Saturday, April 30, 2016

The Coming Storm

When you turn on the news, you can tell the difference between a Democrat and a Republican just as easy as you can discern a woman’s voice from that of a man. 99 percent of the people speaking think that by some stroke of luck, what they say will change someone’s vote. My grandfather use to say, if you want to waste some time, talk about religion or politics. People are willing to die for their beliefs. You are not going to change their mind, no matter how long you talk.

I’m not sure how the Presidential election will go, but I do know that the economy is in a horrible mess. We have learned how to produce more with 20 percent less labor using computers. Raising the minimum wage to $15 per hour didn’t create any more jobs but it did raise the pay of those working for 2 dollars more than minimum wage. Everyone got a pay raise, not just the entry level worker.

We are getting one percent interest on our savings. It doesn’t look like the Democrats have our best interests at heart with this very low rate. The savers are being taxed at 5 to 7 percent minimum with these rates if you consider the “lost” interest from the lack of a realistic interest rate.

Stock markets and real estate are the real booming markets to make money in. The economy kind of offers up a question of “How is this possible?” The world credit orgy party could be ending soon.

The thing that could really start a financial meltdown is the exit of Great Britain from the European Union on June 23rd. Financial leaders talk about negative interest rates as if it is some tried and tested method of fixing the economy.

How dare people save money all their life and become rich—go figure. The funny thing is that most of the poor people spend all of their earnings trying to appear rich. Governments depend on banks for loans. And the banks loan their savers deposits. Now you see why the banks were not allowed to fail. The government needs them, in order to juggle 21 trillion of borrowed debt. Common sense would suggest that you cannot spend your way out of bankruptcy.

At some point this house of cards will collapse. In 1929 individual investors panicked and brought the market down quite suddenly. In today’s market, there are investment advisors, they get paid to keep you in the market. If they sell everything, they are out of a job. So they are going to ride your 401k into the ground.

We have been here before in the Great Depression of 1929 and the pundits are right, it will be different this time. The people of 1929 were stupid and didn’t know what they were doing (believe that and I will tell you another). The people in charge right now are holding on by their fingertips. A straight face and a little hyperbole and they come across as financial wizards.

Turn on your TV and listen to the ads. Retirement is going to be fun. You’ll have gobs of money from your 401k. The new “Rule of 72” for interest rates has been changed. You work until you are 72 and then hope you don’t outlive your savings. The eighth wonder of the world is no longer “Compound Interest,” but “Unlimited Government Benefits.”

The one thing that should stand out, is that putting money in the bank and saving it, is an act of futility. If you have savings, convert it to cash and put it in a safety deposit box or buy some gold and silver. There is no reason to allow the bank to use your deposits at this low interest rate. If enough people do it, interest rates have to rise.

I think Bernie Sanders, Donald Trump and I are looking for the wheels to fall off of this Obama agenda band wagon before the election. Common sense, has value, but it's discovery, is often times late to the table.

Sunday, April 10, 2016

Jobs Leaving the Country, a Public Joke

Ford Announced plans to move a plant to Mexico and create 2,800 jobs. You have to wonder if they are paying $15 an hour. Who is getting to full employment first? the hamburger flippers in this country or the people of Mexico?

In the US, the UAW had pushed for higher wages in its contract talks with the automaker last year, and Tuesday's announcement prompted a swift reaction. "Today’s announcement...is a disappointment and very troubling," UAW President Dennis Williams said in a statement. "For every investment in Mexico it means jobs that could have and should have been available right here in the USA."
This guy from the UAW is the first guy I know that can pull a rug out from underneath himself, while standing on it.

Then I hear that companies have evaded 100’s of billions of dollars in US taxes by moving overseas. Don’t get me wrong, but do corporations belong to countries like people do? They are machines that make money. By all means move if it increases the bottom line. Dividends is what the game is all about.

