Sunday, June 21, 2015

Japan Economy Is In A Corner

Japan Lives And Dies On Exports!
Two interesting articles appeared in Japan Today on June 17th. The first titled, "Japan post y216 trade deficit in May" and the other "BOJ to debate weak yen." What converts into just under a 2 billion dollar trade deficit in May was a big improvement from the year before, but even a drop in energy imports was not enough to offset the less than spectacular exports of finished goods. To make the situation even more bleak was an automotive reliability study that showed Japanese cars falling in quality when compared to their competition and how they were trumped by Korea. Both Kia and Hyundia blew them out of the water, even American automobiles are faring much better. This could cut into the heart of their share of auto sales going forward. The perception of quality is a hard asset to put a value on, but has a big effect on sales.

Concern remains about the health of the Japanese economy, particularly that weak demand overseas could dent factory output as manufacturers try to cut an inventory buildup that boosted growth in the first quarter. The trade deficit narrowed in May, but the possibility of it moving back up in the second half of the year is very real as the weaker yen pushes up import costs. This moves us into the subject of the article about how Bank of Japan policymakers may be moving towards reviewing their weaker yen policy. It seems growing political concern over the weak yen policy is gaining traction, however consensus is that even as Greece moves nearer to defaulting on its debt BOJ officials will continue to be optimistic and stay the course of massive stimulus and monetary easing.

The BOJ’s 2% inflation target for later this year is a very important part of their economic program and while prices have yet to move they still have hope it will occur as momentum takes hold. Last week Governor Haruhiko Kuroda drove the yen sharply higher by telling parliament the currency’s real, effective rate was “already very weak.” After a bump up the yen again retreated when Government and BOJ officials came out saying the remark, while not a warning to yen bears, reflected growing concern voiced by politicians over the demerits of a weak yen, such as the pain inflicted on consumers through rising food prices. In recent parliament debates, lawmakers have urged Kuroda not to be hasty in trying to meet the inflation target and to hold off on more easing that could spur unwelcome yen falls. This is a big change from the days when the BOJ was under constant pressure to do more easing to help weaken the yen.

Many BOJ officials say the benefits of a weak yen still outweigh the downside, but some peope worry about the effect on consumption. Last year households quickly curbed spending when a sales tax hike raised the cost of living. The reality is the BOJ is in a difficult position because as time goes by results of their weak yen policy has yet to bring the prosperity many had hoped for while government debt has grown ever greater. At some point it will become clear that Japan has dug a hole that it cannot climb out of. The fact that Japan no longer runs a huge trade surplus is a key issue that must be factored in. Unlike Greece the people of Japan own much of their country's debt and the Japanese people will suffer in case of a default or when the debt is repaid with a severely depreciated or worthless yen.

Kuroda has said the BOJ is ready to act again if underlying trend inflation weakens, keeping alive market expectations of additional stimulus in October. “Just because a weak yen has been positive so far, that doesn’t mean that there will be more merit if the yen weakens further,” he said last week. Further monetary easing may be a tough sell to lawmakers growing wary of the costs of the radical monetary stimulus. This puts the BOJ is in a difficult position. Just like many central banks across the world that have tried to jump start their economies through stimulus programs rather than urging economic structural reforms they have distorted and delayed the economic landscape. The picture of Japan's future is both cloudy and complicated by the combination of its massive still growing national debt, an aging population, and their heavy reliance on exports.

Saturday, June 20, 2015

Stagflation And Slow Growth

Stagflation Is Comprised Of Several Factors
Words like stagflation and slow growth may be the cornerstone of the global economy for years to come and this is the positive view of what might lie ahead.  A more negative take would include words like world war, depression, and social instability. A debate rages on under the surface and in the minds of many economist and investors as to whether we will fall into the trap of deflation or inflation is in the cards. It is possible the world we encounter both with deflation raging in one country and just across the border inflation having its way and shaping the lives of all it touches. As I have written before, currencies are the "Trojan Horse" of governments, and a weapon that will be used to fleece the average citizen out of his wealth.

I remind you, modern economics does not span a large period of mans history and with all the twists and turns that have taken place during its development it makes a poor basis for future projections. The way banks are chartered and regulated, and even the use of currencies on the scales used today dates back only a few hundred years. To think those in charge of our central banks and economies have the wisdom to guide us on the path to prosperity is a bit naive. Knowing that many of those leading us honed their skills in the noncompetitive ivory towers of academia rather than in the arena of commerce should give us pause. Even before you factor in things like hidden agendas and arrogance it would not be wise to follow them blindly.

