- "Terrorism Is Really Not That Big A Deal" Harvard Students See Trump Worse Than ISIS
What is more dangerous: President Donald Trump’s rhetoric or ISIS?
Campus Reform’s Cabot Phillips received some curious answers to that question from the hallowed halls of Harvard University, clarifying perspective on student’s mass dissonance in America…
“I think he’s an asshole-in-chief… Terrorism is really not that big of a deal… ISIS is not a threat to everyday life; Trump’s rhetoric and “empowering” people with hateful views is more of a threat.“
- 'Killfie' Nation – India Dominates World's Selfie-Related Deaths
The trend of taking death-defying 'killfies' is taking its toll in a Darwinian sense… on India!
The rise of smartphones and social media has paved the way for selfies to become a popular pastime for young people around the world, but as Statista's Felix Richter notes, sometimes people hunting for the perfect self-portrait get carried away though and put themselves and sometimes others in harm’s way. Tragic as it is, researchers from the United States and India have found that taking selfies in dangerous situations cost at least 127 lives since March 2014.
The researchers scoured the web for news articles reporting selfie-related deaths in an effort to raise awareness and help prevent further injuries or deaths as a consequence of reckless selfie-taking. Ridiculous as it may sound, there are many ways to harm yourself while taking a selfie. The cases found by the researchers include several people falling from great heights, drowning or accidently shooting themselves while taking a selfie with a gun.
Photographers appear to be particularly careless in India where the researchers found the most reports of selfie-related accidents by far.
You will find more statistics at Statista
- Doug Casey Explains Why College Is A Waste of Money
I recently sat down again with Casey Research founder Doug Casey to discuss a troubling trend: the fast-rising cost of a college education. Read our conversation below to see why Doug says relying on – and paying for – today's educational paradigm "makes as much sense as entering a Model T Ford in the 24 Hours of Le Mans"…
Justin: Doug, I recently had an interesting conversation with my sister.
She told me that her financial advisor suggested she start setting aside $500 to $1,000 a month to pay for her son’s college education. That’s because a four-year college education is apparently going to cost between $400,000 and $500,000 18 years from now.
Her advisor clearly arrived at this figure based on how fast college tuition costs have been rising, which is about 6% per year based on my research.
But you have to wonder if the cost can keep rising at this rate. It seems to me that no one will go to college if it’s going to cost a half-million bucks.
What do you make of this trend?
Doug: Well, the first thing—my advice to your sister is to get a new financial advisor. I fear that she’s relying on a complete imbecile. She should fire him immediately, and for a number of reasons.
Number one is his assumption that the trend of higher college costs is going to continue to a totally unaffordable level. In fact, the cost/benefit ratio of going to college is already so out of whack that the whole system has to change radically. A college degree, even now, is of only marginal value; most everybody has one. And things that everybody has are devalued. You’re quite correct that colleges and universities today are dead ducks as businesses. Unless you’re going to learn a trade, like doctoring or lawyering, or you’re going for science, engineering, or math, where you need the formal discipline and where you need lab courses, it’s a total misallocation, even a waste of money to go to college today.
So I applaud the fact that all these colleges and universities are dead men walking, that they’re all going to go bankrupt. They are totally overrun and infested with cultural Marxists and progressives, militant leftists that are propagandizing kids with absolutely the wrong kind of values. It’s astonishing that parents are willing to pay even today’s prices to subject their kids to four years of indoctrination. So I’m glad that they’re all going bankrupt.
Justin: But don’t you need a college education to get ahead in life?
Doug: It’s not necessary to go to college. You’re likely to be corrupted, and indebt yourself like an indentured servant for many years to come. The question is: Do you want an education, or do you just want a piece of paper that says you logged the time in a classroom? These are two different things. Getting an education is strictly a matter of motivation and self-discipline, not paying money to sit in a classroom. If you’ve got half a brain, you realize that you want the knowledge, not the diploma, and there’s no necessary correlation between them. Nobody can “give” you an education; it’s something you must gain for yourself.
Most top universities now have their courses online. You can get an education by listening to these courses. And even when you’re driving your car, you should be playing CDs by The Teaching Company. They have the best professors in the world giving command performance lectures. And you can hear them an unlimited number of times. This is much better than listening to some also-ran drone on, while you may have cut the class, or be half asleep, or not taking good notes.
Technology has changed the whole landscape of education. Its cost is approaching zero, not the stratosphere, as your sister’s advisor seems to think. If the kids insist on going to college and indenturing themselves, as well as cluttering their minds with irrelevancies and false data, then they should only consider, say, Harvard, or very few schools like it. At least there the prestige, and qualifications for admission, are so high that the connections they make may compensate for the many downsides.
And anyway, Ray Kurzweil’s right about the Singularity, in my opinion. And he’s upped the date to when it’s going to occur to 2029, which is only 12 years from now, at which point the whole world will have changed in ways that will change the nature of life itself. So forget about saving to send your kids to college; and that goes double for your grandkids.
