Evil, or stupid?

Normal for longer.

“How do you foresee the vagaries of criminals and politicians?”

Danielle DiMartino Booth
(Criminals and politicians - isn’t that redundant?)

"If people lose faith in the bond market...then the amount of money that's going to be looking for an alternative is going to be something that we've never seen before."

Arthur Hayes

Waller’s comments will be disappointing to everyone who naturally assumed prices would revert to pre-pandemic levels.

---

“Falling pork prices threaten to push China back into deflation”

Love the headline. I see this sort of gaslighting all the time.

Think about how insane this is: Lower pork prices are bad because [𝗲𝗰𝗼𝗻 𝗣𝗵𝗗 𝗴𝗼𝗯𝗯𝗹𝗲𝗱𝘆𝗴𝗼𝗼𝗸].

China may "tip" back into the horror of more affordable food!

Tumbling pork prices could push China back into deflation this week, as the largest listed hog farmers flood the domestic market and complicate Beijing’s efforts to bolster confidence in the world’s second-largest economy…

Economists say the falling cost of pork, with its heavy weighting in China’s official consumer price index, is likely to tip the country back into deflation when October data is released on Thursday. “It looks like [consumer inflation] will turn negative again in October, and the main reason for that looks to have been a decline in food inflation caused by the fall in pork prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

A return to deflation — after anaemic growth in August and a flat CPI reading in September — would undercut officials’ efforts to restore confidence in China’s economy, which remains in a fragile state due to weak consumer confidence and a liquidity crisis in the country’s property sector.

Notice the subtle assumptions in this article:

“Deflation” (lower food prices) “would undercut officials’ efforts to restore confidence in China’s economy.”

Therefore, higher food prices must make people confident!

Bill Fleckenstein

• “What really matters in my opinion are inflation expectations, and there's no real number - I mean you know some of these surveys ask people about their inflation expectations, but I remember vividly in the late 70s and the early 80s people people believed the inflation rate could not be brought under control, that was a mindset okay - that wasn't a number, and for the last 20 years people have had this notion that we were one step away from deflation, and we really couldn't create inflation. These idiots at the FED talked about not being able to get to their 2% Target, which they made up - it's not a Target in the in Fed's charter, they’ve made it up - so inflation's far easier to create than it is to break once psychology changes, and so what I believe is psychology has changed.”

• “The commercial real estate problem for the regional Banks, and some of the insurance companies, is going to be a problem. All these things are problems. They've all been can-kicked, and the reason the problem exists is idiots at the FED took their rate to zero, they did QE - I mean I've been saying this forever. The Fed creates the problem, then they create the massive amount of misallocated capital, then they start to tighten way too late, eventually something breaks, they start easing and everyone treats them like a hero because they bailed out the problem that they created! They are the problem.”

• “We would never have $33 trillion in debt in a budget deficit of whatever the number is, between one and a half and two trillion, or wherever it's going to be, if the Fed hadn't for for for the last 25 years just rode to the rescue all the time, and there was never a consequence to being irresponsible other than 2008.”

The Dark Side of Airbnb and Short-Term Rentals with Melody Wright

Melody walks into the lion’s den here. Hartman opens with a rambling statement about something, barely lets Melody talk, and by the time it’s getting good he ends their talk, saying there’s a part 2. Apparently this was recorded a while ago.

Exploring the Interplay of Rental Properties and the Housing Market with Analyst Amy Nixon

---

ICE (Black Knight) Mortgage Monitor “As of September, 383K (0.7% of) mortgage holders were underwater on their homes – less than half the share prior to the pandemic and in the early 2000s before the Global Financial Crisis”

That’s nice, but as I’ve pointed out before, the “value” of a home is largely set by the last comparable transaction or two in the neighborhood, and that can drop just as it rose dramatically in recent years.

---

Your Next Airbnb Host Could Be a Private-Equity Firm

“Private-equity giant TPG has started buying single-family homes in Florida vacation markets, where it is renting them out nightly as alternatives to hotels and short-term rentals on websites like Airbnb.”

Also as an alternative to young families owning them.

WeWork - What a joke.

---

Russell 2000 vs S&P 500

Mike Green on the private payroll data:

The private payroll data was not good, with both downward revisions and a general miss on what many dismiss as “strike-related” declines. Perhaps that’s right, but remember that we’ve seen a never-ending string of downward revisions that have now pulled private sector payrolls to the cusp of zero. Perhaps it bounces again, perhaps it doesn’t. I’m leaning towards “doesn’t.”

Regardless, we know the culprit — the infamous Birth/Death model which continues to suggest near record levels of job growth tied to new business formations:

As I’ve discussed ad nauseaum, “No, we are not enjoying a brand new surge in entrepreneurship.” The Birth/Death adjustments are now effectively the tool that prevents a recession from being announced. If we look at the pace of hiring, it’s obvious:

Alex J. Pollock, President and Chief Executive Officer of the Federal Home Loan Bank of Chicago from 1991-2004

With your page one headline “Fed’s ‘higher for longer’ interest rate message weighs on stocks and bonds” (Report, September 28), the Financial Times joins the chorus of commentators singing a similar tune.

