Wednesday, March 15, 2023

Yet More Bank Garbage

Trump and his minions are claiming the recent bank failures were caused because those banks were "woke".  As with everything else having to do with their use of that word 1) it's meaningless, and 2) it's just being thrown out there to provide cover for the accusers' wrongdoings.

Immediately after taking office, Trump took steps to "relieve community banks" from the evils of Dodd-Frank.  SVB was a community bank the way Elim Garak was a plain, simple tailor.  Once again Der Drumpfenfuehrer and the Reich Wing Media are lying.  There is no way they can connect these dots so they have meaning for anyone other than their tin-foil-hat minions.  The actual dots lead straight to Trump.  In standard GOP form, Trump lifted a bunch of Dodd-Frank liquidity regulations for no reason other than "Regulations BAD!"  (If I were to let my more cynical side run, I could say he also did so to facilitate grift by financial executives, but....).  SVB, which had become Deposit and Clearing Central for a number of crypto companies, now had effectively all of its cash reserve requirements removed.  SVB took the newly freed cash and put it with most of its other investments, buying long Treasury bonds (This was actually a fairly prudent move.  Under normal circumstances.).  Then FTX failed, and seismic shock waves moved through the crypto community.  People decided to cash out of crypto, and the crypto companies had to make large withdrawals from their SVB accounts to cover.  So the run wasn't actually on SVB; it was on the cryptos, who then made withdrawals on their accounts.  The problem was SVB didn't have the cash on hand.  It had to raise it, and that meant selling its Treasury bond positions.  Unfortunately, has been raising interest rates, and when that happens the value of older bonds goes down because they have the older, lower rates.  SVB had to sell its bond positions at a discount, which left it short.  Also unfortunately, much of the rest of its investment positions were loans back to its depositors, and since those loans had been made with the deposits that were now being drawn on, SVB had a liquidity loop going nowhere.   On top of that SVB was going to have to mark these investments to market, and since they had lost value, that meant its assets would have to be written down.  It was teetering on insolvency when DFPI and FDIC walked in.  This doesn't address some the shadier insider moves, nor does it address just how much cash reserve would have been needed to shield SVB from its crypto positions, but Trump's moves definitely let SVB's executives bury it roof-deep in a mud hole.

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Wednesday, December 21, 2022

And So This Is Christmas

I have to admit I'm not a big fan of Christmas Season.  The overwhelming commercialism is bad enough.  We start with a guy who preached continually about the dangers of materialism and celebrate his birthday with an orgy of materialism that props up our entire capitalist system.  Unlike the list of things Alanis Morissette sings about, that actually is ironic.

For me, though, the real nightmare is the music.  Let's skip over the carols.  They're overwhelmingly schlock, and as Bob Rivers in American Comedy Network sang it, "I think I'd rather have you shove a chainsaw in my ear."  But at least they're short and have no pretensions.  I have to note, though, that one of the best of them, "Carol of the Bells", is actually the Ukrainian New Year song "Shchedryk", dating from back when New Year was in Spring.  Then New Year got moved back to January, and some Anglophone got hold of it, wrote new lyrics, and voila it was a Christmas carol.  Just another example of Christmas flopping its bloated carcass all the way across every stage it lands on.

Anyway.  The real disappointment is the classical side, where the worst is held up as the best.  Menotti's worst opera, Drivahl and the Nut Visitors, becomes his only work anyone knows.  I swear if I hear one more audience chuckle nostalgically when "This Is My Box" starts, I'm going to take a flame thrower to the place.  Crutnacker is Tchaikovsky's worst ballet.  I have to admit I have little use for dance, and ballet is definitely dance, but musically...come on.  An evening of Tchaikovsky will give you hyperglycemia, and the Second Act Endless Parade of Horribles is excruciating even by Tchaikovsky Second Act Endless Parade of Horribles standards.

And then there's Handel's worst oratorio, The Mess.  Thirty minutes of material crammed into two-and-a-half hours.  I've performed the thing more times than I care to think, both choir and orchestra.  I'll take orchestra.  At least hiding in there you can use all that down time to do something constructive, like re-reading Война и мир.  Up in the choir you have to just sit there with a pious, enraptured look on your face while you stare into the abyss.

