“After the ship has sunk, everyone knows how it could have been saved.”

In episode 60, Phil interviewed the silver guru David Morgan to discuss the recent momentum and long-term upside in the silver market.  Phil and John cover Brexit and some of the action in the precious metals market since the June 23rd vote.  If you like what we’re doing, then please SHARE us with a friend!

Jason Burack of Wall Street for Main Street will be featured in the next post, so be on the lookout!

The Fed, Fraud & Phony Figures

In episode 49 of the Kennedy Financial podcast, Phil and John sat down with Dave Kranzler of Investment Research Dynamics to discuss changes in the precious metals markets in the first quarter of 2016. The trio also covered Janet Yellen’s meeting with President Obama, the Deutsche Bank metal manipulations admission and the frontrunner for worst news article of 2016! For more information about Dave Kranzler and his work, check out his work.

The brothers also covered Donald Trump’s kids and the dismal retails sales and falling GDP figures!  If you like what we’re doing, then share it with a friend!

Super Bowl 50: A Consumer Case Study

One of the worst commercials of Super Bowl 50 had nothing to do with beer, cars or shaving. It was a commercial from Quicken Loans touting their new “Rocket Mortgages.” For a financial counselor, this commercial instantly made me nauseous. The ad suggested that getting a mortgage should be as easy as ordering a pizza. After you have that brand new overpriced house, it needs to be filled with brand new expensive artifacts. Those artifacts are made by low wage hourly workers who will in turn also buy an overpriced house an attempt to fill it with credit card purchases. The whole disgusting cycle repeats itself until one day someone realizes that their brand new house is falling in value. Instead of mailing in a check, they send their keys instead, and the whole house of cards comes crashing down.

This was the playbook that brought about the 2008 financial crisis, and it’s happening all over again.  Memories are short in the United States, and no one wants to ever focus on the lessons of austere times.  That is why the exact same mistakes are being made all over again.  Fortunately, for most parts of the country, housing prices seemed to have topped and are even falling in some metropolitan areas. Here in Northern Virginia, some homes have been sitting on the market for months without an offer.  Many other homes have been reduced, but not by an amount that will lure renters back into the “dream of home ownership.”

My family has been renting for the last two years since we sold are starter home for a handsome profit.  We just signed another 18 month extension, and locked in our original monthly rent of $2,750 a month.  Why does this matter? Well, our neighbor just listed his similar home for $639,000.  Assuming he gets his asking price (which I highly doubt), the new owner will have a mortgage of almost $3,100 a month (includes $120 HOA dues).  That’s after a 20% down payment of $128,000!

I don’t know about you, but I don’t know that many people who have that much cash lying around right now.  Even if you do have it, why would you want to put it into an illiquid investment like a house?  Let’s say you’re smart and you only make the minimum down payment of 3%.  Your down payment will only be $19,200, but thanks to PMI your monthly mortgage payment skyrockets to $4,081 A MONTH!  That means that I would have to pay $1,350 more per month for the “privilege” of owning in my neighborhood.  Sure, I’ve ignored the “tax benefits” of home ownership, but those are usually wiped out by the maintenance costs.

As I have said before, there’s a reason that home ownership is at a 50 year low.  They cost too much!  I know that the figures I’ve shared are much higher than the median home price and income, but the principles can be applied to your own financial situation.  Do not succumb to the temptation to purchase a house at these prices, even if someone tries to lure you with a cool “Rocket Mortgage” app!

The Big Short: Have we learned our lesson?

The Big Short

I saw The Big Short the day after Christmas, and I can say without reservation that it’s the best film I’ve seen in awhile.  The story is accurate, the acting is superb and complicated financial information is explained so even your grandmother could understand it.  If I had to come up with a single complaint, I’d say the film didn’t blame the Federal Reserve for the housing bubble.  But Michael Lewis didn’t suggest that in his book either.

I went to the 10am matinee at a local cinema, so I joined only two other people in the movie theater.  I found myself gesticulating at the movie screen several times since the environment felt like my own private viewing.  I wasn’t expressing outrage over what has happened in the past because we already know how artificially low interest rates, no income/no job (ninja) loans and fraudulent appraisals wrecked the U.S. housing market.  What infuriates me is that we are doing all of the same things again!

The house flipping shows are back in full force on HGTV with programs like Property Virgins and Flip or FlopInterest only loans are back and other subprime loans have returned while banks try to scrape the bottom of the applicant barrel.  Armando Montelongo is back on infomercials and he is ready to teach you how to become a house flipping millionaire just like him! And I still hear people saying that buying a house is a “good investment.” As Mark Baum (played by Steve Carell) says in the film, “We live in an era of fraud.”

The fraud continues today, and there is no one with the courage to stop it.  Since the housing bubble, our public servants have become feckless matadors allowing bulls of deceit to distort our financial markets with impunity.  Former Attorney General Eric Holder admitted as much in 2013 stating, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” Holder now works for Covington & Burling where he earns millions defending Wall Street firms.

Michael Blurry, played by Christian Bale in the film, now says that another crisis is looming thanks to the Federal Reserve’s money printing and ZIRP.  You don’t have to be a billionaire genius to know that, but his statements surely lends credibility to those of us who have been saying this for some time now.  The truth is that America has not learned its lesson, so we are commencing another financial crisis worse than 2008.  The collapse will gain momentum in 2016, and the worst of it should be revealed no later than 2018.  By the end of this decade, Michael Lewis will need to write another book, but hopefully he will get the real culprit right this time.