Juggling Dynamite

Abuse of trust is a dominant business model in conventional ‘investment’ sales and wealth ‘manglement’.

As I mentioned in April, this odious truth was on full display at the recent ‘Canadian Wealth Expo’ in Toronto, where gullible attendees were showered with high-powered propaganda like this line from one of the seminar selling, self-declared ‘experts’ on investment:  “Wealthy people don’t determine what they want based on what they can afford, they know what they want and figure out how to afford it.”  Run away!

As I have noted many times, those who buy assets at extreme valuations are speculating, not investing, whether they realize it or not.  Sooner or later, bad math works to eat them alive.  See some salient observations on Canadian real estate in this article:  Sylvester Stallone, Pitbull and the Canadian Wealth Expo ‘circus’:

Many people who piled in to the market in recent years are already finding that the sums are not adding up. Of the Toronto condo investors that took possession last year, for example, 44 per cent now collect less rent than the mortgage requires, according to CIBC Economics. Of those, more than a third are down at least C$1,000 a month.

Motivated sellers will be in increasing supply as prices stagnate and fall.  Those that wait for the panic liquidation before they buy, are likely to earn just rewards.

Those saying that the recent rise in interest rates is still inconsequential because relative rates remain below historic averages, are ignoring that debt service costs are a function of rate and the amount of debt outstanding.  With record debt at every level in pretty much every country today–consumers, corporations and governments–every rise in rates equates to a significant increase in debt service costs and less discretionary cash flows for other spending, saving and investment.

Pretending otherwise is whistling past economic graveyards.  The chart beside shows the 47% increase in just US consumer credit over the last decade.  Doug Kass explains this math below.

Doug Kass, president and founder of Seabreeze Partners, discusses a “new regime of market volatility” and the impact of the rising 10-year yield. Here is a direct video link.

When markets come down, banks will look for bailouts and main street will be expected to foot the bill.

From @RanaForoohar: “We all know something is deeply broken in our economy. It’s been eight years since the financial crisis. The Fed has pumped $4 trillion of money into the markets, but we are still in the longest, slowest recovery of the post‑war era.” https://t.co/KR7PSkGil9 pic.twitter.com/YoImiLfClU

— Evonomics (@EvonomicsMag) May 16, 2018