Harry S. Dent Jr.'s Blog, page 27

The Good Path to Greater Income Inequality

I want the difference between median pay and a top earner to get bigger.

A lot bigger.

It’s not that I want average workers to earn less… I’m just hoping that a top earner can make more.

And I’ve got a specific top earner in mind.

It’s not Michael Corbat, CEO of Citigroup, who was recently roasted by a congressional committee because he earns 486 times the average worker at his firm. Or even Jeff Bezos, who just had to part with 25% of his $160 billion wealth in a speedy divorce.

I’m talking about me.

I’m not a top earner, but I’ve got high hopes to be one, and history is on my side.

A recent opinion piece in The Wall Street Journal reported the results of a 2015 income tax study by sociologists at Cornell and Washington University in St. Louis.

According to the study…

About 12% of the U.S. population will rank in the top 1% for at least one year; 39% in the top 5% for at least a year; 56% in the top 10%; and 73% in the top 20%. At the same time only about 0.6% of people will stay in the top 1% for 10 consecutive years.

The Journal also noted that the Tax Foundation found half of Americans who earned more than $1 million in any year between 1999 and 2007 did so only once. Just 6% did so all nine years.

Apparently staying at the top is harder than getting there, but you still have to climb into the top earning slots before you worry about falling out.

The Economic Policy Institute reports that the top 10% of earners in 2017 (actually a range of those in the 90% to 95% of earners) pulled in $118,500, which doesn’t sound like a lot. The 1% group earned at least $719,000, which seems like real money.

I’ve already round-tripped several times in my career, earning quite a bit and then dropping back…

But that’s the nature of variable income. When you work in fields with the potential for high payouts, you also run the risk of coming up empty from time to time.

After filing my taxes earlier this month and then reading that even Socialist Bernie Sanders joined the 1% for a couple of years, I’ve renewed my push to join the upper echelon of earners and stay there.

Maybe I can ride golf cart rentals to riches. I’m certain my new Fortune Hunter service will be part of the mix.

The trick…

The key is to keep an eye out for opportunities, wherever they might arise.

Not everyone is built this way, and that’s fine. Maybe you’re like me and you keep looking for, and taking chances on, the next interesting thing to come along.

Or perhaps you like a slower, steadier path to generating wealth, like Lee Lowell’s Instant Income program. One of the fabulous things about America is that we foster a system in which those who want to increase their income and amass wealth can take their chances, big or small.

If it works, then they get to keep what they earned. If it doesn’t, well, it’s their problem.

Take another look at your 2018 income tax filing. Are you where you want to be?

If so, great! I hope you’re able to beat the odds and maintain your income.

If not, check out some of our services, from Boom & Bust to Fortune Hunter. We’ll work to help you create greater income inequality, not by holding anyone back, but by helping you to move ahead.

Rodney

The 70-Year Globe Buster is Almost Over

Conspiracy theorists are out in force, proclaiming the Notre Dame Cathedral fire an intentional act against the Catholic faith just days before Easter. Paris officials denounced the idea, pointing to the more likely cause being an unfortunate accident during the $6.8 million renovation project that was under way in the landmark.

I don’t believe the fake news either, but it speaks volumes that everyone and their uncle was so eager to jump on the conspiracy train. It’s exactly what I’d expect during this negative arm of the geopolitical cycle, which has been ongoing since 2001.

And one thing I learned from my co-author of Zero Hour, Andrew Pancholi, is that in many cycles, every other iteration is more powerful. Basically, the next cycle builds on its predecessor to create a crescendo.

The 90-year Bubble Buster that I’ve talked of often since identifying the Dark Window last year, is the perfect example. It’s the result of the second iteration of the 45-year Technology Cycle.

The 70-year Globe Buster is another, being born out of the second iteration of the 35-year Geopolitical Cycle.

This cycle has truly been brutal…

Do yourself a favor: look at the timeline of geopolitical events in Sale of a Lifetime. It doesn’t contain every event, there simply wasn’t room. And it only dates to 2016, when we published the book. Still, it’s shocking to see.

That’s the double Geopolitical Cycle – the 70-year Globe Buster – at work.