As I do every year, I'll just be glad when it's over.

No, Old Friend, China Is Not Taking Over

I have an Old Friend (OF) who, like everyone else I went to law school with, is smarter than me.  That doesn't mean they're always right and I'm always wrong though.  This is one of those cases.

On 9 December China formally invited the Arab nations to trade oil and gas in yuan on the Shanghai Exchange.  There has been much pearl-clutching about this being the end of the dollar as the world's reserve currency and China taking over, and OF is one of the big clutchers.  "The oil-dollar link is gone, so Bretton Woods II is now gone, and the yuan is about to take the throne."  No.  Just no.

Admittedly OF knows more about the Gulf these days than I do, having been based there for several years recently.  Unfortunately OF also seems to now be "highly influenced" by certain entities in the Gulf.  I know OF was in a bit of a jam, OF went to the Gulf, and OF was no longer in a jam.  I believe there is something of a Professor Quirrell-Voldemort thing going on.  Besides that, I know more about China than OF.  And Russia.  And the general train wreck of 1973-74.

The collapse of Bretton Woods I in 1971 and the rise of Bretton Woods II in 1974 are convenient fairy tales economists like to tell, but that is what they are: fairy tales.  First, saying that Nixon killed Bretton Woods I when he pulled the plug on gold in 1971 (not 1972 OF) is about like saying Paul broke up the Beatles even though John, George, and Ringo had already called it quits.  Johnson recognized in 1967 that there wasn't enough gold to back enough currency to support the global economy (Oddly enough the same problem that pitched the US into a quarter-century of rolling recession from 1875 to the arrival of the first gold shipment from the Alaska-Yukon Rush, the blessed "one ton of gold", but then who says we can be taught.) and started acting on it.  By the time Nixon took office, the London Gold Pool was dead and De Gaulle was getting his petty revenge for not being treated like the Emperor of the World after WW II (As far as I'm concerned, France will owe us for time and eternity for red-baiting our brilliant leaders into taking over its failed recolonization efforts in Indochina.) by blocking domestic exchange of dollars for francs and hording gold at the dollar's expense, which proved once and for all that gold had to go.  All Nixon did in 1971 was code the patient.  Any resulting panic was due to the usual lack of preparation for the inevitable.

Then there is the myth of how the US brutally strong-armed everyone into Bretton Woods II.  It's a popular story in the Middle East now, understandably so in light of the Afghanistan and Iraq wars and US clandestine operations everywhere else in the region, but let's take a look at July 1974, shall we?  We'd just pulled out of Vietnam with our tails between our legs.  We were in our worst recession since the Depression.  The political scene was a mess; Nixon would be gone in a month.  We honestly felt like we'd had our stuffings kicked out.  Granted, we now had a military with nothing to, and we had lots of unemployed people to feed into that machine.  Granted, we were all really pissed off at OPEC because it was now really expensive to drive our 8 mpg Detroit land battleships in a society built around getting in your car just to visit the neighbors.  But we just weren't up for it.  Sure we could have sent in our professional hitters for some wet work, but putting the requisite boots on the ground to occupy and operate the oil fields?  Wasn't gonna happen, and everybody knew it.  Aside from everything else, it would have put "paid" to Kissinger's efforts in China and the Soviet Union.  So no.

OK, so speaking of China, there's something you really need to know: Everything China does that is outward-facing is theater.  Whether it's the economy, the military, the space program, or whatever, it's propaganda with questionable substance behind it.  And China likes using Westerners to shill for it and has gotten really good at recruiting them.  If you want details, here is a good site to go to, run by someone who has been there.  I'll just share a personal anecdote.  Once upon a time, I was on a multi-discipline team China had brought in to advise it on an environmental issue.  In its drive to industrialize, China had turned a number of its rivers into things that made the lower Cuyahoga look like a bubbling, mountain brook.  Yet people were still living by and using the water from these rivers.  China had been receiving heat from international watchdogs and investors, and so they brought in international experts to help it solve the problem.  Over three years we presented several solutions.  All were declared unfeasible by the Chinese authorities.  In reality they were not interested in solving the problem; they were interested only in presenting an outward-facing appearance of trying to solve the problem.  That's the way it works there.  And that's what the latest dog-and-pony show in Riyadh is all about.

