ALERT: Markets to implode, only FX will be left

Warning to investors - traditional markets are flawed.  In one of many hypothetical futures, not so far in the future, FX may be the only game in town.  As we explain in Splitting Pennies - Understanding Forex - it's FX that drives the world, not stocks, bonds, commodities, or real estate.  Let's take a quick look at some of the cracks in traditional markets.

HFT Market to collapse, or drastically change

During the credit crisis HFT snuck in a huge business for themselves in the stock market via Reg NMS by manipulating 'order types' and 'latency'.  Well, that's all starting to unwind.  Top HFT firms are fearful that the SEC is about to 'spill the beans' according to Bloomberg:

Some of the biggest electronic traders are complaining that a new test in the U.S. stock market will compromise their top-secret strategies, one of their most valuable assets.  Citadel Securities and KCG Holdings Inc. are among a chorus of brokers questioning elements of a U.S. Securities and Exchange Commission experiment, which began Monday, designed to whip up more trading in small companies. Their complaint is that the test will force firms to publicly expose detailed trading data with only the thinnest veil of anonymity, allowing competitors to reverse engineer how their prized trading algorithms work.  For high-speed trading firms, complex computer code is the secret weapon for profiting from the market. Some brokers say they fear that in their test, regulators won’t sufficiently mask their publicly reported trading data.  “It’s going to take someone exactly three seconds to figure out who’s who,” said Jamil Nazarali, head of execution services at Citadel Securities, which is the market-making arm of billionaire Ken Griffin’s Citadel LLC. Trading firms will “likely change their behavior to protect their intellectual property,” making the test’s results less meaningful, he added.

And, IEX is set to blow a hole in the dark pools of Wall St.

Big Banks collapsing - SOON

Previously to the "DB Crisis" - Europe's biggest bank, Douche Bank, is now probably insolvent at best, and at worst - will form a black hole so big that it will suck half of the worlds banks and assets into it when it implodes.  DB isn't just a bank, it's a financial powerhouse - a superbank.  For example, if you've ever bought a currency ETF, it was probably offered by DB:

Hmm.. only 35 ETFs in the USA.  Anyway, creating an ETF isn't easy.  DB is registered in almost every country in the world, yes even in Malta.  They are in thousands of businesses.  Unwinding this behemoth will take decades.  Unraveling all of their crimes, money laundering, scandals, and derivatives is practically impossible.  Just one example of a $10 Billion dollar liability, in this case, just money laundering:

Almost every weekday between the fall of 2011 and early 2015, a Russian broker named Igor Volkov called the equities desk of Deutsche Bank’s Moscow headquarters. Volkov would speak to a sales trader—often, a young woman named Dina Maksutova—and ask her to place two trades simultaneously. In one, he would use Russian rubles to buy a blue-chip Russian stock, such as Lukoil, for a Russian company that he represented. Usually, the order was for about ten million dollars’ worth of the stock. In the second trade, Volkov—acting on behalf of a different company, which typically was registered in an offshore territory, such as the British Virgin Islands—would sell the same Russian stock, in the same quantity, in London, in exchange for dollars, pounds, or euros. Both the Russian company and the offshore company had the same owner. Deutsche Bank was helping the client to buy and sell to himself...Although the bank’s headquarters remained in Germany, power migrated from conservative Frankfurt to London, the investment-banking hub where the most lavish profits were generated. The assimilation of different banking cultures was not always successful. In the nineties, when hundreds of Americans went to work for Deutsche Bank in London, German managers had to place a sign in the entrance hall spelling out “Deutsche” phonetically, because many Americans called their employer “Douche Bank.”  

On the other side of the pond, Wells Fargo - previously one of America's 'trusted' banks, "Main St. bank" - is collapsing after the market learned that their great sales figures were based on a house of cards that was, well, fraudulent.  If you're not aware or not following this crisis, checkout this article for a simple explanation.

Real Estate Market Shaky, at best

With a major hurricane likely to hit Florida and possibly a direct hit on Miami, which already has a problem with high tides, hot markets such as Miami are feeling multiple pressures.

Manhattan apartment sales have plunged 20% - 

There are a lot more apartments available for purchase these days in Manhattan. And fewer people are buying. Sales of previously owned condominiums and co-ops fell 20 percent in the third quarter from a year earlier as potential buyers grew cautious amid more choices, according to a report Tuesday from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. There were 5,290 resale apartments on the market at the end of September, 53 percent more than the number available in late 2013, the lowest point for listings.