This cycle has a positive rise for about 17 or 18 years, which we enjoyed between 1983 and 2000. During that time, nothing significant went wrong in the world.

Then its negative arm began in 2001. What hasn’t gone wrong since then?

The first shock was 9/11. Since then, endless terrorist events have rocked the globe. There’s been one civil war after the next in the Middle East. There was the Arab Spring. Mass shootings seem to have become common place in the U.S. And, in recent years, we’ve witnessed a barrage of white supremacist terror events, with the recent New Zealand one being the worse.

The good news is…

This cycle bottoms out in late 2019 or early 2020. As it shifts back into the upswing, things will start to get better again… like the slow lifting of the Cold War with Gorbachev from 1983 forward.

The road to the crescendo…

The previous Geopolitical Cycle that peaked in 1965 and turned down around 1966 into 1982 saw the Cold War with Russia, the Vietnam War, and the Civil Rights Movement. All challenging and disruptive, but not as terrifying as terrorism.

Go back to the last double cycle and we see a peak in 1930 that turned down from 1931 into 1947. During that negative arm, we saw the Great Depression, major trade wars, and World War II. Talk about a crescendo.

So, like I said, the good news is that we’re nearly through the worst of this 70-year Globe Buster. And it can’t come soon enough. I’m sick of the Islamic radicals and the white supremacists who react to them. Both groups are angry for their own reasons, but enough is enough.

We’re on the cusp of the greatest reforms that will arise from the confluence of a crashing economy in 2020 and a return to power of the democrats as a result.

Big changes are coming, especially between 2021 and 2024, in the next administration… changes that make history, just like those the world saw at the end of the last 250-year Revolution Cycle.

And through it all, we’ll take advantages of the opportunities that come along with it, from those the Dark Window will hand us this year, to the fire sale we’ll enjoy after the next crash.

Buckle in… and stay tuned.

Harry

We’ll Pay the Retirement Bill for Many

I find myself thinking more about retirement.

I don’t want to trade my daily routine for the cruise ship, but I’m developing a laser focus on generating more income that I can put away for later use… which explains my latest business foray into the golf cart rental business.

The venture is turning a profit after a couple of months, and our biggest battle right now is with mother nature. What I would give for a sunny weekend on the Texas coast!

But I face bigger hurdles in my efforts to generate cash than just the weather: the Fed and the tax man. And the two intersect in a very unlikely place: pensions.

Oh to live in Oregon…

University of Oregon football coach and athletic director Mike Bellotti sums up the issue nicely. He doesn’t expound on financial topics or pick apart Fed policy. But he does collect $46,583.00 in retirement benefits… every single month.

Bellotti’s an outlier, of course, but he’s not alone. Joseph Robertson, the retired head of Oregon Health & Science University, pockets $76,111 in pension benefits each month.

Apparently, to succeed in retirement we should all work in higher education in Oregon.

But the system can only pay the benefits as long as there’s money in the kitty. And that’s the rub.

Kicking the can…

The Oregon public employees retirement system has about 69% of what it needs to pay what it owes. And the numbers are getting worse. Every year, the system adds on more future retirement benefits that must be paid, without adding enough assets through contributions and market gains to cover those liabilities.

To make it worse, the benefits are contractual obligations between retirees and the state. They must be paid no matter what. When there’s not enough money to foot the bill, they’ll turn to tax payers to make up the difference.

The yawning gap between what they have and what they owe isn’t unique to Oregon. At 69% funded, their program is about average. Illinois, Kentucky, New Jersey, and Connecticut are at the bottom of the pile, going bankrupt quickly. All the programs fell to such depths the same way. They promised too much and earn too little. One issue falls squarely on politicians; the other on the Fed.

When public employees negotiate for benefits, they don’t go to the person with the checkbook, the taxpayer. They go to the representative, the politician.

But the elected official has competing motives. He wants to keep the wheels of government rolling, but he also wants to get re-elected. And since the money doesn’t quite come out of his pocket, why not give a little more?

As for making annual contributions, that falls to state officials, who consistently underfund their pensions while prioritizing other spending. They kick the can down the road.

