Two-Percent is the Floor
Destroying the monetary architecture
"It used to be that the Fed would tell us that they wanted CPI to be 2% on average, and I think we've moved to a world where now, very clearly, 2% CPI is the floor."
“I think they have, without stating positively, ditched the 2% inflation target, and they’re looking to cut rates. People say it’s for normalization purposes. They’re looking for any excuse to cut rates.”
A ten-year S&P 500 chart, thanks to The Chart Store:
Save the housing market? Isn’t it still at all-time highs nationally?
Same article:
“Housing isn’t a bubble that is likely to pop overnight, nor can prices be forced lower in the short term with government intervention.”
Forced lower? EVERY single government program is designed to keep house prices higher than they’d otherwise be.
Gold!
Why Gold?
A Chemist Explains Why Gold Beat Out Lithium, Osmium, Einsteinium...
“So we're down from 118 elements to 30, and we've come up with a list of three key requirements:
Not a gas.
Doesn't corrode or burst into flames
Doesn't kill you.
Now Sanat adds a new requirement: You want the thing you pick to be rare….At the same time, you don't want to pick an element that's too rare…
"For the earth, with every parameter we have, gold is the sweet spot," he says. "It would come out no other way."”
I am really tired of my jokes becoming reality…
We may indeed be “90 seconds from midnight,” just not for the reasons the Bulletin of the Atomic Scientists think.
Bloomberg’s U.S. Corporate High Yield Index enjoyed its 11th straight green finish Tuesday, its longest winning streak since September 2021, to leave benchmark yields at a two-year low of 7.42%.
In the junk category, just over 30% of constituents yield 7% or above, down from 75% in August 2023.
Private equity sponsors issued $43.2 billion of leveraged loans from Jan. 1 to Aug. 12 to fund so-called dividend recapitalizations, trailing only the $48.4 billion logged in 2021 for the most prolific (or is that profligate?) year-to-date figure on record.
Average new car prices reached $44,604 in July, up 32.2% from 2019. Nearly 18% of consumers taking out new vehicle loans in the second quarter agreed to fork over $1,000 or more per month, compared to a 4.3% share five years ago.
8.5% of U.S. homes now sport an estimated price tag of $1 million or above per brokerage Redfin, up from a 7.6% share a year ago and more than double the 3.82% seen a half-decade prior.
“Years ago, if you owned a $1 million home, you would have been considered pretty rich,” Redfin economist Chen Zhao told the WSJ. “Now, that’s the entry point for some markets.”
Total EV sales in Europe logged a 6% year-over-year drop despite a 2% rise in total vehicle registrations from July 2023, dropping the category’s market share to 13.5% from 14.6% over that stretch.
New EV registrations in the U.S. rose 3.1% year-over-year in June according to S&P Global Mobility, pushing its market share to 8.9% from 7.9% in the same period last year, though the research outfit cited “pretty strong pricing incentives” behind the uptick.
“Our political class has inflicted enormous damage on our nation in recent decades through deeply flawed economic policies. It is a tribute to American ingenuity and work ethic that our economy hasn’t succumbed to the burden of bad ideas or been buried by the avalanche of suffocating regulations imposed on top of them.”
“We are due for a soul-ripping bear market, because all the guys who know what they look like ain't working anymore.”
“People think that their income outlook is worse today than it was when unemployment was 10% at the depths of the global financial crisis.”
Ted Oakley
“I've said it for years that this whole group of people after Greenspan have done nothing but set up people to have asset prices…stocks, real estate, you name it… priced at a higher level. Well, three out of five Americans right now think we're in recession. They don't feel that, they don't own that stuff, so for them it's a tough life, and what they've done is just exaggerate the difference between the haves and have knots, and that's not a good thing for a country…
What used to be the middle class is no longer. If you buy a $400,000 house today, without the payment now, okay, just the the insurance and the taxes it's about $1,500 a month before you ever make the payment, and if you look at real wages over a 20 year period, 25-year period - they have not gone up. So it's been great for Wall Street, and it's been great for all those CEOs and everything to cash out every year but it's not been great for the average person, and I think that's where we we missed our way.”
