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What Will You Do When Inflation Forces U.S. Households To Spend 40 Percent Of Their Incomes On Food?

May 10, 2021

What Will You Do When Inflation Forces U.S. Households To Spend 40 Percent Of Their Incomes On Food?

Did you know that the price of corn has risen 142 percent in the last 12 months? Of course corn is used in hundreds of different products we buy at the grocery store, and so everyone is going to feel the pain of this price increase. But it isn’t just the price of corn that is going crazy. We are seeing food prices shoot up dramatically all across the industry, and experts are warning that this is just the very beginning. So if you think that food prices are bad now, just wait, because they are going to get a whole lot worse.

Typically, Americans spend approximately 10 percent of their disposable personal incomes on food. The following comes directly from the USDA website…

In 2019, Americans spent an average of 9.5 percent of their disposable personal incomes on food—divided between food at home (4.9 percent) and food away from home (4.6 percent). Between 1960 and 1998, the average share of disposable personal income spent on total food by Americans, on average, fell from 17.0 to 10.1 percent, driven by a declining share of income spent on food at home.

Needless to say, the poorest Americans spend more of their incomes on food than the richest Americans.

According to the USDA, the poorest households spent an average of 36 percent of their disposable personal incomes on food in 2019…

As their incomes rise, households spend more money on food, but it represents a smaller overall budget share. In 2019, households in the lowest income quintile spent an average of $4,400 on food (representing 36.0 percent of income), while households in the highest income quintile spent an average of $13,987 on food (representing 8.0 percent of income).

…click on the above link to read the rest of the article…

Think You’re Prepared For The Next Crisis? Think Again.

October 6, 2018

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Think You’re Prepared For The Next Crisis? Think Again.

Even the best-laid preparations have failure points

No plan of operations extends with any certainty beyond the first contact with the main hostile force.

~ Helmuth von Moltke the Elder

Everybody has a plan until they get punched in the mouth.

~ Mike Tyson

Scottish poet Robert Burns aptly penned the famous phrase: “The best laid schemes o’ mice an’ men/Gang aft a-gley.” (commonly adapted as “The best laid plans of mice and men often go awry.”)

How right he was.

History has shown time and time again that the only 100% predictable outcome to any given strategy is that, when implemented, things will not go 100% according to plan.

The Titanic’s maiden voyage. Napolean’s invasion of Russia. The Soviet’s 1980 Olympic hockey dream team. The list of unexpected outcomes is legion.

Dwight D. Eisenhower, the Supreme Commander of the Allied Expeditionary Forces in Europe during WW2, went as far as to say: “In preparing for battle, I’ve always found that plans are useless but planning is indispensable.”

This wisdom very much applies to anyone seeking safety from disaster. Whether preparing for a natural calamity, a financial market crash, an unexpected job loss, or the “long emergency” of resource depletion — you need to take prudent planful steps now, in advance of crisis; BUT you also need to be mentally prepared for some elements of your preparation to unexpectedly fail when you need them most.

Here are two recent events that drive that point home.

Lessons From Hurricane Florence

A family member of mine lives in Wilmington, NC, which received a direct hit last month from Hurricane Florence.

…click on the above link to read the rest of the article…

Evidence The Housing Bubble Is Bursting?: “Home Sellers Are Slashing Prices At The Highest Rate In At Least Eight Years”

September 22, 2018

Evidence The Housing Bubble Is Bursting?: “Home Sellers Are Slashing Prices At The Highest Rate In At Least Eight Years”

The housing market indicated that a crisis was coming in 2008. Is the same thing happening once again in 2018? For several years, the housing market has been one of the bright spots for the U.S. economy. Home prices, especially in the hottest markets on the east and west coasts, had been soaring. But now that has completely changed, and home sellers are cutting prices at a pace that we have not seen since the last recession. In case you are wondering, this is definitely a major red flag for the economy. According to CNBC, home sellers are “slashing prices at the highest rate in at least eight years”…

After three years of soaring home prices, the heat is coming off the U.S. housing market. Home sellers are slashing prices at the highest rate in at least eight years, especially in the West, where the price gains were hottest.

It is quite interesting that prices are being cut fastest in the markets that were once the hottest, because that is exactly what happened during the subprime mortgage meltdown in 2008 too.

