Children Playing While All The Bubbles Deflate

Children Playing While All The Bubbles Deflate

As a resident in Upstate South Carolina, I must admit that it is not only incredibly beautiful, but our real estate is incredibly well priced relative to California.

I love California as well and have watched with a combination of bemusement and dismay as real estate prices have, over the past few years, reversed course. Watching that reversal, I feel a sense of relief that we still have proof that trees do not, as the saying goes, grow to the sky!

In the case of stocks, such as Apple below, this has yet to be demonstrated.

Let’s dial back the clock three years. There is a small house (about 900 square feet) just around the corner from one of my buddies. It was being put on the market for $10 million. Let me be clear, the 900 square foot house was not made of gold bullion. It was just a little cottage. But here we have it:

To be fair, the cottage is on, for this neighborhood, a lot of half an acre, which is gargantuan for here. Most lots are like 6400 square feet or so. All the same, a Chinese buyer snapped up the place for $10 million, and it has sat there, unoccupied, for three years. I know this for a fact, because he walks his dogs in front of it every morning, and although a gardener is evidently paid to keep the yard tidy, not a soul has crossed the threshold in all these years.

Having said that, present estimates for this property are a bit south of $10 million. I’m sure the rich Chinese national who plunked $10 million into this place was doing so as a “safe haven”, but I’m not so sure she can celebrate a $6 million deflationary plunge in value:

$10 million and now worth $4 million?  Deflation is painful when it happens quickly to you!

2016 was definitely some kind of peak California frenzy, when multiple all-cash offers, people camping out in front of sites where a listing was going to be posted the next morning, and a scarcity of inventory ruled the day. Just north of here, in San Francisco, there was this tale:

It was typical of the time: 27 offers (most pure cash) and a sale price nearly double the offer. And all this for an “uninhabitable” place. Glancing at Street View, I’m inclined to agree.

Times have changed. There aren’t multiple offers anymore. The Chinese seeking a safe haven have fled. And the new tax code has splashed cold water on California real estate. As for scarcity of inventory – – back in 2016, I think at one point there were a total of 11 properties listed for sale right around my buddy’s home – – that has changed too:

The most poorly-situated sellers are those with ultra-luxury properties. Another deflationary effect is that nobody wants what you are selling. At 40 cents on the dollar they do, right?

It took me all of three seconds to get this example for you. Below we have a $39,998,000 property (far more appealing than if it was priced at $40,000,000, LOL). You may have noticed that little mention of a $10 million price cut as of last month (deflation).

Added to which, this sucker has been on the market for 535 days already. It was not that long ago that the “days on market” was invariably a single digit. Helpfully, Zillow lets you know the monthly mortgage payment at this reduced price would “only” be a $191,068 twelve times a year.

At this price, it’s obviously a lovely place. They’ve even decided to dedicate a portion of this expensive property to a statue:

Wait, here comes my historical memory bank. I couldn’t help but instantly think of the statue of the children in Stalingrad after the Nazi bombing of the city. It’s eerily similar and once deflation expands over the next decade, probably extraordinarily prescient.

We are currently enjoying a rising stock market and real estate prices, unfortunately deflation will rear its ugly head again shortly.

In the next few days I will be posting a full explanation of deflation, the destruction it causes and how you can help your family walk out of its ashes alive and well with your retirement portfolios buying power fully in tact.

Pension Crisis In America Expanding Again

Pension Crisis In America Expanding Again

Pension Crisis In America Is expanding again. The Wall Street Journal recently highlighted a better method of analyzing the impact of public sector pensions on state and local budgets. The results are ominous for government finances, the bond markets, and pretty much everything else:

Why Your Pension Is Doomed

A new study shows that the pension crisis in America is expanding again and that pension benefits are rising faster than GDP in most states.

Pension costs are soaring across the country, and government unions blame politicians for “under-funding” benefits. Lo, if only taxes were higher, state budgets would be peachy. The real problem, as a new study shows, is that politicians have promised over-generous benefits.

In a novel analysis, the Illinois-based policy outfit Wirepoints compared the growth of state pension liabilities relative to state GDP and fund assets. Most studies have examined “unfunded” pension liabilities, which is the difference between current assets and the present value of owed benefits. But this obfuscates the excessive pension promises that politicians have made.