The reality of the situation

And then there are market returns. Pension managers are, or at least should be, a cautious bunch. They tend to hold a fair mix of stocks and bonds. But interest rates have been closer to zero than anything else for a decade, which has dramatically curbed what pension funds and anyone else can earn on fixed income.

The blame for this falls squarely on the Fed, and they know it.

During a press conference in 2010, then-Fed Chair Ben Bernanke was asked about savers who were hurt by exceptionally low interest rates. He responded that yes, they did earn less on their fixed income investments, but they also benefited from an overall healthier economy fed by low rates.

Tell that to pension funds, and to states that are going broke because of them.

In Barron’s last week, Jim Grant estimated that the Fed has essentially shorted savers by hundreds of billions of dollars by holding rates artificially low. Pension funds are part of the group. I think he’s being generous. I made that same argument and calculation in the August 2014 Boom & Bust, and I determined the Fed shorted savers and bond investors by $1.65 trillion.

Every day that goes by means we’re one day closer to the time of reckoning; a time when states, which are obligated to make these payments no matter what, will be forced to develop realistic plans for paying what they owe. They won’t be able to cut enough services to make up the shortfall, and most states are not allowed to trim benefits. The only answer will be higher taxes.

They need more money. And the only place to get it will be from you and me.

It’s inescapable…

We can’t escape the reality of the situation, but we can try to mitigate the pain. In addition to banking more earnings today so that I don’t have as much earned income in the future (thereby avoiding higher tax rates), I can also choose to lower my taxable footprint by moving to a low-tax venue and choosing lower-priced real estate.

In fact, I’m about to look at a new home as we consider downsizing and moving a few miles from the coast to avoid flood insurance, as I wrote about a couple of weeks ago.

For any of you slogging through a cold winter in a high-tax, insolvent state, you might think about moving south. We can’t change the Fed, or go back in time and make our elected officials more responsible, but we can enjoy the sunshine and work to keep at least a little bit more of what we earn.

Rodney

Taxes, Government Waste, and a Better Way

This is an expensive week for me. Our wedding anniversary is the 14th, Tax Day is the 15th, and my youngest child’s birthday falls on the 16th.

Only two of those days make me happy.

This year I’m getting a bit of a refund, but I’ll never see it. Because my income varies, it’s hard to know how much to pay every quarter, so I usually overpay. But then my accountant just applies the refund to next year’s tax bill.

One day I want to get the check in my hand. I send so much to Uncle Sam, for once I want him to send some cash to me!

Where does it go?

Like many Americans, I can’t help but think about where all that money goes. And I’m always a little disappointed when I find out.

The Citizens Against Government Waste publishes a book every year outlining wasteful spending. From their research I find that, in addition to national defense, the courts, and the administration of the government, I’m also helping fund:

$13 million for the Save America’s Treasures program, which funds renovating museums and opera houses;
$16.7 million for the East-West Center in Hawaii, which works to foster better relations with Pacific and Asian nations; and
$65 million to help the Pacific Coastal Salmon recovery.

These aren’t big numbers, but they definitely make you wonder.

And this year, in addition to funding things that frustrate me, I have to pay my accountant more to figure out my taxes because of the recent tax reform.

I’m not sure if my bill to the government went down, but I know my bill from the accountant will go up.

What happened to the promise of tax returns on a post card?

Simplify the System

Maybe Herman Cain, Trump’s newest and already embattled potential nomination for the Fed, can revive his 9-9-9 plan, which called for a 9% tax on corporate income, personal income, and sales.

No deductions. No way to avoid. Just pay the tax and move on. Talk about radical truth that even Trump and Ray Dalio could get behind!

Of course, this will never happen. The government uses the tax code as both a weapon and piggy bank, punishing some behaviors (spending a lot on a house) while encouraging others (having children and donating to charity).

I’ve got a better idea… Get the government out of our personal decision making.

Get rid of deductions. Renters shouldn’t subsidize homeowners, and families without children don’t need to subsidize those that have kids.

Why should we cross-support each other’s charitable contributions? You might not like mine, and I might not like yours.

