DPC On the beach, Coney Island 1907
“We’re on the edge of a cliff right now. We have never been here before…”
• ‘If You’re Investing For The Long Term, You’re Crazy’ (MW)
Robert Kiyosaki, author of several best-selling books including “Rich Dad Poor Dad,” joined MarketWatch for a live interview on Facebook today. He offered up insights on making money, becoming an entrepreneur and even touched on politics. “The rich do not work for money. Most people do not understand that, because they’re taught to go to school and get a job for money. The rich don’t work for money. And one of the reasons for that is money is no longer money. One of the reasons for that is in 1971, President Nixon took the U.S. Dollar off the gold standard and basically screwed the world. It’s bad for the poor and middle class. As Bernie Sanders said, ‘wealth and income inequality is the greatest moral crisis facing America as well as the world today.’
The gap is growing between the rich and poor. The rich don’t work for money. If you went to school and got a job, and you’re saving money and investing in the stock market today, you’re going to lose.” “We’re on the edge of a cliff right now. We have never been here before. If you’re still saving money when interest rates are negative, you’ve got to be crazy. When you’re investing for the long-term in the stock market, where there is no connection between stock price and reality, you’re crazy.”
Jim Rogers is always interesting, and this 50 min interview is no exception. Zero Hedge has a lot of quotes from it.
• “The Next Time The World Comes To An End” – Jim Rogers (RV/ZH)
China is going to have problems too. It’s just the way the world works. In 2008, when the world fell apart, China had a lot money saved for a rainy day, and they started spending it when it started raining. This time, China has a lot of debt themselves. It’s amazing how much debt has built up in China in just a few years. And so this time, while China’s in better shape, or less bad shape than most of us, China’s got a lot of debt, and they’re not going to be able to help us like they did before. Beijing has said we’re going to let people go bankrupt, which I hope they do. They don’t do that in the West. The red Chinese, the communist Chinese are going to let people go bankrupt, because they’re good capitalists.
Americans won’t let anybody – and the Europeans won’t let anybody go bankrupt so they can save the world. But China has said they will let people go bankrupt. It’ll be a shock for the people who go bankrupt. It’ll be a shock for the world. But it will certainly be good for China, and for the world, if they do let mistakes get cleaned up. But it will mean that they will not be able to save us as much as they did before. So the next time the world comes to an end, it’s going to be a bigger shock than we expect.
Pretty big numbers.
• The Housing Markets In The Hamptons, Aspen And Miami Are All Crashing (ZH)
One month ago, we said that “it is not looking good for the US housing market”, when in the latest red flag for the US luxury real estate market, we reported that sales in the Hamptons plunged by half and home prices fell sharply in the second quarter in the ultra-wealthy enclave, New York’s favorite weekend haunt for the 1%-ers. Reuters blamed this on “stock market jitters earlier in the year” which damped the appetite to buy, however one can also blame the halt of offshore money laundering, a slowing global economy, the collapse of the petrodollar, and the drastic drop in Wall Street bonuses. In short: a sudden loss of confidence that a greater fool may emerge just around the corner, which in turn has frozen buyer interest.
We concluded this is just the beginning, and sure enough, several weeks later a similar collapse in the luxury housing segment was reported in a different part of the country. As the Denver Post reported recently, high-end sales that fuel Aspen’s $2 billion-a-year real estate market are evaporating, pushing Pitkin County’s sales volume down more than 42% to $546.45 million for the first half of the year from $939.91 million in the same period of 2015. [..] Ask a dozen market watchers why, and you’ll get a dozen answers. Uncertainty around the presidential election. Fear of Trump. Fear of Clinton. Growing trade imbalances with China. Brexit. Roller-coaster oil prices. Zika. Wobbling economies in South America. The list goes on. “People are worried about all kinds of stuff these days,” says longtime Aspen broker Bob Ritchie. “I’ve never seen anything like this before.”
