The lowest cost of capital in human history.
And a willingness to play fast and loose with the rule of law!
The 2010’s were “the decade of the lowest cost of capital in human history, and the biggest peak to trough decline in real energy [costs], ever.”
“Remember, we’re just getting back to what in most of human history would be considered normal rates.”
- Richard Sylla, co-author, A History of Interest Rates
Just 27 days until the most important Fed Decision® since the last one!
Tons of amusing stuff today…dont miss this: Very good Spaces podcast by Melody Wright on Airbnb, DSCR loans, and other disasters.
This is pretty funny
Investors are holding back from the $11tn US mortgage-backed securities market because of uncertainty over how regulators plan to dispose of the roughly $91bn portfolio they acquired from the collapses of Silicon Valley Bank and Signature Bank.
Falls in the value of SVB’s vast MBS portfolio over the past year as interest rates rose were a significant factor in spurring the bank run last month that led to the second-largest bank failure in US history.
Analysts calculate that the US Federal Deposit Insurance Corporation now holds some $69bn in MBS from SVB with another $22bn from Signature, based on fourth-quarter earnings reports. Once holdings of other bonds such as Treasuries, municipal debt and commercial MBS are included, the FDIC has $120bn to liquidate.
$91 billion of MBS to get rid of. Wow. An unimaginable number.
Now guess how much MBS the Fed has? How does $2.6 trillion sound?
No worries, though. Janet Yellen’s pal Larry Fink will take care of everything: BlackRock to manage $114bn of asset disposals after US bank failures
Hey, why not have Blackrock manage the Fed’s fabled balance sheet unwind?
You know, get it back down to where Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Winner Ben Bernanke said it’d be back in March 2010:
Dr. Paul. Can you give me a rather quick answer on
this? Do you have any idea what percentage the base should
shrink or might shrink, or is that something that you don't
even want to address?
Mr. Bernanke. No. I think we would like to bring the
balance sheet back to something consistent with where it was
before the crisis, which means enough to accommodate Americans'
demand for currency plus a modest amount of reserves in the
banking system, and that would suggest something under a
trillion dollars I think would be--
Dr. Paul. A trillion dollars?
Mr. Bernanke. Or less, yes.
Dr. Paul. Okay. Of course, that would be very
unprecedented.
(Note that the first part of the title of the above 2010 hearing was “UNWINDING EMERGENCY FEDERAL RESERVE LIQUIDITY PROGRAMS,” which never happened.)
“It is an age-old Washington axiom that there is nothing so permanent
as a temporary government program.”
“I think one of the big problems has been the political correctness, where bank boards etc. are more concerned about diversity and other social issues, rather than hard-nosed technical banking competence.”
- Satyajit Das (who rips Credit Suisse pretty good in this short podcast)
Das mentions a classic Ludwig Von Mises passage:
The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Texas Apartment Construction and Permitting Reach All-Time Highs
A non-traded vacation-rental REIT! I dunno…
Housing Is Turning Out to Be a Lousy Shelter for Investors Boo hoo.
“High-End Travelers”
I’m not poor but wow - these numbers:
Some 69% of poll participants said their maximum budget per hotel room night was $500, while 24% were willing to spend up to $1,000. Still, 5% set their limit at $2,000, and 2% continue to entertain spending $3,000 per night or more. Respondents include traders, portfolio managers, senior managers and retail investors.
January 2023: Debunking the housing inventory myth in preparation for 2023
“If we pay attention, we can catch and manage the new opportunities and realities which will be driven by the following themes:
Increased inventory from short-term-rental gone wrong, aka the Airbnb bust.
Investors offloading negative cash-flowing properties to avoid margin calls and unhappy investors.
Increased inventory from robust construction of new, single-family homes with “motivated” sellers.
Increased inventory from Boomers hoping to catch their cash from 2nd homes against deflating rental income, stubborn inflation and falling home prices.
Lagging, but potential inventory from newly-converted commercial spaces left empty by remote work and urban flight in the hardest-hit areas.
And finally, decreased demand due to aging demographics.
Multi-family property construction is the highest since the 1970s amidst an aging demographic, rents are going down and with it, investor appetite. And, much of the construction market is holding on for dear life with Build-to-Rent, so we could see distressed single-family inventory hitting the market at a pace not seen before.”
Very good Spaces podcast by Melody Wright on Airbnb, DSCR loans, and other disasters.
The other day I mentioned that I’d met a handful of people at a poker game recently, who were all talking about issues with their multiple Airbnbs. Weird. The desperate reach for yield over the past decade pushed anyone with any money into real estate, stocks, crypto, NFT’s - everything.
A book mentioned in the talk is The Forgotten Man: A New History of the Great Depression.
Reminds me a bit of this Kyle Bass quote, from a 2016 interview with Grant Williams:
Posting just for the photo alone…
Richard Clarida is a jerk.
A new op-ed from Clarida: The Fed may not get inflation down to 2%, says Richard Clarida
We’re starting to hear this more and more from people with eight or more digits in their net worth, people who make money off them, and inbred-economists.
