“The only thing you should remember is that everyone else is either reckless or inept. Usually both.” Margaret Thatcher
I needed to begin with a little Maggie Thatcher to maintain my sanity. I grew up learning that the KISS principle stood for Keep it simple stupid not realizing they were referring to me, but someone told me this week that KISS actually means Keep it sane silly. What a divergence because there is nothing sane or simple about what is going on right now. Let’s start with Mr. Putin. A few weeks back, he gave an interview to Tucker Carlson, which we wrote about. I have lots of thoughts about Mr. Putin, but none of them are that he is stupid. Since then, Putin opposition leader Alexei Navalny died in prison, and the Western media blamed Putin for murdering him. In shades of the Nord stream pipeline, Ukrainian General Kyrylo Budanov, the head of Ukrainian intelligence confirms that Navalny died of natural causes specifically a blood clot. Next, our own Speaker of the House, probably for not much longer, Mike Johnson had an announcement that Russia had space nukes that could threaten our satellites. Now Biden is offering even stricter sanctions on Russia. Well, it seems two can play that game. Mr. Putin announced a 6 month ban on gasoline exports from Russia, and the result? RBob gas futures jumped 30 cents in one day. They are up almost 60 cents in two months now. There is about a three-week lag before that price adjustment will make it to the pumps on average. Now, how is Powell going to pivot if gas goes up? How is Biden’s economy going to look with not higher gas prices, but much higher gas prices? Higher gas prices will not help our situation, which is getting worse by the day.
We talked on LBLF that the bubble pop is any week or day now. Barron’s had an article about commercial real estate written by Bill Alpert and Brian Swint. They discuss how challenging NYCB banking situation really is when 22% of their loans are on rent regulated apartments. They can’t raise rents in the socialist republic of New York. Government interference in business is so awful, but now you are making this situation almost unwinnable. In another article in Barron’s written by Mark Hulbert he describes how close we could be to a banking crisis, “Another is that there are many banks suffering from what caused the bank failures one year ago—higher interest rates. Stanford University finance professor Amit Seru last year calculated that the U.S. banking system is sitting on $2.2 trillion of unrealized losses because of higher interest rates. He arrived at this huge sum by comparing the book value of bank assets, which assume loan portfolios are held to maturity, and those portfolios’ value, assuming they’re sold at their current value. At the time of his calculations, Seru found that 10% of banks had unrealized losses that are greater than Silicon Valley Bank had at the time of its collapse.” Wow, 10% had more than Silicon Valley Bank. In yet another Barron’s article by Bill Alpert he discusses how the ten most concentrated banks in commercial real estate are holding up. “Most of the concentrated real estate lenders in our ranking trade at lower earnings multiples than their banking peers. The market hasn’t forgotten the 1980s and early 1990s, when bad real estate loans helped bring down hundreds of savings and loans. Or 2008, when bank losses on imprudent residential lending threatened the U.S. financial system. The regional banks on Barron’s list say this time is different. They say they are well capitalized, and their real estate lending is more conservative.” I would expect to hear nothing less, and I am seeing a lot of bank CEOs sitting on the desks of CNBC and Bloomberg discussing how they are safe and they are different and they are probably not telling the truth the whole truth and nothing but the truth, or they are inept. The head of NYCB Thomas Cangemi got the boot for being inept. His fault? Marking to market two bad loans, and then having internal control issues. When there is bad news, you hide it. Duh! You shouldn’t but that is what most humans do.
The banking world is a regulated world, but one area that is much like more the wild west is the automotive market. Duggan Flanakin writes for Real Clear Wire where he discusses the parallels of the 1957 Ford release of the Edsel with the current crop of American and European EVs. The Edsel failed because Ford didn’t realize there wasn’t enough demand for a mid-sized model much as today’s automakers are discovery that the American appetite for EV cars lies within those that virtue signal and/or are wealthy. From Flanakin “Much as with the Edsel, the electric vehicles that European, American, and other Western governments have been subsidizing are “the wrong car for the wrong market at the wrong time.” Around the planet, individuals, automakers, and even policy advisors are waking up to this gross miscalculation.”
This is a gross miscalculation all right. Tesla, who has enjoyed the first mover advantage, and still makes hundreds of millions on tax credits from that advantage, has had to cut prices dramatically to move cars. Their promise of full self-driving seems further away today than at any time. Their stock dropped 7% on Monday.
Flanakin continues “Ford, which has been losing $60,000 – more than the selling price – on every EV it sells, saw sales of its Lightning F-150 fall 46% in third quarter 2023. Mercedes downsized its EV sales projections by 2030 by 50% and announced it will update its petrol-fueled fleet engines into the next decade. Now Ford has halted all shipments of the Lightning F-150.