Left playing the game…

Without wholesale changes to the tax code, we’re left playing the game of minimizing our taxes, which the famous jurist Learned Hand noted was our personal responsibility when he said:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

So I’m left reconsidering where I live, contemplating a move not just for the reasons , but also because it would significantly shrink my tax footprint.

This time of year also makes me take another look at Charles’ Peak Income service, where he holds several tax-free investments, two of which earn about 5%. That’s the same as earning 7.7% in the 35% tax bracket, which is nothing to sneeze at in this low interest-rate environment.

Because in addition to keeping as much as a I can to fund retirement, I also need to make sure I have enough left over to buy anniversary and birthday gifts.

Rodney

Real Estate Is Flashing Warnings

Did you know that the major leading indicator of the great 2008/9 financial crisis was real estate? In fact, real estate has played a significant role in the majority of economic and financial crisis of the last three centuries.

The real estate bubble peaked in early 2006… way before the stock market bubble peaked in late 2007 and the economy went into recession in 2008. When things began melting down, the Fed stepped in and pumped the bubble back up. We’re now going on $16 trillion of global money printing to offset the depression. And remember, as I wrote recently, our GDP growth has been slightly worse than it was during the actual Great Depression of the 1930s, even while stock markets are at all-time highs!

It’s happening again. The deceleration of home prices – particularly in major cities like Manhattan and San Francisco – is alarming. Next thing you know, they’ll be dropping. The market is clearly shifting, so I give you the details in today’s video. Watch it now.

WATCH NOW >>

Harry

Dalio, Trump, and Capitalism

Hedge fund manager Ray Dalio entered the mainstream recently when he granted an interview to CBS’s 60 Minutes. Before that, he and his shop, Bridgewater, were only common names among financial people who both revered their ability to make money and were a bit skeptical of the way the shop operates.

Among other things, Dalio requires radical truth from his employees. You can say anything, as long as it’s true and on point. Talking about employees to other employees will get you fired. Meeting participants review each other in real time.

Dalio believes capitalism needs to be reformed. He thinks the current system doesn’t afford people the same opportunities for growth. That starting at the bottom of the income ladder means only a slight chance of getting ahead.

In short, he said the American Dream doesn’t exist today as it did when he was a kid.

I don’t know Ray Dalio, but his approach reminds me in name of President Trump’s “disciplined realism.”

Disciplined realism…

Trump seemingly will say anything to anyone, secure that he won’t suffer personally or professionally because he’s rich. He moved the U.S. embassy in Israel from Tel Aviv to Jerusalem, the capital of Israel, because that’s where embassies belong. Calls out problems on the U.S. southern border. Chides China for abusive trade practices.

It’s refreshing to hear these things from a politician… to a certain point.

Along the way, his principle loses its discipline. Trump regularly skips from the truth to hyperbole to fantasy. The border issues don’t constitute a national emergency that imperils the nation. And I think George Washington and Harry S. Truman can claim greater successes than Trump in their first two years in office, something he boasts of regularly.

Trump is like Sheldon Cooper from the Big Bang Theory, with wealth instead of math skills. Confident in his abilities, speaking truth even though it makes others uncomfortable, unapologetically self-interested, and a bit delusional about his personal grandeur and importance.

But he still attracts people.

The Trump Appeal

Part of Trump’s appeal rests in what he isn’t. He hates big government. He doesn’t think Washington can solve society’s ills. And he doesn’t begrudge people who’ve done well for themselves.

As the 2020 election cycle gets under way, it will be interesting to see how Trump’s potential rivals build their case for unseating him.

It would be great to inject a little radical truth into the debate…

Income flows unequally in the U.S. That’s obvious. Taxing some of it away takes it from those who earned it, but it doesn’t necessarily deliver the goods to the rest of the nation.

The funds sit at a weigh station called The Government, where the political class do what they think is best.

That’s the devilish detail…

What makes elected politicians, especially federally, the best arbiters of what’s right?

Opportunities don’t always present themselves to all Americans. But shutting the doors to those who have figured out how to find them isn’t the same as showing everyone the path and letting them determine their futures.

There are many Asian kids applying to Harvard and other highly competitive schools that have a lot to say about this. They work hard and excel at the tests necessary for entry, but are then denied admission due to someone else’s notion of fairness.

