Sunday, May 30, 2021

America's Housing Future Is Not Set In Stone (Part-2)

Any way you view the situation, housing is a complex issue and its future will greatly impact all of us. People have an interesting relationship with their homes, often it is more than just a place to sleep. To many Americans owning a home is part of something great. It is considered a symbol they have achieved the American dream. Houses also speak of a person's identity, individuality, and some homeowners feel it gives them more control over their future. 

This often boils down to people wanting or having more than one house for their private use or just one or two people living in a house far larger than can be considered logical. This can be counterproductive to the creation of an orderly and efficient life. An oversized or poorly planned home tends to make far greater demands on its owner than necessary. Still, our government continues to push the untested notion that home ownership is good for everyone and it is not.

Not only have we recently witnessed soaring home prices but we are seeing major distortions in home prices in different parts of the country. Much of this may be related to the influx of new money from companies such as, American Homes 4 Rent, which owns 54,000 houses, and historically low interest rates. This combined with concerns flowing from the Covid-19 pandemic has left many people wondering how the future will unfold and wanting to be well-positioned going forward.

High Expectations, A "Hallmark" Image
Then there is also the issue of unrealistic expectations. This tends to cause people to reach out and spend more than they can afford under the idea they will "grow into" a home or they simply deserve a better home. In some ways, this is driven by modern media which often gives society the impression the world is much cleaner than it is and most people live in nice clean homes. This message is subliminally submitted to us each day when news programs or commercials show a person that has been deemed poor or needy arriving home to their clean and tidy abode. 

What might present a clearer image of reality can be found in the comments below which were submitted in reaction to another article;

I bought a short sale as part of the 2008 crash. One of the best financial decisions of my life. I wasted a ton of money on rent before that. Taking care of a house is a tremendous amount of work, though. If we had a functional economy, I'd much rather rent.

Another person wrote;

The supply is terribly mismatched to the population. I live alone in a 4 bedroom house. It's super expensive to heat and a pain to keep clean. I'd really like a 1 bedroom or 2 bedroom (something about 25% the size of what I have). But, I'm surrounded by 4-6 bedroom $750,000USD McMansions with pools and 3 car garages.

The advantages of owning your own home have been touted as a sign of success and coming of age. In reality, because of the high bar of entry and other uncertainties, buying a home is not always a great or even good investment. If every coin has two sides, the flip side of this is, a house can be an albatross around the neck of its owner. More than a few homeowners have found their homes to be a huge money pit. 

In a prior article, the idea that many first-time buyers approach the decision of buying a house in a rather nonchalant manner was explored. Too many inexperienced or first-time buyers seem to discount the importance of how, what may be the biggest purchase they ever make, will impact their life. The cost and a number of fees can make buying and selling a house a very expensive and at times a rather illiquid transaction with a huge impact on a person's net worth. 

That is why it is difficult to believe in this market some buyers are silly enough to offer well above the asking price or looking at a house for only a few minutes before rushing to place an offer. The "fear of missing out" has become such a large factor in the lives of many people that they have lost touch with reality. This means they often brush aside the cost of necessary repairs and changes needed to make a house fit their needs. All this underlines why it is stupid that our government is busy encouraging people who have no business owning a house to buy one regardless if they have any idea of how to maintain it. 

Government Mucks Up The Market
When it comes to housing for the poor government again mucks up things. Considering the way our government meddles in housing it is little wonder that roughly 80% of new apartment construction is for the high-end market. The government holds huge responsibility for a rising share of our housing problems in low-income situations because its policies avoid dealing with the growing number of people that are irresponsible or creating the type of housing that is suitable for them. If the government was truly interested in preventing homelessness they would focus on those that are always being  evicted for non-payment or breaking the rules. 

Giving simple "housing vouchers" to those unable to pay their rent would also move some of these people back to the private sector. Instead, government-subsidized housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments. This dumps the "less stellar" of those seeking shelter onto the private sector. This discourages landlords from wanting to service this challenging part of society. This creates a problem that is exacerbated by a legal and political system that often favors tenants over landlords. The rising cost of evictions and even a moratorium on them due to Covid-19 is evidence of this skewed attitude.

In a recent article published on, the author, Wolf Richter claims this may be the most distorted and perverse housing market ever. He points out that we are currently living in a world of unprecedented Fed intervention, government stimulus, and inflation that has turned red-hot. He goes on to say, this has created a weird phenomenon of companies complaining about a labor shortage, while nearly 10 million people are deemed “unemployed” and 16 million people are claiming some sort of unemployment insurance. Adding to the confusion, 2.1 million mortgages are still in forbearance programs, investors have flooded the housing market, including individual buyers grabbing a second home in crazy bidding wars.

This underlines the issue that while the market has responded to the housing needs of higher-income households, trends suggest a growing inability or desire to supply housing that is affordable for middle and working-class people. It appears developers have little interest or simply can't afford to add anything but luxury units. Simply put, there's a huge unhealthy disparity in high-end rents versus low-end rents across the country, and with it not costing a great deal more to construct high-end versus low-income units why would anyone want to deal with the low end of the market and all the trash that comes with it.

Chart: U.S. home values Source:
Even with super low-interest-rate mortgages, it is difficult for me to get excited about the future of America's housing market. This topic has been subject to a great deal of debate and can be somewhat confusing. Part of the reason is that we constantly hear about the need for more "affordable housing" and are being told this means increasing the supply by building more units. Unfortunately, this is unlikely to make housing affordable. Ultimately the higher cost for taxes, local fees, utilities, insurance, maintenance cost, general labor, and just about everything flows into the housing market. 

A large part of the problems we face in housing is that it is complicated by government policies, meddling, and intervention. This has led to things such as urban sprawl with huge developers maximizing profits by working on large clean slates. Part of this is caused by governments often unintentionally make it difficult to rehab or build new in older established areas. The housing picture is also muddied because it is difficult to get real-time data which creates a "rear-view mirror" effect. While the number of permits and building starts give some indication of the market, it tells only part of the story of what is being built.