Rivian, too, has fallen on hard times, laying off 10% of its workforce, signaling a significant decline in demand. With prices starting at $70,000 for its pickup and $75,000 for its SUV, the sales downturn led to a corporate loss of $1.52 billion in the first quarter of fiscal 2023.”
Do you remember when the American taxpayer had to bailout GM? Well, what are we going to have to do during this crisis, bail out the entire industry? That is exactly what we said was happening. We said they would all bond together and succeed or fail together. You can’t blame one CEO for the failure of an industry. Toyota meanwhile went the other direction with hybrids and are killing it. Tesla is linked to the EV train, but they like the rest of the world have a huge problem they will have to address.
Now he writes that mines are being shut down, the price of Lithium is down 90%, and nickel’s price has been halved. This is having severe fallout across the manufacturing industry. What will those poor kids in Congo do if they can’t scrape away the earth looking for cobalt for the American automobile? This is just part of the problem. As we have discussed in great detail, China controls much of the world’s rare earth minerals and more importantly the processing of those materials for batteries, solar panels, wind turbines etc. Biden announced that Chinese vehicles posed a national security risk. Trump has promised a 60% tariff across the board on Chinese goods? This has nothing to do with cars, but with votes. The American automobile market is on the brink of bankruptcy. Those workers vote.
Flanakin once more “BYD sells battery-electric vehicles in China for US$26,000 equivalent. BYD makes its own batteries, semiconductors, and seal upholstery, and its nearly 30,000 patents owned or filed puts BYD light years ahead of any Western automaker.
The only brakes on China destroying the world auto market are tariffs and other import restrictions – or ending the EV mandates. But the tariffs would likely be passed onto customers, forcing Americans to pay double if Washington forces Chinese EVs down their throat.” Are you starting to get the picture, is it becoming clear to you? American workers are too expensive, and we don’t have the know-how to compete. If we use tariffs, the price of a car becomes unaffordable for most and contributes to higher prices across the board.
We have railed on and on seemingly about the draining of the reverse repo and it seems it is about here. Last week was a massive decrease into the $400 billion range. From ZeroHedge “The Fed’s reverse repo facility saw a simply stunning $128BN of liquidity sucked out of it over the last two days (a 22% drop).” Yikes, that was fast, and we know that the Fed’s Bank Term Funding Program expires in March, and we are seeing ugly Treasury auction after ugly auction so what happened, we got a new program.
Fed Governor Wallace hinted that we have a new QE program, and it is a reverse twist. The Fed will buy short-term Treasuries and sell Agency mortgage-backed securities. Who is going to buy the bonds, and at what price? Well, it seems no one, the Fed will buy T-bills instead. Now if we have a massive new buyer aka more demand then short term treasuries go up and yields go down. That’s what happened as the 2 yr. dropped 11 basis points. This is flattening the yield curve but is inflationary just ask gold which spiked to above $2,100. If we are pivoting and going back to QE it is because of one reason, the market is about to take a 10-200. The economy is about to take a 10-200. Inflation readings were hotter than expected last month, rate cuts are being priced out of the market, financial conditions are easing, gas prices are now going up, and the Fed is starting up QE again? The Nasdaq is making new highs, Bitcoin is making all-time highs, small caps are rallying, oil is up, gold is up, and money and risk is easy and free and inflationary once again. This is why it is so hard to put inflation back in the bottle. All it takes is pain, and we can’t handle discomfort, much less pain. This was always the choice, it had to be.
You see the Great Depression was so bad that there isn’t a single politician or central banker alive that wants to choose that route so that is why every single fiat currency ends in inflation. This reverse twist is really the final stab in the back of the American saver. Inflation will come back and probably worse than before. Assets will become even more unaffordable for most while the regressive tax nature of inflation keeps them working more and taking home less. Their standard of living is getting eroded away. You see they are the future generation of taxpayer that we warned about 25 years ago. The current version of the debt screwing up the lives and prospects of the children of tomorrow. Go read the US Debt Clock, $34.4 trillion. $102,000 per citizen and $266,000 per taxpayer. That is the hole everyone is currently sitting in. We are the recipients of decisions made by the retiring class, the class with the assets. The Clintons, the Pelosi’s, the McConnell’s, the Bush’s, the Trump’s. They all have been making soft decisions, political decisions, popular decisions about kicking the can down the road. We are there and we beginning to reap the rewards. Do you really think this is the Goldilocks scenario economists are talking about? Remember the story of Goldilocks, she was tasting the bear’s porridge because they could no longer afford to eat meat. Beware the Ides of March they say, well beware the lies of March. They will be coming fast and furious about jobs, the economy, banks, Russia, China, and anything else to get you to lose focus.
Sincerely Yours,
C Thomas Printer
On this date in history… 188 years ago today the Alamo fell to Santa Ana’s soldiers. The rumor is they advanced in waves, just like the US treasury issuance will have to be.
Also born on this date… the originator of the Fed put, Alan Greenspan.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.