Just 42 days until the next Fed Decision!!
"Policy makers are now, essentially - they're writers for Pravda." - Satyajit Das.
“Human beings have an almost infinite capacity for self-delusion.”
- Satyajit Das
Alban: So, Jeffrey - what worries you the most right now?
Gundlach: Expanding wars worries me the most.
For once I missed the Fed announcement and Q&A, which was nice because it’s always pointless and annoying. See what I mean?
Oh, this is actionable!
Just as Bernanke is the “Great Depression Expert” who apparently never studied the 1920’s, Powell seems unfamiliar with anything that occurred before the recent past:
(By this way, to see this today was nauseating. Lloyd Blankfein should be homeless, living on a desert island, eating rats.)
And do we really need Steve Liesman yakking about, "the tension between inflation and what’s happened in the banking system”?
No. There’s never any signal with Steve, just noise.
As it stands, the Fed Funds rate is 4.75% to 5%, official CPI is 6.0%, and the two-year Treasury yields 3.95%. Looks like negative real yields all around.
Hmmm...this David Zervos1 guy looks familiar…
At least today’s 1-minute intraday SPX chart - seen below - was amusing (linear or semi-log, your call.) I had only one of my stocks up today, a gold miner.
“Ok, you have this problem. Do we fix it, or do we cover it up?"
In January, I asked the head of the Federal Reserve, Michelle Smith, if - instead of the usual stenographers in the audience at Fed Chair Q&A's - we could have people like Ed Chancellor, Jeremy Grantham, Jim Grant, Lacy Hunt, William White, Matt Stoller, Steve Keen, Michael Hudson, and Jeff Snider in the audience, asking questions. That’d be far more interesting. [Michelle did not reply]
“What you should avoid in your portfolio is anybody dependent upon third-party financing to keep the lights on…so if you have a business model that’s dependent on Wall Street securitizations, or selling assets - if you’re a real estate guy, or a REIT, or what have you - if you are dependent on that, you’re going to have a problem…”
…This has been an unprecedented time if you have held financial assets or real estate - really, if you have held assets...Be mindful of the fact that we are pretty far over on the bell curve of historical returns over long periods of time…that is not always the case.
2018: The World Will Pay for Not Dealing With Debt - Satyajit Das, 2018
"Magical economic thinking and era of ultra-cheap money is coming to a close."
- Satyajit Das, October 2022
Satyajit Das wrote a great book in 2006 called Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives, that helped prepare me for what was coming. I’ve collected some of his wisdom over the years.
Attention, Students of History:
Satyajit Das’ FCIC interview, 2010: Part 1 & Part 2. (I think these interviews are a potential gold mine for serious researchers, since GFC history was largely written by the villains, or their Renfields.)
Generally, when there is a disaster in the world, there are four people that you always find at the zone of the disaster, looking crippled and deeply injured, and they start with the German landesbanks, the Japanese banks, and usually you find Citigroup and Merrill Lynch somewhere nearby.
Reminds me of an exchange in The Big Short between Danny & Vinny, and Greg Lippman:
Nothing has really changed since the 2008-09 crisis. Low interest rates encourage borrowing. Artificially low capital costs have allowed unsustainable businesses to continue, generating sub-standard returns. Companies seek glib solutions to the complex problem of earning adequate returns by re-engineering their finances, rather than improve their operations.
Governments also are increasingly borrowing and adopting private-sector financial engineering techniques to deal with economic problems. Governments have increased their debt levels, in some cases resorting to forcing purchases of bonds by central banks, domestic banks, and captive institutions such as state pension funds.
And this, from December 28, 2019, is especially relevant today:
“In any future crisis, sovereign debt will be a propagator of risk rather than a refuge.”
In 2006, I was going over lists of local foreclosures, as a weird hobby, and, along with the usual disaster-mills like Countrywide, IndyMac, Downey Savings and WaMu, it struck me as odd that Deutsche Bank(?) was one of the banks sitting on the most local bad loans. In the end it didn’t matter, because Ben, Hank and Neel bailed them out.
As an aside, my last two short sales were Indymac and Downey, around 2007. I made some money, but my problem was I wasn’t bearish enough. After that I decided that I was not going to fight an entity with a printing press and private police force. Now, on rare occasions if I want to hedge against capital gains, I may buy puts.
“Shortly after the phone call from Summers, Greenspan, Rubin, and SEC Chairman Arthur Levitt issued a joint statement condemning Born, and recommending legislation to keep derivatives unregulated.”
