Tuesday, April 30, 2013

All bubbles eventually revert to their starting level

If bubbles eventually revert to their starting level, Phase 3--capitulation and a return to pre-bubble prices--still lies ahead for the housing market.
Way back in 2006 at the height of the housing bubble, this chart was prepared proposing the housing bubble might exhibit symmetry, i.e. the decline would mirror the rise. I also proposed that the decline would be characterized by phase shifts that corresponded to the decay of whatever reason was being given for the "recovery" in housing, for example, "this must be the bottom."
Let's compare this idealized bubble symmetry with a chart from reality: housing in the bubblicious Los Angeles market.
Here's another look at the L.A. market as measured by Standard & Poors:
Hmm, what would have happened if the Federal Reserve hadn't dumped trillions of dollars into the mortgage market, and the Federal housing agencies hadn't subsidized mortgages and housing with 3% down payments and tax credits?
Perhaps all the trillions of dollars of intervention has accomplished is extend Phase 2. Central bank and state manipulation distorted the symmetry of housing's decline, but did they stave off Phase 3 permanently?
If bubbles eventually revert to their starting level, Phase 3--capitulation and a return to pre-bubble prices--still lies ahead.

Let's compare the idealized bubble symmetry chart above with a chart from reality: housing in the bubblicious Sydney Australian market.

When the banks are finally forced to push the houses off their books then we will find a natural bottom. As long as they can keep them on the books we will keep up this game until every neighborhood looks like Detroit. The bank will have vacant houses that are ready to fall over on their books  valued at $100,000 +.
Bubbles never end pretty...that's the sin quo non of "bubble mania." One needs to take on the traders mindset when investing in Real Estate also (buy low/ sell high)
Some Australians have managed a solid exit by marketing their Real Estate heavily to the Chinese because they're not all that familiar with the Ponzi game.  It becomes the lure of it all; they start to try and out-compete each other.  I have to constantly remind my Japanese wife that "sale" (or, "cheap") doesn't mean "value."  Such people are easy to set up as lemmings.  BUT... nearly everyone is or has been in the lemming pool; those that left learned what "bigger sucker" means.  And, as is always the case, there's always the end of the line, the last sucker.  This time it's the Chinese, as there are no other suckers around.  And to be a non-resident AND from a country that is increasingly shifting toward the bad-guys list, well...
The Japanese tried that once and it didn't turn out so good for them.  Let's see if the chinese are any smarter.
when it comes to housing, people think they're buying a house when what they are really buying is a monthly payment.  Remove the Fed from what we laughably like to call the bond market and require the Federal Government to compete for financing and the resultant increase in rates would crush the housing market.  You'd see prices fall to levels last seen in the late 80s.

The trick is to identify a bubble and not participate because while the idea of a fast buck is appealing, the downside is worse. 

Remember the secret to making money in any market is not to lose money, your gains will come over time but losing is hard to overcome.
Does That Australian Housing Bubble Chart Remind You Of Anything?
Most bubbles take on the form of the chart you see here when normal assets take on a life of their own and become something you must own ONLY because it has to go higher, right?  wrong!

Tuesday, April 23, 2013

Asset Bubbles 'Pop! Go the Weasel' A Visual History

Bubbles are a reflection of humans' herding behavior carried out to periodic extremes, or expressed differently, they are momo investments on steroids.

Maybe not all, but certainly the vast majority of the most popular asset bubbles since before even the Tulip Mania of 1637 (including the Kipper and Wipper currency debasement of the German 30 years War, circa 1621, which is appropriately enough deja vu in contemporary retrospect, only the war is missing). Its worth noting that all the bubbles to the right of center have been central-bank induced (except for that amulet bubble of 2006, although even that is likely debatable), I will not note it as it is quite obvious even without me highlighting this simple fact. One can only imagine what would happen to asset prices - all of them - when the world's central banks, which are now collectively and voluntarily "all in" on reflating the biggest asset bubble of all time across all asset classes, decide to close the liquidity spigots (if ever).
Perhaps I should also mention to add the youth unemployment bubble of Spain and Greece? The invalid pension bubble of the USA? I was also going to say the firearms bubble in the USA until I remembered that that might come in handy for popping the government bubble.
The fall of the Roman Empire up there when the middle class was driven out of the city by taxation and into the welcoming arms of Alaric appears to be  a) it’s happening again now and b) we will get the same result.