Justin: I thought the same thing, Doug.
You see, my sister’s advisor suggested that she and her husband set up a 529 plan, which is basically a tax-friendly way to save money for college. I asked her what would happen to the money if her son didn’t go to college. She said she could use the money to pay her for grandchildren’s college education.
But, like you said, the world is going to be very different 12 years from now. Who knows what it’s going to look like 40 or 50 years from now?
Doug: Over the next generation the world is going to change totally and unrecognizably from the way it is right now. Technological change is compounding at an exponential rate. It’s always been exponential, quite frankly. Ever since the invention of fire. But we’re now in its later stages; it’s like a Saturn rocket taking off, very slowly at first, but constantly accelerating.
It’s going to be fascinating and fantastic to watch what happens over the next 20 years. And relying on, and paying for, today’s educational paradigm makes as much sense as entering a Model T Ford in the 24 Hours of Le Mans.
Justin: I agree 100%. We’re living in very exciting times.
Anyway, thank you for taking the time to speak with me, Doug. It was a pleasure, as always.
Doug: You’re welcome.
* * *
Every month, Doug shares his unique insights in The Casey Report, our flagship publication. If you sign up today, you’ll get complete access to all of our archived content, including recent essays by Doug on the Greater Depression, the migrant crisis, and technology. You’ll also receive specific, actionable advice to help you protect and grow your personal financial empire. You can sign up for a risk-free trial of The Casey Report right here.
- Here Are The States With The Highest Property Taxes
ATTOM Data Solutions has scoured county-level property tax records from across the country to figure out exactly who is getting punished the most on their real estate taxes. To our complete ‘shock’, the resulting map looks eerily similar to the 2016 presidential electoral college map with the liberal bastions of the Northeast and Midwest suffering the highest property tax burdens. Per RealtyTrac:
Average Annual Property Tax was $3,296, an Effective Tax Rate of 1.15 Percent; Highest Effective Tax Rates in New Jersey, Illinois, Texas, New Hampshire, Vermont; Owner-Occupied Properties Register Higher Effective Tax Rates Than Investment Properties
ATTOM Data Solutions, curator of the nation’s largest fused property database, today released a 2016 property tax analysis for more than 84 million U.S. single family homes, which shows that property taxes levied on single family homes in 2016 totaled $277.7 billion, an average of $3,296 per home and an effective tax rate of 1.15 percent.
The report analyzed property tax data collected from county tax assessor offices nationwide at the state, metro and county level along with estimated market values of single family homes calculated using an automated valuation model (AVM). The effective tax rate was the average annual property tax expressed as a percentage of the average estimated market value of homes in each geographic area.
Not surprisingly, residents of New Jersey won the award for highest property taxes of any overall state in the union while Westerchester County, the posh suburb of New York City, won for most expensive local municipality with taxes averaging over $16,000.
Per the chart below, states with the highest effective property tax rates were New Jersey (2.31 percent), Illinois (2.13 percent); Texas (2.06 percent); New Hampshire (2.03 percent); and Vermont (2.02 percent). Other states in the top 10 for highest effective property tax rates were Connecticut (2.00 percent), Pennsylvania (1.89 percent), New York (1.88 percent), Ohio (1.68 percent), and Rhode Island (1.64 percent).
Meanwhile, among the 586 counties with a population of at least 100,000 and at least 10,000 single family homes, nine posted average annual property taxes of more than $10,000…and again, to our complete shock, each one of them is in a deep-blue state: Westchester, Rockland, and Nassau counties in New York; Essex, Bergen, Union and Morris counties in New Jersey; Marin County, California; and Fairfield County, Connecticut.
Perhaps this is why our young snowflakes don’t own homes anymore…their desires to put their Ivy League anthropology degrees to good use in New York City don’t mesh well with the financial realities of implementing their socialist utopias.
- For Sale On The Dark Web: Your Tax Refund And Social Security Number
After death, and taxes, we can now add a third 'certainty' to life – identity theft.
Amid the business of tax season, it's not just accountants that are toiling hard to collect their fees. As Bloomberg reports, tax season is hog heaven for cybercriminals. The thought of all that personal data just sitting around, unmolested in tax documents, inspires a torrent of creepy scammer creativity.
The Krebs on Security blog provided a glimpse earlier this year of how our tax data is bought and sold, and what scammers charge other scammers for our data.
Founder Brian Krebs came across something he hadn’t seen before on the Dark Web: Bulk sales of W-2 forms.
A scammer had phished a tax preparation firm, Krebs discovered, and was offering for sale 3,600 Florida W-2s in this cyber netherworld which, while connected to the everyday web, requires special software or authorization to access.
Bloomberg notes that the fruits of all the successful phishing attempts wind up on the Dark Web.
