The US Housing Rebound Story is a Fraud

The world is probably strange enough without the additional oddities provoked by the Federal Reserve.

‘Investors Return to Emerging World’ was a headline in yesterday’s Wall Street Journal. It told the story of how investors are ‘settling in for another ride in emerging markets.’ India, Indonesia, Thailand – ‘money is flowing back into emerging markets at the fastest pace in more than a year.’

What is strange about this is the timing. It comes in newspapers full of disturbing stories. Thailand has been locked down by its generals. In Egypt, the soldiers took over via, first a coup, then a vote. In Ukraine, pro-Russia partisans are engaging in fire-fights with the nation’s armed forces.

You’d think instability would give investors a hunger for something solid that they could hold onto in an emergency – such as gold. Nope. Gold lost another two bucks yesterday, closing at $1,257.

While investors have no appetite for real money, their hunger for emerging market stocks and bonds appears almost insatiable.

We did not see this coming. Still, we claim some small credit for recommending Gazprom to you. Not that we knew anything about the future. But our ignorance of it was at least in equal measure, whether we were discussing Ukraine or the US.

Not having any idea of what would happen, we thought the cheap bird in our hand was a better bet than the expensive birds somewhere in the future bush. Since the bottom, Gazprom is up more than 30%.

According to the WSJ, that is why investors are interested in emerging markets. It is “a search for yield” that leads them to far-off places with far-out politics.

We can think of many reasons for buying assets in emerging markets. But ‘a search for yield’ is not one of them. But that just goes to show you how grotesque the world has become.

Seeking to boost the US economy, the authorities give a boost to Indonesian capital investment (which will inevitably give US industries more competition).

Seeking to force savers into riskier US stocks (and thereby increase employment), US Federal Reserve policies drive them onto the Indian stock exchange, which will inevitably create more jobs in India, taking them from Americans.

Seeking to drive US interest rates down… the Fed knocks rates all over the world onto the floor.

Nothing works as advertised… or as it should.

Back at home, the feds brighten up the lives of people who live in tanning salons. Sales of houses to the top 1% of buyers on Long Island rose 72% in the first four months of this year. The bottom 99%, meanwhile, actually bought fewer houses.

That information comes to us from Wolf Richter, via former White House budget director David Stockman. Obviously, it was not the weather suppressing sales for the 99%. Unless the top 1% live in another world altogether… one that is sunnier all year long.

From David Stockman:

‘The absurd deformation evident in the latest data on housing bubble 2.0 sticks the fork in monetary central planning. In the attached post, Wolf Richter provides a succinct display of existing home sales on an April YTD basis versus prior year for 30 major markets.

‘The pattern is stunning: Among homes sold to the top 1% of households, volume is up by 20-100% in most markets. By contrast, transaction volume during the last four months was down for the entire remaining 99% of the market in 26 out of 30 cities. And the bottom 99% volume was off by double digit amounts in places like Phoenix, Orange County and Los Vegas.

Moreover, a quick peruse of the chart shows that the pattern of soaring volume among the 1% is not just a regional aberration owing to the social media and technology stock boom in the San Francisco Bay area. Volume of top 1% home sales on Long Island, for example, was up by 72% during the first four months of 2014—bad winter weather notwithstanding. Contrariwise, volume among the less well insulated 99% of Long Island home buyers actually dropped below prior year levels.’

How do you like that? The whole housing rebound story is a fraud… another distortion caused by the US Federal Reserve… and another example of how the insiders transfer wealth from the outsiders to themselves.

In Oakland, California, for example, sales to the 1% rose 45 times faster than sales to the rest of the population.

Yes, dear reader, it pays to be rich.


Bill Bonner
for Markets and Money

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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