No bailouts for Barry Sternlicht.
Capitalism vs corporatist fascism.
This post is for paid subscribers only. The free people don’t even get a preview!
Hopefully you’ll find it amusing. Thanks again to all of you for subscribing. It makes me feel like all these rants are valuable in some small way.
“Part of the culture war is designed to get people who do agree on very basic questions of economic power to not talk to each other.”
Matt Stoller
"If companies can't fail that means somebody else can't start. You're looking at a petrified forest rather than dynamic capitalism."
- Jim Grant
“Capitalism means failure if you screw up. But under Bernanke’s watch, “capitalism” meant giving trillions in taxpayer money to those who screwed up.”
US apartment landlords who benefited from rapid rent growth during the pandemic are suddenly in the red. Higher interest rates and surging expenses are erasing their profits, even as rents are still climbing in many places. Debt payments already exceed income from multifamily buildings financed with more than $47 billion of securitized loans
OK, so how about this - these landlords who levered up too much at all-time cheap (but short-term) rates, who then massively hiked rents, lose their buildings, and the building prices drop, and new, less reckless landlords come in and buy the buildings at much lower prices, and maybe they could make decent returns at lower rents and rents might theoretically actually go down? You know, um, capitalism?
i.e., No bailouts for Barry Sternlicht, new building owners, and potential relief for renters. I am not a Communist.
“Inflation that is driven by wage growth is fabulous…You can pay higher rents…”
Barry Sternlicht
We evaluate the effects of the 2020 student debt moratorium that paused payments for student loan borrowers…borrowers used the new liquidity to increase borrowing on credit cards, mortgages, and auto loans rather than avoid delinquencies.
May 24 WSJ
March 16
Everyone has anxiety about the M2 rate-of-change charts floating around, but what about the rate-of-change of velocity (or, as I like to call it, the Main Street to Wall Street Ratio)?
Think about this for a second, from Chris Demuth:
Oil and gas have all of the necessary attributes of currencies – they’re durable, portable, divisible, uniform, limited, and accepted – and are harder than many alternatives to manipulate. The US president swapped our Strategic Petroleum Reserve for some mid-term election wins, but he can only do that trick once before he has to refill it. And everyone directly or indirectly relies on oil and gas in ways that make confiscation virtually impossible in democracies. So if I had to denominate all of my assets in a single type of asset, it would be oil and gas.
Zerohedge does a good job explaining the Fed’s H.4.1 report:
I’ve mentioned this podcast a couple times already. It’s from the point of view of multifamily General and Limited partners, but there is some good information for anyone trying to figure out where real estate in general is headed.
I realize one of the speakers from the above podcast, Neil Bawa, is talking his RE book, but he still has some interesting insights:
Q: What is one thing that we are not talking about the we absolutely should be?
Bawa: Long-term inflation.
Meanwhile, I’m still waiting for Dave Rosenberg’s deflation to hit: “We are not in a new era of higher inflation.”
I agree with Dave on a number of things, but he seems to think the powers that be will choose austerity.
As Felix Somary wrote, "State bankruptcy is a one-time surgical intervention, while inflation is a permanent poisoning of the very bloodstream of a society."
Sadly I think our current leaders are far too amoral and greedy. I’m more in the Neal Bawa (or Greg Weldon) camp, because history.
Take it away, Greg Weldon:
“Every little hiccup, we’re going to print hundreds of billions of dollars. How quick were they with - all this narrative about fighting inflation - you had a bank in trouble and we got the largest single week of money printing. That speaks volumes to what’s coming next and what the future holds. It’s more money printing, it’s more debasement of the value of your paper money and wealth and income, and it’s higher prices for pretty much everything. And that could even include stocks. The MERVAL in Argentina makes new highs every year, do you think that means a better standard of living for the people of Argentina? No, not necessarily, because they can’t keep pace with the inflation.”
