impossible for strip club owners to turn down multi-million offers from condo developers leaving only a dozen strip clubs in a city whose purple neon lights used to be easily visible from the distant fringes of our solar system.

Condos are killing the Toronto strip club. In a city that once had more than 60 bars with nude dancers, only a dozen remain, the rest replaced by condominiums, restaurants, and housewares stores. Demand for homes downtown and for the retailers that serve them is driving land prices to records, tempting owners of the clubs, most of which are family-run, to sell at a time when business is slowing.

 

“Sometimes I feel like the last living dinosaur along Yonge Street,” says Allen Cooper, the second-generation owner of the famous—or infamous—Zanzibar Tavern. The former divorce lawyer says he has been approached by at least 30 suitors for his property in the past few years but is holding out for a “blow my socks off” offer. “I don’t know how many condos we’re going to get, but it seems like just a wall” of them, Cooper says.

Of course, with ~1-acre plots of land selling for C$225 million, it"s not difficult to understand why strip club owners are increasingly choosing to shut off their neon signs for good...even with the consolidation of market share it"s nearly impossible to make that lap dance math pencil out.

Remington’s Men of Steel, a male dance club behind a heavy door, sold to KingSett Capital Inc., which last year flipped it to Cresford Developments as part of a bigger portfolio on that block that went for about C$160 million ($125 million), according to real estate data supplier Altus Group. That club is closing next year, to be replaced by a 98-story condo.

 

The fading of the strip-club era can be seen in a five-block area along Yonge Street, near Toronto’s counterpart to Times Square, Yonge-Dundas Square. It was once dubbed Sin Strip for its neon-clad bars, sex shops, and movie theaters. Today there are about 20 development applications for condos and commercial buildings on the stretch.

 

Farther north, an entire city block is a construction site as two condo towers and some retail space replace a strip of colorful and creaky buildings that once offered body piercing and pole-dancing shoes. “We target a very specific market, mostly men. We’re not a shopping destination, so more people doesn’t mean a lot more business,” says Bill Greer, general manager and three-decade veteran of the Brass Rail Tavern, a two-story club in the area. “I don’t think we’ll be around in 10 years’ time.” Just outside the Brass Rail’s doors, a 75-story residential tower opened this year on a piece of land that cost C$53 million. An 80-story luxury tower is under construction following a C$225 million deal for less than 1 acre, according to data from Altus.

But at least one Toronto strip club owner, Spiro Koumoudouros of the House of Lancaster, has drawn a line in the sand saying he"s not going anywhere..."What am I going to do, sit at home and die?"...if only we could all exhibit such courage in times of extreme crisis. 

Finally, since we know your interest in this story was only prompted by your desire to see a larger version of the teaser pic...here you go:

Sweden: More Signs The World"s Biggest Housing Bubble Is Cracking

We like to highlight that although Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest, even though it gets relatively little coverage in the mainstream financial media.

A month ago, we noted that SEB’s housing price indicator suffered its second biggest ever drop, falling by 39 points, only lagging a steeper fall from ten years earlier. This month the indicator, which shows the balance between households forecasting rising or falling prices, fell into negative territory, dropping to -5 from +11 in November. Households expecting prices to rise has almost halved from 66% In October, to 43% in November and 36% this month. The percentage of households expecting prices to fall has risen from 16% in October, to 32% in November and 41% this month.

After the housing price indicator was published, the Swedish krona fell as much as 0.7% versus the Euro to 10.0118, its lowest level since 5 December 2017.

Not surprisingly, the focal point of Sweden’s property boom has been Stockholm, where the decline in the housing price indicator in December 2017 was precipitous. According to Bloomberg.

SEB says sharp drop in home-price expectations in Stockholm was main culprit behind the decline in its Swedish home-price indicator, with the indicator falling to -42 in the Swedish capital in Dec. from -6 in Nov. That means the Stockholm indicator is now close to the record low of -47 that was reached in Dec. 2008, at the height of the global financial crisis.