Check out one of the best books on the subject : A Short History of Financial Euphoria.
Another one on the biggest bubble of them all - the rise of private credit creation and fiat money - is called "Web of Debt" by Ellen Brown.
 and so 'Pop! Go the Weasels'...thanks to the banks.  I'll stick with things that I can hold...

The Secret World Of Gold After the Flash Crash

In a wide-ranging look at the history and present of the barbarous relicCBC's Brian McKenna and Ann-Marie MacDonald have gathered many perspectives (pro and con) on gold. The following documentary moves from historical shipwrecks to Nazi 'death gold' and England's war chest to recent years where widespread economic uncertainty has given the yellow metal a "new lustre in the world of high finance." Valued for its permanence, beauty and scarcity, people will lie, cheat, steal and kill in the name of gold; and the clip provides color on many of the market manipulations of the last few years. As MacDonald says, whether it’s a few gold coins or gold bars stored in one of the many vaults around the world, many investors are taking a shine to gold. But there’s not a lot of it. It is said that, even melted down, there would not be enough to fill an Olympic swimming pool. Some claim that much of the gold held by the Bank of Canada, the Bank of England, the Federal Reserve and Fort Knox is gone - that for every 100 ounces of gold traded, there exists only one ounce of real, physical gold. So, where is the gold - and who really owns it?

The recent gyrations in precious metals, commodities, and both the dollar and yen stem 
from correlated deployment of vast liquidity resulting from quantitative easing around the 
world. Some of the correlations are just due to the same people stir-frying the same stuff, not 
economic reasons.
As the quantitative easing around the world continues, such flash crashes will recur. It is 
possible that mass panics, resulting from such flash crashes, could change the trajectory of 
some economies.
The most important case is that, if the Japanese government bonds and/or yen holders panic 
over the Bank of Japan's (BOJ) QE policy, the resulting chaos could trigger a financial crisis in 
Japan, and the resulting yen crash would push East Asia and the world into a crisis.
Gold has bottomed. The recent price gyration is manufactured to benefit big speculators at 
the expense of gold buyers in emerging economies. Physical gold demand is from emerging 
economies, but the financial market resides in New York and London; it is a heavily manipulated 
market. Retail investors must be on guard for manufactured panic-euphoria cycles to fleece 
Abenomics has triggered a massive reorientation of speculative capital in the world. Shorting 
the yen against multiple currencies has become a consensus trade. The Australian dollar and 
euro have risen due to this trade. The BOJ recently released massive QE, almost doubling the 
quantity and increasing risks in asset purchases. It has reinforced the shorting-yen consensus, 
furthering liquidity flowing into this trade from other trades.
In addition to lifting some currencies without supporting fundamentals, the liquidity 
reorientation sucked some away from gold. One justification for the decline in gold price is the 
rising dollar. Its historical correlation with gold is negative. Wall Street has been pushing the 
negative gold story for some time. I bet that the people who have been talking down gold will 
turn positive soon. It's a game to fleece credulous retail investors who follow the trend but are 
always several steps too late.

