I’m so busy and tired that I forgot to send out last week’s email. If you missed episode 94 with Tim Delmastro, then be sure to check it out!
Not only am I exhausted from life, work and parenthood, but I’m also fed up with Janet Yellen and the Federal Reserve. Next week, the Fed is “almost guaranteed” to raise interest rates for the third time at “the most important Fed meeting ever.” The hype and fanfare is nauseating.
The Fed hasn’t even raised rates to the 1% bottom that Alan Greenspan achieved, which created last financial crisis. Now people like Steve Liesman are still acting like the “geniuses” at the Fed have done the impossible. “They saved the U.S. economy,” they tell us, but they have only served to secure a more fateful demise.
Like a man attempting suicide by climbing several more flights of stairs, the Fed has only ensured that we will be falling from a greater height when we finally leap. The truth is that we’re probably already falling, but we think we’re ok because we haven’t hit pavement yet.
Be sure to check out our episode with musician Gene Goodman, and protect your savings from the Fed with Goldmoney!
On Monday, January 16, 2016, my grandmother, Mary Kennedy, passed away at the age of 92. Being a survivor of the Great Depression, a mother of eight children and possessing a strong work ethic, my grandmother was always frugal.
She didn’t have a college education, she never had a career after her children were born, and my grandfather predeceased her by over 30 years! Additionally, she spent her last several months encumbered by numerous medical bills and an expensive nursing home. Despite these adversities, she still died with a net worth of six figures.
How is that possible? My grandmother understood the value of money, and she hardly ever spent it. She mended clothes, drove cars forever and always lived within her means. From an early age she always told her grandchildren to “save for a rainy day.” She will truly be missed.
Today I interviewed Andy Hoffman to learn why Americans should be preparing for the difficult times not seen since my grandmother survived the Depression.
We saw a slight pull back in gold today, so don’t forget to buy the dips in your Goldmoney account!
Tomorrow’s guest will be Dr. Keith Smith, so reply with your questions now!
The story of the Titanic shipwreck is a lesson about what happens when man’s hubris reaches epic proportions. We’ve all heard the story about how the Titanic, thought to be unsinkable, sank to the bottom of the icy Atlantic on April 15, 1912. The ship’s captain, Edward Smith, sought to impress the world with Titanic’s record maiden voyage across ‘the pond.’ Despite knowing his ship could strike an iceberg, he still ordered the record setting pace. The Titanic did indeed strike an iceberg, and approximately 1,500 people lost their lives in an event that was totally preventable.
Like the Titanic, the U.S. economy has had a captain at the helm who is ignoring caution and the lessons of their trade. That person is our Federal Reserve Chairman. Unlike the Titanic though, the U.S. has two captains whose hubris will ensure our tragic ending. In this Kennedy Financial video, we examine the last decade and witness the slow demise of an economy once thought to be ‘unsinkable.’
Please share this with someone looking for answers.
I’m pretty sure that I caught the flu a few weeks ago, so I’ve neglected this blog since mid-February. But I’m back on my feet and I did my first interview to discuss Financial Judo and other personal finance issues. Jason Burack of Wall Street for Main Street invited me on his show to discuss the book and problems I see in the economy. With Janet Yellen’s Fed failing to raise interest rates again on March 16th, even “economic experts” like Steve Liesman are starting to see that the Fed Empress has no monetary policy clothes.
Now that I am better, stay tuned for my weekly posts on personal finance, the stock market and the economy. And be sure to add your comments!
During my careers as a fraud investigator and financial counselor, I’ve made an observation. Whether it’s a victim of a financial fraud or a client with massive debt, both individuals go through the Seven Stages of Grief. These stages are typically felt when losing a loved one to a terminal illness, but I also have seen people go through them when victimized by a con-man or battling bankruptcy. The feelings of shock and denial are most pronounced, and these feelings typically contribute to the fraud’s progression. Let’s take a look at a few historic examples to illustrate my point:
- In 2000, a man named Harry Markopolous warned the Securities and Exchange Commission (SEC) that well-respected money manager Bernie Madoff was running a Ponzi scheme. He made several more warnings, but the SEC ignored him. Madoff’s scheme finally collapsed in 2008.
- David Walsh, an Irish journalist, made countless claims over a decade that Lance Armstrong used performance enhancing drugs to win the Tour De France seven times. Armstrong went on the offensive, ridiculing Walsh and anyone else who opposed his narrative. Armstrong eventually admitted to Oprah and the world that he cheated during all of his races.
- Retired FBI Agent John O’Neil fought a ten year battle with the bureau over Usama Bin Ladin, but he couldn’t convince his superiors to take the terrorist threat seriously. He left the FBI to become head of security at the World Trade Center and ultimately lost his life on 9/11. O’Neil’s story still teaches us the ultimate consequence of shock and denial.
As bad as these events were, they pale in comparison to the one that’s coming. The biggest fraud taking place right now is being conducted by the Federal Reserve. Just like Markopolos, Walsh and O’Neil, several brave heroes are trying to warn the American public of an impending economic collapse. It should come as no surprise that they’re usually confronted with shock and denial. The most outspoken hero is a man named Peter Schiff, and as you can expect, he receives the most ridicule and disdain by the mainstream news media.
Even an armchair student of history can see that humanity repeats the same mistakes over and over, and it is largely due to the first two steps in the Stages of Grief. America’s Greater Depression ahead is eventually going to leave many citizens angry and depressed, but we will all eventually reach acceptance. My hope is that we can help people reach that final stage before it’s too late.