This crowd wants to double the official inflation target to 4%, meaning cost of living bumps well into the double-digits for normal people. (Inflation is terrible for Joe Six-Pack, but really, really good for highly-levered, very wealthy people with lots of assets, like Richard Clarida.)
Even when the CPI was 2%, the rise in the real-world cost of living was never that low.
Clarida’s net worth has to be pushing $100 million. He doesn’t care if CPI is 2% or 4% or 40%. Why can’t these people ever just go away?
Clarida Traded Into Stocks on Eve of Powell Pandemic Statement
Federal Reserve Vice Chair Richard Clarida traded between $1 million and $5 million out of a bond fund into stock funds one day before Chair Jerome Powell issued a statement flagging possible policy action as the pandemic worsened, his 2020 financial disclosures show.
The Federal Reserve Inspector General who cleared Jerome Powell and Richard Clarida of making improper financial trades is appointed by the Fed Board of Governors; reports to the same Board of Governors; and can be fired by them.
Richard Clarida, President Donald Trump’s nominee for Federal Reserve vice chairman, holds employment-related financial assets valued at between $9 million and $39 million, according to documents certified by the U.S. Office of Government Ethics.
Most of those assets come from deferred compensation, anticipated bonuses and other funds from his job as a managing director at Pacific Investment Management Co. and from retirement accounts from Columbia University, where he is a professor.
Mr. Clarida earned $418,376 in salary and $6.7 million in bonuses from the firm over the past year, the report showed. He earned $182,731 from his teaching position.
Mr. Clarida holds other assets valued at between $12 million and $54 million, the report said. The financial disclosure forms place asset values within certain numerical ranges rather than reveal specific amounts.
Even using the goofy CPI, your February 2021 dollar is now worth 87.4 cents.
”Gold has done its job on a long-term basis.” - Carter Worth
”I don’t think we’re gonna wake up tomorrow to find out the U.S. dollar has lost its reserve currency position, I think it’s more eroding around the margins, and frankly, one of the big reasons for it, which is a relatively new phenomena, is a problem which all I think all the Western governments have, which is a willingness to play fast and loose with the rule of law, which was always one of the strengths of the West, versus, say, Russia or China, where the rule of law is whatever Putin or Xi thinks it is. It’s almost kind of becoming that way with ‘what does Janet Yellen think the rule of law is, or Joe Biden?’”
- David Hay, Evergreen Gavekal
The pretension of the ruling class – notably Janet Yellen – is that if the feds are clever enough…and able to act boldly enough…bureaucratic foresight can prevent serious financial/economic problems. They can adjust the Fed Funds rate. Or change the way banks are regulated.
But as with all the other efforts made by the elites to stop the future, they can’t prevent the grim consequences of their own mistakes. They just move the costs onto people who don’t deserve them…and make it worse.
“Since Alan Greenspan first arrived—Paul Volcker knew what he was doing—but since then it’s been a long, continuous horror show,” Grantham says of US monetary policy. “They’ve engaged in policies that drive up the prices of assets, other things being even, and create spectacular overpriced bubbles. They then break because that’s what bubbles have to do. They simply break of their own extreme overpricing, and we pay a very tough price.”
Chamath Palihapitiya questions ‘purpose of leverage’ after stock collapse
Quarterly Report on Bank Trading and Derivatives Activities, Q4 2022
“The collapse of U.S. influence over Saudi Arabia and the Kingdom’s new alliances with China and Iran are painful emblems of the abject failure of the Neocon strategy of maintaining U.S. global hegemony with aggressive projections of military power. China has displaced the American Empire by deftly projecting, instead, economic power. Over the past decade, our country has spent trillions bombing roads, ports, bridges, and airports. China spent the equivalent building the same across the developing world. The Ukraine war is the final collapse of the Neocon's short-lived “American Century.” The Neocon projects in Iraq and Ukraine have cost $8.1 trillion, hollowed out our middle class, made a laughingstock of U.S. military power and moral authority, pushed China and Russia into an invincible alliance, destroyed the dollar as the global currency, cost millions of lives and done nothing to advance democracy or win friendships or influence.”
Meanwhile, the Germans get 1/3 of their energy from coal, and we get endless headlines like this:
and this:
I like trees. Check out this Adam Rozencwajg podcast quoted above.
Unfortunately, Ella Irwin has further eroded my “trust” in Twitter. The fact that Elon hired such a person says all we need to know about his real attitude toward free speech.
Thank you for the mentions! This post is fantastically packed! Remember talking to a stupid BlackRock analyst in 2008 that Cerberus brought in for the valuation and screaming at them on a 2am phone call about the difference between face value and market value of a once $29M security that was now worth almost 0 (and all I can think about when looking at that notional schedule). So much of my life I will never get back. But, anyhoo - the quote: "Never going to happen here because Microsoft's here and Amazon's here" is all I've been hearing on Twitter, from industry insiders and on the road, but so many of those projects are paused or cancelled. The CONfidence these folks have is unreal...but a lot of it is just self-preservation and denial. And that 40-year mod program....anyone that qualifies will likely not make it another year. FHA is government-sponsored subprime...whatever its intentions are. EXCELLENT POST.