We're already in the endgame of fiat, but it'll be a long slide to the final destination. The implosion of paper gold and gold manipulation is a milestone event, to be sure, but not the end of the road. Don't underestimate the ability of the fiat magicians to pull out new rabbits. As I noted the other day, the exits are being locked. Let's assume that paper gold goes away tomorrow and physical's price jumps to $10K, $20K, whatever, because none of it is available for sale, it's irrelevant. Paper gold, or paper oil, stocks, bonds -- all will get cheaper -- because it has no value and no trust behind it and people want to escape.
What do you do with your fiat, does it actually just go away? No, it doesn't -- it can't escape the system due to the locked exits. All you can do is sell paper investments for paper dollars. The investment prices plunge. Welcome to deflation.
Once you try the exits and can't leave, what do you do with your fiat? You buy.
You buy everything tangible that has a hope of retaining value -- real estate, cars, food, anything you CAN buy. You don't want the fiat, you want out! When everyone feels the same, velocity of money skyrockets. Welcome to hyperinflation. That's the endgame. Past experience says this will take months to years to play out completely.

We're already in the endgame of fiat, but it'll be a long slide to the final destination. The implosion of paper gold and gold manipulation is a milestone event, to be sure, but not the end of the road. Don't underestimate the ability of the fiat magicians to pull out new rabbits. As I noted the other day, the exits are being locked. Let's assume that paper gold goes away tomorrow and physical's price jumps to $10K, $20K, whatever, because none of it is available for sale, it's irrelevant. Paper gold, or paper oil, stocks, bonds -- all will get cheaper -- because it has no value and no trust behind it and people want to escape.
What do you do with your fiat, does it actually just go away? No, it doesn't -- it can't escape the system due to the locked exits. All you can do is sell paper investments for paper dollars. The investment prices plunge. Welcome to deflation.
Once you try the exits and can't leave, what do you do with your fiat? You buy.
You buy everything tangible that has a hope of retaining value -- real estate, cars, food, anything you CAN buy. You don't want the fiat, you want out! When everyone feels the same, velocity of money skyrockets. Welcome to hyperinflation. That's the endgame. Past experience says this will take months to years to play out completely.

A months-long examination by The New York Times, including tours of gold mines in the American West, Latin America, Africa and Europe, provided a rare look inside an insular industry with a troubled environmental legacy and an uncertain future.
Some metal mines, including gold mines, have become the near-equivalent of nuclear waste dumps that must be tended in perpetuity. Hard-rock mining generates more toxic waste than any other industry in the United States, according to the Environmental Protection Agency. The agency estimated last year that the cost of cleaning up metal mines could reach $54 billion.
A recent report from the Government Accountability Office chastised the agency and said legal loopholes, corporate shells and weak federal oversight had compounded the costs and increased the chances that mining companies could walk away without paying for cleanups and pass the bill to taxpayers.
This month a Philippine province sued the world's fifth-largest gold company, Canada-based Placer Dome, charging that it had ruined a river, bay and coral reef by dumping enough waste to fill a convoy of trucks that would circle the globe three times.
The world's biggest mining company, Australia-based BHP Billiton, sold its profitable Ok Tedi mine in Papua New Guinea in 2001 after having destroyed more than 2,400 acres of rainforest. Upon leaving, the company said the mine was "not compatible with our environmental values."
"You can mine gold ore at a lower grade than any other metal," said Mike Wireman, a mine specialist at the Denver office of the E.P.A. "That means big open pits. But it must also be easy and cheap to be profitable, and that means cyanide."
That kind of massive operation can be seen at Yanacocha, a sprawling mine in northern Peru run by Newmont. In a region of pastures and peasants, the rolling green hills have been carved into sandy-colored mesas, looking more like the American West than the Andean highlands.
Mountains have been systematically blasted, carted off by groaning trucks the size of houses and restacked into ziggurats of chunky ore. These new man-made mountains are lined with irrigation hoses that silently trickle millions of gallons of cyanide solution over the rock for years. The cyanide dissolves the gold so it can be separated and smelted.
At sites like Yanacocha, one ounce of gold is sprinkled in 30 tons of ore. But to get at that ore, many more tons of earth have to be moved, then left as waste. At some mines in Nevada, 100 tons or more of earth have to be excavated for a single ounce of gold, said Ann Maest, a geochemist who consults on mining issues.

