Financial, Economic and Social Mood Update (February 1, 2020)
Nominal stock market and other major asset prices (i.e. real property) are at record high or fairly robust levels, but we must remember that the real purchasing value of most fiat currency has fallen dramatically – which makes nominal price records largely meaningless. US equity prices are about 4 percent below their record nominal highs. US real estate prices within the more robust regions (largely along the coasts) are roughly 12 percent below their record nominal values.
The subject of February’s update returns to economics. As we already too painfully know, the purchasing power of our money has declined tremendously, and it will continue to do so at an even greater rate compared to the past. Furthermore, the income and wealth difference between the countries of the developed world and the countries of the developing world is getting smaller – a good thing which evens out the disparities of the past. But interestingly, the income and asset value difference within certain countries especially in parts of the developed world are increasing at alarming rates. Why is this taking place, and what does it mean?
In the USA, the difference between the far more populated (and far more affluent) coasts and the much less populated & less affluent inland parts of America is becoming ever more pronounced. These differences are noticeable as well within many of the 50 states. The most affluent large metro areas in the USA include San Francisco-San Jose, Los Angeles, New York (including suburban New Jersey, Connecticut & Pennsylvania), Boston and the District of Columbia (including northern Virginia & suburban Maryland). A good measure of cost and purchasing power is the salary required to purchase a home. By this measure, the priciest metro area in the USA is New York, where a family needs an annual income of USD $418,482 to purchase a single family residence. The most affordable metro area in the USA is Detroit, where the comparable income requirement is a mere USD $8,328. By this measure, the income requirement difference between the most affluent and the least affluent is a whopping 50.25 to one – much like the difference between two very different countries. But this does not mean that people are flocking to places like Detroit – quite the opposite. In fact, the collapsing prices in places such as the so-called rust belt or snow-belt are being mercilessly driven by collapsing human demographics. A similar phenomenon is also taking place within states – such as the difference between heavily populated & affluent urban & coastal California (San Francisco, San Jose, Los Angeles and San Diego) compared to the sparsely populated, economically dying and rapidly ageing inland parts of California. But if we think that these differences are astonishing, the difference in asset values are even more alarming.
The asset value most people find the easiest to grasp is the value of their own home. The most affluent home value zip code in the USA is that of Atherton, California where the average home value is now an incredible USD $7,050,000. Atherton is an affluent suburb located on the peninsula south of the city of San Francisco. It was once known to have a good deal of “old money,” whereas today much of this has been supplanted by high technology money from Silicon Valley, which is located south of the southern tip of the San Francisco Bay. The least affluent home value zip code in the USA is (you guessed it) in metropolitan Detroit, Michigan where the average home value is a shocking USD $6,388. This translates into a difference of 1,103.63 to one – a difference much more significant compared to the per capita income (measured in Purchasing Power Parity or PPP) difference between the most affluent and the least affluent countries, which stood at 347.75 to one in 2017. But the global difference in real estate home values is even more pronounced. The priciest residence on earth is a huge 400,000 square foot high rise building owned by the family of an Indian multibillionaire in Mumbai, India at an incredible USD $1 BILLION. At the opposite end of the worldwide home value spectrum are the entire Italian mainland (from north to south) and the islands of Sardinia and Sicily, where homes in depressed neighborhoods are now being offered for sale at a mere one Euro each. Why are these areas so economically depressed? Because they are demographically depressed and dying out, with very low rates of birth (female fertility rates). Young people leave such places due to the lack of economic opportunity (few or no jobs, or jobs which pay & challenge very little) and such communities are more often than not left with older and/or retired people with limited services, businesses and transportation. Neither businesses nor immigrants move to such places, because they have little or nothing to offer in the way of current economic and employment opportunity.
The so-called “middle class” in the USA is for all intents and purposes gone. In the most affluent regions of the USA (the Pacific Ocean Coast and the Northeast New England Atlantic Ocean Coast) a family of 4 needs an annual income of USD $350,000 to be considered “middle class.” A mere 5 percent of the American population meets this criteria. This will get worse as we get further into the emerging Global Economic Reset (GER), Global Currency Reset (GCR) or global currency Revaluation (RV).
Many of the dead and dying regions of the world are plagued with something I will call the “Archie Bunker and Fred Flintstone” demographic. They are experiencing collapsing demographics, the loss young & talented people, job loss, collapsing real estate values, and they attract very few newcomers, be they domestic newcomers or immigrants. Many of these areas are now plagued with angry & fearful voters, which translates into dangerously angry & fearful politics – a subject I discussed at length two months ago.
I believe that at least some of the remedy to this phenomenon is the pending events of global economic reset (GER), global currency reset (GCR) and global currency revaluation (RV) which will take place no later than year-end 2021 (22 months or less from now). This will involve an initially painful reduction in credit & debt, and a necessary return to currencies backed by real and tangible precious minerals and natural resources. This is closely related to the necessary environmental switch over from polluting, emitting & toxic fossil fuels to forms of energy which do not pollute or harm the earth’s environment and its inhabitants and life forms. Let us hope that both the “coronavirus” (think of this much like the common flu) and the locust plague in Africa, the Middle East, the Persian Gulf and the Indian subcontinent will abate, and do so quickly. Thus far both events have cut air travel and sea travel to and from the affected areas tremendously – in the range of 40 to 90 percent. This is largely due to fear, which we need to avoid.
