Chaos, ambiguity and uncertainty
Blatant lies
A very good post from Phil Bak: Things That Matter
“I often find that the biggest hurdle to clear when trying to get people to look squarely at what we know and what we can reasonably infer about the Jeffrey Epstein case is that for most people, it just sounds too horrible to be believable. Sure, the government's corrupt, politicians lie, yada, yada, yada, but they wouldn't do that. But we know they would because they have, and they've done much, much worse.”
- 5 1/2 hour podcast on Jeffrey Epstein by Darryl Cooper from a few years ago. Transcript.
For anyone who wants to downplay what Jeffrey Epstein was - including, stunningly, some prominent people on twitter - here is a 2006 article I suggest you read carefully. Note Alan Dershowitz’ slimy presence:
We can spend money by reducing revenues
This was excellent, by Harrison Lewis: Stop Calling It Tax Reform. It Isn't.
…They explained that if the federal government wants to encourage something, there are really two basic ways to achieve that public policy goal. We can spend money through the outlays side of the budget, or we can spend money through revenue side of the budget. That is to say, we can spend money by reducing revenues.
More nodding. Vague understanding coming into view.
And then a simple example finally did the trick: Home ownership. The government really likes home ownership (and home price appreciation) and wants to encourage more of it. So we have a mortgage interest deduction. That’s spending through the tax code - a policy provision specifically and expressly passed for the purpose of subsidizing the purchase of a home. Thus the promotion of home ownership.
To fully grasp the concept, just imagine a scenario for a moment in which instead of getting a tax deduction for the mortgage interest, the government just sent you a check. They’d keep your tax rate unchanged - no deduction - but they’d instead send you a check once a year for whatever the interest deduction would’ve been worth. Would you care? Probably not.
What’s the difference to your bank account? There is none. What’s the difference to the government’s books? Not one red cent. It’s a wash for both parties. The cost of the subsidy is the same and the benefit to you is the same.
But while there is no difference whatsoever for the government’s finances - same deficit and same debt - the political difference is MASSIVE!
Why? Perception.
The public, by and large, hates hearing about massive new spending programs. But a massive new tax cut, on the other hand…. Well… that’s a different story altogether!
So which program do you think a politician would choose to run on if given the choice? Sending millions of lucky homeowners a nice big check every year in perpetuity? Or running on a platform that calls for cutting taxes for millions of hardworking Americans? Same policy. Same cost. Different optics…
We can all probably agree that homeownership is a good and wholesome thing, but wouldn’t it seem a little weird to pitch legislation where the government is going to start sending checks out to perfectly affluent and able-bodied people just to help them pay their mortgages? And how do you reckon all those poor bastards who rent are going to feel about it?
Here’s a novel idea. Just pop it in the tax code instead. Boom. Job done.
“It may sometimes be expedient for a man to heat the stove with his furniture. But if he does, he should know what the remoter effects will be. He should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”
Ludwig von Mises, Human Action
It’s not a macro call. It’s a lottery ticket.
Great writeup on sovereign CDS by Boring Bonds, PhD, CFA: Buying Default Insurance on America?
He explains things so even a caveman like me can understand.
“Buying CDS on US sovereign debt is a bet on procedural failure.”
In 2023, the so-called cheapest-to-deliver Treasury bond (the one you would price CDS with) was deeply discounted. It was the May 2050 30-year bond, with a 1.25% coupon. Issued near par (100) in 2020, it was trading around 55 cents on the dollar during the drama.
So, while the probability of a failure to pay during a debt ceiling standoff is extremely low, the payoff if there is one is extremely high. With one year CDS at 0.80% at the time and a payoff of 100% - 55% = 45%, government stupidity could earn an aggressive hedge fund a 55x return. Even if it was only the shortest of failures to pay.
CDS spreads were the highest they’d been since 2008 not because default was more likely, but because the payout was bigger.,,
The same setup is now in play for August 2025. The US hit the debt ceiling in January, and the Treasury has been deploying "extraordinary measures", essentially accounting tricks to keep the lights on. Those measures are expected to run out this summer.
If political gridlock drags on and Congress doesn’t act in time, even a minor payment delay could count as a Credit Event. That’s why CDS spreads are already creeping higher.