People sometimes get caught up in the idea that replacing homes lost in a natural disaster such as the wildfires in California will have a huge and instant impact on new home construction but this is often overblown. This construction is often stretched over years. More important is the fact that America is full of underutilized homes, I was talking about two thousand plus square foot houses occupied with only one or two people. On the other side when six or more people are crammed into a small one-bedroom one-bath house we have just the opposite situation. 

I contend, that people have been pushed to believe bigger and more expensive is always better. In truth, it is just, "bigger and more expensive." This means higher taxes, insurance, and higher utility bills. All these become difficult to pay during tough times. In a few months or years, we will know whether the current housing market ends in a whimper. During a time of economic and social devastation, it is difficult to imagine that all the five-bedroom five-bath homes will be well maintained. Instead, we might find that as plumbing problems occur the affected bathroom simply goes unused.  

Part of the solution to providing good housing at affordable prices is using the housing that has been built efficiently and building units that meet our future needs. Over the years our needs have changed, and they will continue to evolve. Clearly, society has done a rather poor job at getting things right when it comes to housing and the cost of building is solidly on the rise. Unless we come up with new solutions this will present a huge challenge for many Americans in the future.


Footnote: This is part two of a series of articles concerning the state of housing in America. Due to the complexity of this issue, there will be a part three. The link to part one can be found below.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, May 23, 2021

The CPI Revisited And Its Failure To Reflect True Inflation

The cost of living numbers prepared by the Bureau of Labor Statistics are highly misleading. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claimed it was simply another way to measure inflation and it still reflected the true cost of living.  
The fact is, politicians and those behind this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation. The general argument used to promote this change was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods. 
Allowing for a substitution of goods within the formerly "fixed-basket" supposedly allows the consumer flexibility in obtaining a “constant level of satisfaction." This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation. In cases where the quality of the product are deemed by the government to be "improved" prices in the CPI, calculations are now adjusted lower to offset the higher quality. Extending this idea the Baskin Commission Report, December 4, 1996, actually used steak and chicken for its substitution example.
The purpose of the consumer price index (CPI) is touted to reflect just how much inflation is eating into both our incomes and our savings. Consumer inflation has been estimated since the 1700s, by measuring price changes in a fixed-weight basket of goods. This method was seen as a way of measuring the cost of maintaining a constant standard of living. In the last 30 years, a growing gap has become obvious between government reporting of inflation, as measured by the CPI, and the perception of actual inflation held by the general public.

A clearer indication of inflation can be witnessed during a shopping trip to a grocery store or stores such as Walmart. Sadly, what we see is the type of inflation that directly impacts many of the consumers that can least afford it. Recently product manufacturers like Coca-Cola, Pepsi, and Procter & Gamble all started raising prices across the board, which means that "something has to give." Retailers can only absorb so much of these increases before being forced to pass them on to consumers. Walmart values low prices and it is a key part of their marketing strategy but higher wages, transportation costs, and e-commerce investments have all pressured Walmart to bump many prices higher.

Many smaller specialty retailers like O’Reilly Automotive and Tractor Supply Company have also been hiking prices. Many of these hikes have been blamed on the trade war, supply chain disruptions, or shortages but the economic reality for what is occurring goes much deeper. When it comes to assessing real-world inflation that is having a direct impact on consumers, the Fed has been conspicuously absent from this important conversation.
For years consumer prices have been held down by America importing goods from countries with cheap labor. This has a hidden cost which is the loss of manufacturing jobs. Another issue is that inflation varies drastically from one sector of the economy to another. Still, the day-to-day increases in prices we see add credence to the informal evidence and occasional surveys that indicate the general public believes inflation is running well above official reporting. The numbers government pumps out today are politically motivated and the result of changes made in the 1990s when Washington moved to change the nature of the CPI.

These changes were promoted under the cover of academic theories and the sinister move was masked by the contention was that the CPI overstated inflation. Katharine G. Abraham, then commissioner of the Bureau of Labor Statistics, laid out her recollections in an August 1996 paper: “Back in the early winter of 1995, Federal Reserve Board Chairman, Alan Greenspan testified before the Congress that he thought the CPI substantially overstated the rate of growth in the cost of living.  Greenspan's testimony generated a considerable amount of discussion but the general public paid little if any attention. In truth, the cuts in reported inflation were part of an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible which was to register a vote that would harm the image of Social Security.

The Importance Of The CPI
While the substitution-related alterations to inflation methodologies were made beginning in the mid-1990s the introduction of major changes to concepts geared towards making us feel better about things began in the 1980s. The aggregate impact of the reporting changes since 1980 has been to reduce the reported level of annual CPI inflation by roughly seven percentage points meaning there is no question as to the understatement of inflation. If the methodological changes did not reduce CPI inflation reporting significantly, the politicians would not have pushed the changes through. The important issue is that without these changes, Social Security checks would be more than double what they are today.

A big factor in our "false cost of living" is that the purchasing consumer is not given a choice when paying out-of-pocket the full price for a product declared to have quality improvements they do not want or need. An example of this is the government-mandated use of a gasoline formulation that was to improve auto emissions. It added ten cents per gallon to gasoline costs, but that cost was excluded from CPI calculations even though the person filling his or her gas tank suffered the actual out-of-pocket expense. This is also clearly seen in new phones, computers, and televisions. New features are deemed quality improvements resulting in downside price adjustments to the CPI even when the consumer may not use or want them. Also absent from this formula is recognition of how housing prices vary so greatly across the nation. 

To understand how just how large the impact has been on the CPI it is important to note that 24.0% of the total current CPI-U (the CPI for all urban consumers) is rooted in the category of “homeowners’ equivalent rent of residences.” This means that instead of reflecting some measure of home prices, as was the case before 1983, the BLS estimates the cost of housing based on what homeowners theoretically would pay to rent their own homes from themselves. The BLS then estimates how much homeowners raise the rent on themselves each month. Starting in 1989, the BLS skewed these estimates further by beginning to adjust that imaginary series for quality adjustments that would make the consumer feel good or better enjoy their residence.

