“Unlike economics, accounting is actually an incredibly useful tool.”
"People got really comfortable taking risk this week"
Censors are dead men
set up to judge between life and death.
For no live, sunny man would be a censor,
he’d just laugh.
I discovered by posting this chart that there is an amazing number of ignorant people - mostly econ majors and kids living at home - who have been indoctrinated to believe that inflation is really good for anyone other than people like Janet Yellen and Larry Fink.
For fun, here’s the Fed’s “QT” (semi-log!):
Cantillon Effect: "Corporate equities and mutual fund shares by wealth percentile group"
“QE is no more than monetary policy for rich people.”
“Janet [Yellen] was the strongest advocate for unlimited” quantitative easing.
- Betsy Duke, Fed Governor from 2008 to 2013
"When the world is plunged into the abyss every so often by the giants of finance, it must be pulled out by these pygmies, whilst the Goliaths sit and weep over their own bruises."
- Freeman Tilden, 1935
“Unlike economics, accounting is actually an incredibly useful tool.”
Nassim Taleb describes the typical FOMC Member
The Intellectual Yet Idiot (IYI) is a product of modernity, hence has been proliferating since at least the mid-twentieth century, to reach a local supremum today, to the point that we have experienced a takeover by people without skin in the game. In most countries, the government’s role is between five and ten times what it was a century ago (expressed in percentage of gross domestic product). The IYI seems ubiquitous in our lives but is still a small minority and is rarely seen outside specialized outlets, think tanks, the media, and university social science departments—most people have proper jobs and there are not many openings for the IYI, which explains how they can be so influential in spite of their low numbers.
The IYI pathologizes others for doing things he doesn’t understand without ever realizing it is his understanding that may be limited. He thinks people should act according to their best interests and he knows their interests, particularly if they are “rednecks” or from the English non-crisp-vowel class who voted for Brexit. When plebeians do something that makes sense to themselves, but not to him, the IYI uses the term “uneducated.” What we generally call participation in the political process, he calls by two distinct designations: “democracy” when it fits the IYI, and “populism” when plebeians dare to vote in a way that contradicts IYI preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one vote, with some equivalence for foreign elite schools and PhDs, as these are needed in the club.
They are what Nietzsche called Bildungsphilisters—educated philistines. Beware the slightly erudite who thinks he is an erudite, as well as the barber who decides to perform brain surgery…
The IYI subscribes to The New Yorker, a journal designed so philistines can learn to fake a conversation about evolution, neurosomething, cognitive biases, and quantum mechanics. He never curses on social media. He speaks of “equality of races” and “economic equality,” but never goes out drinking with a minority cab driver (again, no real skin in the game, as, I will repeat until I am hoarse, the concept is fundamentally foreign to the IYI). The modern IYI has attended more than one TED talk in person or watched more than two TED talks on YouTube. Not only did he vote for Hillary Monsanto-Malmaison because she seemed electable or some such circular reasoning, but he holds that anyone who didn’t do so is mentally ill…
The IYI has been wrong, historically, about Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, low carbohydrate diets, gym machines, behaviorism, trans-fats, Freudianism, portfolio theory, linear regression, HFCS (High-Fructose Corn Syrup), Gaussianism, Salafism, dynamic stochastic equilibrium modeling, housing projects, marathon running, selfish genes, election-forecasting models, Bernie Madoff (pre-blowup), and p-values. But he is still convinced that his current position is right.
As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.
Alan Greenspan, March 16, 2004:
We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand
The IYI’s are unelected, unaware, and utterly unaccountable.
The Greenspan story above reminds me of this great anecdote on why ZIRP was bad, and demonstrating Bernanke’s craven hubris, from Chris Leonard’s great book, The Lords of Easy Money:
Dallas Fed President Richard Fisher “gave a long, impassioned speech against Bernanke’s push into deeper and deeper interventions. Fisher didn’t just argue on the philosophical merits of the Fed’s ZIRP policies. He presented a specific, detailed case study illustrating how the policies were already causing dangerous distortions in the economy.
Fisher said that he had recently spoken with the chief financial officer of Texas Instruments, who explained how the company was managing money in the age of ZIRP. The company had just borrowed $1.5 billion in cheap debt, but it didn’t plan to use the cash to build a factory, invest in research, or hire workers. Instead, the company used the money to buy back shares of its own stock.
This made sense because the stocks paid a dividend of 2.5 percent, while the debt only cost between 0.45 percent and 1.6 percent to borrow. It was a finely played maneuver of financial engineering that increased the company’s debt, drove up its stock price, and gave a handsome reward to shareholders.
Fisher drove home the point by relating his conversation with the CFO. “He said—and I have his permission to quote—‘I’m not going to use it to create a single job,’ ” Fisher reported. “And I think this is the issue. We work under the assumption that lowering the cost of capital and providing cheap money encourage businesses to lever up and to use that levering up to expand [capital investment] and job creation, which is part of our mandate. I don’t believe that’s happening.”
Fisher was describing, specifically, how ZIRP was already building up systemic risk in the economy without creating a single job. Bernanke rarely responded directly to such statements, but in this case he made an exception.