“I wrote a piece in January of 2000, and I said these 13 stocks are going to hurt you, and believe it or not every one of them went down. The best one went down about 30% and half of went down more than 60%. Everybody owned the same thing. There's nobody left to buy it. That's what's wrong with passive right here. They're all in the same thing, so if they go to sell, they're only they're going to sell the major big companies which make up the big passive trade, and it'll be like a trap door. There's nobody to buy it because they're already in it.”
“Last week I listened to an earnings call by the largest manager of CLO equity and you know what’s amazing? Sell-side forecasts for default rates for leveraged loans have been running around four to six percent this year. The long-term average default rate for leveraged-loans is around 2.8%. You know what the 12-month trailing average default rate for leverage loans is? It’s ninety-three basis points, and for this CLO manager it was 53 basis points. That’s how sanguine credit has been.”
This is surreal
“A little more color on the CRE CLO sector. If we zoom in to just the multifamily property type within CRE CLO’s, and we look at the percentage of loans within a given MSA…with a debt service coverage less than one, get this - 100% of the multifamily CRE CLO loans in Detroit - 100% - have a DSCR1 less than one. Denver with 97.2% , Washington D.C. has 96.3%, Houston 88%, and L.A., with 86.87%”
“Lenders have a number of ways they can mask liquidity challenges with their underlying borrowers”
Payment in Kind (PIK) is a “a way of buying time for distressed credits as they await rate cuts”
“The number of documents mentioning PIK debt rose about 240% over the last five years among business development companies’ filings, presentations and transcripts. Prospect Capital Corp. stands out among them for using the term over 400 times in documents, almost four times as much as the second-ranked. One-third of the net investment income the Prospect fund generated in 2023 was paid in kind, double the industry average, according to Fitch Ratings.”
UBS to liquidate $2 bln real estate fund as office downturn bites
“UBS is to liquidate a $2 billion real estate fund it acquired when it bought Credit Suisse, the Swiss bank said on Thursday, in the latest sign of investors selling out of troubled commercial property markets.
The fund, which holds four-fifths of its assets in offices, had faced investor redemption requests but the Swiss bank said meeting those would require selling assets at an "inopportune time", impacting existing investors. UBS concluded it was better to wind down the entire fund…
According to a fund document dated June 30, 83% of the fund's investments were in offices…The value of assets in the fund has been falling, and the portfolio's annualised net returns for the last three years stood at -10.6%, performance data”
Shadow banking drives a rural Kentucky lender to the brink
“Four years ago the bank signed a partnership with a fintech, US Credit, that promised to turn First & Peoples into a financial disrupter. Instead, the relationship has led to tens of millions of dollars in soured loans, and questions about the bank’s ability to survive. If First & Peoples fails, it would be the first community bank collapse in the US to stem from an ill-fated excursion into the world of shadow lending, putting $200mn of customers’ deposits at risk…
As of the end of the second quarter, 53 per cent of First & Peoples’ total loans outstanding were to lightly regulated financial institutions, up from nothing two and a half years ago…
US Credit’s fastest-growing offering was an instalment loan borrowers could use to pay for online courses dubbed “Learn Now, Pay Later” by a rival.
Shortly after inking the deal with First & Peoples, US Credit signed up Growth Cave, an online education company that was co-founded by a social media influencer that offers courses in “digital marketing” and promises in its marketing materials to teach students how to make as much as “$5,000 a month while sitting on your toilet”.
Growth Cave was recently sued by former students who alleged they were defrauded. The company did not respond to a request for comment...
At the end of 2022, First & Peoples took its first big hit, writing off $10mn in loans it had made through US Credit. The bank took another $8mn in losses on its US Credit loans last year. US Credit filed for bankruptcy in January.”
Bottom-Fishers Snap Up Office Buildings at Huge Discounts
“In April, Isaac Hera’s Yellowstone Real Estate Investments bought the Deco-style tower at 1740 Broadway and 56th Street in Manhattan—once known as the MONY building—for $185 million.
Blackstone’s EQ Office had paid $600 million in 2014 for the 75-year-old office tower. The Covid pandemic foiled Blackstone’s plans to raise rents after renovating the building. In 2022, it defaulted on its $300 million loan.”
