I thought for my final blog, I would attempt to cover everything........................is that possible? And since I've always come from the perspective of how things will impact money and assets, let's discuss those first!
Cash: Regardless of what pundits will tell you, that cash is a terrible investment because it earns nothing and inflation erodes it's value, I believe cash is still KING. If you had the chance to talk to my parents, they would tell you we've missed every asset bubble melt down starting with the tech bubble correction post 1999.
Their net worth has been the rock of Gibraltar because we chose to move out of bubble assets before they imploded, and in each case cash was the significant storage of safety.
Cash today is still their largest holding for many reasons. I still believe we are in a deflationary cycle environment where we will see significant economic set backs and corrections in asset values.
Specifically though, how does anyone get excited about owning US bonds at peak levels with tiny yields. The US bond market could be the next bubble asset implosion. Then there's gold, on an 11 year run without much of correction, and over due for a significant correction in time or price. And how about that stock market, a double off the 2009 lows. And let's not forget real estate, the latest bubble melt down, an asset that could be in a Japanese style deflation type environment for a long time. Where, oh where, does one put their money in a long term buy and hold strategy in these classic asset categories?
We want cash levels higher than what the pundits promote on TV because being defensive is still a central theme. We still have a healthy amount of mattress money as part of our cash position.
And, when it comes time to buy the best deal of a life time in the next correction, one has to have cash ready for that! Selling a declining asset to buy another declining asset is useless.
Tax Receipts: This is still our largest holding next to cash. It's about 15% of our total net worth. Our receipts pay interest of 10% with very little risk as long as we do our due diligence. It's turned out to be a great deflationary investment. It's a great alternative to both bonds and real estate.
Precious Metals: First, everyone should have 5-20% of their net worth in PMs. I recommend holding the metal in physical form versus buying an ETF like the GLD. Note: We have trimmed our PM exposure in the past couple years because gold is very over bought on the long term charts.
Below is the monthly chart of gold. The price of gold has failed at the over head trend line. While there is still a window for another push up, let us assume at least an interim high is in for now. What you'll notice is that gold can go through a significant correction in price or time and still hold the blue uptrend line. There's lots of price levels for support too. What's missing in this massive move up is a long sideways correction. Notice the monthly MACD is trying to turn down. If this is ready to unwind lower to something close to zero, a long sideways correction would fit. But even a range bound correction could see a large price range.
When I think of buying more PMs, I want to do it when price has pulled back, I want to scale into it or dollar cost into it, and I'd like to see the weekly MACD well below zero. A big range bound correction would be a great signal, but that could take months. For now, I'm on hold with PMs.
Stock Market: The stock market has enjoyed a very nice rally from the 2009 low, but I've always felt that was a cyclical rally within a secular bear market, and I still believe in that today. And while there might be a little more gas upward for the market, I also believe there is another significant correction coming in 2012 or 2013.
The question has to be will it happen before or after the 2012 Presidential election? The time frames or windows for a market top/turning point for me are January 2012 (34 Fibonacci months up from the March 2009 low), March/April 2012 (3 year anniversary from the March 2009 low), or sometime in the fall of 2012 as we head into the election itself. These are conceptual ideas for the time being and I've charted them for visual perspective.
1) January 2012 High: This is the weekly chart of the SP500. The market fails at the downtrend line in the next few weeks with the weekly MACD rolling over somewhere near the zero line. That could be quite bearish.
2) March/April 2012 High: The market double tops on the 3 year anniversary of the March 2009 low.
3) Fall 2012 High: This is my lest favorite idea because I'm bearish, but none the less, if the bullish view can gain momentum, then price could push above the 2011 high. I would look for a high somewhere in the blue resistance lines along the black uptrend line.
The Risk Chart: Below is a monthly chart of The Risk Chart. You'll notice the risk chart made a massive broadening wedge pattern, completing a year before the 2008 stock market meltdown. It was one of the two charts we used to move to cash in late 2007 and then short the market in 2008. The Risk Chart went through classic wedge price behavior, it then corrected and splashed below the bottom wedge line, and then followed with a bounce back to the middle wedge line. Both of those are classic price behavior. I've label those waves A and B for now.