Years ago when America was experiencing what the late Allen Meltzer described as "The Great Inflation" his take was that inflation generally was not considered a major problem until it rose into the double-digit area. I maintain the manipulation of data to artificially lower the official rate of inflation feeds into the illusion of economic stability. This helps both politicians and central banks sell the idea that inflation is not and will not become a problem. This false information is then used by individuals to plan and make decisions concerning their investments and retirement needs. I further contend that inflation would be much greater if more money was flowing into tangible goods rather than paper investments and promises. For proof as to the real cost of inflation just look at the surging replacement cost resulting from recent storms and natural disasters. Beware, if you are taking the CPI numbers being reported to heart you will pay dearly in the coming years.
 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, May 16, 2021

Dollar's Demise And Doom Predictions Are "Over Hyped"

A lot of people including Americans have come to the conclusion the dollar is about to collapse. Predictions of the dollar's demise are likely premature and overblown. Recently a combination of factors has caused people to become concerned about storing their wealth in the dollar. This has created huge interest in both precious metals and cryptocurrencies. Several things are driving the trend to diminish the dollar and other fiat currencies. One is the idea governments have targeted cash and wish to move us towards a "cashless" society where they control our every move. Another is rooted in the idea inflation is about to raise its ugly head as currencies are debased. 

The Sounding Line recently ran an article about how Stanley Druckenmiller, who made his name on highly successful currency trades including ‘breaking’ the Bank of England, says that he expects the U.S. Dollar to lose reserve currency status within 15 years due to a “totally inappropriate” combination of radical monetary and fiscal stimulus. Many people agree with him, the big question is how soon a major adjustment will take place. Clearly, 15 years is not tomorrow and it is difficult to look out that far. 

I contend that currencies have been trading in a hyper-manipulated state for several years. Fiat money tends to create a shelter from volatility. This is because once wealth is placed into this rather closed system, it tends to remain there. After all, laws and rules discourage it from breaking free. It is the coordinated collusion of the major central banks that have allowed this charade to exist. The fact it has not been recognized or acknowledged does not alter or guarantee the system will continue. The failure or major repricing of any of the world's four major reserve currencies will destroy the myth that major currencies are immune to the fate that has haunted fiat money throughout history.  

Over the years countries have become very adept at coordinating economic policy, currency swaps are only one of the tools they use, another has been to invest in stocks. This means over the last few years central bankers have developed more tools to manipulate currencies and keep them trading in a narrow range that will not rock the boat. When the dollar began to soar back in late 2014, fear began to rise and concerns grew about the stress it was causing in countries that owed a great deal of debt that would have to be paid back in dollars rather than their own currency. This allowed Fed Chairman Powell to pursue a course that weakened the dollar and in doing so the Fed propped up markets across the world.

Central Bank Balances Have Exploded
The view the dollar will rapidly decline in value is based on the view that when a nation granting a fiat currency is unable to control its budgets its currency suffers. Like many Americans, I have railed against our growing debt and questioned whether it would destroy the dollar, however, when looking at the miserable alternative currencies before us the dollar is without a doubt king.

History shows huge currency fluctuations tend to destabilize markets. The one thing the global economy doesn't need right now with all the uncertainty that is currently floating around is an unstable currency market. We must remember that in our modern financial system, capital can sneak and flow out of the country faster than its government can create new ways to bolster the currency.

As far as the idea that China and its cohorts will succeed in destroying  the dollar by reducing their holdings of U.S. Treasuries in order to support the yuan, their ability to carry out such a scheme is questionable. We must remember the world currency market is a complicated place full of paths that fall away or come back on themselves and many of the tools used by markets are like a double-edged sword that cut both ways. China will find that if the dollar falls much they will hear more calls to place duties and tariffs on their exports to America in an effort to reduce the trade deficit.

Currency Swaps Creates Illusion Of Stability

Refrain from calling me Captain Obvious when declaring that currencies are trading in a false paradigm and investors should get ready for a rude awakening when currency values shift. A dam has been built to protect market stability but pressure is building and when it breaks it will wreak major damage. Part of this is constructed upon the fallacy many investors have been given, and accepted, the notion that a major currency cannot fail or collapse. This fallacy will only become more apparent as concern over the future of both the yen and the euro becomes more of an issue. Both these currencies have major problems going forward. While people point to the fact that behind the dollar America stands with a rapidly growing national debt it is nothing compared to the issues Japan and the Euro-zone face.

The fact countries and areas face different growth paths is a problem that has haunted currency unions for centuries. Competitiveness and productivity developing at different paces lead to a shifting of wealth and large imbalances in growth among the members of a currency union. When the dollar union of the U.S. threatened to fall apart during the Great Depression because of the varying economic conditions and unequal potential apparent between states, the federal government found it necessary to enact federal income transfers from prosperous states to aid ailing ones. The federal budget rapidly increased and this practice of income transfers from one state to another to bind the states together as a union became permanently embedded in the American system.

While in the United States a no-bailout policy of crisis-hit states that had been enacted decades ago remains, our "inter-system wealth transfers" has contributed that "special something" the Euro-zone lacks. Inequality has a way of growing and must be addressed early. After a certain point, it becomes too late to implement a system that transfers wealth from the most prosperous to the most needy regions of the economy because some people feel cheated and others resentful. 

The bigger a debt problem and inequality is allowed to grow the more people and institutions suffer when they become the victims of a default. Greece has fallen and continues to suffer the consequences of this while much bigger countries like Italy and Spain are teetering on the brink. During the last several years the question of how to exit the Euro-zone monetary union and the euro has become an important economic issue. Uncertainty and fear relating to its costs tend to discourage political leaders from taking the risk and decisive steps towards an exit but if one or more sizeable countries bolt from the shelter of the euro or the Euro-zone the currency could quickly unravel. 