These offers can look run of the mill, complete with star ratings for sellers. Here is a screenshot showing sellers and their illegal wares, such as W-2s, taken from IBM’s report:
The Dark Web has its own selling language. “Fullz” means complete information on an individual, including, according to the IBM report, “payment card information, address and contact details, and other additional pieces of personally identifiable information, such as Social Security number, a driver’s license number, and any other information sold along with the set.”
An individual’s tax data is far more valuable than their credit card data. Stolen credit card data might sell for $1 or be given away to establish credibility on the Dark Web, said Limor Kessem, executive security adviser of IBM Security. Credit card accounts can be closed or frozen, and thus have a short criminal-shelf life.
“Tax filing information is probably the most premium type of record criminals can buy on the underground,” said Kessem, who has been tracking this world for eight years.
“It goes for $40 or $50, and unlike credit cards, never expires. People can try and get loans in someone’s name, make fake IDs in people’s names, get credit.” And of course, the top target is filing a tax return in someone's name and getting the refund.
With phishing attacks on the rise, Bloomberg suggests a consumer’s best defense is a good offense. One of the simplest, when it comes to tax refund fraud: File your taxes early to beat would-be scammers to the punch.
- What Makes Millennials Disturbingly Different?
Authored by Gordon Long via MATASII,
In stealth fashion millennials are rapidly transforming society.
Something had mysteriously changed during the 2016 US Presidential primaries when an unlikely democratic candidate burst on the national scene with an unquestionable allure for the Millennial generation. How was it that a ‘left wing’ Bernie Sanders, who was of an age that he would be considered as a very old grandfather by this young generation, could draw such rousing support? What was it about this grey haired unknown senator from Vermont who so clearly represented the expectations, aspirations and frustrations of this new ‘coming of age’ generation?
Millennials have silently emerged as a powerful and influential force because of their size and because of how contrasting their beliefs are from versus previous generations including only slightly older Gen-X.
Millennials have surpassed Baby Boomers as the nation’s largest living generation, according to population estimates recently released by the U.S. Census Bureau. Millennials, defined as those ages 18-34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51-69) and Generation X (ages 35-50 in 2015) is projected to pass the Boomers in population by 2028.
Very importantly, the Millennial generation continues to grow as young immigrants expand its ranks which presently account for over 15% of the total.
What Makes Millennials Different?
The Millennial generation grew up during an era of unprecedented changes and shocks which have profoundly influenced their views and choices:
- Millennials are older in household formations when they marry and have children compared to previous generations,
- Millennials have student debt loads that define and significantly frame this generations financial choices,
- Millennials are more educated than any previous generation as defined by percentage with undergraduate and post graduate educational attainments,
- There is a much more foreign born component of the millennial generation at 15%, than any generation going back to the early 1900’s European immigration wave to the US,
- Family is much more important as a result of changes in parenting since roles such as fatherhood have taken on more involvement, youth event participation and inward family cocooning. A 1997 Gallup survey found that 9 in 10 children (a population comprised entirely of Millennials that year) reported high levels of closeness with their parents and were personally happy with that relationship. Their tight relationship with their parents extends to work, where some companies report establishing relationships with parents of their Millennial employees. The Millennials’ close relationships with their parents might be related to the greater time they spent with their parents growing up. According to Pew (2014), hours spent parenting have increased for both fathers and mothers, tripling for fathers since 1985 and increasing by 60 percent for mothers. These increases have been particularly pronounced among college-educated parents, with college-educated mothers increasing their childcare time since the mid-1990s by over 9 hours per week, while less educated mothers increased their childcare time by only over 4 hours per week.
- Millennials are much more pronounced to move to Urban centers versus being interested in Suburban living,
- Millennial are the most technology-centric generation yet, as they came of age in the era of the internet / smart phones and fully embraced social media to change how they communicate and socialize,
- Millennials also came of age during developments that deeply shaped their sense and need for security.
- 911 and the emerging reality of terrorism in the US,
- Iraq and Afghanistan Wars where fellow students fought,
- School shootings across the nation and the security changes required,
- Corporate Downsizing, Right-Sizing and Out-Sourcing which effected their financial security of the family,
- The Millennial generation has a much larger sense of “entitlement” since they were often raised and educated with a sense of “you deserve” versus “you earned”,
- Millennials believe student loans should be forgiven and is one of the reasons Bernie Sanders was so popular,
- Millennials are much more tolerant of others and cultural differences and react strongly to hate speech, threats and racism
- Millennials earn 20% less than Baby Boomers did at their age.
All of these differences are now being felt as the Millennial generation becomes an increasingly larger component of the US economy.
Three Major Economic Ramifications: My Macro Analytics Co-Host Charles Hugh-Smith believes these differences are being witnessed by the following three Economic ramifications:
1. Urban vs. Suburban Living
The Shift:
- Millennials favor foot-traffic urban shopping/entertainment/dining districts,
- Millennials favor streets with high densities of venues, cafes, brew-pubs, etc. which are safe and close to mass transit,
- These urban districts are expanding in small cities, college towns, etc.