Indymac:
IndyMac: IndyMac History and Collapse. The Saga of the Second Largest Bank Failure in History, here in Sunny Southern California (from one of the great housing bubble blogs of the last housing bubble)
With a stunning $32 billion in assets, this is by far one of the largest failure in decades…They also have $19.06 billion in total deposits with approximately $1 billion that does not fall within the $100,000 FDIC insured prevue.
Indymac officially failed on July 11, 2008.
Sometimes I like to say that history does not rhyme, it repeats exactly.
Moyers: Why did they call them liars’ loans
Black: Because they were liars’ loans.
F.D.I.C. Closes Sale of IndyMac
IndyMac, which specialized in loans made with little down payment or proof of assets, was seized by the government in July 2008 after a run on the bank as the U.S. housing market collapsed. A holding company led by Steven Mnuchin, co-chief executive of private equity firm Dune Capital Management, agreed to buy IndyMac and pour $1.3 billion in new capital into the company.
The fact that the inflation genie came out of the bottle in 2021 and 2022 and 2023 is a sea change that I think investors are underestimating. The fact that now there is a consequence to endless money printing and fiscal deficits - we’re seeing it, onshoring and lots of other issues that have moved us away from globalization - then I think that the entire playbook of the last 40 years - truly, if you really want to be macro-bearish - the entire playbook of the last 40 years has to be read in reverse.
Rates will fluctuate, but go higher. Inflation will be hard to contain. Deficits will be increased, labor will become much more powerful relative to capital. If you believe those things, and I do believe those things, then I think you’re looking, as Danny [Moses] says, at an environment where you’re going to have to be nimble on both sides of the market, as opposed to just playing with beta, you’re going to really need to generate alpha, and that’s a skillset that a lot of people have left behind years ago.
Jeff Gundlach: “The Federal Reserve just follows the two-year…It’s the 2-year Treasury that tells the Fed what they’re gonna do.” Maybe just replace the FOMC with the 2-year Treasury.
“Look, they’re taking collateral of, say, Treasuries. They’re taking that collateral, at a par value, let’s say, of a billion dollars, but the mark to market is not at par anymore, because interest rates are up so much. So they’re going to lend out a billion dollars, but the collateral that they’re getting is only worth $800 million. They’ve created $200 million of liquidity…that’s the inflationary aspect. That’s why it’s QE. It’s basically, in real time, money printing.”
QE is “transferring money from the many to the few.
Satyajit Das
Interesting Chart…Looks who’s top of the list. CRE is a problem.
I think everyone should remember what happened back in 2008 and 2009…there was a huge power consolidation afterwards. When the Fed creates the scenario when the system itself is struggling, and on the verge of failure, the Fed and the government can step in and play favorites, and say, "‘OK, well you can die, and you can live, and you can get trillions, and then you can buy everything up.” And that’s exactly what happened after 2008. What happened after 2008? The Fed became much more powerful.
I mean, effectively the Fed can do anything at this point. I don’t think there’s anything the Fed couldn’t do if the crisis was scary enough at this point - they would just be able to do it and Congress would just say ‘Please, please save us’, right?
- Crypto & the SVB Banking Crisis with Whitney Webb, Marty Bent & Michael Krieger
As I wrote two years ago: No one mentions that the bigger the Fed blows up its balance sheet, the more "Too Big To Get Put On A Leash By Congress" they get.
Fed mission-creep this century is beyond belief. They have now 30,000 employees. Start looking at their actions as a massive, unelected power grab.
“Economics and economists have been always been part of the mechanism of social control and power. The rest is just noise.”
- Satyajit Das
"It's all one song." - Neil Young
"Isn't too much debt how we got here in the first place?" - Satyajit Das
David Zervos, chief market strategist at Jefferies, a global investment banking firm.
Damn this is amazing writing and content Rudy. The interview with Das is just incredible.
Had 2 Bulletproof coffees to get through the depths of this read...awed by your prowess in putting it together. Followed it with Jeff Snider then Scott Ritter. Taking my scorched brain to a dark corner to recover. It’s overwhelming the amount of deception at every level. As Rational Walk wrote in his marvelous piece “Enlightenment or Dystopia” there are two distinct groups; those that seek information/truth and the majority of millions that are in the swipe mentality. This crowd will be the lemmings. The rest of us will be dragged over the cliff with them.
Most days I feel like I’m in a forest of clowns and the only one dressed for work....