But again, so far, government help has been a hindrance.

And health care is expensive. Medicare pays less to health care providers than the cost of the service, and is going broke to boot.

Adding more people won’t make that better. To bend the health care curve requires eliminating the idea of “insurance,” and instead essentially moving to a payment-for-service model where costs are shared across users.

It wouldn’t seem popular, but if we start with the notion that everyone has a right to health care, well, this way would work.

Of course, we might not like it…

We’d need to cut payments to doctors, specifically to those in specialties. It would be painful within the industry, take years to implement, and reduce our level of care most likely through wait time rationing.

If the VA is the government’s shining example of how such a system would run, count me out.

I expect these three topics to be among the top ideas discussed between now and next November, with a little bit of time reserved for Trump’s tax returns, the Mueller investigation, collusion (no, it won’t go away), and a host of other grievances. But unless we get more compelling answers than “elect me and make the government bigger,” chances are we can expect another four years of Trump, even as his approval rating sits near 40%.

Sounds like Capitalism to Me

As for reforming capitalism, I’m not sure what that means…

Our market-based system allows buyers and sellers to make the most of their situation. When both walk away happy, the system has worked. Since no one is compelled to buy or sell (in theory), they can hold out for a deal that seems fair.

What appears to be missing is the idea of stakeholder capitalism, where companies view their employees, clients, and community as part of the business. Instead we have shareholder capitalism, where the overarching goal is to maximize profits and share price. The way to encourage stakeholder capitalism is to publicize corporate behavior. Then allowing consumers to patronize those that they believe are good citizens.

This would include people eating at Chick-fil-A because the company makes a darn good sandwich, treats its employees really well, and closes on Sunday to allow employees to rest and attend church as they see fit. And it would also include Patagonia, which just announced it would only allow customized fleece vests for companies that fall within its guidelines of good actors, which cuts out most financial firms.

That sure sounds like capitalism to me.

Now it’s up to us as consumers to do our part. Directing business not to the lowest offer, but to the firm we think provides the best deal all around.

Rodney

Is Ray Dalio’s Idea to Tax the Rich the Income Inequality Solution?

Tax Day Monday. Have you filed yet?

A tax professional friend of mine told me recently that he’s surprised every year to see how many people leave their tax filing to the last minute.

Maybe they’re too busy. Maybe they live under a rock…

Regardless, they can’t escape it. As U.S. citizens, we wear the IRS ankle brace wherever we go.

So, when I moved to Puerto Rico in May 2016, the tax implications didn’t cross my mind. I packed up and shipped out to be closer to my vacation home on Culebra, not only to expedite its completion, but to enjoy it more freely. In hindsight, the move brought with it some much welcomed tax benefits…

And with what lies ahead, I count my blessings for them.

They always go up…

I have always warned that in the Economic Winter Season, as in the 1930s and now, taxes go up… often substantially. The Economic Fall boom creates financial asset bubbles that make the rich richer, faster.

By 1929, the top 1% controlled 50% of the wealth and 20% of the income.

Currently, they control 40% of the wealth and 15.9% of the income. Some studies put that control of wealth closer to 50%.

When the great crash and deleveraging hits in the Economic Winter, those bubbles burst, sending those holding most of the assets through the ringer. They have the most going into the crash. They lose the most through the crash.

Also, as the economic seasons change, the democratic party tends to take control because the extreme income inequality becomes increasingly intolerable for those on the wrong end of the arrangement. To reign in the rich, they raise marginal tax rates.

The wealthy ended up paying as much as 90% on their income during the 1930s, although it’s hard to compare given that there were more deductions and loopholes back then.

Unsurprisingly, Alexandria Ocasio Cortez, the young rising democratic congressperson, is recommending a 70% marginal rate on income over $1 million.

Billionaires like Bill Gates, Warren Buffett, and even Ray Dalio are recommending increased taxes on the likes of themselves as well.

From a wealthy perspective

Dalio was on 60 Minutes on Sunday talking to Bill Whitaker. He founded today’s largest hedge fund, Bridgewater Associates, in 1975 and it now manages $160 billion.