- The experience is as important as pricing: Millennials value convenience and a variety of experiences, not just convenience and price.
- Long commutes and suburban shopping malls are not convenient to Millennials
- Home ownership rates are falling due to the very high cost of urban-core housing,
- By choice or necessity Millennials rent rather than buy,
The Economic Ramification:
- Future Single Residential Housing Requirements may be less and housing prices exposed as Baby Boomers leave their homes for Assisted Living or Nursing Homes.
- Boomer wealth is largely tied up in costly homes–who will buy these houses as Boomers sell to downsize/retire?
2. Auto and Light Truck Sales
The Shift:
- Millennials favor Uber and Car-sharing over auto ownership.
- Urban living and avoiding longer commutes reduces the need for auto ownership.
The Economic Ramification:
- This has implications for auto/truck sales and gasoline consumption.
- Can 18M / year of auto sales be maintained?
http://www.zerohedge.com/news/2017-03-04/us-motorist-unwell-miles-driven-suffer-biggest-slowdown-over-2-years
3. Retail Shopping and Retail Commercial Real Estate
The Shift:
- Millennials favor the convenience of online shopping,
- Millennials do not find value in big suburban malls
- Millennials often work a lot of hours and don’t want to waste time commuting/driving to suburban shopping.
- Hard to beat the easy return policy of Zappos and Amazon or the value of free delivery via Amazon prime,
The Economic Ramification:
- The future of the Mall is likely limited as well as many “brick & mortar” retailers.
- America is the most highly over-stored nation in the world. Excess retailing space is a massive future problem
- Amazon has reached critical mass and as Millennials continue to dominate, online procurement and delivery will continue to accelerate.
Three Major Social Ramifications: Though it is too certain to know for certain, indications are that there are a number of social ramifications that can be expected as a result of the advent of the Millennial Generation.
1. Physical and Financial Security
The Shift:
- Millennials place a higher value on physical and financial security as a result of the era they grew up in,
The Social Ramification:
- Millennials will be willing political to sacrifice personal freedoms if it is perceived that it will allow government agencies to better ensure this.
- Security-Surveillance methodologies and technologies will become an increasing larger way of American life.
- Millennials are likely to be “savers” in a much larger way than the last two generations.
2. Government Entitlements
The Shift:
- Millennials overwhelmingly believe student loans are unjust and should be a government entitlement program.
- Existing student loans should be forgiven and paid by the government.
The Social Ramification:
- Candidates that run on a platform of student loan forgiveness will be elected.
- Candidates that run on platforms of Social Security and Medicare means testing will have wide Millennial support.
- Generally, Millennials will be more ‘left leaning’ as demonstrated by Bernie Sanders.
3. Less Materialistic
The Shift:
- Millennials having grown up with most of their needs being met are less inclined to seek satisfaction from materialism and pursue wealth accumulation.
- Millennials are more inclined to be motivated by notoriety & seek political influence. This stems from their roots in social media,
- This is a trend that has been seen in other countries when opportunities for wealth creation become more restrictive.
The Social Ramification:
- Millennials will place in jeopardy the US economy being a 70% Consumption economy
The biggest long term ramification may be the last. The era of the US economy sustaining itself via consumption may die as the Millennials become the economy! Their motivations and expectations are completely different than any prior generation and the changes will be profound.
Charles Hugh Smith concludes that there may be a consequence which is a even bigger question.
He asks: “Can our financial system and debt-burdened economy enable the sort of life the Millennials seek, or have we run out of room to transition to a lower consumption lifestyle and still service the growing mountain of debt?”
His conclusion: “It seems to me that the Millennials will have to navigate a system re-set that few of them seem to anticipate!”
WHAT IS OFTEN DUBBED “THE SNOWFLAKE” GENERATION
- Trump's North Korea Options: Place Nukes In South Korea Or Kill Kim Jong-Un
With Syria down, it’s now North Korea’s turn.
According to NBC News, the National Security Council has presented the suddenly ragingly bellicose President Trump with several options to respond to North Korea’s nuclear program: put American nukes in South Korea or kill dictator Kim Jong-un.
The scenarios were prepared in advance of Trump’s meeting with Chinese President Xi Jinping this week. The White House has expressed hopes the Chinese will do more to influence Pyongyang through diplomacy and enhanced sanctions, but if that fails, and North Korea continues its development of nuclear weapons, there are other options on the table that would significantly alter U.S. policy.
While Gen. John Hyten, the commander of U.S. Strategic Command, maintained on Wednesday that “any solution to the North Korea problem has to involve China” a senior intel official told NBC he doubted U.S. and China could find a diplomatic solution to the crisis. “We have 20 years of diplomacy and sanctions under our belt that has failed to stop the North Korean program,” said the official involved in the review. “I’m not advocating pre-emptive war, nor do I think that the deployment of nuclear weapons buys more for us than it costs,” but he stressed that the U.S. was dealing with a “war today” situation.
