Boiling the Frogs

AAA doesn't mean AAA

Rudy Havenstein

Sep 13, 2025

I may have gone overboard with the pics today…

“Everything is on record highs, including the money supply, and the Fed is going to cut rates. Oh boy.”

Alyosha

When a thing needs reforming it needs an axe.

From the editor’s foreward to the 1922 book, The Federal Reserve Monster.

WITH "charity toward all and malice toward none" we indite this volume of criticism of the Federal Reserve "Bunking" System as it is "practiced" in America. We are not posing as a modern David, nor do we underrate the size of the giant we have tackled herein by several damsights. And by the same token we are not depending on a single stone to deliver a knockout; on the contrary we are delivering a veritable volley of rocks at the object of our criticism and we hope that every chapter written here will raise bruises and welts on the back and belly of the critter.
We have no intention nor desire to kill. And we don't believe in reform. When a thing needs reforming it needs an axe. But what we are striving to do is to awaken public sentiment to the damnable ramifications of the Federal Reserve Octopus in the hope that the people will "come alive" and eventually force the Federal Reserve System to be born anew.
It is the abuse of the Federal Reserve System to which we object. Every little while some smart Alec mounts the bema and roars about the great good that the Federal Reserve System has accomplished. It is called the Savior of Credit and Industry. But it is misbranded. There's a vast difference between the picture on the tomato can and the contents of the can.

EVEN using the understated CPI model, we've been well above the Fed's made-up "2% target" YOY for 53 months in a row, yet the Cantillon-Effect crowd is crying for a rate cut, and it looks like they’re gonna get one.

FT: “Inflation is still heading in the wrong direction. Core CPI rose 0.34 per cent from July, a 4.2 per cent annual rate, the highest since January.”

Loved Tony’s asteroid quip.

I might suggest that a rate cut is the bear case. I remember 2001-2003 and 2007-2008, BUT I'm not suggesting any bear case, because that'd be hate speech.

One guy whose music I appreciate more every year is Bob Seger.

The Fed is too restrictive?

“There is so much capital in the world, an enormous amount, and that capital is asset-seeking."

This is nonsense.

Yep, no inflation. It's finally been vanquished.

From April 2019, well before Covid:

August 2019: Fed Funds rate was around 2.13%…

September 2016

Do central banks really have more gold than US Treasury bonds?

Probably.

PPI: Number Go Up!

Melody Wright

“Is it any wonder that almost anybody with a pulse wanted to use housing to get rich “as seen on TV”? Wages were not keeping pace with expenses and each year it felt you had to do even more and more to just keep your job. I’ve said this before, but by the time I left Corporate America I was doing the job of 3-4 people. On Friday, Challenger released layoffs for August, and it was not pretty.”

August’s total was the highest for the month since 2020 when 115,762 job cuts were recorded. After 2020, it is the highest August total since the thick of the Great Recession in 2008, when 88,736 cuts were announced. August marks the sixth time this year that the job cut total surpassed that of the corresponding month one year prior.

U.S. Asking Rents Rise Most Since 2022 As Apartment Construction Slows

That horrific period of 1930's-style deflation in rents that many people have suffered through seems to be over.

Extend and Pretend

One of the most telling measures of stress in the commercial mortgage-backed securities (CMBS) market is how quickly loans transition from initial delinquency to either a resolution, typically via modification, or to the final stage of default resolution, becoming real estate owned (REO).
Using median monthly timelines by loan vintage, we can see clear shifts in servicer behavior before and after the 2008 financial crisis, and in the case of modifications, a clear signal that the market has become more efficient in executing modifications as we’ve progressed through the Eras of CMBS.

These shifts underscore a fundamental change in CMBS workout philosophy:

Pre-crisis: A balanced pace, modifications, and foreclosures both moved in under 15 months.
Post-crisis: Speedy modifications but far slower foreclosures, creating a longer tail of troubled loans in the system.

Tricolor

Tricolor operates used-car dealerships and provides financing to its buyers. It focuses on (in the words of the rating agency Kroll) “underserved Hispanic…consumers who are typically unable to obtain financing from traditional lending sources”. It bundles the loans into asset-backed securities (ABS), of which there were about $1.4bn of outstanding as of March. It has also gone bankrupt. Creditors include JPMorgan Chase and Fifth Third Bank, which are each owed something approaching $200mn. Fraud is alleged and the justice department is investigating.
Fraud is sometimes just fraud. But a story like this — a subprime lender that you’ve never heard of, but which turns out to be quite large and connected to big banks, goes bust amid allegations of misbehaviour — seems designed to give anyone who was in finance in 2007 the heebie-jeebies. Those of us who suffer from great financial crisis derangement syndrome are not inclined to think that any credit event set against the background of a bubbly market is a one-off. We see leverage and counterparty risk in our breakfast cereal…
This graph of the per cent of loans entering 30-day delinquency comes from the New York Fed’s household debt report:

The situation is not improving in the same way with subprime auto borrowers…They tend to be relatively young and poor. Here, from S&P Global Ratings, is the rate of 60-day delinquency in subprime loans packaged into ABS. Delinquency is well above its pre-pandemic baseline, and moving higher:

The FT’s conclusion:

A fifth of the working population of the US was foreign born as of last year; they tend to be young and mobile, and half of them are Hispanic. The US government is encouraging them to take their earnings and spending elsewhere. The Tricolor meltdown does not seem to signal a systemic financial risk, but it might warn of an endemic economic one.