As stated earlier in this article, the other major fiat currencies stand as miserable alternatives to the dollar. A major cause of the Euro-zone problem is growing inequality among its members. This is exacerbated by the lack of system-wide bank protection which causes money and wealth to flee the weaker countries and their failing banks. These problems give credence to the possibility that the euro is on its way to the dustbin. It could be argued that the reason the euro has fared so well recently is that investors have sold dollars and bought euros to buy assets in the EU because prices are so high in the US. Buying "cheap assets" in the EU does not translate into the idea America is rapidly falling apart or that the EU has suddenly resolved any of its many problems, it merely says American assets are way overvalued.

Japan faces an entirely different problem while its national debt is an issue for the central banks that issue both currencies. Japan's debt is massive and the country faces a demographic crisis that leaves it forced to support a population comprised of citizens far too old to work. This is a reason to think the yen will fail at some point and if they do it is very likely that in our modern era, where wealth leaps across borders at the push of a button, its death will be fast, and swift. For decades Japan has benefited greatly from China's growth but that may come to an end.

We must not underestimate the advantage the dollar has as the world's reserve currency or the size of debt floating across the globe comprised of dollar based-agreements. This means when all is said and done, people and companies must buy dollars to settle these debts. If the dollar proves victorious in the currency wars and is indeed the last major currency standing the people of America will reap the benefits of a game well played or just plain luck.


Footnote;  If you have read the above article in its entirety I urge you to not nitpick or respond with a knee-jerk reaction. To say this is a complex issue is an understatement and I would be interested in your thoughts. I recognize those interested in pursuing a New World Order will gladly throw any country under the bus if it promotes their agenda. Still, regardless of the games being played in the background, shifting currency values remain are a big deal.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Wednesday, May 12, 2021

America's Housing Future Remains Murky At Best (Part-1)

The housing market in America is not one but many markets that generally share a few common threads. In America, the government, coupled with a slew of builder and Realtor associations control the housing narrative. Housing prices in Canada have been on fire for years now we are seeing this type of buying frenzy spreading to America.  This has allowed some buyers to ignore the reality that soaring lumber prices over the past 12 months have caused the price of an average new single-family home to rise by $35,872, according to the National Association of Home Builders. 

The two questions that loom large are, who is buying these houses and where are they coming up with the cash to make such offers? Part of this is driven by the government continuing to cloak itself in the guise of being a good and kind friend to first-time buyers and helping them buy homes. This has helped move many a buyer into a home they can't afford, cannot take care of, or simply don't need. The long-term ramifications of such policies have destroyed many lives by putting people under tremendous financial pressure and taken its toll on neighborhoods across America. 

Buyers And Sellers Should Beware
This buying frenzy has brought a lot of money into housing with the promise of weaseling out a profit. This means the housing sector is in some ways begun to mimic the auto sector with a "Buy here, Pay here" group opening on every corner. It has also created a massive industry where houses are bought to "flip," This generally means buyers put a few dollars into glossing over flaws and place the house back on the market at a much higher price looking for a gullible buyer that doesn't understand the poor product beneath the glitter.

One trend that has grown rapidly is the "Cash for Keys" market where houses are sold to people with little money down. These deals are often structured more like a lease with an option to buy with a contract that includes a great deal of small print tilted completely in the seller's favor. The means they sell you a house that is overpriced, milk everything they can out of the buyer, and wait to take it back so they can start the scheme all over again. Common sense dictates that to maximize profits they must really be hammering any foolish buyer willing to go down this path.

Just yesterday a woman and her son that had lived in an apartment at my complex for eight years moved back in after several months in one of these houses. She described the four months in the house as a "horrible ordeal." This includes things like, unexpectedly large utility bills as well as receiving estimates for needed repairs that shook her to her core. Maintenance costs can be substantial and something the average person leasing never has to deal with because they are usually included in the rent.

The argument that the "housing game" is a racket and moves on the promise of "big money" is highlighted by several facts. For those accepting this argument, in some ways, this can be linked to the World Economic Forum's 2030 agenda that states in 2030 you will own nothing and be happy. In the piece below, Krystal Ball of the Rising explains why the housing market is booming for those in the upper-middle class. She opines what it means for costs of homes in the future. Seven minutes into this YouTube video ( starts a rant, ending with, "however this ends up ordinary people are going to get screwed."

Many of the messages being promoted as common knowledge do not pass serious scrutiny. As I wrote this post I tried to do a bit of additional research to supplement what I know as a contractor and apartment owner. What I found was more like a pack of lies and half-truths spun to fit an agenda. Those of us in the trenches and with our boots on the ground often see things from a different perspective than what is being presented by the media.

An interesting piece by Emma Diehl ( of the blog points out that in the U.S., there are over 2 million active real estate licensees and 1.3 million Realtors®, or real estate licensees who’ve taken an extra step to become certified members of the National Association of Realtors (NAR). This means, some agents may sell a single house per year for their friend, while others such as Ben Caballero, have built empires to facilitate thousands of sales annually using sophisticated tech systems. 

In 2013, CareerBliss announced that being a real estate agent is the single most satisfying job a person could have. This led many people into this line of work. The fact is, most realtors are hard-pressed to make a decent living. This is something we are seldom told and supports the idea much of what we are told about the housing sector is hype and pure bunk. This is supported by the numbers put out by Statista which reported there were 683 thousand houses sold in the United States in 2019. This is the largest figure since 2008 but when divided by the number of real estate licensees does not mean multiple sales for each.

While the market has responded to the housing needs of higher-income households, trends suggest a growing inability or desire to supply housing that is affordable for middle and working-class people. It appears developers have little interest in, or they simply can't afford to add anything but luxury units. It should be noted that at the same time many houses in America sit empty or underutilized and we are hearing about a lack of new listings. I attribute this to sellers holding units off the market because they think prices will rise, they owe more for the house than they can get, or they fear the selling process will be complicated.

Many economists may use housing starts as an indicator of the health of the economy but such numbers are only a small part of a much larger picture. This number reflects many things other than just the number of new houses under construction or started in a given period. The data is generally divided into three categories: single-family houses, townhouses or small condos, and apartment buildings with five or more units. Still more important than just the number of units being built and the type is who is buying these units and why.