A tectonic change or shift is taking place in the economies of countries across the world. This may be the result of our economic institutions reaching a more mature state and the world reaching a point where long-term sustainability is becoming more of an issue. This has become more obvious as we now find we are busy jostling for position in the economic food chain, but this is not just for ourselves, it is for the future of both our children and our country. This can be seen clearly here in America where during the last few decades the financial sector has enjoyed tremendous growth while other sectors of the economy struggle. It could be that all this mask a future of world stagflation and years of slow growth. It is not uncommon in a stagnant business environment to also face high unemployment, this tends to breed discontentment and social unrest.

Often I lay out theories and my arguments to support them without heavily relying on charts, graphs, or statistics. This moves a great deal of what I write into the realm of opinion or speculation if that is where you chose to place it however, when looked at closely much of the information being displayed as fact really exist in this same land. I find that personal history and past errors in judgement have a great deal of value and remember how being deeply involved in real estate during the late 1980s many people would greatly argue the current interest rates we see today could never materialize or come about. What was predicted by many and what did however occur is a drastic climb in housing and the prices of many commodities. While we have seen a pullback in some prices recently due to overcapacity as that situation corrects price increases will take root. Currently a great deal of our inflation is being hidden behind a facade of low interest rates on things such as auto loans

Today we are seeing countries across the world moving in fits and starts. Often what little growth they have, or statistically portend to have, being produced in flawed or modified data that is massaged and skewed. To make matters worse it usually comes on the back of massively aggressive monetary easing  and from zero interest rates that mis-allocate resources and capital. During all this we have become far to accustomed to moving around and postponing what needs to be done, and each day we become more complacent and accepting of the notion that we will muddle through. Structural problems have not been addressed in Europe or elsewhere. The debt crises in Greece exist in different forms in many nations. A global day of reckoning awaits; the overhanging question is just when it will arrive.

Sunday, June 14, 2015

ISIS Undeterred By Weak US Strategy

A Strategy To Stop ISIS Is Lacking
Eight months ago President Obama began a war against ISIS and recent claims of a recent victory against ISIS when a rare U.S. Army commando ground attack took place deep into Syria seemed more of a distraction to take our eyes off defeats elsewhere. A team of Delta Force commandos slipped across the border from Iraq under cover of darkness on May 16th  aboard Black Hawk helicopters and V-22 Osprey aircraft killing a man described as the Islamic State's head of oil operations, capturing his wife and rescuing a woman whom American officials said was enslaved. On Sunday morning talk shows this was touted as a milestone in our fight, but does little to offset the fact we lack a comprehensive or effective strategy in the Middle East.

Glaring examples of our failures are presented in article such as the May 23 Washington Post  story that paints a picture of total chaos and mayhem garnered from the accounts of fighters in the city of Ramadi that recently fell to ISIS. They said its fall was owed as much to weakness of Iraq’s forces and holes in U.S. strategy as to the Islamic State’s strength.The soldiers described confusion and a lack of coordination between branches of the security forces as chains of command broke down. Even Iraq’s Golden Division, a special U.S. trained special-forces unit the most capable in the country ran and deserted its positions. In an effort to explain away their defeat Iraqi military officials said the U.S. led coalition bombed the edges of Ramadi, but there simply weren’t enough airstrikes. Bottom-line is the Iraqi's remain conflicted and ununited, this makes them unreliable as a fighting force. No amount of money or training will solve this problem.

A key weapon used by ISIS is fear, this is heaped upon us through gruesome propaganda videos they produce and released over the internet. This has worked well for them and enhanced their reputation as a no-nonsense force. With surrender not an option it is no surprise that Iraqi soldiers and police often strip off their uniforms and run away. Especially ugly and disturbing are the reports of violence that continue to flow out of the Middle East, these are well documented reports of the blood-thirsty jihadists carrying out summary executions on civilians, Iraqi soldiers and police officers. Following the fall of Ramadi Islamic State fighters crowed about their victory on social media, releasing images of  the seized. U.S. supplied military equipment worth millions of dollars that was left behind. This included dozens of tanks, armored vehicles, weapons, and crate loads of ammunition

 Adding to the ugly situation and reports from the Middle East was the fact that Islamic State militants seized control of the majority of the Syrian city of Palmyra as Ramadi fell. This made it the second significant strategic gain for the group in a week and leaving one of the region’s most renowned archaeological sites in peril. Reports from activists and Syrian state media said pro-government forces had withdrawn from the city northeast of Damascus after a week-long assault by the militants. The advance is more proof by the Islamic State of its ability to continue taking territory, despite recent assertions by American officials that it remains largely on the defensive after 10 months of U.S. led airstrikes.

