If you're first out the door, that's not called panicking.
But you always have to hedge that good things might happen.
Federal Reserve staff grading bank stress tests, June 2022:
Almost all of the people we were dealing with, after all, came from the same Wall Street banks. Paulson, Dudley, and Kashkari were Goldman Sachs alumni, as was the man who would later become TARP’s chief investment officer, David Miller. The current chief investment officer, James Lambright, came from Credit Suisse First Boston (via the U.S. Export-Import Bank). Even in the face of the mounting devastation of the crisis, they were apparently unable—or unwilling—to question the inherent goodness of their former employers and the other Wall Street institutions.
…“The banks view you as the TARP special prosecutor. They’re terrified of you. They view their regulators differently. They know them. They trust the regulator who is on site all week with them. You are a lot different than the guy who has a beer with them every Friday night.”
Unbelievable, I thought. [Kashkari] actually seemed to be arguing that the banks’ comfort with their thoroughly captured regulators was a good thing.
- Neel Barofsky, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
We’re at this point in time where we don’t have any road left to kick the can down on our gross mismanagement of our finances and our monetary policy…
We don’t have any money, and we’re giving money to Ukraine to fight a proxy war - all these things are interrelated. It seems like money keeps flowing, debt-based money, to donors of politicians, so if you’re a defense company, and you make weapons that are being blown up in Ukraine, it’s a great situation for you. You’re getting contracts worth tens of billions of dollars, those weapons get blown up, by design, and we just continue to up the ante - but we don’t have any money. We’re running a deficit of 6% of GDP, probably about to go to 10% of GDP. We have to solve these problems.
Citigroup’s Citibank Took the Largest Amount of Loans from the FHLB of NY in 2022, Reminiscent of FHLB Loans Taken by Silvergate, SVB, Signature, and First Republic Bank
With their abysmal history, Citigroup should just go hide in the corner and hope no one notices them.
Marc Cohodes: “I refer to Silvergate and Signature as publicly-traded crime scenes.”
My proprietary Gamestop/First Republic Bank Ratio Chart
Fed Balance Sheet UP $394 Billion in March!
Posted this November 19, 2017:
Credit Suisse fallout threatens to halt issuance of risky bank debt Oh no! Where am I going to get risky bank debt to buy?! Maybe risky banks shouldn’t be issuing debt? Is more debt always the answer? (Obviously I am not a bank regulator.)
Online auto retailer Carvana to attempt restructuring of $9bn debt load Carvana seems like the Old Yeller of stocks.
June 1996 NSA Paper: How To Make A Mint The Cryptography Of Anonymous Electronic Cash
This NSA paper led this author to reach a, I think reasonable, hypothesis:
It’s now becoming increasingly evident that Bitcoin may be a creation of the NSA and was rolled out as a “normalization” experiment to get the public familiar with digital currency. Once this is established, the world’s fiat currencies will be obliterated in an engineered debt collapse (see below for the sequence of events), then replaced with a government approved cryptocurrency with tracking of all transactions and digital wallets by the world’s western governments.
I don’t have answers, just questions. This hypothesis does fit in with my post the other day, Money as a means of social control.
Is anyone else experiencing the CRE job market hit? (typos are as in original post)
Honestly, I don't think anything is safe in PE unless your at a big, well capitalized firm.
Now for TLDR... In my opinion, PE firms, in general, made several significant miscalculations that are going to put a lot of the smaller firms in a bind for quite some time.
First, The era of stupidly cheap money led a lot of them to raise funds that now can't transact. For example, my previous firm promised an 8 pref and a 30% promote on everything over a 15% return. This is an easy calculus when debt is firing off at 4%. However, now that rates are climbing, the closer the debt rates get to 8%, the less benefit these groups can squeeze out of debt funding. The rates the promised though, require debt funding to produce. Without it, they're cash only buyers and the investors in these funds they've raised don't want to be on the hook for the whole nut, especially while values are so inflated. Their only option then is to pull their commitments. This will sink a lot of these small time PE firms.
Second, and this is really more of a personal beef more me, a lot of these PE firms say they're "value-add" when they're really not. When I was hired at my current firm, they kept saying value add. When going through school and interacting with brokers, I was always taught that "value-add" was between approximately 13% and 18% IRR. My group was shooting for 30% and 40% IRRs. This is squarely (in my opinion) opportunistic. Opportunistic funds have to be very patient and have huge bankrolls to capture those types of returns. They're not just sitting out there for everyone to capture. Those guys are the last dogs at the bowl. However, because money was stupidly cheap, they could make those returns so they kept pushing this definition.
Third, a lot of them misjudged the desperation of seller's to let go of their properties. This may be localized to certain asset classes and admittedly my focus is on industrial assets. I've been working in low lot coverage assets my entire career. Think things like truck terminals. As more an more groups piled into this asset class, making calls to the same 30 owners, it gave these owners an inflated opinion of the value of their property. In addition, many of these guys don't have debt on their property. Low lot coverage owners have typically had a very difficult time getting financing because banks LOVE buildings. They truly have no clue how to value these types of assets. So current owners are in a position where they have 0 debt on their properties and aren't in a position where they're forced to sell. PE Firms still have yet to grasp this concept.