Affordability Is A Growing Issue
While people talk about the cost of buying a home more attention should be directed towards the ability of the buyer to maintain the home after they purchase it. Another factor looming large in this sector of the economy centers on affordability. When it comes to affordability, much depends on which part of the country you live but in many coastal and popular areas prices remain high. Even with current rates by the time you add in rising real estate taxes and other costs new homes are expensive.  

Not only are new home prices are on the rise but so are real estate taxes and other fees. There is nothing inexpensive about a new home. Sadly, even the construction is often suspect, while code enforcement has increased, many of the items used in new construction no longer outlive the mortgage a buyer takes on. Whether replacing a door after just a few years or windows, it seems everything is expensive and nothing matches the original design. My house is over a hundred years old and still has the same doors and windows. How many homes built thirty years ago support this claim, enough said. 

While the number of permits and building starts give some indication on the direction of housing, this is a complicated and this fickle market that is subject to attitudes and economic factors which can change on a dime. Adding to the recent discussion are claims of people buying homes away from big cities in an effort to escape growing violence and the effects of covid-19, this is interlaced with stories about surging gun sales.

New Construction Is Still Below 2008 Levels

The chart to the right shows that new construction is still below 2008 levels. Much of the new construction has been in apartments and not single-family dwellings. In much of the country, housing units are being built using cheap money flowing from the Fed and Wall Street under the idea that if it is built "they will come."

Home-ownership, a large part of the America dream, has been in decline. It could be argued that demographics are not greatly supportive of higher prices, it is also difficult to ignore the fact that when people "double-up" fewer homes are needed. This adds credence to the argument that if prices rise it most likely will be as a result of inflation. Today, huge discrepancies exist in the cost of housing in the various markets across America and while price variations are not uncommon they should be seen as a red flag and reason for caution.  

While many people claim the formation of new households and pent-up demand drives this construction I beg to differ. I contend it is a combination of too much money looking for a safe place to hide. Unnoticed by many Americans is how money from Wall Street has entered this arena and is pushing out the average American. One thing is certain that when inflation raises its ugly head and interest rates increase, housing construction will suffer. The intention of this post is to dispel and explore some of the myths and trends surrounding the future of housing while causing people to think about this subject. Hopefully, it has added some clarity to the discussion.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Saturday, May 8, 2021

The Inflation Monster Has Been Unleashed

The monster known as inflation has been unleashed upon the world and will not easily retreat into the night. This is reflected in soaring commodity and housing prices. Due to the stupid and self-serving policies of the Fed, we are about to experience a massive shift in the way we live. Bubbling up to the surface is also the recognition the Fed has played a major role in pushing inequality higher. This means that inflation is about to devour the purchasing power of our income and the savings of those that have worked hard and saved over the years.

Over the months we have watched Fed Chairman Jerome Powell time and time again cut rates and increase the Fed's balance sheet. This has hurt savers, forced investors into risky investments in search of yield, damaged the dollar, encouraged politicians to spend like drunken sailors, and increased inequality. The greatest wealth transfer in history has already begun and the next crisis will only accelerate the process. Sadly, the same policies that dump huge money into larger businesses because it is an easier and faster way to bolster the economy give these concerns a huge advantage over their smaller competitors.

For decades the American people have watched their incomes lag behind the cost of living. To make matters worse, the official numbers of the so-called Consumer Price Index (CPI) have been rigged to understate inflation and not to reflect the true impact it was having on our lives. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This has skewed expectations and led many people to think inflation is not something they need to worry about.

While many workers are chilling at home or working reduced hours due to covid-19 lock-downs many are paying little attention to the huge number of job opportunities that are vanishing every day. Jobs are being eliminated at an alarming rate and the soaring wages businesses must pay to get people to work is adding a whole new element to this situation. It encourages businesses to bring in machines that reduce the need for human workers. Those putting a friendly face on this calling it "creative destruction" may someday look back at the problems created by jobs vanishing with huge regret. Millions of small businesses being decimated by Fed policies that favor huge companies coupled with a surge in automation bodes poorly for small businesses and those looking for work.

Government Transfer Of Payments Has Soared

A large part of our dilemma centers around the large number of Americans that have become dependent on the government. To put this into context, the  transfer of payments has been rising for decades but the covid-19 crisis has allowed it to explode. During the 50s and 60s, it was around 7% for a short period in the mid-70s, and following the 2008 financial crisis, it hit the high teens. As the chart on the right indicates this is far above any intervention we have experienced in the past. This is why in this bizarre economy nobody should consider the GDP as an indicator of our economic health.   

Massive liquidity injections and low-interest rates may temporarily mask a multitude of sins but they are not a long-term solution. While many investors talk about how they drive the economy and markets ever higher their correlation to healthy growth is very weak. Japan is proof that low-interest rates do not guarantee a booming economy. The current low rates combined with our massive government deficit are creating a false economy and at the same time baking in a higher overall cost structure for goods and services.  

Central banks across the world continue to claim the lack of inflation is the key force driving their QE policy and permitting it to continue. The moment inflation begins to take root much of their flexibility is lost, that is why they are now pushing the idea what we are seeing is transitory. They would be wise to remember that inflation is not contained to manufactured consumer goods but can also take root in the area of fees, tolls, and taxes. People tend to forget just how much of government spending is done on the local and state level where simply printing more money is not an option for eliminating revenue shortfalls. This translates into a slew of revenue-driven schemes being cobbled together that will soon drive up the cost of living.

It's Kinda Like This
We should remember that inflation hits those on the middle and lowest end of the economic spectrum hardest, and the reality is this means over 90% of the population will suffer from its impact. Years ago President Eisenhower warned the American people about the Industrial Military Complex, but nobody warned us of an even more evil alliance that I call the "Financial-Political Complex." This unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position. Following the 2008 global crisis, the authorities acting primarily to prop up governments and the economy took actions to save the financial system by bringing big banks deeper into the fold. The policies put forth by those in charge of this ill-conceived force are centered on promoting what is good for them and not the people or the nation. 