In a previous article, I documented the fact that experts were warning that “the U.S. housing market looks headed for its worst slowdown in years”, but even I was stunned by how bad these new numbers are.

According to Redfin, more than one out of every four homes for sale in America had a price drop within the most recent four week period…

In the four weeks ended Sept. 16, more than one-quarter of the homes listed for sale had a price drop, according to Redfin, a real estate brokerage. That is the highest level since the company began tracking the metric in 2010. Redfin defines a price drop as a reduction in the list price of more than 1 percent and less than 50 percent.

…click on the above link to read the rest of the article…

Swedish Housing Bubble Pops As Stockholm Apartment Prices Crash Most Since June 2009

December 15, 2017

Swedish Housing Bubble Pops As Stockholm Apartment Prices Crash Most Since June 2009

Even though Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest with prices up roughly 6-fold since starting its meteoric rise in 1995.

Of course, as we noted last month when the SEB’s housing price indicator, which measures the difference between those who believe prices will rise and those who expect them to drop, took its first substantial tumble, the era of the steadily inflating housing bubble in Stockholm may finally have come to an end.

Now, it seems that the “hard data” is aligning with the “soft data” as Swedish home prices across the Nordic country posted their first decline since the spring of 2012, down 0.2% year-over-year and 2.9% sequentially. Per Bloomberg:

The property market in the largest Nordic economy is rapidly cooling after years of price increases that were driven largely by housing shortages and ultra-low interest rates. Supply is now outstripping demand and stricter mortgage rules, as well as growing apprehension among households, are driving prices lower. The drop is being led by high-end apartments in Stockholm.

According to Maklarstatistik’s number, nationwide apartment prices fell a monthly 3 percent in November, adding to October’s 1 percent drop. House prices fell 1 percent in the month, after being unchanged in October. Apartment prices in greater Stockholm fell 3 percent in the month and were down 4 percent from a year earlier, the first such decline in almost six years.

Worse yet, the slump in Stockholm specifically is even more dramatic with apartment prices down 4.2% sequentially, the steepest since October 2008, and 6.0% year-over-year, the biggest June 2009.

…click on the above link to read the rest of the article…

Canadian Housing Bubble, Debt Stir Financial Crisis Fears

September 23, 2016

Canadian Housing Bubble, Debt Stir Financial Crisis Fears

Their bone-chilling chart.

Everyone is fretting about the Canadian house price bubble and the mountain of debt it generates – from the IMF on down to the regular Canadian. Now even the Bank for International Settlement (BIS) and the Organization for Economic Co-operation and Development (OECD) warn about the risks.

Every city has its own housing market, and some aren’t so hot. But in Vancouver and Toronto, all heck has broken loose in recent years.

In Vancouver, for example, even as sales volume plunged 45% in August from a year ago – under the impact of the new 15% transfer tax aimed at Chinese non-resident investors – the “benchmark” price of a detached house soared by 35.8%, of an apartment by 26.9%, and of an attached house by 31.1%. Ludicrous price increases!

In Toronto, a similar scenario has been playing out, but not quite as wildly. In both cities, the median detached house now sells for well over C$1 million. Even the Bank of Canada has warned about them, though it has lowered rates last year to inflate the housing market further – instead of raising rate sharply, which would wring some speculative heat out of the system. But no one wants to deflate a housing bubble.

During the Financial Crisis, when real estate prices in the US collapsed and returned, if only briefly, to something reflecting the old normal, Canadian home prices barely dipped before re-soaring. And this has been going on for years and years and years.

The OECD in its Interim Economic Outlook warned:

Over recent years, real house prices have been growing at a similar or higher pace than prior to the crisis in a number of countries, including Canada, the United Kingdom, and the United States. The rise in real estate prices has pushed up price-to-rent ratios to record highs in several advanced economies.

…click on the above link to read the rest of the article…

Worst Case Scenario = 73% Down From Here

March 31, 2016

WORST CASE SCENARIO = 73% DOWN FROM HERE

As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.

Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.

QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.

As Main Street dies, Wall Street has been paved in gold. The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections.