And if the executive branch decides to get cute — say, issuing ultra-long, ultra-low-coupon bonds to stretch out obligations — all bets are off.
In that scenario, the buyer of a 60 bps CDS could earn 55 cents on the dollar. That’s the potential for a near 100x return.
That’s not a macro call. That’s a lottery ticket.
Also, love the title of a new piece: “We’d love to buy Treasuries, but we’re not insane”: “the bond market isn’t broken because of regulation. It’s broken because pretty much everyone’s already in. And it’s become visibly risky.”
Lawrence Lepard
from the book, “The Big Print”
It was a beautiful fall day in New England. Three hundred attendees, representing some of the nation’s brightest business minds and captains of industry, sat in anticipation. Graduates of Harvard Business School, now leaders in their respective fields, had returned to their alma mater for a special event. On stage, three figures stood larger than life: Larry Summers, Hank Paulson, and Tim Geithner — architects of America’s response to the 2008 financial crisis.
It was 2018, precisely a decade since Wall Street’s house of cards had come tumbling down, taking with it the hopes and dreams of millions of ordinary Americans. Yet here we were, not in a court of law but in an academic setting, watching what felt like a victory lap.
Geithner’s voice rang out, clear and unapologetic. He extolled their actions as necessary and proper, even going so far as to suggest they should be praised for their response to the crisis.
The audience nodded in agreement, a sea of monetary leaders eager to absolve their idols, and perhaps themselves, of any wrongdoing.
Let me be clear. They knew that what they had done was wrong, but they were looking for redemption.
“Is there anyone here,” the presenters asked, their eyes scanning the crowd, “who thinks what we did was improper?”
The silence was deafening. Three hundred ambitious minds and not a single dissenting voice.
Until I raised my hand.
All eyes turned to me as I stood, my heart pounding but my resolve firm. “I disagree,” I said, as my voice cut through the stunned silence. “What you did was not proper, and here’s why.”
I laid out my argument, years of pent-up frustration and analysis pouring out. I spoke of the billions in taxpayer money funneled to banks, of the $20 billion in obscene bonuses paid out while Americans lost their homes and livelihoods, and of the fundamental injustice at the heart of it all.
Geithner’s response was swift and dismissive. With a hint of condescension, he characterized my proposal as “Old Testament justice — an eye for an eye —” an outdated form of justice unsuitable for the dire circumstances they faced.
As I sat down, I could feel the weight of hundreds of angry stares. The air in the auditorium was thick with tension; I had shattered the unspoken code of compliance.
But afterward, as the crowd dispersed for coffee, a few brave souls approached me. “Thank you,” they said. “You’re right. You said what needed to be said.”
“Fink owns bitcoin, lock, stock, and barrel.”
I may survive this cough.
The usual good stuff below, starting off with Philadelphia Fed President Patrick Harker lying on live TV - which is what Fed Presidents do. It’s their job, and it’s Steve Liesman’s job to kiss their ass.
It’s all propaganda now. All of it.
My next post will probably just be a paid-subscriber only summary of the best interview I’ve heard in a while - from an old favorite of mine and yours - so stay tuned, and Godspeed.
Philadelphia Fed President Patrick Harker went on CNBC today - CNBC is where current and former Fed officials go to lie, and get tongue-baths - and he made the claim that the Fed has nothing to do with the debt - that was all due to fiscal policy - which is complete nonsense.
It's the opposite.
It was Harker’s little private-banking cartel whose insane monetary policy ENABLED and ENCOURAGED irresponsible profligate fiscal policy (don’t believe me? Ask Fed insider Kevin Warsh).
I went to CNBC video to try to get an exact quote and they’d edited the video to end before this part (not the first time they’ve done this sort of thing to protect Fed officials.)
It was reassuring to have a market vet like Yra see what I saw:
As an aside, why would Patrick Harker ever be interviewed about anything?
Update: Because this isn’t my first rodeo, I was able to get the video of Patrick Harker’s mendaciousness from Archive.org.