The “nuclear” option would mark the first overseas nuclear deployment since the end of the Cold War, a move that would promptly provoke global condemnation, not least of all by China. It was not immediately clear if South Korea’s regime – in turmoil recently following the recent impeachment and arrest of ex-president Park – had been consulted with the proposed strategy. The U.S. withdrew all
nuclear weapons from South Korea 25 years ago.This “option” is also facing domestic pushback: “I don’t think that [deploying nuclear weapons] is a good idea. I think that it will only inflame the view from Pyongyang,” retired Adm. James Stavridis and former NATO commander told NBC News. “I don’t see any upside to it because the idea that we would use a nuclear weapon even against North Korea is highly unlikely.”
South Korea’s sentiment aside, NBC notes that the US Air Force leadership doesn’t “necessarily” support putting nuclear weapons in South Korea. As an alternative, it’s been practicing sorties right out of the depths of the cold war: long-range strikes with strategic bombers — sending them to the region for exercises and deploying them in Guam and on the peninsula as a show of force.
* * *
The second, and just as controversial option, is to kill North Korean leader Kim Jong-un and other senior leaders in charge of the country’s nuclear
prgoram. The overt regime overthrow option has huge downsides, said Mark Lippert, the former U.S, ambassador to South Korea, who also served as an assistant defense secretary under President Barack Obama. “Discussions of regime change and decapitation…tend to cause the Chinese great pause of concern and tends to have them move in the opposite direction we would like them to move in terms of pressure,” he said.
Quoted by NBC, Stavridis, said that “decapitation is always a tempting strategy when you’re faced with a highly unpredictable and highly dangerous leader”, especially for a nation like the US he did not add. “The question you have to ask yourself,” he said, “is what happens the day after you decapitate? I think that in North Korea, it’s an enormous unknown.”
In any case, the groundwork has already been laid: as reproted one month ago, elite US forces, including Delta Force and SEAL Team 6 have been conducting drills on taking out Kim Jong-Un, as well as practicing tactical North Korea “infiltration.” All they need is the green light.
* * *
A third, bonus option, is covert action, infiltrating U.S. and South Korean special forces into North Korea to sabotage or take out key infrastructure — for instance, blowing up bridges to block the movement of mobile missiles. The CIA, which would oversee such operations, told NBC News it could offer “no guidance” on this option. But Stavridis said that he felt it was the “best strategy” should the U.S. be forced to take military action. He described such action as: “some combination of special forces with South Korea and cyber.”
One wonders if the CIA creating a “false flag” attack on South Korea (or China) using chemical weapons was one of the options under consideration.
* * *
Trump has already indicated he’s open to unilateral action if China fails to rein in its ally, telling the Financial Times last weekend, “If China is not going to solve North Korea, we will.”
Until last night, his words were largely dismissed as more bluster; however having just demonstrated how quickly Trump is willing to launch offensive operations – having U-turned on his Syrian position in less than a week – suddenly the possibility of nuclear war with an irrational adversary does not look all that distant.
- David Rosenberg: "This Is A Bubble Of Historic Proportions"
Shortly after we remarked most recently on the unprecedented Canadian housing bubble that has migrated from Vancouver to Toronto, Gluskin Sheff's Chief Economist David Rosenberg joined the growing chorus of calls for government intervention into the Toronto housing market. In an interview on BNN, Rosenberg, who correctly called the U.S. housing bubble in 2005 when still at Merrill Lynch, said the massive deviation from historical norms has him drawing comparisons between the two situations.
“This bubble is on par with what we had in the States back in ’05, ’06, ’07,” he said. “We have to actually take a look at the situation. The housing market here is in a classic price bubble. If you don’t acknowledge that, you have your head in the sand.”
Rosenberg warned unchecked increases in home prices are becoming a social issue. “It’s not an equity, it’s not a bond — it’s where people live,” he said. “Where home prices are in Toronto, they absorb 13 years of average family income. That is completely abnormal. We’ve never seen this before.”
“We’re out of equilibrium, and when we’re out of equilibrium, or there’s some sort of market failure, are there grounds there for government intervention? I think even the most ardent libertarian would say ‘yes'." Rosenberg said there are a trio of levers the government can pull to cool down the market. Authorities can address supply, which he said has already been “kiboshed.” Interest rates can be raised, but Rosenberg doesn’t believe the Bank of Canada will do that. Or new policy can be drafted to address the prevalence of speculation.
“These are not prices driven by the local fundamentals — this is the foreign buyer coming in,” Rosenberg said. “Toronto has really emerged as a first-class city, not just politically, not just culturally and economically, but also in terms of being a major financial centre. But if you’re going to ask me at this stage, ‘do we need to approach taxation of this capital coming in differently to curb the demand?’ [That’s] absolutely right.”
