When they started buying mortgage-backed securities, that was a terrible mistake.

The profiteers dance in the palace hotels.

I’m still getting caught up with all the stories I emailed myself over a week ago, so everything is eclectic as usual. Oh - you can now directly link to My Notes.

The S&P 500 Index (which is basically Apple and Microsoft) is now down two weeks in a row, which I believe is unprecedented, and probably illegal. The panic is palpable. /s

Doug Short did some great chart work over the years, now I guess Advisor Perspectives took over, but his study of “middle-class wages” remains very telling.

“This is a gross income number that doesn't include any tax withholding or other deductions. Disposable income would be noticeably lower.”

You can see that in “real” terms the “average” hourly worker makes less than when Nixon was President (again, this is assuming that CPI is close to reality. If it’s understated, things are much worse).

Also, during periods of lower inflation (but still above the Fed’s legal mandate of ‘stable prices’) that everyone forever crows about, real wages were rising, and during higher inflationary periods, they were falling. That’s how it works.

So why was everyone on the FOMC calling for higher inflation, especially in 2019 and 2020? How did that help struggling families?

Now those people are getting killed.

As I said for years, this is the only manifestation of “inflation” the Fed will ever try to stamp out:

Once again, everyone on the FOMC is completely unaccountable as most people suffer (but not the folks at Pimco and Citadel, where Bernanke works.)

Wage growth would be less important if the Fed had ever achieved its first mandate of stable prices. They always act as if wage hikes will match or exceed real inflation, and completely ignore people on fixed incomes who are screwed no matter what.

Also note that, according to the Social Security Administration, the “median wage” for 2021 was $37,586. Most people don’t make much money, yet policy makers keep acting to make everything more expensive.

On the bright side, check this out. When I came on Twitter in 2013, you didn’t see this sort of stuff. I like to think that I had some small part in raising awareness of the existential threat the Federal Reserve poses to about 300 million Americans, the ones never interviewed on CNBC or Bloomberg. It’s ultimately Congress’ fault, but we keep electing idiots, so I guess it’s on us.

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The big change, Julia, was when [the Federal Reserve] started buying bonds, particularly when they started buying mortgage-backed securities - that was a terrible mistake. What they’ve done is they’ve taken all this duration out of the market, the market is now distorted as a result. We had a lot of people borrowing money in 2020 and 2021 at rates they can’t even think about today, so all that production - $25 trillion worth of securities over two years - is now well out of the money, and people who need to roll their office building mortgages or whatever it is, can’t do it, because rates are 4% or 5% higher than they were originally. I don’t think the Fed thought about it in the way that they should, because they just don’t consider the market, and that’s a big shortcoming.

- Chris Whalen

That last comment is so true. The Federal Reserve apparently has learned nothing since 2008.

Here are the Fed’s MBS holdings (and yes, it’s semi-log, to prove my point that “QT” is a total joke. They owned $0 of MBS until 2009.

The Fed’s 30,000 overpaid, unaccountable apparatchiks have again completely screwed up markets.)

Make sure to check out: Look - you worked at the Fed, surely they can't be this stupid? and The Consequences of an Unaccountable Federal Reserve, where it seems the Fed’s explosion of MBS purchases was likely to bail out one of their future employers.

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MacroVoices #374 Chris Whalen: Are More Banks Going To Fail?

I think inflation is much higher than the statistics suggest. And I think most Americans would tell you that cost of living, healthcare, you know, you name it, right? Housing has blown the inflation picture out of it, but they don't include it in the statistics. So you know, the Fed historically has doctored the view of inflation to suit the mandate. But I think in reality, they have to tolerate a fairly high level of inflation, in part because they are terrified of deflation. They're terrified of letting housing prices fall, for example. So you know, the system is now biased, I think towards inflation.

Unlike 90% of financial pundits who completely ignore or trivialize the issue, Whalen has it right. Inflation (i.e., CPI) is always understated, intentionally, and the Fed actually wants above 2% inflation (if you remember, they were crying for it a couple years ago, and we got it.) They want to hyperinflate, but very, very slowly (I’m only half-joking here.)

