Houses, Money, Stocks, and Bikini Girl Graphs

“Can the stock market survive a nuclear holocaust? Yes, says our next guest, and he’ll tell us what stocks to buy and what to sell in the event of a thermonuclear exchange right after these messages.” – Head Office

BIZ

Superman® won’t take Bitcoin as payment after dark.  He avoids crypto night.

“Housing prices only go up.”  I first heard that in the 1990’s when I was buying my first house.  The realtor was quite clear that a house wasn’t just a house, it was an investment in the future.  He had no idea what my kids could do with Sharpies®, hot sauce, and matches.  And that was just the living room carpet.

“The dollar is as good as gold.”  I haven’t heard that one used about the dollar in my lifetime, because the dollar hasn’t been backed by gold since August 15, 1971.

“The stock market is the place to put your money.”  That’s still what people are saying.

One thing that I’ve found throughout my life is that, generally speaking, if everyone believes in it, it’s wrong.  The major exception to this is physics, which explains gravity well enough that almost nobody can argue with it.  I read a book on anti-gravity once – couldn’t put it down.

gravy

I always fall for gravity jokes.

This is especially true in human systems.  If the entire crowd believes it?  It’s nearly certainly wrong.

As mentioned above, a perfect example of this is housing markets.  It was really common knowledge in the 1990’s that, barring a setback in a recession, housing prices always go up.  Buy a house, wait, and sell it 10 or 20 years later, and you’ll make a bundle.

In certain times and places, that’s true.  And during the 1990’s and the early 2000’s, the idea that “housing prices always go up” became firmly fixed in the minds of, well, most everyone.  That made it true, for a while.  As the banks noticed this, they decided that mortgages weren’t a risky investment at all, unlike when I broke COVID-19 lockdown to go play board games.  That was a lot of Risk.

On top of that, banks decided to make changes to the way that they had lent in the past.  Houses were a sure thing, right?  They could make them even safer by creating mortgage-backed securities.  Some of these were really unique.  You could buy the “best” performing loans out of a group of loans.  If there were 100 houses in the group, 90 would have to default on their mortgages before your security was impacted.

This mastery of risk was amazing!  Now all you need are more people to loan money to.  But not everyone qualifies, which is a problem.  They tried offering 0% loans, but there was no interest.

Solution?  Everyone qualifies.  No income?  No job?  No problem.  These were even called NINJA (no income, no job) loans.  The pool of borrowers expanded more rapidly than Joe Biden’s memory loss.  And if we add in refinancing of home equity?

That added even more borrowers!

What could go wrong?

HOUSE

And, hey, housing prices have reached new records.  Certainly they won’t fall?

Well, gravity kicked in on housing prices.  They dropped.  And when they dropped, the entire industry built up around building houses dropped.  And then the industries that supplied lumber, and pipe, and wire, and pavement, and concrete for driveways . . . dropped.

This mathematical fiction based on a delusion created a massive recession.  But, hey, housing prices always go up.

Except when they don’t.

Just like the dollar fell from its perch.  Originally, the dollar was backed by actual, physical gold.  That’s when the phrase, “as good as gold” was first used.  Why?  Because at any moment, you could go and change your dollars into gold.  Walk into the bank with a $20 bill, and walk out with $20 in gold.

This wasn’t always the case, there were periods in the history of the country where this wasn’t so (greenbacks issued during the Civil War backed by the credit of the country), but it was generally the case.  But after Franklin Roosevelt made gold possession by Americans illegal (yes, this happened) then you couldn’t go in and get gold for your dollar.  Once that link was broken, the government was free to print money more or less at will, creating inflation even in a “gold backed” currency.

PURCH2

You can plainly see that women are shorter now that the purchasing power of the dollar has dropped.

Now?  The dollar isn’t worth but a few percent of what it was in 1940.

