Green Shoots and High Tides
"I'm pretty disappointed with reality right now." - Bennett Tomlin
October 8, 2020: The Most Dovish Fed in History Is on a Mission to Spur Inflation
Federal Reserve Chair Jerome Powell has done everything to demonstrate his desire for higher inflation short of dressing up as a dove and cooing in front of Fed headquarters.
(You can search my timeline for “Peter Coy.” In a sea of bad Fed shills (and they’re all Fed shills) he stands out. On a related note, this is the most nauseating thing I’ve read in ages, from WSJ Fed Sycophant Jon Hilsenrath.)
The Federal Reserve is determined to push inflation higher from levels it considers dangerously low. For that to happen, it must first convince everyone that prices will accelerate in coming years.
This was well into Covid, so all of the pandemic-related inflation pops should have been obvious to the Fed (they weren’t, but they should have been. I mean, what do their 25k or 30k overpaid employees do, besides virtue-signal?)
So in October 2020, the CPI (they have a number of CPI indices, to confuse us) was running at 1.184% YOY. Now we’re at 9%.
Their goal (which, like TARP, they pulled out of their butt) is 2%. Will they now try to take CPI to negative 7% or so for a while, as their average inflation targeting nonsense would suggest?
In 2008 Citadel Ben Bernanke told Ron Paul that inflation is a tax, and it was too high. When Bernanke said this, "core CPI" (their BLS number) was running at 2.246% YOY. Today it’s at 5.9%. (Core CPI is mostly useful for people who don’t eat or use energy).
Yes, someday CPI will be “transitory” - it’ll go from 9% to 6% or 4%, and they’ll declare victory, and cut rates and ramp up QE again.
I think even more important than the CPI level is the fundamental fact that the CPI itself has almost no relation to the “cost of living” - they don’t count housing or health insurance, for example, in any realistic manner, and their subjective hedonic-quality adjustments told us, to give one example, that new car prices were flat for 25 years.
I’ve written extensively over the years on this. The CPI itself very understated - it’s designed to be, and every change over the decades has been to make it more understated.
The Fed’s grotesque mismanagement of their stable prices mandate is criminal - they have intentionally levied a huge regressive tax on all Americans and the world.
Where is the accountability?
Australia launches review of ‘embarrassing’ central bank
Australia has launched a review of its central bank after the institution was criticised for delaying interest rate rises even as inflation took hold, prompting its own governor to describe its forecasting as “embarrassing”…Philip Lowe, RBA governor, admitted in May that the central bank’s forecasting had been “embarrassing” given it had indicated that it would keep rates as low as possible until 2024. Analysts said that guidance helped to prolong a housing boom, with Australians taking on high levels of debt as inflation rose.
If the Aussie Central Bank is “embarrassing,” what is the Fed
From the normally sober Sheila Bair: The Fed must emulate the tactics of Volcker’s fight against inflation
Unless Powell raises the Fed funds rate to 11% or so on Wednesday (which even I’m not suggesting), he seems more like Arthur Burns. What I AM suggesting is the Fed actually start getting their ridiculous balance sheet down, right, Ben Bernanke?
Trudeau pushes ahead on fertilizer reduction as provinces and farmers cry foul The Trudeau government is demanding an absolute reduction in emissions, which farmers say will result in less food being produced at a time when the world can ill afford it. So many world leaders seem to hate their countrymen.
The Breakfast Index Shows Prices Soaring for UK Consumers If baked beans, which are not separately tracked by the ONS, are included, the average basket price would be even higher.
Ghosts of 2012 Haunt Europe as Rate Hikes Begin Yeah, that rate hike up to zero percent by Lagarde was haunting.
“There's a massive housing shortage across the U.S. Here's how bad it is where you live” So this (from NPR, but give it a chance anyway) says that we have a 3.8 million unit shortfall in housing.
Then this next article says we have 16 million vacant housing units (Mike Bloomberg does own a lot of houses, so that may explain it).
The Most Vacant Cities in America: 2022 Data
I noted earlier this year that “in 2000 we had about 1 housing unit per 42.5 people, and in 2021 we had 1 housing unit per 42.6” - what we have now that we didn’t have then is “non-primary” buyers chewing up 24% of purchases lately.
Apartment and Warehouse Deals Start to Sputter as Rates Sting “It almost feels like a Wile E. Coyote moment”
“Opendoor offers for my home dropping like a rock” Orange County, CA. June 5: $1,027,800. July 21: $818,900. That’s 20% in a month and a half.
Phoenix driveway just $650/month Heck, the paid utilities are probably worth that alone.
Detached home prices have tumbled over $400K in Brampton and more than $350K in Mississauga since January Toronto area. Insane. Not the drops - the previous spikes.
…“the biggest thing” affecting the San Francisco market is the decline in share prices for tech companies, since most of her $4 million-plus homes are purchased in cash and tech employees often liquidate company shares in order to put money down on a home.
"The Arizona housing market is experiencing one of the most rapid reversals in real estate history”
Investors Slow Purchases as Uncertainty Looms Over Home Prices “Some of the largest US landlords have pulled back on purchases of single-family rental homes, as rising financing costs and high home prices push property funds to ease away from the shifting housing market.” I view this as good news. Hey, what if these guys ever start selling en masse?
