ARE YOU SEEING WHAT I’M SEEING? A disappearing middle class.

And of course the exchange rate will revert back to the mean. You betcha!!!

USD currency over 10 years

JYN/USD

EUR/USD

AUD/USD

But Dad it reverted during the GFC

Yes son.. and so did property.

Ohh….. Does that mean they're screwed Dad

'fraid so son…

Dad why aren't we paying our mortgage.

Well son we owe more than we own..

That's not good eh dad…

It sucks son but we're definitely not the only ones…

Bought another $10k into a silver miner. Of course Murphy was watching and it immediately went down.

Enrollment for disability income (SSDI) has skyrocketed since the recession ended in 2009.

…disability payments have been substituted for long-term unemployment benefits for some workers who struggle to find employment….

Dad..

Yes son

Why are so many 'merikans disabled.

Unemployed people tend to sit on couches for long periods of time and watch TV. After a while you become intellectually  disabled…. 'merikan TV will turn your brain to mush son.

Ohh

Keep up Ziv. I thought you knew 'merikans only have short recessions. Only as long as it takes to change the assessment methodology for GDP growth. 

They also have low inflation and low unemployment. True. Cross my heart and hope to die.

There's a few problems with that analysis Jay

Problem is it's o'seas investors and institutions doing the buying not average Joe 'merikan because he has either a low paying job or no job and too much debt plus a busted credit rating. The scary thing is that the percentage of down-and-outers is growing

Same in Oz and NZ. If it's life threatening you get admitted to hospital immediately and the problem treated. A few years ago I had food poisoning and was pretty much on my last legs. My wife took me to North Shore Hosp (Syd) where we were told it was at least a 4 hr wait. There was an old lady lying on a gurney who had been bought in by ambulance. She'd been there 4 hrs already and still not treated. I told the missus bugger this I'm going home. If I'm going to die it'll be at home. Next day I was pretty bad. Old girl took me to the local doc. She took one look at me and said hospital for you. Problem is she rang three hospitals before she found one that had a bed. 

Surveys show that when it comes to food or the mortgage most actually choose to pay the mortgage. That I believe is changing as strategic default becomes a more realistic option for those still hanging on. However ,food is still problematic for those on the breadline. For the family living in a car with little or no money access to cheap food, storage and preparation is a real problem. 

They already are. Street people are pretty good at urban survival however the numbers are growing at such a rate tent cities in out of the way spots are springing up in most states as the homeless accommodation providers struggle with the shear numbers looking for emergency accommodation. 

Tent Cities

S Cal (Ontario City) http://calocals.com/videos/news-politics/tent-city-usa/

ONE-THIRD OF AMERICANS POOR OR ‘NEAR POOR’

Tent City USA

Just a few Tent Cities

• Camp Quixote, Olympia, Washington State
• Camp Take Notice, Ann Arbor, Michigan
• Dignity Village, Portland, Oregon
• New Jack City and Little Tijuana, Fresno, California
• Nickelsville, located in Seattle
• River Haven,[5] Ventura County, California
• Safe Ground, Sacramento, California
• Temporary Homeless Service Area (THSA), Ontario, California
• Tent City, Lakewood, New Jersey
• Tent City, Avenue A and 13th Street, Lubbock, Texas
• Tent City, New Jersey forest
• Tent City, banks of the American River, Sacramento, California
• Tent City 3, Seattle
• Tent City 4, eastern King County outside of Seattle
• The Point, where the Gunnison River and Colorado River meet
• The Village of Hope and Community of Hope, Fresno, California
• Transition Park, Camden, New Jersey
• St. Vincent de Paul property, Fourth Avenue North, Saint Petersburg, Florida
• Downtown Reno, by some railroad tracks.

I believe the US government is trying to fix the problem by putting more people in prison.

I don't think the middle class will ever completely go. The middle class is often described as the engine room of most economies. The middle class is definitely shrinking as % of population and this erosion is developing as a drift into the under class with very few moving up to higher classes.

From the above graphs you can see how tough it is within the middle class sector to remain viable. A real risk for the US and property is the potential for this demographic sector to collapse financially. It's already taken a real bruising in terms of declining net worth. 

The risk for PI's is that many see the middle class home as safer bet than buying into the sub prime market. To my way of thinking the US RE market is is the most complex and high risk as it pertains to Oz investors. Even if one goes long the US RE market in the hope of riding out the bumps you still have to contend with substantial Fx risk. Over the last 12 years the AUDUSD has gone from $0.48 to hovering around $1.02 

Steve McKnight likes to refer to the 20 year long term average of around $0.75. Two problems with that hypothesis;

1. hindsight doesn't tell you what's in front of you and the medium term trend doesn't support a lower dollar,
2. factors driving currency values have changed that tend to suggest the AU$ will retain support (safety status) while the US$ continues to loose support (CB intervention to continue weakening the dollar).

 The RBA (and I believe govt) do not see the strong AU$ as a problem. My guess is that they are hedging their bets against the possibility of a greatly strengthening oil price.

The energy cost risk to economies is huge. The Gulf States have said they need $125/b to maintain their economies. Analysts indicate Russia needs $145/b or gas equivalent or its economy will go into a nose dive in the near future. The problem with those prices is that many in economics consider prices above $100/b can create significant drag an economic growth and if we hit $150/b again it will invariably create significant hardship for consumers if it holds there for too long. $120/b is considered high enough to cause most economies to to contract and become recessionary.

The problem is that due to economic problems consumption has fallen and held the price per barrel down. Any conflict in the middle east would create huge problems for everyone let alone the US and jack the price up to astronomical levels.

Personally I believe we are on the verge of an emerging energy price crises over the next decade. 

The scary thing about this graphic is that it highlights the US's dependence on oil and that price pressures can only increase as China with less than 10% and India at a little over 3% of global supply are supposedly predicted to grow their urban populations and somehow create massive middle classes that drive cars and consume copious quantities of energy. 

How do you think that's going to work out???

http://seekingalpha.com/article/715841-china-s-big-appetite-for-oil

The following graphic is probably the scariest when it comes to middle class property owners

31% of all homeowners are under water, owing more than their house is worth:

If 31% of ALL home owners are underwater then the middle class market may have as much as 50% under water. Any market that is 30-50% underwater is in serious trouble.

I can't help but think this is the next foreclosure wave. If the middle class market was to collapse then the RE market sitting underneath (which has seen price improvement due to the surge in institutional investment) could get crushed by falling middle class prices.