The Prairie Traveler
Rates aren't the problem. Prices are.
I see the light at the end of the tunnel now
Someone please tell me it's not a train.
“Journalism is popular, but it is popular mainly as fiction. Life is one world, and life seen in the newspapers another ; the public enjoys both, but it is more or less conscious of the difference.”
- G.K. Chesterton, All Things Considered
Transitory Staffing
Good, short discussion of private equity: "Private Equity Plays Pass the Parcel"
"What really worries me across society is the way we've normalized this financialization of every asset, the securitization of every asset, whether it’s publishing rights secured out for the next 50 years of a hit song, or a private-equity manager sitting in one of the tranches of debt owning our water companies, we have divorced a big chunk of the economy from its actual operation…
We need to allow the real managers to run these businesses, not the financial overlords who are extracting a huge rent on top of that, and making it much harder for these people to run these businesses, because they’re demanding unrealistic profit expectations, just to service all the debt they’ve piled on.”
I’m reminded of a paper that Brendan Ballou cited, which stated that private equity ownership of nursing homes resulted in “about 22,500 additional deaths…over the twelve-year sample period.”
Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.
“Yield solves all demand problems.”
It boils down to supply and demand. Supply is a tsunami of Treasury securities being issued as the government has to borrow unspeakable amounts to fund its scandalous deficits even in a strong economy.
And this tsunami of supply must find demand. Yields must rise until they meet demand. Yield solves all demand problems. There will always be demand if the yields are high enough, so it’s not a question of finding buyers, but at what yield those buyers can be found.
Having $3 trillion of assets under management puts you in the top handful of asset management firms. Owning $1 trillion of treasury debt (like China or Japan) makes you one of the largest holders. Who, then, is going to be buying the $3 trillion a year that federal, state, and municipal governments are planning to borrow to cover their operational and pension shortfalls??
I see this sparking a bond bear market, which leads automatically to a bear market in other assets, because all assets are priced off of bond yields.
In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $3 trillion or so—or 15 percent—down to a total below $15 trillion.
"Science is not mathematics. As far as I can see, conflating those two domains of knowledge has been one of the most fundamental mistakes made in modern economics. It has made economics both narrow and hopelessly irrelevant."
REVIEW: Central Banking 101, by Joseph Wang
I like former Federal Reserve staffer Wang, and have quoted him a number of times.
This reviewer won me over with this opening paragraph of wisdom:
The greatest gift bestowed by admittance to elite institutions is that you stop being overawed by them. For instance, there was a time when upon hearing “so-and-so is a Rhodes Scholar,” I would have assumed that so-and-so was a very impressive person indeed. Nowadays I know quite a lot of former Rhodes Scholars, and have seen firsthand that some of them are extremely mediocre individuals, so meeting a new one doesn’t faze me much. My own cursus honorum through America’s centers of prestige has been slow and circuitous, which means I’ve gotten to enjoy progressive disenchantment with the centers of power. Trust me, you folks aren’t missing much.
It gets better:
I have a theory that this is why Twitter has been so destabilizing to so many societies, and why it may yet be the end of ours. Twitter offers a peek behind the curtain — not just to a lucky few, but to everybody. We’re used to elected officials acting like buffoons, but on Twitter you can see our real rulers humiliating themselves. Tech moguls, four-star generals, cultural tastemakers, foundation trustees, former heads of spy agencies, all of them behaving like insane idiots, posting their most vapid thoughts, and getting in petty fights with “VapeGroyper420.”
There’s a reason most monarchies have made lèse-majesté [insulting a ruler] a crime, there’s a level at which no regime can survive unless everybody pretends that the rulers are demigods. To have the kings be revealed as mere men who bleed, panic, and have tawdry love affairs is to rock the monarchic regime at its foundations. But Twitter is worse than that, it’s like a hidden camera in the king’s bedroom, but they do it to themselves. Moreover it seems likely that regimes like ours which legitimate themselves with a meritocratic justification are especially fragile to this form of disenchantment.
Getting to Wang’s book next:
Most criticisms of the Fed are written by insane people or by ideological cranks. This one, whether it was meant to be a criticism or not, is written by a deeply sympathetic former employee, and that’s what makes it so interesting
This sounds like Jim Grant:
“…an interest rate comes out of the sum of all the decisions made by people borrowing and lending money across the whole economy, so how exactly can the Fed control it?”
