The dumbest idea in the entire history of finance is back!
Learning to code
If Bin Laden had just stayed hidden in Pakistan for another 14 years, he might today be meeting the President, wearing a suit.
“What Federal Reserve independence has meant is a lack of accountability…Federal Reserve independence has meant the Federal Reserve gets to tell you how it's doing, which is the exact wrong thing and that's why we're stuck in this mess…"
"They're extremely intelligent people. If you need...a very elegant statistical equation, they can be able to do that for you in a moment's notice. It'll be awesome....You need them to tell you something about how the real economy works, they won't have a damn clue."
The CPI has now been above the Fed’s made-up “2% target” for 49 months in a row.
For future reference, Paul Musson does a nice summary here of Kevin Warsh's outstanding recent critique of the Federal Reserve which I discussed in “The financialization of everything”.
"Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability.”
Meanwhile…
Waller Signals Firing Fed Officials Would Be Bad for US Economy
Waller wants continued unaccountability.
It’s annoying to see every clown on CNBC (e.g., Scott Wapner) act as if we had no inflation until tariffs showed up.
“You would have supposed that all these upheavals in the banking world were so many thunderbolts which had fallen from the heavens above. And each day they gave more of their space to insisting that the previous day's misfortunes were the last — that by no chance could there be any more thunderbolts to fall.”
Upton Sinclair, The Moneychangers
“The salvation of the world depends on the men who will not take evil good-humoredly, and whose laughter destroys the fool instead of encouraging him.”
George Bernard Shaw, The Quintessence of Ibsenism
I’ve got such a backlog again, and don’t want to overwhelm you (as much as I could,) so here we go below…
Stop being poor(!), the usual stock market insanity, Sir James Goldsmith, Luke Gromen, Melody and Travis, Horizon Kinetics, bankruptcy, private credit, negative rates, San Diego, Alan Greenspan, Ayn Rand, Nashville, and other things.
fyi I did a fun podcast with Tim Price and Paul Rodriguez last week, so check that out if you’re bored. Godspeed.
Stop Being Poor!
Fed policy is too restrictive(?)
Check out this short clip:
Steve Sosnick, Chief Strategist, Interactive Brokers
"I am entirely for free enterprise. I am for free markets, but I'm not for the destruction of one's society."
Charlie Rose: Sir James Goldsmith Interview, November 1994
It “is a huge buying power that they have in China. In the new millennium it will be the world's fastest growing economy, and it'll be a market, and those people will be buying products from the industrialized world.
Goldsmith: “That's wonderful. Let's benefit from that, and we can work together, but how do you benefit from that without destroying ourselves? You go, and you create a corporation in China, and you build a factory in China, and what do you want to. Sell mugs? Sell mugs in China, and you conquer part of the Chinese market by competing there fair and square in China. That's life. That's adding to the activity of China -you're a corporate citizen over there, you're working over there.
But if you move a factory from the states, and take that to China - not so as to conquer the Chinese market, but so as to reimport the goods into the states, so as to get cheap labor - what are you doing is you are saying to your employees here you're too expensive, folks. You want money? You want protection? You want unions? You want holidays? Forget it. We can employ 47 people over there, who want nothing.
So don't confuse two issues. One is going out to participate in their growing economies by building there and conquering part of their market. The other is merely killing off employment in your own country, getting rid of your own labor force, transferring it over there and importing it back, purely so as to increase your profit margins.”
“When you take the raw materials, and you manufacture a product, the value you add is known as value added, and that is shared between capital and labor, and the whole division - the sharing - of that has being the subject of massive debates for generations. How much should go to Capital? How much should go to labor? You had strikes, you've had lockouts, you've had political debates.
All of a sudden, by creating a global marketplace for labor - but creating circumstances where people are making the same product with the same technology and the same capital - and the only variant is cost of labor, you are shattering that -shattering the way you share the value added, and that means that you are destroying the basis on which we've been able to create an equilibrium and have a stable society.”
“The economy is there to serve the fundamental needs of society. Which are prosperity, stability, and contentment. That's the basis of my thinking, and what I'm saying at this stage is that if - purely for an economic doctrine - you have a situation whereby the economy grows, but you create poverty, unemployment, and you destabilize the society, you're in trouble.”
“There's a divorce between the interests of major corporations and of society.”
“China’s total non-financial debt to GDP ratio to 192% of GDP. America’s about 150%. We go back 15 years, China was half the level of America. So we’re really not see anything like this for any major economy in human history, debt to GDP to go up that quickly.”
“There's some level of balance that has been lost.”
