Some fires are best left to burn out
It's better to burn out, 'cause rust never sleeps
“Absence of skin in the game means you can survive being wrong all your life.”
I have un-paywalled my post from earlier this month, David Dredge: The Models Are Wrong, because everyone interested in markets should read/listen it.
Dredge’s interview is a wonderfully excoriating critique of Central Bankers and their faith in models that have “zero empirical evidence” of working.
Please share that post with your friends. I have over 19,000 Substack subscribers (sadly, far, far fewer paid subscribers), so spread the word.
(Unsurprisingly, Dredge is friends with William White, who we have much more of below the fold.)
“I guess they [the Fed] think they're like this progressive entity, if you will, but it sounds like a lot of their policies just hurt the everyday folks they probably think they're serving with their policies.”
When UK asset manager Aberdeen Group renamed itself four years ago as Abrdn, the company said it had created “a highly differentiated brand”.
While the new moniker stood out, it was arguably for the wrong reasons. The fund group, which had been called Standard Life Aberdeen following a merger, was widely ridiculed for removing most of the vowels from its name.
Creating a “modern, agile, digitally enabled” brand was part of the stated rationale at the time, as was the lack of available internet addresses for more obvious choices such as Aberdeen.
But the derision over the rebrand eventually prompted chief executive Jason Windsor to reverse the decision of his predecessor, Stephen Bird, in an attempt to remove “distractions”. Aberdeen declined to comment…
The effort failed because it generated a “cognitive dissonance” that “immediately screams they’re trying to play on a fad and it’s not authentic”…Aberdeen’s attempt to look modern and digital was like an “embarrassing uncle dancing inappropriately at a wedding. The fatal error is when a brand tries to be something that it’s not. Be yourself. Find ways to make that interesting.”
A common challenge for long-established companies is to appear modern and relevant. It is important to develop a brand that “steps confidently into their future while holding hands with their heritage”, Davies says. “Don’t try to become a teenager — you’re hundreds of years old.
Whenever I see a company make a pointless, stupid change like the above, I know that management has no clue what they’re doing and needs to be fired.
At Home blames bankruptcy on tariffs, consumer uncertainty
Their $2 billion debt and the fact that they’re owned by private-equity outfit Hellman & Friedman had nothing to do with it!
Our Cloistered, Unaccountable FOMC
“First of all, there are many voices in the inner sanctum. There's a 19 member committee [serving 14-year terms!] Twelve of those nineteen members are voters. Seven of those voters are inside the beltway members of the Board of Governors, and five of those voters are among the twelve Federal Reserve presidents located throughout the United States. I was from Kansas City, for example, so that's that's the makeup of it.”
“God takes care of children, fools, and the United States."
Looks like we’re likely headed into yet another unnecessary “regime-change” war.
Godspeed everyone.
Swiss central bank cuts interest rates to zero
The cut comes after annual inflation in Switzerland dipped to minus 0.1 per cent in May, the first negative reading in four years. The appreciating Swiss franc — up 10 per cent against the dollar this year — has slashed the cost of imports, dragging down consumer prices. [This is a bad thing?]
Swiss 2-year is negative
As Edward Chancellor said back in 2022:
“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."
“Real retail sales year-over-year is currently at or below the level at the start of 5 of the 12 recessions that have started since 1948.”
Market Stuff
Meanwhile…
Dow Jones Industrial Index 1964-1982
The most important thing to recognize is what we refer to as passive investing, or market-cap weighted index investing, is not at all passive. And in today's world, where the majority of investments—actually more than 100% of the net flow coming into markets—is coming through market-cap weighted index investing, whether those are 401(k)s or institutions that are investing in passive strategies, unfortunately, it explains a lot of the behavior that we're seeing. It leads to an increase in valuations. It has resulted in markets becoming more concentrated because passive strategies allocate incremental dollars to what has gone up last. It also contributes to increases in correlation. It makes it more difficult for new companies to become public because they are not naturally part of the index. That's creating liquidity challenges in areas like private equity and venture capital. It also, unfortunately, contributes to more extreme events.