What's fascinating is The Risk Chart is tracing out a "possible" Head and Shoulders topping pattern. It looks a touch unfinished in both price and time. Ideally, this should get up to something around 75, and on a time line, anything between January and April of 2012 is a fit. This is something I'm watching closely as an indication of a potential market top or turning point of significance. Ideally, the MACD should be close to the zero line before turning.
US Bond Market: The biggest bubble on the planet, maybe of modern time, is the US bond market. Below is the monthly chart reflecting a bubble channel over 30 plus years. Price is once again testing the upper range. You'll notice that every time the bond market strikes the upper range it is followed by a correction to the lower channel lines. A correction in US bonds seems likely in 2012.
Real Estate: Yes, it's a regional market and location is important, and there are places in this country that may have bottomed, but I still see real estate as the falling knife nationally. Don't get me wrong, we will see a bounce in values from time to time because nothing goes straight down for ever.
Land: Land slated for development is still an avoid. You can't buy and build it for less than what you can buy an existing home for in today's world.
Vacation Homes: I hate this category. First, we will probably see the tax deduction go away for interest on a second home in the coming years. Second, higher taxes in general on the wealthy will compress affordability. Third, Baby Boomer demographics are a negative for this segment. This sub-segment is still a sell/avoid.
Farms/ranches: If I had to own real estate, a small farm or ranch with it's own water source is probably the one. Sure, it's over valued too, but if I could own a farm with no debt, it serves as a great deflationary home base with it's own food and water source.
High End Homes: The attack on the wealthy via higher taxes and a continuation of wage deflationary plus Baby Boomer demographics should compress high end values moving forward. I have a number of clients with high end homes, and their values are still trending down, I see no change in this dynamic. Most important though is the move up market is virtually ZERO, and thus there is no demand.
Multifamily: The one area where we still see active building, and we might be in the formation of a bubble, at least in the total units being built. Currently, it's being supported by a strong rental market because the demand to own is down. However, multifamily is in for large correction when the bond market bubble corrects and interest rates go much higher, and Cap Rate to value income properties goes up compressing the value of apartments.
Note: I'm still running a deflationary investment model for mom and dad, and I expect that to continue for the foreseeable future.
MY 6 CANARIES
I have 6 canaries (indicators) that I'm watching as it relates to another deflationary leg lower of size. Those 6 are IBM, AAPL, Gold, Palladium, Copper, and Junk Bonds.
IBM and AAPL are easy to understand because they are the largest components of their respective stock market indexes. Thus, how they go, so should their indexes.
IBM Monthly: As an indicator of market health, I like to keep an eye on IBM. What you'll notice is IBM pushing higher after a long sideways pattern, but the monthly MACD is approaching significantly over bought levels. A rollover and cross of the monthly MACD would indicate a correctional phase of size in price or time for Big Blue, and thus would indicate the same for the stock markets.
If IBM corrected back to major support at the black line, that's $120, that's a correction of almost 40%. If that happened, what do you think the rest of the stock market is due for?
Back testing support is a classic expectation!
AAPL Monthly: On the monthly chart, we see AAPL in a series of impulse moves higher. The monthly RSI is reflecting divergences, and the monthly MACD is very close to rolling over. I've said it before, and I'll say it again: who is not in AAPL? Are we all in this market favorite? While we could get another push to a new high like $450ish, it seems like the entire world is in love with AAPL and everyone that can be in this stock is already in this stock. A correction of size in time or price seems logical in the coming months. A correction in AAPL, especially if joined by IBM has to be a negative for the markets.
If we correct back to the uptrend line that's roughly $300, which is a 25%ish correction. If we back test the prior major peak, that's roughly $225 and correction just under 50%. You get the point though, what does the rest of the market do if AAPL is ready for a correction of size in price or time?
