Ludwig von Mises explained, “Society is division and association of labor. In the final analysis, there is no conflict of interest between society and the individual, as everyone can pursue his interest more efficiently in society than in isolation.
The Fed Has Lost Control
A year ago, it was tighten, tighten, tighten, now three rate cuts are expected by the market by year-end. Gromen told Harrison that Trump’s tariffs matter some, but, it’s the deficits that really matter and are forcing the Fed’s hand.
Navigating Booms and Busts
Boom times cause lenders to first make more and more speculative financing, and then graduate to Ponzi finance before it all comes crashing down. The author quotes Minsky. “Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is a large weight of units engaged in speculative and Ponzi finance.”
Financial Markets: What Could Go Wrong?
The U.S. and EU banks are enormously intertwined, particularly in terms of funding and derivatives. Corporate debt has exploded and the bond market is only liquid in one direction. Zero interest rates have pushed pension plans to the brink of insolvency, even with a bull market.
The Battle for Sound Money
Elvira’s gold buying makes me think she has read Saifedean Ammous’s “The Bitcoin Standard: The Decentralized Alternative to Central Banking.” Don’t let the title fool you. This book is not the cover-to-cover crypto cheerleading/gold bashing other authors attempt to jam down our throats. Dr. Ammous Is actually a Professor of Economics, and none other than “Black Swan” author Nassim Taleb wrote the introduction.
The Hidden Housing Crisis
Most believe it’s clear sailing for housing. Jurow’s view its anything but rosy for housing. He believes the housing rebound is a mirage orchestrated by lenders and mortgage servicers keeping foreclosed homes and subprime loans in serious default off the market. In other words, there are millions of homes just waiting to hit the market. Sometime.
IS WALL STREET'S SWAMP BEING DRAINED?
When they begin saying they are going to work on their balance sheets, that’s code for paying down debt and will be the end of share buybacks. As DiMartino Booth puts it, companies will then be taking care of bond holders rather than shareholders. The implication is the liquidity driving the bull market will seize up and a market correction is on the way.
Inflation: The Rumors of its Death are Greatly Exaggerated
Banks bitten in 2008, are, along with their regulators, twice shy to make the marginal loan. The short summary of Hanke’s remarks in the latest Grant’s Interest Rate Observer, includes, “But he invited the audience to imagine an upsurge in bank lending, perhaps stimulated by a Federal Reserve decision to pay a reduced rate of interest on excess reserves.”
THE GAME OF BANK BARGAINS
“Fragile By Design” is a big book, and while it looks at banking systems in other countries, the authors devote many pages to the 2008 crash in the U.S. But first, they make the important point that bank failure losses used to be borne by bank owners and depositors. Of course, now, with government overseeing the operation, costs have been shifted to taxpayers, in what the authors call “The Game of Bank Bargains.”
Despite Fed Liquidity, Mall Value Plunges
The mall was encumbered by a $200 million commercial real estate mortgage, well supported by the 2007 value for the property of $250 million. However, by 2017, SPG defaulted because it was “unable to repay the loan at maturity due to the size of the loan compared to the net operating income that the property generates and the tenants inability to increase sales due to the economic challenges.”
The Fed Creates the Need for Side Hustles
Quart’s Sunday Times piece is entitled “The Con of the Side Hustle.” People taking on multiple jobs refer to them as “side hustles.” Which is kind of cute. Uber is recruiting online, not with the tagline “do you have to have a second job to pay your bills” but rather something cool, like, “Get your side hustle on.”
Vlad and Elvira Sell Dollars and Buy Gold, Should You?
Russia is not alone in lightening up on dollar exposure. In the 4th quarter of last year, “reserve managers actively decreased their allocation to USD—the share of USD reserves declined despite modest Dollar appreciation—while they actively added to EUR and CNY reserves. According to Goldman calculations, the drop in Q4 USD reserves was equivalent to just over $50 billion in dollar reserves sold,” reports ZeroHedge.com.
Banks’ Unrealized Losses soon to be Realized
The folks at GNS Economics, in their “Q-Review 1/2019” report, contend, contrary to the president, “the global economic recovery since 2009 has not been real. It has been achieved with massive debt and monetary stimulus, which has created an economy where normal rules of the market economy do not apply.”
Recession will Turn Debt into Junk with Nowhere to Hide
None of this has kept individuals, companies and governments from ramping up debt levels. Leverage abounds, everywhere. Grant’s Interest rate Observer writes, “companies are tapping credit lines to compensate for shortfalls in cash flow.”
Las Vegas Apartments: Gambling on the Future, Using Today's Numbers
Apartment developers’ tea leaves tell them Millennials will always be renters, willing to pay handsomely for cool creature comforts: climbing walls, coffee bars, and concierge service. Average rents in Las Vegas rose from $900 in Q3 2016 to $1,059 in Q4 2018. On Sunday, the local paper featured a new mid-rise project with successful Millennial written all over it.
The Trouble with Complacency
Everything is A-OK and warm and fuzzy for the investing public. “Social optimism is evident everywhere,” writes Prechter. “Optimistic investment in stocks and junk bonds remain at historically high levels. Indebtedness is also historically high. Student loans are at a record. Auto loans--many of them for SUVs, muscle cars and tricked-up trucks--are at a record.”
“Profit is an Opinion; Cash is a Fact”
Stephen Grocer points out these same analysts last October had projected earnings to surge 6 percent from a year ago. Then at the start of this year, the analysts trimmed their guesses to a 3.3 percent increase. Now, they’ve caught up with Ms. Pomboy.
The Transportation Boom Ends
Less shipping means less buying, selling, and producing. Government interference in the form of low interest rates and the threat of tariffs pulled economic activity forward. However, now the economy is digesting that bubble of activity.
Central Banks Buy Gold, Baltic Dry Index Sinks
Central Bankers never seem to get the timing right in buying and selling gold.
Synthetic Danger, Again
The whole idea of capital relief, as the name would imply, is to lower the amount of equity required and increase leverage. What’s a banker to do when a pension or hedge fund rep stops by and offers to unlock some of his or her bank’s idle capital?