[..] According to the latest report by the Miami Association of Realtors, the local luxury housing market is just as bad, if not worse, than the Hamptons and Aspen. The latest figures out of Miami this week showed residential sales are down almost 21% from the same time last year. But as bad as this double-digit decline may seem, it pales in comparison to what’s happening at the high end of the market. A closer look at transactions for properties of $1 million or more in July shows just 73 single-family home sales, representing an annual decline of 31.8%, according to a new report by the Miami Association of Realtors. In the case of condos in the same price range, the number of closed sales fell by an even wider margin: 44.4%, to 45 transactions.
There’s nothing in sight that would stop this madness. Looks like it will have to run its natural course.
• As Fed Nears Rate Hikes, Policymakers Plan For ‘Brave New World’ (R.)
Federal Reserve policymakers are signaling they could raise U.S. interest rates soon but they are already weighing new tools they may need to fight the next recession. A solid U.S. labor market “has strengthened” the case for the first rate increase since last December, Fed Chair Janet Yellen told a central banking conference in Jackson Hole, Wyoming. Several of her colleagues said the increase could come as soon as next month if the economy does well. Further rate hikes are expected to be few and far between as the U.S. central bank tries to balance a desire to fuel growth against worries it could overheat the economy.
But Fed officials at three-day conference that ended Saturday also said they need to consider new policy tools for use down the road, such as raising the inflation target or even Fed purchases of non-government-backed assets like corporate debt. Such ideas would test the limits of political feasibility and some would need congressional approval. The view within the Fed is that it could take effort to win over a public already skeptical of the unconventional policies the Fed undertook during the last crisis. Policymakers think new tools might be needed in an era of slower economic growth and a potentially giant and long-lasting trove of assets held by the Fed. And they are convinced the time to vet them is now, while rates look to be heading up.
“Central banking is in a brave new world,” Atlanta Fed President Dennis Lockhart said in an interview on the sidelines of the conference. At the center of the Fed’s discussions is its $4.5 trillion balance sheet, built up by bond-buying sprees to combat the 2007-09 recession but which has been criticized by many lawmakers. While policymakers have maintained the Fed should eventually reduce its bond holdings, Lockhart said some officials were closer to accepting that they needed to learn to live with them. “I suspect there are colleagues who are contemplating at least maybe a statically large balance sheet is just going to be a fact of life and be central to the toolkit,” he said.
The ECB should stop pretending it has a clue.
• Coeure Says ECB May Need to Dive Deeper If Governments Don’t Act (BBG)
European Central Bank Executive Board member Benoit Coeure said unconventional monetary policy may have to be used differently and more frequently if governments don’t act to boost the growth potential of euro-area economies. “We may see short-term rates being pushed to the effective lower bound more frequently in the event of macroeconomic shocks,” Coeure said Saturday in a speech at the U.S. Federal Reserve’s annual policy symposium in Jackson Hole, Wyoming. His remarks were posted on the ECB’s website. “We will fulfill the price stability mandate given to us,” Coeure said. “But if other actors do not take the necessary measures in their policy domains, we may need to dive deeper into our operational framework and strategy to do so.”
While slowing growth and inflation present difficulties for central banks around the industrialized world, the Frankfurt-based ECB has particular cause to urge pro-expansion measures by the 19 nations that use the euro. High unemployment, political spats and banking systems loaded with soured loans are hampering the region’s recovery from a debt crisis that started six years ago. “We face an exceptional situation where the real equilibrium rate is very low,” said Coeure. “All the monetary policy measures we have taken were a necessary response to this. They stabilized the euro-area economy and anchored medium-term price stability. But they were done on the assumption that low real rates would be temporary, because other policies would act in their fields of responsibility.”
The word ‘ease’ takes on whole new meanings by now.
• BOJ’s Kuroda Says Ready to Ease as Jackson Hole Debates Options (BBG)
Bank of Japan Governor Haruhiko Kuroda said he won’t hesitate to boost monetary stimulus if needed, reiterating a pledge during an annual policy retreat in Jackson Hole, Wyoming, at which central bankers stressed their need for backup from fiscal policy. “There is no doubt that there is ample space for additional easing in each of the three dimensions,” Kuroda said Saturday, referring to the BOJ’s package of asset buying, monetary-base guidance, and negative interest rates. “The bank will carefully consider how to make the best use of the policy scheme in order to achieve the price stability target,” he told the Federal Reserve Bank of Kansas City’s symposium.