And just to make his position clear, Rosenberg also an op-ed in Canada's Financial Post on the topic, titled simply enough:
"Make no mistake, the Toronto real estate market is in a bubble of historic proportions"
by David Rosenberg
The concerns about froth in Toronto’s housing market are not likely to subside given the sticker-shock from the latest report from the Toronto Real Estate Board.
As per the March report, the average single-detached house in the Greater Toronto Area (GTA) sold for $1,214,422 last month up from $910,375 in March of last year — that is a 33 per cent YoY surge, and follows a 16 per cent run-up over the prior 12 months.
Whatever the term is for an acceleration in an already parabolic curve, well, that is what we have on our hands today.
And it isn’t just detached homes seeing this degree of rapid price appreciation — the benchmark single-family home selling price was up 29 per cent YoY, the benchmark townhouse price was up 28 per cent and the condo/apartment composite was up 24 per cent.
This is a bubble of historic proportions.
Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30 per-cent-ish run-ups against a backdrop of a 2 per cent inflation rate, wages that are barely going up 2 per cent as well, and nominal GDP growth of around 4 per cent. This should put 30 per cent into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event.
That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud. In the past, Toronto home prices went up at an annual rate of 4 per cent in real terms, in the past year they have surged by nearly 30 per cent.
Some context, however, is needed here.
First, this aggressive increase in home prices in Canada’s most populous city has come (at least in part) due to strong competition among potential buyers for comparatively scant homes for sale.
Active listings of homes available for sale in Toronto plunged 35.2 per cent YoY in March, which means that the months’ supply of houses on the market is a miniscule 0.65, down from 1.18 last March — for reference, a “balanced market” sees a months’ supply figure around 6.0. The average home that was put up for sale remained on the market for just 10 days, down from 16 days a year ago.
These measures of “tightness” in the market are without precedent — not even the red-hot late-1980s bubble experience could ever compete with today’s backdrop.
As well, the sales-to-new listings ratio sits well into “sellers’ market” territory at 70.8 per cent, which compares to 69.4 per cent a year ago — a ratio between 40 per cent and 60 per cent is considered indicative of a “balanced market.”
No wonder nobody wants to list their home! It’s become such a valuable asset.
But you see, this is where the danger comes in: when people start to view their house as some investment as opposed to a home — a place to raise the kids and play with them in the backyard.
A house is an asset indeed, but should never be compared to a stock or a bond or even other investable properties. It is a place to live.
Unlike a stock, which you can sell anytime and tuck away the winnings, if you sell your house, well, you still need a roof over your head. A stock with a dividend gives you an income stream, as does a fixed-income instrument. Unless you are a landlord, your house is burning cash (utilities, property taxes, maintenance), not bringing in cash.
So there are indeed some supply and demand fundamentals that are underpinning prices. Insofar as the demand is rising because people think they are investing in something hot just because of the accelerating momentum, well, these people are going to end up being pretty big losers. For if the government catches a whiff that it is now speculative fever that is dominating the uber-hot housing market, well that could very well elicit a response (as in capital gains taxes for those who sell within a year or two).
At some point, a correction would be very healthy because on the other side, owners of homes will then realize that no, they did not win some lottery, and will finally be willing to start listing their property, especially those who deep down want to sell (it could well be that the move-up buyers would like to sell but can’t afford that mansion of their dreams).
Not to mention first-time buyers who do not have the income for a down payment that any lender would consider appropriate. After all, we have hit the bizarre stage where a typical home now (and we are talking about a bungalow in Pape Village, not exactly an estate on Warren Road) would absorb 13 years of median household income.
Not even in the late 1980s, did housing get this expensive on this basis, and we know all too well how the Bank of Canada ultimately reacted and what happened next. Stephen Poloz is definitely no John Crow — though things can always change.
One caveat should be noted because what is different this time around (oh, how I hate using that phrase) is that Toronto has emerged as a world-class city and the foreign buyer is clearly having an impact.
So while Toronto residential real estate is indeed expensive for the locals, it is far less so for foreign investors, especially for Americans who can buy Canadian assets at a 25 per cent discount from a currency perspective.
In the mid to late 1980s, Toronto did not have the Rogers Center. It did not have the Raptors. It had no decent hotel outside of the Four Seasons and the Windsor Arms. Truly great restaurants were not to be found (unless you want to count Winston’s!). There was no Drake. And Toronto FC was not in existence. Not to mention there was very little in the way of a theater district.
While the separatist threat in Quebec gave Toronto the mantle of being Canada’s financial center back in 1976, the city was never seriously viewed as a global player in this respect until very recently. With more than 250,000 employed in the financial services sector, Toronto has very quietly emerged as the second largest financial hub in North America (after New York). Of the 84 cities surveyed in the 2015 Global Financial Centres Index, Toronto ranked 8th!
So while prices may seem a little nutty, it is important to note that Toronto is a major financial, economic and cultural centre, and when compared to its peers globally, prices appear far less crazy, too.