The Coastal Journal points out:

“This summer, Tricolor Auto, a Texas-based subprime auto lender, was still packaging risky car loans into asset-backed securities (ABS) that ratings agency KBRA stamped with AAA grades. Those bonds were supposed to be safe—“money good,” as Wall Street likes to say.
This week (September) those securities collapsed. Senior tranches now trade at 78 cents on the dollar, junior slices fetch 12 cents, and Tricolor filed for Chapter 7 bankruptcy on September 11th. Collateral was allegedly pledged twice, fraud accusations are swirling, and major banks—including JPMorgan, Barclays, and Fifth Third—are absorbing losses.
If this feels familiar, it should. Once again, AAA doesn’t mean AAA. And the timing could not be worse: consumer delinquencies are climbing, liquidity buffers are draining, and the Fed’s emergency lending facilities are flashing yellow.
The first cracks are showing.”

This…is CNN

I actually laughed out loud.

"When you are younger and new to investing, you want to believe the authorities, rating agencies, government statistics etc but as you grow older you realise that they all lie and everything is phoney."

Tony Deden

What a time to be alive!

Wedbush Securities’ Dan Ives is joining a new company focused on accumulating Worldcoin (WLD), the native token of the blockchain used in Open AI creator Sam Altman’s biometric identity verification startup, World.
Eightco Holdings, a tiny company that currently trades on the Nasdaq under the ticker “OCTO,” announced Monday that Ives, Wedbush’s global head of technology research, is now chairman of the board of directors. It also announced a $250 million private placement to implement a buying strategy around Worldcoin as its main treasury asset.
“As someone that’s so passionate about the AI revolution and the future of tech, I view World as really the de facto standard for authentication and identification in the future world of AI,” Ives told CNBC. “I would not be doing this initiative if it was just a cookie cutter token strategy.”
The offering is expected to close on or around Sept. 11, at which point it plans to change its ticker to “ORBS.”
Ives’ move is similar to one made by another widely-followed Wall Street forecaster, Tom Lee of Fundstrat, who in June joined the ether accumulator BitMine Immersion Technologies as chairman. BitMine shares have rocked more than 800% since Lee announced his involvement.

This was a hit song for Captain and Tennille back in 1975…

For the kids:

"We've been living in a Truman show economy"

When Dave Collum and I were going to have our first chat, he asked who we should do it with, and I said how about Marty Bent? Dave completely agreed. Same deal with Michael Farris - great guy to talk with.

“Bernie [Sanders] is just a megachurch pastor for people who went into debt for social science degrees.”

- Kane

**Love that quote. He used to fight the Fed a bit with Ron Paul, but now, crickets.**

General Samford Press Conference July 29, 1952

The Air Force feels a very definite obligation to identify and analyze things that happen in the air that may have in them menace to the United States and, because of that feeling of obligation and our pursuit of that interest, since 1947, we have an activity that was known one time as Project Saucer and now, as part of another more stable and integrated organization, have undertaken to analyze between a thousand and two thousand reports dealing with this area. And out of that mass of reports that we've been able to take things which were originally unidentified and dispose of them to our satisfaction in terms of bulk where we came to the conclusion that these things were either friendly aircraft erroneously recognized or reported, hoaxes, quite a few of those, electronic and meteorological phenomenon of one sort or another, light aberrations, and many other things.

However, there have remained a percentage of this total, in the order of twenty per cent of the reports, that have come from credible observers of relatively incredible things…our main interest is going to have to continue in the problem of seeing whether the things have possibility of hurt to the United States, and our present dilemma of lack of measurement that can be turned to analysis and a complete lack of pattern in any of these things which gives any clue to possible purpose or possible use, leaves us in some dilemma as to what we can do about this remaining twenty per cent of unidentified phenomena.
The volume of reporting is related to many things. We know that reports of this kind go back to Biblical times. There have been flurries of them in various centuries. 1846 seems to have had a time when there was quite a flurry of reporting of this kind. Our current series of reports goes back, generally, to 1946 in which things of this kind were reported in Sweden.

There are many reasons why this volume goes up and down, but we can't help but believe that, currently, one of the reasons for volume is that man is doing a great deal more. There's more man-made activity in the air now than there was, certainly, in Biblical times or in 1846. In addition to that, our opportunities to observe have been enhanced greatly.