“Thank you,” Bernanke said. “President Fisher, I know we put a lot of value on anecdotal reports around this table, and often to great credit. But I do want to urge you not to overweight the macroeconomic opinions of private-sector people who are not trained in economics.”
And for this type of thing the sociopathic Ben Bernanke gets awarded a Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
"Goethe wisely said, “in the general throng, many a fool receives decorations and titles.”"
- Stefan Zweig
Green shoots! Michigan Consumer Sentiment Soars to Highest Level Since September 2021
Is it priced in?
It would make a great investment property!
The housing ATM is making a comeback!
Gavin Galazka, a 27-year-old law enforcement officer in Naples, Florida…decided to take out a $50,000 line of credit on the condo, which had jumped in value since he bought it the prior year…But as the Fed hiked rates, Galazka’s Heloc got more expensive, with the interest rate more than doubling to 8%. That made the prospect of a getting a mortgage for a new property less appealing. Instead, he decided to play the stock market.
”Super sad office to residential conversion, SF Bay Area”
Only 20-25% of all US office buildings are candidates for conversion to residential.
And the studies consider the economics to be essentially the most critical determinant.
California, and especially SF, is a particularly poor candidate, since the bureaucratic overhead and costs associated will put it at the upper bound of total cost to convert — especially when adding the extended timeframes which could run years of ~100% vacancy losses during the years of the conversion.
Daud Shuja, owner and designer of Franco Uomo, a luxury clothier based in San Jose, said new customers who live in San Francisco drive at least an hour to the store. He plans to open a shop in a more convenient location in suburban Palo Alto next year. “They just don’t want to deal with the homelessness, with the environment, with the ambience,” he said.
“Venice is my favorite because you can get hot showers every day. You can go out to the food bank three days a week. There is a church nearby that gives you a hot meal. And you can’t beat the views!” he said, noting that he gets by with panhandling and $221 a month from “general relief” funds from the Welfare Office.
Blood-stained walls cover a historic Southwest Portland storefront. It’s just one of the many vacant buildings downtown struggling to get off the market.
The Charles F. Berg building on Southwest Broadway and Southwest Alder Street once stood out for its avant-garde design and pure gold façade. Now, it’s the latest side effect of the drug and homelessness crisis plaguing Portland. Squatters broke in and took over the 20,000 square-foot space. “They were living here for a couple of weeks before we noticed”
…there are an estimated 5,455 people experiencing homelessness in Austin or Travis County on any single day…"But what we're hearing is that, once they get them into the housing," the pizzeria owner continued, "they're maybe staying there a day or two and then getting right back on the street again."
…longtime Scottsdale residents are fed up because they feel their neighborhoods are being taken over by short-term rentals and their transient visitors. Triplett says the noise and the nuisance never stops…”If somebody had said that I would end up living next door and across the street from five short-term rentals, we never would have bought on our street”
Many more stories at the excellent Housing Bubble Blog.
Podcasts
Carol Roth: “You Will Own Nothing: Your War with a New Financial World Order and How to Fight Back.” Excellent. Another winner from host Demetri Kofinas.
Peter Stella on Fed Losses, Backdoor Fiscal Stimulus and Credit Easing The guy is a former IMF/Fed guy, so clearly there’s a number of times I disagree with him here, but there is a little agreement, and it’s good to know how the other side thinks. Another takeaway is that I am amazed that - somehow - unelected, unaccountable apparatchiks like Stella have been given - by our corrupt Congress, which we elect - incredible power to mess with our lives.
Risk On! Inflection Point or False Flag? Enthusiasm Everywhere, Bearishness in Short Supply "People got really comfortable taking risk this week"
Warden Capital's Hawkins Entrekin on the $VNO bull case, and New York City commercial real estate market Again, I don’t really buy this, but maybe he’s right, I don’t know. Helps to hear different views.
NYC office properties at a five-cap. Go!
No fear?
“The prime rate is the interest rate that commercial banks charge creditworthy customers.”
The average weekly prime rate since 1955 is 6.81%, and the median is 6%. Today it’s at 8.25%.
“A CCC rating is considered to be speculative or junk grade, indicating that the issuer has a high risk of defaulting on its debt obligations. CCC credit ratings are often given to companies that are experiencing financial difficulties or have a high level of debt.”
CMBS Spreads have been rising, but if you look at a long-term chart in the link, they’re still very, very low.
Miscellany
Apparently Green China burned more coal last year than the rest of the world combined.
If you want to kill off coal…build that natural gas pipelines. You don’t block them. You certainly don’t destroy them. And if you want to kill off natural gas, build more nuclear.
- Tom Bachrach, PFH Capital
Looks like everybody loves tech. I’m heavily invested in (blank).
The Triumph of the Suburbs Central planners must HATE this.
“Energy return on investment, in my opinion, is the most underappreciated concept in economics. There was no mention of it to me as an undergrad...”
End the Fed with extreme prejudice.
It's a big club and they beat you with it.
In his era, my dad called IYI types "effete intellectual snobs" or "educated fools."
I have refrained from pimping my own stuff here and won't again if you prefer, but today's films review seems of the same spirit.
https://l5news.substack.com/p/liars-poke-her
Laughed and laughed at the 'everything priced in.'
I wonder what that guy did in the moment after he wrote that final sentence.