In particular, if an event occurs that causes passive investors to sell, the size that they have now achieved is such that there are no active managers really that can stand in the way, and so the market can very quickly move to an extreme oversold condition1. We saw this in 2020. We saw this again, actually, at the start of this year, when Western investors—non-US investors in Europe and Asia—in response to the tariffs and the political developments around it, started to bring money home, simultaneously hitting the dollar and affecting index-oriented stocks the most.
“Back near 22x earnings on the SPX.. JPM notes that S&P 500 10yr forward returns are not great up here.”
Small caps haven’t been this out of favor since 1990.
The size and influence of Apple aren’t properly understood, in part because they are so difficult to fathom. How can it be, for instance, that demand from China’s 1.4 billion people indirectly supports, across all industries, between 1 million and 2.6 million jobs in America; whereas, by Tim Cook’s estimate, Apple alone supports 5 million jobs in China—3 million in manufacturing and another 1.8 million in app development? That upside-down contrast boggles the mind: one super-corporation has more of an impact on job creation in China than all of China has on America.
Patrick McGee, Apple in China
Housing
Where Homeownership Is Most and Least Prevalent in the U.S.
The North Port-Bradenton-Sarasota, FL area has the highest homeownership rate at 82.3%, despite a 0.9 point decline from last year. The Rochester, NY metro ranks second with a homeownership rate of 81.9%, up from 75.5% just a year ago.
The New York City metro area has the lowest homeownership rates nationwide, with just 47% of residents owning a home. With At just 47.0% of rate of homeownership, the New York City metro has a typical home value of $685,225. Other notoriously expensive metros also have some of the lowest rates of homeownership rates, including the San Francisco and Los Angeles metros which are tied for the second-lowest homeownership rate at 49.0%.
The homeownership rate surged most year over year in the Charleston, SC metro. The homeownership rate increased from 59.4% in Q1 2024 to 75.4% in Q1 2025, marking both the largest nominal and relative increase studywide. The typical home value by the end of March 2025 sat at $440,237.
Berkshire Hathaway Home Services has a suggestion: “If your home has had few to no showings or offers, it’s likely overpriced to homebuyers.”
NAHB Housing Market Index: Builder Confidence Drops to 2.5-Year Low
Below is Kyle Bass from a 2016 Grant Williams interview. I’d saved this part at the time. I am hearing similar sentiments lately online from people. e.g, Not my neighborhood, my area prices won’t drop, etc. Just food for thought:
Realtor.Com May 2025 Monthly Housing Market Trends Report
The inventory of homes for sale rose 31.5% year-over-year, marking the 19th consecutive month of year-over-year inventory growth. May 2025 inventory hit a new post-pandemic high, but remains about 14% below pre-pandemic levels.
The total number of unsold homes, including those under contract, was up 20.8% compared to last year.
Pending home sales- homes under contract- fell 2.5% compared to last year, as a renewed climb in mortgage rates weighed on buyers.
Newly listed homes increased 7.2% from a year ago.
Homes spent a median of 51 days on the market, six more than a year ago, but about the same level as pre-pandemic norms for May.
The national median list price for homes was $440,000, about flat since last year, while the price per square foot rose 0.6%, consistent with very modest home value growth.
Price cuts were reported on 19.1% of listings – the highest share for any May since at least July 2016 when our tracking began, and the fifth consecutive month with growing price reductions.
New Home Construction Falls to Five-Year Low
New US residential construction declined in May to the slowest pace since the onset of the pandemic as an elevated inventory of homes for sale and high mortgage rates sapped the motivation to build.
AIA: "Architecture firm billings continued to decline in May"
Anything below 50 indicates a decrease in demand for architects' services. This index has indicated contraction for 30 of the last 32 months.
Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.
This index usually leads CRE investment by 9 to 12 months, so this index suggests a slowdown in CRE investment throughout 2025 and into 2026. Multi-family billings have been below 50 for the 34 consecutive months. This suggests we will see continued weakness in multi-family starts.
Regulators warn of hidden vulnerabilities in $12tn commercial property market
“Distress was evident in multiple segments” of the CMBS market “with office and retail segments having the highest rate at 12.6 per cent and 11.2 per cent respectively, as of September 2024,” it said.
Financial leverage among commercial real estate investors seems larger than at other kinds of non-bank entities, the report found, estimating the aggregate debt in the sector globally was 45 per cent of total assets.