For over a decade the actions of the Financial-Political Complex have destroyed true price discovery and increased inequality. A huge factor in allowing the world to move forward following the 2008 financial crisis is the massive growth in the money supply. The explosion in debt and credit has caused the financial sector to become a far bigger part of our economy than it should be. History shows that inflation raises its ugly head as currencies are debased. A good deal of the speculation driving commodities today is related to predictions the dollar is about to collapse. Due to the fact, none of the four major currencies are anything to brag about, such predictions are likely premature and overblown. 


Still, this is driving the renewed interest in both precious metals and cryptocurrencies. Another factor causing some people to distance themselves from fiat currencies is the idea governments have targeted cash and wish to move us towards a "cashless" society where they control our every move. Today's lower yields are part of a greater conundrum created by the reality of too much freshly printed money floating around and people needing someplace to stash it. Inflation can stem from a growing lack of faith in a currency, or all currencies, rather than just a lack of available goods. As inflation takes root the goods available for sale often contracts as sellers retreat from the market awaiting higher prices which creates a self-feeding loop. This often causes governments to create schemes to halt rising prices such as rent freezes that only exacerbate the situation.

In the past, I have warned the financial system is not the economy even though many people do not recognize the distinction. This means the gigantic efforts by the world's central banks and governments to essentially "bail-out" both will prove somewhat ineffective. While Covid-19 has become the catalyst for a major reset of both the financial sector and the Main Street economy, the landscape of both may be dramatically different when the dust settles. Anyone who does not view how things have changed since governments have made covid-19 into a watershed event is oblivious to the world around them

We should make a real effort to remember to mind the gap between events appearing on the radar and when they actually impact day-to-day life. There is such a thing as lag-time, everything is not immediate in our fast-moving world, some events take time to play out. The covid-19 crisis is greatly complicated because we have no real idea of how long it will persist. Hints have been made, possibly to ready the population, that this could continue for years. If someone is suspicious by nature they might think much of what we are seeing had been planned. 


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Wednesday, May 5, 2021

Placing Energy In A Battery Results In A Loss Of Power

Anyone that thinks we can simply store huge amounts of energy in large banks of batteries to use at any time has lost touch with reality. The brave new world of energy storage may not prove to be all it is cracked up to be. At this point, and for the foreseeable future storing the power we need in batteries is just another part of the "green delusion" that has infected society.  We seldom think about it but the energy we put into a battery is not what we get out. There is a loss of energy in the transfer and during the time it is stored. 

An article published on the naked years ago states, not all of the energy which you use to charge a battery will come out of the battery in the end. That remains true today. If you look at the efficiency of charging standard, nickel cadmium, or nickel metal hydride battery, the efficiency is about 60 to 70%, so you're wasting 30 or 40% of the energy you're putting into the battery itself.

If you feel that a battery while it is being charged you will find it gets warm. This indicates energy is being wasted. You're also wasting some more energy in the charger because the "transfer" is not 100% efficient either. So, you might be talking about half the energy you're using actually ending up in that battery. While 60% efficiency doesn't sound very good, it's far, far better than what is achieved in a throw-away battery, they are often said to be only 1 or 2% efficient. That's because you've got to get materials to make the battery, you've got to refine them, and you've got to put them all into a case.

It also seems that the amount of charge already in a battery affects charge efficiency. With the battery at half charge or less, the charge efficiency may be over 90%, this drops to nearer 60% when the battery is above 80% charged. Also, it has been found that if a battery is only partially charged, efficiency may be reduced with each charge. This leads to the issue of a battery's life expectancy which is a whole separate matter but still very important when it comes to its potential in addressing our energy problems.

Unfortunately, the charge/discharge efficiency of a battery tells us next to nothing about the real efficiency, because we have to take into consideration where the energy is most likely to come from, and how efficient it is to convert our starting fuel into electricity. The most efficient natural gas generator, the GE H series gas turbine, is 60% efficient at converting gas into energy.

Battery Charge/Discharge Efficiency
Li-ion 80% - 90%
Pb-Acid 50% - 92%
NiMH 66%
Table 1: Battery efficiencies [1-3]

Simply put, the whole process of placing power in a battery will result in a loss of energy. In truth, it is difficult to find solid information about how efficient batteries really are. Adding to the confusion is the fact that there are many different ways to calculate efficiency, and that there are many factors that can be overlooked. 

The efficiency of a battery can be calculated as the amount of power discharged by the battery divided by the amount of power delivered to the battery. This takes into account the loss of energy to heat, which warms up the battery. The charge-discharge efficiencies of various batteries vary greatly. Li-ion efficiencies are extremely high, Pb-acid efficiencies have a huge range, and NiMH efficiencies are rather low.

However, there are many confounding variables other than the charge/discharge efficiency that must be considered when comparing different battery types. For instance, the Li-Ion batteries have a much higher energy density than Pb-Acid batteries, and slightly more than NiMH batteries. This means that for the same weight of batteries, the Li-Ion batteries will be able to produce much more energy, which is a big factor in making car batteries. 

Also, there is the issue of what materials are needed to make the battery and if disposing of it, in the end, is harmful to the environment. Another factor that we have to consider, is that these batteries all depend on a source of energy to be charged and even the temperature is important. When making calculations, we often assume these all optimal and we are using the most efficient way to get electricity, if not, we might see a significant drop in what is achieved. 

Global warming and climate change is considered an increasingly pressing problem by many people and a big "go green" movement is in full swing. To tackle this problem, researchers around the world are constantly looking for new technologies that will help minimize the effects of global warming, such as reducing energy consumption, facilitating the transition to renewables, and how better to store energy. 

