Classic CNBC
Our intrepid Treasury Secretary!
According to the Fed’s own (strange) measure here, we currently have “financial conditions that are looser than average.”
Fed Independence?
"Basically, every single person who donates who works at the Fed donates to Democratic Party…It's not so much of a bias towards this candidate or the other, it's that they share the same worldview."
Here’s Wang on “printing Treasuries”:
The markets had a conniption on Thursday, for whatever reason...
This was one disappointment:
ISM Manufacturing Index
“The latest reading of 46.8 indicates we are in contraction territory. What sort of correlation does that have with the months before the start of recessions? Check out the blue dots in the chart below. The 11 recessions during this time frame are indicated along with the index value the month before the recession starts.”
I’m taking the weekend off, so here’s some beach reading for y’all.
Jack Farley: What would it take for you to turn bullish?
Tommy Thornton: Lower prices.
“Thursday marks the 12th consecutive session in which the S&P 500 failed to establish a fresh high-water mark after the broad index posted 31 separate record closes during the first half of 2024, equivalent to just under 25% of all trading days over that stretch…
Nvidia Corp.’s 13% rally Wednesday tacked on $329 billion in market capitalization…The prior such chart-topper – logged by Apple in fall of 2022 – registered at $191 billion, or just over half of Nvidia’s jump a day ago…
Residential real estate marked a bullish landmark of its own last month, as the median U.S. “existing” home price reached $426,900 in June according to the National Association of Realtors…
the Financial Times reported Monday that Brazilian lender Banco Master agreed to lease 26,000 square feet in the swanky, 57-story 830 Brickell office tower in Miami at a $190 per square foot price tag. That eye-watering figure nearly doubles the Magic City’s office rental record set two years ago and compares to a $60 per square foot going rate in Brickell prior to the pandemic…
On July 17, Citidel boss Ken Griffin scored a Jurassic era stegosaurus skeleton at Sotheby’s for a cool $44.6 million…For context, Sotheby’s pre-auction estimate for the artifact registered at $4 million to $6 million.”
Fifteen years ago, I couldn’t make up stories like those above. They’d be too far-fetched. It sure doesn’t seem like financial conditions are terribly tight, at least for billionaires.
Rates have been dropping, and the talking heads were yakking today about “de-inverting,” but the 10-year minus the 3-month spread - which is I think what the New York Fed and people like Tom McClellan use - is still very negative.
The two-year - which leads the Fed Funds rate generally, and which should probably replace the FOMC - is approaching 4%.
Jim Grant
Near the beginning of this interview, Grant says, “…in the years leading up to the recognition of inflation…”, which stood out to me, because a lot of (well-off) people act as if there was very little or no inflation pre-2022, which any American who has never been on CNBC can tell you is complete nonsense.
As Harley Bassman explained 3 years ago:
“I think the risk is inflation no matter who wins. I think we are in an inflationary age.” - Grant
Kofinas: “How unusual is the period we're living through? Or is it actually more, it's more normal than we realize?”
Jim Grant: “It's unfamiliar, but it's not unusual. I guess maybe there are cycles of political violence, as there are cycles in other things, but people today toss around this word, "unprecedented". Unprecedented animus, unprecedented violence of language, and sometimes outright violence of the physical kind. Now, this is fairly tame stuff compared to certainly the level of hostility, anxiety, fear and loathing in the 1968 election, I think was much more intense than it is now…
I've written a bit about American history, and I once wrote a book once about a speaker, Thomas Brackett Reed, who was the Speaker of the House, in the kind of the final quarter of the 19th century, the 1800s. And, my goodness, they had a civil war. And the Republican Party and the Democratic Party were... Their congressmen, those quorums, consisted, in good part, of civil war veterans. These people had done their share of killing between 1861 and 1865. And here, they were threatening each other physically in the House chamber…
They told stories about times when people would bring firearms into the building. Somebody's pistol would go off inside his desk accidentally, people would jump up. And so no, today does not take the cake in anything having to do with national fracturing. It is not a pleasant time. I think what is perhaps unprecedented is the nature of the candidates. And by this, I mean, there's nobody that I know of in American history at this level of politics quite like Donald Trump. And in a different way, perhaps, nobody quite like Kamala Harris…
I think that the fiscal situation of this country is very much symbolic, in its shambles, bipartisan shambles, of the lack of discipline and lack of circumspection in our public life.”