Philadelphia Fed President Patrick Harker denies any responsibility for our massive deficit, despite the fact that years of insane Fed ZIRP and QE policies encouraged massive fiscal profligacy:
“Some of this comes with the deficit issues that we’re facing. I mean, this is clearly not in our wheelhouse at the Fed - we react to whatever fiscal policy does…”
"It is the Fed that wandered into politics on a permanent basis...In a period of free money, what was the clear sign to Congress? You can spend all the money you want, and so they did.”
Kevin Warsh
NY Fed flags $1.06 trillion unrealized loss on bond holdings in 2024 A trillion dollars used to be a lot of money.
The widely followed Tesla to Palantir ratio is near all-time lows:
“I don't screen for how much money I'm going to make. I don't screen for the IRR probability. The only thing I'm laser-beam focused on when I evaluate private placement deals is the probability of losing money.”
Via Grant’s:
Europe hosting eight of the world’s 10 best performing stock market indices so far this year (all figures are in dollar terms). Notable standouts include a 32% showing for Germany’s DAX and 34% gain for Spain’s IBEX 35.
With a 21% return for 2025 thus far, the Old Continent’s blue-chip Stoxx 600 has outperformed its stateside peer by 18 percentage points, a record gap according to Bloomberg.
Coming on the heels of a lengthy stretch of American stock market dominance, that reversal of fortune demonstrates the truism that markets make opinions: “We are getting more questions about Europe now over that past two months than we did over the past 10 years,” relates Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia
Jamie Sprayregen, vice-chair of Hilco Global
Jim Grant (who really needs a new microphone): “You worked with Donald Trump, and worked I guess the other side of the table with Donald Trump. Tell us if you would please about how the President presented himself, as they say, as a negotiating adversary?”
Sprayregen: “I had some involvement with him in the casino situations, but I had much deeper and extensive involvement in the Conseco bankruptcy case. Conseco owned in partnership with Trump what was then called the Trump GM building - now it's called the GM building - and we got into a little bit of a dispute over our partnership, and it was actually a highly successful investment. How much of the profits were supposed to go to him, and how much were supposed to go to Conseco ended up with a big litigation, and lots of arbitration, lots of negotiation…We ultimately settled. I would say leopards don't change their spots. He is who he was then, and that's the same person. What I mean by that is…from a negotiating standpoint, he's one who is very comfortable with chaos and ambiguity and uncertainty.”
Sprayregen: “I actually was with a pretty senior hedge fund guy last night, talking about this, and I always like to make the point - and you know the financial history better than me - but rates are higher, not really high in the sense of - they're much higher than they were when they were zero, or in some places negative, but historically they're not that high right now. Everybody's waiting for them to go back down to where they say normal was, but how low they were was not normal.”
“In the retail area there's been more store closings in the first quarter of 2025 than statistically in a very long time, so I don't know if we call that a boom”
“I'm amazed at the number of people I meet who say, "Wow, this has never happened before. I've never seen this," and I say, "Well how long have you been doing this?" “Four years””
“…Moral turpitude - whatever you want to call it - you do hear a bunch of talk about that, and in the law there's a phrase, “the requiring of good faith and fair dealing,” and there's a number of people out there who say these transactions are bad for the market, they corrode trust in the market. I have to admit, I'm one who says, “when you signed up for the loan or when you bought the loan on a secondary market, did you read the document?” …what's being done is mostly what the documents allow and what people signed up for. There's a number of people who don't like that. What I've particularly observed is you have a number of situations where somebody is on the receiving end of a LME1 that they don't like, and they cry bloody murder, and then you see that same firm on the giving end of another transaction - where this time they're the creditor, and the other time they were the equity - and they're saying "Well, I'm just doing what the documents allow." So I think there's a lot of noise about it, but there's not that much new or maybe nothing new under the Sun.”
“Where interest rates have been is almost as important - from an investment point - as where interest rates are going, because where they have informed the capital structure of so many things that are now vulnerable to persistently high rates.”
Jim Grant
Dan Rasmussen: Is private equity becoming a money trap?
Investors in private equity have seen distributions of capital collapse from the typical 30 per cent of net asset value down to only about 10 per cent of net asset value, according to Bain. And frustrated investors in funds — most notably Yale and Harvard — are turning to the secondary market to sell stakes, while talk of “over allocation” and “above-target” investment in the asset class is spreading.