(SEB) says 63% of households in Stockholm now expect prices to decline in the coming year while only 21% expect an increase; that’s “a dramatic shift compared with only two months’ ago,”

Given the disproportionate rate of decline in December in Stockholm, SEB was minded to ask whether special factors are at work “rather than general drivers such as fears over rising interest rates or a weak business cycle”. Indeed, aside from south-eastern Sweden, the outlook in all other regions remains positive. With regard to Stockholm, the bank notes that a large increase in new supply of expensive residential property and what it terms “very negative media reporting” have had an impact. Whether that’s a fair assessment, or whether it’s realist reporting of a monumental asset bubble is a moot point. What is indisputable is that the number of Swedish homes for sale has surged in November 2017 compared with the same month last year.

SEB is still undecided on whether Stockholm is a leading indicator for Sweden in general, as Bloomberg notes.

Differences between regions are “unusually high and some of the factors that currently weigh on Stockholm could turn out to be of a more temporary nature, especially given a continued lack of housing, low rates and the strong labor market”

The official HOX/Valueguard house price data for November 2017 will be published on 14 December. Last month, the weakness in SEB’s housing price indicator preceded clear evidence of a decline in Swedish house prices and the likely end to the housing bubble. Average house prices for Sweden fell 3.0% in October versus the previous month, with Stockholm prices down 3.7%. SEB expects “continued small sequential declines and as regards Stockholm also year-on-year” when the data is published on Thursday.

Ahead of the data, some analysts are expecting a “November Noir” with the month-on-month decline comparable with or even worse than what was seen in October 2017. Previewing the announcement, Bloomberg explains.

Anyone with a stake in Sweden’s property market should make space for Thursday in their calendar. That’s when they’ll get fresh clues as to whether they are facing a temporary blip or the start of a full-blown crash…There are indications that the monthly drop will be as big - if not bigger - than October’s, when prices fell 3 percent, the steepest decline since the global financial crisis of 2008.

Nordea Bank AB expects a “November Noir,” with home prices declining 3 percent on a monthly basis and 1 percent on an annual basis. Property-listings website Booli, which is owned by mortgage lender SBAB, said on December 7 that the average selling price for Swedish apartments last month fell 3 percent from the same period a year earlier, led by a 7 percent drop in Stockholm.

While we wouldn’t like to second guess the outcome of Thursday’s data, we would strongly disagree that the fall in prices is already “close to the bottom”. Bloomberg found an analyst with an upbeat view.

All told, there may still be a glimmer of hope. “Looking only at developments over the past two weeks, prices have remained largely stable, both in the country as a whole and in Stockholm,” Nordea’s Andreas Wallstrom said on December 5. “This could be a tentative signal that we are close to the bottom and that our forecast of largely stable prices ahead is on track.”

What we are finding harder to fathom are the schizophrenic views of the normally glum looking Riksbank Governor, Stefan Ingves, who has presided over Sweden’s property boom for more than a decade. Bloomberg reports him arguing that a slowdown is “not a big concern”, which contrasts sharply the grave warning he gave to the Financial Times in October 2016.

But despite a lack of drama so far, Mr Ingves remains worried about a bad ending due to risks over financial stability.

He said: “It remains an issue because we are mismanaging our housing market. Our housing market isn’t under control, in my view.” The ratio of household debt to disposable income in Sweden is one of the highest in the world at more than 180 per cent and the Riksbank estimates it will continue to rise in the coming years.

We have more sympathy with the latter.
 

Six Ways US Stocks Are The Most Overvalued In History

Submitted by Mish Shedlock

US large cap stocks are the most overvalued in history. Let"s investigate six ways.

Crescat Capital claims US large cap stocks are the most overvalued in history, higher than prior speculative mania market peaks in 1929 and 2000.

Their 25-page presentation makes a compelling case, with numerous charts. It"s worth your time to download and investigate the report.

Six Ways Socks Most Overvalued in History

1. Price to Sales


2. Price to Book


3. Enterprise Value to Sales


4. Enterprise Value to EBITDA


5. Price to Earnings


6. Enterprise Value to Free Cash Flow

Here are a few snips from the report.

