If you sometimes feel like a small fish in a very big ocean … it’s because you are.
There are LOTS of big, bigger, bigger-still, and downright ginormous other fish … some with very sharp teeth … circling all around you.
There are also mostly hidden forces creating powerful currents and waves … speeding you up, slowing you down, or taking you completely off course.
That’s why we look for clues in the news.
And because mainstream financial media doesn’t cater to Main Street real estate investors, we need to stay alert to notice things often hiding in plain sight.
In a recent trek through an airport on our way to speak at an investment conference … a notable magazine cover hit us in the face like a brick …
The Horrible Housing Blunder
Why the Obsession with Home Ownership is So Harmful
The Economist Jan 18-24, 2020
If you’re not familiar, The Economist is one of those highbrow publications ginormous fish and wave-makers are reading.
The Economist articles provide insights into how powerful people think about small fish like us and the things we care about … like housing.
In The Economist table of contents, the housing blunder topic is introduced this way …
“The West’s obsession with home ownership undermines growth, fairness and public faith in capitalism.”
“Housing is the world’s biggest investment class … at the root of many of the rich world’s social and economic problems.”
Wow. We didn’t know home ownership is so harmful to our fellow man. We’re ashamed.
But before we dig in, take a minute and simply consider their conclusion …
…and what happens to YOU if powerful people decide to implement policies to protect the world from the evils of housing.
Now you know why we pay attention.
So, on page 9 of The Economist, under their “Leaders” section (think about THAT) …
… they assert housing markets CAUSE both sudden economic crashes AND chronic economic “disease”.
Then they support their conclusion by claiming “a trillion dollars of dud mortgages blew up the financial system in 2007-08”.
Maybe you’ve heard that one before.
Of course, they make no mention of the trillions of dollars of Wall Street concocted derivatives of those dud mortgages …
(Warren Buffett called derivatives “weapons of mass financial destruction” … NOT the mortgages underneath them)
They also don’t account for the dangerously weak lending “standards” (we use the term loosely) Wall Street used to entice weak borrowers.
Nor do they mention the reckless, speculative and highly leveraged bets placed using those mortgage derivatives by arrogant gamblers in the corrupt Wall Street casinos.
Of course, the greed behind all of it is simply a “derivative” of the moral hazard created when everyone in the market KNOWS the Federal Reserve will paper over any problem with freshly printed “money”.
Back to The Economist special report on the horrible housing blunder …
Besides the terror of housing threatening the entire financial system, The Economist says …
“… just as pernicious is the creeping dysfunction … housing created …” which they define as …
“… vibrant cities without space to grow; aging homeowners sitting in half-empty houses …
… and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down.”
So it seems cities which selfishly vote to preserve green space for themselves, their families, and the environment are … financial terrorists.
As are old folks who have the gall to stay in the homes they raised their children in … long after the children have successfully (and presumably permanently) moved out.
And speaking of all those independent young people … apparently because of these selfish homeowners, they can’t “easily” afford to put a roof over their head.
Of course, there’s no mention of the terror created through government sponsored student debt which both inflated the cost of college and enslaved a generation into inescapable debt …
… making home ownership … or even renting … far from “easy”.
Ummm … sorry, but how is that housing’s fault?
And what do the social scientists at The Economist suggest is the answer to the horrible housing blunder?
For that we need to flip over to page 44 where we discover that …
“Over the last 70 years, global house prices have quadrupled in real terms.”
For those keeping score, 70 years ago was 1950. Store that for future reference.
“Real terms” means adjusting both incomes and prices for inflation. In other words, prices rose four times faster than incomes.
The solution to all these ills is threefold says the author …
First, is “… better regulation of housing finance …” so that “… people are NOT encouraged to funnel capital into the housing market.”
Yes, every business person knows when you need MORE of something you should starve it of capital. Brilliant.
Next is … wait for it … “a better train and road network” to “allow more people to live farther afield.” …
… because who doesn’t enjoy riding public transportation 100 miles a day to go to work?
And last but not least, our personal favorite …
“… abolishing single-family-home zoning, which prevents densification …” and “…boosting the construction of public housing.”
Makes sense (not) because clearly, the only thing better than riding public transportation to and from work for hours a day is coming home to relax in “the projects”.
Of course, as you’ve probably discerned, we think the whole thing is absurd.
But while it’s laughable, it’s also scary … because this is the way those ginormous fish think.
Worse, they’ve assigned the symptom (high housing prices and stagnant real wages) to the wrong disease … so they’re prescribing the wrong medicine.
Housing prices took off in the ‘50s because Bretton-Woods handed the U.S., and then in 1971, the entire world, a completely unaccountable ability to go into unlimited debt.
Worse, it requires the perpetual, unrelenting growth of debt … or the system collapses.
So the wizards must continually find new ways to fabricate affordable debt …
… through mortgages, student loans, government spending, endless wars, or (insert boondoggle of your choice) …
… plus, 40 years of falling interest rates … to zero and beyond!
It would take so much more space than this modest muse permits to delve deeper into the mindset, motives, and methods of the wizards behind the curtain …
… and to explore the MANY opportunities for Main Street investors who are aware and prepared.
For now, we simply encourage you to PAY ATTENTION and THINK. And look for every opportunity to talk with others who are doing the same.
Way back in January 1988, the cover of The Economist boldly warned the world to “Get Ready for a World Currency”.
Here in January 2020, The Economist is overtly prodding the world to take on the threat of housing …
“Bold action is needed. Until it is taken, housing will continue to weaken the foundations of the modern world.”
This hits us all right where we live and invest. We should all be paying attention.