The most proximal cause of this roadblock is the excessive exuberance of the 2020-22 period in private markets, when valuations were booming and interest rates were still hovering near zero. Private equity groups attempted to sell everything they had bought before 2020 into this frothy market, and then turned around and paid massive prices for new deals. Deals between private equity managers peaked at about 45 per cent of total exits in 2022…
The pre-2020 deals that did not sell during this period are generally deeply flawed, while the new deals initiated in the period were done at such high valuations — and with business models that anticipated interest rates remaining low — that exiting them at a profit today is very difficult…
Moody’s reports default rates for private equity-backed companies nearing 17 per cent, more than double non-private equity firms.
“What I learned early on is you have to own a business, and a business is a stock. It's not an average or a fund. You own a company, and you can take an income statement, balance sheet, cash flow statement - and you can make a case for owning this company even if it was private. To me, that's how you invest in this atmosphere. You make sure that the things you own are things that you would own even if it was private.”
Matt Stoller: Messing With Texas: How Big Homebuilders and Private Equity Made American Cities Unaffordable
Good, although I really wish he’d mentioned the role the Fed’s insane ZIRP monetary policy and MBS monetization had in all this nonsense.
In 2011, the median home price in DFW was $149,900, and the income of the median DFW household was roughly double the income required to qualify for a mortgage to buy a median-priced house. That’s good enough on its own, but the median ratios actually understate how affordable the DFW metroplex was in the early 2010s. If we dig into the data, we find that lots of houses were selling at the far low end of the price distribution between 2010 and 2015 — with around one-in-five homes going for less than $99,000 in the first few years of the decade, and anywhere between 5% and 15% going for less than $69,000.3 Dallas was truly a place where the American dream of homeownership was alive and well — a place where families that worked hard, lived frugally, and played by the rules could buy a house to call their own within their means.
That’s no longer true. As of 2024, the median DFW home price hovered at a little over $440,000, a nearly three-fold jump from its 2011 level. Now, the income of the median DFW household is barely enough to qualify for a loan to buy a median-priced house in the Metroplex, even for people who can make a 25% down payment, according to the Texas Real Estate Research Center at Texas A&M University. For people who can’t make such a large down payment on a house, the income required to qualify for a mortgage goes up even higher.
And it’s not like the old days, where a family with less than the median income could find a bunch of starter houses listed at far below the median price. The vast majority of DFW homes (<77%) sold for more than $300,000 in 2024, and basically none (~4%) sold for less than $199,000. That’s why, according to a Dallas Morning News study conducted in 2021 (before a massive post-COVID growth spurt in home prices), “about half of households in Dallas-Fort Worth [have been] priced out of ownership of a median-priced single-family home[.]”…
After the Great Financial Crisis, consolidation really hit overdrive among builders in Dallas. A wave of bankruptcies and liquidations washed across the homebuilding industry between 2008 and 2010, both in North Texas and around the country, leaving dozens of small and mid-size DFW builders shut down or sold out. Simultaneously, a federal legislative stimulus measure enacted in 2009 delivered $2.4 billion in tax refunds to homebuilders, with the bulk going to the largest national firms — giving them tremendous liquidity while the rest of the industry wallowed in crisis. An M&A frenzy promptly took off across the North Texas homebuilding community and raged for the next decade, leading to the absorption of dozens of area builders into large publicly-traded conglomerates. The share of DFW new home sales controlled by the top 10 firms went from around 35% in 2007 to nearly 51% in 2010…
Homebuilders have “more land for housing and less housing regulation [in DFW] than [almost] anywhere else in the country.” Over the last 15 years, they’ve also had a hot housing market, with growing demand for homes, rising home prices, and favorable financing terms, both for developers and for homebuyers. Nonetheless, homebuilders have built fewer houses than necessary to satisfy Metroplex demand in every year since 2012,5 according to recent reports by Up For Growth, resulting in a progressively growing deficit of housing production that reached above 121,000 units by 2022 — a “spik[e] in underproduction far in excess of California.” As the 2010s wore on, that escalating shortage of houses helped drive the median home price in DFW up from around $150,000 in 2011 to around $267,000 in 2020…
According to an analysis by the National Association of Realtors, institutional buyers (trusts, corporations, limited liability companies, etc.) accounted for anywhere between 34% and 52% of single-family home purchases in the most important counties of the DFW metro area in 2021, and were paying a median price more than 1.7 times the median price paid by individual buyers. That — together with inflationary conditions in the broader economy — created an opening for home sellers to raise prices dramatically. The median home price in DFW rocketed from a little over $267,000 in 2020 to more than $400,000 just two years later — and it hasn’t come down since.