The swelling inventory is providing an opportunity to New Yorkers shut out of a market in which construction has been dominated by ultra-luxury condos aimed at the wealthiest buyers. Resales, particularly those priced at less than $1 million, were in chronically short supply in recent years, and those that made it to the market sparked bidding wars. Now, more owners are listing apartments to profit from climbing values, and they’re finding lots of company.  “Rapidly rising prices over the years have pulled more sellers into the market hoping to cash out,” Jonathan Miller, president of Miller Samuel, said in an interview. “But buyers are more wary. There isn’t the same intensity of activity to burn through the new supply.”

What's next?  

Hedge Funds, not capitalizing on the turmoil, and even losing

Well, hedge funds are having their worst year EVER, with fewer than one in five beating a basic market benchmark:

In fact, this has been the year investors wanted to do anything but try to pick stocks. Active fund managers had their worst first half ever, with fewer than one in five beating a basic market benchmark, according to data from Bank of America Merrill Lynch that go back to 2003.Stock pickers were done in by two major factors: following the crowd and an uneven pattern of correlations among stocks. The 10 most-crowded stocks lagged the 10 least-owned by a whopping 18 percentage points, which BofAML called "an atypically high spread."

So what's left?

Forex Markets to dominate the next 20 years

There's always Forex algorithms, which Wall St. simply afraid of, because they don't 'control' the FX markets.  Some FX strategies perform month in and month out like clockwork, a pension fund's dream - but why go with something that works when it's politically correct to lose with hedge funds (it's good for jobs, right?).

The point is that, FX is a money market - and a super set of other markets.  If the stock market completely crashes like 50%, investors will still have trillions in cash.  It will even create a dollar shortage.  But that cash has to go somewhere.  Some, will go to Euros, Swiss Francs, and other 'money'.  Bitcoin isn't a percent of a percent of a percent, although certainly money will flow into Bitcoin.  Bitcoin isn't viable alterantive to major FX currencies simply because of acceptability.  It's not possible to pay for goods in foreign countries in Bitcoin - but many accept US Dollars.  Until that changes - or until the United States of America ceases to exist as a country (which is probably the only event that could really obliterate FX markets) - then, FX is going to be the only game left in town.  Why?  Because, the US Dollar is supported by bombs.  As long as the US Army has enough gas in their tanks, and munitions in their supply, you can bet dollar markets will function.  Other markets, like real estate, don't have such protection.  But there's a good reason for that.  Because all markets DEPEND on FX.  Without a dollar market, the stock market couldn't exist.  If you want to be Wall St.'s next HFT firm, you first need to fund an account WITH DOLLARS.  

So, although many markets teetering on the brink of implosion, FX looking stronger than ever, and until there's a viable alternative (which considering alternatives, China, Russia, Bitcoin, etc... not a real solid candidate next 20 years) we can expect FX supremacy and US Dollar Hegemony for the long term.  So, if you're still naive to the realities of FX - now's a great time to start learning!

If you don't know Forex, checkout the book Splitting Pennies - Understanding Forex - or checkout Fortress Capital Trading Academy, who offers a great Introductory course.

http://www.zerohedge.com/news/2016-10-04/alert-markets-implode-only-fx-will-be-left

ALERT: US Real Estate Crash Imminent as Matthew threatens Miami Luxury Market

It isn't often such a clear market signal is painted such as the impending real estate market collapse.  It doesn't take sophistocated algorithms or an MBA from Harvard to add up the math and the data and see that we're on the precipice of a historic real estate asset cliff; and that the market is waiting for an 'event' to tip it over.  That event, it can be Hurricane Matthew.  That means this can all unfold THIS WEEK.  For those of us who have been following this trend for a long time (like, more than 10 years) this isn't news, it's just the obvious result of bad planning and decades of building a foundation on the wrong things (this is an educational metaphor - Real Estate Investors built their knowledge on the wrong ideals, the false axioms, and thus - invested in the wrong markets, on markets build on soft, unstable foundations...).

As we explain in Splitting Pennies - Understanding Forex; the entire world's economy, both micro and macro, can be explained through the prism of monetary policy.  Or in other words, if you master FOREX, you can master any market, because all markets are denominated in Forex.  Or in yet other words, markets are only able to function as a derivative of money markets - which Forex is.  