Bear Market Catalysts

There are many catalysts that are likely to send stocks into bear market in the near term. A likely bursting of the China credit bubble is first and foremost among them. Our data and analysis show that China today is the biggest credit bubble of any country in history. We believe its bursting will be globally contagious for equities, real estate, and credit markets. The US and China bubbles are part of a larger, global debt-to-GDP bubble, which is also historic in scale, and the product of excessive, lingering central bank easy monetary policies in the wake of the now long-passed 2008 Global Financial Crisis. 

 

These policies failed to resolve the debt-to-GDP imbalances that preceded the last crisis. Now, easy money policies have created even bigger debt-to-GDP imbalances and asset bubbles that will precipitate the next one.We are in the very late stages of a global economic and business expansion cycle with investor sentiment reflecting record optimism typical at market peaks, a sign of capitulation at the end of a bull market. Crescat is positioned to profit from the coming broad, global cyclical market and economic downturn that we foresee. We strongly believe that our global equity net short positioning in our hedge funds will be validated soon.

Cyclical PE Smoothing

It is critical to use cyclical smoothing to accurately gauge market valuations in their current and historical context when using P/E.Yale economics professor, Robert Shiller, received a Nobel Prize in 2013 for proving this fact so we hope you will believe it. 

 

The problem with just looking at trailing 12-month P/E ratios to determine valuation is that it produces sometimes-false readings due to large cyclical swings in earnings at peaks and valleys of the business cycle. For example, in the middle of the recession in 2001, P/Es looked artificially high due to a broad earnings plunge. P/Es can also look artificially low at the peak of a short-term business cycle, which can produce what is known as a “value trap”, such as in 2007 during the US housing bubble and such as we believe is the case today in China, Australia, and Canada.

 

Shiller showed a method for cyclically-adjusting P/Es using a 10-year moving average of real earnings in the denominator of the P/E. Shiller’s Cyclically-Adjusted P/E, called CAPE multiples have been better predictors of future full-business-cycle stock market returns than raw 12-month trailing P/Es. Shiller showed that markets with historically high CAPEs lead to low long-term returns for long-only index investors. Shiller CAPEs are fantastic, but they can be improved by including an adjustment for corporate profit margins which makes them even better predictors of future stock price performance and therefore even better measures of cyclically-adjusted P/E for valuation purposes. 

 

.Shiller’s CAPEs simply need an adjustment for profit margins because margins are a key element of earnings cyclicality. We can understand this by looking at median S&P 500 profit margins in the chart below. For example, even though profit margins were cyclically and historically high during the tech bubble, they are even higher today. In the same spirit of Shiller’s attempt to cyclically adjust earnings to determine a useful P/E, CAPEs need to be adjusted for cyclical swings in profit margins.

When we multiply Shiller CAPEs by a cyclical adjustment factor for profit margins (10-year trailing profit margins divided by long term profit margin), we get a margin-adjusted CAPE that is not only theoretically valid but empirically valid as it proves to be an even better predictor of future returns than Shiller’s CAPE!

 

Credit goes to John P. Hussman, Ph.D. for the idea and method to adjust Shiller CAPEs for swings in profit margins.As we can see in the Hussman chart below, margin-adjusted CAPE, shows that today’s P/E ratio for comparative historical purposes is 43, the highest ever! The 1999 peak P/E was 41 and the 1929 P/E was 40. Once again, we can see that today we have the highest valuation multiples ever for US stocks, higher than 1929 and higher than 1999 and 2000!

Margin-Adjusted CAPE

It"s easy to discard such talk, just as it was in 2000 and 2006. People readily dispute CAPE, concocting all sorts or reasons why it"s different this time. The most common reason is interest rates are low. We also hear "stocks are cheap to bonds" which is like saying moon rocks are cheap compared to oranges. I do not know when this all matters. And no one else knows either. What I am sure if is that it will matter.

How?

I don"t know when, nor am I sure "how" it happens. It could play out as a crash or stocks can decline over a period of 6-10 years with nothing worse than a 15% decline in any given year, accompanied with several sucker rallies leading people to believe the bottom is in.

History Lesson

Some might ask: If you don"t know when or how, of what use is such analysis.The answer is that history shows this is a very poor time to invest in stocks. That does not mean, they cannot go higher(and they have).

