World's Capital Is Now Dangerously Boxed In: Brian Pretti - Creating Asset Bubbles Ready to Burst
Adam Taggart / Peak Prosperity
If you would have told me that we would be in this set of circumstances today ten years ago, I would have told you you were out of your mind.
~ Brian Pretti
This week Chris speaks with Brian Pretti, managing editor of ContraryInvestor.com, a financial commentary site published by institutional buy-side portfolio managers. In their discussion, they focus on the global movement of capital since quantitative easing (QE) became the policy of the world’s major central banks.
The ensuing excellent discussion is wide ranging, but the key takeaway is that capital is being herded into fewer and fewer asset classes. With such huge volumes of money at play, very crowded trades in assets like stocks and housing have resulted — bringing us back to familiar bubble territory in record time.
The key for the individual, Pretti emphasizes, is risk management. The safety many investors believe they are buying in today’s markets is not real.
The Housing Market Is a One-Sided Investment Cycle
I think what we have got going on here in housing is we have got an investment cycle, not an economically-driven housing cycle, from the standpoint that really, never before have 40 to 50% of all residential real estate transactions been for cash. We have never seen that in prior cycles, absolutely not. You know, what is driving that? Well, in one sense – and it is not a point of blame, but more a look at the unintended consequences of what the actions of QE are – when you lower these interest rates and you take away safe rate of return in alternative assets. Five years ago you could have got 5% in a CD, a Treasury bond, even a money market fund. Well, for a lot of those people who had been savers and investors in safe assets, they do not have rate of return any more. What do they do? They take their $300-$400 thousand nest egg out of the bank, and they turn around and buy a rental property where they can theoretical get the 6%, 7% cash on cash rate of return. And all of a sudden that becomes their rate of return.
So, I think we are clearly seeing this, where assets are being lifted out of other investments – whether it is Treasurys or CDs or bank accounts – and being used to buy residential real estate. Of course, the issue becomes one of risk, meaning a Treasury bond never really needs a replacement roof, and the water heater does not break, and there are no vacancies. So, we are increasing risk in these asset class choices and investment choices, but it is a forced choice, because there is no other rate of return. And for people who need that to live, that is why I think we are seeing the big cash transaction levels that we have never really seen before.
Second part of the equation, foreign money is absolutely on the move. I mean, we are talking on the first business day of the new year, and one of the things that is in the news this morning and being talked about is, Is there going to be some type of an IMF-driven 10% deposit tax in the Euro banking system? Well, this has been being talked about now for probably two, three, four months. The trial balloons go up in the air. The Euro banking crowd has also talked about potentially negative interest rates. So may be a very simple question, Chris. If you are a Euro citizen and your net worth is caught up in euros and/or you have assets in the Euro banking system, what do you do? You get them out before something like this happens.
And really, maybe we can draw the parallels, too, with Japan, where we have seen monetary debasement and true currency debasement in very violent form over the last year since Abe’s been elected. If you are a Japanese citizen and your net worth is caught up in yen, you have lost 20% of your global purchasing power. What do you do? Capital begins to move globally.
And I think part of what we are seeing – well, maybe one last piece here, too, is, the current leadership in China is cracking down on corruption. So, I know you know full well, moving capital out of China is illegal. There is only one way to get it out. You have got to have serious capital. So, what is it doing? It is hiding in alternative assets globally. It is coming to what it perceives, for now, the perception of safety that maybe includes the U. S. dollar, and if you are coming to the U. S. dollar, what do you do? Well, you can buy bonds, you can buy stocks, you can buy a business, you can buy real estate, and because safe rate of return has been basically taken away, real estate and perhaps stocks, too, are a repository for that foreign capital.
And then, maybe lastly more than not, that global capital being on the move is concentrating in some of these geographic areas that we are seeing. I mean, prices in the New Yorks, prices in the Londons, prices in the San Francisco Bay Areas are just really off the charts here. So this is very much unlike prior cycles where we saw – and I know this sounds a little simplistic and Pollyannaish – but we see younger families getting jobs, making a little bit more money. All of a sudden, they can afford a home; they take on a mortgage purchase application. Maybe they buy your or my house and the food chain moves up. That is not happening this time. So, this is really an investment cycle, as opposed to a true economically-driven housing cycle.