The case for gold vs paper is pretty clear cut. In case it was not beyond obvious, paper means unbacked credit and not paper receipts for deposits or otherwise claims on unencumbered metal.
Paper currencies end simply because they are currencies and as such lack the function of a permanent long term store of value. Currencies present the facade and appearance of money but in reality are trojan horses that convey a means of taxation and government power, in conjunction with excessively sized corporations that profits from the system and not from the free market and thus grow larger than could be sustained on a free market basis. Anyone who is against backing currencies with gold and proposes non-backed currencies are afraid of the discipline of gold. They cannot handle it. They want to steal, deceive and act as parasites on productive citizens. They will do everything they can, intellectually and through violent means, to suppress information and transformation towards a gold backed system. They will find every enumerable excuse possible. And I for one, stand firm against this recklessness and sloppy thinking.
There is no middle ground to be found. The gold is either there or it is not. The question is, how much gold is really there. In a floating exchange rate system, nobody knows, but most likely, less than yesterday.
The second point about the Nazi gold is just outright below the belt. How do you have the guts to bring in war crimes as a reason for anything? Do not you understand what Nazi Germany was all about? The whole story started with a certain person called Hitler, and do you know how he came to power? Surprise, he was voted in democratically by an improverished middle class! How did they get impoverished? Have you ever heard about the German hyperinflation, you intellectual moron? Had Germany not issued excess currency, the German economy would have adjusted prices lower, and ordinary Germans would have been able to afford daily necessities. Instead, the Weimar government plunged into outright money printing, destroying trust, stores of value and entire swathes of society in the process Hitler never have be able to obtain the mass political support he got. So do not bring in the "Nazi gold" crap because you are missing the entire point.
Somehow, all these problems existed before, and there seem to be patterns in history. We are dealing with something fundamental here, which is a combination of human behavior, incentives, marginal utility, tragedy of the commons and corruption of power. Your fundamental problem appears to be that you take for granted that human behavior is evil, which it is not. By establishing institutions, such as the gold standard, proper behavior will follow. Gold is, when applied properly, the soundest institution known to man that stands in the way of perverted incentives to deceive by currency debasement, parasiting on the common good and trust in the societal medium of exchange. It is also an institution that stands in the way of the type of resource consolidation needed to wage large scale wars, thus indirectly also being conducive to a more peaceful world. Rome expanded beyond its means, primarily through conquest and territorial war campaigns, living on surplus generated by others, forcing it to debase its currency. The decline of the empire went hand in hand with the debasement of the currency. Had Rome lived within its means, history would have been very different. We might as well all have been speaking Italian.
There are no countries in the world that have been able to build a sustainable economy that has generated high yielding productive capital by expanding the money supply. Rising prices means decreasing prosperity and reduced yields, not increasing prosperity.
There are no economies where fiat money excesses and overleveraging has not caused immense economic destruction, personal hardships and vast tragedies.
The point about not having to mine the remaining gold was, of course, in its most essential form a philosophical argument, but fundamentals imply that this is what will happen in reality and this predicament will have monetary policy implications in years to come. Ore grades have now declined so much that it is no longer possible to increase mining production. Despite high gold prices, mining production is declining. Within this decade, much if not most production will go offline due to increasing costs and energy requirements. Do not take my word for it. Look up production data and geological information. Try to understand what is driving mining companies into bankruptcy. I and the analysts that point this basic fact out will be found right, and the world will have to do the best it can with the gold it already has. This will happen within one to two decades due to physical reality. And it better do.
Anyone can choose whatever they want to use as money. The main problem is that everyone is forced to use national currencies by decree. Who am I to tell you what to use? Keep using national currencies issued by your leader, if you will, but do not imprison or otherwise legally go after those who wishes to transact and account with honest weights and measures.
Using paper or electronic receipts that are backed by gold does not "inevitably lead to fractional reserve banking and fraud". There are no grounds for making this statement and similar thoughts keep popping up within various anti gold communities which serves to reveal your own bias rather than add substance to the debate. Instead of conjuring your own postulates that have no backing whatsoever in historical facts, we can look at the last country that left the gold standard: Switzerland, that has had a highly viable gold standard, direct democracy, personal freedom, gun ownership, sovereignty on an individual and international level and many other things. And do you know what happened in Switzerland? The people were seduced by international bankers, read, IMF, to sell their gold and go off the gold standard, as their currency was being pushed up higher and higher by the ECB printing EUR recklessly. This was not an inevitable event by any means, but a consequence of people giving up their national sovereignty to unelected officials in the EU, ECB and IMF to run their lives for them.
There is no problem in having people "self select" professions and acting in their own self interest. The issue here is to establish an institution of money that can outlast individuals. We can not rely on the brilliance on individuals to sustain prosperity. It has to be backed by something more fundamental. To talk about this as some form of inevitable cycle just goes to show that you have abandoned your own hope, visions and passion for the future, and serves to present you as a lackluster, dull and rather uninspiring individual who is not willing to stand on principle on one of the most important questions of our time.
You can speak for yourself in case you support these things, but many people do not, and if they had their will, we would not be in this mess.
Finally, I just want to confirm to the crowd that the metal shops in HK are ridiculously over crowded.
These are local retail establishments that sell gold jewelry and other PM nick knacks. I have never seen them as busy.