Like me, he sees a sluggish (if not outright deflationary) global economic environment ahead, and some serious trouble with China. And, as he said four days ago, wealth inequality is a national emergency.

In his words, “the American Dream is lost.”

In my words, “this is all part of this 90-year Bubble Buster Cycle.”

His suggested solution is higher taxes. The problem with that is, a higher tax on $1 million-plus would only affect the top 0.1%.

Look who’s paying the most…

To most affluent people, this looks and sounds unfair. Afterall, the top 0.1% earn 7.6% of the income but pay 22% of the taxes – three times their share. The top 1% earn 15.9%, but pay a whopping 44.3% (cumulative column). The top 20% earn 52.3% – which is why I maintain that the top 20% of college-educated professionals are really 50% of the economy – and pay almost all the income taxes at 86.8%.

Why tax these poor rich people even more?

Unfortunately, Dalio’s idea is on the right track. The best direct way to curb the extreme income inequality – and the twice-as-extreme wealth inequality – is to tax the rich more. Doing so would also help solve the runaway budget deficit and federal debt problem, which doubles about every eight years or two administrations.

A more effective approach to increase revenue and curb inequality would be to focus on the top 5% that now pay 62.9% of the taxes.

Tax income above $300,000 at 42% instead of the 37% top rate now.

Tax income above $700,000 at 50%.

Tax income above $1 million at 60%.

Sounds pretty horrendous to me, and you too, I’m sure – especially when you add in state and local taxes that aren’t deductible any more. But know this: It’s irrelevant if we want or don’t want this to happen. It’s damn near inevitable, as is a democratic takeover if I’m right about a major crash and depression setting in next year, before the election.

Maybe I’ll see you in Puerto Rico soon! Call me if you need help unpacking your boxes.

Harry

Be Ready for the Populist Backlash

I love the Brits.

At one time, the plucky people across the pond controlled most of the developed world. They conquered places, established trade routes, and even repelled potential invaders. All the while, they kept a stiff upper lip and relied on personal responsibility.

The British government created the “Keep Calm and Carry On” motto in 1939. It was to inspire their people during the German bombing campaigns. What other nation would tell its people, “Never mind the bombs, go about your day”?

Now the Brits are giving the European Union the finger as they try to extricate themselves from the economic bloc at huge expense.

It’s like the old joke about divorce: Why is it so expensive? Because it’s worth it.

The Brits might be the best example of the sentiment, but they’re hardly alone.

Divorcing from global arrangements…

People around the world are trying to “divorce” themselves from global arrangements that bleed them of their national identity while handing power and wealth to a dwindling few. The idea of getting electronics or corn for a few cents less hardly seems worth handing over control to people in faraway places who swear they have your best interests at heart.

From Trump’s election to Angela Merkel’s latest setbacks in Germany to the yellow vest protests in France; people around the world are telling their governments that enough is enough. They want local control.

I get it, and I applaud the sentiment, being a small government guy myself. But make no mistake: This trend will crack open the global financial markets, leaving big gaps between winners and losers.

Domestic companies will do better. Global providers will have a harder time. Banks should feel a lot of pain as the flat or inverted yield curve drains profits out of their net interest margin.

It will be difficult for any country to follow the “Buy Domestic” approach. The global supply is so entrenched.

But the bigger trend will be a global slowdown. Populists will save a bit of their culture and give up a bit of their standard of living, even if they don’t recognize it. And global slowdowns are never good for stocks.

Dominoes around the globe…

Bloomberg reported in February that Honda will stop making cars in the British town of Swindon, and they’re not alone. Companies from Airbus to Barclay’s have either fled the U.K. or plan to wind down some operations to avoid complications from Brexit.

When a company moves across the street or across the country, it’s hard. When a company moves across a border, it’s an order of magnitude more difficult.

But this is nothing compared to what could lie ahead for the EU if one or several countries break free of the euro. The common currency is barely of legal drinking age in the U.S., turning 21 this year, so it’s fair still to call it an experiment.

Europeans of all stripes begrudgingly say it’s a good thing, but they do so through gritted teeth. The Greeks are begging for yet another $1 billion round of bailout cash, which they might be given but will never see, because the money goes straight through their hands back to their Northern European creditors.