Reasons exist to be concerned over how the ideology being spread by ISIS can manifest itself in acts of terror throughout the world. These might come as attacks on either infrastructure or on innocent people. The Middle-east countries and parts of Europe are particularly vulnerable to these violent assaults. I still marvel at how the White House has made a point to always call the group ISIL as a way to distance themselves after they originally backed the group in the beginning. Since that time we've had the misfortune of watching ISIS a group originally funded, trained, and equipped by the U.S., Saudi Arabia and other Persian Gulf allies, turn on us and morph into an aggressive force with an extreme agenda that has reeked havoc in the area. As to how quickly ISIS can spread, clashes began in Mosul, Iraq's second city, late on June 9, 2014, and Iraqi forces lost it the following day to ISIS. The group has spearheaded an offensive that has not stopped after it overran much of the country's Sunni Arab heartland.

Here in America we have those interested in becoming the next President weighing in with their take and putting out their opinions on how to proceed. Recently, Jeb Bush ventured forth during an interview on, Face The Nation, about how we must commit to further training and aid for Iraq. This might be a tough sell to Americans at a time when news is surfacing about all the equipment lost to ISIS when Iraqi soldiers fled their approaching forces in the northern city of Mosul. AFP reports Prime Minister Haider al-Abadi said in an interview that Iraqi security forces lost 2,300 Humvee armored vehicles when ISIS overran Mosul. Last year, the State Department approved a possible sale to Iraq of 1,000 Humvees with increased armor, machine guns, grenade launchers, other gear and support that was estimated to cost $579 million depending on how they are armored and equipped. It is therefore safe to say the 2,300 Humvees abandoned would represent well over $1 billion of American tax payers poorly spent.

Footnote; A scenario that must be considered is that before long we will see an attack against the heavily defended the U.S. embassy and the Green Zone. The article below explores what ISIS may view as its most important objectives.

Tuesday, June 9, 2015

Disconnecting An Economy In Our Intertwined World

We Are All In The Same Boat!
In a recent post titled "Silly Or Delusional" I cautioned those that thought a bad jobs report or other bad news flowing out of America should bolster other currencies and weaken the dollar. Again, I put forth the idea the dollar remains the best house in a bad neighborhood,or the cleanest dirty shirt in the closet, this means it is still the least worse option or currency to place your wealth. Have no doubt without the continued flow of goods from their shores such export based economies such as Japan and China are "toast" and will further slow. As the world's reserve currency and the most liquid of all currencies the dollar has gained as faith in other currencies has diminished and central banks across the world continue to print more and more money. This is not to say I hold any illusion as to the "true value" of paper money, it is no more than a glorified IOU.

High on our mind should be the question as to whether it is possible to decouple or disconnect an economy in our world where finances are so intertwined. While the pain is not always equally shared most economist seem to take the attitude that it is not really possible to escape unscathed and avoid being pulled downward from the forces of your neighbors falling production. This becomes particularly difficult if you are dependent on them because they are a customer or supplier. It seems central banks policies have had more affect in supporting and propping up derivatives than generating real growth. The low interest rates that propel investors into high risk assets in search of a positive return and all the money being pumped into the system when coupled with cross border money flows has turned the world's financial system into a global Ponzi scheme.

As the world economy has become more sophisticated the old formula of a nation creating wealth on the backs of cheap labor alone has begun to erode. Today a mix of natural resources, brains and capital are taking the lead. Simply put, I beg anyone to show me a major country that is forging ahead and achieving growth on their own by having created the proper mix. I guarantee if it becomes apparent someone has perfected such a formula it will rapidly be copied across the planet. In recent years central banks have tried to take the lead and reinvigorate the economic landscape, this has morphed into where it has become the main driver of economic data but has generated little real growth outside the financial sector.

In many ways the reality that we have been left to twist and spin in the wind without direction is becoming obvious. One thing is clear government has totally failed to step up to the plate and devise a strategic economic that addresses both the necessary structural changes we must make and develop long-term sustainable growth. We must question the numbers that are being presented and spewed forth from both government and other groups as well as just how relevant they are. Recent GDP numbers show a marked deceleration in growth and most likely a decline when you factor in the even more surprising rise in America's trade deficit. Today it would seem fair to say America is no longer the world's economic locomotive able to move us forward, or using another metaphor you might say that we are now all in the same boat.