This is how it should work, at least for CRE - a bad decision by one group of rich guys leads to a good deal for another group of rich guys (they’re all rich guys and gals). The real loser in cases like this appears to be the lenders, and therefore the taxpayers.
"Investors bought 1 of every 6 U.S. homes that sold in Q2—purchasing $43 billion worth of properties—and 1 of every 4 low-priced homes that sold"
Nearly 60,000 home-purchase agreements were canceled, equal to 16% of homes that went under contract—the highest percentage of any July on record.
“The conventional wisdom on mortgage quality is wrong”
“A common refrain is that we need not worry about a housing downturn because mortgage credit is asserted to be “strong,” presumably due to the Dodd-Frank Act. Such a conclusion could not be more dangerously wrong. This conventional wisdom relies on misreading both mortgage market trends as well as a misunderstanding of the post-2008 regulatory framework…
It should be clear that most, if not all, of the supposed improvement in borrower credit quality between now and 2008 is the result not of actual quality improvements, but of regulatory changes to credit reporting. A 740 today simply is not what a 740 was in 2008.”
Friend of the show Melody Wright has been talking about this for some time…
Credit Card delinquencies still seem rather tame, basically where we were in Q3 1994.
However…
As was pointed out to me by G7Doug: The delinquency rate for “Banks Not Among the 100 Largest in Size by Assets - is 7.88%, highest ever recorded by FRED and 2X higher than 1994.
I made a comment back in 2016 that Obama’s legacy was Trump, which I repeated the other day in a reply to a “liberal” account, and several people got angry, claiming it was white supremacy, or something, that led to Trump (who ran against a white woman, in a nation that had just elected a black guy, twice.)
Anyway, one kind soul defended my point, sending me and others this 2015 article from the World Socialist website. It’s a perceptive article.
"Obama, Trump and the working class"
"As is always the case when he makes any references to the devastating conditions facing the bulk of the population, Obama speaks as if neither he nor the party that he presently leads has anything to do with it.
A Stalled American Dream
“A decade ago I had hope that things were so bad that we couldn’t possibly keep ignoring the malaise, the emptiness, the ugliness, and we would move to right the ship. Instead we, including the policy class like me with the influence and platform to change things, have buried our heads deeper into the sand, and moved to make life in the US even more banal and isolating, because we can’t grasp that the problem isn’t about the economic, but about the spiritual, isn’t about building another basic housing complex, another road, another shopping mall, but about building more cohesive and meaningful communities.”
Whitney Webb
“So much of the stuff that the American people are tired of is really bipartisan agendas , and regardless of who's in office, when there's a crisis, the same people tend to be called upon to solve the crisis. A good example of that would be the 2008 economic crisis. Blackrock was basically sent in to help handle the banker bailouts, and when Trump was in office, Blackrock was brought in to essentially design the Covid fiscal policy, the ramifications of which we're still dealing with.”
Dan Oliver on American Hubris and Arrogance
I think Dan is a great historian who also understands monetary policy and economics. I do tend to lose a few people when I get into foreign policy, so if you tend to get upset about critiques of American foreign policy, you should probably skip this part.
As for me, an American, I care about America and its future, which is why I am so angry at the incredible destruction wrought by the neo-cons this century.
“This American diplomatic arrogance destroyed the prospect of a century-long Pax Americana. The collapse of communist ideology brought an eagerness to Eastern Europe and Russia to embrace a capitalist system. But the U.S. was not content with ideological victory; it demanded political dominance. Clinton took the fateful step of bombing Serbia, a close Russia ally, to distract from his Lewinsky scandal, killing two thousand civilians. A humiliated Russia could only stand and watch and seethe and then witness NATO expand relentlessly towards its borders.
“They effectively forgot about the promises made to the Soviet Union and later Russia in the late 1980s and early 1990s that the bloc would not accept new members. Even if they acknowledged those promises, they would grin and dismiss them as mere verbal assurances that were not legally binding,” Putin recently told a domestic audience. “Western countries, confident not so much in the righteousness of their cause as in their power and ability to impose whatever they wish on the rest of the world, simply disregarded other perspectives.” Disregarded may be the wrong word—were negligently unaware of is probably more accurate.