…click on the above link to read the rest of the article…

Chinese Take Over Canada’s Real Estate Market, Buy One-Third Of All Vancouver Homes Sold In 2015

March 24, 2016

Chinese Take Over Canada’s Real Estate Market, Buy One-Third Of All Vancouver Homes Sold In 2015

“Housing in Vancouver is insane — it was insane when I left and it’s more insane now.”

That’s from 33-year-old Kevin Oke, co-founder of LlamaZoo Interactive who left Vancouver for Victoria two years ago because he couldn’t afford to buy a home in his native city even while earning a generous salary as a lead designer at a video-game company whose clients included Atari and Ubisoft Entertainment SA.

Kevin isn’t the only one leaving. Vancouver added only 884 net new people age 18-24 last year according to Statistics Canada, and many observers worry the soaring cost of housing will eventually strip the city of its burgeoning tech economy.

(a representative listing from Point Grey)

We’ve spilled quite a bit of digital ink documenting the “three-alarm fire” (to quote Bank of Montreal chief economist Doug Porter) that’s burning in British Columbia’s housing market. Here, for those who missed it, are some informative posts:

According to the Greater Vancouver Real Estate Board, residential property sales in Greater Vancouver rose 31.7% in January, 46% above the 10-year sales average for the first month of the year and the second highest January ever. The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600. The latest data from the Canadian Real Estate Association shows the average price of a home in Canada rose an astonishing 16% Y/Y last month to more than $500,000. Underscoring the extent to which British Columbia and Ontario are driving the market, stripping out those two provinces pulls the national average down to under $300,000.

…click on the above link to read the rest of the article…

“Sweden Most At Risk Of Asset Bubble” Moody’s Warns, After Taking A Look At Swedish House Prices

March 16, 2016

“Sweden Most At Risk Of Asset Bubble” Moody’s Warns, After Taking A Look At Swedish House Prices

Last September, in the aftermath of Sweden going full NIRP, we warned that “Sweden Goes Full Krugman, Gets Massive Housing Bubble“, in which we showed the unprecedented surge in Swedish home prices, which have been the one asset class to “benefit” the from the Riksbank’s ultra loose monetary policy hoping to stimulate inflation, even as overall inflation has failed to materialize.

Since then things have only gone more surreal, and the chart below shows what has happened to Swedish home prices in recent months.

Today, six months after our most recent observations on the state of the Swedish housing bubble, Moody’s chimes in and warns that as a result of NIRP, the country is most at risk of an “ultimately unsustainable asset bubble”:

… the unintended consequences of the ultra-loose monetary policy are becoming increasingly apparent — in the form of rapidly rising house prices and persistently strong growth in mortgage credit”, adds Ms Muehlbronner. In Moody’s view, these trends will likely continue as interest rates will remain low, raising the risk of a house price bubble, with potentially adverse effects on financial stability as and when house prices reverse trends. In all three countries, households are highly leveraged, and while they also have high levels of financial assets, returns on these assets will be under increasing pressure if the negative interest and yield environment persists.

And adds:

Moody’s believes that the Riksbank will find it difficult to achieve its objective of significantly pushing up consumer price inflation in a deflationary global environment, while the sustained and strong growth in mortgage lending and house prices risks leading to an (ultimately unsustainable) asset bubble.

…click on the above link to read the rest of the article…

Norway’s Interest Rate Conundrum

March 12, 2016

Norway’s Interest Rate Conundrum

Current Situation

The ECB recently stimulated more than expected, cutting rates by five basis points and expanding quantitative easing. It is already expected that Norges Bank (The Norwegian Central Bank) will cut rates next week, seeing accelerating inflation as temporary. They have a 2.5% inflation target mandate “over time,” giving them lee-way. They see demand falling off while the local economy, driven by exports, recovering. Therefore, they feel that they can cut rates. My previous articles challenged the assumptions that the oil sector will recover, showing that new technology reduces long term prices below offshore break-even points, and exports can make up the difference, illustrating that key sectors, like fishing, can be replicated in Canada, Maine, Russia and Japan.

We are experiencing 1970’s style stagflation, coming from the supply side, not demand. Prices are going up because Norges Bank continues to destroy the Norwegian Krone, turning it into the Nordic Peso. This is where they are “hiding” the damage to save rest of the economy. For example, housing prices will rise in NOK but fall in USD or gold (universal commodity) terms. It’s a shell game, leading to long term decline or even worse, an unexpected period of elevated inflation, requiring a rapid rise in interest rates. Housing remains at risk in this situation (Norway does not have 30 year fixed loans, most people float monthly).

