It was recently announced that, according to the U.S. Census Bureau, the second quarter of 2016 marked a low point in home ownership — the lowest since the Bureau started keeping track in 1965.
This is during a time when we have had amazingly low interest rates for nearly a decade now, and when stocks are trading around all-time highs.
Here you see the difference between an artificial economy and a real one.
A real economy is sustainable. An artificial one constantly needs to be managed and maintained. It’s like a manicured lawn. Nature isn’t interested in one type of grass dominating; it wants variety and competition.
But too many people have bought into the notion that man-made is better than nature in every aspect of our lives, including the markets.
The whole magic of the U.S. markets was that they were open and egalitarian.
Up until a decade ago, a lot of the traders on the floor of major exchanges didn’t have a college degree. They were brought on as runners, which were essential when open-outcry trading was the way to get things done. The runners ran orders from the trading desks to the floor and from the floor to the desks.
Market makers “wheeled and dealed” with buyers and sellers and found a price — no algorithms or dark pool investing.
Now the markets are full of scientists, physicists, mathematicians and computer programmers. A few years ago, British scientists were very concerned that many graduates were headed to lucrative jobs in the financial markets rather than pursuing a scientific profession. It was more profitable to manipulate numbers to make money than it was to actually do things that would produce tangible results.
The problem is, the man-made markets are not meant to benefit everyone. They’re set up so that banks and politicians succeed by keeping the game going. And they do this by selling a bill of goods to individual Americans.
It’s corruption by any other name, and it’s creating debt slaves. The most obvious example is debt. The American Dream was about having it all — a house, a car, 2.3 kids and a dog. But over the years that simple dream has become a nightmare of debt.
Consumers are exploited by lenders at every turn. And once they buy into the ‘dream,’ the banks get what they want — debt. You owe. Another debtor on the rolls.
Because now, the lenders have turned debt into a status symbol. The more you owe, the more ‘successful’ you’ve become. But the only people this benefits are the financial institutions holding your debt.
Statistics like the one I lead with show that this cycle of debt is coming to an end, whether the bankers want it to or not.
Record-low home ownership is a significant trend. And it suggests that potential new home buyers don’t have the money, or even the desire, to step into a home purchase. I would hope they can’t be fooled again by interest-only loans and ultra-low adjustable rate mortgages… but I fear the bankers will come up with clever new ways of fooling people all over again.
For now, however, credit is still tight for individuals. After the financial collapse, rules were put into place to keep the mortgage market from becoming the Wild West again. But banks have used this to limit the buying pool to only the best and wealthiest home buyers.
That’s a red flag, but not the only red flag. Remember, middle class families no longer make up the majority of the U.S.
Let that sink in.
The middle class is shrinking. And the divide between the haves and have nots grows.
Yet the stock market is near all-time highs? Can’t be. There is a significant disconnect between this man-made market and the free market that is being crushed under this artificial one.
And the further away from reality our markets get, the more ruthless their return to normal will be.
That’s why it’s crucial you prepare now for what is coming.
Quality stocks. Make sure that the assets you have left in the markets are solid companies that know how to get through this safely. Companies that have weathered major market storms and continue to grow — like Clorox, Johnson & Johnson or Smith & Wesson — or are fundamental to individuals like utilities.
Don’t borrow any more money from banks. When this whole scheme begins to head south, it’s likely you will be the fall guy… again. The taxpayers will be on the hook for the banks’ losses. Think about what they did to Puerto Rico. The less you owe, the better off you’ll be.
Hold real assets. Precious metals, collectibles, bitcoin… anything that will allow you to manage outside the artificial system of credit and debt.
— GS Early
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