Monday, April 22, 2013

John Hussman

John Hussman is one of the best minds in the business, in my opinion, and in this presentation from the recent Sonoma Wine Country Conference he addresses what he labels the 'unstable equilibrium'. 
Sit back and enjoy a master at work

This is guaranteed to give you goosebumps! Alice Fredenham

Obnoxious Prick that he is, Simon Cowell does have a knack for uncovering some phenomenal talent. 

Last week, a shy, 28-year-old beauty therapist and walking bag of nerves from Hertfordshire named Alice Fredenham stood on the stage in front of four judges and a couple of thousand people.
She had come alone and hadn't told anybody she was auditioning, because she 'didn't want to fail and let anybody down'. You can probably guess what happened next right,  but ... FARK-IN-WOW!!
 this is guaranteed to give you goosebumps. Simply bloody beautiful

Saturday, April 20, 2013

Richard Koo essay on Japans BOJ Kaboda sans Qualitative Easing benefits and Dangers

The existing (and ongoing) massive expansion of base money into the banking systems of the US, England, and Japan is without precedent. As Nomura's Richard Koo notes, at 16x statutory reserves, the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan.
However, it has not, yet. In short, Koo continues, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin - because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact (so-called balance-sheet-recession).
This suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact - and Japanese media is on an 'inflation' full-court press currently. The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to 'normal'. If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control.

Via Richard Koo, Nomura,
The Money Multiplier... and inflation...

The problem is - what if the people start to believe...
The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. A financial institution that suddenly saw inflation on the horizon could not continue holding 10-year government bonds that yield 0.6%. The resulting rush to sell could trigger a crash in the JGB market, inflicting heavy damage on domestic financial institutions.

The question is how the Kuroda BOJ would respond to such a crash. If it began buying more JGBs, the monetary base would expand, stoking inflation concerns at a time when private demand for funds was already recovering and the money multiplier had turned positive at the margin.

But if the BOJ sold its JGB holdings in an attempt to quell inflation concerns, bonds would drop further, blowing a large hole in the balance sheets of financial institutions and the government.

By that time the monetary base could easily have grown to, say, 15 times statutory reserves. In that case the money supply would continue growing, causing inflation to spiral out of control, unless the central bank reduced the monetary base to about 1/15th of its current level.