“It doesn't make me feel real happy to have all-time record high corporate profit margins, and all-time record high stock prices when we can't even take care of the the people in California with the fires, people in East Palestine. There's some level of balance that has been lost.”
Replace "Phoenix" in this Mike Farris clip below with the name of any major American city and it's also true:
“Now Washington and Wall Street are finally going "Oh, wait a second, this might be a problem. Look, they're out competing our blue-chip companies, uh, what do we do now? China bad."
Well it's one of these things where it's really hard politically to get people in flyover country all worked up about China. Where were you 15 years ago when we were telling you China bad? You were telling us to learn to code.”
Gromen
“The wealth inequality gap in our country is reaching a level that is absolutely unsustainable.” - Melody Wright
Another sobering video from Melody Wright and Travis:
Someone on Monday said, “Check out the VIX. It’s below 19!!”
Disclaimer: To be clear, nothing I have ever posted is investment advice, and if you listen to anything I say, you will could lose all your money and be sad.
Intelligent Inactivity
Horizon Kinetics 1st Quarter 2025 Commentary I like the way these guys think about inflation, and their patience. I own shares in their INFL ETF and have a decent-size position in TPL, which they turned me onto years ago.
“For many years, the great river of investment funds flowed in a certain direction, but not one we liked, so we waited. We were able to wait in companies with particular business models that afforded excellent financial compounding characteristics even in the absence of favorable conditions. Lately, the river is flowing back in our direction. Intelligent inactivity is a strategic practice we wrote about early on, and is something we try to do as often as possible…”
“The additional electric power needed for the data center buildout is startlingly large.
Among the primary commodity inputs without which there won’t be electric power, are these two of the three that were reviewed in the 4th Quarter Commentary.”
Natural gas. Not only will it be the fuel of choice, it already is. U.S. electricity generation in 2023 is no higher than in 2005, but natural gas usage for power generation more than doubled, while coal’s use declined two-thirds.
Water. There is no other choice. That’s for steam to move the turbines in thermal power plants (gas, coal and nuclear), and for cooling the data centers and the power plants.
Followed by steel (which is 98% iron), copper, and other hard commodities.
One thing here that pops into my head is what major nation (or Europe) could compete with the United States on all three of these things, except for Russia? Assuming the government wanted it to happen? (#3 would be the most problematic I think for the U.S., but we have a printing press and ingenuity.)
“A lesson for anyone wishing to hedge against or profit from inflation—they’re really the same thing—is to concentrate on assets and commodities for which there is no immediately available substitute, most especially in a period of increasing demand. That is a circumstance tailored for localized inflation…”
“As ETF promoters seek ways to provide exposure to the data-center-growth phenomenon, their attention will at some point turn to the enabling commodities, and to companies that are associated with those commodities. If asset allocators’ attention translates, even if only to the marginal degree of a single percentage point of portfolio allocation, applied to this rough estimate of indexed equities of somewhere between $14 trillion and $26 trillion, that would be $140 billion to $260 billion of buying interest.
Moreover, for this scenario, there’s no need to restrict the potential interest to indexed equity assets—actively managed portfolios should ultimately have a keen interest in this theme as well. In any case, there simply is not enough market capitalization of this relative handful of companies to go around. Those equities would, in that sense, be overwhelmed, which would be expressed in their share prices. Being pre-positioned in such companies could be very much like participating in a cornered market, albeit of indexation’s making.”
If you’re interested in HK’s way of thinking, check out this interview last month with one of their managers, James Davolos.
“From over levered to fresh start in under 3 month.”
While the thread below is about private credit mark-to-memory, I think we need more of this bankruptcy stuff.
I last mentioned Zips Car Wash a couple months ago in A false perception of safety.
Full thread starts here.
“Evercore's midpoint EV of $515M suggests ~78 cents recovery...on paper But even in DECEMBER, after bankruptcy was inevitable, some lenders still valued their loan at 93 cents. Other lenders finally dropped to 86-89 cents.”
Not Apollo’s First Rodeo!
Creditors offer US chipmaker $600mn refinancing to avert bankruptcy
Wolfspeed currently shoulders $6.5bn in total debt including a $1.5bn senior secured loan held by a group led by Apollo Global Management. The senior lender group controls the ability for Wolfspeed to sell any additional secured debt. The convertible bond holders, which include Balyasny Asset Management and Shaolin Capital Management, are concerned the company may choose the bankruptcy option too quickly when it holds a large cash buffer. A bankruptcy could give Apollo and its co-investors an advantage in a court-supervised recapitalisation that could leave heavy losses for the junior creditors.