According to the study, accrued liabilities—how much states are on the hook for—between 2003 and 2016 grew more than 50% faster than the economies in 28 states and more than twice as fast as GDP in 12 states. Leading the list are the usual suspects of New Jersey (4.3 times faster than GDP), Illinois (3.23) and Connecticut (3.18), as well as New Hampshire (3.46) and Kentucky (3.08).

Between 2003 and 2016, New Jersey’s pension liability ballooned 176%. Unions blame lawmakers for not socking away more money years ago, though lower pension payments helped them bargain for higher pay. The reality is that New Jersey’s pension funds would be broke even had politicians squirreled away billions more.

Ditto for Illinois, where the pension liability has grown by 8.8% annually over the last 30 years. Yet when the Illinois Supreme Court in 2015 blocked state pension reforms, the judges rebuked politicians for inadequately funding pensions. The solution, according to unions, is always to raise taxes. But no tax hike is ever enough because benefits keep growing faster than revenues.

New Jersey recently raised corporate and income taxes on high earners, but the state would need to spend billions more on pensions each year to adequately finance promised benefits. Illinois’s Democratic Legislature last year overrode GOP Gov. Bruce Rauner’s veto of a corporate and income tax hike. Yet the Democratic candidate for Governor, J.B. Pritzker, and unions are now campaigning to kill the state’s flat tax rate and raise taxes again.

Stanford University lecturer David Crane has calculated that every additional penny that California schools have received from the state’s 2012 “millionaire’s tax,” which raised the top individual rate to 13.3% from 10.3%, has gone toward retirement benefits. The only salve to state pension woes, as the Wirepoints study notes, is to rein in current worker benefits.

A case can be made – and was made a long time ago by F.D.R among many others – that the whole idea of public sector unions is misguided. As F.D.R said, “It is impossible to bargain collectively with the government,” because when government unions strike they strike against taxpayers, which he considered “unthinkable and intolerable.”

We’re seeing the truth of this now, as public sector unions use their growing clout to convince politicians to write checks that taxpayers can’t cover.

The inevitable result of a parasite that grows faster than its host is the death of the host. In this case, that means municipal bankruptcies on a vast scale in the next recession, default on hundreds of billions of municipal bonds necessitating a government bailout – culminating in a system-wide crisis that pops the Everything Bubble here and around the world.

Unless something else blows up first. These days it’s not if, but when and in what order the world’s unsustainable imbalances tip over.

 

Pension Crisis Expanding

The Pension Crisis is brewing rapidly and we will begin to see this make headlines much more so around the world, not just in the USA. We all will see the expantion of Soveriegn Debt statewide and worldwide starting in 2018. In fact, there is hardly a country not in trouble (Norway the exception), where pensions are underfunded as governments have relied upon tax revenue.

As the crisis in Spain brews, it will be the pension crisis there which blows the lid off of the entire problem. The Spanish pension system is moving rapidly toward a major crisis threatening its collapse. The Madrid government needs to issue debt to close the huge gaps as, without new debt, the pension crisis would have a meltdown this year. The question becomes when will buyers of debt realize that it is not even backed by economic growth. This is similar to a person without a job borrowing from the bank just to pay the rent.

What governments have done in the management of pensions is criminal for anyone in the private sector.

Spain faces a major social crisis as we cross the threshold of 2018. The situation keeps getting worse by the day. For years, the Spanish government, like so many others, has been using funds from its pension reserves to finance expenses elsewhere in the budget ever since 2012. Billions have been used to offset the widening deficits in the welfare system. Consequently, the pension fund has collapsed from 66 billion euros in 2011 to only about 15 Billion euros in 2016. At this rate, Spain goes into default in 2018.

The crisis materializes when those who buy debt suddenly see there is no possible way to repay the debt from future revenues. A default becomes possible when there is NO BID for new debt. This is how it will begin. The peripheral economies will go bust and then a contagion begins as traders look around and say –OMG! They are all the same and there are NO BUYERS!


The Effect on YOU.

Yes, so this debt is exploding. Cities, states, and countries are going broke, I get it. But what can I do about it? Subscribers to our Wealth Preserver and other subscriptions levels are informed and guided through the coming crisis that will make 2008 look tiny in comparison.