Then in Kalifornia people are outraged that the state colleges are taking more out of state students at the expense of in state students. They pay a lot higher tuition. It kind of lends to the opinion that the outraged were economically challenged, they might have to pay for their kid to go to college

Clinton got elected president in 1992 only because Ross Perot ran as an independent. Ross saw the jobs being sucked out of our economy. He was right, but it is a little too late to do much about it now. We could get some of it back over 20 years with the right policy, but it won’t happen overnight. Don’t hold your breath on this one, the word “Never,” comes to mind.

June seems like the month that everything will hit the fan. The primary election process in the US comes to a head, and the vote for Great Britain to stay in the Euro comes to a vote on June 23. And let’s face it, the European Union has flooded the countries in it, with minority populations that they didn’t want and now they have a way of saying “No more immigrants.”

As things get worse, expect more of the unexpected. We could invade Mexico and make it the 51'st state. That way we wouldn't have to worry about jobs leaving the country or the illegal immigrants; they would no longer be illegal.

Sunday, March 27, 2016

Government Stealing from the Elderly


Since I am getting close to the age of 70, I have to take money out of my IRA or I will be penalized. So I cranked up an IRA withdrawal calculator and went about figuring out what I have to withdraw. I used 100k for the illustration, I started late and I'm a couple of thousand short. Didn't think much of it. I used an interest rate of 1/2 of a percent. I Wrote down what I needed to withdraw in order to not get penalized. Then I decided to try different interest rates. You can double click on the pics for a better view. Anyone remember the saying, "Compound interest is the 8th wonder of the world?" And then there is the rule of 72. Divide the interest rate into 72 to calculate the number of years it would take for your investment to double without adding any money to it. A half a percent divided into 72 is 144 years. You kind of have to wonder "Do I have the time to wait for it to double?" The return on investment is totally meaningless. I'm hoping to live to 90 and I can't even afford age 80. Kinda sucks and it isn't even my fault.



Here is where it started to grab my attention, I plugged in 3 percent interest and generated the second printout. The amount I had to withdraw each year was more than the year before.

When a person enters retirement age, Their savings are the "worker" that they will depend on for their benefits. It is the interest rate earned on those savings that will determine their comfort level in retirement. The Federal Reserve by lowering interest rates to zero, has stripped the elderly of their full retirement income. Retires can have back what they put in, but no more than that. The Federal Reserve has changed the rules after the card game started.

Notice that the withdrawal amounts of $4,000 a year on my account, even at a 3% return is not a real game changer. And nobody is paying 3 percent.



Then when I typed in 8 percent interest, I realized that the politicians had found a way to rip off the elderly by manipulating the interest rates through Federal Reserve policy. We are in the middle of a Great Depression and how do they fix it? They rob me of the interest on my hard earned savings. 8 percent would have been a reasonable return on my savings, not 1/2 of one percent. If I'd have known that I was going to get such a lousy rate of return, I would have put my money elsewhere 20 years ago.

I have observed that a zero drops off of our purchasing power every 20 years. What cost a penny in 1964 cost 10 cents in 1984 and now a dollar in 2004 and probably $10 in 2024. The trouble is, my example is a linear progression and government spending and inflation is more of a logarithmic progression. Common sense suggests that precious metals will more than hold their value over the next twenty years. At todays interest rates, it could become the only game in town.

Half the world is looking at 30% unemployment and the stock market is roaring to absurd new highs. Housing is back to the highs of the bubble year of 2007, totally unaffordable. The present interest rate so low that there is no reason to save, even for retirement. Once you realize what the government has done to our retirement financing, you'll be too old to do anything about it. Real compound interest is a thing of the past. Its still a wonder; you just get to wonder where it went.

Friday, March 18, 2016

The Great Depression, We Have Arrived!

I was reading about Janet Yellen the other day and unfortunately didn’t note the article. It referred to our present economic place in time as that akin to 1937. I’ve read from several sources that the Great Recession of 2007 ended years back and that people are afraid we might sink into a new recession. I’m of the opinion that we have never left the last recession.

