"It was the zero-percent era that made a 5%-plus rate dangerous"
"Hope is a wonderful thing to be addicted to."
The 5% quote in the title is from GrantsPub.
A related quote from a WSJ subscriber:
All the uproar about "high" rates is only because interest rates have been abnormally low (even dangerously low) since the recession of 2008. They should have been raised to "normal" levels starting around 2012 but, since they weren't, the government was encouraged to spend and borrow enormous amounts. Now, we're all going to have to pay.
The Hope quote in the title is from Norm Macdonald.
I think a lot of people got addicted to ZIRP and QE.
America’s Construction Boom: 1 Million Units Built in 3 Years, Another Million to Be Added Until 2025
Let’s hope for tenants’ sake that the cure for high prices is high prices.
Then again…
(As an aside, follow people like Melody Wright and Amy Nixon, who talk about this sort of thing and are doing more ground up along with top down real estate research.)
For the first time in decades, U.S. apartment rents are rapidly flattening (and could soon go negative) at the same time demand remains healthy and the economy continues to produce jobs. Why? Apartment construction is at 40+ year highs – shifting the balance of power to renters.
“Behind all the complexities of modern political economy lies the simple fact that human beings are, speaking generally, of two persuasions: the first would spend tomorrow what they earn today; the second would spend today what they hope to earn tomorrow. From this rudimentary biological fact arise all conflicts that lead to economic crises: to panics, depressions, violent and revolutionary transfers of wealth, and perhaps most wars.”
Freeman Tilden, A World In Debt (1935)
Japan has finally beaten stable prices!
The dollar has been rising against the yen lately, but…
Looniest Central Bank around, and that’s saying something. STILL negative.
"If the invention of interest was the greatest invention in finance back five millennia ago, then negative rates are probably the dumbest idea in the entire history of finance and we’ve just been living through it."
Edward Chancellor with Grant Williams
German short-rates were below 0% for 8 years.
"Negative interest rates was the dumbest idea in the history of economics."
Since 2001, Cisco’s top management has chosen to allocate corporate cash to open-market share repurchases—aka stock buybacks—for the purpose of giving manipulative boosts to the company’s stock price rather than make the investments in organizational learning required to become a world leader in communication-infrastructure equipment for the era of 5G and IoT.
From October 2001 through October 2022, Cisco spent $152.3 billion—95 percent of its net income over the period—on stock buybacks for the purpose of propping up its stock price.
These funds wasted in pursuit of “maximizing shareholder value” were on top of the $55.5 billion that Cisco paid out to shareholders in dividends, representing an additional 35 percent of net income. Besides absorbing all its profits over the 21 years, Cisco took on debt and dipped into the corporate treasury to fund these two types of distributions to shareholders.
“How do you lose 47% on 30-year Treasuries? Buy at auction in Aug 2020. Or you can carry them at purchase price and hide the “unrealized loss” in the footnotes.”
Bank yields on savings are still pathetic:
Milton Berg: The Stock Market Is In Trouble This is one podcast you might want to slow down instead of speed up. Berg is an old-school technician who throws out a lot of data. One important point he made is that REAL rates (even if you believe the CPI) only recently went positive, which may help explain why the inverted yield curve seemingly hasn’t hit hard yet.
Below is the very inverted yield curve. Recessions seem to start after the inversion peaks.
Below is the Fed Funds Rate minus the CPI (the “Real” - i.e., inflation-adjusted - rate).
Real rates were mostly negative since Great Depression II (“the GFC”).
That was the big mistake (note the quote from Grant’s in the title.)
I mentioned in an earlier post that Brookfield had requested 50%-75% reductions in several office building assessments in San Francisco.
Sorry this article doesn’t have more details than it does (what’s an “inundation score,” but for what it’s worth:
Top 15 US Cities by Tax Appeals
Factors influencing the uptick in tax appeals include:
Economic Dynamics: Rapid economic shifts, be it growth spurts or downturns, can cause property value fluctuations, leading to increased appeals.
Property Assessment Techniques: Outdated or inconsistent valuation methodologies can yield disparities, urging owners to contest.
Legislative Adjustments: Amendments or new introductions in tax legislation can sow confusion, culminating in elevated appeal numbers. Instances from San Francisco and Cook County clearly exhibit the influence of market dynamics and legislation changes.
In August 2023, $418.9 million across fourteen loans were resolved with $218.2 million in losses total, carrying an average loss severity of 52.1%. This was a large increase in loan loss volume from July, where losses totaled $112.0 million.
Corporate credit quality is slowly and steadily eroding under the pressure of higher interest rates. EBITDA/Interest expense declined from ~5.0x to ~4.0x over the last year (it hit a low of ~3.0x during the pandemic in June 2021) (Source: Torsten Slok, Apollo Chief Economist). Since EBITDA is often grossly inflated by bogus non-cash adjustments, interest coverages are likely much weaker than these numbers indicate.
Leveraged borrowers refinancing today are paying significantly higher borrowing costs than during the last cycle which is one reason why leveraged buyout activity has slowed to a crawl (which is a good thing for the economy and the world in general). Private equity is in a decided down cycle (though you wouldn’t know that from the performance of the stocks but if these firms every honestly mark their portfolios to market perhaps this will change).
“Americans are defaulting on their credit cards and auto loans at levels not seen since the financial crisis” - NY Post
“I think the poors are poorer and the lower middle class are getting ****** by the grocery store...but most people are Gucci(thats my financial overview).”
Caveat Emptor
I have no position either way. Clearly Grizzly has a bearish view. As always, nothing here is investment advice, I just wonder how common this sort of thing is, if true.
$127 billion market cap. That used to be a lot of money.
I don’t even know what to make of articles like this. Death cross “looms”?
As for $120 billion, that’s ONE MONTH of recent QE (i.e., debt monetization). Come on, man.
And now for something completely different:
New York Times, December 14, 1944.
Apparently John Winthrop, a lawyer and Governor of the Massachusetts Bay Colony for 12 of the colony's first 20 years, was the first to record UFO sightings in the Americas.
In this year one James Everell1, a sober, discreet man, and two others, saw a great light in the night at Muddy River. When it stood still, it flamed up, and was about three yards square; when it ran, it was contracted into the figure of a swine : it ran as swift as an arrow towards Charlton, and so up and down about two or three hours. They were come down in their lighter about a mile, and, when it was over, they found themselves carried quite back against the tide to the place they came from. Divers other credible persons saw the same light, after, about the same place2.
James Withrop, The history of New England from 1630 to 1649 (Footnotes by James Savage)
“He was a man of reputation, activity and good estate in Boston many years afterwards. With his wife, Elizabeth, he had been received into Boston church 20 of July, 1634, being Nos. 239, 210.”
“This account of an ignis fatuus may easily be believed on testimony less respectable than that which was adduced. Some operation of the devil, or other power beyond the customary agents of nature, was probably imagined by the relaters and hearers of that age, and the wonder of being carried a mile against the tide became important corroboration of the imagination. Perhaps they were wafted, during the two or three hours' astonishment, for so moderate a distance, by the wind ; but, if this suggestion be rejected, we might suppose, that the eddy, flowing always, in our rivers, contrary to the tide in the channel, rather than the meteor, carried their lighter back.”
Some lighters are more equal than others. Some are heavier. ~ George Orwell probably
Norm was a Great White in a kiddie pool on SNL, even in those days.