History also suggests that people who invest in bubbles, start believing in them. People believe in bubbles because they have to, in order to rationalize their investments. Others know full well it"s a bubble but they think they can get out in time. Historically, few do because they are conditioned to "buy-the-dip" philosophy, and keep doing so even after it no longer works.

Yesterday, I noted Oppenheimer Predicts PE Expansion, Most Bullish S&P Forecast Yet.So if you are looking for a reason to stay heavily invested in this market, you have one. But don"t fool yourself, this is the most expensive market in history.

 

Gold Hangs Above 2016 Low Despite BTC (Now in BitCon Futures), Brexit Deal,Tax Bill, and Fund Pukers

The only thing that truly trends is humans extrapolating their rates of return emotionally. Everything else will regress to the mean at some point.  

Investors are being given a gift and do not see it. Every rally in stocks should be used to lighten exposure to a crash  and every corresponding dip in gold should be bought from a balanced portfolio approach.  You should be peeling back equity exposure on every new high and adjusting your risk into something that is stable, holds buying power, and is liquid. That is the point of investing. Your home, your art, and your bitcoin will not fit those guidelines. Gold and silver do.

Do you think the millennials will be buying your 401k shares in 5 Years? Don’t be naive. No one went broke banking profits. And the Fed is handing you an opportunity retire with enough money now as they have moved the housing bubble back into the stock market. It took 10 years. Do you have another 10 years to wait if we crap out again? Protect your profits now. 

 

Admittedly the title sounds like a Gold Bull rationalizing a losing position, as so many gold salesmen do, and we are long and are not selling you Gold. We are also swing trading from the short side. So it is what it is.

It"s jobs day and noone really thnks that matters to Fed policy anymore,  Brexit breakthrough agreed, and shutdown avoided for now. A couple points before getting to the reason for our title. Let’s first count the ways in which Gold has had to deal with bad news these past 2 months. 

Counting the Ways Gold is Bashed

Fund liquidation, Trump Tax Bill, Bitcoin, Brexit deal, Venezuela default (bearish for gold as they had to sell), and the usual short side players with deeper Fed sponsored  pockets than the longs woth which they do battle. These are a few of Gold’s obstacles these past couple months. And yet here we are $100 above last years lows. 

Kicking Gold Today’s Edition

The Brexit deal and Govt shutdown avoidance alluded to above, along with the end of year puke-age and Trump’s Tax Bill (as we have written about here extensively) have all been major negatives for Gold the past few weeks. And yet gold sells off (again) before the news comes out.. strange... 

To be fair, we are seeing more longs with end of year hopes dashed selling these last couple days. There are some shorts getting in now however. Just not enough to spur  a sustainable  a rally we think. 

Banks and The Fed in Bed Again And Gold Suffers for It

Post 2008 banks have been on the outs with The Fed as risk managers. The Fed had mandated more risk be cleared through exchanges. And they have succeeded somewhat.

In doing so, the border collies that run our monetary system have herded much derivative risk into a larger basket. TBTF became Bigger and more centralized (like Fannie Mae..).Their reason is this basket is more easily watched, and since they regulate exchanges, can be “advised” on policy.

But along comes an existential threat not just to global fiat backed governments, but to the US Banks that are their overlords. And boom! They have a common enemy. And that Enemy is Bitcoin.

Gold is suffering real collateral damage now as the banks pitch their new wonderful product to replace gold.. and it’s having an effect. 

BTC Futures: Regulation and Repression to Follow

Note the complete banking industry turnabout to hailing BTC as the new gold on the coincidental heels of new futures contracts approved by the CFTC. Banks and brokers have a new product to sell you folks, and they are actually calling it a store of value, a new gold, if you will. This is in complete contrast not just to BTC behavior (volatile and a wealth generating currency, but don’t call it money yet), but to gold itself (low volatility, wealth preserver, money but not currency)  Line up suckers for a new product to be castrated, regulated, and repressed by banks through exchanges with government blessing and oversight. People not long  Bitcoins will be buying futures on margin while banks long BTC  will be hedging and killing their much shallower pocketed but greedy clients. Let the fleecing begin in the NEW GOLD.  JPM Calls BTC “New Gold”; Spoofing Starts Monday

Love Michael, Hate it When he’s Right

Michael Moor has been spot-on in handicapping market moves given price triggers. Read UPDATE: “Bear Trend with a $1700 Target” Has Problems for more. He saw for different reasons than us, a large bull move fermenting last month. He gave a level where that was negated. That level was breached. Now,to our chagrin, he’s called this sell-off from the $1272 area very nicely. In the process, he stopped us from buying dips for now. But we wish he’d see the end.. for our sake! 