This doesn’t make the current price action justified based on local income fundamentals, but based on the foreign incomes of those wanting to establish a toehold in a stable Toronto amidst a sea of global instability, the prices are not that much out of whack.
As per data compiled by Global Property Guide, Toronto home prices on a U.S. dollar per square metre basis rank just 14th in the world, well behind the likes of London, New York, Paris and Tokyo.
And at the same time, if you are a family in say, Brooklyn Heights looking to buy property in Toronto it would only absorb six years of income; and if you reside in Santa Monica and feel like dipping your toes in the Toronto real estate market, it would only take up four years of your annual median take-home pay. The same (four years) holds true for those wealthy enough to be living in Knightsbridge.
You see, when Toronto home prices are measured against incomes in other places of the world, it is not nearly as onerous (especially in Canadian dollar terms).
In other words, many well-heeled foreigners can far better afford what the locals can’t afford here, and housing in recent years has truly become in internationally-traded asset class (though I wouldn’t recommend ripping out the foundation and exporting the structure anywhere).
So it goes without saying that if the name of the game is to tame the flame then have the foreign investor share the blame. A tax on foreign transactions, as was already done in Vancouver, seems like a pretty good idea. And the government can at the very least use the revenues to either provide greater tax incentives to build and/or provide tax relief for the low/mid income entry-level buyer who is struggling to cobble together the funds for a down payment.
So yes, in this sense, I would be advocating a Robin Hood style of economic policy.
Indeed, what may be needed is a very progressive tax on foreign buying of local residential real estate in the bid to cool demand and reverse the exponential surge in home prices — a surge that is creating tremendous social problems by crowding out young families (or individuals) from chasing the homeownership dream (a typical response is for these folks is to go out and buy a condo instead, but the reality is that average prices here have also skyrocketed 24 per cent in the past year and are in a bubble of their own).
Everyone says that the Bank of Canada cannot raise interest rates to curb the excess demand because of the deleterious effect this would have on the economy writ large (for example, taking the Canadian dollar back up to or above 80 cents which would thwart our export competitiveness which has become a longstanding role of the central bank).
Be that as it may, the home price surge in the GTA over the past year has impaired homeowner affordability to such an extent that it is basically the equivalent of the Bank of Canada having raised rates 150 basis points — actually a 200 basis point increase if you were to look at what home prices have done to affordability ratios over the past two years (so you can’t have it both ways; the price action is basically equivalent to having five-year mortgage rates closer to 5.75 per cent than the actual posted rate of 3.75 per cent).
Barring a bold move by the government to bring home prices to levels consistent with domestic economic fundamentals as opposed to income levels from well-heeled buyers from the U.S., China, and Europe, maybe it is time for the Bank of Canada to start playing a role and follow the Fed on a gradual rising interest rate path.
- The End Game
Authored by Kevin Muir via The Macro Tourist blog,
We all know the terrifying debt statistics. We are bombarded every day with bearish reports about the gargantuan Federal debt, and when combined with the growing private sector indebtedness, the monolithic entitlements problem, and the looming pension fund shortage, it is easy to wonder how we will ever get out of this colossal mess.
I do not dispute the numbers one bit. We have too much debt. It’s simple math. We are screwed. Full stop. All of this debt will never be paid back in real terms. Truth be told, I am probably one of the most bearish people out there when it comes to our debt problem.
But I differ greatly from the vast majority of my peers about what that means for the economy and financial markets.
There are three solutions to the problem of over-indebtedness.
The first is to grow your way out. Maybe you cut some spending, hunker down, trim up the sails, and right the ship through good old fashioned economic growth. This solution is a pipe dream left for little children and romantics. In a balance sheet challenged economy, the moment you cut spending, the paradox of thrift kicks in, and the economy rolls over. This is a lesson Japan has learned all too well over the past couple of decades. Not believing Japan’s example, the U.S. repeated the error after the credit crisis of 2008. Thinking overspending was the cause of the problem, the U.S. government (led by the Tea Party) cut discretionary spending to the bone. Remember the 2013 budget sequestration? All of that hullabaloo caused the government to shrink from 2011 to 2015.
Whoa! That doesn’t follow the typical narrative of Obama as a spendthrift fiscally irresponsible President. Didn’t Federal debt balloon under his watch? How does that work? Well, the reality is much of the spending that caused the increase in overall debt was the result of automatic stabilizers – unemployment insurance, etc… Although Obama probably wanted to spend much more, he didn’t. And this is one of the reasons the U.S. economy experienced its weakest post recession recovery. Just look at that chart above. Over the past three decades there has never been a government spending decline of that magnitude.
Now I realize many of you will probably be saying “good – that’s what’s needed. The idea of increasing spending to solve a problem of too much debt is ridiculous. The reason for the anemic recovery is that we didn’t cut enough.” Which brings me to solution number two.