There’s an election coming up and a person by the name of Donald Trump is upsetting Congress to no end. They are worried that this guy is not into smoke and mirrors and all their hard work sweeping the mess under the rug will be exposed. They are claiming he is unqualified to be President. The only requirements I know of; are to be over the age of 35 and be a US citizen. Whereas the minimum requirements to qualify for a job to clean toilets on a school campus might be greater than those needed to run for the political office of President--go figure.

When will this house of cards fall down? With interest rates at zero, the only investments that make sense are real estate rentals, credit card loans, and student loans.

On the books, a 6 % return on rental real estate looks good, but if you have ever been a landlord, you would demand 15 %. Until the reality sets in as to how a renter can destroy rental property, housing prices will stay artificially high. There is a place a few blocks down from us with three story condos, maybe about 400 of them. Asking rental is about $2,500 for a two bedroom. Detached houses in this area are renting for about $2,200, I can’t quite figure that out, on a cash flow basis for the condos. The loud parties, music and crying babies, I don’t see anyone moving into them.

Student loans are still a big draw, but most now recognize them as sucker loans. I expect this institutional program to be ripped from ear to ear with fraud. You can probably register for Cocaine University and get 40K a year from the government if you can sober up enough to fill out the forms correctly.

Credit card debt is a real walk in the dark. During our working years most people are a good risk on credit cards. What happens when you get to be 75 years old and a card holder with great credit? I’ve heard of people 30 years old being told they have a terminal condition and go and rack up 200K in bills. only to be told later, they were misdiagnosed and weren't going to die any time soon. 75 going on 80, go ahead max it out on all 10 cards, they can’t garnish your wages.

We need to realize that zero percent interest rates is an upside down process. Low rates imply there is very little risk (how does that reasoning work?). We see all of these companies moving out of the US and at the same time the unemployment figures get better? The newspapers report, what they are fed. I get a little irate with people that quote print without reading between the lines.

The stock market is the key; will it collapse before the election or after it? At some point Congress is going to have to acknowledge the Great Depression we are in. FDR did it after the election in 1933. Only then did Congress begin to march to a different drum beat.

That will be the turning point, where we move from Wall Street for our earnings, to Main Street for our paychecks and the construction of badly needed infrastructure. It sound rather innocuous, but when Wall Street's hypothecation hits a brick wall, we are talking about a financial Train Wreck. If you have no savings it will be painless. Otherwise your massive heart attack is only one bank statement away.

Wednesday, February 24, 2016

The Dumbing Down of America

I know it’s an election year, but the statements get more ridiculous. “Everyone needs the right to have a college education.” A college education will not in a lot of cases get you a better paying job. It may make you overqualified for the job you’re applying for. Probably at least 70 percent of the jobs in this country don’t require a college education, trade school training maybe. A college degree comes with the automatic assumption of higher wages. That’s not necessarily true.

Congress created a new form of serfdom with the promise of easy money loans for education. Student loan debt is not an issue of irresponsibility with the students, they had no idea of what they were getting into. It was a trap fashioned in Congress that the banks could not say no to. Credit cards and student loans are about the only moneymakers for banks since the Federal Reserve went into the mortgage loan business.

You can’t support a family on $10 an hour, so that justifies $15 an hour? In California, you better be living at home with your mother if you only make $10 hour. Have a kid or two and see what that does to your take home party money-- diapers instead of a 12 pack.

They do have one thing right; the middle class is shrinking. Why? The jobs are being moved offshore. Or worse yet the people with jobs are being replaced by immigrants with H-1B visas. The workers at Disney Studios were shown the door but they had to first train their replacements from India, irritating to say the least. How do you get the jobs back?-- make it more expensive to produce it over there than here. So you put a tariff on every cell phone of $300 and one on shirts and shoes of about $8. Will it be done? Probably not.