I suspect that the BOJ would employ all the tools at its disposal to achieve this, including a sizable increase in the statutory reserve ratio, but all of those measures would serve to push rates higher, resulting in large losses for the BOJ and other JGBs investors.

And don't rely on 80 year old 'proof' since it is different this time...
Mr. Kuroda’s methods have frequently been compared to those of the 1930s-era finance minister Korekiyo Takahashi, who championed a successful policy of BOJ underwriting of government debt issues. But Japanese people in those days could not move money freely overseas. The authorities today need to be especially careful inasmuch as almost anyone can move funds abroad with a telephone call or a few clicks on a computer screen.
Be careful what you wish for...
No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to a level more in line with the value of statutory reserves.
If the policy reversal is delayed, the Japanese economy could spiral out of control at a time when base money equal to many times statutory reserves is sloshing around in the market.
Moreover, the act of scaling back the monetary base must be carefully calibrated so as to minimize damage to the JGB market. The BOJ, Ministry of Finance, and Financial Services Agency should also have contingency plans in place in the event that easing triggers a crash in the yen or the bond market.
Full article below...

"within a month or two the zeros start coming back"

In his essay above, Koo makes clear that Japan has LOTS of positive things to do yet
He is superb, one of the great economists of the world ... tho I realise he does not fit in to the dominant themes on my blog.
But Koo and his ideas ... including making sure that common working people are the ones benefited, with jobs and incomes ... are a good part of why Japan has never had a 'depression' since its giant market crash 23 years ago, and why Japan has remained an okay place economically.
What is missing from the above summary, is Koo's optimistic presentation of the other parts of the new Japanese government's programme, which Koo thinks could well succeed, and help to avoid the problems mentioned in this article, if they are implemented promptly.
Koo writes in his Nomura research piece given above:
« One concern is the fact that while the first pillar of Abenomics—monetary accommodation—is already being implemented, the second and third have been slow in coming. I think the base money supplied by the BOJ would come to life if the government announced an accelerated depreciation scheme for capital investment or a bold plan for deregulation of the energy sector.
The Abe administration therefore needs to present concrete proposals for the second and third pillars of its economic strategyas soon as possible.
Other options for the “second pillar” that are being discussed include policies to encourage business investment, such asinvestment tax breaks or accelerated depreciation schemes. If such measures succeeded in ending the private sector’saversion to debt, I think everything would start moving in the right direction at a time when interest rates were low and banks willing to lend.
The third pillar of Abenomics—structural reforms and deregulation—needs to provide the kinds of attractive investment opportunities that tend to be in short supply in a mature economy like Japan’s.Oft-mentioned candidates for reform and deregulation include energy, environmental businesses, and agriculture. I think policies aimed at achieving more effective use of urban land, enabling residents to live in larger homes for less money, would create significant new domestic investment opportunities.There are few city dwellers in Japan who do not want to live in larger homes. 
Yoshifumi Tachibana, 32, might be one. He recently bought an apartment worth 60 million yen (£478,782; $766,430) in central Tokyo.
“I was told I’d get the best mortgage rate if paid about 20% up front, so I did,” he says.
“Low interest rates were definitely one of the reasons for me to decide to buy my first home. I borrowed 47 million yen and I am on a 35-year repayment plan with an interest rate of 0.075%.
But despite such attractive rates, real estate agent Hidetaka Miyazaki says he has not seen an increase in the number of buyers and investors in the last 20 years, especially not in sub-urban areas.”
Any system of money whose survival depends upon perpetual credit expansion for consumption as a model is doomed. There is always a saturation point, a point where no matter how low the rate is no one can assume a pennies worth more. Fundamentally all credit is, is the pulling forward of future demand with the kicker of interest. Imagine if you will 100 year car loans, 500 year home loans...regardless of how far into the future you push things you still need a minimum cash flow in order to service the debt. While debt can be expanded infinitely in theory, cash flow cannot. Add to that the insidious nature of interest which compounds over time and has to be created by the same mechanism all money is created (loaned into existence) and it should be obvious to everyone (which its not) that the system we live under is doomed.
Japan is a tragic but shining example of the failure of Keynesian/Fisherism. 20+ years of propping up the crony banks and their crony pols and crats has yielded nothing but bankruptcy for the Japanese people. Sidenote: until recently most of the "borrowed" money that the JapGov pissed away came from the Japanese people via the Postal system.
Now the the JapGov is basically turning Japan into a Chinese protectorate. The Chinese gov must love that they can not only basically "buy" Japan" but that they can also buy out their foreign asset holdings cheap. i.e. the Chinese can "recycle" their toilet paper dollars via Japan's US asset holdings and at a song too.
I wonder how close the Japanese will grow to like the Chinese in the coming years?!             
If Japan was a horse it would be in a very rare and expensive Findus sausage roll by now ... and waaay past its use-by date.
bon appetite