To confuse issues more we must consider that the numbers and economic formulas we rely so heavily upon are flawed. This means we are moving forward on a journey armed with a faulty compass and a map that is not drawn to scale. It is important to remember the economist Simon Kuznets who created the way to determine our national GDP in 1934 told the US Congress the formula was problematic. In 1962 Kuznets again emphasized that we must keep in mind the difference between quantity and the quality of growth. He made clear a distinction exist between cost and returns, and between the long and the short run. Kuznets went further to specify we needed goals concerning both growth "of what, and for what." Other economist have agreed that GDP is an empty abstraction with a very weak link to the real economy.

 The myth that poor quality growth can be sustained or generate escape velocity and free us from our economic woes is again proving false. No matter how hard we try to forget, it is becoming more apparent that America's last big economic surge just before the 2014 elections was driven by a 10% jump in federal spending, mostly on Pentagon hardware. This "pre-election" spending was the biggest increase in spending by the federal government since 2009 when the Obama administration put in place its huge economic stimulus package. Free trade is often not fair trade, once herald as a huge job creator and as a win-win formula for growth has also proved to benefit very few at the expense of many. Also, underwhelming has been my experience with government projects such as infrastructure schemes to create jobs and carry us forward. Often these result in the public paying dearly for poorly designed bridges to nowhere. Adding insult to injury the jobs created are temporary and short lived.

Several things have become clear as the markets have disconnected and lost the ability to reflect honest price discovery. This should be crystal clear when we see the Dow Jones Industrial Average leap over 265 points and hover near all time highs on bad news. It is little wonder many people are beginning to realize there is no safe place to hid. This does indeed leave us in a pickle, a tight spot, under a bit of duress, or simply at a point where we are forced to face the truth. Unfortunately, not taking the proper steps often causes more problems down the road. This brings to mind the words of Winston Churchill who said, "The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences".  My point is, we too are entering the place where we must pay the piper.

Sunday, June 7, 2015

Japan Post Holdings To Move Away From Yen

Japan Post is a Japanese state-owned conglomerate, through its subsidiaries, provides postal, banking, and insurance services in Japan. Its activities include postal operations; banking counter operations; insurance counter operations; sale of documentary stamps; operations consigned by local government entities; life and non-life insurance agency services; domestic distribution and delivery business, and international cargo transport and agency services for air cargo business; logistics business; real estate business; and merchandise sales. When talking with several of my contacts I was surprised they were unfamiliar with the company, it could be because it is quasi-government in nature and tightly tied to the government..

Japan Post as it existed from 2003 to 2007 offered postal and package delivery services, banking services, and life insurance. With over 400,000 employees and running 24,700 post offices it ranked as the nation's largest employer. One third of all Japanese government employees worked for Japan Post, as of 2005, it was said to be the largest holder of personal savings in the world. With ¥224 trillion ($2.1 trillion) of household assets in its yĆ«-cho savings accounts and ¥126 trillion ($1.2 trillion) of household assets in its kampo life insurance services, its holdings accounted for 25 percent of Japanese household assets. Japan Post also held about ¥140 trillion (one fifth) of the Japanese national debt in the form of government bonds. In 2007 Japan Post was privatized with the Japan Post Group companies operating the postal business.

That makes the group one of the largest institutional investors in the world. As of 2013, it ranked thirteenth in the Fortune Global 500 list of the world's largest companies. Privatization was put on hold in 2010, so currently the Japanese Ministry of Finance remains the 100% shareholder. However, plans unveiled in 2012 to list shares of the Japan Post Holdings Company within three years are moving forward and the government plans to list Japan Post Holdings Co Ltd and its banking and insurance units on the Tokyo Stock Exchange in late 2015 or early 2016. About 10 percent of each unit's outstanding shares will be offered in the IPO and could rake in 700 billion yen with the IPO proceeds slated to finance post-earthquake reconstruction of the country. This could in some ways be interpreted as the government selling off the family jewels. For years many economist have noted the Japanese people have always been the ones to buy their governments debt, this is a step-back from that policy.

Traditionally, with close ties to the government the investment strategy of Japan Post has been very conservative with low-yielding JGBs making up more than half of its portfolio. But as Japan Post and its two financial units prepare for separate initial public offerings later this year, they will take a more aggressive investment stance and chase bigger returns, said Nishimuro. Japan Post Holdings Co has hired Katsunori Sago, a former Goldman Sachs Group, Inc.'s executive as head of asset management at its banking unit as it reallocates its portfolio. The move will likely to shift a bulk of money from JGBs to riskier but higher-return assets like stocks and foreign bonds. In doing so I contend this will cement an attitude within the Japanese population that it is time to start shifting savings out of the yen and into other type of holdings. This may someday be looked on as a watershed event as to how the Japanese shift away from the yen to protect their wealth.