The most grimly inevitable ETF filing of 2025
This is just for future historians, if there are any.
Pudgy Penguins.
The Fed is too restrictive. Link
Back in the halcyon days of August 2024, FT Alphaville argued that the launch of a leveraged single-stock ETF tracking MicroStrategy’s stock was the ETF industry’s shark-jumping moment.
Oh how sweetly/stupidly naive we were at the time.
Under new SEC chair Paul Atkins, the main US financial watchdog will “embrace and champion” innovation, an unsubtle signal to the crypto world that it can run wild once more.
The inevitable result is financial abominations like this:
Greg Weldon
“I kind of cringe and I kind of chuckle a little bit when I hear that, because at the current price of gold, U.S. gold reserves barely cover maybe a year and a half of our deficit. Are you going to do revalue gold to $50,000 an ounce? Because that's kind of the kind of thing I think you'd have to do to have any credibility to that.”
The consumer is as negative as the consumer has been in 45 years.
“The consumer has been hurting for a while, and when you talk about the University of Michigan survey - some people don't like the University of Michigan - you take New York Fed survey, take a lot of surveys, we can take a lot of these data points - it comes back to one thing: the consumer is as negative as the consumer has been in 45 years. The inflation expectations are completely unanchored, and for the Fed to keep saying inflation expectations - which they even said in their minutes from last week are well-anchored - is a blatant lie. Now it behooves them to try and get people to believe that lie, of course, because otherwise inflation expectations really are unanchored.”
A great weather report from Arizona:
Ship Carrying EVs Abandoned in Pacific After Catching Fire
A ship carrying about 3,000 cars, including 800 EVs, caught fire in the Pacific Ocean and was abandoned after the blaze could not be brought under control…Fires involving EVs are often harder to extinguish and more dangerous to fight. The conditions of a tightly packed car-carrying cargo ship lead to limited ventilation, which can rapidly intensify heat. The confined, steel-lined environment makes fire suppression and rescues significantly more dangerous.
Additionally, when an electric vehicle burns, it does so for longer and the fire gets hotter. The flames can end up accelerating through chain reactions and spiraling out of control quickly, a process called thermal runaway. EV fires can take up to 8,000 gallons of water to cool the lithium-ion batteries.
In 2022, a vessel carrying about 4,000 vehicles caught fire in the Atlantic and ended up sinking despite efforts to tow it to safety. A year later another ship with close to 3,000 cars on board caught fire near the Dutch coast.
“Liability Management Exercise” LMEs are a set of tactics companies use to manage their liabilities, particularly when facing financial difficulties or needing to raise new capital.
I have to read these in chewable bites.
What's up with thousands of burning cars at sea? Is that a form of acceptable losses? You can't ship gold by air in excess of an insurable loss. Imagine what the premiums are for these ships with burning cars sinking...
After years of begging for the JFK files and getting a dud I wonder if we're being played again? or if Diddy and Epstein are just the tip of the iceberg and the only guys who got caught.
https://x.com/MAstronomers/status/1931417310532645130
I asked Grok, "What physical % of the earth’s atmosphere is occupied by satellites?"
Answer: Satellites occupy approximately 5.82×10−15%5.82 \times 10^{-15}\%5.82 \times 10^{-15}\% of the Earth's atmosphere by physical volume, a negligible fraction due to the vast size of the atmosphere and the relatively small size and number of satellites.
It never really matters what is and isn't this or that. it matters what we think it is.
We should buy a crappy old newspaper and put Bloomberg out of business.
“The wire” is my favorite show of all time. Keep posting that weather report because every time I see it I laugh