The real problems are created by government policies, lawyers and laws. A US company making red plastic gas cans, got sued several times and went out of business. The rest of the worlds labor pool doesn’t have to worry about social security, unemployment insurance, health insurance and worker’s compensation. Overseas production limits the owner’s liability.

Some businesses are trapped and can’t move off shore like food, shelter and services. Many companies that produce a product can successfully make the move. The real trouble is; people earn a living producing product for consumption. If the production moves off shore, the job moves with it. Will you move to Mexico to get your job back at half the price and no benefits? The rest of the world knows how this works, no job in your country, move to one that has jobs. The new people at Disney Studios know that quite well. And computer tech support goes one better. With the phone, the employer can farm out tech support to various companies located in India 24-7.

Current unemployment rate is listed at around 5% here in the US. Estimates place the real figure from 15% on up to 20%. Obama has even referred to the great recession of 2007 to 2010 as being a bad one. So if you carry that one step forward, he is implying that we are no longer in a recession that didn’t exist until after the fact.

To listen to Obama, I’m tired of “We’re not out of the woods yet,” for 8 years running. We are not blaming this disaster on any President. It has its roots back when FDR was president and the advent of Social Security. But the call to bring jobs back to the USA is a little hollow. Very few things that I have purchased in our home have “Made in America” stamped on them. Everything with a made somewhere else tag is a job lost in the US. These jobs could come back, but it would be gradual over decades of time.

The rich people from other countries will silently move here to retire and enjoy our way of life semi-tax free. Of course they will need servants at $15 per hour. And then Drugs, Sex and health care. Retirees’ here do the same thing when they move to Mexico to enjoy their Social Security retirement on a lower income level. Peculiarly if you are a foreigner reaching retirement age here in this country legally, you qualify for Supplemental Security Income and Medicare. So this road to citizenship for illegals could be the real road to hell for Social Security. I complained about the disparity to Social Security and they were very indignant pointing out that SS and SSI were two different programs. To me it’s kind of like the wife buying the new TV instead of the husband, it’s the same bank account.

Congress increased our unemployment numbers by cutting the military budget by 20%. Of course Congress will argue that, they only cut the military budget; the commanders had to figure out what they could cut and it wasn’t the weapons Congress forced them to buy, it was men. Budgets determine what you can do next year. So when the VA falls short on promises to veterans, it's the Congress you need to blame, they have the checkbook.

Congress tells private employers what they have to pay to employees and dictates their benefits. Any wonder why businessmen move their factories off shore?

The real problem is not the promise to fix, but rather the will to provide the funds necessary for these government institutions to perform as expected. And if you want to stem the flow of production overseas, read the writing on the wall; am I going to pay you $5 for something that I can get for $2 somewhere else. The minimum wage is set by laborers in Asia, not by the US Congress.

What we need to realize is, we have a bunch of old farts in Congress using a 20th century mindset that used to work well, but is severely outdated today. The laws no longer fit the times. It’s kind of like the right to bear arms. You wouldn’t rob a bank today with a flint lock pistol made in 1792. IMHO we need younger people at the helm, that can think outside of the "outdated box."

Thursday, February 18, 2016

The Golden Age of Mankind Is Behind Us

Here is a comment written by Anthony Tan to my last article, his words are well thought out and deserve review. Not everyone reads the comments section of this blog.
The golden age of mankind is behind us. We live in a finite world with finite resources, man kind should be looking at sustainability instead of growth and GDP. Our current financial system (usury and debt based money) is simply not in line with reality. It's also why all governments are so obsessed with growth, the moment you can't have growth, it all collapses.

Throughout the world, you'll hardly find a nice, humble and wise ruler/government. Nice people work behind the scene to better the lives of people, they are not interested in the limelight and power. Psychopaths crave it, and will do anything to get into power. For democracy to work, you'll need a well educated, wise and hardworking citizenry. This is not in the interest of the psychopath and they would rather have a dumb down and distracted citizenry and reduce the society to bread and circuses.