While this may be viewed as only a layman's opinion on a complicated subject, it is rooted in reality. It appears an often overlooked but obvious fact is that society is not going to achieve utopia any time soon by rushing to store energy in batteries rather than using it directly from its source. While progress is being made in how to better store energy it does not seem a silver bullet in our answer in achieving environmental bliss. We might better consider how better to use the energy we generate at the time it is produced and by simply cutting waste.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, May 2, 2021

Trade Deficit Again Growing, Now It's Bigger Than Ever

The trade deficit with China continues to weaken America and strengthen our rival. For all the ruckus it created, the trade war failed to bring down the trade deficit. Even while unusual circumstances continue to cloud the picture it appears that America's trade picture is in worse shape today than when it started. This is evidenced by the number of container ships from Asia lined up at American ports. The trade talks started in early 2017 and have dragged on with promises of a deal always around the corner. Looking back, we were told, they were always moving forward or nearing completion but such announcements generally proved premature. 

Today, the trade deficit is growing and is bigger than ever. Those familiar with China and how it negotiates knew the Chinese would never agree to, or more importantly, honor any deal not strongly tilted in their favor. The events that unfolded and overshadowed the trade talks not only surrounded Covid-19 but more importantly how governments and central banks reacted to the pandemic. Here in America, a tsunami of freshly printed money was unleashed upon the masses creating the oddest recession in history. To be blunt, Americans saw their incomes soar while locked away in their homes and unable to attend work. 

This of course resulted in consumers buying goods, many of them imported from China, rather than doing the right thing and paying obligations such as rent or mortgage payments. In fact, our government with little thought to the long-term ramifications, added fuel to this buying binge when it rapidly imposed a moratorium on evictions and foreclosures. This means we should expect the controversy over just how much trade contributes to America's economic growth to again rise as growth slows. Trade between countries is given far too much credit for being a big driver of our economy than it deserves and can actually become a drag.  

The fact is if John needs to buy a wheelbarrow for work it does not matter where it is built. John needs and will buy a wheelbarrow. Where trade does fit into this has to do with what country employs workers to make that wheelbarrow and how much it will cost. While John may save money if the wheelbarrow was produced in a low-wage country trade has more to do with who benefits from commerce and should not be seen as a force driving us forward. 

In many ways, trade should be seen as a way to increase access to a greater variety of goods at a better price but this only works over a long time if it is balanced. A county that constantly enjoys a trade surplus at the expense of its trade partners often reaches a position to exploit the weaker countries and generally does so. Throughout history, trade policies have had massive long-term ramifications on the strength of a nation's economy.

With this in mind, Americans should be concerned the U.S. trade deficit jumped 18.9% in July of 2020 due  to a leap in imports. The trade gap increased to $63.6 billion from $53.5 billion in the prior month. Imports shot up 10.9% while exports advanced 8.1%. Because people tend to forget or brush aside the fact that for years America has imported far more than it exports, this is not good news. 

The increase in both imports and exports was at the time promoted as a good sign saying it pointed to stronger consumer spending at home and increased demand for American-made goods abroad. In the shall we say, excitement, what few people wanted to talk about was that according to Commerce Department this number was notably worse than the expected deficit of $58 billion and is the widest trade deficit since 2008 when Americas pulled back on spending and fell into a funk.

Critics of America's existing trade policy say trade deals over the years have failed to deliver on what they promised. Instead, they have added to environmental problems across the world and exacerbated economic inequality within many economies as manufacturing jobs have been outsourced to low-wage countries. Some activists also claim these deals can curb freedom of speech on the internet and other detractors say it incentivizes currency manipulation.

When viewing the global economy we should consider that much of the "free trade" movement has been fueled by the mega-companies desire for larger markets and greed. The desire of big businesses to both develop and control future rules has caused them to lobby governments into giving up control and becoming subservient to corporate “efficiency.”

The promise that increased trade will create new jobs has turned out to be largely a myth. History has shown that trade agreements with low-wage nations are not the great job creators we have been told. The idea trade is a huge benefit to the masses flows from large multinational companies that have the most to gain. It is difficult to deny that in our modern world these large companies already have more power than most nations and their power continues to grow at an alarming rate.

It would be fair to say that not everyone was a fan of Trump's trade war strategy or that it was well executed. This included many of America's mega-companies that moved production overseas years ago to exploit cheap labor. Several of these mega-companies opposed any policy that would  harm their profits. Putting their interest before America, such companies and their lobbyists mounted a well-funded propaganda campaign against the trade talks based on the idea consumers will be forced to pay higher prices which would hurt the poor.

This Brings Us To The Magnificent Chart Above Which Shows The Growing Deficit

Trade is not a big driver of the economy as often claimed, instead, it can greatly weaken a country sapping its strength. Trade benefits multinational companies. The money they wield has hijacked the conversation about how much benefit trade creates. I contend that trade shifts growth and jobs from one country to another rather than simply adding to growth in a substantial way. In many ways, the global economy has become an ill-regulated business model tilted to favor big businesses and giant conglomerates. This translates into the companies and their owners or shareholders benefiting far more than the economy in general. It is not difficult to make the argument this has been harmful to the smaller domestic companies that generate many jobs here in America, Apple is a prime example of this.

Circling back to the example of John and his wheelbarrow used at the beginning of this article, it is wise to remember that the economic cycle is rooted in reality. 

John only needs so many wheelbarrows, when he has enough, he stops buying them until they are worn out and he needs more. Low-interest rates, super sales, and easy credit can only stimulate growth in these sales so much, and often it is at the cost of future sales.  

As the economy slows and trade tensions rise expect more fingers to point at sagging trade as the culprit. The fact is, no matter what we have been told by those with an agenda, trade between countries is only a win-win if it is balanced. Also, it is not a big factor in producing quality and sustainable economic growth. Still, we hear the narrative spun by politicians playing the "fear card" with statements such as "We can’t let countries like China write the rules of the global economy.” This implies we will lose the power to control our own fate if we stand firm and refuse to embrace the wishes of large companies.

I am not alone in recognizing China's reliance on an age-old and tested Asian negotiation technique, call it a tactic or style if you like, but it is deeply rooted in wearing down your opponent over time. China intends to exploit the advantages a state-driven economy has over free enterprise while expanding its military armed with a slew of modern cutting-edge weapons. China is a state-run economy based on a business model that is geared to expand by crushing the competition. Subsidizing those companies working within its system in a multitude of ways helps it achieve this goal. China's practice of exporting goods at slightly below cost in exchange for manufacturing jobs is not stupid, it's predatory and we are its prey.


