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Today’s weird economic cycle explained

Real estate — once a sure investment — is being turned upside by by Airbnb and technology.

Who needs a big house when you can have more fun flitting the world with Airbnbs?

Up here, (Columbia County, New York State) big house prices are plummeting. They built big so the kids could visit. But they prefer Airbnb in exotic places.

Little cheap houses up here are being snapped up, fixed up and made into Airbnbs — for summer and weekend rentals.

House designs are changing. Home offices are no longer prized. Everyone works with their laptop, iPad or iPhone, and works anywhere. Hence no need for a dedicated room.

In Manhattan, the boom in pricey apartments is over, killed by overbuilding gone mad.

Much real estate suffered in 2008 when subprime mortgages turned out to be valueless and too much leverage came home to roost.

Some has come back. But I can name areas of the country where housing prices are still way less than they were in the halcyon days 2005-2007.

There are three enduring rules to real estate investing:

+ The price you buy. Nothing determines the success of a project more than the price you pay. Don’t overpay. Buy cheap, or don’t buy. Hard discipline to learn.

+ How much you invest along the way. Your tenants will appreciate stainless steel appliances and granite countertops — but won’t pay extra for them. Don’t over-invest.

+ How much you borrow. 65% is tops. Anything over that and you’ll lose the property in the next downturn — which may be happening in your area today.

All this is fair warning as the trade war heats up, the stockmarket turns down and the boom is ebbing.

CNBC.com reports this morning, “Stocks are deep in the red ahead of the open as trade tensions weigh on the markets.”

The New York Times reported on Saturday,

WASHINGTON – The Trump administration on Friday escalated a trade war between the world’s two largest economies, moving ahead with tariffs on $50 billion of Chinese goods and provoking an immediate tit-for-tat response from Beijing.

The president is battling on a global front, taking aim at allies and adversaries alike. The United States has levied global tariffs on metal imports that include those from Europe, Canada and Mexico, while threatening to tear up the North American Free Trade Agreement.

These countries are fighting back, drawing up retaliatory measures that go after products in Mr. Trump’s political base. China’s response was swift on Friday, focusing on $50 billion worth of American goods including beef, poultry, tobacco and cars.

The trade actions could ripple through the global economy, fracturing supply chains and costing jobs at American companies that will be forced to absorb higher prices. Although the United States economy is especially strong, the tariffs are expected to drive up prices for American consumers as well as for businesses that depend on China for parts.

Things could get worse if the United States and China ratchet up their actions. Mr. Trump has already promised more tariffs in response to China’s retaliation. China, in turn, is likely to back away from an agreement to buy $70 billion worth of American agricultural and energy products – a deal that was conditional on the United States lifting its threat of tariffs.

None of this is good.

And then there’s Europe:

Oi veh for Europe. From the latest Ross Rant:

The data continue to show that the EU is in decline again, and is not expected to improve for quite a while. The ECB continues with QE, and now has a larger balance sheet than the Fed at $4.6 trillion Euros, or 43% of EU GDP vs Fed balance sheet being run off and at 22% of GDP. This data alone tells us that the EU is far from out of trouble, even though it has had some recovery the past year.

Unemployment is still 8.5%. Although that is the lowest in ten years, it is still terrible by US standards. Low rates still keep zombie companies alive. Greece and Italy are still in crisis. The ECB deposit rate for banks is still -.4%, vs 2.5% for the Fed. The dollar is high, and the Euro is still slipping. Given all of the political turmoil in the EU, the risks are very high that they will continue to have serious problems for years to come. There is also recent evidence that Merkel is having major problems holding her coalition together for long, and there could have to be another election in Germany in the next year. There is a major push in Germany to kick out the Muslim refugees, similar to Poland and Hungary, and now Italy. (it is not just Trump-it is in many countries) That will be the end of the Merkel, and maybe German domination of the EU.

There is no way to know what happens then as the refugee influx is having an even greater impact on politics as time goes on. Brexit will happen in March and upset the stability of the EU even further. And now Trump has completely sent them into a turmoil on trade, NATO and Iran deal. Without Merkel, the EU will have political chaos as Macron and others jockey for the lead. It is clear the EU is no place to invest or own stocks or hard assets for a long time. The whole idea of the EU and having every country have a veto is unworkable once Merkel departs, as there will be a scramble for leadership of Germany and of the EU.

Meanwhile the UK will go off on its own way and will not have the economic decline many had predicted over Brexit. That will likely cause others to think about exit. At the same time Argentina is in collapse again, and Venezuela is completely non-functioning. Japan is still in QE. Compare all of this to the US and let that be a helpful guide to your investment strategy and politics. You can hate Trump the person, all you want, but his policies are really working even better than his people forecast, when much of the rest of the world is still in serious economic problems, even though doing much better than during the crash. China and the US will now totally dominate world economic activity, and that means geopolitical power.

But Federer can still outplay everyone.

He won on the weekend. Here’s a great video.

Sit up at attention

Reported widely:

Over the past week, Trump has been criticized for his frequent, glowing praise of Kim, who is responsible for numerous crimes against humanity, telling (Fox News) host Steve Doocy on Friday: “He is the strong head [of state]. Don’t let anyone think anything different.” Unprompted, Trump then added: “He speaks and his people sit up at attention. I want my people to do the same.”

So do I.

For the source of the Trump quote, click here. 

The big mystery solved

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HarryNewton
Harry Newton. No one can win a Trade/Tariff War. If this one continues, we’ll all be losers. The Chinese are smartly hitting Trump’s voter base. But will their rising objections curb his enthusiasm for this War? Who knows? We live in unpredictable times. Not good to inject fear and worry into today’s nice economy. I’m playing tennis and cogitating should I short Walmart, America’s biggest importer of Chinese stuff. I fear.