For a currency to be used for exchange or as a reserve, it needs a couple of things.  First, it needs to be issued by a sovereign.  The yuan meets that.  (The euro, BTW, doesn't.  Think the EU is sovereign?  When the US wanted to enforce school desegregation, it sent the US Marshals and the 101st Airborne into the Cracker States to do it.  Ask the EU what it would do if Germany or France told it to pound sand.)  Second, it can't be pegged to another currency, because then any exchange would actually be in the peg.  The yuan doesn't meet this.  "But," you say, "Didn't China remove its dollar peg in 2005?"  Yeah, that's what they said they did.  But since then they've held the yuan in such a tight band around the dollar it might as well be pegged to it.  Again, appearance vs. reality.  Again, image.  China can say it is trading in yuan all it wants, but so long as the yuan's value depends on the dollar, the trades are really in dollars.

One last note.  OF remarks the US can do little to intervene in China's plans because Biden has drained the Strategic Petroleum Reserve to reduce domestic prices.  I'm not a fan of Biden, but I think he's actually done a creditably crafty job here.  He has used the Reserve exactly for its stated purpose, cushioning against supply shocks such as the one created by Bad Vlad.  The Reserve has been drawn down significantly, but it certainly hasn't been drained.  And Biden sold at the top of the market and is now resupplying at the current, much lower price.  If Biden were a Republican, I suspect OF would be calling this a genius business move.  At any rate, the current level of the Reserve does not hamper any steps the US may need to take concerning China's plans.  Should any substantive consequences actually materialize from those plans.

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Thursday, October 06, 2022

Nord Stream Pipelines Sabotage

There has been a lot of silliness bandied about concerning last week's sabotaging of the Nord Stream pipelines off Germany.  First I would note I'm a Norwegian-American and maintain connections in the Old Country; I lived in Germany and maintain connections there; and once upon a time I could read Russian pretty fluently for reasons I shall not go into here other than to say it was the late 70s and early to mid 80s, so go figure it out.

The problem is something Sherlock Holmes warned against repeatedly: People are jumping to conclusions without facts.  I expect this kind of crap from mainstream media.  They have deadlines to meet, and the little problem that they have no idea what they're talking about or their sources are entirely Russian trolls is at best a secondary concern.

For a level-headed analysis of the matter, I recommend you watch Anders Puck Nielsen.  More on this later.

More of a problem than misreporting by mainstream media is that sites that used to be go-to for solid analysis are now shoveling barnstuff with big shovels.  One example is Eurotrib, which I've been on for some time and which used to be a home for a number of significant European policy analysts.  Now it's virtually swamped by drivel from Oui from the Netherlands and Cat from...Planet Claire, two people who know far less about things than they think they do.  On 1 October Oui dumped one of his word salads on this topic, a mishmash of "supporting cites" from legit sources that don't necessarily apply or aren't necessarily consistent (and many of which are 10, 15, or more years old), nonlegit sources such as Kim Dotcom and the Chinese government, and people who used to better but apparently no longer do such as Pepe Escobar and Yves Smith (nom de plume for Susan Webber).  Oui's conclusion: The US must have done it to stop German activists from reopening the pipelines, and Russia couldn't do it because it would only hurt them.  Ahem.  More on this below.

Speaking of Ms. Webber, she did a dump on her site, Naked Capitalism.  I used to be a regular at NC back in its heyday during the financial crisis, but it has gone steeply downhill since then to the point that the bulk of its writers are there because they have nowhere else, and they don't even write under their real names.  The heavy hitters, such as the MMT scholars like Bill Black, are long gone.  Anyway, Ms. Webber made a blog post supported by such totally legitimate sources as the Chinese government and retired diplomat M.K. Bhadrakumar (most of whose postings were in the USSR/Russia and whose father was a very active member of the Communist Party of India) to conclude the US must have done it.  She actually wrote, "On top of that, the area of the attack was heavily monitored by both Sweden and Denmark, and the Baltic generally is also well surveilled…by NATO members. And as many have pointed out, on top of Russia having at best limited opportunity, it lacks apparent motive."  Impressive, every word in those sentences was wrong.  First, yes NATO surveils the Baltic, and so does Russia.  Second, Russia has tons of opportunities.  Finally, Russia has tons of motive.  More later.

