So everybody thinks I've been smoking some crack lately, which I'm definitely not. I don't know what crack tastes like and have never even smoked a cigarette in my life. Most of my real estate colleagues think I'm nuts in calling a massive recession in the housing market. Even in Toronto's real estate market, everybody is saying the sustainability in the rising house prices is based on immigration. In my opinion, that's complete BS. Statistically, most of the immigrants who come to Toronto will take 10 to 15 years before they have enough profit to own a house. Just like in the United States, the money is drying up in China because of the Huawei fiasco. Chinese investments in the US have dropped 90% since 2016. This statistic is even worse for the Toronto and Vancouver area.
It may be a small example, but one of my ex-workers said he's moving to Nova Scotia. He purchased a home with a 70-foot lot for $120,000 and told me he reduced his expenses by $2800 per month. He told me he's going to build a hockey business in his garage and sell used equipment providing that I become a reliable supplier for him, which I agreed to.So in their own conventional wisdom, the Federal Reserve decided to lower the interest rate by a quarter-of-a-percentage point. That's essentially an investment into insurance for them to keep the American economy growing and to keep Donald Trump happy. However, Wall Street knows that a quarter-of-a-percentage point is built into the assets that elevated the S&P to new heights. Even if housing permits and housing starts show a modest improvement, it will not likely be enough to avoid an imminent housing recession.
The central bankers know the end game is near as markets can only be supported for so long with easy money.The Fed has played a cheerleader role to the privileged class by touting America's capitalist, albeit crony capitalist system. People will often quote Margaret Thatcher who stated, "Socialism fails when you run out of other people's money." The real problem with capitalism is when you run out of your credit limit from higher prices in regards to the willingness to pay for consumer products. The banks are willing to up your credit limit providing that your real estate assets are going up. However the circus ends when people realize that no one can afford houses in Toronto, Vancouver, and California any longer. Sure, you may have a robust population in a high-tech city with people making oodles of money, but that's tentative if the stock market and the valuation of these high-tech companies continues to rise.
Bernanke, the former Chairman of the Federal Reserve, is the real culprit behind this illusory path of crony capitalism protecting the wealthy privileged class of America. Housing and auto, two major components of he economy, are both heading into recessions and paint an overall darker picture going forward. An economic recession is set to occur likely either this year of the following year, which will be followed with a class war in the United States. Sorry I don't mean a class war, because of course the end result will be the American taxpayer footing the bill just as they always have.Current Chair of the Federal Reserve, Jerome Powell, made the right decision in raising interest rates because of the discordance between the real economy and fake economy. The fake economy is based on Corporate America not generating enough revenue to make growth sequences to sustain higher wages.
If the American economy can't sustain higher wages then we have a significant problem on our hands. With easy money it's very easy to increase asset prices as long as you establish share buybacks. If American corporations are able to achieve share buybacks by rolling over their debts, then it does create a false expectation with respect to their revenue growth rather than their real growth.Some of the hawkish members of the Fed have indicated that we should not lower interest rates because the American economy is doing well. However, all that's going on is a rapid rise in asset bubbles in housing and the stock market. Trump wants to get involved with the independence of the Fed, but his whole mantra rests on how well the stock market is doing. Once Powell lowers interest rates, Europe and Japan will follow suit with their own easy-money policies in order to sustain their economic growth.China is willing to wait out the trade war with Donald Trump.
They are perplexed that on one hand China is expected to make large purchases of US agricultural products to relieve American farmers, yet on the other hand are being kept out of the high-tech industry with the so-called "defending America's 5G future" policy set by Trump along with an additional $325 billion worth of tariffs on Chinese imports lingering in the shadows. China realizes that not only does Trump's "me-first" philosophy exclude China, but also that despite being the world's largest economy, the United States can never dominate the world at its will.
The Americans that initiated the trade and economic frictions with China are not willing to share benefits as a win-win solution for the global economy.White House National Economic Council Director Larry Kudlow stated, "I think if China keeps moving the way they're moving, they will be on the wrong side of history." These illogical remarks have been denounced by the international society which understands that a majority of US officials are not looking for a "win-win results" agenda. However, they also understand that no one stands to achieve success without a win-win cooperation with other nations.
All Trump wants is for China to purchase their agricultural products because many of the American farmers are not only filling the pinch of the trade war, but the dust-bowl feelings of what happened previously in 1929. If Trump can't sell agricultural products to China or Japan, then the failed economic sequence will originate from the American farmer all the way to the housing and fake stock market. American farmers have had to lower their prices for corn, soybeans, milk, and even beef. They are worse off under Trump than Obama. Even with lower interest rates, the American farmer is still facing lower commodity prices and unsustainable revenue to keep their business going.
The American farmer is looking for a turnaround, but then again China is not succumbing to Trump's demands. Even if Trump decides to increase tariffs on more imports from China, China will not cave in because the trade negotiators don't understand misery.China's misery is based on a win-win solution rather than capitulating to the largest economy in the world. The Fed will never lose the confidence of Wall Street, but if they ever lose the confidence of the people then the fake economy becomes real.
Once it becomes real, easy money is no longer available for the general public because of the debt that their ancestors will continue to hold. In my opinion, the American housing market will once again collapse in two years time. Nothing is sustainable, not even easy money. Unfortunately the central bankers want to get paid their hefty commissions and big salaries, I promise you that they'll get them.