$GOLD Monthly: Below is the monthly chart of gold. We have a divergence on the RSI and the monthly MACD is trying to rollover, then cross and head lower. Gold is massively over bought on the monthly chart, and while there's still a chance of a splash higher, if the MACD crosses and heads lower we could be in a correctional phase. This doesn't mean that the secular bull market is over. One of the things that is missing in this chart is a sideways correction over time.
The chart below has a lot of data drawn on it. Assuming the top is in, I'm using two sets of Fib retracement levels to gauge support. In black are the Fib retracement levels using the absolute low, and in green are the Fib retracement levels using the most significant prior low.
What you'll notice is $1,300 stands out where we have both black and green retracement levels. And then 1,100 to 1,150 where we have another set of green and black lines with the lower BB. We could easily correct while keeping the bullish secular trend in tact.
However, a correction of that size in price is something I feel will correspond with a deflationary leg in the US economy. So, we have to keep an eye on the monthly MACD rolling over and crossing as our indication of deflation!
$COPPER Monthly: Copper is a key industrial metal and can correspond well with the economy. You'll notice it made a weak new high in early 2008 before collapsing, which is exactly what followed in the stock market and the economy. Fast forward, and we've made a another weak new high in the middle of 2011 and have fallen back below the 2008 high while building large divergences on the RSI and MACD. This chart is screaming economic and stock market warnings.
We have cluster support at $2.75, which is where the lower BB is and the prior price low. If we get below that, we should view that as a deflationary trigger.
$PALL Monthly: This metal has done an excellent job of correlating with the economy and stock market. When we've seen price roll from a high point with the MACD turning down, we've also seen economic weakness and stock market corrections.
The key support level is $600. Let's use this level as our trigger for deflationary.
JNK Daily: The junk bond market has correlated well with the stock market bottom in 2009. It represents the risk on trade, and as long as it is pushing higher it indicates health in the stock market. There's nothing bearish in this chart yet. A weak new high and reversal would be the first clue moving forward.
My six canaries are technical indicators I'm watching for the next deflationary leg lower. Most of them are showing early warning signs that are very serious, so we need to keep an eye on them in 2012. Note: When using monthly charts, patience is needed because it can take several months for significant technical events to finalize.
One of my favorite blogs I've written (August 2009) was Mustard Seeds for Deflation: The Deflationary Cycle Full Monty .
In that blog, I discussed 8 risks for deflation:
1) Higher Taxes
2) The US Bond Market
3) Wage Deflation
4) The Next Wave of Foreclosures
5) Non Primary Residential Real Estate
6) The Baby Boomer Switch
7) The Local Municipal Government
8) The Bubble State (California)
1) Higher Taxes:
We are starting to see higher taxes and fees. In the State of Illinois, they have raised state tax rates. In CA and NY, the move is growing to raise taxes on the rich. The federal government is also trying to raise taxes on the rich.
What might happen over time is the attack on the rich via higher taxes. Over time, the threshold or income levels for these higher tax rates will slowly come down and more people over time will fall into higher tax brackets.
Higher taxes are a simple "part" of the cure for budgetary issues at every level of government. Tax inflation will cause compression in net income and eventually impact real estate affordability and consumer spending, which ultimately keeps the deflationary cycle alive.
The phase of higher taxes is in inning number 1, and we are just beginning this very slow process of boiling the frog (That's you by the way).
2) The US Bond Market:
Here's the monthly chart of the 30 year US bond market. If we get the correction in the bond market I'm looking for, then the question is really: are we ready to break the channel or not? If so, this would indicate a bubble size correction is in play. Using Fibonacci retracement levels, I've put in the expected correctional zone. And what do we all know about bubble corrections? They go much further than expectation, so we could go well past that zone.
The problem with a bond market correction is that yields with go up significantly. These yields will impact interest rates charged on mortgage loans and cap rates used to value income producing real estate.