Cost of Living Crisis Spurs “Failure to Launch” among Gen Z Nearly 30% of Gen Z between the ages of 18 and 25 still live at home with parents or relatives
North Portland homeless encampment charges rent for houseless people to stay
Brown acknowledges that the camp sits on city property but said she's "taking over” regardless. She put up "no trespassing" signs and chains to try and keep people out. As for camp rules, she says people aren’t allowed to steal or “do anything illegal.” “We’re just trying to make a safe haven for us away from the city, because they’re not treating us well at all,” Brown said. According to Brown, city shelters and organized camps don’t work — or they're too temporary — and many people, like herself, end up back on the streets.
I have to credit her for at least trying to make the best of a bad situation. Meanwhile…
Next door to the camp is Curt's RV Storage, a family-owned RV and trailer storage park that’s been in Jeffrey White’s family since the 1970s. “We’re at a loss right now,” said White. He says that people living in the camp have stolen from his storage yard. “Our customers on the RV side are having their gas being taken out, the catalytic converters are being taken, some RVs have been broke into.” White and his family have called police and every city official. “Nobody wants to even respond,” he said. “The Portland police said, 'Handle it yourself, don’t call us,'” added Virgil Adkins, who parks his tow truck in the storage yard. His truck has been stolen twice, along with $2,000 worth of tools. “That’s what I use for my business, it’s how I make my living.” Meanwhile, Adkins has been watching the camp grow. “It’s gotten bigger. It was only a few campers at first — now it’s a whole neighborhood.”
Seems like Portland (like a lot of cities) needs a new city government and policy force.
THIS IS HORRIBLE: Last year, Bolt Financial, a payments startup, began a new program for its employees. They owned stock options in the company, some worth millions of dollars on paper, but could not touch that money until Bolt sold or went public. So Bolt began providing them with loans — some reaching hundreds of thousands of dollars — against the value of their stock
In May, Bolt laid off 200 workers. That set off a 90-day period for those who had taken out the loans to pay the money back…“No one’s been thinking about what happens when things go down”
One Sunday evening last month, Lucas Holcomb woke his pregnant wife. “Honey, we just lost $100,000,” he told her.
Mr. Holcomb had taken out a home-equity line of credit and deposited the proceeds with cryptocurrency lender Celsius Network LLC, which offered banklike accounts paying far higher rates than traditional lenders. He liked that the company had big-name institutional investors and touted safeguards meant to protect depositors from the crazy price swings common in cryptocurrencies like bitcoin.
But last month, with crypto markets nosediving, Celsius told clients it was freezing all withdrawals. The Holcomb family’s money was trapped.
Some good comments on the HELOC crypto thing here.
One in particular I noticed:
I think there’s a few things here. One, by making interest rates so low, it left any investor chasing returns which is why we see/saw bubbles in every asset category. Secondly, the bubbles being formed led to a FOMO in all of them, either get in now or be priced out forever, so people acted on this fear of never being able to build wealth, and seeing the prices of everything go up rapidly made them fearful of falling behind. This gives the impetus for irrational decisions to be made by otherwise rational people
There you have the last dozen years or so of Fed policy in a nutshell.
HERE’S a scenario. You buy a pre-construction apartment and start paying the mortgage before it’s complete. The developer halts the project, has defaulted on its debt and it looks like the property may never get built. You hear of buyers elsewhere who have stopped making their loan payments; the government has stepped in to ensure the builders have money and is considering giving mortgage borrowers a temporary holiday. What are you going to do? This encapsulates the dilemma for the Chinese government in coming to the aid of buyers in stalled housing projects.
China’s rich are fed up with Covid lockdowns and looking toward the exit. The big question is whether Beijing will let them go. Investment migration consultancy Henley & Partners estimates 10,000 high-net-worth residents are seeking to leave the country this year and take assets worth $48 billion with them — the second-largest predicted wealth and people outflow for a country after Russia.
Good news for west coast home prices I guess. I think California has also had a Covid Exodus.
Horizon Kinetics 2nd Quarter Commentary Steve Bregman. This is a must read.
Good interview with Jim Welsh, who points out - among other things - that the Fed’s idiotic (my word) "average inflation targeting" plan was rolled out at the worst possible time.
“The Celsius Bankruptcy Court has posted letters Celsius users have written to the Judge online. A lot of these are really heartbreaking.”
Euro Real Estate IG Bond Spread Red circles bad
“A full-on coronavirus wave is sweeping across the United States” - Washington Post Editorial Board, July 22, 2022
NY Times: A Taste for Cannibalism?
Turns out, cannibalism has a time and a place…Still to come is “Bones and All,” starring Timothée Chalamet. The movie, about a young love that becomes a lust for human consumption, is expected to be released later this year or early next. Its director, Luca Guadagnino, has called the story “extremely romantic.”…The pilot episode of “Yellowjackets” shows a teenage girl getting trapped, bled out like a deer and served on a platter in a terrifying ritual….“I keep coming back to this idea of, what portion of our revulsion to these things is a fear of the ecstasy of them?”…“I feel like the unthinkable has become the thinkable,” Ms. Lyle said, “and cannibalism is very much squarely in that category of the unthinkable.”…“I had to think about what part of the body would be an interesting place to start,” she said, “and how it would feel to hold someone’s severed hand in yours.”
No, we are not “skipping the bugs".
The goal of our freakish elites seems now to be to try to "normalize" things most sentient people would actually fight against, and I mean physically. And I don’t mean bugs.
They should tread carefully.
"My liveliest interest is not so much in things, as in relations of things. I have spent much time thinking about the alleged pseudo-relations that are called coincidences. What if some of them should not be coincidences?"
Bro… I think the only thing I need to read is your posts.
You're a national treasure Rudy.