Fourth, and I promise, last, is that a lot of PE firms like to jump into "hot" asset classes because they know someone who has done well in that class or because they've been reading various news articles. By the time that happens, it's already too late. Money is made when nobody knows about it, not when everyone and their mother is shouting about how the asset class is the "next big thing". If you're thinking about jumping into the "next big thing" because you read a story or you've seen it on LinkedIn, it's already too late. (Archived link)
Macro Hedge Funds Hit by Financial Turmoil The magnitude of the losses really boils down to the fact that this was a levered trade that abruptly unwound
Blackstone’s $325M Loan on Vegas Office Campus Hits Special Servicing Blackstone provided a hardship letter stating its inability to fund future monthly payments.
"You don’t want to raise in May and cut in January, you look like Mexico for heaven’s sake" - Jim Cramer, December 2006 (stunning interview, by the way)
The Fed raised in December 2018, and cut in July 2019.
So Coinbase got a ‘Wells Notice’ Yesterday For those not familiar, a ‘Wells Notice’ is when you do something Wells Fargo might do.
Short Seller Hindenburg Says Jack Dorsey’s Payments Company Inflates User Numbers
My one and only interaction with Jack:
Whaddya think? Back down to $10? As always, none of this is investment advice.
So the Nasdaq fell 33% last year, but then it bounced 15% or so this year in that bear market rally, and because it was a bear market rally, the leaders, the old leaders, continued to be the leaders again, they went right back to their favorite stocks. And the valuations are extreme, you know, Apple’s two and a half trillion dollars market cap, 26 P/E at this point. If you go back to the 2009 timeframe, that bear market, Apple’s P/E ratio ranged from 10 to 14 for several years, and didn’t get above 20 until 2017. There’s just no precedent for Apple to be selling at 26 times no-growth earnings. Earnings are expected to be down 6% in Q1, and also down in for the year. And they’re in their third year their upgrade cycle, which is not a good time for them to be in…So you can’t justify that, you can’t justify Microsoft’s 30 P/E, that’s another one if you go back into that 2010 timeframe took several years for it to ever get back to a 20 P/E.
Fred Hickey, 2023 Is Going To Be Another Bad Year For Markets
I remember reading Fred Hickey’s and Bill Fleckenstein’s prescient research in the late 1990’s. Two smart, prescient market observers.
Subprime lender Amigo Loans halts all lending as it winds down business Amigo’s demise was precipitated by regulators curtailing its ability to make new loans after they were accused of lending money to people that could not afford to repay.
Reminds me of Elizabeth Warren’s very good FCIC testimony in 2010:
It would be important to think about the increasing economic fragility of middle-class families, starting in the 1970’s: a combination of flat wages for fully-employed men, and rising core expenses in housing, in healthcare, in transportation – put a lot of pressure on middle-class families. Many families responded by sending, if they had two parents in the household, sending both parents into the workforce. That kept family income rising, but it was taking two earners to get them in a position where one earner would have been a few years earlier.
Core expenses continued to rise, families stopped saving, and began to take on more debt, to make ends meet until the end of the month, or deal with emergencies that came up. The consequences of job loss or unexpected medical bills became harder and harder hits on the family...
That’s the position that families are in when they hit the, really the late 1990’s. So, families are taking on more debt. The consumer credit market is largely deregulated starting in about 1980. Credit cards are effectively deregulated – when I say “deregulated”, the usury laws were the “tent pole” of consumer regulation since the Code of Hammurabi in the 15th century B.C. through Biblical times through Colonial times in America, through every state in the union. That tent pole of usury is knocked out, effectively, first for credit cards in 1979 and then explicitly by Congress on mortgages in 1980.
It takes more than a decade for the industry to begin to adapt new business models, but the old model, of screening customers carefully, and only lend to those whom you have a fair amount of confidence will be able to repay, gave way to a far more profitable model of lend widely, and in large amounts, and reap large short-term profits from people who have only a marginal capacity to repay.
UK inflation jumps to 10.4%, surprising analysts I bet your average UK consumer was not surprised.
I’d like to take this opportunity to remind Dave Rosenberg that the official understated CPI has been over the Fed’s made-up 2% target now for TWO YEARS.
The battle over Airbnb has hit a breaking point "People who purchased homes within the last two years paid 30% or 40% more than the previous owner, expecting to have 30% or 40% more revenue, and that's just not happening"
Oof. Back roughly to 2009 levels (but - unlike gold - they pay a dividend!)
Pretty brutal.
Comerica’s about 58% off its high, Zions 62%, Keycorp 56%, and Fifth Third 48%
A Youtube comment on this song: “Heard this for the first time sitting in a in a prison cell 20 years ago. This old man with a life sentence would always hum and sing this song...I will always remember this song. It gave me hope at the lowest point in my life."
"A Wells Notice is when you do something Wells Fargo might do.."
Laughed out loud reading that line. Amazing they are still in business
:(. Jackson forgot to hit record, but I think I’m going to start doing at least one a week and post to YouTube. And then when I get back I’m going to start a weekly RE update on YouTube. Lots going on but about to start really pushing more updates (I keep saying that, but next week I won’t let bank failures or system failures distract me. Haha)