After the failure to launch in September, I took to Twitter to challenge Fed faithful and Peter Schiff naysayer Scott Nations. Schiff and Nations got into a heated argument in July over whether the Fed would raise interest rates in 2015. Nations found it absurd that Schiff could suggest that not only would the Fed not raise rates, but QE4 was still on the table. Nations asserted that Schiff made “outlandish predictions.”
I reminded Nations that viewers like me had not forgotten what he said, and there would be no rate hike in 2015. To prove my certainty, I bet him one ounce American Silver Eagle. Nations, not understanding the value of real money, agreed instead to make a $50 donation to the winner’s favorite charity. Naturally, I selected a 501(c)(3) called the Ludwig Von Mises Institute.
When December arrived, the Fed shocked me by actually doing the right thing for the first time in nine years and raising the funds rate a quarter point. But Janet Yellen instructed the public “I think it’s important not to overblow the significance of this first move. It’s only 25 basis points. Monetary policy remains accommodative.” Although I lost my public Twitter battle with Nations, it became clear that the Fed and Yellen were not proud or confident in their first step.
With the dawn of 2016, the Fed will need to add more rate hikes to prove that the U.S. economy can withdraw from its long-term artificial monetary stimulus. I believe that after such a prolonged binge on this financial heroine that our zombie financial markets will come crashing back down to Earth before ever reaching their destination. Like the Challenger space shuttle tragedy, the liftoff for Yellen and the Fed may have received applause and awe, but these sentiments will be turning to shock when their monetary policy blows up in mid-flight.
It takes character to admit when one is wrong, and I am happy to do that here. Now that the Fed has finally made a move, the world will get to witness the full consequence of Keynesian monetary policy. By the Fed’s second or third meeting of 2016, it should be clear that the U.S. economy can’t handle increasing rates anymore than the Challenger could handle frozen O-rings. My $50 bet with Scott Nations was a small price to pay for admission to this upcoming spectacle.
Janet Yellen thinks the economy is doing so well that next week she may raise interest rates for the first time in nine years. But many of America’s renters would probably beg to differ. Twenty-five percent of Americans spend more than 50% of their take home pay on rent. This amounts to 11.4 million people who are simply working to pay their landlord’s mortgage. With less than 50% of their take home available, many of these rent burdened folks have little to contribute toward an emergency fund or retirement account.
What’s more frightening is that over half of all renters are over the age of 40! The number of Americans now renting is at a 30 year high while the homeownership rate currently sits at a 48 year low. Many of these renters are unemployed or underemployed with insurmountable credit card, student loan and vehicle loan debt. It’s now clear to everyone that the National Association of Realtors dream of homeownership for all Americans is dead. Well, at least temporarily.
The sustainability of this system is as likely as Bernie Madoff’s investment fraud. Eventually, market forces will reveal that home prices are too high for real American incomes. In many markets, home prices will need to fall by 40-50% to reasonably turn renters into homeowners again, and I can prove it. Currently, the median priced American home is around $280,00, but the median income is only about $55,000. This means that a typical house is about 5 times a typical income, which is 2-3 times greater for you than it was for your grandparents (1.5-2 times income).
Let’s say that you are lucky enough to have the $56,000 (20%) down payment for a $280,000 house. Your monthly mortgage payment will be approximatley $1,400. You earn $2,300 a pay day 24 times a year, but it’s only about $1,700 after Uncle Sam steals his “fair share.” This typical American will need to spend over 40% of his take home pay on their mortgage, and that’s why Americans are renting. Most of them can’t even come up with $500 for an emergency, let alone a 20% down payment. And even if they could, 40% of their take home pay doesn’t leave room to make burdensome debt payments.
In order for our median income renter to be able to afford a home, he should only have to spend 25% or about $850 a month. To accomplish this at today’s rates (3.75%), the home would have to cost about $165,000 or 40% less than it does now. This will still be three times greater than the median income, but that will be a much needed improvement to what we have now. A $165,000 home price would have a down payment of $33,000, which is $23,000 lower (40% off) than it is now.
Renters will become owners again, but not until the U.S. experiences another inevitable correction like we did in 2008.
Tomorrow at 2pm, the Fed could announce that interest rates will be raised for the first time in almost seven years. Steve Liesman, a CNBC correspondent known for praising for the Fed, published an article this morning stating, “For the first time in the five-year history of the CNBC Fed Survey, a plurality of respondents forecast that the central bank will raise rates at the current meeting.”
I’ll put my name on it. The Fed will not raise interest rates tomorrow or ever without pricking the world’s largest financial bubble. So what do I know that Steve Liesman and 49% of economists do not? First, I know that our government officials always make the wrong decision. Raising rates would be the right thing to do because it would finally add discipline to a market that is an economic basket case. Since modern American leaders always take the easy road, we can be sure that Janet Yellin will hold rates at zero.
Secondly, the Fed knows that raising rates tomorrow would send the market into a tailspin, which would immediately require a reversal of the meager increase at the next meeting. This would only serve to reduce the Fed’s already minuscule credibility, especially when it would be forced to immediately announce QE4. Even according to a CNBC poll, most respondents think that a rate hike will come after tomorrow. The greatest error about this poll is not the 37% who think that rates will rise tomorrow, but the survey did not include “QE4 will come first” as an answer option.
So there it is. I put my name on it. Herm Edwards would be proud.