Higher mortgage rates will make owning real estate more expensive. Those on variable rates might find themselves blown out of their house, and a new home buyer will be able to afford less home on higher rates. Both of these are net negatives for real estate values.
Higher cap rates will compress the value of all income producing real estate, even apartment buildings.
What doesn't get discussed much these days is that artificially super low rates today is forcing banks to write millions of super low fixed rate loans. If rates go significantly higher, the cost of funds for banks could exceed the income or yields they earn on today's fixed rate loans. Higher rates could create a significant issue for future bank earnings and be apart of another banking industry issue.
Ben Bernanke is trying desperately to keep rates low, but as we've seen in Euroland, once the confidence is gone, bond holders will sell off bonds most vigorously, and rates rocket higher.
Just because we are the United States doesn't mean we can't go through this very same issue, and the bond market will trump Big Ben.
Higher rates is the wild card in deflation, it's the one thing that could break the back of our economy by being the death nail in real estate and once again putting the banking industry at deaths door.
3) Wage Deflation:
We've already seen wage deflation in the construction industry, and real estate and mortgage brokers.
We will see wage deflation continue in a number of forms.
First is the massive consolidation wave coming in banking. There are just under 8,000 banks in this country, and we could easily consolidate this down to 5,000 to 6,000 in the coming years. In this coming consolidation phase, many bankers will lose their jobs, which will compress the pay scale for bankers.
We will also see a consolidation in Wall Street, which is on the verge of happening soon. With less trading and underwriting comes lay offs, which again keeps pay and bonus rates down.
In the world of municipal pay for workers and retirees, we have to see higher taxes and lower pay to solve muni budgetary issues. The pay rate for workers and retirees will be coming down over time.
And lastly, higher taxes will force net income compression or wage deflation on net income, especially for higher income earners.
Wage deflation (real estate deflation being the other) is a core component of a deflationary cycle.
4 and 5) The Next Wave of Foreclosures and Non Primary Residential Real Estate:
While we have another bulge in foreclosures coming in 2012, I've found my self looking at real estate in the form of my pet topic: Critical Mass.
A couple months ago, I had the chance to chat with Steve Moyer about this topic and he had some interesting comments.
It started with an email to Steve, “How bad is the real estate data getting lately? It’s comical. High end could be the big loser in the next leg lower.”
Shortly there after, Steve called me and we got into the big money talk, something he and I do on a regular basis, and if you ever get the chance, talking money with Steve is a treat!
He and I discussed a lot of concepts and topics, and he’s a fan of my pet topic: Critical Mass!
We both believe in the notion that it’s really a matter of when not if the Bond Bubble comes to an end and a severe correction in bonds will send interest rates much higher. In that light, Steve said, “it’s time for Critical Mass 1: Things stay the same. And Critical Mass 2: Bonds correct and rates go much higher.”
Steve’s ability to see around the corner raises an interesting concept, and as usual he's spot on.
Critical Mass 1: Things Stay the Same!
If things stay the same: jobs remain weak, we have a muddle through economy, prudent lending standards remain the same, 25% of homeowners remain upside down, and another wave of foreclosures is upon us in 2012, then we could see lower real estate prices nationally. But what might be the key ingredient is the lack of demand will keep real estate an issue. Currently, there is too much uncertainty to get those who can buy, to get out there and buy.
Euroland: there is so much uncertainty and financial distress stemming from Europe, it too is creating uncertainty for both stocks and real estate.
Politics: A leadership vacuum in the US! That’s right, we have the weakest leadership in decades here at home. From Bernanke to Obama to the GOP. The recent battle over taxes/spending/deficits has only gone to showcase how weak our leadership really is.
The upside down club: There are currently an estimated 25% +/- of home owners upside down. Those in this club have no equity to use to buy up into the next house. Again, this helps in creating a demand vacuum, and with little demand, how do we soak up the supply of homes and shadow inventory?
Lending Standards: lending standards have returned to more normal and prudent levels, which they should, but that too has an impact on demand.
