Latest blog posts from Martin Armstrong dated November 3-4, 2014

Click here for Martin’s blog post on oil.

Click here for Martin’s blog post on gold.

Click here for Martin’s blog post on the DOW.

Groovygirl has been busy working her long-term investment plan. She hopes you are doing the same. The big wave seems to be a little slower to form. Martin says after 2015 (2016-2018). Goods news is you have more time to prepare. Bad news is it seems it will be an even bigger, more volatile wave.

groovygirl is voting today.

Yes, gold is getting hammered.

Yep, gold is getting hammered, but we are still in the long term trend channel upward.

The more interesting thing is the continued denial by the powers-that-be that we “out of a recession”. Click here. This chart tells a different story. This chart says someone moved the Middle Class’s cheese and didn’t tell them about it. Another problem: that chart is the norm for first world countries, not just the US. And here is a short list of reasons.

Side note: groovygirl doesn’t trade gold anymore. She buys at the lows and holds long-term. The other investment class she is exploring is real estate. Interesting stuff. Looks like interest rates will start to go up in about 12 months or so. Not sure if they will do that before the election or not.  They may “test the waters” before the election to see the impact on the market.

Higher interest rates have an impact on new buys, of course, but the real killer is refinances in commercial real estate. That’s when rates go up, but we may not see the true consequences for a few years in commercial and real estate investing (which is where the real money is in real estate).

If they don’t move rates higher, we still have this same problem from the last turn down:

And as gg said before, it doesn’t matter how low interest rates are, if you have no job or only part-time work, or in commercial real estate, low revenue; you can’t afford any monthly payment or save for a future down payment. Period.

It’s all a very interesting show to watch if nothing else.

John Williams with shadowstats.com

Once again, John Williams with shadowstats.com gives us the real stats. Here is his free summary:

No. 646: Second-Quarter 2014 GDP, GDP Benchmark Revisions, Household Income

• Second-Quarter GDP Surge Not Credible, Significant Downside Revisions Remain in Offing
• Actual Economic Activity Remains in Serious Trouble
• Historical GDP Revised Lower Where Better Data Were Available and Revised Higher Where Better Numbers Were Not

I am sure we will have a “revision” after the November elections for 2nd and 3rd quarter GDP.

Repeat after groovygirl…

“There is no inflation. There is no inflation.”

Click here for a very telling chart from The Burning Platform. But if you have been paying bills for the last 14 years, you already knew this 🙂

The really bad news for the rest of the world is that their currencies are tied to the USdollar, and the dollar has deflated against those global currencies. The rest of the world’s inflation is much worse than ours. Might be a reason for all those “revolutions” and “riots” and negative sentiment toward the US.

John Williams with shadowstats.com

Here is the free summary from John Williams:

– Strongest Recession Signal Since Eve of the Economic Collapse
– Real Retail Sales on Track for 4% Annualized Plunge in First-Quarter 2014
– Housing Starts on Track for 34% Annualized Plunge in First-Quarter 2014
– For Second Month, Unadjusted Monthly 0.4% CPI Inflation Was Squashed to 0.1% by Seasonal Adjustments
– February Annual Inflation: 1.1% (CPI-U), 1.0% (CPI-W), 8.8% (ShadowStats)
– Real Earnings Down 0.2% in February

Antifragile: gg’s thoughts #2

As you may know, I am reading Antifragile. So, this book has groovygirl thinking: how can gg make her investments more antifragile, not just robust.

So, looking at real estate investments, which is what gg is studying for her next long-term investment cycle (after or along side gold/silver). This is what gg is thinking about.

Antifragile means that the investment becomes stronger with adversity and stress, not just surviving.

Antifragile is about options. Groovygirl loves options, because it means she doesn’t have to be right about where the market is going.

Analyzing a real estate investment with little or no debt with positive cash flow.