“I regard the monetary experience of their past since 1971 - when the last vestiges of gold exited our official monetary system - I regard these 50 or so years, more than 50 years now, as an experiment. It's in the middle of a long sweep of monetary history, it is a heartbeat. And I think I see it fraying. I think I see the central banks having bitten off much more than they can chew...It reminds me a little bit about the Democrats covering up Biden's infirmity. As you know, the Federal Reserve has been covering up the problems, and not all of which by any means have really surfaced, the problems associated with, and the costs associated with, the suppression of these interest rates.”
Jim Grant
“This is the most money we’ve ever made and this is the brokest we’ve ever felt”
“There’s no more sticker shock,” said Joseph Einhorn, who recently launched a high-end personal shopping app called Long Story Short. Membership fees: $1,000 a month. Einhorn spends his days tracking down products like Rolexes, helicopters and a $36,000 crocodile-skin Gucci trunk to add to the app, with the goal of getting them to clients faster and cheaper than otherwise possible. Some customers may even see the products as vessels to hold their wealth.
“It’s nothing like the world we grew up in,” Einhorn said.
Someday, everyone will be a billionaire.
Larry McDonald
On A.I. investment: “There's zero visibility on return on capital”
Dan Ferris: “Human behavior is absolutely identical every single time. It boggles my mind. It's like they don't remember all the money that was obliterated the last time.”
McDonald: "Think about this - New Century went down in February 2007. This is one of the biggest subprime mortgage brokers...So the whole thing went on another year and a half before the real big payoffs came, so you've got to be careful with your entry points."
New Century Financial Corp never once reported a quarterly loss before filing for bankruptcy in 2007.
They go on to comments on career risk in the investment business and other things. Check it out.
Mass herding into popular investment themes (exacerbated dramatically by passive flows).
I’ve quoted Jeremy Grantham on this topic before: “The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own.”
e.g.,
The Case Against Low Interest Rates
“The largest wealth transfer in history”
“Cheap money was supposed to fuel economic growth, but—like most model-driven panaceas, unconnected to empirical reality—it didn’t deliver. Artificially low interest rates retarded the growth they were intended to accelerate. They enabled corporate giants to fend off or buy out challengers, eased the pressure to innovate, diminished incentives to improve productivity, and enabled poorly performing enterprises (and executives) to linger long after they should have been put out to pasture.
The financial crises of 1929 and 1974 were followed by periods of innovation and the slaughter of complacent incumbents. Our attempt to treat a financial crisis by saving the banking system with prolonged low rates unquestionably saved the wealth of investment-firm partners. But it did so at the expense of the middle class, and it perpetuated economic somnolence.
One of the least-recognized consequences of the low-rate regime is the way it undermined social cohesion by facilitating what may well be the largest wealth transfer in history, from the middle class to the highly affluent who own stocks, bonds and real estate. Low rates might have made mortgages more affordable, but supply constraints translated cheap borrowing into higher home prices, punishing the aspiring young.”
CRE
I think this is a very telling story: Former Sam Zell office company shutting down
“After spending years building up a war chest of billions of dollars to make its next big real estate bet, the Chicago-based office company previously led by the late Sam Zell has decided to shut down instead.
The move ends the REIT's protracted search for a megadeal that likely would have vaulted Equity Commonwealth into new territory. The company sold off almost all of its office properties in the years leading up to the COVID-19 pandemic, amassing cash and hunting for large portfolios or other real estate acquisition targets to kickstart a new strategy.
"We have been evaluating potential investment opportunities in an effort to create long-term value for shareholders," Equity Commonwealth CEO David Helfand said today during a conference call with analysts. "After working through our pipeline, we have been unable to consummate a compelling transaction.””
Trepp CRE Podcast
“I combed through the financials for the 100 largest bank holding companies by the amount of commercial real estate debt that they hold…Deutsche Bank was far and away the heaviest in office of any bank I looked at. I mean, it was multiples higher.”
Commercial/multifamily mortgage debt outstanding
CMBS Delinquency and Special-Servicing Rates Since 2006
Note that special servicing rates started rising in late-2008 and didn’t peak until late-2012. We just started seeing rising rates in mid-2023 (I’ll ignore the Covid-weirdness). Maybe this time it’ll take four years too.
Foreclosures Surge As Some Investors Call Bottom, Others Say Pain Is Just Starting
“During the second quarter, $20.5B worth of office, multifamily and other property was seized, up 13% from the first three months of the year and the highest quarterly figure in nearly a decade, according to MSCI data…More than $94B of commercial real estate debt was in distress at the end of June, with another $201B at risk…Deutsche Bank increased its loan loss provisions in the second quarter as its average loan-to-value of its U.S. office loan portfolio reached 81%”
Sonoma properties to be auctioned off after real estate investment company's collapse A strange tale.