For the people interviewed on CNBC or Bloomberg, inflation is - at worst - a minor annoyance. In fact, it’s a huge tailwind for heavily indebted billionaires with lots of assets - the Ackmans and the Sternlichts - but for a couple hundred million Americans, inflation is an existential threat.

Klaus Mann described it well 81 years ago:

…let's enjoy the carnival of the inflation. It’s loads of fun and paper: printed paper, flimsy stuff - do they still call it money? For five billions of it you can get one dollar. What a joke! The Yankees are coming—as peaceful tourists, this time. They purchase a Rembrandt for a sandwich and our souls for a glass of whisky. Messrs. Krupp and Stinnes get rid of their debts: we, of our savings. The profiteers dance in the palace hotels.

From my post “A Very Ordinary Life”…

Of course all the little people who had small savings were wiped out. But the big factories and banking houses and multi-millionaires didn’t seem to be affected at all. They went right on piling up their millions. Those big holdings were protected somehow from loss. But the mass of the people were completely broke.

And we asked ourselves, “How can that happen? How is it that the government can’t control an inflation which wipes out the life savings of the mass of the people but the big capitalists can come through the whole thing unscathed?” We who lived through it never got an answer that meant anything. But after that, even those - people who used to save didn’t trust money anymore, or the government. We decided to have a high-ho time whenever we had any spare money, which wasn’t often.

"They massively overstate the deflation risk."
Edward Chancellor

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First off, any article that starts with “Yes,…” or “No,...” can be safely ignored. It’s usually some smug condescending piece where the writer is trying to tell you to ignore your reality and switch over to their reality.

Anyway, just wanted to post this comment from a Gamestop fan:

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Farmer Jim Strikes Again!

Al Michaels says he’s invested in Cleveland Cliffs (currently $14.75 per share) because of Lebenthal’s advice, asks if it’ll still be a tax loss when Michaels dies.

Flashback, April 22, 2022: Cleveland-Cliffs is a buy right here, says Cerity Partners’ Jim Lebenthal ($29.41 a share)

“This is a buy, right here at this price.”

This isn’t the first time I’ve noticed this. You could have a Substack that does nothing but post truly disastrous CNBC recommendations over the years. You could even exclude Jim Cramer and never, ever run out of material.

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• For what it’s worth, I noted the other day that last year we had “a nearly $1 trillion increase in mortgage balances during 2022,” but this year “the issuance of global mortgage-backed securities (MBS) slumped to a 23-year low in the first four months of this year.”

• I have WeWork in the death pool.

• Steve Bregman’s 1st Quarter 2023 Commentary

• Private Equity is Out of Control and Looting America. Yep.

• Inflation in countries using euro currency inches higher to seven per cent After ten years you’ve lost half of your purchasing power at 7% inflation (and that’s assuming reported inflation is accurate. What if it’s really 14%?)

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The Pool of US Commercial-Property Lenders Shrank

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Office conversions are also economically challenging and often not possible without significant public funding. A newer study of downtown San Francisco identified the potential for more housing units from office conversions (between 4,200 and 11,200 if as much as 40% of vacant space was converted). But the study noted that such conversions are costly (between $472,000 to $633,000 per unit before necessary seismic upgrades) and “given current economic conditions and development costs, most conversions of underperforming office buildings to housing are not financially feasible.” In other words, the costs to convert are too high to occur without significant public funding.

Fortunately, public funding is unlimited, right Neel Kashkari?

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This guy was really annoying: Ark Homes For Rent's Jordan Kavana

Not only does he want to go from taking 5,000 homes to 15,000 homes off the market, he justifies that by saying he’ll offer renters deals on vitamin supplements and sleep coaches. No joke.

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Would you live next to co-workers for the right price? This company is betting yes

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Three failed US banks had one thing in common: KPMG

I trust the auditors about as much as I trust the ratings agencies.