And I just ask myself, is the lynch pin in all of this the dividing line of alternative rates of return, meaning interest rates? And as we saw rates pick up really since May of last year, we saw things like mortgage purchase apps and refi apps just drop like a rock. So as we move forward, these big metrics that are the interest rates that are Treasury rates are very, very meaningful. Andwill they be the catalyst of change, ultimately, in the housing cycle, as opposed to the economy being that catalyst? We are just seeing something very different this time.
The Box Global Capital Is Now In
The minute the Fed started talking about tapering – I mean, if we roll the clock back to 2009 when the Fed started their QE extravaganza, that money absolutely got into U.S. equities and got into U. S. bonds. But as the money kept being printed, it rolled across Planet Earth. It got into the emerging markets, it got into their bonds, their currencies, their equities. It got into global real estate, it got into gold, it got into commodities. The minute the ‘taper’ keyword was starting to be used by the Fed, all of a sudden, global investors were anticipating the recission of that tidal wave of liquidity. And all of a sudden, these asset classes started to contract to the point where it is really U.S. equities, the very large blue-chip global equities here that continue to perform well. They offer yields higher than safe bonds, for now, and are also the only place we are seeing rate of return.
But within this, we are herding capital into a very, very small sector of asset classes. And then lastly, fortunately or unfortunately, when we have the global central bankers and the global politicians doing what they are doing – Europe, we may take 10% of your assets in the European banking system. Europe, we may invoke negative interest rates; you bring a dollar into a bank, we will give you back 99 ½ cents. You cause capital to move, potentially, and to me this is a big issue. I think 2013 was driven as much by momentum, and there is no place else to go, and all those other wonderful things, as it was driven by the weight and movement of global capital. Global capital coming out of China, because it was scared of – if we are going to crack down on corruption and you have got corrupt capital, you get it out right away. Japan, the drop in the yen, you have got to move some of your capital to an alternative venue in an alternative currency. Europe, the threat of confiscation, and maybe just the basic question of, What the heck is the euro going to look like in three years? I know if my net worth was caught up in euros, I sure as heck would not be 100% vested in the euro.
So, a lot of this, I think, too, is global capital is hiding in an asset class that it considers to be relatively safe, because all these other asset classes have proven to be unsafe. And for right or for wrong, in U.S. and really large blue-chip globals, they have been very, very good stewards of capital over time. Their balance sheets are relatively clean, and if you are looking for safety, then this is just a very simple question. Would you rather lever your family’s balance sheet to one of the global governments, or would you rather lever it to Johnson & Johnson? Which one do you trust more? Which one is going to take better care of your capital over time?
So I think there are so many different factors that have been forcing capital into these narrow asset classes that basically are equities and real estate. The key issue to me, going forward, is risk management. For people who sat this one out, for people who have said, Hey, wait a minute; I am looking at the Bob Shiller CAPE ratio here, and we are at levels that we have only seen four times in the last 100 years.You have got to be kidding me. I am not getting into this thing. The only way to participate in these markets, in my mind, is to make sure that you have a plan for managing risk, period. This is not throw your money into the equity market and hope for a great 2014, because every year that the market was up like it was last year was followed by a year that blah, blah, blah. It does not matter. It is about making sure that we manage risk. And we need to draw hard lines underneath certain levels of capital.
Very easy to say, but for your listeners, too, I think this comes down to individual families and making an assessment of how much risk they can afford to take. Below that line, they do not allow it to happen. I know it may sound trite:You have every day of your life to get back into the market, but sometimes you do not have a second chance to get out.
Click the play button below to listen to Chris’ interview with Brian Pretti (101m:31s):
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Whistler Blowers, Insiders
What an utter farce.
These ‘economists’ are like a self proclaimed ghost debunker who’ll debunk only so far then claim it must be the work of Jesus!
Who proclaim to be ‘the’ experts and catch on they that the ghost is a fake.
He catches on that this is a confidence game. He catches on that this is for the purpose of stripping the gullible and naive of all their assets. He catches the fact that the lights are rigged, and go out to make it dark. He catches on this is for the purpose of making it hard to see. He catches the fact that it is just a bed sheet floating. He catches on that this is done by the use of a string.