A real estate holding company that allowed a group of Sonoma properties to lapse into foreclosure has left investors and the city itself with an uncertain future. On August 8th, the first dozen properties are scheduled to be auctioned off to the highest bidder. The property purchases began very quietly, with dozens of homes being bought, often in off-market sales. They were followed by familiar businesses in the heart of downtown, as the Sonoma Cheese Factory, Cottage Inn and Spa and the Sojourn Cellars tasting room were snapped up as well. "Then it became, quite quickly, a concern about one person buying up lots and lots of property, and controlling the rents and the merchants, and a lot of private property"…That "someone" was Ken Mattson…
They discovered the purchases followed an unusual pattern. "Buy really high, way over asking price -- like ridiculously over asking price -- and then sell back to one of their own LLC companies at a really depressed rate…It would sit there for long, extended periods of time with no attempt to try to improve the property." In all, more than 120 properties were bought around town. No one really understands the strategy behind it. Recently, the wheels of the enterprise have fallen off…
Mattson isn't the only one on the hot seat. He reportedly had hundreds of private investors, many of whom he met through his church.”
Sounds like affinity fraud. Anyway, here’s an interesting take:
"When they were bought, they were bought at such a high level over asking price, over value, that it increases the property values in our area…And then, when they're going to get sold, there's going to be a dive in our economy."
Look, it was ephemeral “wealth” all along. Easy come, easy go.
For the best in residential real estate coverage, here’s another tour de force from Melody Wright.
FHFA House Price Index
In normal person land, the nominal price is the real price. It’s the price you pay.
The BLS’ “real” house price is a model adjusted by their goofy CPI. It has no relevance in the real world.
“Activist Treasury Issuance”
Via Grant’s:
“Ph.D. economists Nouriel Robini and Stephen Miran – the latter of whom served as a senior advisor for economic policy under former President Trump – have accused Treasury of playing politics by tilting debt supply towards bills (which mature in one year or less), serving to ease economic and financial conditions ahead of the election while “usurping core functions of the Federal Reserve.”
…Treasury bills as a share of total outstanding marketable debt stands slightly below 22%, above the Treasury Borrowing Advisory Committee’s recommended 15% to 20% range but below the Covid era peak of about 25% and a near-35% figure logged in the fall of 2008.”
So we’re at the highest level, except for two times when we didn’t have “the greatest economy ever” like we do now (I’m told).
Roubini and Miran’s paper is here.
Since someone asked…Japan 10Y Bond Yield
Attempted Assassination of Trump
"It's a result of a culture of no accountability for failure."
"This is either the greatest security breach of all time, or they tried to assassinate [Trump], or they left the door open so wide that that any infiltrator could come in…The fact that the Secret Service was bested by a 20-year-old to literally draw blood from the Republican candidate for President, and former President, is inconceivably incompetent…It's a result of a culture of no accountability for failure…
There was only four post-standers1 from Secret Service assigned [at the Trump rally]. Jill Biden had 12 post-standers assigned to an event she had the same afternoon in Pittsburgh…Maybe our federal agencies just aren't as good as we think they are, or maybe our assumptions about what their capabilities are aren't as good. The dangerous thing, which must be fixed, is if the Secret Service was bested by a 20-year-old, who went to the range some time, practiced, obviously he mapped it out - supposedly had a drone that they've acknowledged. He used a range finder. He bested them, and he got, what, five aimed shots off? What are they going to do against a 10-man Hezbollah team running drones?
…I think that Congress needs to use its subpoena power to subpoena every officer that was anywhere involved in that setting, interview them publicly, let a live feed of that interview be simulcast. It's only the massive disinfectant effect of transparency that will actually answer these questions.”
“Post-standers are agents deployed to their posts at least several hours before an event begins and before a bomb squad sweep of the venue”
Every time I hear an analyst say that the market doesn't see the problem until it's too late, I see Michael Burry in the Big Short sitting on a 20% loss in his whale trade wondering if reality can stay hidden forever. Power, the real kind, is with those that can bend time to their will, and force circumstances to stay solvent until they can get on the right side of the trade. When we stopped jailing financial criminals the system became no better than a casino, and in many ways worse. The pit boss stands there for a reason, but the regulatory bodies are never seen.
Love the photo of the dude on the beach with his aircon and petrol generator. Made my day :) would never see that in Oz , the gas is too expensive and the nanny state would probably send the goons around.