"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey' ​
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House Price to Rents

1/28/2013

 
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CLICK TO ENLARGE House Price to Rents
According to The Economist: Canadian housing is 78% over valued; 
while Japan is 37% under valued. Notice the U.S. housing market is tabled at 7% undervalued which is supporting the bullish argument to go long U.S. housing. But as we know, it's a market of markets and as trite as it sounds, location trumps price when it comes to comparables. 

As The Economist concludes: "Misalignments with our gauges of fair value can persist for a long time, of course. That may spare countries where house prices have clearly overshot from a painful bust, but it may also mean that some markets end up mimicking Japan’s long descent and badly undershoot. At some point, central banks will have to take away the balm of easy money. If housing markets remain so fragile when they are getting so much help, they may break when it is removed." Read the complete article at The Economist.

What do you do during a housing bust?

12/20/2012

 
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WHAT TO DO DURING A HOUSING BUST
Japan as we know has been in a 20+ year (and still counting) housing price deflation.

As housing prices fall over long time spans, households have to make decisions about how they are going to turn the debt they acquired on the way up into equity. 

There are two basic choices; get in front of the falling price curve and sell at a either a loss or gain depending on timing, or if the household has the income, pay down the debt over time as a forced savings plan. The former allows for greater savings and re-investment and the latter is a suicidal prison term chained to one price decaying asset.

In either case, households turn to saving and away from consumption.

The charts above and below are from an article by Jack Crooks of Black Swan Trading where he argues: 

1) The demand for dollar liquidity in a world where the European banking system is desperately deleveraging and many in the private world are doing the same likely means the world reserve currency remains supported, even though it is likely Ben Bernanke would like to push the buck lower.

2) The commodities super cycle is behind us. This doesn't mean all commodities go lower; agricultural commodities could spike again and are subject to lots of volatility. But even the Australian Central Bank believes there has been a peak in the mining cycle in Australia.

3) The credit crunch (2008-09) really was a sea change. Massive personal balance sheet over-leverage, coupled with the decline in the biggest personal asset, real estate, seems to have triggered a sea change in both real consumption and attitude toward future consumption. This means more savings. More savings tends to mean more money in fixed income (keeping yields low).

4) The knock-on effect of a change in reduced global consumption and increased savings is the catalyst for rebalancing the current account deficit nations with the current account surplus nations. It is especially bad news for those with export-dominated growth models who will take the brunt of the adjustment domestically; and we know who you are: China, Germany, Japan... 

AND CANADA... it's already happening; Canadian exports peaked July 2008 at 44.1bil and have dropped 13.6% to 38.1bil in October 2012 (Source). See also Ray Dalios Mega Trend and John F. Carlucci's Trend Regression. The complete Jack Crooks, Black Swan Trading article is here.
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THE CYCLICAL NATURE OF COMMODITY PRICES ~ BOOMS & BUSTS

Following the Path of Japan

1/11/2012

 
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Change in CPI of Japan vs U.S.
Following the Path of Japan and the Madness of Bernanke Fighting Just That 

"I have been saying for 5 years the US would follow the path of Japan. An interesting chart in the New York Times shows this is indeed what has happened." by Mike 'Mish' Shedlock November 21, 2010

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    "Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense  



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