Footnote;  As always comments are welcome and encouraged. A prior article I wrote looks at how the financial news flowing from Japan has become so loaded with conflicts of interest and internal deals created to prop up one weak institution with another and of the possible ramifications. The article can be found below.

Sunday, May 31, 2015

ISIS Targets Baghdad And Saudi Arabia

ISIS On The Move With US Equipment
I agree with those who see real danger lurking for the two big targets and major prizes that ISIS hopes to claim. One of those is Baghdad and the other Saudi Arabia. Recently we began to hear rumblings that the Saudi's were becoming increasingly concerned as ISIS took over a huge swatch of Iraq and had edged up to the border of their country. This concern appears well founded as we are beginning to see a redirection of ISIS tactics, and attacks, towards Saudi Arabia which has, at least on the surface joined the U.S. at the forefront of the anti-ISIS campaign.

A key weapon deployed by ISIS is fear, with gruesome propaganda video being released by ISIS, it is no wonder the Iraqi soldiers and police often strip off their uniforms and runaway. It's not only bad over there, it's getting worse. For us living in America if you don't look for the news flowing out of the Middle East you are most likely shielded from much of it.  The Middle East is in total flux and many of the developments occurring on a daily basis are very problematic. News from the region tends to slip by under the radar because it is not something the public wants to see and not something Washington wants to put before us.  It is a solid reminder that we must never underestimate mans ability to inflict damage upon the human-race and people just trying to go about living their lives. Time and time again across the world the brutal carnage continues and recent well documented acts of ISIS and so many other groups around the globe give us little hope that it will abate.

We should not be surprised if before long ISIS begins banging on the gates of  Baghdad and creates a situation reminisce of the street to street fighting that took place in Beirut, Lebanon years ago. This would threaten the fortified U.S. Embassy located in the Green Zone. This is America's largest embassy in the world, the embassy compound can hold 35,000 American personnel and is basically a small city/state within Baghdad and is massively defended. The goal of ISIS fighters would most likely be to cause panic and destabilize the area which would result in a major PR victory. This means fire fights breaking out everywhere within the borders of Baghdad as forces backed by Shiite Iran facing off against Sunni rebels with ties and money from Saudi Arabia in a fight for control, but this gets very twisted in that even strong breaks exist between the Sunnis. We are talking about the city becoming ground zero and entering a state of civil war.

While military experts are confident that ISIS does not have enough troops to take Baghdad, a city of  around eight million people. Baghdad has been a city in transition since the Bush invasion created a power vacuum. We have witnessed an endless violence in the capitol that is historically full of neighborhoods with a mix of Sunni and Shia. Today the population division is now almost complete with most Shia concentrated in the north and east of the river and most Sunni in the area stretching from the airport to the American Green Zone. The ISIS advance in Anbar province to just outside the airport is a direct threat to the Green Zone because their forces can move through predominantly Sunni neighborhoods with little resistance. The western Sunni neighborhoods are perfect cover for ISIS to slowly infiltrate the area around the Green Zone and embassy compound by mixing in with the population. It is possible to see where ISIS could shut down the airport or at least make air travel extremely dangerous.

A scenario that must be considered is we will see an attack against the heavily defended the U.S. embassy and the Green Zone. This would require the U.S. to fly in reinforcements to the airport and this will be when ISIS will start mortar fire and attempt to close the Baghdad airport as well as attack convoys through the Sunni neighborhoods heading to the Green Zone. Shutting down the airport would require reinforcements and embassy staff leaving to use helicopters for transportation to airfields further south in Iraq or maybe even to Kuwait. Closing the airport would constitute a major public relations victory for ISIS and make life very difficult for those who oppose them. It could get very ugly fast, if a siege of the Green Zone and American embassy occurs because the U.S. would most likely then attack by air the Sunni neighborhoods surrounding the area from the zone west to the airport at a minimum resulting in heavy Sunni civilian causalities.