Technology will improve, but we've already reaped most of the benefits years ago. An inkjet printer and a car is a good example. After thousands of new improved models, it is still essentially the same as a decade ago. Technology has reached the point of diminishing returns and you won't probably see any major changes unless you are part of the elites.

I recall seeing a sci-fi show called "Space 1999" in the 70s about a moon base, this is 2016 and a moon base is still a distant dream. At the rate we've burning and wasting resources, I doubt if humankind can ever get their act together to go beyond Earth and spread out to other planets. Hopefully it'll be a slow crash and I'll be long dead before we reach the Max Mad scenario.

Sunday, February 14, 2016

Unintended Consequences

About 50 years ago, the UN showed farmers in northern Africa how to more effectively farm the land and use fertilizer. It worked great. Farm production doubled and because of the abundant food, the population doubled overnight. There was one little thing that no one noticed. Each family needed firewood to warn their huts and cook their meals. It doesn’t seem like a very big thing, to be concerned about, but the area was running out of trees. Then the rains came. With no trees to control the runoff, the farmland washed away. Starvation ensued.

A solution to one problem can create unforeseen problems. Raise the minimum wage to $15 per hour and you bump into the term “Shadow Labor,” like self-serve checkouts where you ring it up yourself and bag it. I was at Ralphs supermarket a while back waiting for the cashier to ring me up and a store clerk told the gentleman behind me that the self-serve island was open. He must have been a union man because he cracked me up when he said, “No thanks, I already have a job.”

The 15 dollar an hour wage increase was to give the worker a better standard of living, the net result, less employees. Even worse, with mandatory health care, most jobs went to a 30-hour work week. And of course, the employer could move the factory overseas, and not worry about all of the government restrictions and taxes. Last Thursday, Carrier Air Conditioner announced that it is moving to Mexico and 2,100 jobs go with it. I guess moving “overseas,” is a misnomer. Mexico and Canada are right next door.

The newest thing is negative interest rate policy that is being pushed worldwide on the banks. It’s a little like telling hookers that they have to pay guys to have sex with them. The concept doesn’t float at that level for the simple reason, there is nothing in it for them (naturally I’m referring to the banks ;>)).

We have a drought out here and everyone has been asked to cut down on water usage. Our area in San Diego cut their water usage by 25 %. Net result the water company sold less water and their fixed costs did not go down, so our water bills increased as a reward for using less water.

We tried to bomb the dictators out of the Middle East, and give them Democracy. What did we get? Anarchy! Democracy is not something you can pass out at a pep rally.

Changing the school lunch program to be more healthy and force every student to eat whole wheat, and have a fruit with each meal, created incredible waste. Not to mention kids left the school to get something "Real" to eat. People don’t get fat eating food that doesn’t taste good. If it doesn’t taste good, don’t eat it (and that advice is a couple of million years old).

Oil prices have dropped dramatically and we are still adding 10% ethanol to each gallon. Ethanol gives lousy gas mileage, eats the hell out of the fuel system, and makes our beef steaks cost more. You can’t take a well fed car down to a slaughter house and get prime rib or steaks out of it, only easy monthly payments; miss one and pay the rest of your life. Some of our biggest ethanol producers are family of some well know Congressmen. The irritating thing is that everyone whines about gas prices, but most people have no idea of what they pay for steak, they just drop it in the shopping cart.

The great government program to help our kids get a college education has given a lot of them a financial education that will last their entire lifetimes.

Then we have the new health insurance for everyone. If you can’t afford it, the government will want to know everything about you for you to get it free. And when you file your taxes this year, you have a new form to show the IRS, your 1095-B proof of health care coverage.