Central bankers, struggling to spur persistently disappointing growth, gathered in the Grand Teton National Park to debate how best to tackle low inflation despite having already cut interest rates to near zero or, in some cases, below zero. They heard Fed Chair Janet Yellen on Friday describe future potential options to jump-start the economy, while saying that the case for a U.S. rate hike had strengthened. Even though the Bank of Japan is currently engaged in a review of its monetary-policy settings, due for completion in September, Kuroda’s comments underline his stance that the exercise won’t mean any reduction in stimulus despite growing doubts about its effectiveness. “One of the key elements of our policy is to push up inflation expectations to our price stability target and anchor them there,” Kuroda said. “The Bank of Japan will continue to carefully examine risks to activity and prices at each monetary policy meeting, and take additional monetary policy measures without hesitation.”
Wow. and I thought Rogoff was a reasonable smart man. Saying that cash causes crime is not smart. It’s nonsense.
• The Sinister Side of Cash (Rogoff)
When I tell people that I have been doing research on why the government should drastically scale back the circulation of cash—paper currency—the most common initial reaction is bewilderment. Why should anyone care about such a mundane topic? But paper currency lies at the heart of some of today’s most intractable public-finance and monetary problems. Getting rid of most of it—that is, moving to a society where cash is used less frequently and mainly for small transactions—could be a big help. There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism.
There are substitutes for cash—cryptocurrencies, uncut diamonds, gold coins, prepaid cards—but for many kinds of criminal transactions, cash is still king. It delivers absolute anonymity, portability, liquidity and near-universal acceptance. It is no accident that whenever there is a big-time drug bust, the authorities typically find wads of cash. Cash is also deeply implicated in tax evasion, which costs the federal government some $500 billion a year in revenue. According to the Internal Revenue Service, a lot of the action is concentrated in small cash-intensive businesses, where it is difficult to verify sales and the self-reporting of income. By contrast, businesses that take payments mostly by check, bank card or electronic transfer know that it is much easier for tax authorities to catch them dissembling.
Though the data are much thinner for state and local governments, they too surely lose big-time from tax evasion, perhaps as much as $200 billion a year. Obviously, scaling back cash is not going to change human nature, and there are other ways to dodge taxes and run illegal businesses. But there can be no doubt that flooding the underground economy with paper currency encourages illicit behavior. Cash also lies at the core of the illegal immigration problem in the U.S. If American employers couldn’t so easily pay illegal workers off the books in cash, the lure of jobs would abate, and the flow of illegal immigrants would shrink drastically. Needless to say, phasing out most cash would be a far more humane and sensible way of discouraging illegal immigration than constructing a giant wall.
“.. the idea that we average peeps just shouldn’t worry our pretty little heads about complicated things like Europe.”
• The Thing About The EU That Drives So Many Up The Wall (Worstall)
Gus O’Donnell, who used to be the head of the civil service, has floated the idea that Britain won’t in fact leave the European Union after all. After a couple of years of negotiating about it we’ll end up with something that’s very like we have now and politicians will just settle for that. This, at root, is exactly what the whole dang vote in favour of Brexit, in favour of leaving, was about anyway. For it is, again, the idea that we average peeps just shouldn’t worry our pretty little heads about complicated things like Europe. We should allow our betters, our betters being those who had the good grace to go into the bureaucracy, to take care of everything for us. And that is actually the driving aim of the EU itself.