"As Irving Fisher observed, debt deflation starts from a position of over-indebtedness – a point which Bernanke in his writings on the subject conspicuously overlooks. Thus, Hayek concluded that attempts to avoid a good deflation only make ‘bad’ deflation more likely."
(In the same excellent 2022 interview, Chancellor says “They massively overstate the deflation risk.”)
Today I heard a smart guy I like say, “Inflation is a transfer of wealth from asset holders to the poor,” and I was completely dumbfounded. I am absolutely convinced that the reality is the reverse.
History backs me up, as contemporaries in A Very Ordinary Life explain:
Of course all the little people who had small savings were wiped out. But the big factories and banking houses and multi-millionaires didn’t seem to be affected at all. They went right on piling up their millions. Those big holdings were protected somehow from loss. But the mass of the people were completely broke.
And we asked ourselves, “How can that happen? How is it that the government can’t control an inflation which wipes out the life savings of the mass of the people but the big capitalists can come through the whole thing unscathed?”
Please check out that free post for more lessons from history.
A new study reveals that 84% of the $7.8B worth of fixed-rate CMBS office loans that mature this year will face refi challenges. Office values could drop by as much as 25%1.
This will likely be a problem for somebody - hopefully Barry Sternlicht - but our Fed and Congress have over the years made dollar amounts almost meaningless. $7.8 billion is less than two days of Fed QE (they could create $7.8 billion in two seconds if they wanted, or $7.8 quadrillion).
The Fed’s $8.456 Trillion balance sheet - if reduced by $7.8 billion a day - would take about three years to hit zero. $7.8 billion used to be an unimaginably large amount. Now it’s a rounding error.
If you remember, I was talking about British CPI the other day.
Turns out it came in at 8.7% YOY, above expectations of 8.3%.
So how are the British poor faring under 8.7% CPI? Are they killing it? Is there a transfer of wealth from the asset holders to them going on?
I didn’t think so.
As I wrote in July 2021:
People are trying to make inflation a partisan issue - it's not.
If anything, inflation - i.e., the cost of living spiking ever higher - is a class issue.
Those with assets, especially leveraged assets - should do quite well. Everyone else will not.
(I should’ve made that “fixed-rate leveraged assets” - sorry, Barry.)
“According to BofA, the fair value of the S&P 500 is 3,911 by year-end 2023 (bear case, based on the most bearish model.)” So the most bearish model is a 5% drop from here.
Stockpicking reputation?
Cathie Wood is the poster-child for idiotic monetary policy (but she’s richer than me.)
I’ve thought for years that getting people into homes and debt they can’t afford is not helping them, but I am not dictator, yet.
Obama created “a legal category of people who are powerful enough that they don’t have to obey the law and they can get credit from the government whenever they want. Too big to fail banks and a whole series of certain elites. And then everybody else who is subjected to the law, in a brutal way. And that consolidation of power has continued to happen. And I think it’s also a global story. And you see a pretty profound decline of trust. And so trust undergirds I think the ability to work together and make policy.”
- Matt Stoller with Grant Williams
I love predictions like “could drop by as much as 25%.” That’s the floor? I’m reminded of this amusing article from December 17, 2007: A Bullish Call, where a Lehman guy says stocks would fall no more than 15% even in a worst-case scenario! Lehman would cease to exist less than one year later.
To many strategists, stocks now discount an economic slowdown. Ian Scott, Lehman Brothers' London-based global equity strategist, says profits conceivably could fall as much as 45% if the U.S. slips into recession. But the stock market likely would fall no more than 10% to 15% from current levels even in this worst-case scenario.
I love how you poke at those CNBC just fawns over. Keep up the good work!
As core and food inflation is running around 16% here in the UK (which of course is an understatement), in my particular corner of London, there appears to be some noticeable fraying of the social contract with opportunist theft, public aggression, crazy driving and burglaries apparently soaring. The spontaneous outburst of rioting in Cardiff this week may well be a very unpleasant straw in the wind.