The models are wrong.

TARP TALF AMLF CPFF MMIFF MSLP PMCCF SMCCF MLF PDCF MMLF PPPLF BTFP BTFD BNPL MPLA UDA IRA UK FOMO FOGO TINA YOLO FOHR FOMTR FANG FAANG FAAMG MAMAA!!

Apr 05, 2023

It isn't what sum you get, it's how much you can buy with it that's the important thing; and it's that that tells whether your wages are high in fact or only high in name. I could remember how it was in the time of our great civil war in the nineteenth century. In the North a carpenter got three dollars a day, gold valuation; in the South he got fifty—payable in Confederate shinplasters worth a dollar a bushel. In the North a suit of over-alls cost three dollars—a day's wages; in the South it cost seventy-five—which was two days' wages. Other things were in proportion. Consequently, wages were twice as high in the North as they were in the South, because the one wage had that much more purchasing power that the other had.

I saw that Cleveland Fed President Loretta Mester was quoted in the financial press today for some odd reason. Anything she says can be safely ignored. She’s lucky to have a cushy job.

An update on how Kafkaesque Twitter is...

Turns out a tweet from November 23, 2022, which I don’t remember, and neither of us can view, was the official excuse to ban me (on March 8), for this song: “One Direction - Night Changes.” I can assure you that I didn’t know this song, and don’t have it in my iTunes. I assume - if the complainant is even correct - that I posted a funny video with that music in it. [I just played the song on Youtube for 10 seconds. It sucks.] Now I can’t see the offending video, nor can I delete it - which I would, if I wasn’t banned by Elon’s JPMorgan-trained minions.

The complainant was some hack from the International Federation of the Phonographic Industry (“IFPI”), supposedly on behalf of Sony Music Entertainment. There’s 37 other folks’ “violations” included in the email I received, so this entire process is very automated, arbitrary, and ridiculous. Elon - just delete the tweet! Hell, let me turn on a toggle saying, “Go ahead an delete any music someone from IFPI doesn’t like.”

Instead, the Twitter hall monitors - probably in response to the hundreds of people standing up for me on Twitter - say I can try to get a retraction from Sony (which is pointless, because I have 10 years of posts, and most certainly other alleged “violations”), or hire a lawyer, which I won’t do, even though I think if I was a billionaire, my dream team would win.

Why can’t I just delete the tweet and move on? Twitter is still run by people who hate Twitter’s users. In the end, I don’t really even care - I’m just annoyed. Unless Elon wants to pay me, I wouldn’t go back anyway, except to advertise my Substack.

Missed Mortgage Payments Swell in Housing Bellwether New Zealand Mortgages in arrears rose 23% in February from a year earlier to 18,900, according to data released Tuesday by Auckland-based credit bureau Centrix. That equates to 1.29% of overall mortgages, the highest since March 2020.

Still, not out of hand yet. Then again…

Most Kiwis fix their mortgages for less than three years, and the RBNZ estimates about half the stock of fixed-rate home loans are due to reprice in the next 12 months. This means many homeowners face a jump in interest rates to 6.5% or higher from historically low levels of 3% or less.

Meanwhile, in Australia

The liquidator sifting through the wreckage left by collapsed building giant Porter Davis Homes has warned that some customers faced the prospect of losing their life savings because the company failed to purchase insurance even after would-be homeowners paid their deposits.
Porter Davis was placed into liquidation on Friday, with construction immediately halted on more than 1500 homes in Victoria and a further 200 in Queensland. Another 779 contracts had been signed but construction not yet commenced.

Silicon Valley Bank’s risk model flashed red. So its executives changed it.

An internal model showed that higher interest rates could have a devastating impact on the bank’s future earnings…
Instead of heeding that warning — and over the concerns of some staffers — SVB executives simply changed the model’s assumptions…The tweaks, which have not been previously reported, initially predicted that rising interest rates would have minimal impact.
The new assumptions validated SVB’s profit-driven strategy, but they were profoundly misplaced…
Before changing the model, an interest-rate hike of two percentage points would drop a measure of future cash flows by more than 27 percent; afterward, the hit was less than 5 percent, according to the bank’s securities filings.
Pushing for the change in assumptions was Dan Beck, SVB’s chief financial officer, according to one former employee, and it was approved by the bank’s Asset Liability Management Committee, which manages interest-rate risk…

Except no, it did not manage interest-rate risk.

This is criminal to me. It doesn’t help that Fed bank regulators also LOVE their stupid little models. See yesterday’s We are all frogs boiling slowly in a fiat pot.

So it’s not just Silicon Valley Bank that has bad risk management…

Wall Street investment banks that financed last year’s leveraged buyout of tech company Citrix have lost roughly $1.5bn after selling off remnants of a deal struck as the era of cheap money was coming to an end…
The banks sold the junior bonds at a steep 21 per cent discount, or about 79 cents on the dollar, according to people with knowledge of the matter. The notes, which will mature in September 2029, will yield about 14 per cent.

SVB Collapse Complicates Banks’ Efforts to Unload More Than $25 Billion of Junk Debt

"If it's such a great trade, why are you offering it to me?”

Bank of America Corp. , Barclays PLC, Morgan Stanley and others together currently hold $25 billion to $30 billion of “hung debt” on their balance sheets, according to leveraged-finance analytics firm 9fin. The unsold debt is tied to leveraged buyouts that banks agreed to finance before worsening credit conditions last year sapped investor appetite for the paper.