The next day NC doubled down with Conor Gallagher's post.  It takes Russian and Chinese sources at face value (In fairness it quotes Nielsen, but not on a matter that matters.) and then trots out true tinfoil-hattery with John Helmer's allegation that Poland did it on behalf of the US.  Wow.  Just wow.

If you haven't yet, go watch Nielsen's YouTube.  It lays things out really well.  Nielsen starts from the rational position that Russia is losing in the Ukraine.  And that's the crux of the problem.  The people who think the US did it and Russia couldn't have also think Russia is winning.  The pace of the attack is just Russia biding its time.  The recent withdrawals in the east were completely orderly and strategic.  Russia is about to unleash 300,000 well trained, well equipped, highly motivated troops on Ukraine.  Why would Russia blow up the pipelines when Ukraine is about to be KO'ed, and the EU is about to lift sanctions and buy Russian again?  It's like listening to MAGAts talk about how Trump won the 2020 election.

The truth is that Russia is losing.  Badly.  It was routed out of areas it had just illegally claimed sovereignty over.  Civil unrest is growing.  A quarter-million potential draftees have already fled, with more on the way.  And the ones who will ultimately be sent will be about as effective as the Afghan Army.

Could the US have done it?  Of course.  It certainly had the opportunity and the means.  But did it really have a motive?  US intelligence and the military have made a lot of stupid moves over the last 75 years, but this would have been a whole 'nother smoke.  Supposedly the US blew the pipelines to prevent Germany from reopening them.  This ignores that there were no forces in Germany that could make the government lift the sanctions.  AfD and Die Linke?  Are you kidding me?  So of course, let's risk the progress of the war by blowing up the pipelines, the only inevitable consequence of which will be increased turmoil in Europe.

Further, as Nielsen point out, none of this makes operational sense.  The US could have used a fully clandestine attack, such as a cyber attack planting a seed to be triggered if someone actually did try to lift sanctions.  If it had been a US covert attack, it would have been closer to Vyborg.  It certainly would not have been so close to the Baltic pipeline, and the Poles would never have signed off on it.

Now consider Russia.  Bad Vlad and his rat pack are in a corner, and they know it.  They are losing on the battlefield, so they need to find a way to disrupt the opposition, break it apart, make it want to stop supporting Ukraine.  So perform an act of sabotage, and use the sock puppets to blame the US.  Putin's Ardennes Offensive (Not the Steiner Offensive.  Yet.).  Opportunity and means?  With the Baltic bases right there, definitely.  Motive?  Oh yes.  But the pipelines are Russian!  Well they twarn't usin' 'em none.  Remember, Putin and his people are in trouble.  They need solutions immediately.  They may as well get some return on the pipelines now, because there may be no tomorrow.

And so far, courtesy the sock puppets, the plan is working.  How long it will continue to work only Winter can tell.  But there's one more thing to toss in.  As I mentioned above, Russia surveils the Baltic as well.  Do you really think that, if Russia had spotted a US submarine operating in the sabotage area, it wouldn't have already broadcast it to the world by now?  Yeah, I didn't think so.  Consequently, unless a bunch of evidence rolls in actually implicating the US, I'll view anyone pointing the finger this way as tools and fools.

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Sunday, July 17, 2022

Yet More "Financial Advice"

I have written previously about "financial advisors" who are actually the worst sort of pitch men out for nothing more than emptying your pockets to line their own.  Lately I've been tracking yet another one:  Mikkel Thorup and his minions at ExpatMoney.

This outfit raises every red flag possible.  No one has a license to provide investment advice, which is unsurprising given Thorup is a Randonazi libertardian who claims Adam Smith was opposed to all government regulation, ignoring Smith's clear statement that, if government did not stop the natural, bad acts of entrepreneurs, capitalism would collapse.  So either he's never read Smith, or he's read him well enough to lie as facilely about him as the Cato Institute, the AEI, the Universities of Stanford and Chicago, the von Mises Institute, etc.  No license means they can't give actual financial advice, they can only sell stuff, typically the worst sort of barn stuff (BS).  They also engage in circular promotion.  This week they appear on a friend's podcast where their friend declares them the greatest thing ever, and they make a sales pitch for some raging pantsload of an "investment".  Next week their friend appears on their podcast where they call their friend the greatest thing ever, and their friend makes a sales pitch for some raging pantsload of an "investment".  And the spin keeps spinning.