I’ll just go to the FT comments:
Small Private Credit Loans Weakening Fastest, Moody’s Says
“Loans taken out by smaller companies weakened at a faster rate between 2023 and 2024 than those by bigger companies, yet overall credit quality remains stronger than before the pandemic, according to Moody’s Ratings.”
Bringing back the ‘dumbest idea in the entire history of finance’
“Negative nominal bond yields are creeping back into the fore following a brief reprieve, reaching $23 billion in outstanding obligations last week, marking a 15-month high. The global stack of upside-down paper famously topped $18 trillion in late 2020 before melting away during the subsequent inflation conflagration.”
- Grant’s
"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, 2022
“A well-worn playbook governs such currency suppression efforts: the SNB purchases euros then diversifies into dollars and other currencies, buying, among other things, U.S. stocks. The stateside equity portfolio stood at $141.6 billion across 2,397 firms as of March 31 per the freshly released form 13-F.”
“The SNB creates Swiss francs out of thin Alpine air...they go and call their broker and go on a tour of the US stock exchange. They get involved in important companies from the S&P which create real profits, and they do that with money which has been created out of nothing”
Jim Grant (2017)
I saw on Reddit a comment that San Diego home prices fell “only slightly” after the housing bubble before this housing bubble, so I checked.
The San Diego Case-Shiller index peaked in March 2006, and fell 42.2% by May 2009.
Since then the San Diego index has tripled.
House prices are far too high.
Eisman, of The Big Short fame, has a fairly new podcast. I’ve listened to a few and they’re all pretty good - Eisman is more insightful than most.
This one with Zelman should interest anyone into housing. I still prefer Melody Wright’s boots-on-the-ground reporting, but Zelman’s track record is good.
Office Market Decline Reshapes Downtown Nashville Real Estate
The once-booming downtown Nashville office market is facing a sharp correction, reports The Real Deal. Fourteen of the city’s largest non-government towers, built before 2020, were reappraised at significantly lower values this year, slashing nearly $400M from the city’s commercial property tax base…Downtown Nashville’s office vacancy rate rose to 24.4% in Q1 2025, well above the national average of 20.8%..
The collapsing values are taking a toll on Metro Nashville’s budget outlook. A projected $100M drop in annual property tax revenue from just the 14 hardest-hit towers has spurred action. Mayor O’Connell has proposed raising the tax rate to $2.22 per $100 of assessed value — a 27% hike over the current post-reappraisal rate. Even with the increase, revenue from these properties would still fall more than 36% compared to 2021 levels…
While office valuations tumbled, Davidson County’s overall property values rose, thanks to surging residential demand. The median single-family home price jumped 43% from March 2020 to March 2025, helping lift the county’s median property assessment by 45%.
Flotsam and Jetsam
Eric Trump’s American Bitcoin going public in latest crypto move by president’s family
Taibbi, 2020: How the COVID-19 Bailout Gave Wall Street a No-Lose Casino
Trump Twitter Archive A satirist could make a career just going through these.
The Undertaker
“Much has been written about [Alan] Greenspan’s early years as a disciple of Ayn Rand, the best-selling novelist and champion of freewheeling individualism, but the true story of what actually took place in Rand’s inner circle rivals some of the more fanciful chapters in Rand’s colorful fiction. The young Greenspan was so somber in appearance and manner that Rand gave him the nickname “The Undertaker” when he joined her Saturday night soirées in the early 1950s. His philosophical underpinnings were so muddled that he often maintained he couldn’t be absolutely certain that he existed.
“Alan’s psycho-epistemology is completely warped,” Rand often complained to her chief apostle and lover, Nathaniel Branden. “How can I discuss philosophy with a man who doesn’t know whether or not he exists?”
Jerome Tuccille, Alan Shrugged
Ayn “Rand was troubled that Alan [Greenspan] could find common ground with Eisenhower’s chief economic adviser at the same time that he claimed to be in fundamental agreement with Objectivism. After his first year or so of faithfully attending Rand’s Saturday night soirées, Alan’s attendance became increasingly sporadic. There were social obligations outside of the Collective that put demands on his time, including affairs in Washington that he attended at [Arthur] Burns’s invitation.
Rand began to wonder whether “Alan might basically be a social climber.” She worried about an opportunistic side to his nature that was only just emerging. Yet Alan always returned after an absence of a week or two, and Rand was always happy to welcome him back into the fold. Only Alan could take such liberties, such philosophical leaves of absence, and get away with it.