Current advantages:

Tax advantages: depending on company structure, little to no taxes on cashflow income. Real estate is still one of the only investment incomes not touched by the government’s tax increases.

Even a total cash deal, with no debt, can produce returns of 5%-20%, tax-free. (Debt can increase the tax advantages, but reduce actual cash flow and possibly reduce options in the future.)

Past advantages:

Tax free capital gains, with tax-free cash flow, using large amounts of debt (other people’s money). Now we have a stagnant or negative capital gains and possible negative cash flow with the pressures on large debt deals in the US real estate market. What worked well before (since 1950), may not work in the next 15-20 years.

Future options:

Option #1

Real estate market stays the same as it is now. Little to no gains. High pressure on debt when Fed is not flinging free money at banks.

5-20% tax-free return with no to little capital gains. (gg is using a wide range of return percentages because rents tend to go up and down and each market is its own little world.) All gains are related to cash flow and tax-free. If gg needs to sell, she will get original investment back, no loss.

Option #2

Market advances and grows like it is 2004-2007. All gains are tax deductible if gg moves it into a 1030 exchange and buys more cash flow real estate. gg sells outright because she finds out she hates real estate investing 🙂 and pays a capital gains tax. Benefit: had cashflow returns of 5-20%.

Option #3

Government takes away tax advantages on cash flow from rents on residential or commercial property or both and/or capital gains and losses. gg can sell and get out and move cash into another investment class. gg can sell and carry a note to the buyer, creating a higher positive cash flow from the interest on the loan.

Option #4

Real estate market goes down. This is the one that gg is favoring, since Martin Armstrong has written about the long-term decline in the US real estate market from 2015 thru 2032.

gg can sell outright.  Depending on the structure of the business/investment, gg can take an unlimited loss, if she sells and apply that loss to taxes on other income. (For tax questions, consult a professional. gg is not a tax professional.)

gg can sell and finance a loan to the buyer, creating continued, perhaps higher, cash flow.

gg can continue to collect positive cash flow.

With that cash flow, she can continue to buy more cash flow real estate as prices drop. Ideally, gg will have other income to live on, so this investment will be a wealth generator, not a living income, for several years. But if something unforeseeable should happen, it could be a living income.

Since the investment is debt free, rents going up or down may affect cash flow amount, but will not cause her to be in a negative cash flow position and forced to sell when it doesn’t line up with one of her exit plans (i.e. not profitable).

Since this investment has little or no debt, gg will not be “upside down” on it and have to put cash in just to get out.

gg will never have to worry about the banking system folding. She is her own bank for now. If it does fold, people will either want/have to to rent or need to be financed by someone other than banks (i.e. seller). The government may even create more incentives for real estate investors to pick up slack for a failing banking system and falling real estate market. Although, gg doesn’t count on the government doing things that would make sense 🙂

If and when markets stabilize near the end of the cycle, gg can sell for a tax-advantaged loss and get out or move into another investment cycle. She can finance the investment with low-interest debt (if that is possible) and get cash out, but still have the positive cash flow, without the risk of further falling prices. She can keep everything status quo and let the investment go up (as it will be a new real estate cycle) in value while creating positive cash flow.

Warning: gg is not a financial professional nor does she play one on television. This is not financial advice. She is just writing about what she might do with her own money in an area that interests her. You are responsible for your own money, education, research, and interests. Groovygirl has been studying real estate and real estate investing since 2006. Do not invest in anything without education. And always have several exit plans. Always consult a tax professional, as everyone’s tax liability is personal to their own circumstances. groovygirl is a long-term investor and extremely patience. So her plans reflect that mindset, you may not have that same mindset. That’s fine, it is not for everyone.

John Williams from shadowstats.com

John Williams from shadowstats.com has the real stats.