Specifics?  The major investments they're shilling are 1) real estate developments in Ambergris Cay in Belize, and 2) teak in Belize.  They also have a couple other pieces of "advice" I'll get to.  I'll get to Ambergris Cay in a bit too.  First, teak.  I will grant you, teak is a valuable wood.  So long as squillionaires keep ordering yachts, there will be demand for teak.  And it's really nice to work with.  But none of their pitches for investments in teak plantations in Belize disclose that a commercial crop requires at least 20 years from planting to logging.  That means you need at least 20 years of political and economic stability in the country where your plantation is.  Belize has had at least five bond defaults or restructurings in the last 15 years.  The most recent was last year, which was so bad Belize engaged in open extortion, threatening to stop all environmental protection, especially of its coral reefs, unless it could renegotiate its foreign debt.  The debt was rewritten last September, underwritten by, get this, the Nature Conservancy, and the bond holders still took a 60% haircut.  Reeks of stability, no?

Ambergris Cay.  Oh man.  About 20 years ago the usual sorts started promoting a luxe development on the coast of Belize.  Funds were raised funds went down a rat hole, and about 15 years ago it all collapsed.  You can read the details in a lawsuit a guy named Haugen brought against the principal finance company, Caye International Bank, Ltd. (CIB).  Haugen invested in Ambergris and thought CIB had ripped him off.  That's probably true, although I can't sympathize much with Haugen, who probably thought he'd found a way to rip a bunch of people off and ended up being the rippee instead of the ripper.  Unfortunately for Haugen, the investment disclosure laws throughout the libertardian paradise that is the Caribbean are nonexistent.  Caveat emptor, baby.  The history of the case would be a great law review article since the Caribbean Court of Appeal (aka Caribbean Court of Justice or CCJ) dumped the Belize trial court's opinion and came out in favor of CIB in a demonstration of pretzel logic worthy of Injustice Alito.  The presiding justice was Justice Wit.  You can't make this stuff up.  It's further evidence you should never expect an honest court ruling in the Caribbean (and you may largely thank the ever-corrupt UK crown for that).

Oh, and the main hawnyawk for CIB was a guy named John Nagel, who was also sued.  Aside from misrepresenting on his website that he'd been completely cleared (No, CCJ remanded to the Belize trial court for a determination of damages and costs.), he was Belize's ambassador to Austria during all this.  That is until 2017 when Austria kicked him out for doing damn all in the way of ambassadorial duties and spending all his time on private deals.  So apparently he was too much of a libertardian even for the land of von Mises and Hayek.

The point?  ExpatMoney is promoting a revival of the Ambergris Cay development.  And who's banking it?  Yep, CIB.  Anybody disclosing the prior collapse, or the lawsuits, or Nagel's issues?  Are you kidding me?  If anyone wants you to invest in this, take your money and run before they do.

And then there's their other "advice".  First, you need to run off to someplace like Belize or Panama.  Because they won't "regulate you to death".  Which is code for "you can exploit the living Hell out of them".  You can bring nothing, soak up resources while paying no taxes, and ultimately contribute nothing.  In other words, you can impose neocolonialism.  Ayn Rand wonderland.

And then there's the unregulated paradise they're promoting: The Free Republic of Liberland.  They're trying to convince you to get your second citizenship from there, touting it as a bastion of freedom.  The problem is, it doesn't exist.  It's a scam by the Czech crypto-fascist Vít Jedlička, who grabbed a slice of vacant land in one of the areas in dispute between Croatia and Serbia and called it his own.  No place recognizes Liberland or its "citizens".  But if you want to blow your money on, that's your call.

One other thing.  ExpatMoney is based in Panama.  Which means if you make the mistake of taking their "advice" and lose your shirt and your shorts, which you will, don't expect to be recover your losses.  Panama has a paucity of those pesky regulation things for you to recover under.  You'll just be another sap who broke on a Caribbean rock.