Since inheriting the throne earlier this year Saudi King Salman has forcefully challenged the expanding regional influence of Iran his country's biggest foe. This is very apparent from the Saudi's embarking on an air war against Iranian-backed Houthi rebels in Yemen. He is coordinating with Qatar and Turkey and has moved to shore up the deeply divided rebels in Syria. This has brought together an unexpectedly cohesive and effective rebel coalition made up of al-Qaeda affiliate Jabhat al-Nusra, an assortment of mostly Islamist brigades and a small number of more moderate battalions. This has added growing strains on Assad’s manpower and resources and damaged the idea that he is winning and the argument that Assad is the best option against ISIS. Bottom-line is that the whole region is in flux and ISIS is exploiting the situation. While difficult to believe if we do not get a handle on the situation in the end we could see the U.S. forced to close the embassy and withdraw from the Green Zone in a way that reminds the American public of how we left Vietnam long ago.

Footnote; This article is a "notice and warning" and not a suggestion of any strategy or solution that would solve the problem. My thoughts on that subject will be put forth at another time. As always, thanks for reading and your comments are encouraged.

Thursday, May 28, 2015

Real Facts And Numbers About Housing

$79050 / 3br - 994ft2 - Custom Touches! (Fort Wayne)

I hereby nominate Jim for an honesty award. In a recent article a fellow by the name of Jim Quinn wrote about how Washington has started to manufacture the next housing bust and how Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. In their frantic effort to generate the appearance of economic recovery Quinn delves into how Washington is gambling with taxpayer’s money to encourage and lure unsuspecting blue collar folks into buying houses they can’t afford.

Jim writes; This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up. I solidly agree with Jim and others who have little faith in our so called housing recovery. People should note that much of the new housing being built because of super low interest rates is in the multifamily sector. While new units are being build it must also be recognized that a huge number of houses and apartments sit empty. What I really appreciated was the story Jim told where he used real numbers that did not sugar coat the truth as to what is happening in large areas of the country.

In Jim's words; I have personal experience with a current FHA mortgage transaction as my 79 year old widowed mother is in the midst of selling the 900 square foot row home that she has lived in for 58 years in the first ring of suburbs outside of Philadelphia. It was once a vibrant middle class neighborhood of working folk, but has been gradually decaying as the old guard dies off and is replaced by lower class Section 8 tenants. She is selling ten years too late as prices have dropped 30% since 2005. She asked $72,900 and received an offer within two weeks of $66,000, with a $4,000 closing credit. My siblings and I didn’t expect her to get an offer in the 60s, as the dump next door was sold for $30,000 and went Section 8 a couple years ago. Anyone buying this house is destined for another 30% loss over the next ten years. So we told her to take the offer before it was too late.

It is so damn good to see some real numbers in a post it almost brought tears to my eyes. Yes, the numbers Jim has used are real and the kind that exist in many places in America. These are not "Wall Street" numbers. The fact is not every house sells for $600,000. Yes, houses are available at affordable prices. This is something I see everyday here in the Midwest where we seem to be far more in touch with reality and the true economy is less distorted. Jim goes on to say he feels the FHA thinks it is necessary for them to lure low income, low IQ, credit challenged dupes into the housing market. To bring this about those at the FHA are busy issuing risky mortgages that are being underwritten by thinly capitalized non-banks and guaranteed by the FHA.

In 2012 the large Wall Street banks represented 65.4% of FHA-backed loans. That number is now 29.6%, as even the risk seeking Wall Street banks have come to their senses and realize loaning money to people that won’t be able to repay them will end badly, we are being prepped for a replay of what occurred in 2008. The politically motivated government is insuring sub prime mortgages with down payments of 3.5%, using weak underwriting standards. They are even easing restrictions on borrowers with past foreclosures, in a housing market that may drop some 20% when this Fed/Wall Street housing bubble pops we can expect a rough ride ahead.

Jim says the entire manufactured housing recovery responsible for driving the average home prices up 30% since 2012, has been driven forward on the high end by Wall Street hedge funds buying  foreclosures in bulk with a scheme to rent them out. In addition to the money from hedge funds it does not hurt that hot money and cash from Chinese and Russian oligarchs is also flowing into this market. It would be wise to remember this market is build on a very weak foundation with the low end being propped up by Fannie, Freddie, and the FHA with their brilliant idea to insure 3.5% down payment mortgages to those who will not be able to withstand the next downturn.

The article I reference was written by Jim Quinn and can be viewed by hitting on this link. I have owned an apartment complex in the Midwest for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in my area are empty or under leased. In 2005 and 2006 prior to the housing collapse many people were looking at second homes, today not only have people shed the extra home many have doubled up with family or friends reducing the need for housing. I have been busy trying to make sense of the current economy, this is not an easy job. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. An earlier article that I wrote on this subject can be found below.