Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Important News Stories the Big Media is Not Telling You

The first thing one learns by working in the media; or simply reading the daily news, is the wide variety of consequential stories that journalists fail to tell you. Investors in particular need to broaden their reading beyond the big media because it regularly ignores important stories.

Some important stories that the big media is not telling you right now include:

Possibility of War between United States and China

US Aircraft carrier

A naval conflict between the United States and the People’s Republic of China is more likely than you might think. The Chinese government has completely rejected a ruling of the Permanent Court of Arbitration in The Hague that its claims to a large swath of the South China Sea are invalid. The court also ruled that China is violating international law by building fortifications in the Spratly Islands, an archipelago that actually belongs to an American ally – the Philippines.

Beijing may be respond to this by declaring an air defense identification zone in the area, The South China Morning Post reported. That means its military reserves the right to shoot down unidentified aircraft there.

Experts are afraid that both USA and China will expand their military presence in the region which can lead to conflict. A major danger would be the deployment of nuclear submarines – which both nations have. The US claims it has the right to operate its warships within 12 nautical miles of reefs in the area. The Chinese claim they have the right to keep the Americans out.

This probably won’t lead to war; China’s People’s Liberation Army Navy is no match for the US Pacific Fleet, but it sure poisons the relationship between the world’s two richest and most powerful nations. With nationalism rising in both countries don’t expect this to go away anytime soon.

US Oil Boom a Sham

The vaunted boom in US oil production is based on a mountain of cheap credit and debt. That’s the contention of Seeking Alpha contributor HFI, its contention is that drilling for and pumping oil in the US is so expensive it can only be sustained with constant borrowing at low interest rates. Now the credit is drying up so the only way oil producers can sustain themselves is by selling stock.


If this is true US oil production may soon collapse leading to a major economic downturn in the oil patch. That would be followed by a wave of bank defaults and possible collapses in the real estate and stock markets.

The Oil Glut is about to Get Far Worse

OPEC might be destroying itself and the US and Russian oil industries with mindless overproduction. Seeking Alpha writer Daniel Jones (not to be confused with your blogger and Seeking Alpha Contributor Daniel G. Jennings) pointed out that world oil production is outstripping demand.

He noted that the world consumes around 1.2 million barrels of oil a day, but currently pumps around 2.29 million barrels a day. That’s better than last year; but if that is true oil is simply unprofitable. Expect major economic pain in all oil-producing regions that will get worse in the coming years. A major result of this will be deflation and a total collapse in oil stocks.


There’s a Dangerous Speculation Driven Real Estate Bubble Out There

The so-called housing market recovery is built on shaky ground that will soon give way.

RealtyTrac data revealed that nearly one third of the housing purchases in the United States in June 2016 were made by third-party investors mostly speculators, a Bloomberg Markets article noted. Around 31% of the homebuyers were third party investors.

What is truly frightening is that institutional investors are getting out of the market leaving the game to small timers including mom and pop investors and foreign speculators. RealtyTrac noted that just 2.5% of all home purchases in June were made by institutions.


That’s a sign the pros think the market is headed for a fall, so they’re pulling out; leaving the game to the amateurs. That looks a lot like the house-flipping craze of the 2000s and we all know where that led. The situation is made worse by questionable mortgage lending to speculators by reckless financial institutions such as Bank of Internet (NASDAQ: BOFI).

Attack of the Zombie Real Estate

My take is this means at least some of the regional housing bubbles in areas of the US like San Francisco are about to collapse. That will lead to a long period of stagflation and deflation in real estate; made worse by large numbers of underwater properties and vast amounts of zombie real estate.

Zombie real estate consists of properties where the mortgage amount far exceeds the price the property can be sold or leased for. Such properties often end up sitting empty for years because nobody can afford to buy them.

Canada’s Real Estate Bubble is worse than ours

The situation north of the border is far worse than that in the United States. The Chinese finance portal Hexun is predicting that Canada will soon experience a financial meltdown worse than the 2008 crash in the United States, Toronto real estate blog Better Dwelling noted.

Hexun noted that the average Canadian now spends 165% of his or her yearly salary, and that Canadians have $1.892 trillion in household debt; around $1.234 trillion of that is in mortgages. Hexun noted that in 2008 the average American household’s debt was 147% of its salary.

The observers think that Canada’s economy might collapse because the average mortgage debt equals 65% of the average salary. That means any economic downturn or wave of unemployment will lead to a housing collapse and a sea of underwater mortgages like that seen in 2008 Phoenix.

Donald Trump has No Campaign

Republican presidential nominee Donald Trump has no effective campaign organization, fund raising or ground game. The ground game is the grassroots get out the vote effort that actually gets the people to the polls and decide elections. News reports indicate it; and Trump’s campaign and fund raising, are nonexistent.


  • Simply getting through to the Trump campaign is impossible in most states. When Huffington Post staff tried to phone Trump offices in all 50 states on July 13, only six of their calls were answered. Nobody returned voicemails they left; and in many of the states they received an error message or a recording stating that the mail box was full. To make matters worse in 15 states the number was for Trump headquarters in New York City. Trump websites for Massachusetts and Texas (which has 38 electoral votes) did not even list contact numbers. That means there’s way for all those legions of enthusiastic volunteers to reach the campaign.


  • Pro Clinton super PACS (political action committees) were spending $4 million a week on anti-Trump advertising on July 14, Bloomberg reported. I for one have not seen a single Trump ad (unless you count CBS News) even though I live in a swing state – Colorado. I see several Clinton ads on every local newscast.


  • No PAC supporting Trump had raised more than $3 million as of July 14, 2016, according to Bloomberg Politics.


  • One Clinton PAC alone has raised $88 million for Hillary Clinton as of July 14, 2016.


  • Trump supporter Thomas Barrack claimed he’d raised $32 million for the Donald. Yahoo News reported he had raised just $2 million.


  • Trump’s campaign had $18.3 million in the bank on July 16, 2016 Politico reported.


  • Trump’s campaign only raised $19.9 million in donations in June 2016.


  • To keep his campaign going in June Trump had to spend $3.8 million of his own cash.


  • Hillary and her allies are expected to raise $1.5 billion for this year’s campaign.


  • Around 92% of Republican insiders interviewed by Politico on July 1, 2016, said Clinton was better positioned on the ground than Trump.


  • As of July 1, the Trump organization in Colorado; a key battleground state, consisted of one staffer.


  • “There is no Trump campaign in [New Hampshire]. No field staff, no scheduled [door-knocking] operation, no developed volunteer network,” a staffer in the Granite State told Politco.

This means that to win Trump will effectively have to rewrite the rules of Presidential campaigning. The polls indicate that is not happening; the Real Clear Politics Average of Polls indicted Clinton was leading by 2.7% or 43.8% to 41.1% on July 18. The majority of polls gave Clinton a clear lead.

These stories indicate that following just one news source or paying attention to the day’s news is never idea. If you do you might be getting the whole story or the important story.