Looking Backwards …
LB #1
I’d love to sit here this week and roast my chestnuts on an open fire, sing Kumbaya, and tell you everything is going to be all right. That is not the case. Let’s begin with Matt Egan and CNN, “Many Americans would love to buy a home, but they don’t have tens of thousands of dollars to cover a down payment.
That massive roadblock is being removed by a new zero-percent down mortgage program launched two weeks ago by one of the nation’s largest mortgage lenders.
However, the new program, offered by United Wholesale Mortgage, is making some experts nervous about how these loans could backfire on homeowners — especially if home prices stop going to the moon. And for some, it’s bringing back bad memories of the subprime mortgage meltdown that fueled the 2008 financial crisis.
UWM, led by Mat Ishbia, the billionaire owner of the Phoenix Suns NBA team, said homebuyers who qualify won’t need to put down an upfront down payment. Instead, the program will allow buyers to pay for 97% of the home’s value with a first mortgage and then provide the remaining 3% (up to $15,000) in the form of a second mortgage.
That second mortgage won’t accrue interest, but it will need to be paid back — in full as a balloon payment — when the home is sold, the mortgage is paid off or if the owner refinances… “The initial demand has been huge. We already have a couple of thousands of loans submitted,” Alex Elezaj, UWM’s chief strategy officer, told CNN.”
Folks, I can’t deal with this level of stupidity. This wasn’t something that happened in black and white years ago like the bank failures of the Great Depression or even the last time we had inflation in the 1970s when the sex was clean but the air was dirty. This happened 15 years ago. Adele was plump, Taylor was country, and Trump was firing apprentices. Jonathan Adams, an assistant professor at Saint Joseph’s university, was quoted in the article and says it better than I, “One of the lessons of the subprime crisis,” Adams said, “was that you are not doing any favors to borrowers by making it too easy to borrow.” Much like our government has proven since accessing its own easy money after going off the gold standard, the American consumer has proven time and again that they also can’t navigate easy money.
LB#2
There are many Americans that are trying to stay afloat in this economy of ever higher prices in the things that you have to buy: rent, food, insurance. The question becomes how to pay for that. Mike Shedlock has a nice chart on his blog mishtalk.com that shows how some people are having to cope. He shows that there are 10% more people in this country with multiple jobs than there were in 2017. That is incredible to me. This country that used to have one man earning enough for a family of 5 or 6 is now being reduced to having both spouses working and 10% more have to have multiple jobs. I admire the work ethic and the initiative to survive, but I have to look at the system of choices our country is making and give them an F.
LB #3
We talked last week about billionaire Barry Sternlicht’s gated REIT, or real estate investment Trust, Starwood. Well ZeroHedge mentions the exact same thing this week, but in reference to a completely different and potentially catastrophic development out of Canada. “After scaring his fellow bankers, perhaps in hopes of sparking another mini bank run and getting the FDIC to gift him with yet another bank, it turns out that perhaps Jamie Dimon was correct that “not all the people doing [private credit] are good,” and earlier today Bloomberg brought us the first notable example of a “bad” doer when it reported that Canadian investment manager Ninepoint Partners is “temporarily” suspending cash distributions in three of its private credit funds, making it the latest, and certainly largest, lender to put a squeeze on investors to cope with a private credit liquidity crunch.”
Now I have not seen the prospectus on this Ninepoint Partners, but while REITs being gated is fairly common, I don’t think most private equity investors expect to request their money and are told no. It reminds me of the scene in the Big Short where Michael Burry is fighting off his investors staging a revolt while he delivers them massive profits. He had the language written in his contracts and I don’t know what it looks like today in these arrangements.
“The private credit market – a corner of finance dominated by non-bank lenders who originate loans to private businesses – has grown rapidly in recent years, as it is far less regulated, and banks are hoping they can offload all exposure before the next crash while pocketing the upside. Although returns on these assets have increasingly outpaced the S&P 500 since the early 2000s, risks in the industry are not well known, the IMF noted in April. Of course, for those who have been around for longer than a few years, will recall that hedge funds issuing 2nd and 3rd liens was also all the rage… right before the financial system collapsed in 2008.
So is Ninepoint the proverbial dead canary in the coalmine?