Foreclosures: A new wave of foreclosure notices have begun with big banks like Bank of America ramping up the foreclosure process. This will add financially distressed supply to the market sometime in 2012.
If everything stays the same we could see lower real estate prices easily in the future.
The standard thought of a 5-20% price correction seems like a no brainer in the coming months. We don’t have to do anything to get there because everything will remain the same, because we will not get the kind of bubble economic growth to change any of those dynamics.
This is Critical Mass 1. In this view, we could see a water fall event where real estate falls 2-3% in a month, or 3-10% in a quarter because there is simply too much uncertainty, too much financially distressed supply, and a paralyzed buyer (weak demand) forcing that repricing event in the near future.
My conversation with Steve was so interesting, he said. “You need to discuss Critical Mass 2: what if the bond market corrects and rates go much higher!”. Let’s get to that concept now!
Critical Mass 2: Bonds Correct and Rates Go Much Higher
First, let’s look at the monthly chart of the 30 year US Bond below. What stands out is the obvious Bond Bubble channel. Price has returned to the upper end of that bubble channel. The logical expectation is for a correction in price. The question has to be do we pull back to the bottom channel or are we ready to break the channel and end the bubble with a bubble correction?
If bonds are ready for a correction of size, then bond yields are ready to rise. Since mortgage rates are tied to bond yields, we should expect a rise in mortgage rates.
The problem in the world today is everyone believes low rates are here in perpetuity. And just about everyone believes Bernanke can control rates and he’ll keep us in low rates for ever.
WRONG! At some point the market will decide this equation. And as it stands, bonds at record pricing is the equivalent of the ALL IN BET. What happens when the “All in bet” fails?
Steve said something I thought was quite poignant. He said the pending correction in bonds and spike in rates will most likely happen at the absolute worst time. I tend to agree with that line of thinking and I have a couple of thoughts on how that will happen.
The first is taxes: It’s a matter of when not if we see higher taxes at every level of government. We see minor trends that have already begun, but if we are to cure our deficit issues, they do require some form of the US citizenry paying more in taxes. I personally believe that happens in a more definitive manner after the 2012 elections, possibly as soon as 2013 with a strong attack on the wealthy paying more in one form or another.
The second is the Baby Boomer Switch: It’s just a matter of when boomers decide to adjust their life style downward because they will be making less in retirement. This requires the largest generation in America to sell their home and move down while spending less.
I‘ve said it before, you could easily get a trend of higher rates at the same time we see a trend in higher taxes. And those could happen at the same time boomers have to go through the Baby Boomer Switch.
Critical Mass 1 and 2:
In either case, it's highly unlikely we have bottomed in national real estate values. The dynamics behind both Critical Mass 1 and 2 could keep US real estate in a long term Japanese styled deflationary market environment, longer than most would expect.
In all likelihood, the bottom in Critical Mass 1 and 2 will not be the same time period because the trends in higher taxes, interest rates and boomers should take 2-5 years from now to unfold in a more complete manner. The dynamics for Critical Mass 1 should unfold before that.
And, an over sold bounce or cyclical bull market within a greater secular bear market could happen in between these two conceptual ideas.
While both Critical Mass 1 and 2 represent some kind of opportunity to buy real estate in the future. The world’s greatest timing to buy real estate is not until higher taxes and interest rates have squeezed every once of value out of real estate.
6) The Baby Boomer Switch:
As the Baby Boomers age and reach retirement in mass, there demographics will change. Their income will drop, eventually like or not most of them will move down in real estate, and because they will be on a tight fixed income they will spend less.
All of this is a continuing negative for real estate and consumer spending, which impacts the economy and tax collections for municipal governments, and will aid in the deflationary cycle.
7) The Local Municipal Government:
For most of the past 5 years, municipal governments have used accounting tricks, debt, and gimmicks to solve the bulk of deficits. Later in the cycle came lay offs and the elimination of some services. But at some point, we reach a point of bare bones staffing and service levels, and then the math requires a real solution.