Bubbles have persisted for years, but this last bubble that caused the 2008 crisis was based on real estate.  For a long time, US real estate prices always went up; until they didn't.  So what changed in 2008?  Enter Quantitative Easing, a program designed by the Fed to create 'liquidity' in the market that was otherwise illiquid.  Starting out buying 'toxic' assets no one wanted, now the Fed has a diversified portfolio of many assets, much of which is real estate.  This is not the only thing propping up the real estate market.  Also, the Fed has given banks and hedge funds HUGE access to cheap capital, or free capital, in large quantities.  Let's take the world's largest, as the best example; Blackstone, with $100 Billion + to invest in real estate:

Blackstone, helmed by global head of real estate Jon Gray, is the largest real estate private equity firm in the world. Since raising their first opportunistic real estate fund in 1997, Blackstone has been a dominant player in the industry with their simplified opportunistic philosophy of “buy it, fix it, sell it”. Just this month, Blackstone real estate surpassed a staggering $100 billion in assets under management. As part of a push towards a longer hold, core plus strategy, they recently closed the largest ever PE real estate fund at $15.8 billion. Furthermore, Blackstone recently acquired Chicago’s iconic Willis Tower, which they plan to enhance through value add renovations and a repositioning of the tower’s retail space.

Well, not all $100 Billion is invested in Real Estate, but remember, they are leveraged, so they don't buy for cash, so it's not known what they're real 'real' estate portfolio is.  Between the Fed buying MBS (Mortage Backed Securities), Hedge Funds & Private Equity Funds like Blackstone, and your typical foreign buyers fleeing corruption or a crashing economy in their own market - real estate is highly inflated.  This is of course, exaggerated in niche areas; Los Angeles, San Francisco, Las Vegas, Boston, New York, Miami, Greenwich CT, and many, many others.  Just take a look at what you get in Ohio for $4M and what you get in San Francisco for $4M.  Hmm... Something doesn't add up here.  People in CA shocked at non-CA market values.  Hmm... and there's high state taxes in CA, and pollution, a water drought, and fallout from Fukushima irradiating the crops and population, explosion of cancers.  Where do I sign?  

Years ago, analysts said that in 50 years Florida will be underwater.  Real Estate investors didn't feel that their feet were wet, so they ignored this.  Well, these analysts were wrong - it's happening much, much, much faster.  Miami-Dade County is going to be hit the hardest.  If you don't know about this issue, read this article here "A Rising Tide" :

“This whole beautiful landscape’s going to change,” he said. Miami Beach consists of a long, low barrier island accompanied by a scattering of manmade islets. It’s one of the lowest-lying municipalities in the country, and its residents are leading the way into the world’s wetter future. Along the island’s low western side bordering Biscayne Bay, people have come to dread full-moon high tides, when salt water seeps into storm-drain outlets and the porous limestone that provides the island’s foundation, forcing water up and out into the streets and sidewalks and threatening buildings and infrastructure. And Miami Beach is just one small part of a region that’s in big trouble. If sea levels rise as projected, no major U.S. metropolitan area stands to rack up bigger losses than Miami-Dade County. Almost 60 percent of the county is less than six feet above sea level. Even before swelling of the seas is factored in, Miami has the greatest total value of assets exposed to flooding of any city in the world: more than $400 billion. Once you account for future sea-level rise and continued economic growth, Miami’s exposed property will far outstrip that of any other urban area, reaching almost $3.5 trillion by the 2070s. The sea level around the South Florida coast has already risen nine inches over the past century. Among experts, the optimists expect it to edge up another three to seven inches in the next 15 years and nine inches to two feet in the next 45 years. More pessimistic (some say increasingly realistic) predictions say the rise will be much faster. Even the very gradual rise of recent decades will make extensive infrastructure reengineering necessary—Mowry’s job. However, according to a report published by the Florida Department of Transportation, it will become difficult, expensive, and maybe impossible for these efforts to keep up with the accelerated sea-level rise that is actually expected. 

Miami is spending $500 Million building walls and drainage to address this problem.  Read the 2012 Presentation in PDF here.  But will it be enough?  And what about Hurricanes?  A Category 5 hurricane can have a storm surge of 20 - 30 feet, such as Camille in 1969.  Storm Surge is when the water rises, completely - that means the ocean will rise 24 feet (Read about it here).  Matthew, if it struck Florida, would really be Biblical.  Billions of Dollars in damage would occur, just from the storm.  And this information is not 'priced in' to this already 'frothy' market, just see spring articles about Miami's real estate crash here, here, and here.

This article being the most dramatic: "Luxury Urban Housing, Built on a Myth, Is About to Take a Big Hit".