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Saturday, May 1, 2021

Tesla, Revisiting The Issue Of What It's Worth

Now that Tesla's most recent numbers are out it may be time to revisit what the company is worth. While the numbers came in solid and better than some analysts expected they did not blow the doors off the hinges and leave investors in awe. Lurking in the shadows are concerns at just how honest Tesla's numbers really are. History has shown time and time again that markets can hide from reality for only so long. Tesla's stock price continues to hang on but continuing signs of the company's challenging path forward continue to leak out. 

With over 100 different electric cars expected to hit the market by 2025, it is difficult for a realist to envision Tesla being able to remain in the position it is today. The rapid approach of real competition into the rather small Electric Vehicle market is occurring at a time when auto sales may be on the wane. This could translate into tight profit margins and a situation similar to what we witnessed in 2008 when the automobile industry fell off a cliff resulting in a government bailout of GM and Chrysler.  

Needless to say, a great number of factors influence how a stock is valued. A huge part of the sugar high allowing Tesla's valuation continues to be that climate change exists and the idea electric vehicles are a big part of the answer to halting it. It could be said that Elon Musk is the "Pied Piper" of  EVs leading society down a path that may eventually disappoint even his most loyal followers. Musk appears to have a great deal riding on government  favors paving Tesla's way forward with generous subsidies. Whether EVs live up to their reputation of being environmentally friendly is a matter still being debated and many people have come to the conclusion that EVs do not live up to their promise. 

Several other issues haunt Tesla, one has to do with China. A few days ago the video of a protestor at the Shanghai Auto Show "went viral" after he stood on top of a Tesla vehicle and decrying the car's brakes. Shortly after the incident, a CCTV broadcaster has called for an investigation into Tesla's brake failures, some people are taking this as a sign China's love affair with Elon musk is coming to an end.

Tesla Has Made China A Key Part Of Its Future

This could have huge ramifications for the future of  both Musk and Tesla because of the huge investment the company has made in China. The notion that Chinese state media has turned negative and is looking for answers underscores the idea China may have initially embraced Tesla in order to steal its technology.  

Also, issues concerning the overall quality of Tesla's cars, or lack of it, have garnered a great deal of attention. While this has been brushed aside by the majority of Tesla lovers, Tesla’s US made vehicles are scoring in the cellar when it comes to quality. As Electrec reported earlier this year, Tesla ranked lowest on J.D. Power 2020 quality study, with 250 problems per 100 cars. The quality survey was based on roughly 1,250 Tesla owners with most of the respondents being the proud owners of a Model 3.

Needless to say, much of the "aura" surrounding Tesla continues to flow from Musk himself. It appears many people view this man as almost god-like, a genius with superman qualities. Somehow they are able to overlook the fact the words coming out of his mouth often conflict with reality. Musk skeptics such as myself, are appalled at how so much of his empire has been grown from a foundation of government subsidies.  

Government support is a major theme of all Elon Musk's companies, and without it, none of them would exist. Woven into this is the issue of "corporate incest" and Tesla's acquisition of ailing SolarCity in an all-stock $2.6 billion merger. At the time Musk owned 22% of SolarCity which was founded by his cousins. The merger was promoted on the idea that Tesla's mission since its inception was part of Elon Musk's overall "Secret Tesla Motors Master Plan" to expedite the world's transition to sustainable energy and away from a fossil fuel economy.

Tesla's valuation remains a bit over the moon considering on Friday it closed with the stock at a whopping P/E ratio of 710 times earnings and a market cap of over 649.8 billion dollars. Those of us without a great love for Tesla or Elon Musk see this as the poster child of absurdity. By comparison, Volkswagen, which sold over 10 million vehicles last year has a market cap of $79 billion and auto giant Toyota around $246 billion.

While valued as the most valuable car company in the world, recent earning for Tesla indicates its profits were based on $518 mm of regulatory credit sales and a $101 positive gain from its Bitcoin position and sales. Strip these out and it seems that Tesla lost $181mm selling cars. Still, it is difficult to deny another major factor keeping Tesla aloft is the promise of a shit load of government money flowing from Biden's new $2 trillion infrastructure package. Many Tesla enthusiasts are counting on this transfer of wealth to move the company forward. 

While Tesla sported a valuable advantage by being the first big player in the electric vehicle (EV) category it is not protected by a great number of patents. The big advantage Tesla has enjoyed with other manufacturers being slow to release EV cars is not expected to last. Much of Tesla's technology is easy to replicate and most auto manufacturers have lines of EVs finally rolling off their production lines this year and next. Many of these cars will come at far cheaper prices and Tesla's competitors will also be offering their customers service shops and trade-ins. 

Ford's New F-150 Will Challenge Tesla
This means Tesla’s first mover advantage may vanish overnight. A great deal will depend on how Tesla's new pickup truck fairs against such rivals as Ford's new electric F-150. Any sign of failure on the part of Tesla could result in a major fall from grace and bring into question Tesla's staying power in the industry.

Ironically up until now, Musk's greatest strength may have been that so many investors doubt his ability to perform. This means that a slew of impatient clowns have shorted Tesla stock in search of quick profits. These bearish investors have continually shot themselves in the foot by constantly finding reasons to rush to the exits in short-covering panics. This not only invariably brings the share price back up but has created a self-feeding loop accounting for much of the companies success and oversized profile in the automobile sector.   

When all is said and done, the 64,000 dollar question remains, what is Tesla worth? Still more important is, what will it be worth in the future. Sadly, this article is not about to predict a number considering Elon Musk has proved he has more lives than a cat. Time and time again reports of his demise have proven to be premature. It seems every week creates a slew of new articles about Tesla and what is occurring in the highly speculated electric vehicle sector. Like many people that are predisposed to discount hype from the media, you should color me skeptical about how well Tesla will deal with the coming onslaught of competition. 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)