It’s a Ponzi Scheme, and the Greek people are left holding the bag.

With populism on the rise, expect more tremors in the markets as everyday citizens express their displeasure.

The Italians are voting on nationalizing the nation’s gold, moving ownership from the Italian Central Bank to the national government. Valued at more than $100 billion, the, 2,450 metric tons of gold could pay for a lot of social services, or even whittle away at non-performing loans at Italian banks. Such a move would fly in the face of European Central Banking regulations, but those are stiff collars put on the Italian people by bureaucrats in Brussels.

Maybe the Brits find a way to leave the EU without too much pain. Maybe the yellow vests in France stop burning cars to demand more attention to their needs. Perhaps the Italians won’t flout EU regulations in favor of policies that benefit the locals.

No more globalism…

The more we look around the world, the more likely it seems that some group, somewhere, will put a stake in the ground and say, “No more globalism.”

When that happens, capital markets will react, most likely with falling equities and rising bond prices. This is right in line with Harry’s forecast… populism will rise from the ashes of the financial crisis, and ordinary people will call for the blood of the elites that led them astray.

Falling equities and contracting asset prices will be painful, but most of the pain will land on the same group of elites that populist voters would like to take down a notch or two.

Remember, less than half of all Americans own equities…

As always, the question is, “When?”

Falling markets benefit no one, so most parties from private investors to governments will do what they can to keep them moving higher.

Maybe we get through the summer… maybe the year…

While we can’t know a precise date, it sure seems closer as the populist calls for substantial change grow louder.

Rodney

Home Prices’ Rapid Decline Warns of Recession Ahead

I’m heading back to Australia for a six-city tour – Auckland, Perth, Adelaide, Melbourne, Sydney, and Brisbane – from April 24 to May 3. Usually, I only go once a year. This latest will be my third visit in 14 months.

One of the reasons I’m going back is that home prices down under are falling sharply in leading cities like Sydney and Melbourne. In fact, according to local media, the country could see the world’s worst house price fall in 2019. What’s particularly troubling is that this is happening without the anchor of a recession. It’s just a bubble beginning to burst from extreme overvaluations and tightening credit.

That happened in the U.S. starting in early 2006. Do you remember that?

Real estate prices began falling slowly and the home construction index was already down 60% before stocks peaked in October 2007 and the economy hit recession in January 2008. Then home price started falling rapidly.

Well, similar trends in home building here in the U.S., since late 2017, warn of a recession in 2020, with a stock peak just ahead of that. In Australia the decline started in early to mid-2017.

In 2018, home prices decelerated to near-zero growth. They’re not declining like in Australia, but they are slowing fast. Look at this chart for a sample of the fastest slowing cities.

It’s not surprising that the fastest rates of deceleration are in San Jose/Silicon Valley. Year-over-year gains into February 2018 were 34.1% compared to -11.3% into February 2019. That’s a net slowdown of 45.4%.

Out of the top 73 U.S. cities, only 12 saw minor gains into February 2019 over 2018.

This is the beginning of the end for real estate.

Real estate takes longer to sell and freezes up faster than stocks, so caution is warranted now.

Stocks are still likely to run harder than ever into late 2019 or very early 2020. After that, expect a recession, and ultimately a depression to set in.

Harry

Will the US-China Trade Deal Disappoint?

The markets continued to creep up on Friday morning, anticipating the finalization of the U.S.-China trade deal and the end to the trade war.

But what we really need here, to get a final confirmation of my Dark Window scenario, is a correction. Based on how the markets have behaved since late December, this current rise looks like a first wave up (in Elliott wave parlance), with two more to follow… taking us to 10,000 on the Nasdaq, 33,000-plus on the Dow, and 3,500 on the S&P 500.

With us just 2% from the highs on the S&P 500 and Dow, and 3% on the Nasdaq, watch today’s video to hear what I expect will happen next… and why.

I’ll also explain my timing and targets.

Note: I recorded this video yesterday, so when I refer to “today,” that’s Friday, and “yesterday” is Thursday.

Harry