The entire point over the decades has been to take power away from the various peoples, and from politicians directly accountable to them, and place said power in the hands of an unelected and unaccountable bureaucracy in Brussels. And that’s to a very large extent, what the upsurge which led to Brexit was about. No, thanks, very much, but we’ll rule ourselves. And O’Donnell’s not doing himself any favours by repeating the idea from a purely British perspective. Being told that “The Man in Whitehall knows best” enrages Brits just as much as the idea that someone in Brussels does. Largely on the basis that we’ve all too much evidence pointing the other way. Thus this is somewhere between simply wrong and evidence of having an entirely tin ear:
”A former top civil servant says a British exit from the European Union is not inevitable, although voters backed that course in a June referendum.[..] But Gus O’Donnell, who was U.K. cabinet secretary from 2005 to 2011 and today sits in the House of Lords, says Britain could remain within a reformed EU following talks that would take “a very long time.” He’s actually going a bit further than that: “Lord O’Donnell of Clapham, the former Cabinet Secretary, says Britain might not really leave the EU. Perhaps the EU will now change in a way that makes it more appealing to British people, he suggests. And anyway, even if we do actually go through with the whole Brexit thing, not much will change because, when we come to really think about it, we’ll realise that all those rules and regulations that originated with the EU are actually OK so they should remain in place.”
There are indeed times when civil servants can be left to get on with things. Whether the forms for unemployment pay use Times Roman or Comic Sans would be a useful level of that sort of thing. But when the populace at large has been asked a simple question like “In or Out of the EU?” then that’s not something that the civil servants should be either second guessing nor gainsaying. That’s the exact thing about the EU that drives a significant portion of the population up the wall.
How much longer can Tsipras last? Or the EU for that matter?
• Greece PM Says EU Sleepwalking Toward Cliff, Wants Debt Relief By End 2016 (R.)
Greece said on Sunday the EU was “sleepwalking towards a cliff” by sticking to austerity rules that created huge inequalities among members, and it expected a debt relief deal for itself to be honored by end-2016 so that its economy could recover. Athens, facing a second bailout review entailing an unpopular loosening of labor laws in the autumn, is keen to show that painful tax rises and pension cuts as part of its 86-billion-euro bailout deal last year will bear fruit. “Greece has kept its part of the agreement and expects the same from its partners. We are not simply seeking, we are demanding and expecting specific measures that will render debt sustainable as part of the deal we are implementing,” Prime Minister Alexis Tsipras told the Sunday newspaper Realnews.
“This (debt relief) will be followed by reduced (budget) surpluses after 2018, which will open the way for the economy’s recovery,” he said. Greece has committed to attaining a primary budget surplus – excluding debt servicing costs – of 3.5% of economic output by 2018 as part of its third bailout package since 2010. The IMF, which has yet to decide whether it will fund the third bailout, has said that surplus targets of 3.5% beyond 2018 are not realistic for Greece and has pushed for softer fiscal goals to take part in the financing. Greece’s leftist-led government and the central bank also want lower primary surplus targets, arguing this will give Athens room to cut taxes and help the battered economy return to growth after a protracted recession.
The economy has shrunk by a quarter in six years and the jobless rate is 23.5%. Tsipras also told Realnews that the European Union was “sleepwalking towards a cliff” as the Stability Pact’s tough fiscal rules had engendered deep inequalities among member states. “Brexit will either awaken European leaderships or it will be the beginning of the end of the EU,” he said, referring to Britain’s June vote to leave the 28-nation bloc. He criticized Germany for acting as Europe’s “savings bank” with excessive surpluses, frozen wages and low inflation, at a time when the EU’s deficit-ridden southern members have broken all records for unemployment. “If Schaueble’s dogma for a multi-speed Europe and economic zones of low-cost labor is not abandoned, Europe will be brought to the brink of dissolution,” Tsipras was quoted by Realnews as saying.
As Hungary and Austria are throwing up more barriers.
• Germany Expects ‘Up To 300,000’ Migrants This Year (BBC)
Germany expects up to 300,000 migrants to arrive in the country, according to the head of Germany’s Federal Office for Migration and Refugees. Frank-Juergen Weise told the Bild am Sonntag paper (in German) his office would struggle if more people came. But he said he was confident the number of new arrivals would remain within the estimate. More than one million migrants from the Middle East, Afghanistan and Africa arrived in Germany last year. The German interior ministry says more than 390,000 people applied for asylum in the first six months of this year. It is not clear how many of these may have arrived in the country in 2015. Mr Weise said Germany would try to get as many of them on the job market as possible. But he said the migrants’ integration in German society “would take a long time and cost a lot”.