UPDATING OUR LEVELS

1-Our macro trade system says we should be out If the market is here come December 31.

2-The VBS indicator has yet to be triggered for a longer term volatility expansion. So according to that indicator we are still in a trading range, hard as that is to feel when you are long as we are. 

 

Point being; Nothing has Changed

We made the observation that funds like to get in above the 12 month MA for punts. They did and they are now puking. We have a long position based on this and are swing trading around it. 

We secondly stated that volatility would be expanding in 90 days. We are 45 into that and things are starting to percolate. We did say November would be one to remember. So that was a bit premature.

We believed a $50 move one way was coming which would cause  a spike in volatility and a follow up move anywhere between $50 and $200.

All of this is in play and lining up from our original statements to today’s activity.

The only thing you have to ask yourself is will you be in a position to buy gold if it drops another $50 and then another $100 from there. Because that is what gold is for. It is to be bought when it gets cheaper. We will be buying to hold for 12-18 months at least as we roll equity profits into wealth preservation vehicles. We will also be trading it from both sides of the table. But this is what we do professionally. 

You should be peeling back equity exposure on every new high and adjusting risk into something that is stable, holds buying power, and is liquid. Your home, your art, and your bitcoin will not fit those guidelines. Gold and silver do.

On combination, Michael says we may have another $30 or so of downside coming. This would trigger the VBS indicating a $50-$200 move relatively quickly in one or the other direction. 

Which brings us back to our original post a month ago declaring volatility is soon to expand in about 90 days. We also stated then a $50 move in either direction will yield another $200 in continuation or reversal of that first move. 

VBS Trading Algo Levels for Gold Oct 25th

Notes From a call today on potential gold trades.

1. It looks like we will be seeing a move of $50 to $75 in either direction in the next 90 days. 


2. That move could be slow and orderly, or fits and starts, that is not handicappable  or important to the system


3. If a move like above occurs, then we will most definitely get a signal to be long Vol. on a risk reward basis as the monthly indicator will expand


4.  Directionally, our first play would be to go with the direction at time of the trigger. Our second would be to stop and reverse at a predetermined level.


5. this is a longer term play than usual for the VBAS so we will most likely express the position traditional way via long straddles. 


6. Direction would then be expressed by NOT hedging gamma on daily break evens but more like every 2 weeks, and then only half of accumulated deltas. In this way we would remain long/ short in direction of the trend.

Monthly:

1. Buy straddles or hedged call spreads on a monthly settlement above 1305 or below 1191 [Edit- now $1338 and $1192 per chart below]


2. early entry- put on 1/2 position on a day signal as described above.


3. exit everything on 3 bars if not profitable. 


4. Gamma hedging TBD.

Monthly chart updated today. Gold has dropped approximately $35 thus far from that call. A $75 drop from Oct 25th"s level would be in shouting distance of $1192 and likely trigger the indicator of even higher volatility.

The plan is: Gold drops $50 from that post date, triggering the VBS for expanding volatility. 

At that point one either goes with the trend, or waits for a quick exhaustive selloff and reversal for a major rally. In simple terms: of Gold trades $1192, it will not sir there long. We will sell if it hits there, initiating a short. But that is only to keep our finger on the pulse. Having a position in a market heightens your radar and forces you to respect your discipline. Doing so will tell us if being short is wrong. This will in turn mean being long is right. And we will reverse hard. 