The other info that you need to know, since the early 90's, the US Government manipulates the weather.  If you're not up to date on this topic, you can read about it here in this groundbreaking book Chemtrails, HAARP, and the Full Spectrum Dominance of Planet Earth.  Or for a simple primer on Geo-engineering, checkout No Natural Weather: Geoengineering 101.  Then, why would they allow a hurricane to smash into South Florida?  Who knows, but if you want to look at the strange correlation between military events and Hurricanes, take a deeper look at 911 and Hurrican Erin - This book Black 911 is a great start.

Matthew is now heading toward Jamaica, at which point it may settle down; Jamaica has mountains which Hurricanes don't like.  But Florida is being warned.  

Traders, tomorrow's trade is easy; put in your buy limits above the MAs on HD, LOW, and get ready to short homebuilders, and other South Florida real estate companies.  This week is going to be a wild ride for real estate, regardless if Matthew hits FL or not.

The market now is quiet, sales are down 80% in some areas (i.e. Greenwich, CT "Billionaire Capital"), but the panic selling hasn't started yet.  An event such as a Hurricane in FL, or a big Earthquake in CA, can be the tipping point that starts it.

This will hit the rent market too - as values collapse, rents will too.  Not only that, but a bad economy will put pressure on renters and their ability to pay.  This recent bubble, in both housing values, rent prices, and other assets - is just that.  A bubble.  It will pop.  And as we saw in 2008, each time the bubble bursts, the drawdown is a little deeper.  But real estate in particular recovered with the help of the Fed and numerous Fed players, as this was a political victory as well as an economic one.  It was seen as helping Main St. as well as Wall St.

There's other investments, other ways to make money than real estate, such as Forex algorithms.  But it seems that as usual, investors will need to have a huge loss before learning this lesson.  

Pain - is the only real teacher!

To learn more about the financial markets, checkout Splitting Pennies - Understanding Forex - your pocket guide to make you a Forex genius!  Or visit Fortress Capital Forex, and broaden your horizons.

EES: Pizzaflation and the US Dollar collapse

Sometimes the best economic analysis comes anecdotally.  Why not explain the most important economic issue of our day with America's favorite food: PIZZA.  As we explain in our book Splitting Pennies - Understanding Forex, the real reason of inflation is because of monetary policy, not supply and demand.  For a basic primer on Inflation, you can checkout this book "What you should know about Inflation." 

In case you didn't know, facts about Pizza

Pizza is actually America's favorite food.  The Atlantic covered a DOA report that showed the cheesy stats:

Like football, pop music, and democracy itself, pizza follows in the long American tradition of things that began overseas before the United States imported, violently altered, and eventually defined the institution. Although the first pizza shops didn't open in the U.S. until the early 20th century, hundreds of years after the original Neapolitan pies, we now spend $37 billion a year on pizza, accounting for a third of the global market. The obsession deepens. On any given day, about 13 percent of Americans eat pizza, according to a new report from the Department of Agriculture. One in six guys between the ages of two and 39 ate it for breakfast, lunch, or dinner today. In part due to this obsession, per capita consumption of cheese is up 41 percent since 1995. Drawn from the report, here are seven facts about Americans and pizza, presented free of moralizing comments about whether or not it is healthy or sensible for the American diet to consist so overwhelming of bread adorned with tomato-cheesey gloop.

Pizza, is actually an AMERICAN food, brought to America by the Italians.  Pizza was invented in Italy, but in Italy, Pizza is completely different, and not very popular.  In fact, Pizza is most popular in America.  It's more American than Apple Pie.  Check it out:

In 1905, a slice of pizza cost five cents. During the Depression, when families did not have much money, pizza became popular with everyone in the United States. Families were eating different types of pizza on the east and west coasts. A thick-crust pizza was called double-crust pizza or west coast pizza. When they had a large exhibit about pizza at the Texas State Fair, more people inquired about this food than any other.The first recipe for pizza appeared in a fundraising cookbook published in Boston in 1936. The recipe, for Neapolitan pizza, was made by hand. Dough had to be hand-stretched by pizzaiolos and housewives until it was half an inch thick. The pizza had cheese, tomatoes, grated parmesan cheese, and olive oil. Surprisingly, the dough was not made by hand, but cooks were told to buy it at a good Italian bake shop.However, pizza was mostly limited to Italian immigrant communities until after World War II, when American soldiers returning from Italy still wanted their pies. Popularity spread, and various American styles developed. Pizzeria Uno is credited with the invention of the Chicago deep dish pizza in 1943. This is known as tomato pie and was baked in rectangular pans in bakeries. Its crust was extra thick and it had seasoned tomato puree and was dusted with Romano cheese before it went into the oven. Some eventually had meat and thick cheese, and it was so thick, it often had to be eaten with a knife and fork.