“The chief executives of Signature and First Republic were both former KPMG partners.”

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With extremely tight inventory in our market (as in most places), many of our friends have been telling us to post in an online forum for the neighborhood we are looking to purchase in. It’s a large neighborhood, 1500 homes. Over the 6 months we have had several homeowners respond, three that were in our budget/size needs. All three backed out when we wrote a contract, right before signing. All three we offered considerably over asking, no contingencies, rent back if needed, etc. etc. All three backed out for the same reason and also the reason for my post: THEY HAD NO PLAN.

After they saw dollar signs and we got contract details ironed out, they all wanted to think it over and I guess start looking for their next place (all downsizing). After a few days of that, we get an email or text saying they had no idea the market was this crazy and they can’t find a place that isn’t 3x their current mortgage for 1/2 the size. Well, duh.

Happy to take the crazy equity, then nowhere to go with it.

All of these were boomers who lived in their homes for 15+ years. I get it that when someone offers you crazy money, you want to take it, but this is ridiculous. There are lots of older people out there who have no idea what the current market is like.

(Triangle region of NC, SFH, 3000sf)

• They want to sell for 2023 prices and buy for 2008 prices.

• As someone who is under contract on their current house and can’t find a new one to move into, I feel their pain. I think that folks don’t know just how rough it is until they actually start looking. We’ve been looking casually for two years, but didn’t realize how much it actually sucked until we were faced with our move out date.

• What is insane to me is that the new 55+ communities here in north metro ATL start at like $400k. That was the typical home price of a 2500-3500 sq ft SFH until about 2020. So these people are moving into a community of 1500sqft homes on zero lot lines for the same price or MORE buy in than they are selling their longtime homes for.

• A lot of 55+ people don't want to live surrounded by other 55+ folks. That's boring. Mixing in some youth and vitality keeps life more interesting.

• My mom lives in one and feels like someone is always dying. It can be quite depressing.

• I can tell you, it's also a big decision to downsize that doesn't become scary until it's more real. I've watched my father go through this... They are always looking, but he'll find excuses for why he can't. The reality is, he hasn't come to terms with having a smaller home and lot or a condo. Even though he doesn't need a large home and definitely doesn't need a lot of land. It's just a mental feeling of going backwards, I think. Especially since he grew up with almost nothing and worked his way up to where he is.

• For a lot of people it’s not a feeling of going backwards, it’s a feeling of going toward the grave. At least in the people I know this is much more common. Even the ones who go through with it seem to have accepted this as a step toward the inevitable end.

• One of my neighbors near the house I rent is probably close to 80 years old. While helping her one day she asked me why we don't buy here and proceeded to tell me that the houses are only about 20K. Umm Ma'am, the one across the street just sold for $620

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Within about a dozen years, floating wind turbines — as tall as the Eiffel Tower — will stand alongside the cranes and cargo containers at the Port of Long Beach as part of the largest offshore wind turbine facility in any U.S. port. Once assembled in the Port of Long Beach, the 1,100-foot-tall turbines can be towed by sea to locations in Central and Northern California to generate renewable energy for the state. The Port of Long Beach on Tuesday released plans for the offshore wind project — dubbed Pier Wind — to generate up to 20 megawatts of energy per turbine for the state, helping California move toward a zero-emission future.

It’s that last line that gets me whenever I see this type of article. How many emissions will go into making and maintaining each of these 1,100-foot-tall bird abattoirs?

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Bono Is Doing Illustrations For The Atlantic Now, Because Everything's Fake And Stupid

Remember, the Atlantic also gave us this atrocity:

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• Pausing AI Developments Isn't Enough. We Need to Shut it All Down Everyone needs to go watch The Terminator.

• Everything you never wanted to know about King Charles III

• Unraveling the Epstein-Chomsky Relationship Whitney Webb is the best journalist out there.

I’m already tiring of A.I.

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