And other countries realize it, too.  As the multiple trillions of dollars are printed this year to prop up everything from the airlines to the banks to the stock market, the value of the dollar has dropped.  Why?  The rest of the world can count.  There is only so much printing you can do before it starts to add up.

The dollar has dropped 10% in the last three months.

DOLLAR

The dollar’s fall is fast, but not as fast as when I fell into the coffee.  It was instant.

Good as gold?

No.

Which brings us to the stock market.  Money in the stock market is always safe, over a long enough term.  It took six years to recover from the Great Recession.  In real terms (inflation adjusted) it took from 1928 to 1955 for the Dow© to recover from the Great Depression.  It took until 1994 for the Dow™ to recover from the 1964 peak.  So, if you’re good waiting thirty years to break even, the stock market is a sure thing.

BOB

Speaking of up and down – I got a free yo-yo.  No strings attached!

While the economy is still stuck in lockdown in many parts of the country, massive unemployment, and a “riot-a-day” social structure, the Dow Jones Industrial Average® is only down 3%.

I wonder, just maybe, if everyone is wrong?

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom - How to be happy and how to be healthy. Oh, and rich.

26 thoughts on “Houses, Money, Stocks, and Bikini Girl Graphs”

  1. John, you are obviously in an ongoing Vulcan mind meld with Jerome Powell, the Federal Reserve Chairman. He too is very worried about stocks and houses and Pez prices slicing downward in future bikini graphs as fast and hard as a slasher’s knife in a teen horror flick (aka “deflation”).

    In a mere 24 hours Ole Dr. J is gonna deliver a speech at Jackson Hole, Wyoming. He is expected to announce a new Official Fed Policy called Average Inflation Targeting or AIT.

    This is a Really Big Deal.

    Fed policy has up until now aimed at creating an ongoing inflation rate of 2%. This would allow old debt to be paid off with cheaper new printed dollars. Among other things, like eroding your personal savings down into a Grand Canyon sized hole.

    https://www.stlouisfed.org/open-vault/2019/january/fed-inflation-target-2-percent

    But in Fedland, which ignores Real Inflation like you see in the supermarket at WalMart, their calculated national inflation rate has been puzzlingly low over the years and below their 2% target.

    https://www.stltoday.com/business/columns/david-nicklaus/after-another-year-of-below-target-inflation-the-fed-considers-a-change/article_25ea5083-5cc4-5c13-b742-02f50f63a107.html

    https://www.schroders.com/en/ch/wealth-management/insights/markte/how-to-prepare-your-portfolio-for-inflation/

    Fear not, Citizens! AIT to the rescue! Since the Fed is worried about prices falling and hasn’t been able to get the inflation rate to average 2% over the years by lowering the interest rates that they control, THEY NOW INTEND TO OFFICIALLY SPIKE IT MUCH HIGHER THAN 2% IN THE SHORT TERM TO GET THE AVERAGE TO EQUAL 2%.

    https://www.cnbc.com/2020/08/24/powell-set-to-deliver-profoundly-consequential-speech-changing-how-the-fed-views-inflation.html

    https://www.ft.com/content/c0a1fddc-4672-11ea-aeb3-955839e06441

    Hey, what choice have they got? They’ve already lowered interest rates to effectively zero. The only tool they’ve got left is the printing press. Money printer go BRRR.

    Hey, what could possibly go wrong???

    https://i.chzbgr.com/full/2887044864/h12B363EE/hyper-inflation

    All hail AIT!!! Like Annie sang, the sun will come out tomorrow, it’s only a day away! Good luck with your speech, Jay!

    1. Ha! Jerome and I just do oil wrestling on the weekends.

      The inflation thing is scary. Gold. Silver. Lead.

