Since 1971, when the world officially abandoned the gold standard, economic growth has been stimulated through vigorous applications of aggressive Central Banking monetary policies: the imposition of artificially low nominal interest and boundlessly unrestrained credit issuance. Eventually the global economic system becomes immune to the stimulative effects of low interest rates and the financial system reaches a point at which it can no longer absorb additional debt issuance.
The de facto financial collapse, nee Great Financial Crisis, in 2008 was the manifestation of these destructive financial policies. Central Banks globally shifted gears into outright money printing in order to defer the inevitable. This served the purpose of keeping the big banks from collapsing and created a temporary mirage of “real” economic growth. The money printing also enabled a post-2008 reinflation of the credit markets well beyond the proportions of the bubble that popped in 2008.
What’s been billed as “economic growth” by a highly propagandistic media since 2008 is nothing more than debt-fueled inflation in the form of “nominal” economic growth. In truth, the U.S. has been in a state of economic contraction since 2007 if a true inflation rate were used in the GDP deflator. What’s been billed as “recovering housing and auto markets” is in reality nothing more than an abundance of cheap debt that has been made available to millions of borrowers who can ill afford to service that debt over an extended period of time. This fact is already being confirmed by sky-rocketing auto loan delinquencies.
Amusingly, a reader sent me an email accusing me being wrongly a bear on housing for quite some time. The truth of the matter is that I have wrongly underestimated the extent to which the Fed and the U.S. Government would intervene to reinflate the housing bubble. The value of housing is the most disconnected from the underlying “organic” market fundamentals than at any time in history. Furthermore the Fed/Government market intervention has succeeded in putting a significant number of people and small investors into homes that soon will be unaffordable for them support.
My short call in Beazer has returned close to 60% in the last 17 months. My short call in KBH is nicely green. I shorted TOL over two years ago and that short is up over 10%. All three are remarkable feats given the amount of Fed/Govt intervention in both the housing market and the stock market.
Market intervention masquerades as a “bull” market until it the costume falls off. We are very close to this point of “undressing” and the consequences of the extreme moral hazard generated from seven years of monetary lasciviousness will make the 2008 housing collapse look like a polite tea party.
Steve “Wake Up With Steve” Curtis on KLZ-560 radio in Denver hosted me on his show recently. We discussed topics ranging from the collapsing global economy, the fraudulent stock market and China’s aggressive gold accumulation policy. You can listen to discussion here: Wake Up! With Steve Curtis.
The latest issue of the Short Seller’s Journal is out. It features the high-flying stock of company that extremely overvalued and is riddled with misleading, if not fraudulent, accounting (even worse than AMZN). This stock looks ready to drop about $100. It also discusses the next move in oil and a bank stock that is highly leveraged to the energy market and which looks ready to shed $10-20 points quickly once oil starts heading lower. You can subscribe by clicking HERE.