Mark to bonus.

'O Lord make me mark properly, but not yet.'

”You know, I grew up in France, so I had a good dose of Marx in my education. The first thing Marx teaches you is that revolutions are typically the result of inflation. Marx was wrong about many things, but he was right in that inflation is a deeply destabilizing force. We are being told today that there is no inflation, but if you take a basket of the 72 most bought items at Walmart, the price of that basket is up 4,8% year on year. So, if you are among the poorest people in America and you buy your Walmart items, your cost has gone up 4,8%, while your wages go nowhere. Should we be surprised that people are angry?”

Louis-Vincent Gave, 2019

French CPI

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Glad that’s over!

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Inflation is the enemy of almost everyone.

Take a good look at this chart.

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With official CPI at 5%, and YOY retail sales up 2.94%, REAL retail sales year-over-year were -2%, no? (It’s confusing how many different “retail sales” numbers I see floating around. I’ll just use this from TradingEconomics. Keeping an eye on the time, not on how the watch works.)

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The Yield Curve and Inflation Might Be Sending a Positive Message. Really.

OK, first off, I am not a seven-time winner of the Loeb Award, “business journalism’s highest honor.”

Then again…

"When you stand at the pinnacle of financial journalism,
you are standing at sea level."

Jim Grant

Unlike previous yield-curve inversions, which were driven by the normal functioning of the financial markets, this time short-term Treasury rates have been skewed higher by the Fed.

Huh? The Fed was hiking into every prior yield-curve inversion.

This chart is of the 10-year Treasury yield minus the 3-month T-Bill yield.

The central bank has kept short rates high—intentionally—by borrowing trillions of dollars from money-market mutual funds ($2.60 trillion according to the most recent Fed statistics) and banks ($3.38 trillion) by paying current rates of 4.8% to money funds and 4.9% to banks. 

Um, well, I could argue (and I will) that the central bank has kept short rates LOW - intentionally - by still having EIGHT POINT SIX TRILLION DOLLARS of bonds on their balance sheet.

Sell those bonds and see where rates go. Heck, they still do this almost every day:

I know why - they want to limit their (weak) QT, but come on. In 2010 Bernanke said they’d be under a trillion by now. Even throwing in inflation and Covid, their balance sheet is grotesquely massive.

Anyway, not that anyone cares, but I don’t get this article at all. I do not think the yield curve or inflation are sending a positive message.

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Q: Interest rates stay above 5% for the next 10 years, what does your business look like?

CRE Guy: The free ride is over…a lot of dumb money entered the game in 2019 and is in the process of being flushed out.

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O Lord make me mark properly, but not yet

“The problem is, therefore, that private-capital investors kinda need private-capital firms to move their marks to nearer public market valuations. But if private-capital firms do that, they will make a lot of those long term IRR numbers they bandy about look a lot less sexy.”

I like the FT comments:

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The founder of a controversial two-person startup called Make Sunsets has begun launching balloons filled with sulfur dioxide high into the sky with the intention of imitating the effects of volcanic eruptions.

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Season 1 was great. I’m one of the few who actually liked Season 2. Season 3 was ok.