  2. Geeky AIT analysis:

    https://www.moneyandbanking.com/commentary/2020/8/23/average-inflation-targeting

    Super-geeky official Fed policy paper discussing AIT, complete with equations so it’s gotta be right:

    https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr877.pdf

    In particular, look at the “social loss calculation” chart Fig 2 at the top of page 8. We and our entire national economy are in good hands, the Fed has got our backs in this one simple, clean graph! Altho, sadly, one without bikini pictures…

    1. A wise man once told me that if someone is talking about money and they are using partial differential equations, they’re lying out their arse and hoping you don’t notice.
      I think that it applies to limit equations as well.

      Opie Odd

  3. My favorite Head Office quote: “What point is all this power and money if I can’t have someone killed?”

  4. The advantage of real estate is that it actually exists, unlike the stock market, but prices are still wildly inflated thanks to easy lending. In 10 years the value of my home has gone up almost 70% because of buying pressure from the Amish (an Amish business owner just bought a property for $1.4 million. He isn’t going to live there, it is just his weekend getaway).

    As a casual observer of the financial markets, I wouldn’t touch most stock investments today. I still think real estate is the best investment right now (note, not investment advice) but only in the right spots.

    1. I agree with the real estate, but suggest you should also be delving into precious metals, so your home doesn’t burn.

      Suggested metals are copper, lead, brass, and chromoly or stainless steel.

      These commodities seem to be a decent investment, as they are up over 100% in the last 3 months.

    2. Cool! Mine has gone down. But that’s the kids.

      Yup. The stock market is like passing a ticking time bomb around. I still think it’s gonna blow.

  5. ” This is the Golden Age..Gold is the reason for the wars we wage ”

    170 tons of gold was recently shipped to NYC from Sweden and Singapore.

    ‘Splain to me Lucy what this NESARA is i keep hearing about ?

    1. TO NYC? Most countries are trying to get their gold back home.

      Wow.

      First glance? NESARA looks good. But this is the first I’ve heard of it.

  6. A couple points:

    a)
    Fiat currency possesses zero inherent value.
    Paper money, such as the stuff issued by Federal Reserve Bankers, has zero value.
    It is not ‘money’, it is a loan.
    They advertise this fact on each example, right on the front — ‘Federal Reserve Note’.
    A note is a loan from bankers.

    b)
    Comparing Federal Reserve Bankers notes to the fiat currency of, for giggles, Venezuela paper money or chinese paper money gives the uninformed the impression both/each possesses some sort of value.
    The opposite is true.

    Paper money is a straight-line sink-hole from bankers to you.
    The last person holding paper money instead of durable tangible goods… well, that person usually has a hopeful smile and an empty stomach.

    The only currency with any value is Zimbabwe money, and this’s only because the stuff is an excellent example of the worst example of the inevitable conclusion of TheTerminalVelocityOfPromises after the national Treasury is looted by bankers.

    c)
    Show of hands — how many notice the repeated use of the word ‘bankers’ in any discussion of national collapse?

    Break into small groups, discuss.

  7. Just when you think that real-estate is a sure thing, someone from the county government comes along and tries to raise your property taxes… because you’re one of only a few people in the county who has any real wealth.

    They tried to tell us, just last month, that a repeal of the cap on property tax increases was not, in itself, exactly, an increase in those taxes. But come on, guys, even a lying dog-face pony soldier could see what was going to be on the NEXT meeting’s agenda. Somehow, though, the people won this battle when the proposal was tabled.

    1. I still like the idea of “you buy it, you own it and we can’t tax it away” – but I guess I’m in the minority.

  8. I just realized the reason I haven’t repainted my kitchen in 20 years. I still remember the color in the vibrancy of it’s youth, when it was young and bouncy: a dangerous little teat, I mean treat, from before the turn of the millennium. Before the microwave burnout of 2011, before the Great Shower Leak of 2013, and before the Terrible Pizza Smoking of 2015.

    I should really get on that.

    1. Ha! Love it.

      My downstairs ceiling still has stains from the Dishwasher Crisis of 2016, Embarrassing part? The downstairs ceiling is removable tile.

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