It warned there was “a tail” of real estate investment funds and other property funds in the US, Canada, Singapore and Germany that have “large levels of leverage with debt being at least three times equity”.
Banks still have the most exposure to commercial real estate, worth about $8.5tn globally, the report said. It said banks had “complex interlinkages” with non-bank commercial property investors, raising the risk of property shocks “spilling over to the banking system”.
“Even with a slowdown in lending, commercial property debt continues to rise, now approaching $5 trillion.”
I’m not sure at Trepp if this is considered good or bad news:
Q125 saw a $46.8B jump in commercial and multifamily mortgage debt, nudging the total to an all-time high of $4.81T, according to the MBA. Multifamily debt alone now stands at $2.16T, up 0.9% from the previous quarter.
Potential shorts:
“Who holds the debt? Four investor classes dominate the debt landscape:
Commercial banks and thrifts: $1.8T (38% market share)
Agency/GSE portfolios and MBS: $1.07T (22%)
Life insurance companies: $752B (16%)
CMBS/CDO/ABS issuers: $642B (13%)”
For multifamily mortgages specifically, agencies and GSEs lead [i.e., the taxpayers], holding 50% of the outstanding debt. Banks trail at 30%, life insurers hold 11%, state/local governments 4%, and securitized debt 3%.
Interesting: Corporate Headquarters. Nobody likes southern California:
The GOAT: William White
“monetary policy works to stimulate things until it doesn't”
William White: Some fires are best left to burn out (2009): “We need to resist the credit-driven expansions that fuel asset bubbles and unsustainable spending patterns.”
Not a popular view in Washington, D.C.
“When you go back over the course of the last 30 years, what you see is that the monetary easing has been of a magnitude and a speed that is steadily sort of getting bigger, and it's because each time you've done it, you have to lean even more heavily, because of the problems that you yourself created by your previous policy, and the logic of it is, in the end, it won't work at all, and that's not a place that you want to be, but it may be a place towards which we're heading.”
“The capacity of the central banks to pull this iron out of the fire over the course of the last 30 years has totally amazed me. If you said "What's the biggest professional mistake that you've ever made?", it was a repeated mistake of not seeing that they could do it again.”
“Easy money pushes up asset prices. I think this is almost indisputable. That in itself has got a lot of problems, not least of which is it provides more collateral for people to take out more debt. Rich people tend to have more assets than poor people, so it tends to drive a wedge between those with wealth and those without. There's all sorts of things that I could see pointing in the direction of you really should be taking asset prices into consideration when making your monetary policy decisions.”
“What Hayek was worried about was the people who had easy access to the credit would be the people who would get the benefit. In the end it would push up prices to the detriment of other people, but the people who got in first would - as the expression goes - come out like gang busters, you know? They'd do just fine, thank you very much.”
“I'm the central bank, and I'm in charge of stability, and I'm buying gold. There's a there's a fundamental contradiction here. I'm in charge of stability, but I don't think I can deliver stability, so I'm going to buy gold.”
“In the end, if you have worries about fiscal dominance, in a way, issues of independence are are totally meaningless, because the point of the matter is, if
you have a situation that threatens fiscal dominance, tightening monetary
policy is inflationary, not deflationary. That's the thing that's hard to wrap your mind around, that once you get beyond that tipping point, the world actually works in a very different way, and if that is the case, then it will be interesting to watch Japan in this regard.”
“It doesn't take too many years - as we saw in the immediate aftermath of World War I - where the debt overhang just is gradually eaten away, and after five or six years, it's sort of back to business as usual, but obviously at a much higher level of the price.”
“I think the biggest worry about banking regulation has been that it's actually forced a lot of activity outside the banking system. We now have a non-bank shadow banking system which is bigger than the banking system.”
On Canada selling all their gold:2
”The gold didn't belong to the bank. The gold belonged to the government. Ithink I made the reference before to a monkey and an organ grinder. The
central bank of Canada was the organ grinder - the department of finance - and they made a decision - obviously in consultation with private sector financial people - that gold is a non-earning asset, and one whose price had not been going up, and was probably something that didn't belong in the reserve a package of a central bank. The government instructed us to sell it all, and and indeed we did.”