Boom:
Wang “has no idea whether QE works, nor do I, nor does anybody. Economies are big and complicated, and almost impossible to run controlled experiments on, which is why economics will never be a real science.”
The final paragraph should scare the hell out of us:
…a large and influential contingent of the central banking world now believes in something called “modern monetary theory” (MMT). MMT holds that sovereign debt crises are literally impossible if you know what you’re doing, and that fiscal deficits do not matter at all. Maybe they’re right, and this time really is different. Maybe they’re wrong, and this is exactly the kind of thing you expect people to say before a sovereign debt crisis. I have no idea, and neither does anybody at the Fed, but we’ll all find out together.
From a comment on the Reddit realtor forum:
Rates aren't the problem. Prices are. By historical standards, today's rates are normal. It's home valuations that have spiraled out of control. You should have complained about the Fed when rates were near zero, because it caused this mess. Inflation is stubborn so rates will need to stay the same or go even higher. Sellers need to come down 30% or more.
This is also my aberrant view.
This is an interesting housing chart that goes back to the 1970’s:
Wow. Homeowner’s Insurance in Florida.
Then the renewal for his home insurance arrived. The new rate for the year starting in September was around $121,000—more than seven times what the Molinaris said they paid last year, and more than 13 times what they paid when the family moved to Florida in 2019.
While they found a better rate from another insurer, at about $33,000 it is still nearly double what they paid last year. The family this month listed the home for sale with an asking price of nearly $3.5 million after determining that insurance costs made staying there too expensive. Others in Flamingo Park told The Wall Street Journal they are drawing the same conclusion.
“The for-sale signs are going up left and right,” James said of the neighborhood…
Some premiums have increased by about nine times what they were last year, according to Oscar Seikaly, chief executive of NSI Insurance Group, who said he has handled insurance premiums that cost as much as $600,000 a year for multimillion-dollar homes.
“When you have a home that’s one million dollars or less, your insurance premium becomes higher than your mortgage,” he said.
Good thing we’ve got all that disinflation going for us.
NEMA, one of San Francisco’s largest apartment buildings, has lost almost half its value in five years as it faces an “imminent default” risk on its mortgage, according to a new report.
The 754-unit apartment tower was valued at $543.6 million in 2018 but is now valued at $279 million by real estate data firm Trepp. That’s below the value of owner Crescent Heights’ $384 million mortgage, an ominous sign indicative of the Mid-Market area’s struggles...
Occupancy at NEMA was 92% as of March
I had picked multifamily as my CRE grey swan a while back, and it appears that may be the case. The story above is not unique.
As for office:
The latest Treppwire podcast - a good source of formerly cheerful CRE news - talked about, among other things, a 62,000 square-foot single-tenant urban office property at 340 Bryant St., San Francisco, where this month the value was cut from $52 million to just $8.2 million. For non-economists, that’s an 84% drop.
“Most cities are hovered around 50% occupancy. If that’s the new normal, valuations have to come down drastically.”
- Daniel McNamara, Polpo Capital
Business conditions at architecture firms declined again in September, the AIA/Deltek Architecture Billings Index (ABI) reports. The score of 44.8 for September is the lowest score reported since December 2020 during the height of the pandemic. Any score below 50.0 indicates decreasing business conditions and this score indicates a significant increase in firms reporting declining billings.
Good grief. BREIT charges 12.5% performance fee!
The Blackstone REIT with USD 67bn of assets, which would make it one of the largest REITs in the world. Why has Blackstone entered the REIT market? Well a quick look at the fact sheet provides a pretty clear reason - they have been able to jack up fees. Listed REITS have no performance fee, BREIT does - at 12.5% of annual return.
No wonder they want their marks to stay high - and remember they’ve gated their redemptions.
The DJ U.S. Residential REIT index is down 37% from the peak:
Meanwhile, BREIT seems to have taken no hit. Odd.
I was thinking recently again about this quote from Kyle Bass in 2016 with Grant Williams:
UAPs - What Are We Really Dealing With? ft. Larry Hancock
Fascinating podcast with David Dorr.