So, here’s to a market dump to $1193 and what could be the beginning of a new run higher. Yes, VBS also implies lower is equally possible from $1193, but given the seasonal nature of Gold and it’s tendency to make lows at end of the year as funds sell, we’re optimistic that the buy low and sell high rule of investment will replace our current swing trading behavior of selling weakness and buying it lower. This as we described all part of trading around a core long position. We’d love to start swing- trading from the long side with a core long position. Stay tuned.

Previously:

• 
  

  Gold Spoiler? Tax Bill Revives Trump Trade



• 
  

  Gold’s 2017 Unwind: Are We There Yet?

  
  


• Why We"re Buying Physical Gold with a $1700 Target - SKG
  

About the author:Vince Lanci has 27 years’ experience trading Commodity Derivatives. Retired from active trading in 2008 after netting $90MM in an Energy arbitrage strategy he devised for a NY hedge fund; Vince now manages personal investments through his Echobay entity and advises natural resource firms on market risk. Over the years, his expertise and testimony have been requested in energy, precious metals, and derivative fraud cases. Lanci is known for his passion in identifying unfairness in market structure and uneven playing fields going back to his first anonymous Zerohedge post on Silver. He remains a contributor to Kitco, Zerohedge, and Marketslant on such topics. Vince contributes to Bloomberg and Reuters finance articles as well. He continues to lead the Soren K. Group of writers on Marketslant. 

Bloomberg reports:

Progress

An early-morning breakthrough on Brexit first-round negotiations takes the process toward the next stage of forging the U.K.’s post-exit relationship with the European Union. The thorny issue of the Irish border was effectively parked while outline agreements on citizen rights and the divorce bill were achieved.  Leading Brexit campaigner Nigel Farage labeled the deal a “humiliation.” Gilts dropped and the pound remained relatively unchanged in the wake of the deal. 

Bank rally

Shares in European lenders are soaring this morning, with the Stoxx 600 Banks Index climbing as much as 3 percent, after Basel III capital rules will see “no significant increase” in provisioning for the institutions. The final batch of post-crisis regulations announced yesterday will see requirements decline for some large banks. The agreement and culmination of intense lobbying removes a regulatory risk which had been hanging over the sector for almost a decade. 

Markets rise

Overnight, the MSCI Asia Pacific Index added 0.6 percent, while Japan’s Topix index closed 1 percent higher following data showing the country’s economy expanded faster than expected. In Europe, the surge in bank shares is lifting the Stoxx 600 Index, which was trading 0.9 percent higher at 5:45 a.m. S&P 500 futures added 0.3 percent, the 10-year Treasury yield was at 2.389 percent and gold continued its recent slide. 

Shutdown

Congress sent President Donald Trump a bill extending federal funding for government spending to Dec. 22, avoiding a shutdown which was scheduled to begin today. Lawmakers, who already have a busy schedule coming into the year end, will seek to resolve issues on spending limits in the next couple of weeks which would allow for agreement on a longer-term budget.

Lisbon"s Red Hot Property Market - Poor Madonna Can"t Even Find A House

We’ve written a lot about property bubbles in recent weeks – how the bubbles in London and Sydney are bursting, Hong Kong’s has just seen the record price paid per square foot (Twice in the same day) and Monaco is building into the Mediterranean Sea to satisfy the huge demand from frustrated millionaires. A bit like Monaco, one of the problems for Lisbon’s house buyers is that central Lisbon is relatively small. According to Bloomberg.

In central Lisbon’s property market, sellers are kings. The Portuguese capital’s real estate boom is entering a new phase as a shortage of prime property in the city center is prompting some buyers to bid above the asking price for the last available units.

“There’s a big gap between supply and demand,” said Luis Tilli, a real estate agent at Lisbon-based HomeLovers, which is selling a three-bedroom, 236 square meter (2,540 square feet) refurbished duplex in the historic quarter of Chiado for 2 million euros ($2.38 million). “It’s reached a point where some investors offer to pay above the asking price just so they can close a deal.”

“There are a very limited number of buildings located in the center of Lisbon to purchase,” said Jose Cardoso Botelho, head of Vanguard Properties, a real estate firm controlled by French-Swiss investor Claude Berda that’s bought 10 buildings in Lisbon since it began investing in the city last year. “We’ve started looking for building plots on the outskirts of the city now, but it hasn’t been easy.”