I am in no position to stop them from making trips to Thailand, fruit from Spain and iPhones from California more expensive, but at least I can share my knowledge with others.

The dashboard, above, lines up key figures, showing how low rates drive inflation, gradually eroding public wealth. It is important to notice that inflation is much higher than interest paid at the bank, punishing responsible behavior. A person’s savings diminishes over time in terms of purchasing power.

…click on the above link to read the rest of the article…

As Housing Prices Soar, Finance Minister Is Well Invested

January 12, 2016

As Housing Prices Soar, Finance Minister Is Well Invested

Gov’t must be ‘careful about intervening,’ says Mike de Jong, who has a stake in several properties.

Finance Minister Mike de Jong’s most recent financial disclosure shows he received rental income from seven investment properties. Photo: BC Gov’t Flickr.

Taking action to reduce housing prices in Vancouver could sap the equity people have built up in real estate, British Columbia Finance Minister Mike de Jong warned last year.

The hit from anything the provincial government might do to drop real estate prices in B.C. would be particularly painful for investors like de Jong, who has a personal ownership stake in seven investment properties in Abbotsford, an hour’s drive from Vancouver.

“You’ve got to be careful about intervening, about having the state intervene to try and regulate pricing, or depress pricing,” de Jong said last May as the #Don’tHave1Million campaign drew attention to the negative effects of high house prices in the region.

“Those who are expressing a concern, I think if you really assess what they are seeking, it is a reduction in the value of homes in Vancouver and that will have consequences for a lot of families,” de Jong said.

“If property values in Vancouver were to reduce by, let us say five per cent, that could easily translate into a reduction in equity for families that own homes in Vancouver of 60, 70 or $80,000,” he said.

“All I’m saying is you’ve got to be careful about how you use the tools and levers of taxation, and you have to be clear on what your objective is.”

Stake in seven properties

If de Jong sounded more sympathetic to people who already own homes than to people trying to enter the market, it could be because like them he would be personally exposed to the pain that would come with dropping prices.

…click on the above link to read the rest of the article…

Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households

November 25, 2015

Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households

Late last month, Sweden tripled down on QE, as the Riksbank announced it would expand its asset purchases by SEK65 billion. Or, visually:

The recent history of Swedish monetary policy is viewed by some as a cautionary tale about what can happen when a central bank attempts to normalize policy too “early.” As a reminder, the Riskbank began raising rates in 2010. Reminiscing about the bank’s decision four years later, Paul Krugman blew a gasket on the way to accusing Sweden of being a nefarious lot of job hating heretics hell bent on perpetuating global inequality by enriching creditors at the expense of impoverished debtors.

Of course Krugman needn’t have been so hard on the Riksbank. After all, they reversed course a little over a year later and since then, it’s been nothing but easing as the repo rate fell 35 bps into negative territory.

The problem, as we’ve documented quite extensively, is that Sweden’s adventures in NIRP-dom have done little to boost inflation (to be fair, unemployment has fallen).

For the Paul Krugmans of the world, that’s evidence of a hangover from the series of hikes the Riksbank embarked on beginning in 2010. For anyone who is sane, it’s evidence that, i) unconventional monetary policy is bumping up against the law of diminishing returns , and ii) when everyone is easing, no one gets the benefits.

But while NIRP may not be doing much for inflation, it sure has been effective at creating a rather scary looking housing bubble. Have a look:

We discussed this at length in “Sweden Goes Full Krugman, Gets Massive Housing Bubble.” Here’s what the Riskbank had to say about this after its September meeting:

“Low interest rates contribute to the trends of rising house prices and increasing indebtedness in the Swedish household sector continuing.

…click on the above link to read the rest of the article…

One Economic Datapoint, Two Vastly Different Interpretations

July 28, 2015

One Economic Datapoint, Two Vastly Different Interpretations

Earlier today, Case-Shiller reported that in May, housing prices dropped by 0.18%, the biggest decline since July 2014. Hardly a euphoric validation of the Fed’s rate hike intentions.

So what was the mainstream media’s take on the topic? It all depends on who you ask.

Reuters:

or the WSJ.

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