The American Dollar is collapsing

From five cents a slice to $20 a Pizza.  What happened?  During this time, the US Dollar went down by more than 95%.  Let's take a look at one of America's favorite Pizzas, Numero Uno Pizza.  For those of you who have not had the pleasure to live in the greater Los Angeles area, where Numero Uno has had 95% name recognition, Numero Uno Pizza is a household name.  Interestingly, Numero Uno was founded in Los Angeles right around the time Nixon created Forex; 1970.  We've obtained an old Numero Uno menu (we think though, it's from the 80s) that shows prices from that time:

Wow!  .85 House Wine, less than $5 for a Carafe!  

Now take a look at prices we've lifted from current NU store sites, such as Numero Uno Palmdale:

The most popular NU pizza is the S5 "Slaughterhouse 5" which currently stands at $16.95.  We confirmed with the manager of Palmdale location that indeed; prices are due for a rate hike in January.

From $10.85 to $16.95 isn't too bad, Pizzaflation is not nearly as bad as inflation in other markets, most notably, real estate, groceries, coffee, and other items.  Using an inflation calculator, $1 in 1970 is about $6.21 today.  If the menu is from 1985, the S5 should be $24.29.  Other NU stores have it priced at $19.99.  In any case, for older folk, $20 is a lot to pay for a Pizza, in their mind.  But that's only because of memory, of times past.  Inflation is a slow subtle tax.  From a 'real dollar' perspective, Numero Uno Pizza is cheap.

Let's understand the second component of inflation that's less obvious - the deterioration of QUALITY.  You can get a Pizza today for $5 - but it's a bunch of crap.  Like any product, you get what you pay for.  This part of inflation, the decline in quality, is less obvious but more damaging.  Every year, products get a little worse and worse.

The real cause of Pizzaflation

Real analysts must always seek the CAUSALITY  

Inflation happens only for one reason:  Central Bank prints more currency.  More currency, chasing the same or fewer goods and assets, makes the price go up.  It's really simple!  QE (Quantitative Easing) has been rampant in recent years.  Fortunately for consumers, most inflation has happened in financial markets, real estate, and other markets.

This phenomenon has been covered well in "The Burrito Index:"

In our household, we measure inflation with the "Burrito Index": How much has the cost of a regular burrito at our favorite taco truck gone up?

Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.That’s a $160% increase since 2001; 15 years in which the official inflation rate reports that what $1 bought in 2001 can supposedly be bought with $1.35 today.

If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38—up only 35% from 2001. Compare that to today's actual cost of $6.50—almost double what it “should cost” according to official inflation calculations.

Since 2001, the real-world burrito index is 4.5 times greater than the official rate of inflation—not a trivial difference.

Between 2010 and now, the Burrito Index has logged a 30% increase, more than triple the officially registered 10% drop in purchasing power over the same time.

Those interested can check the official inflation rate (going back to 1913) with the BLS Inflation calculator by clicking here.

My Burrito Index is a rough-and-ready index of real-world inflation. To insure its measure isn’t an outlying aberration, we also need to track the real-world costs of big-ticket items such as college tuition and healthcare insurance, as well as local government-provided services. When we do, we observe results of similar magnitude.

The takeaway? Our money is losing its purchasing power much faster than the government would like us to believe.

It's important for consumers to understand, Pizzaflation is not caused by Pizza makers.  Numero Uno actually is doing a great job keeping prices low, because their food cost, rent, and other costs, are all exploding parabolic.

Los Angeles has the highest rent burden in America:

Overall, rents in Los Angeles have doubled since the 1970s:

But of course, that's not counting other various fees, taxes, increased regulatory costs, increased insurances due to higher crime rates, and other factors.  Pizzaflation has hit Los Angeles hard, creating a 'double whammy' for businesses like Numero Uno.  And with LA's median income flat since 1970, it makes one wonder who can afford a $20 Pizza.  But the remaining Numero Uno stores are mostly packed and have great reviews, so it seems that it takes something really Magic to survive the pressure of the Fed.

To learn more about how the Fed decreases the value of the US Dollar via Quantitative Easing, checkout Splitting Pennies - Understanding Forex - your pocket guide to make you a Forex genius!  

The good news, Forex is artificial so you can learn about it online.  It's all digital.  If you want the best Pizza you've ever had in your life - you'll have to drive all the way to Palmdale, California and visit Numero Uno Palmdale.

http://www.zerohedge.com/news/2016-09-29/pizzaflation-and-us-dollar-collapse