In an environment of over-indebtedness, the economy will naturally try to correct through the private sector paying down debt. But over the past half dozen decades, we have been muting regular business cycle declines through overly easy monetary policies. This has encouraged too much borrowing. We have piled more and more debt on the problem. The trouble is that we have done this for so long, the consequences of allowing the cycle to play out has become catastrophic.
Have a look at the total U.S. credit outstanding (minus financial firms) over the past few decades.
See the slight leveling off in 2007? That is the horrific debt de-leveraging that caused the greatest financial crisis since the Great Depression.
So far all those economists of the Austrian ilk, I acknowledge that if the government and the Federal Reserve would allow the natural business cycle to operate, we would have debt destruction that would cause the financial system to reset. After this event, the economy would be all set to grow again. Yet this reset would make the 2008 credit crisis look like a warm up. We would have 1930’s style breadlines.
I don’t buy for one second that the public has the stomach to sit through this type of event. Maybe when the problem of over-indebtedness was smaller, we might have done it. Perhaps in the 1980’s, or maybe even the 1990’s when Greenspan first brought the irrational exuberance problem to the fore, but not today. The pain that would accompany a true debt destruction reset would be too immense. The amount of social upheaval and instability would probably mean the end of the Western world as we know it.
We can’t grow our way out the debt problem, and we certainly can’t allow it to reset through a cleansing business cycle flush, so what’s the solution?
That leaves the one tried and true solution. For thousands of years when societies have gotten in trouble with too much debt, they have solved their problem by printing their way out of it. To think the modern day situation will be any different is naive.
Yeah, sure there will be moments when governments flirt with the idea of prudent monetary and fiscal policy. But those periods will be fleeting. Faced with moribund growth and a steadily increasing debt burden, at the first sign of trouble they will quickly turn on the presses and resort to the time old tradition of inflating away their debts.
Which brings me to the end game. There are many forecasts for a 2008 style collapse. The consensus is that eventually the debt burden becomes too big to bear, and the next Great Depression rolls in.
I don’t think that is how it plays out. Most traders hedge for the previous crisis. Visions of 2008 still fill the nightmares of investors. This explains why “gurus” like Carl Icahn have long presentations where they advocate hedges that worked so well in the last crash.
But what’s going to happen the moment things look dicey again? The governments and Central Banks will inflate. We saw it with BREXIT. We saw it with Eurocrisis of 2011. In fact, governments are becoming more and more quick to step on the gas pedal. They realize the costs of over inflating are far less than the costs of delaying.
Now you might have philosophical problems with these responses. For the longest time I railed on about the dangers of irresponsible monetary policies. It got so bad that on my ski trips, my pals banned me from talking about Greenspan’s reckless behaviour.
Yet today, I have come around to the idea that the debt problem is so pervasive, there is only way one forward – inflate. We are going to end up there anyway, so let’s just inflate away the burden and restart with a system that prevents this from ever happening again.
All of this talk is just that though – talk. As traders we need to concern ourselves about what is, instead of, what should be.
I don’t really care to argue about the morality of these decisions. The internet is filled with idiots shouting their opinions at the top of their lungs. The last thing you need is one more.
But I want to leave you with this idea. Given the enormous debt problem, the notion we will pay it back in real terms through growth, or even more improbably, the idea of allowing a massive debt destruction event to reset the system, is unrealistic. Any economic weakness will be met with more printing, and more stimulus. Maybe governments allow one or two quarters of weakness. It might even drag on for a year. But then as sure as day follows night, they will inflate again. They simply cannot afford not to.
They will do anything (and everything) to ensure the financial system doesn’t implode on itself. They will engage in massive Quantitative Easing programs. They will venture out to buy risky assets. They will even take interest rates to negative levels. It is only a matter of time before they are simply dropping cash right into individuals bank accounts.
I wish I could take credit for this, but it was Bill Fleckenstein who said it first. They will keep printing until the bond market takes the keys away.
Many market participants are worried about the economy rolling over. Although I understand it would cause some declines in financial markets, what would be the end result? Central Banks would ease, governments would spend, and they would find a way to prop everything back up again.
I am not smart enough to know if we are going to get another cyclical dip that is met with more easing over the next few quarters. If I had to guess, I would say this is probable – especially in the US. I am not predicting the medium term squiggles. But if this sort of decline were to occur, it would not be the big one.
The true end game won’t come from weakness, it will come from strength. What happens when economic growth picks up and causes inflation? Given the massive indebtedness, Central Banks will be loathe to raise rates enough to cool inflation. This will only cause more inflation.
Eventually we will hit a point where governments will be unable to raise rates because it would crush their balance sheet, yet inflation will dictate rates be higher. This will be checkmate. Governments will have no moves. Inflation will soar, the yield curve will steepen (to record wides), and the inflationary reset will be upon us.
The end game won’t come from a recession, it will come from a boom that gets out of control. I know that it a non-consensus minority opinion, but it’s always the story that no one is expecting that ends up being the problem.
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