Saturday, October 16, 2021

A New Rant

A new rant just posted at Pacemaker:

Real estate crashes are built into the plan and are not a bug but a feature.  And with every crash, assets are further concentrated at the top of the wealth scale.  Let's look at the last crash.  The end of the boom was signaled Thanksgiving 2006 when Chase and Wells simultaneously (But certainly without collusion.  It's a miracle!)  converted the lines of credit that were an essential part of their mortgage programs into 60-month amortized loans, closing off access to credit for thousands of small businesses.  Why?  Well after spending the boom dead to the world, SEC and DOJ had been politically forced into semi-comatose states and had given Chase and Wells taps on the shoulders.  They hurriedly solidified their LOC positions into conventional loans before throwing a few of their lackeys under the bus the following Spring to placate the regulators.  By then the cat was out of the bag.  But the crash didn't happen.  Because the players still had too much Quatsch on their books, and their shovels were only so big.  They had to find marks to unload it to.  Failing that, they had to find marks to hedge it.  And they had to position for post-crash opportunities.  It took a year.  There was turbulence along the way.  New Century and American Home Mortgage went Chapter 11, a bunch of funds either closed or froze withdrawals, and B of A snapped up Countrywide, ostensibly as a bailout of Countrywide, but really to shore up B of A's balance sheet.  Then the players pulled the plug, and the spring unwound.  IndyMac, Bear, and Lehman folded up; Chase pushed WaMu off a cliff so it could grab its assets and shore up its balance sheet; a bunch of players, but especially Chase and Goldman, broke AIG and the Greatest Balance Sheet on Earth by loading it with rigged CDSs and other hedge positions; the houses that had put enough lipstick on their positions to keep from folding got absorbed, so B of A got Merrill Lynch, and MUFG got Morgan Stanley; and Wells got a seat at the big-boy table by winning the Wachovia sweepstakes.  Then it spread to other industries, and to the rest of the world, and everyone got a nice Mike Tyson square in the face.

And since then?  Let's just say China is not the only bubble out there.  For example, right here in Salt Lake City we've been frantically tearing down commercial property and slapping up 5-8 story apartment and condo blocks.  And the financing makes no sense, even with tax weirdness thrown in.  Rates of return that should only acceptable on government securities, but here they are on real estate.  But with interest rates effectively at zero, I guess anything is preferable.  And with that we can see the game is once again afoot.  Build it, then flip it out in the current inflated market to marks who are desperate for any return above 0%, then sit on your cash and wait for the next crash so you can buy it all back on the cheap.  And are the regulators looking into any of this?  Don't be silly.  They'd rather be looking at every mortgage and rent payment in the country than at which financial institutions have all their money tied up in cash, waiting to throw the switch on the next collapse.  And the grift goes on.

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Friday, August 06, 2021

Speaking of Shills

I just have to shake my head at this flack piece by Dana Peterson, EVP and Chief Economist for The Conference Board.  First a bit about Ms. Peterson.  She was appointed to her position a year ago after doing undergrad and grad in economics (*SNORT*), a stint at the DC Fed, and several years as an economist at Citi.  In other words she has no real-world knowledge of real estate of business and only a selective and pigeon-holed knowledge of finance.  And she's wholly owned by The Powers That Be (TPTB).  As for The Conference Board, it was founded over a century ago by leading industrialists and financiers as the National Industrial Conference Board, and its job was to block labor organization and promote open-shop laws.  In spite of the name change, nothing has really changed there.  It has been declared "a trusted source" by the usual suspects (*COUGH*Chicago Tribune*COUGH*Wall Street Journal*COUGH*) but really just cranks out "research" designed to show that everything is proceeding smoothly and to keep regulators and media from looking into what TPTB are doing at the expense of the rest of us.  Which brings us to this article.

Ms. Peterson's thesis is we're not in a real estate bubble.  First off, she gets the dates of the prior bubble wrong.  In 2005 the bubble was already late-stage, and as I noted in my prior post, it lasted until 2008 due to the machinations of the perpetrators.  Second, she says fraud isn't driving the market increases this time, basic supply and demand are.  This is true in a narrow and frankly sick sort of way.  As she states, there is a percentage of Millennials who are moving into the housing market.  She doesn't state this is a decided minority of Millennials who overwhelmingly into two groups: those who've hit the jackpot and landed stable, well-paying jobs, and those whose parents can boost them (There is of course significant overlap.).  The bulk of Millennials are either scraping by in rentals they can barely afford or are still in the folks' basements (And by the way, there are plenty of folks older than Millennials scraping by with barely affordable rentals, right up to those of us on the cusp of retirement.  But TPTB like to flog us for not having $1,000,000 saved away.  We really do live in a bottomless crock.).