Sunday, April 14, 2013

Yen Yield Rocks U.S. REITs

US Equity Reits are already significantly overvalued; many are forcing income into the current category solely to keep their payouts up there.
In the pre-08-crash period, US Reits engaged in a wide variety of accounting gimmicks, unsound leasing practices, and risky debt and financing maneuvers in order to bolster the price of their stock. Since the resurgence in prices in 2011-present, a whole new collection of gimmicks and falsities have bolstered equity reit prices. the referenced VNQ - Vanguard's benchmark Reit ETF - is now estimated to be selling at over 135 percent of NAV, namely, for every intrinsic dollar of real estate value in the companies that are included in the ETF, one is paying $1.35 cents for their shares.
REIT bubbles and busts are as common in the industry as cranky old men harboring delusions that they're "captains of industry" because some investment banker can raise money from lemming investors.

U.S. real-estate investment trusts are big in Japan. That could turn into a problem for U.S. investors.
In a low-return world, the steady dividends U.S. REITs provide have made them an investor favorite, especially in Japan, where the central bank is going all out to end two decades of stagnation that has left an aging population desperate for income.
CoStar Group

Japanese investors have poured money into funds that invest in U.S. REITs and that offer dividend yields that far-and-away exceed yields on the REIT's themselves.
The yield on the Vanguard REIT exchange-traded fund, for instance, is 3.2%. In yen terms, due to that currency's weakening, it would be 2.7%. In contrast, the largest Japanese REIT fund, the Shinko U.S.-REIT Open Fund, sports a yield of 17.5%. The Daiwa America REIT Fund, pays out 18.4%.
The Japanese funds' ability to sustain such yields looks iffy. That could put U.S. REIT shares at risk, because of the large holdings some of the Japanese funds have amassed in them.
The reason the Japanese funds' yields are so high? They distribute not just the dividends their REIT holdings generate, they also base payouts on what can be unrealized capital gains in the REIT shares.
So if U.S. REIT shares rise, the Japanese funds pay out all or some of those gains to investors, even though they may not have sold their holdings.
Moreover, when investors are putting new money into the funds, the funds needn't sell shares to make distributions, because they can simply recycle fresh cash inflows back to existing investors.
Because REITs have risen so much lately—especially when seen through the prism of a yen that has fallen 18% against the dollar in the past year—the funds have been able to pay handsome monthly dividends. The offset is that the funds' net-asset values don't reflect the share-price gains that U.S. REITs have seen.
While the MSCI U.S. REIT index is up 45% in yen terms over the past year, the net-asset values of big Japanese REIT funds haven't risen as much.
The danger is that, if the music stops playing, the Japanese funds could be in a precarious position.
Here's why. Say prices of the U.S. REITs stop rising, and the yen stabilizes. Then the Japanese funds will no longer be able to pay such generous dividends without selling off some of their holdings.
This could depress some U.S. REIT shares. And that could provoke more sales in following months as the Japanese funds sought to continue the dividend payouts.
Such sales would also lead to falling net-asset values for the Japanese funds. Although Japanese investors view these as annuity-like products and presumably understand a decline could occur, there is the risk some get spooked and pull money out, lowering net-asset values further and potentially provoking more sales.
None of this would be much of a concern to U.S. investors if the Japanese funds' holdings weren't substantial. At last count, Japan's top 10 U.S. and global REIT funds owned 8.6% of mall and shopping-center owner Simon Property GroupSPG -0.35%according to FactSet. They owned 10.1% of Vornado Realty Trust VNO +0.24% .
It's easy to imagine a future where REITs get rocky.