Maybe future buyout loans will be less levered. Maybe that’s a good thing.

The inability of banks to get the paper off their books without incurring large losses has crimped their willingness to make new buyout loans, taking a large bite out of a source of Wall Street profits.

Whenever I see a company go bankrupt in recent years, I search for two words: "Private," and "Equity" (also “leveraged-buyout”).

The article mentions that “the average yield on an index of North American high-yield bonds compiled by SOLVE jumped from around 7.5% to nearly 9% between February and March” - and then shows a TWO-MONTH chart. WTF?

I need a longer-term higher-yield chart. Maybe below will suffice, dating back to 1996. Yields seem fairly complacent to me, considering all the bank runs.

The high-yield spreads remain kind of pathetic too. Everyone’s so terrified.

Is the thinking that the Fed will pull another March 2020 and squirt trillions all over Wall Street again? Probably.

My own favorite 10-year less 3-month Treasury spread is, as of Tuesday night, now inverted by -155 basis points, a new record as far as I know.

Individual Investors Slow Stock Purchases, Leaving Markets Vulnerable Net purchases of U.S. equities by individuals set a record in February but have since fallen sharply

Uh, yes. Purchases have 'fallen sharply’ - to what looks like a much more normal level. Is it too hard to do charts longer than a year or two? And what’s more of an aberration, the February record spike, or the current inflows?

I’m not even a trained, licensed and bonded financial writer, yet these things just pop out at me.

I certainly agree that the 40% who own 10% of equities (as opposed to the 10% who own 90% of equities) are generally not throwing new money in - especially since you can now get 5% instead of ZIRP - but I still assert - based on extensive research and observation by my staff of one, me - that Joe La Crema hasn’t sold, in size. Yet. (Joe Six-Pack doesn’t own any stocks.)

Oh, and if anyone wants Twitter and Elon to control the center of your “financial lives,” good luck to you.

Guys like Elon Musk, Larry Fink, Mike Bloomberg, Steve Schwarzman etc. want the U.S. and China to have a "two countries, one-system" style, with the system being Communist Chinese.

Annoying Article of the Day: America Has Too Much Parking. Really.

Any driver who has been late to an appointment for lack of a parking spot might be surprised to hear there is a parking glut. Economists, however, say expectations for inexpensive or free on-street parking create the appearance of scarcity…

Again, who you gonna believe? The economists, or your lyin’ eyes?

I’m telling ya, the goal of these clowns is to eventually ban private cars and have everyone walk to nonexistent public transportation. Own nothing, have no privacy, and be happy.

As a default, just read everything WallStreetOnParade puts out. I generally agree with about 95% of it. Their two-person operation delves more thoroughly into the too-big-to-jail gangsters running the country than anybody.

e.g., After Pushing the Wall Street Scheme to Repeal Glass-Steagall, the New York Times Returns to Puff Pieces on Rodge Cohen and Jamie Dimon

Within every enzyme there’s a meme, and these memes find a way down streams…

Coffee and a Mike: Amy Nixon
Josh Young on Bloomberg. Energy CIO I like.
Crypto Critics Corner: Binance in Trouble

“The thief or swindler who has gained great wealth by his delinquency has a better chance than the small thief of escaping the rigorous penalty of the law.”

Thorstein Veblen

Apple Pay Later

“The newfangled service, which will front up to $1,000 for online and in-app store purchases split into four payments spread over six weeks without interest or fees, will roll out nationwide in the coming months, the company conveyed.” - Grant’s

From a random Redditor in August, 2021:

"The fact that a large group of people need to break up a 20 dollar phone charger into four installments is a sign of just how bad things are. I keep seeing these buttons on more and more websites, and for items that cost $20 or even less."
- thorosaurus

Grant’s continues:

Apple’s foray underscores the mushrooming growth of so-called buy now, pay later (BNPL) financing, as U.S. originations surged by 970% over the three years through 2021, according to the Consumer Financial Protection Bureau, as the dollar volume of those loans expanded to $24.2 billion from $2 billion.

Consumer Use of Buy Now, Pay Later: Insights from the CFPB Making Ends Meet Survey

BNPL borrowers were, on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products, and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers. BNPL borrowers had higher credit card utilization rates and lower credit scores. However, many differences between BNPL borrowers and non-borrowers pre-date BNPL use. Further, contrary to the widespread misconception, BNPL borrowers generally have access to traditional forms of credit. In fact, they were more likely to borrow using credit and retail cards, personal loans, student debt, and auto loans compared to non-BNPL borrowers. Finally, the report estimates that a majority of BNPL borrowers would face credit card interest rates between 19 and 23 percent annually if they had chosen to make their purchase using a credit card.

You only pay 19% to 23% interest if you keep a balance - otherwise credit cards are a 30-day interest free loan. I have known otherwise smart people who carry huge credit card balances.

“Transactors” are strange beings who pay off their credit card balances in full each month. A Brookings paper I saw said, “Transactor accounts owed just 7 percent of outstanding credit card balances in June of 2020.” A British article said transactors “make up 8.5%” - much lower than what I would’ve guessed, although I’m not sure I’m reading these percentages right (or that they’re calculating them correctly).

I learned long ago that paying down debt costing 20% was like a 20% tax-free return. I’m also from an era where if you couldn’t afford something, you didn’t buy it, but that seems so quaint now. (The first credit card I tried to get was a Chevron gas card. I was rejected.) I did once or twice buy something using “layaway,” which was like BNPL, except you didn’t actually get the item until the last payment had been made.