So I don't agree with Ms. Peterson that there is some youth parade driving the market.  The reason is the same as it has been to some extent all the way back to the 70s: There aren't enough stable, living wage jobs to support a healthy single-family residence market.  Since so much of our economy is dependent on that market, we've invented unhealthy ways of keeping it going, such as all the mortgage fraud 15 years ago.  These methods invariably produce bubbles, and the bubbles invariably pop.

I would also note Ms. Peterson is wrong about there being a big change in the mortgage market from fifteen years ago (There is one exception I'll look at below.).  The same banks (or their successors) are at play, the same secondary market, and the same securitization model funneling into REITs.  And if you think Dodd-Frank really makes a difference, I have some oceanfront property in Yuma, Arizona to sell you.

So if the kids aren't alright and we don't have a bunch of mortgage fraud going on, what is driving the market?  The answer actually lies in Ms. Peterson's article.  Fifteen years ago there weren't enough good borrowers, so they were manufactured via fraud.  Lots of creative financing: no down payment, no documentation, high loan-to-value (even over 100%), and variable interest rates everywhere.  As Ms. Peterson notes, the mortgages this time are overwhelmingly conventional.  Now ask yourself who can get these loans?  One group is the fortunate few who have either made it or whose parents did.  The other group is the one really driving this market: corporate landlords.  And that's not good.  Corporate landlords have deep pockets for obtaining financing, and they're using it to snap up single family residences to convert to rentals and older commercial properties to tear down and redevelop into mid-rise apartments and condos.  There are entire housing subdivisions being built out there to be flipped as a package to a corporate landlord, and the entire subdivision will then be rental houses.  So the housing supply is shrinking, which in turn drives prices up, which makes TPTB and their kids the only ones who can afford to buy, causing another shift of assets from ordinary people to the top.  So everyone has to rent, and rents are sky-rocketing as a result.  Bye bye affordable housing.

So what is TPTB's game?  What happens to their investments if only the top 10% can afford to live in them?  Are they really making a sucker's bet?  I don't think so.  I think they believe we've hit End Game.  They know everyone has to live somewhere and they can always count on their pet government entities to bulldoze homeless camps as needed.  I think they believe the next crash, and it will happen, will result in neofeudalism with them as the lords and ordinary people as serfs, exchanging their freedom for some hovel to live in.

So keep putting lipstick on that pig, Ms. Peterson.  But until you have some actual evidence for what you're shoveling, I'm not buying a bit of it.

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Another Post For Idiots To Ignore

As I have noted elsewhere (and many other elsewheres too), I started blowing the whistle on the real estate bubble in December 2005.  The market was too hot, there was obvious fraud, mortgage rates were going up, etc.  I didn't know when the bubble would pop because I had not yet identified the forces driving it, but I figured it had to be soon, say in the next year or so.  Frankly it should have, and I guess I'll relate that tale whilst I am at it.

Thanksgiving 2006 Wells Fargo and JP Morgan Chase froze a pile of business lines of credit and converted them to straight loans with 60-month amortizations.  When I contacted Chase, not one but two EVP/AGCs informed me Chase had done this pursuant to a clause in the LOC agreement that had been fully disclosed.  While the clause did exist, the allegation it had been in any way disclosed was patently false.  I then knew something strange was going on, but I did not yet know what.  It took me awhile to dig up the puzzle pieces and fit them together.  What was happening was that the levels of fraud in the mortgage market had become so obvious it was no longer politically feasible to continue ignoring them, and so the regulators had been awakened from their previously mandated slumbers and were now on the move.  Wells, Chase, Goldman Sachs, and all the other players needed to spread some chicken feed to keep the regulators distracted while they got on with the business of lining up a nice collection of marks (AIG, Bear Stearns, Lehman Bros., pension funds, and mortal schmucks who believed the rating agencies were playing a straight game) to take the garbage off their books.  The regulators pounced on the chicken feed in Spring 2007, which gave the players enough time to keep playing.  And then in 2008 everything conveniently hit the fan.  Wells got a seat at the big-boy table via taking over Wachovia, Chase got a new lease on life via its sandbag takeover of Washington Mutual and its sweetheart takeover of Bear (I imagine Barclays wishes it had gotten a deal like that for Lehman,), those with cash (And in spite of, or more likely because of, all the illiquidity, certain players had piles of cash.) snapped up piles of assets on the cheap (Because after all the purpose of bubbles is to pop them to allow further asset concentration in the hands of Those Who Matter.), and we hit the reset button for the next bubble.  So the evidence indicates the bubble pop was delayed by over a year to protect certain players that had created the bubble in the first place.