The Canadian private lender, which oversees about C$7 billion, is among those firms offering “flexible terms” to some borrowers, but with higher risks. It is those risks that have now prompted the firm to freeze cash distributions. Other firms, such as Oaktree Capital Management, have had to cut management fees on private credit funds, following increases in problem loans and disappointing earnings, Bloomberg reported.”
The problem with private credit is who is borrowing there. If you can’t get a loan at a bank you have to seek alternatives and that means borrowers less able to repay seek unregulated alternatives. Private equity and credit has been in vogue because where there is less regulation there is more opportunity for profit. I’m against regulation so why am I so anti-private equity and credit. They are siphons where the money flows out of the company and into the executives’ pockets with the executives making the rules. It is a parasitic enterprise. I also believe it takes two to tango, or at least tango well. What if a company’s employees that were recently bought by private credit just in unison simply didn’t show up. The losses would be enormous because private equity is often leveraged. Simply burn the financial asses to the ground. The only problem is the American worker is spending faster than anyone and has a dismal saving rate and needs the job even though they should know how the story ends. They simply ask what could go wrong?
Well for starters this economy is as fragile as they are. Simon White of Bloomberg writes in ZeroHedge this week about commercial real estate and mentions something rotten as I did last week, “The Fed can rejoice in its success in preventing a wider banking crisis after Silicon Valley Bank’s failure. Deposits in small banks have now fully recovered. The Bank Term Funding Program, and a blanket deposit-guarantee for SVB and Signature Bank – which went down soon after Silicon – healed confidence in the sector. But although the Fed feels assured enough to retire the BTFP, there is still something rotten in the state of Denmark: regional banks’ exposure to commercial real estate – the sector’s Achilles’ heel. Small banks have always had a much larger exposure to CRE than large banks, but in the years before the pandemic their exposures tracked each other closely.
However, over the last two years small banks have doubled down on their CRE exposure to almost a third of assets – with barely a pause after SVB – while large banks have reduced theirs down to 6.5%.”
Banks are the backbone of the economy and if they start failing en masse, that will be inflationary because we have seen no evidence of the government not bailing out the depositors at the very least. The culture of faith in the bailout is so strong that banks are doubling down that the Fed will bail them out. This is an incredible moral hazard. The taxpayer has to bail them out not the Fed with a money printer. We are running out of money to bail people out with. These private credit investors, these banks, and bank investors could be driving down a mountain road with a hairpin turn and a huge cliff and they are accelerating towards it.
I don’t think I am the only one concerned with this reckless financial policies spreading across the global west. India just repatriated 100 tonnes of gold from the UK to Mumbai and Nagpur per Goldfix via ZeroHedge. Why are the BRICS nations getting their houses in order and we are still gambling and acting like nothing could ever happen? Ego, my friends ego.
Looking Forwards…
LF#1
We have seen the pushback from customers at grocery stores about self-check out and we are gradually seeing self-check out slowly start being reduced. Dollar General has removed self-checkout from 12,000 of its more than 20,000 stores. It might never disappear although I wish it would, but as I always say, if I wanted to be a checker I would fill out an application. I have walked out numerous times when I have found out that there are no human manned check out aisles available, and in a pinch I have had to resort to self-check out despite muttering about the fall of America while doing so.
We have another example of what Winston Churchill called “Americans will always do the right thing after they have exhausted every other possibility. QR codes are starting to disappear. These annoying little squares of squigglies that popped up as an alternative to good service are a blight on the dining out experience. I have had the pleasure of asking for a menu numerous times, and getting the response that the menu is the square of doodles. I said I would like a real menu, and they said we don’t have any. I simply stand up and walk out and realize that my principles will have to provide me with sustenance until I can find a non-Communist restaurant.
It turns out that I am not alone. Alina Dizik writs for the Wall Street Journal about the revolt that restaurants are facing by not listening to their customers. They have all this data and they don’t listen in search of easy. Welcome to America. “At Farm Bar, a Chicago restaurant with two locations, only one is discontinuing some QR code offerings. Customers at the other location, in the city’s Lakeview neighborhood, skew younger and enjoy the more efficient service they get by using a QR code, says Joshua Hampton, a server who works at both locations. The biggest hurdle can be telling customers to take out their phones. “Getting started with the QR is the worst thing about it,” Hampton says…Menus accessed only by smartphone make swapping out menu items or adjusting prices easier, says Rich Fox, operating owner of Yes Parade Restaurant Group in Seattle.