The national debt is approaching 20 trillion. The average American thinks, government budgets have worked ok so far, the people in charge must know what they are doing. I guess, if you have that sort of faith in government, you don’t need to go to church every Sunday. What you save in church tithes, will make up for the interest lost on your 401k.

Do you get the feeling, that if big government left us alone, we could manage just fine? Of course listening to the election debates, the last thing anyone of them wants to do, is leave us alone, they want to give us something. The only thing that worries me, is that we may get everything we ask for and something we didn't, a Banana Republic.

Sunday, February 07, 2016

Investment Returns vs Homeownership

The average person thinks that when they pay off the mortgage, they live in their home for free. This is semi correct. Sell the house and put the money in the bank and in the past, the interest was what you would pay to rent the house. So with a half million-dollar home today, the money in the bank pays about .05 percent. That comes out to $2500 a year or $250 a month. Something is wrong here. If you buy the same property as an investment, you will probably get a rental investment return of $2,500 a month which is $30,000. That’s a 6% return on your investment. So being a paid off home owner gives you a better return on your savings than what the bank could offer by a mile.

The statement hidden behind the data is that if interest rates remain low, the average blue collar worker can ill afford the house payments for a very overpriced home. If bank interest rates were to reach 8%, the monthly payment would be $3,660 a month, whereas at 5% they would be $2680 a month. The neat thing about the high sales price, is that it locks in the property tax assessment which is 1% in California. Even at the lower amount, the buyer with no money down needs about 50K a year just for the house payment, taxes and utilities

What is missed here, is that retirement funds or people with cash, can buy a home with an expected rental return of 6%. This in turn puts stress on the starter home prices. They go up in price to a level to where, starter homes are no longer starters.

There is a conundrum here; low bank interest rates, high rental return rates, and unrealistic house valuations. The real loser here is the homebuyer with very little down. He will be broke the rest of his life paying off the home. If you think about it for a few minutes, you will realize that everyone rents the home they live in. Your lifespan determines the rental length. A man in Oxnard made millions leasing 100 acres of land from the city for 100 years. He built rental condominiums on the acreage. After 20 years, he had them paid off and I think he lived to realize another 40 years of income off of them. So after another 40 years, when the lease expires, the relatives will give the land back to the city of Oxnard.

So until the cost of money gets back to more realistic levels. Everyone will be forced to park their savings in real estate investments, not home ownership, there is a difference. This is the definition of a bubble, the miss allocation of resources. The investment return, not the value of the asset, justifies the price paid.

The real reality of the situation is that when the housing prices double, you pretty much double the number of people occupying the house. And it is only noticeable when you come home late and can’t find a parking space for your car. Go figure.

Wednesday, January 20, 2016

Everything’s GREAT!

Did you ever notice, people that wake up with a feeling of gloom seem to spread it to others? Now imagine if the country was in a major depression. Do you think government is going to point out the fact?

Depressions are self-fulfilling. The acceptance of the fact that you are in one, tends to exacerbate it. One tends to save more and spend less in anticipation of bad times that may lie ahead. Most politicians are doing the correct thing by not acknowledging the economic mess, it would only make things worse.

Obama in Detroit today shown in a car plant, said sales were up and things were getting better. Detroit is a city where they are tearing down so many houses that they want to rezone 60 acre portions into farm land. I not sure how true that is, but the Paul Bunyan folklore story tellers are known to be from around there and they tend to stretch the truth a bit.

So, everything is just great. The only problem is that the rest of the world is on life support. And it is getting worse. Europe could barely afford to finance their health care plans for their populations. Now they have 20 million immigrants that have no place to go. The support institutions of Europe will not be able to meet the demands put upon them. And nobody will believe that until it happens.

We have unrest in several Middle Eastern countries and with the price of oil falling out of bed, there is no support for the poor. Farmers can’t plant in war torn areas. People are fleeing to areas where there are so many refugees that there is a guaranteed impossibility of employment.