Monday, April 8, 2013

Risk - It's Not Just A Board Game

Superb presentation, very well researched and entertaining.

you can see why central banks are so secretive regarding their gold holdings/leasing , amazing not more fireworks when we learned it would take 7 years to return just small proportion of Germany's gold.
When the shit finally hits the fan, governments will make ownership of gold illegal paying a 50% premium to those who turn it in as the USA did in 1933. They will then start again with a new devalued "gold backed" currency and the promise "WE WILL NEVER LET THIS HAPPEN AGAIN"

Japan front and centre

Art Cashin is a true legend on the floor of the NYSE and a great student of history. Art can always be relied upon for a considered reaction to any market gyrations, and his opinions are widely respected. In this interview he gives his thoughts on recent developments in Europe and the US,  and the disconnect between market action and the seeming reality behind it.
Art is 'very, very concerned' about Cyprus, explains how Dijsselbloem's comments could lead to a major bank run, and of course weighs in on Japan.
Click here to listern:

With Japan front and centre, what better time to take a look back at all the rises and falls of
the Nikkei through the last three decades, courtesy of Doug Short. great historical perspective on Japan's bonds, equity markets, and interest rates over that extended period.

CARGO - Tropfest Australia 2013 Finalist (TSI "Balloon")

This film is only about 7 minutes long However captivated from beginning to end. It was directed by Ben Howling & Yolanda Ramke.  CARGO tells the story of a man trying to survive after a zombie outbreak while also watching out and caring for his infant daughter. 
Superb short Film. enjoy! 

what's wonderful about a video with no dialogue? everyone in the world can enjoy it equally!

Every Central Bank Is Trying To Debase Their Currency

“For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before.” – in Peak Prosperity

Tokyo Investment Writers Jazz Club Analysis Unit Selection

This month's dozen starts off with a couple of tunes from the archives taking in some spiritual grooves, as well as a hard bop piano trio number from Toshiko Akiyoshi. Then it's back to the present day with new tunes Soren Gemmer, Eldar Djangirov and Rafiq Bhatia as well as tracks from the debut albums from Yuki Futami Trio and Tres Men. Enjoy ...

The Call - Sahib Shihab (from Spiritual Jazz 4: Americans In Europe on Jazzman Records 2012)
Vaya Mulatto - Stone Alliance (from Stone Alliance on 3D 2005 reissue)
Bootsie's Lament - Oneness of Juju (from Space Jungle Luv on SHOUT! Productions 2013)
The March - Toshiko Akiyoshi (from Listen to 和ジャズ・ディスク・ガイド on Think! Records 2013)
Southern Island - Yuki Futami Trio (from Banzai Oscar on T-Toc Records 2013)
At First - Soren Gemmer (from At First on ILK Records 2013)
Morning Call - Eldar Djangirov (from Breakthrough on Agate/Motema 2013)
Art For Life - Makoto Kuriya (from Art For Life on Pony Canyon 2011)
Try - Rafiq Bhatia (from Yes It Will on Spectral Life 2012)
Freeness Part 2 - The Heliocentrics (from 13 Degrees Of Reality on NowAgain 2013)
Morphine - The Sign Of Four (from Hammer, Stirrup & Anvil on Jazzman Records 2013)
Sister Jane - Tres Men (from Tres Men on Playwright 2013)