And then he REFUSES to acknowledge that there is a Wizard of Oz Man working all the Strings and Lights!
I understand these economists are handicapped by the removal of information in their education. I get that they are trained in ‘fiction’.
But sooner or later they have to take their heads out of their own posteriors and Add the facts up.
Money was created as part of the Slave system of the Babylonian slave Queen ‘Selene’ whose saxon name was Elizabeth 1. “Gloriana/Inanna”, her Hebrew Coven name was “Lilith”. Her first Husband, Alexander created the Covens of Azazel, which are defined as the Papal, Royal, & Federal Covens of Selene. Among his coven names were “Azazel, Massawa the great architect, and Baphomet”. This is the Coven age history, and the creation of Pharisees and Caesars. He also created the freemasons which is run by QE3, and the illuminati is run by the Papal. This was not a thousand years ago, it was at the turn of the 1900′s. They seized all the libraries and they own the education systems which were created by them for the express purpose of returning man to the dark ages of illiteracy and idiocracy.
After the war, in order to protect Lilith QE, they divided up the power structure. They moved the seat of the pharisees to England from Rome. The papal is the legislator branch, the royal QE is the executor branch, the federals are the judicial branch. It is the Federals who were called the Merchants and the money lenders at the temple of SET whom the Hebrew covens called “Solomon, the wise Serpent” and Sumerians called “An”.
These three, commonly called the 3 Ptolemy’s, created and control the slave system. They created Covens that were renamed Religions worldwide. They created Commerce, Banking and money systems, Corporations and the 5 day work week were all fruits of labor are seized as tribute to ‘god’ which is their dual name system of the ‘corporations’ who the covens ascribed certain ‘Divine Rights Powers and Privileges’ over the nations. They created the Judges and the Corporate Courts, where no one gets real justice, because they blinded justice for the purpose of gaining a fee. They created taxation on mankind. All of this was their specific form of slavery, and they controlled all of it as a single blood and marriage related group. This is who we went to war with and this is who created the use of Covet Means as a specific form of Warfare. These are not “Hebrew”, nor are the “Jews” or “Zionists”. All the name game is a smoke screen. It is one group.
The “Merchant” specialists on Wall street work for the few blood relations of QE that are called “Federals”, that own it. They rig the markets.
The Papal is the Securities Exchange Executor “Holy S.E.E.” Who rigs the Securities. It is the Vatican who issues all Charters, and all Covens are under their umbrella corporation. From the incorporated Coven “Jesuit” to Coven Corporations “Proctor and Gamble.”
QE owns the Freemasons that run the Money printing presses. “QE 1,2,3″ is Queen Elizabeth’s Executive Orders for the Extraction of all Nations by Covet Means. She owns 48 Nations by ownership of the Incorporated entity the Papal placed over them in 1917. IE “ISRAEL, U.S” etc.
Rothschild owns the “Crown” which is a corporate bank. He owns all but 3 banks world wide, including China’s HSBC. And this is how Libor is rigged. It is the Federals who were put over the nations and incorporated the governing bodies, and this is how they control the legislation passed from the papal and then enforced on the people. Rothschild created the Bills of exchange Act, which bills you for your electric use from the corporations a federal was given divine right to own.
They own the UN, which is forcing sterilization, chemtrails, agenda 21 and gun control.
They own the “147 Corporations…”
And this is the Company store system they set up over the world, their ‘Babylon’.
They believe that they are fighting the War in Heaven for the ‘other’ side who opposes mankind. They believe that they fight for the Branch of SET. Which is the “Left Hand Path of SET”, “Service to Self”. The Highest service to self is murder of self or other, a sociopath. They have practiced eugenics for the specific purpose of creating the ultimate sociopath. They are dangerously insane and evil.
Corporate governing bodies, and money systems…all of these were based on the esoteric Left Hand path, and are designed to promote the highest degree of service to self – murder of self or other. This is why when they get abolished, then restarted, they instantly corrupt again. This is not the original system of Mankind. Mankind is the Right hand path, and part of the Divine. Our original system was called Acceptance for Value.
I really resent that they base their reports on a complete fiction and feed this to the public.
Their numbers are never correct because of the fraudulent house of cards they are established on.