If you like the Dorr podcast, here’s something even weirder:
Skinwalker Ranch and UFOs: An Evening with Col. John B. Alexander and George Knapp
(if you don’t like the Dorr podcast, you’re not ready for this one)
“I come down against the extraterrestrial hypothesis, not because the events don’t happen, but because that explanation is too simple.” - Alexander
George Knapp elaborates on the types of things Alexander is talking about:
I was reminded of this CIA history from the book, Secrets and Lies: A History of CIA Mind Control and Germ Warfare.
When Dr. Gottlieb took over the CIA’s new Office of Research and Development, ORD, it quickly became his flagship for even more bizarre and potentially far-reaching experiments in mind control. The most innovative and daring Agency doctors had been transferred there, and a number of young consultants from civilian medical research laboratories had been recruited. The ORD team also included chemists, biologists and general physicians from the Army Chemical Corps. Dr. Gottlieb had persuaded Helms to authorize $150,000 as an initial grant to ORD’s first project. It was called Operation Often. Dr. Gottlieb reminded colleagues that “often” they were close to goals before pulling back, and “often” they forgot the only scientific way forward was to learn from the past. That would not happen in Operation Often.
This operation was based on Dr. Cameron’s earlier research into the supernatural. Operation Often was going to go further, exploring the world of black magic. In Dr. Gottlieb’s mission statement the intention was to “harness the forces of darkness and challenge the concept that the inner reaches of the mind are beyond reach. The project will aim to create a new kind of psycho-civilized human being.” Dr. Gottlieb’s own version of Frankenstein’s monster.
Operation Often members began by visiting palmistry parlors, the booths of fairground fortune-tellers and — in the larger cities — the well-appointed offices of the psychics who served the rich and powerful. The agents invariably introduced themselves as researchers from the Scientific Engineering Institute, a cover name Dr. Gottlieb had chosen. A number of clairvoyants were persuaded to become consultants to a vaguely defined educational research program. It was run from a Washington CIA safe house.
…By May 1971, Operation Often had three full-time professional astrologers on its payroll. Each received $350 a week plus expenses — to cover what they claimed would be their loss of regular earnings. Their task was to predict the future. They sat for hours in sound-proof booths in the safe house and read a wide selection of newspapers and magazines. They focused on items which “psychically alerted” them. They taped what came into their minds about how some particular event or happening would develop…
Operation Often was soon deep into demonology. In April 1972, an approach was made to the monsignor in charge of exorcisms for the Catholic archdiocese of New York. He flatly refused to cooperate. Undismayed, the Agency behaviorists approached Sybil Leek, a Houston sorceress who cast spells with the help of a pet jackdaw called Hotfoot Jackson. With the bird perched on her shoulders, Mrs. Leek gave the “two very nice gentlemen” from Washington a fast course on the current state of black magic in the United States: four hundred covens operated by five thousand initiated witches and warlocks. These people were the foot soldiers of a prediction industry which supported 10,000 full-time fortune-tellers and 200,000 parttimers, as well as a growing publishing business in tarot cards and factories producing a widening range of anti-Christian tokens. Satan was not only alive but thriving in the country. To corner him for the Agency, Dr. Gottlieb decided the Devil must be made respectable. Working through conduits, he financed a course in sorcery at the University of South Carolina. Two hundred and fifty students enrolled for lessons devoted to fertility and initiation rites and raising the dead.
Buckley, still a devout Catholic, found himself surrounded by “a mysterious and magical vortex in an agency that was supposed to deal in facts and predictions based upon them, that corner of the CIA which Gottlieb had set aside for his work with the Devil was an inner black hole from which came the constant cries ‘There is no God!,’ ‘The cosmic deity is all!’ Talk of Ouija boards and white witches, chaos magic made the whole place sound like Halloween forever. These people were intelligent; they understood for instance classical philosophy, but their sense of what was real was a chasm away from mine. I would start to get papers they had written to evaluate. They had titles like ‘Cripple and Confuse Your Enemy with Satan,’ ‘How a pendulum can become a secret weapon in locating Soviet submarines.’ What astonished me was the vast majority of Satanists were former Roman Catholics. Many said they had tried the Church and that it had nothing to offer,” recalled Buckley.