Even if budgets were to balance, the overhang of pension liabilities requires a significant change in the math.
The math dictates one of three or a combination of three solutions: Higher taxes, lower muni pay to workers and retirees, and/or bankruptcy. All of which are an economic drag and aid in the deflationary cycle.
Even with a robust economy, the overhang of pension liabilities is too big, and thus the outcome will be lower pay, higher taxes and more muni BKs.
8) The Bubble State (California):
The Bubble State has the largest muni budget issue as a state, and more importantly the collective city, county, and state level. It's the largest population in the nation with the world's 8th largest economy.
California has turned into the state no one can afford to retire in or raise a family in. With muni budget resolutions coming at every level within the state, a currently high unemployment rate, and the majority of high end real estate set for correction, it won't take much to send The Bubble State into a bubble state correction.
As goes The Bubble State, so goes the country. It's too big too......................well I won't say it. Never the less, CA will impact the rest of the economy should it experience a decline!
Additional Risks for Deflation
Since writing that original blog, a number of things have popped up that are risks for causing or aiding deflation:
1) Federal Spending: US debt levels and budget deficits are out of control, and it seems like we are on the cusp of pushing higher taxes on the wealthy while looking for spending cuts. Spending cuts at the federal level are healthy, very healthy long term, but short term it has a net drain on the US economy. Like increasing taxes, decreasing spending could be a long drawn out process, which supports a deflationary cycle era.
2) Iran/North Korea: True wild cards, these two countries pose problems we can't fully gauge but the impact could be large. In the case of Iran, any increasing tension will cause oil/gas to spike higher, which impacts the wallet of all Americans.
And then there's a new 28 year old leader in North Korea. We have no idea how a new and young leader in North Korea is going to react to American policy, and thus the risk is now elevated.
3) Euroland: The problems facing Europe are quite severe, and even if they protect themselves from a liquidity event, the chances are great that Europe goes through a deflationary leg with falling real estate values on top of compressed stock markets in 2012. A very weak Europe could have an impact on large multinationals here in America. That coupled with a potentially strong dollar could impact earnings from the multinationals here in the U.S.
4) China: The issues with China center around the concentration in their economy. The biggest part of their economy is real estate development, which has been in bubble mode and showing signs of deflating. The second largest part of their economy is trade with...............that's right Europe. It's conceivable that at the time they experience a collapse of their real estate bubble they could experience trade issues with Europe in recession. Can the global economy withstand those impacts? If China goes trough a significant economic correction, would that not have some impact on the US economy?
I guess I'm up to 12 risks and counting for deflation. Yes, things are getting worse not better. Using a boxing analogy, we are one right cross away from hitting the canvass.
Ironically, some of these are a when not if. We will get higher taxes, Baby Boomers will age, and interest rates will go up when the bond bubble busts. Some of these are very likely to happen at the same time intensifying their impact on the deflationary cycle.
WHAT'S WRONG WITH AMERICA
I could ramble on and on and on about any number of issues like gov't spending, the deficits, jobs, the economy, Democrats, Republicans, The Federal Reserve, blah, blah blah.
It's actually quite simpler than that, but missed by most Americans. The number one issue is:
We are a country that is of and by the wealthy, corporate America, lobbying special interest groups and the political elite for the very same group. We are not a country of and by the people for the people.
The public has become bamboozled and betrayed by the two party system. Both parties are failing their own constituents as they suck up to the 1% of this country.
The two party system is really a one party system while the sheep are still fighting a left versus right battle, while the political elite have de-unified this country.
Politicians are thriving because of the big money donors while keeping their constituents focused on issues like jobs, deficits, taxes, entitlement programs, etc. They have the public fighting amongst themselves when the biggest problem is politics.
We have lost one of the concepts that has made America so great. What's next, the right to free speech?
As long as the masses keep buying into this manipulation the country will have a political system that's failing America.
