Housing Recovery Illusion
Continued inflation-adjusted housing decline due to technological unemployment.

Globalization Technology Cycle

The globalization technology cycle at the turn of the 20th century is repeating at the turn of 21st, as clearly shown on the following charts. There is no inflation-adjusted recovery in housing prices in the USA.

I expect a similar pattern to exist for all developed nation housing markets that were in a similar debt bubble as the USA. What is going on here is the same pattern as the caption in the first chart above explains, and detailed at the above linked blog. High unemployment persisted for several decades at the start of the 20th century, due to the technological innovation of mass production resulting from the network effects of the maturing industrial age revolution. Thus there was no sustained inflation-adjusted housing price recovery for several decades.

Now at the turn of the 21st century robots are coming to replace all uncreative jobs, including diagnosing medical symptoms.

The 1910 - 1940 crisis which was only resolved by two world wars, which ended the effects we see again of overcapacity of manual labor propped up by statism and socialism that were holding back the educational adjustment (also in the USA) to the industrial age revolution. For example the failed USA housing recovery in the 1920s was caused by capital (gold) fleeing Europe's withering economy of cottage Luddites to the USA's more efficient industry, causing short-term real estate bubbles in places such as Florida.

And now at the turn of the 21st century, we have the network effects from the maturing knowledge age revolution, catalyzed primary by the computer revolution which drives new paradigms of efficiency and efficacy for information spread, social networking, network effects, automation, biotech, etc.. Gini coefficients are rising and jobs are not returning.

Simultaneously the billions of developing world's youth are entering the workforce and with inappropriate education can only compete by working for a lower price than a robot in a failed attempt to stall the inexorable trend to automation.

China's overinvestment and developed nations overconsumption are two symbiotic sides of the same coin of using debt to delay adjustment to the knowledge age. There is a mathematical reason (e.g. nothing is free, or tax spending is not a zero-sum result) that societies crash and burn when they become less adaptable to change due to centralization of policy, with the resultant lies of mass media, the vested status quo, and the delusion of political salvation, to lock the masses into the failure direction.

The Generational Cycle also repeats simultaneously with the above described globalization technology cycle.

Inflationary Recovery Delusion

As the following charts show, the price and construction of housing may be in recovery, yet (as the prior charts show) are still declining when adjusted for inflation.

As I originally predicted and reiterated recently, there appears to funnel shaped increase in volatility in the gold-to-housing (cyan blue) and gold-to-DOW (brown) ratios, due to an accelerating financialization since the 1913 creation of Fed fiat system. As well a recently observed upward channel in inflation (red). See the following chart and the source.

These funnel and channel patterns of increasing financialization project targets near or less than 1 for the gold-to-housing and gold-to-DOW ratios, and double-digit official CPPI inflation (and higher in non-liar stats).

So this projects that house prices need to decline by a factor of roughly 8 relative to gold's price. So if we assume that nominal house prices have bottomed (i.e. when not adjusted for inflation), then it means gold must rise roughly 800% to about $12,000.

The red channel tells us inflation will be high and gold rises during period of negative real interest rates (i.e. inflation is higher than the interest rates offered), thus housing prices could decline in inflation-adjusted terms even if they have indeed bottomed in nominal terms.

Tangentially note the brown line funnel projects a greater than 8-fold rise in the gold price relative to the DOW, so housing prices should outperform the DOW. But this is no solice if both are thus not outperforming gold and inflation.

Solvency Not Liquidity Crisis

ZIRP is a reflection of too much liquidity chasing too little solvency-- thus it is failure directed. The globalization technology cycle explains why there is a dearth of solvency. Although there is a deflation of real solvent economic activity (e.g. increased technologically-unemployed), this is realized as inflation by those who are insolvent and thus is a transfer of wealth (see the banker theft model) from the insolvent (i.e. technologically-unemployed) to their debt masters. Some evidence.

Thus those who are betting on a housing recovery, are not in it for long-haul price appreciation with solvent jobs recovery (as prices won't pace with inflation nor gold), but rather in some short-term arbitrage as mentioned in the following links.





In the last two links above where Kyle Bass mentions the median bottom for housing downturns being roughly 7 years, he is not factoring in the inflation-adjusted prices of houses which can decline for decades due to the persistent unemployment in the globalization technology cycle. He is apparently referring to a scenario like at the colored areas on the inflation-adjusted chart as shown below.

However, note that Kyle alluded (more so in the longer interview) that his bets are arbitrages for example on the spread between mortgage and sovereign bonds, thus he said or implied that he doesn't need for prices to rise in order to make a profit on the short-term rush out of sovereign bonds and into a bottoming in nominal housing prices. The larger point is that gold skyrockets on the move out sovereign bonds (the Fed was first with mortgage buying in QE3) and the Fed will be locked into QE-ternity (forever) until the resultant inflation forces them to allow sovereign bonds rates to rise, which is the death spiral for a sovereign fiscal crisis and default. For the moment, the market is hoping the Fed can exit as the market thinks housing is recovering. But this is a delusion, and smart hedge funds are positioned to take advantage of the short-term arbitrage.

Below are other articles that I found after writing this article, which make similar points and add some details to substantiate my points.



Disclaimer: The above expressed opinions and citations are my own and not necessarily endorsed by this site. My opinions and citations are shared as alternative perspective for your entertainment only. I cannot prevent you from deeming that my essay is educational. I am not a professional advisor, thus I claim safe harbor and I am not responsible for any outcomes, mental state, decisions or actions you experience or make after reading this essay or cited sources.