“Later, these same approaches [as were applied to Serbia] were applied in various countries, which we know all too well: Iraq, Syria, Libya, and Afghanistan. These interventions have done nothing but worsen existing problems, ruin the lives of millions of people, destroy entire states, and create hubs of humanitarian and social disasters, as well as terrorist enclaves. In fact, no country in the world is immune from joining this tragic list.”
No one in the West likes Putin, but where is the error in his statement? It is the same complaint made by Calgacus the Briton opposing Rome: “They make a desert and call it peace.””
The Federal Reserve and war go hand in hand, made for each other. Wars are very inflationary.
“The U.S. relied on the Fed to finance previous wars. In World War I, the government altered the new Federal Reserve’s charter—which originally constrained it from financing anything other than bills with maturities at the time of discount of not more than ninety days—to allow it to finance long-term government war bonds. During World War II, the Fed adopted the policy of purchasing all Treasury bills offered at a fixed rate of 3/8 percent: its holdings of government securities leapt from $2.2 billion in 1941 to $23.7 billion by the end of 1945. The Fed continued this policy during the Korean War, with a cap of 2.5% for long-term bonds.
Not surprisingly, all three episodes experienced soaring consumer inflation, which peaked at 20% in 1920, 20% in 1947, and 10% in 1951. But there was a major difference between those episodes and today: the U.S. was a solvent nation at the outbreak of these previous wars. In 1949, even after World War II and Franklin Roosevelt’s profligate spending, the Fed’s balance sheet was backed 51% by gold (down from 84% in 1941). Today at spot prices (assuming the gold on the Fed’s balance sheet is real), that figure is 8.8%.
The U.S. debt-to-GDP ratio is now 122%, well above levels that get countries into distress. This level of debt was matched in 1946, but that was at the end of war spending and only at the very beginning of the Ponzi entitlement state: the debt figure fell to 32% of GDP by 1980. This time, the outlook is dire. The CBO reports that as a baseline, assuming no economic, political, or military crises: “Debt increases in relation to GDP, exceeding any previously recorded level in 2029 and continuing to soar through 2054. It is on track to increase even more thereafter.” Much of that increase is due to interest payments, which now exceed military spending. And there will be crises. And if no one else will buy the Treasury bonds, Congress will force the Fed to do so.”
“Blinken’s idiotic sanctions on Russia threatens to destroy this monetary architecture.”
Dan Oliver: “When the Bretton Woods gold-backed dollar standard collapsed in 1971, Kissinger convinced the petro-states to recycle their profits into dollar deposits both at U.S. and non-U.S. banks, expanding the dollar debt system. Suddenly, all the major players in the world owed each other dollars, granting the Fed control over the global economy and the U.S. Congress a method to extract seigniorage to support the costs of empire. Blinken’s idiotic sanctions on Russia threatens to destroy this monetary architecture.
As Putin understands:”
“By stealing Russian assets, they will take one more step towards destroying the system that they created themselves and that for many decades ensured their prosperity, allowed them to consume more than they earn, and attracted money from all over the world through debts and liabilities. Now it is becoming clear to all countries, companies and sovereign wealth funds that their assets and reserves are far from safe, both legally and economically. And anyone could be the next in line for expropriation by the United States and the West, those foreign sovereign wealth funds could also be the one.
There is already a growing distrust of the financial system based on Western reserve currencies. There has appeared a certain outflow of funds from securities and bonds of Western countries, as well as from some European banks, which were until fairly recently considered to be absolutely reliable to put capital in. Now gold is also being taken out from those banks. And this is the right thing to do.”
”No one in the West likes Putin, but where is the error in his statement?"
Jeffrey Sachs
With Demetri Kofinas (free episode)
“The first move of NATO enlargement was Poland, Hungary and the Czech Republic in 1999. And I think actually Russia swallowed hard. It resented it. It viewed it as contrary to the spirit of everything that had been discussed from 1990 onward. But these were countries away from Russia's borders.
Things got worse in the next years. lIt's a complete blot on American foreign policy and on Madeleine Albright. It was a deliberate war, whether to teach Milošević a lesson, even though he was absolutely ready for many compromises…
From the Russian point of view, this was an outrage. NATO bombing a European capital, a close ally of Russia and a historical cultural ally of Russia to break Serbia in two. And that was the next step. It has gone basically on that path from 1999 until today.”