The only part of the global economy that governments cannot really control is the stock market. This world market has kind of taken on a mind of its own lately. We are not sure of where it is going tomorrow, but it doesn’t look good for the long run. We do know one thing, in 1929 most of the investors were individuals. In today’s market, most of the investors are fund managers. They need to keep in the market, to have a reason to keep their job, as a fund manager. For that reason, I don’t see a panic, just a very continuous steep sell off into oblivion. Plus, your stock fund manager isn't old enough to have ever experienced a bear market. And naturally, there will be one or two spectacular "recoveries" on the way to the bottom. Where to from here? Not sure. We have been here before in history, I’m sure of it. The only trouble is; you can only see the outcome from the rear view mirror.

I think we have time to go back to the snack bar and get a refill on the popcorn, you won't miss much of the movie even if you really wanted to watch it.

Wednesday, January 13, 2016

Who Is Financing Real Estate Loans?

The question arises, what bank is nuts enough to write home loans at even 4% for 30 years. The answer absolutely none. The savings and loan fiasco of the 1990’s was caused by Savings institutions loaning long and paying short term depositors interest. They loaned money for 30 years at 5%. When short term rates went to 6% their depositors move their funds to a bank paying higher rates and we had massive failures of Savings and Loans.

The banks could do 4% loans, but why bother with the potential risk, when you can make 12% to 36% on credit card loans.

The invisible banker in this whole mess is the Federal Reserve. They are financing the current real estate bubble. It’s kind of a peculiar arrangement. The Federal Reserve can keep a loan on the books for 30 years at zero percent interest and when it gets paid off, they get their money. Now if an investor has a 100k 30-year Treasury at 1% interest and rates go to 8% the current value of that bond is reduced to about $12,500. If they need cash, they will be eaten alive. If they can wait like the government can, they get every penny back in 30 years. Receiving interests on a loan is a human gratification, not a governmental expectation.

Most home loans end up being for about 5 years, the buyer sells (moves gets divorced, etc). So a loan written for 30 years, ends up being a 5 year loan after the home is sold and repurchased by a new owner. The Federal Reserve has amassed about 3 to 6 trillion dollars’ worth of real estate debt. The interest rate is really irrelevant to the Federal Reserve, they are not a bank, and do not have to show a profit. Time is an option that they don’t have to bother with. But the financing pool of money has to be very large. So when a bank writes a loan, they farm it out to a buyer like the Federal Reserve. The Fed has to buy all loans offered in order to keep interest rates low, just like what they are doing with T-Bills. If they don’t, prices rise until a buyer appears and purchases the note.

If you are following retirement funds and other investment operations, many are becoming involved in rental real estate. Notice the zero overhead of purchasing renting real estate for the Investment funds. They have the purchase money and need an investment return, plus they get to depreciate the investment. The base line return can be as high as 15% and most appear to be around 8%. In bad economic times projecting an 8% return just might not float the boat. But right now, the investment funds have a 4 percent hedge on potential home buyers; whose cost of funds is at 4 percent and no depreciation.

If we reduce it down to a personal level, for every dollar the Fed loans out, it will get one dollar back (if it waits long enough). Where you and I depend on the interest generated on loaning out dollars to create investment income for our retirement.

The real problem starts when the Federal Reserve stops buying real estate loans. The question now being asked, “Do they dare?” The questions of a lot of bystanders, is, “How can these crap shacks be worth so much?” Zero interest rates have distorted real estate values.

Just maybe, the Feds will be forced to take possession of the bad crap shack loans--- If this real estate bubble pops, they own it all, the only problem is the "they" bit; its you and me, AKA Taxpayer.

Reality might have “left the building” 20 years ago, but it will return. Stocks, bonds and real estate will return to historic norms. Once government influence drops from the equation, the mis-allocation of resources will stop. Just how this will happen is up for debate, but the drop in the world stock markets and the fall of oil prices seem to point to an uncertainty that could speed up the process a bit.