Mike Green Redux
I like Mike. As with anyone, there are things he and I agree on, and things we do not, and that’s ok. Here’s some stuff I agree with:
“Once you've actually gone through a recession, and a relative cleansing, and people more like me - who will probably never get rehired again, right? We've had our working careers. If we lose our jobs, we're not going to retrain ourselves as Python programmers or anything else. We're basically just going to figure out how to reduce our consumption, and make do with what we have at that point, even as we become ‘a consultant,’ or, you know, various other labels for unemployed people at my age.”
“This perception that there's an incredible shortage of housing is simply wrong”
“It's just as bad if not worse for a company to have an overvalued share price, because it causes it to commit to capital spending and actions that it otherwise might not have done, that would have preserved option value, and built a longer term, more stable company. Unfortunately, I think that we are very much seeing that today. I think the agency costs of overvalued securities are causing many corporations to invest in a way that is probably too aggressive long term. I think there's a lot of similarities to the Dotcom cycle, where it became totally accepted that there was unlimited demand for bandwidth, and bandwidth would remain richly priced. Instead bandwidth collapsed 99.99% in price. I think something similar is likely to happen to A.I. As A.I. goes further and further down the development path, we're going to find that low-cost A.I. is probably more than adequate to solve many of the problems of converting services into products. Therefore, the demand ends up being far less than we think it is.”
“If you look at things like leading economic indicators, the only real positive contribution has come from the stock market. This is one of my fears, that the dynamics that I talk around passive investing and how that inflates valuations are being increasingly used by policy makers and by those who are declaring a recession, and they're ignoring a lot of the evidence that would suggest we're
already in a very weak environment.”
“We're heavily dependent on the stock market, right? If the stock market is inflated by passive investments, that means as the valuations are rising, we feel better and better and better about our retirement. We need to save less. We're able to spend more. If I'm correct in my analysis of the impact of passive, once that begins to reverse itself, and it manifests itself as falling valuations, then that entire security blanket goes away and we actually return to a much more volatile environment.”
“The largest stocks - those that are basically above a billion dollars in market cap…the multiplier effect from a dollar going into these is now hitting almost a hundred X. So a dollar going into Apple, or into Nvidia, causes the market capitalization to rise - by my estimate - about $90 at this point. A little bit more than that…”
Wow.
“The multiplier of a dollar going into a passive investment - my estimate is now it's north of somewhere around $17 to $20…we're moving towards an eventual point where passive selling will occur, and when that occurs, it starts to get pretty ugly pretty fast, at least in my models.”
Jeff Currie
…going back to the Russian invasion of Ukraine, when the US seized the Russian Central Bank assets, [it] became very clear to everyone that those US Treasuries and those US denominated assets were no longer sacred. And if you were an EM central bank at that point in time, you started moving out of US Treasuries, out of US dollars and into gold. And that's essentially what environment we've been in since 2022. And the fact of the matter is, I don't see where the end in gold is in terms of the upside. It doesn't have a natural price elasticity demand, yeah, that exists in the jewelry market. But for monetary ownership of gold, there is not that price elasticity, and we're seeing that dynamic play out.
“So the long and the short of it is the Canadian economy is in a disastrous state, and it's only going to get worse probably in the coming months.”
James Connor, Bloor Street Capital
It’s a big club
On Friday night, tech billionaires and cabinet secretaries celebrated the opening of Washington, DC’s “The Executive Branch” — the members-only club co-founded by Donald Trump Jr. and 1789 Capital partner Omeed Malik
Trump Jr. and Malik hosted the party for founding members who paid a $500,000 initiation fee, with their co-founders: 1789 partner Christopher Buskirk and Alex and Zach Witkoff, the sons of Middle East Special Envoy Steve Witkoff.
While the president was not in attendance, Witkoff was, along with Nvidia CEO Jensen Huang, PayPal mafia member Keith Rabois, crypto billionaires Tyler and Cameron Winklevoss, New York Jets owner Woody Johnson and Dr. Oz.
From the Trump administration, crypto and AI czar David Sacks, Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent were spotted, as well as Attorney General Pam Bondi, Secretary of Health and Human Services Robert F. Kennedy Jr. and Department of Homeland Security Secretary Kristi Noem…Caviar, champagne and lobster were plentiful Friday, with one attendee describing it as a “Gilded Age” experience.