“In the spring of 2008, I went to a talk by Saakashvili, then the leader of Georgia. And he came to 58 East 68th Street to the Council on Foreign Relations where I'm a member and he gave a talk. And just to tell you, I walked out, called my wife on the cell phone, said, "This guy's out of his mind." Because the whole speech was, "We're core to European culture. We're core to Europe. We're going to join NATO." And they're in the caucuses, right in you could say, the soft underbelly of Russia. And the way that this guy talked like that he had some cloak of invulnerability. I walked out of there just to tell you at the moment, not ex-post, thinking, "This man's insane. He's going to lose his country." And I called my wife and I said the same thing.
A few weeks later, he provoked an attack, and then Russia landed in Georgia, and the whole thing was a complete debacle for Georgia. But completely predictable because these people lose their minds when they're told by the American generals, we got your back. Don't worry at all. And that's what we do for a living. We tell the South Vietnamese or we tell the Iraqis, or we tell the Syrian opposition or we tell the Ukrainian right, or whatever it is, we got your back. And of course we don't have their back. We're not all powerful.”
Sachs On Trump: “I don't think he is a warmonger. We have the evidence that he didn't go to war during his term, so that's good. He certainly wasn't addicted to war-making, and I really appreciate that. On the other hand, he made a mess of many things, and he made some absolutely horrendous personnel choices. John Bolton is one of my least favorite American officials.”
“The problem with John Bolton isn’t that he’s an extremist. It's that he’s mainstream.”
“If you are worried about Bolton, you should ask yourself the following question:
What sort of political system allows someone with his views to serve in high office, where he helps talk the country into a disastrous war, never expresses a moment’s regret for his errors, continues to advocate for more of the same for the next decade, and then gets a second chance to make the same mistakes again?
So by all means worry. But the real problem isn’t Bolton — it’s a system that permits people like him to screw up and move up again and again.”
“The most fateful error”
“Not one inch eastward” for NATO was the assurance given by US Secretary of State James Baker to Mikhail Gorbachev on February 9th, 1990. Seven years onward, former ambassador to the Soviet Union and architect of many American Cold War policies, George Kennan declared NATO’s expansion to be “the most fateful error of American foreign policy in the entire post-Cold War era.” Since this proclamation, the North Atlantic Treaty Organisation has grown to encompass twelve former socialist republics. Each, in turn, incrementally formulating Russia’s status as an international pariah.”
“That’s when you lost us”
Margarita Simonyan: We were extremely poor, our family. We had rats this big in– I can't even call it a house in the room where we lived with my parents and my sister.
Lesley Stahl: This was in the Soviet time?
Margarita Simonyan: Yeah.
Back then, she says she was a big fan of the United States, especially when she was an exchange student in Bristol, New Hampshire.
Margarita Simonyan: New Hampshire is absolutely beautiful.
Lesley Stahl: Did you watch American television?
Margarita Simonyan: Mostly MTV.
Lesley Stahl: MTV.
Margarita Simonyan: I was 15.
Lesley Stahl: I get the impression though that your views of the United States have kinda curdled.
Margarita Simonyan: It didn't just happen to me. It happened to more or less all of Russians in 1999 when you bombed Yugoslavia.
The U.S. called that NATO operation a humanitarian intervention to prevent ethnic cleansing. But to Russia, it was a sign of U.S. aggression too close to home.
We found that absolutely unfair, outrageous-- illegal because it wasn't approved of by the United Nations. It was a shock.
America had Russia wrapped around it little-- little pinky through the whole '90s. We did everything you told us. And we were eager to do more and more. The whole nation-- Russian nation was like, "Tell us what else we can do to please you. We want to be like you. We love you."
And then in 1999 bam. You bomb Yugoslavia. And that was the end of it. In a minute, in one day. And that's when you lost us unfortunately.
“Regardless of America’s laudable intentions and aims, the Kosovo war proved a handmaiden of two decades of disastrous interventions abroad. American hyperpower hubris, set free in a tiny corner of the Balkans, would unleash far more disastrous interventions in far more important regions of the world…
Since Kosovo, America has found fights wherever it looked for them.”