Rand allowed him an independence that was denied to the rest of her followers. Many of the others resented his special treatment, but they stood in awe of him as well. In the small Randian cocoon that proscribed the universe in which they lived, Alan was their only link to the real world outside Ayn Rand’s living room—outside their own imaginations.”
Jerome Tuccille, Alan Shrugged
I don’t think many realize this about Ayn Rand:
“Ayn Rand did not believe that concern for the wellbeing of others should limit personal liberty. With her striking short black hair, cold piercing gaze and ever-present cigarettes, she quickly attracted a dedicated following. Her individualist philosophy, which she named Objectivism, promoted what she called ‘the virtue of selfishness’. Like [Aleister] Crowley, she viewed her mission as the establishment of a new, post-Christian morality. She made this clear in a 1959 CBS television interview with Mike Wallace, who put it to her that ‘You are out to destroy almost every edifice of the contemporary American way of life, our Judeo-Christian religion, our modified government-regulated capitalism, our rule by majority will. Other reviews have said you scorn churches and the concept of God. Are these accurate criticisms?’ Rand’s response was ‘Yes. I am the creator of a new code of morality.’
Crowley, who was by then retired and living in a boarding house in Hastings, Sussex, was a fan. As he wrote in a 1947 letter, a few months before his death, ‘[Rand’s novel] The Fountainhead is one of the finest books I have ever read, and my friends in America insist on recognising me in the main character.’ In turn, Rand’s philosophy would inspire Anton LaVey, the founder of the Church of Satan. LaVey was the author of The Satanic Bible, the most influential text in contemporary Satanism, which has sold over a million copies. LaVey’s Satanism was more goat-based than Objectivism, but he readily admitted that his religion was just ‘Ayn Rand, with trappings’.
As well as Satanists, Rand also has admirers in the right-wing American Christian and business communities. Ronald Reagan was an admirer. Alan Greenspan, who would spend nineteen years as Chairman of the Federal Reserve, was a member of her inner circle. The Republican Congressman Paul Ryan1 said in 2005 that ‘I grew up reading Ayn Rand and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are. It’s inspired me so much that it’s required reading in my office for all my interns and my staff. We start with [her longest and last novel] Atlas Shrugged.’
This overlap between Rand’s admirers and Christian America can be hard to understand, but its roots may lie in the difference between American and European Christianity. During the twentieth century, church attendance declined dramatically across Europe, both in the Protestant north and the Catholic south. Going to church went from being the regular practice of the majority of the population to an unusual, niche interest for a small and ageing minority. European Christianity had always been the spiritual mirror of the restricting, hierarchical imperial system, so its twentieth-century decline at the epicentre of imperialism’s collapse isn’t surprising.
American Christianity was different. It had evolved in a culture of largely European immigrants who possessed both the proactive spirit which caused them to journey to the other side of the world in search of a better life, and also a dislike of the constricting, controlling power structures of post-industrial revolution Europe. American Christianity had, by necessity, evolved into a faith that was more understanding about the desire for individual freedom. While the idea that a Christian could approve of Ayn Rand appears baffling in Europe, and remains suspicious to the majority of American Christians, there nevertheless exists a section of the American Christian community which can move from the Bible to Atlas Shrugged without a problem. Yet ‘the virtue of selfishness’ is clearly a different philosophy to ‘Love thy neighbour as thyself’.”
John Higgs, Stranger Than We Can Imagine
“I'm challenging the moral code of altruism. The precept that man's moral duty is to live for others. That man must sacrifice himself to others.”
Ayn Rand, 1959 Mike Wallace interview
(Note: To be clear - I do not endorse Ayn Rand or Aleister Crowley or Alan Greenspan. I read Rand’s work as a teenager, but then I grew up.)
Reader Jim offered this excellent advice (and this applies to everything):
“Read and judge Ayn Rand's work independently. Read her novels, her essays, her philosophy. Judge for yourself. Do not accept the judgment of others.”
“Don’t confuse Bad Brains with a bull market.”
- Humphrey Neill Howe
Note that Paul Ryan is now a private-equity partner.
To anyone tempted to judge Ayn Rand and her writings by the commentary of second-hand sources like Rudy Havenstein or James Tucille, I will repeat the same advice I have always offered: Read and judge Ayn Rand's work independently. Read her novels, her essays, her philosophy. Judge for yourself. Do not accept the judgment of others.
Jim Grant’s comment about the SNB is only half true: the Swiss have gold as collateral, so they’re really buying US stocks with a gold-backed currency. At the end of the day, productive people who accumulate wealth (incl. China) can buy shit with that wealth. In the US, by contrast, the wealth created by outsourcing production abroad only benefitted the new slave owners