Nature has a set of laws that can not be violated. They are the laws that many of you are aware of in the mathematical/scientific world and are not mutable. These laws form the basic structures of life. History is replete with attempts to restructure these principle for a variety of reasons to benefit human emotions and conditions, but the violation of these principles ends always with failure. Today reminded me of just how far we have drifted from the reality of these basic principles. While listening to a CNBS discussion with Dennis Gartman promoting his short on the 10 year Treasury, one of the Fast Money crowd challenged Gartman's premise that the rise in interest rates to 4% would create a collapse of the real estate market and in turn the economic recovery. Gartman quickly dismissed this as poppycock and compared just how far below a 4% 10year would still be below interest rates when HE was buying homes 10, 20, 30, and 40 years ago. There was no counter because of course he was right.....at least it seemed so on the argument's surface. If the 10 year treasury rises to 4% it would be well below the previous rates during HIS previous real estate runs. Unfortunately, there is a slight problem for Mr. Gartman.
This would all be true if we had allowed a true price discovery to have taken place in the market . Homes instead remain at very high prices in many markets due to a myriad of behind the scene maneuvers and even have recovered in some of the very beaten down areas to relatively high values once again.
Unfortunately however the consumer is barely keeping his nose above water on many of the current home sales at the current price levels with the mortgage rates at the current 10 year of 2.8% For example a couple wishing to purchase a new home today in a "hot" market may have to pay 400K for a 1600 sq ft 3BR "starter home". By the time they tally their monthly payments and various carrying costs they "just get by". You see.....Gartman's "starter home" had a cost of 60K back in 1983......So of course THAT 1600 sq ft home COULD be bought with interest rates at 9%. Gartman blissfully ignores the simple laws of mathematics....but nature does not........and something MUST give for homes at current levels to be purchased in MANY of these "recovered" markets if interest rates go to 4% on the 10Y......that could easily push mortgage rates over 6% and market prices would collapse as buyers are frozen out AS WE SAW HAPPEN THIS SUMMER WHEN THE 10Y hit 3%. THIS is why there were a large number of cancellations in the New Home sales numbers that were not calculated by the Government.
Be aware we are in collapse now. It has started. The bond move this year has been monstrous and its not going to stop. Bit coin cometh and it will goeth, but there will be others. The deception is palpable for those of you that are paying attention. Some of us are still fortunate to derive tremendous benefit from the government largess and feel immune in our sheltered world. I am fully aware of this, but receive almost daily reminders what the "other side" is enduring. As a breakdown in confidence spreads throughout the system, the need for "tighter control" will take on a more ominous tone as the system experiences more pressure from core collapse. There will be no warning for the masses that its "game over"....."music is going to stop tomorrow".........it will just suddenly become obvious.
Twilight Zone numbers depicting recovery such as the BLS and New Home sales numbers today.....will continue and even worsen. When you realize the water's boiling, it will be too late.......that's the game. The rule of law.....the government......the country will have to radically change its priorities and direction. Individuals will need to determine what their NEEDS are versus their WANTS. If we can't change the moral course of the country, then we must change our individual moral degeneration. Keep enjoying their Bread and Circus, NFL football is pathetic and designed to control you, but Winter is here now and time is no longer on anyone's side.