Here is a free summary:

– Year-to-Year Inflation Rose in November, Despite Weak Monthly Numbers
– November Annual Inflation: 1.2% (CPI-U), 1.1% (CPI-W), 8.8% (ShadowStats)
– Real Retail Sales Gained 0.6% in November; Recession Signal Remained Intact
– Consumers Constrained by Real-Earnings Issues

Another new currency

Click here for an article about a new regional currency in the Middle East (Bahrain, Kuwait, Qatar and Saudi Arabia). It will be pegged to the Dollar and not an internationally traded currency.

Groovygirl suspects that this is an attempt to control national inflation levels caused by the USDollar to prevent or control rebellions in that area. Nothing like high food prices to spark a revolution….

Could be that they are setting this regional currency up now, getting people used to it, and will change the peg as necessary in the future.

The take-away here is that everyone is trying to protect themselves from the eventual destruction of the USDollar.

Another Jim Rogers interview

Boom-Bust on RT interviews Jim Rogers (via zerohedge). Click here. Good interview, Jim starts around 4:30.

Groovygirl just finished Jim Rogers latest book Street Smarts (she got it at the library). She highly recommends it!! Very good. Remember that Jim is a long-term investor. He is always early, and he admits it. There are several fundamental investing practical points worth reading. But pay attention, they are sprinkled throughout the story-telling.

Jim on China’s announcement last week:

10:15 China’s Plenum –
“the Chinese are becoming more and more capitalist”… they are
becoming more and more market focused… as opposed to the US where when
there is a problem “the government decides how to fix it… look at
Obamacare” – “the government says “we will figure out the
solution”… “I much prefer the Chinese system of open markets than the
US with the government dictating everything”

Side musing: make sure you watch the entire Boom-Bust show after Jim Rogers. They discuss very important US housing data regarding foreclosures that in gg’s mind supports Martin Armstrong’s real estate cycle (slight uptick through 2015 and then decline). Housing bubble popped in certain areas and then moved toward the center of the US (takes about 18 months to 3 years for that move). The rise in foreclosures in bubble areas lately signal a renewed decline.

They also discuss two important points. The go-between in the housing market doesn’t have the incentive or know-how to do things in the best interested of the homeowner and the investor. Very important! Until this is fixed, we will continue to have long-term problems in housing, regardless of the huge derivative issue that was not covered in this segment. The mortgage forgiveness act is going to expire at the end of the year. That means that homeowners who have their loans reduced (forgiven) must pay regular earned income tax on the forgiven amount. That’s huge. If someone can’t pay their mortgage, they certainly can’t pay the tax. They will have to walk away. Walking away means empty houses, no income for investors, and continued overall depressed housing prices once the banks put them up for sale. More negative feedback loops in US housing and real estate markets. 

Also, pay close attention to that regular earned income tax on debt forgiveness. It will come up again when the student debt bubble pops. First of all, debt is NOT income, so it should not have a regular earned income tax on it. And since the debt is not paid and will never be paid, I don’t know how anyone can call it income in the first place. The IRS is trying to get some money as they are losing money hand over fist because businesses, banks, and investors can write off their losses (the debt they loaned out for housing) as tax deductible. It is another example of corporations (since they are considered people now) having more “individual rights” than actual individuals.

Government policy determines what people and business will do, either by carrot, stick, or indifference. Jim’s interview was a great illustration about how that works well (in China) and is not working well in, say, the US.

John Williams from shadowstats.com

You pay for the detail, well worth the money, but here is the punch line:

– At An 18-Year Low, 2012 Real Median Household Income Was Below Levels Seen in 1968 through 1974
– 2012 Income Variance Hit Record High,Suggestive of Greater Financial and Economic Crises Ahead
– Systemic Instabilities That Led to 2008 Crisis Still Have to Be Worked Through
– Housing Starts Continued in Renewed Downturn or Stagnation

 

Update on his Hyperinflation Report:

– Fed Is Trapped In the End Game for the U.S. Dollar
– Panic of 2008 Still Is Playing Out
– Hyperinflation Forecast Remains in Place