But interest rates are not particularly high — they are normal, historically speaking.

For example, in the half-century from 1960 to 2010, before a decade of suppression of interest rates to abnormal lows by the Federal Reserve and other central banks, the 10-year US Treasury note yielded more than 4 per cent, for 90 per cent of the time. Interest rates only seem high because we got used to the abnormal lows.

So the right slogan now is not “higher for longer,” but “normal for longer”.

---

Sheila Bair: Higher rates for longer are a good thing

The writer is a former chair of the US Federal Deposit Insurance Corporation and is a senior adviser to the Center for Financial Stability

They say the good things in life are free. That may be true of walks on the beach or picnics in the park. It is not true of money. 

The US Federal Reserve kept money free for nearly 14 years in the name of stimulating the economy. This period of “zero-interest rate policy”, or “Zirp”, was characterised by tepid growth, increased market concentrations, low productivity and yawning wealth inequality. Now that the Fed has shifted to a “higher for longer” stance to combat inflation, our economy will have to make painful adjustments to the rising cost of money. But we need to hold our course. Ultimately, higher rates will lead to a fairer, more productive and resilient economy. 

The theory of ZIRP is that it boosts consumption and productive capital investments by making it cheaper for businesses and consumers to borrow. But the theory has not proved itself in practice. Economists have struggled to find a correlation between low interest rates and economic growth. Some studies suggest that higher rates are associated with higher economic growth. This is consistent with the US experience.

Take the “boom” years of 1982-1990 and 1991-2001, when annual gross domestic product growth of 4 per cent was typical, in comparison with the 2 per cent Zirp norm. In most of those boom years, short and long-term interest rates far exceeded the levels we see today. Households and businesses still borrowed. The economy hummed.  

Free money can actually undermine growth by making an economy less efficient. The more money costs, the more disciplined its allocation. If it’s costless to borrow, money flows into all sorts of unproductive uses. It flows into rampant speculation characterised by the crypto and meme stock crazes. It flows into zombie companies from indiscriminate investors seeking any decent yield. It harms competition by feeding industry concentrations. 

Research shows that larger companies disproportionately benefit from the lower rates, which they use to make acquisitions and other investments that increase their market dominance. As their market power grows, they lose incentives to remain agile and competitive as their smaller competitors fall further behind. I’m all for vigorous antitrust enforcement against anti-competitive behaviour. But the industry concentrations that so worry the Biden administration today may have as much to do with low rates as corporate misconduct.

Free money also exacerbates wealth inequality which is detrimental to an economy like ours in the US, which relies on middle class consumption to thrive. Concentrating wealth in the hands of a few diminishes the purchasing power of the rest. Zirp has done little for real wage growth, but it has done wonders in boosting asset prices mostly owned by rich people. It was particularly good for stocks as their expected future earnings became compellingly attractive in comparison to ultra-low Treasury yields. While over half of households directly or indirectly own some stock, 86 per cent of it is owned by the richest top 10 per cent. The benefits of ultra-low mortgage rates were more widely enjoyed, as booming home prices and the ability to refinance enriched millions of families who already owned homes. But renters’ costs also went up, while red-hot housing inflation made home ownership further beyond their reach. 

Free money contributes to financial instability, risking crises when inflation inevitably raises its ugly head, and the Fed has to tighten. It encourages excessive levels of borrowing, while incentivising risk taking and speculation among investors searching for yield. As rates rise, bubbles pop, over-extended borrowers default. Even safe, low-yielding assets lose market value. Risks build in unregulated, non-transparent pockets of the financial system. Private funds have exploded in growth — now holding $21tn in assets, according to the Securities and Exchange Commission — as normally risk-averse investors, such as insurance companies and pension funds, have been seduced by the lofty yields produced by their highly leveraged business models. But that model doesn’t work as well when money costs... 

Once we get through this transition, the Fed should fundamentally reassess its belief that a single-minded pursuit of 2 per cent inflation is good for the economy. Any level of inflation erodes real wages, while free money has undercut productivity and sustainable growth. Better that we abandon Zirp for good and rely less on central bankers to run our economies in the future. History, research and plain common sense suggest that we will be better off. 

The Failure of Citizens Bank, Sac City, Iowa

Click for video

Apparently the failure was due to the bank’s “commercial trucking loan portfolio”. This is the Substack post he refers to in the video: A Bank Failure in Iowa

On a related note, this is a sobering thread on the freight business over the past year or so:

• Travis Fisher: Director of Energy and Environmental Policy Studies at the Cato Institute “Fisher explains why the energy-related provisions of the Inflation Reduction Act could ultimately cost taxpayers close to $3 trillion, the “Californication” of our electric grid, the mess in Congress, and why federal subsidies for wind and solar, combined with the EPA’s proposed rules are undermining the reliability of our electricity system.”

• Michael Kao on November Fed Meeting, Treasury Refunding, and Bond Market Bear Steepening

• Eric Peters and the War on Cars

• Renewables, Natural Gas and Nukes with Adam Rozencwajg

• Nice overview of recent economic data from Greg Weldon “It’s all well and good that the stock market goes up, but if it goes up less than the pace they debase the purchasing power of your money, it doesn’t matter - we’re Argentina.”

