Dear Reader, Right now, the market looks to me like it’s building up to a massive selloff. Like snow on a mountain before an avalanche. Suddenly, without warning, confidence is lost and the slide is on. And it only ever takes one snowflake to tip the balance. My belief is that the decisive snowflake could fall anytime in the next few months. It could be trade war related. It could be earnings related. It could be emerging market debt related. It could be Iran related. Or it may be something no one’s even considering right now. Like in 2007, with the whole sub-prime mortgage thing, the trigger for this coming downturn could take even the world’s smartest economists by surprise. The most likely trigger? Well, I’ve been giving it some thought, and I’ll tell you what I think in today’s video. I recorded it as part of a series leading up to the release of my new research, out this coming Wednesday. I’ve tried to be as thorough as I can, because there are big, big decisions at stake. People accuse me of scaremongering, and that’s fine. I just say: look at the evidence I’m looking at, and see if you don’t draw the same conclusions. Just remember, as a private wealth manager up in Cairns, I lived through THREE major crashes, in 1987, 2000 and 2007/08. You may scoff, but I feel like I have a sense for these things. Back then, it wasn’t easy to convince clients and other people that things were going bad...when the data showed the opposite. Many thought I was trying to put the fear of God into them. This time? Well, I’ll leave that up to you to decide when you read my new research report coming out on Wednesday. Today though, do see if you can find a couple of minutes to take a look at the latest video in my new series, called: ‘What Is Likely to Trigger the Next Market Crash’. Click the thumbnail now to watch... Now here’s Selva with today’s Rum Rebellion essay... Regards, | Vern Gowdie, Editor, The Rum Rebellion |
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It’s one of the things you may first notice when landing at Malaga airport, Malagueños like to party, and they’re very friendly. The second thing people may notice is how bright the sky is, there’s a lot of light around. In fact, that is how the area became a popular tourist destination. Years ago, many of Malaga’s hotels lured in northern European tourists, who were sick of the cold and rain, by promising a refund if it rained during their holiday stay. With 320 days of sun a year on average, let’s just say hotels were playing their odds well. The day I last landed in Malaga, a winter December day a few weeks back, it was 20 degrees and sunny. Landing in Malaga this time, though, there was a third thing I noticed immediately: there were a lot of construction cranes in the sky. Regular readers of this column know that I often talk about Spain and the property bubble the country suffered in the early 2000. After seeing a boom, property fell by about 40% and employment collapsed. It’s something that the country has struggled to recover from. 13 years on we hear there is a new property boom and once again we see cranes in the horizon. We hear that there’s a recovery on its way, there’s more construction and more movement. Is this the recovery we have been waiting for? It seems so on the surface. Yet, dig a bit deeper and things aren’t as great as they seem. I know it’s a small sample size, but several people I spoke to still complain about the same problems. High unemployment, low salaries and high cost of living…Unemployment is still at a high, at 14.2%. Construction may be moving and property prices may be increasing, but there’s still a lot of unfinished and empty building projects in Spain from the last property bubble. And rents are soaring. In fact, between 2014–2019 rentals on average have increased by 50%. Property may be melting up, but this still looks far from a real recovery to me. I say this because it’s not higher salaries that is pushing property up, but zero interest rates. Low interest rates are supposed to boost spending and allow governments to borrow more at cheaper rates. It may look good on paper, but they aren’t working. These low for long interest rates are depressing growth, and creating stagnation. They are also boosting asset prices. In Australia, I hear a somewhat similar rhetoric to Spain. Three interest rate cuts this year are pushing a housing recovery once again. We’re already starting to see ads pop back up for buying property. As the Australian Financial Review reports: ‘Dwelling values in the country's two largest cities have jumped ahead in the first three weeks of the year, with the rising market pushing the median price of Melbourne units to a new high of $550,000 after surging by 12.2 per cent over the year to December. ‘Data provider CoreLogic's daily index on Wednesday showed Melbourne home values jumped 0.8 per cent in the first 21 days of January, while Sydney values gained 0.7 per cent. That growth was more than double the 0.3 per cent seen in Brisbane-Gold Coast values, Adelaide's 0.2 per cent and Perth's 0.1 per cent over the same time. ‘The acceleration in property prices witnessed at the end of last year shows no sign of abating. Pent-up demand from house buyers suddenly back in the game after laying low during the downturn is pushing home-buying intentions to a record high, according to Commonwealth Bank's latest household spending index.’ Higher property prices and no salary growth are making property less affordable. The latest Annual Demographia International Housing Affordability Survey shows that Melbourne and Sydney rank as two of the world’s cities with some of the least affordable housing, behind Hong Kong and Vancouver, as you can see below. And this is even with the recent property price drops. House prices to income ratio has doubled since 1987/92 to 2019. Low interest rates may make it easier to borrow and buy property, but at the same time, they push property prices up and decrease affordability. How many people in Australia — or Spain — can comfortably afford to buy property? The average person is not seeing any sign of these property gains. Instead, they see their salaries stagnate and costs of living increase. It’s all a fake recovery. There’s only so much property that can go up if it’s not accompanied by salary gains. | Selva Freigedo, Editor, The Rum Rebellion | ..............................Sponsored.............................. .......................................................................... |