We must get back to a country that is of and by the people for the people. That requires some radical changes to the way politics works! It has nothing to do with creating jobs, or government spending, or entitlements. It requires Americans to stop fighting for their block of cheese, and begin to think about the greater good of America long term.
My solution would be the following law, with the bill titled "We the People":
1) Political donations can only be made by a living breathing human being, a citizen of the US with a social security number.
2) That contribution is limited to a certain amount each year for each politician.
3) You can only donate to a politician that represents you (ie: you can't donate to a politician in CA if you reside in NY).
4) The number of seats held by any political party of the House or Senate can be no more than 30% of the total.
Items 1-3 attempt to eliminate contributions from corporate America and lobbying groups (1), and limit donations via the wealthy (2 and 3). In essence, let's design the game so the politician can't be bought as easily as they are now by a select few with deep pockets. Item 4 hopefully fosters better competition of political ideas by requiring more than 2 parties, to better serve the greater good of humanity. Let's get off the Coke and Pepsi two party system.
Did you notice my solution has nothing to do with the left versus right? It's all about shrinking the money and thus corruption in politics and centering the focus of politicians back on to the people of America. We can always have the fight between parties, but wouldn't it be great if politicians actually represented us in that debate?
THE TOP 5 THINGS I WOULD DO WITH THE US GOVERNMENT
Okay, let's assume for now we are never going to cure the political system, because that would require the masses to wake up. What are the most significant things I want to do?
1) Close down Freddie, Fannie and the FHA. Let's get the government out of the business of housing finance. It's a joke!
2) Let's phase out of Social Security, make illegal all pension plans, and move to a mandated self driven retirement savings for everyone. Let's get the government out of the business of providing retirement and force people to put away for themselves.
3) Let's punt Obamacare and go back to the drawing board.
4) Let's change or punt the Federal Reserve. I prefer closing it and let the market set interest rates. At the core of our problems is Fed Policy trying to manipulation the economy for short term gains, which has only served to create greed and rolling bubbles, and their subsequent collapses. Financial engineering is a failure leaving structural issues to deal with for future generations that are simply too big!
5) Let's stop being the world's police officer.
Those would be my top five. Oh sure, there a plenty of other things we need to tackle, but let's shrink the size and shape of the US government, it's costs, and the burden it carries.
COMING TRENDS IN DEFLATION
1) Frugality was popular in the last recession, and it will become vogue in the next deflationary leg. The consumer nation will be forced to rethink what they can afford and whether or not they want to build some savings.
2) Generations living together will increase under the financial pressure of trying to make life work.
3) Eventually, we will see a redistribution of Americans to where it's cheap to live within the United States. Retiring Boomers and young families will chose to leave the more expensive areas for better affordability.
4) Personal Bankruptcy at some level will be viewed as a norm.
5) Real estate values will cycle lower over time, well below what most people could every think is possible in probably a Japanese style deflation model. In some of the worst areas, you will see prices fall 80-90% from their peaks.
6) We are going to see an elevated number of small businesses close their doors or go out of business. As a banker, I see too many businesses that are just getting by, and the 2008 recession depleted assets of the business or the owner, and there is little to no reserve to withstand another sharp recession like 2008. Another 2008 could end a lot of small businesses.
7) SOCIAL UNREST: We already see it in minor forms of the Tea Party and the Occupy movement, but the country is one economic stumble away from this trend intensifying. The masses are going to get very angry because someone has moved their cheese.
HOPE ALL IS WELL
I want to take this time to thank you the reader for coming to my website. It's been a pleasure to write a blog. I want to thank all of those who sent me an email with a question, comment or concern, I really enjoyed getting all of them.
I've always ended my blog with "Hope all is well" because we live in tough times, with little light at the end of the tunnel, and things could get significantly worse, so I wish you the very best in tough times.
If I had to give one last piece of advice it's to save money, protect your wealth and love your family and friends.
As always my friends, hope all is well.
J.D. Rosendahl, Rosey