How Jeffrey Epstein Tried to Tap Into Trump’s Circle
Probably nothing.
During the 2016 presidential campaign, Jeffrey Epstein began setting up meetings with people close to Donald Trump. He introduced some of them to another of his associates, a top Russian diplomat.
Although Trump was a sizable underdog to Hillary Clinton, Epstein began saying in 2016 that he thought Trump could win, and the convicted sex offender bragged about how many people in Trump’s orbit he knew, according to people he met with at the time.
Epstein scheduled lunches with venture capitalist Peter Thiel and real-estate investor Thomas Barrack in 2016, according to documents reviewed by The Wall Street Journal. At the time, both were high-profile financial backers of Trump’s campaign…
For years, several Epstein acquaintances had emailed Thiel suggesting that he meet Epstein, documents show. In March 2014, fellow billionaire and venture capitalist Reid Hoffman, a major donor to Democrats, emailed Thiel to introduce Epstein and arrange a meeting at Thiel’s San Francisco home.
“Meet one of the guys who invented derivatives, Jeffrey Epstein?” Hoffman wrote…
Epstein met with and donated to Democrats more often than Republicans, according to the documents and campaign donation records. The Journal has reported that his schedules included meeting several people who had served in the Clinton and Obama administrations. In his townhouse, Epstein hung a painting that depicted Bill Clinton wearing a blue dress and red heels…
After his conviction, Epstein maintained connections with some former members of Bill Clinton’s cabinet, including Lawrence Summers, who served as Treasury secretary, and Bill Richardson, who served as energy secretary. He also met with Clinton alumni leaving the Obama administration, including Ruemmler and the current head of the Central Intelligence Agency, William Burns.
Whitney Webb explains:
Epstein "was kept around by elite figures because he was very good at helping them evade taxes, and was very good at money laundering, and had a very intimate knowledge of the offshore banking system, where a lot of these families historically hide their money..."
“People in this small part of Montana knew that because of my job, I had investigated more livestock deaths than most, and a small part of those investigations involved mutilations. All I could ever say was that I didn’t know what had caused them, but that they definitely weren’t the work of predators or cults.”
Speaking at the library, he said, when he first started in 1992, he’d get a rash of 10 to 12 mutilation deaths a summer. Then there’d be a hiatus, and then another wave. “I just couldn’t explain it,” he said, adding that mutilations occurred in locked pastures and in tall grass where there were never vehicle tracks. Scavengers wouldn’t touch the carcasses and skin and organs were removed with surgical precision. He saw mutilated cattle, bison, sheep and horses. “It’s just a pretty strange deal,” he said.
- Mike Hoggan, government trapper for 42 years
“The only thing new in the world is the history you don't know. And that's true because human nature doesn't change. I sometimes wish it did, but I'm afraid it just isn't possible. At least that's what I've learned from studying history.”
Beanie Baby Price Projection, 1998
I just checked and you can get one for $5 on ebay.
Tucker Carlson on Bill Barr and Jeff Epstein, January 2023
“YOU DON’T WANT TO LIVE IN A COUNTRY WHERE IT’S POSSIBLE TO MURDER PEOPLE IN FEDERAL LOCK UP, COVER UP THE KILLINGS, AND GET AWAY WITH IT.
THAT’S SCARY.”
I think this is a good thing for nimble, un-levered investors who have the patience to take advantage of these periodic plunges.
“Over a three-month period from December 2015 to February 2016, the [Canadian] government sold off a total of 95,817 ounces of gold at an average price of US$1,274.70 per ounce.”
From the comments: ”That last 95,000 oz was pocket change (literally, just coin, odd stuff, and scrap). There was 2.3 Million oz in the ’80s (about $US6 Billion at today’s prices) and it got flogged off and traded for paper under both Conservative and Liberal governments. The major selloff was between ’87 and ’95, some 525 tons, or 1.6 Million oz at an average of about $US400 or so.”
Oh crap! Are you saying that I have to mark by daughter's Beanie Baby collection to market!??? If so, my balance sheet is screwed! I'll reclassify them as CRE and value them as I see fit.
Great work - one of my favourite reads. Always thought-provoking.