Sounds familiar
“Led by Willens2, the commission staff had tried for months before Dillon’s3 appearance to obtain Secret Service records related to the assassination. Willens believed that “the Secret Service appeared to be neither alert nor careful in protecting the president.” This was a delicate way of characterizing what was a criminally negligent performance by the service entrusted with the president’s safety. The buildings surrounding Dealey Plaza and its shadowy corners were not swept and secured by the Secret Service in advance of Kennedy’s motorcade. There were no agents riding on the flanks of his limousine. And when sniper fire erupted, only one agent—Clint Hill—performed his duty by sprinting toward the president’s vehicle and leaping onto the rear. It was an outrageous display of professional incompetence, one that made Robert Kennedy immediately suspect that the presidential guard was involved in the plot against his brother.
But Dillon stonewalled Willens’s efforts to pry loose Secret Service records, and when the commission staff persisted, the Treasury secretary huddled with his old friend, Jack McCloy, and then appealed to President Johnson himself. “Dillon was a very shrewd guy,” Willens marveled late in his life. “I still can’t believe he involved President Johnson in this.”
Instead of being grilled by the commission about why he had withheld records and why his agency was missing in action in Dallas, Dillon was allowed to make a case for why his budget should be beefed up. If the Secret Service was given more money, staff, and authority, Senator Cooper helpfully asked, would it be possible to offer the president better protection in the future? “Yes, I think [we] could,” Dillon replied brightly.”
- David Talbot, The Devil's Chessboard: Allen Dulles, the Cia, and the Rise of America's Secret Government (h/t T.V.)
From the book, JFK and the Unspeakable: Why He Died and Why It Matters
Secret Service agent “Abraham Bolden saw increasing evidence of the president’s isolation and danger from the standpoint of security. Most of the Secret Service agents seemed to hate John Kennedy. They joked among themselves that if someone shot at him, they’d get out of the way.”
“There is a theory, by the way, which I think is absolutely not an outlandish theory, that JFK was killed because he put the foot on the brakes to the CIA and to the security state. That's, by the way, not a crazy view, although it was made to sound crazy in the minds of many Americans. But I think it's not crazy at all, after having spent many, many years trying to understand that horrendous moment in our history.”
A curious story from August 2001:
"The covert installation, and brief use, of a balcony on the 91st floor of the World Trade Center, 1,100 feet above the earth…how did a balcony escape the notice of one of the most security-conscious office towers in the world?"
I don’t think most Americans realize this:
Slip-Slidin’ Away
We were never just kids But we were pretty young We did what we did just to get along
https://www.investopedia.com/terms/d/dscr.asp
Assistant Counsel to the Warren Commission
Clarence Douglas Dillon, JFK’s Treasury Secretary
That’s a lot to take in - well done. And, to borrow a job title from Caitlin Johnson, we need to elect a new middle-level manager in November. Two sides of the same coin sadly. Peter Grandich said ‘you want gold to get to $5000, elect Kamala’. He also said Trump would be no better; only that the continued slide down hill would be slower.
As for Putin - I have yet to hear a speech he’s made that causes me to think he’s an unreasonable villain - and the success of the Russian economy in the face of so much animosity is to be commended IMO - and I’ve seen YouTube videos of Americans who’ve emigrated to Russia who love it. The US leadership can’t ‘Mind their own damned business’ to quip Walz.
When I think about what the US leaders have inflicted on our own people and other nations, I’m thinking maybe we in a glass house shouldn’t throw stones. The rest of the world sees the whole picture - even if Americans cannot. Ask Tulsi Gabbard or Scott Ritter how well the US treat ‘dissidents’.
Of course the powers-that-be don’t let us hear Russian news and the hypocrisy that Russian ‘state financed’ news is some way more dangerous than NPR, RTE (Ireland), BBC and the other state funded news services throughout Europe is nonsense to me and an insult to Americans (we can think for ourselves thank you). Many Americans are invited for interviews on Russian TV (those Americans never invited onto our MSM); do we ever invite Russians to our media? Of course not.
I for one am ready for that “soul-ripping bear market” Dave mentioned. Our economy needs a good cleanse; however, the grifters in control will fight it with everything they can steal from us. Thanks again for another great read!