Pension Crisis Update

Pension Crisis Update

The Illinois Supreme Court has used STRICT CONSTRUCTION to defend the State against State Employee pensions that have been bankrupting the State. Previously, back in 2014, the Supreme Court ruled that health care benefits provided to state employees were a “permanent benefit” guaranteed by the state constitution. That has led to a complete disaster as healthcare costs have risen out of control thanks to Obamacare, which handed insurance companies more money and a monopoly status that everyone had to have insurance even the y7outh who never used it.

Those health care costs are destroying the fabric of the entire economy pushing pension costs over the top. The Supreme Court is mindful of the disaster he caused with its 2014 ruling and they have been obvious under political pressure to reverse it. They figured a way to do this using STRICT CONSTRUCTION. Therefore, the benefit cannot be greater than what was expressed in the statute. Consequently, they now delivered a six-word ruling on Thanksgiving eve refusing to hear the retirees’ appeal of a state Appellate Court ruling that essentially upheld Mayor Rahm Emanuel’s now-completed, three-year phase-out of retiree health care coverage.

The Supreme Court magically taketh away with one hand what the previous hand gave.“For the city, this is a huge benefit. The amount in government pensions for health care is dropping from $137 million a year to between $7 million and $8 million. Effectively, The courts have now held that you cannot rely on anything the city tells you unless you can prove that person had authority to bind the city.

In December 2015, the court ruled that the city employee pension funds have an obligation to provide and subsidize retiree health care with funds provided by the city, but only at levels outlined in 1983 and 1985 amendments to the state’s pension code. That is the key. The statue only guaranteed subsidy amounts to $55-a-month for police and fire retirees not eligible for Medicare and $21 for those who are. For retirees covered by the Municipal Employees and Laborers pension funds, the guaranteed monthly subsidy amounts to just $25. The explosion in health care insurance which Congress has done nothing about is undermining the pensions and will explode in crisis resulting in civil unrest over the next 5 years.

Courts are put in place by politicians. When ruling will go against the government, judges are word-smiths. They know how to ignore the law when they must. This is all part of how the system collapses. Once the Rule of Law fails, nothing will SURVIVE. It is time to turn out the lights.

We will continue to follow the politics behind the markets and keep your retirement protected. Just follow the Wealth Preserver in the US, and your countries Wealth Preserver outside the US. We will help keep your retirement and wealth protected and in tact.

Pension Crisis Expanding

Pension Crisis Expanding

The Pension Crisis is brewing rapidly and we will begin to see this make headlines much more so around the world, not just in the USA. We all will see the expansion of Sovereign Debt statewide and worldwide starting in 2018. In fact, there is hardly a country not in trouble (Norway the exception), where pensions are underfunded as governments have relied upon tax revenue.

As the crisis in Spain brews, it will be the pension crisis there which blows the lid off of the entire problem. The Spanish pension system is moving rapidly toward a major crisis threatening its collapse. The Madrid government needs to issue debt to close the huge gaps as, without new debt, the pension crisis would have a meltdown this year. The question becomes when will buyers of debt realize that it is not even backed by economic growth.  This is similar to a person without a job borrowing from the bank just to pay the rent.

What governments have done in the management of pensions is criminal for anyone in the private sector.

Spain faces a major social crisis as we cross the threshold of 2018. The situation keeps getting worse by the day. For years, the Spanish government, like so many others, has been using funds from its pension reserves to finance expenses elsewhere in the budget ever since 2012. Billions have been used to offset the widening deficits in the welfare system. Consequently, the pension fund has collapsed from 66 billion euros in 2011 to only about 15 Billion euros in 2016. At this rate, Spain goes into default in 2018.

The crisis materializes when those who buy debt suddenly see there is no possible way to repay the debt from future revenues. A default becomes possible when there is NO BID for new debt. This is how it will begin. The peripheral economies will go bust and then a contagion begins as traders look around and say –OMG! They are all the same and there are NO BUYERS!

The Effect on YOU.
Yes, so this debt is exploding. Cities, states, and countries are going broke, I get it.  But what can I do about it? Subscribers to our Wealth Preserver and other subscriptions levels are informed and guided through the coming crisis that will make 2008 look tiny in comparison.

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