There's something deeply ironic about Janet Yellen leading the Financial Stability Oversight Council.

"In the leadup to the GFC, inadequate oversight led to reckless risk taking..." - Janet Yellen

Golly - if we only knew who was in charge of bank oversight back then, maybe we could hold those people accountable, and never let them be in charge of anything ever again.

COVID Lockdowns Were a Giant Experiment. It Was a Failure.

One of the great mysteries of the pandemic is why so many countries followed China’s example. In the U.S. and the U.K. especially, lockdowns went from being regarded as something that only an authoritarian government would attempt to an example of “following the science.” But there was never any science behind lockdowns — not a single study had ever been undertaken to measure their efficacy in stopping a pandemic. When you got right down to it, lockdowns were little more than a giant experiment…

In all of this discussion, however, there is a crucial fact that tends to be forgotten: COVID wasn’t the only thing people died from in 2020 and 2021. Cancer victims went undiagnosed because doctors were spending all their time on COVID patients. Critical surgeries were put on hold. There was a dramatic rise in deaths due to alcohol and drug abuse. According to the CDC, one in five high-school students had suicidal thoughts during the pandemic. Domestic violence rose. One New York emergency-room doctor recalls that after the steady stream of COVID patients during March and April of 2020, “our ER was basically empty.” He added, “Nobody was coming in because they were afraid of getting COVID — or they believed we were only handling COVID patients.”

So in attempting to gauge the value of lockdowns, the most appropriate way is to look not just at COVID deaths but at all deaths during the pandemic years. That’s known as the “excess deaths” — a measure of how many more people died than in a normal year. One authoritative accounting was compiled by The Spectator using data gathered by the OECD. It showed that during the first two years of the pandemic — 2020 and 2021 — the U.S. had 19 percent more deaths than it normally saw in two years’ time. For the U.K., there was a 10 percent rise. And for Sweden — one of the few countries that had refused to lock down its society — it was just 4 percent. An analysis by Bloomberg found broadly similar results. In other words, for all the criticism Sweden shouldered from the world’s public health officials for refusing to institute lockdowns, it wound up seeing a lower overall death rate during the pandemic than most peer nations that shut down schools and public gatherings. It is not unreasonable to conclude from the available data that the lockdowns led to more overall deaths in the U.S. than a policy that resembled Sweden’s would have.

Apparently the U.S. has only one plant manufacturing “High Explosives”

From an anonymous comment on the above:

Is the regime evil or just stupid?

Considering how bellicose the elites are, you would think that if they were smarter than they are evil, they would attend to mundane matters like producing ammunition and not giving their own soldiers myocarditis-inducing vaccine shots.

But if they are dumber than they are evil, they wouldn't.

And perhaps being "dumber than evil" originates from a number of cognitive biases and incentive problems that the elite have:

• ignorance and contempt for the tangible world and old economy (wordcel lawyers);

• belief in modern monetary theory and fiat currency economics;

• political misalignment between the elites and the types of people who would own, and work in, these factories producing things for the defense sector; and

• voracious hunger for welfare transfer payments

Still, refusing to build ammunition and high explosive capacity when you are an aggressive imperialist is like refusing to mine copper when you are an electric vehicle transitionist.

The good news is that if the elites are dumber than they are evil, the pendulum is more likely to swing back. They will have a series of delegitimizing episodes as their delusions crash on the rocks of reality.

Japan: Almost there!

Japanese bond yields. At least they’re no longer negative.

The yen is falling vs the dollar since early 2021.

Another way to look at it:

Jacques Vallee on UFO’s in 1988

Everyone is now so eager to see the government "reveal" this long-awaited information that no one questions the reality of the basic facts and the political motivations that could inspire a manipulation of those facts. Trying to outsmart the CIA and the Pentagon has become such a national pastime that lawsuits against federal agencies under the Freedom of Information Act have begun to accumulate. All that has been shown so far is that these agencies were involved – often covertly – in many aspects of the UFO problem. I suspect that they are still involved. Discovering the secret of the UFO propulsion mechanism could be such a military breakthrough that any research project connected with it would enjoy the highest level of classification. But these UFO enthusiasts who are so anxious to expose the government have not reflected that they may be playing into the hands of amore sophisticated coverup of the real situation.

Because of their eagerness to believe any indication that the authorities already possess the proof of UFO reality, many enthusiasts provide an ideal conduit for anyone wishing to spread the extraterrestrial gospel. The purpose of such an exercise need not be complex or strategically important. It could be something as mundane as a political diversion, or a test of the reliability of information channels under simulated crisis conditions, or a decoy for paramilitary operations. None of these rumors is likely to lead us any closer to a solution that can only be obtained by careful, intelligent, and perhaps tedious scientific research.

The truth is that the UFOs may not be spacecraft at all. And the government may simply be hiding the fact that, in spite of the billions of dollars spent on air defense, it has no more clues to the nature of the phenomenon today than it did in the forties when it began its investigations.

- Jacques Vallee, 𝘋𝘪𝘮𝘦𝘯𝘴𝘪𝘰𝘯𝘴 (1988)