charleshughsmith

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The End of the Free Lunch

In Part I, we examined four key drivers of Central State expansion and how they are now likely entering an era of prolonged contraction.

This historic vast expansion did not occurred in a vacuum; as our social and economic orders are not infinite, the State’s expansion largely came at the expense of community (private society) and the marketplace.

Many observers have noted that the Central State has largely replaced community within the nation’s social order. That is, the Central State now dominates the society and the economy, while community and the marketplace operate beneath its shadow. 

Some see this withering of community as occurring off-camera, so to speak, for reasons that had nothing to do with the State. In other words, the decline of community left an opening that has been filled by the State. This view discounts the active encroachment by the expansionist Central State on private society and markets such as housing and equities, which have become State-managed platforms for perception management and private predation.

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Three Key Indicators to Watch

In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.

Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Why a Near-Term Market Rollover is Probable

In Part I, we summarized the global financial meltdown of 2008 as recognition that the collateral beneath an enormous inverted pyramid of leveraged debt had vanished, while all the monetary and fiscal tricks of central banks and governments failed to sustain the illusion of sufficient collateral.

Once again we find that massive, sustained intervention in global financial markets is being touted as successful – everything has been “fixed,” markets have been “stabilized,” and a global “recovery” is well underway,

If we believe this, we might be exposed to a dramatic downside should 2012 turn out to be another 2008, when markets realized that intervention did not create collateral, but instead a temporary illusion of sufficient collateral. 

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Key Insights for Those Buying Real Estate as an Income-Generating Investment

In Part I, we looked at a variety of factors affecting the demand for housing, both resident-occupied homes and rental properties, because demand ultimately establishes valuation and price for both sales and rentals. In Part II, we address the many issues investors have to consider when they buy real estate for income generation (i.e., they become landlords or absentee owners).

As someone who has owned rental property for over 25 years, I have seen the pitfalls and the positives. As with all investments, it’s prudent to go in with eyes wide open and to ask, am I prepared if the future doesn’t unfold as anticipated?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Determining the Housing Bottom for Your Local Market

In Part I, we examined how the policies of the federal housing agencies and Federal Reserve have fundamentally socialized the US mortgage markets and are propping up housing sales and valuations via zero-interest rate policy (ZIRP), housing subsidies, and various loan guarantees.

Along with the structural factors outlined in my December series, Headwinds for Housing, this is the backdrop for our individual assessments of is this the bottom in my local real estate market?

Why This Time May Indeed Be Different

Before we look at some tools that will help us make that assessment, I want to stipulate that this overview is aimed at small-time investors, not institutional players, and that it may first strike experienced real estate investors as too basic. However, we must be alert to the possibility that this real estate market, so dependent on Central State intervention, ownership and policy, is qualitatively different from previous eras. And so the lessons of previous markets could be misleading, akin to “fighting the last war.” Thus we would be wise to start with the most basic tools as a foundation for further investigation.