For most people are concerned, Lisbon has probably slipped under the housing bubble radar. As Bloomberg explains, however, the foundations for the current bubble date back to 2012.

Lisbon’s property market revival began after the previous government eased long-held rent controls and started offering residence permits in 2012 to non-European property buyers, mostly from China. Portugal’s tax-friendly regime for foreign residents and a tourism boom that led to the conversion of hundreds of buildings into short-term rental apartments and hotels have also helped fuel demand.

The last time we wrote about Lisbon property was in November 2014 in “Dear Portugal, Meet Your New Landlord – China". As we noted back then.

…at a property auction in Lisbon, Portugal last month, about 90% of the bidders for the government-owned apartments and stores on offer were Chinese. They ended up acquiring more than two-thirds of the 45 properties, with one money-launderer investor noting "Lisbon is cheap if you compare it with other cities”.

 

1-in-4 homes bought by foreigners in America in 2014 were by Chinese and Portugal is already at 1-in-5.

While prices have risen by more than a third during the last five years, there is a classic squeeze taking place in Lisbon’s historic centre.

Home prices in the city rose 35 percent from 2012 to 2016, when they reached the highest since at least 2007, according to Confidencial Imobiliario, which collects data on the real estate sector. In Lisbon’s historic center, property prices increased 26 percent in the first half of 2017 while the number of deals fell 34 percent from the same period a year earlier, a sign of a shortage of housing stock.

“It’s the first time that Lisbon has a shortage of homes to satisfy investor demand,” said Lima. “Home buyers need to realize it’s impossible for everyone to live in Avenida da Liberdade,” he said, referring to a boulevard in Lisbon lined with gardens, ornately tiled sidewalks and luxury shops that’s considered the local Champs-Elysees.

Average home prices in the central historic neighborhoods of Baixa, Chiado and Avenida da Liberdade were at 6,367 euros per square meter in the first quarter, according to a study by property appraiser and consulting company Prime Yield.

The country is expected to attract a record 3 billion euros in property investment this year, mostly from foreigners. That’s up from 1.3 billion euros in 2016, according to broker CBRE Group Inc.

The shortage of prime Lisbon property is so acute that Madonna struggled to find a property when she decided to move to the Portuguese capital to support her son’s adopted son’s career ambitions. David Banda has been picked to play in the junior squad of Portugal’s most famous club, Benfica. Bloomberg continues.

Fueling the demand are the likes of rock star Madonna, the latest of a handful of celebrities to show an interest in a city that’s often compared to San Francisco because of its steep hills, trams and red suspension bridge. But central Lisbon’s housing stock is much smaller than in other European cities such as Madrid, London and Paris, and it’s quickly running out, according to Luis Lima, head of Portugal’s Real Estate Professionals and Brokers Association.

Even the “queen of pop” has showed some frustration in her quest to find a home in the southern European city. In June, the 59-year-old Madonna visited a hilltop palace in Lisbon as part of her search for a home in the city, according to Sotheby’s International Realty. Four months later she shared a picture of herself riding a horse on a beach with a caption on her Instagram account that read: “Can’t find a house in Lisbon but damn… sure can find a horse!”

It’s the same story we hear in London, Sydney, Auckland, Vancouver and many more. Local people are priced out of the market and efforts by politicians to reverse the trend have generally been futile, as the Bloomberg piece makes clear.

As housing stocks dwindle and prices rise, Lisbon residents are finding themselves being priced out of the real estate market in the city center…The Lisbon City Council plans to offer affordable housing to low- and middle-income residents in the city center, where a growing number of units have been snapped up by foreign investors. Under the plan, as many as 7,000 new homes with monthly rents between 250 euros and 450 euros will be made available. “We must stop the exodus from the city center of residents who can’t afford the rising real estate and rental prices,” said Romao Lavadinho, president of the Association for Lisbon Tenants. “There are parents moving in with their children and children moving back into their parents’ home.”

Even stringent Chinese capital controls haven’t slowed down Lisbon property prices…perhaps only the bursting of the central bankers bubble can achieve that?