The more bizarre an idea was, the more Dr. Gottlieb enthused about its possibilities. One was “chaos magic” in which “psychonauts” offered to travel for the CIA into what they called “the void.” One occultist told Buckley that somewhere in the void was the most powerful magic of all, able to destroy any enemy. Dr. Gottlieb had agreed to finance this particular “psychonaut” on his journey into the unknown. The man said the trip would be the equivalent of the Argonauts’ search for the Golden Fleece in Greek mythology. Armed with the $500 he had requested, the “psychonaut” retreated to his launch pad in San Francisco. He was never heard from again.
Soon afterwards Dr. Gottlieb moved on to investigations in another area.
…On September 20, 1972, news reached Langley that Mary Morrow was actively pursuing her legal action against the Institute and Ewen Cameron’s estate. Previous reports on her case had simply been filed away. But this time, Helms ordered Buckley to run a check on every patient known to have been used in Dr. Cameron’s research. “He wanted to know if there was any way– any way at all – that what had been done to them could be traced back to the Agency,” Buckley later recalled. Six weeks later he reported to Helms there was no way the CIA could be implicated – except through the material still in its own archives. On December 10, 1972, Helms ordered Operation Often cancelled. In a terse memo marked “Read. Destroy,” the CIA director offered Dr. Gottlieb no explanation.
In January of 1973, Sidney Gottlieb resigned from the CIA.
From Gottlieb’s obituary, 1999:
“SIDNEY GOTTLIEB was living vindication for conspiracy theorists that there is nothing, however evil, pointless or even lunatic, that unaccountable intelligence agencies will not get up to in the pursuit of their secret wars.”
The Prairie Traveler
When driving along I-15 in Nevada recently, I found myself again thinking of the earliest pioneers to make their way through the scorching, desolate landscape, wondering how they could’ve survived.
I discovered The Prairie Traveler, a Handbook for Overland Expeditions, an 1859 book by Army General Randolph Marcy.
Based on his own extensive experience of "more than thirty years of service in the United States Army, a large portion of the time on the frontiers" and in the mountains, deserts, and prairies, the book provided authoritative advice about reconnaissance, fieldcraft, provisions and healthcare, that would save many lives on these perilous routes. It covered key topics like hunting and tracking, and food and water supply, as well as specialist advice about the selection of horses, the avoiding of quicksands, the interpreting of smoke signals and sign language, and numerous other issues.
It was a best-selling book for the remainder of the century. Andrew J. Birtle, author of U.S. Army Counterinsurgency and Contingency Operations Doctrine 1860-1941, has described the Prairie Traveler as "perhaps the single most important work on the conduct of frontier expeditions published under the aegis of the War Department."
Love Joseph Wang’s observations and I recognise myself in the being fooled by various ‘high brow’ credentials (even though my father had shared with me when I was a child that he met many Harvard Med grads and was unimpressed - said without arrogance). I should have known better, but sometimes we have to learn the ‘hard way’ as I say to my own kids. For me, I gave Rachel Maddow unquestioning credibility because she was a ‘Rhodes scholar’. I am now where Wang is.
But I disagree with with Wang on the role of Twitter. Yes it is destabilising and yes there are many peddling garbage. But, pending more extreme censorship, it is one of the few places we CAN get a glimpse behind the curtain. But not just to see the clowns and the phonies: we can also find voices of objectivity and truth - enough of a glimpse to encourage us to question what we thought we knew - and eventually we find ‘light’, like your work Rudy, which lead to other sources of ‘light’. We don’t have to agree with everything, but we are least given the privilege of hearing/reading another point of view and/or examining facts ourselves. So rather than a threat to society, I think sources like twitter are one of our few hopes of getting access to truth left. But we do have to swim with the sharks.
And it is for this reason, IMO, vested interests are so interested in scaring people off social media with the constant drum beat of ‘mis-information’.
Thanks for the heads-up RE The Prairie Traveller. As a student of/former participant of COIN, and a grizzled old trapper, surprised I had not heard of it. As an old mentor frequently cackled at me, "You don't even know what you don't know yet!" I have proven him correct time and again!