Anyway.  In the middle of all this, August 2006 to be precise, Peter Schiff concluded the real estate party was over and things were heading down.  In December he noted the market had peaked the prior December (Now when was it again that I called my shot?) and would crash in 2007.  It's apparent he was just looking at market fundamentals (as was I) and thought the market would behave according to those fundamentals (as did I), having no real knowledge of the market manipulation going on that would stall the inevitable for over a year (knowledge I did not have either).  But unlike me, Schiff became a major talking head and got lots of influence and money.  But I'm not bitter.  At least not much.  Because I can point to Schiff as an example of how even a broken clock is right twice a day.

Because since then he has a record of being spectacularly wrong.  He thinks Medicare should be slashed, demonstrating a fundamental ignorance of how Medicare works, how it could work if expanded, and how it would be better than our current system of no one seeking medical care and when they do they have to file bankruptcy.  He thinks we should replace the current income tax system with either a sales tax (which would be regressive and hit hardest those least able to afford it) or a flat tax (which would be little better).  And in a doozy of pretzel logic, the US went from being a creditor nation to a debtor nation in the 1970s because people stopped saving.  Yes, that must be it.  Let's ignore the October 1973 OPEC embargo that ended the US's energy price advantage that had kept its products competitive around the world.  Let's ignore the resulting recession that destroyed millions of jobs.  Let's ignore that most people had no options allowing them to adapt to this new normal because our entire society was based on urban sprawl and the automobile.  Let's ignore that productivity kept increasing, but instead of any of that gain going to wages, it was all syphoned off to pad corporate profits.  Let's ignore that in spite of the recession, expenses were still going up even though wages weren't.  Let's ignore that families had to get second, third, and fourth incomes to try and make ends meet.  Let's ignore that that didn't work any better then than it does now.  And let's ignore that people stopped saving simply because there was nothing left over to save.  Schiff's positions are designed to keep moving public and private money from all of us to the 1%.  He ought to change his name from "Schiff" to "Shill".

But he must be getting desperate, because with his latest move, he has outdone himself.  He has teamed up with none other than Jim Rickards.  I've noted the credibility, of lack of same, of Rickards's "financial advice" elsewhere.  Now they've partnered up and doubled down.  And what they're selling is no better than ever.  As I've said more times than I care to count, just because you've seen somebody on TV or YouTube doesn't mean you should listen to them.

Wednesday, March 10, 2021

Long, Strange Trip

What a year.  First, I'll admit straight out of the gate I was wrong about having a vaccine in Q1.  The lab folks pulled a minor miracle, and we have several.  I was still right about other things, though: 1) We're at the end of Q1 and have barely made a dent on the number of people vaccinated, 2) there is no end in sight for the mess the economy is in regardless of what the stock market is doing, and 3) always verify claims of expertise.

And of course we have had plenty of messes so far this year.  Our worst was 6 January.  It shouldn't have come as a surprise to anyone, but you must remember that people in general and Americans in particular don't like to notice warning signs.  Everybody was surprised by 9/11 even though everyone knew you could fly a plane into a building without much trouble.  Everyone was surprised by the 2008 recession even though everyone knew what goes up must come down (and had with a vengeance just eight years earlier).  Everyone was surprised by the pandemic even though everyone knows viruses are out there constantly reinventing themselves.  If you refuse to see what's right in front of you, expect to be punched in the nose.  A lot.