But the codes have frustrated customers, the owners and employees at the company’s 12 restaurants, he says. Using QR code menus at the company’s chef-driven restaurants lowered check averages by 10% because diners often didn’t scroll through all of the offerings. That, in turn, lowered tips for servers.” Restaurants are wising up as customers push back, but unfortunately there are some that enjoy the robotic anti-human techie experience but want the experience of eating out. If you want to live in your phone, be anti-social, then by all means use a drive through or order door dash. Please pay a premium to do so. As for us that are frequenting restaurants, we will not be missing out on your presence of neck bent idolatry to your digital device. Finally.
LF#2
The Chicago PMI index came in at 37.9 this week mush lower than the 41.5 expected, and this was historically low only bettered by 2020 and 2008. Do you still believe things are rosy out there? I know we aren’t the manufacturing juggernaut we once were and that this matters less than id did 40 years ago, but it does offer an insight to just how precarious this current economy is.
Chicago is fighting back against the commercial real estate problem by doing what it does best: spend money. Peter Grant writes for the Wall Street Journal, “Chicago gave birth to the skyscraper in the late 19th century. Now, local developers and politicians are trying to keep many of today’s office towers from dying off.
The city is going beyond any other in providing public subsidies to convert obsolete office space into apartments and hotels, despite enormous budgetary challenges…The city’s office market has been hurt by weakening demand, higher interest rates and difficulties in refinancing. Big companies such as Citadel and Boeing have moved their headquarters elsewhere, and Chicago commercial-property values have plummeted…Three-quarters of the mortgages backing its office space that were converted into securities are either in default or are at risk of default, the highest of any major metropolitan area in the nation, according to credit research firm KBRA Analytics.
Chicago’s office-vacancy rate has soared to 16.3% from 11.9% in early 2020, and it is notably higher than the U.S. average of 13.8%, according to data firm CoStar Group. Some downtown office buildings have sold for less than one-quarter of what they were valued at a few years ago…“There are fewer landlords competing for tenants because so many buildings are in this zombie state,” said Michael Reschke, a leading Chicago developer.”
Last I checked Chicago was a pretty big city with a pretty big economy. We have discussed zombie companies, those companies that have to keep borrowing because they don’t make enough profit to meet their interest expense obligations, but this is the first I am hearing of zombie buildings. These buildings which we have highlighted over the last year or so as isolated incidences are now starting to become a city’s skyline.
Unfortunately like the worker that is unable to right a wrong by sticking it to private equity, the cities are also effectively living paycheck to paycheck. Chicago and Illinois are in terrible financial shape. Gresham’s law again, we have chronicled this as good money pushes out bad. Miami, Austin, Dallas are booming while Chicago, Baltimore, and Portland are suffering. People vote with their soles, perhaps not their souls and asking themselves who truly is the best and most moral candidate is to lead their future, but they will vote with their soles s o l e s as in they will vote with their feet and go elsewhere in search of better opportunities.
Listen to this from ZeroHedge, “”Walking through the streets of Baltimore City, especially on the west side, feels like navigating a warzone. Drug gangs have taken over entire neighborhoods, and the police are nowhere to be found. We’ve all become numb to the violence, with shootings and drug overdoses around the clock. The fentanyl flooding the streets is killing people left and right, and all that’s left out of all this chaos are used Narcan kits littering city streets,” said Baltimore resident Theresa Davis.
Davis continued with a few questions: “Where are the politicians who promised the end of the drug crisis? You know, the White House is just right down the street—where is Biden?”
“This is insane – our leaders have failed us,” she added. “
End Wokeness tweeted out that last week there was 3 police officers for a district of 61,000 people in Baltimore. These are failed policies voted on by representatives of elected leaders. It might be time to stop crying and vote for someone else.
LF#3
We continue to rachet up the aggression on multiple fronts. This week there was a very subtle but sizable shift in military policy that should concern everyone. James Howard Kunstler writes for Kunstler.com and describes the situation well. “In the meantime, through the luminescent fog of gloat, perhaps you did not notice that “Joe Biden” took a giant step yesterday toward commencing World War Three. The move was framed as the US gives Ukraine permission to use American missiles to strike deep within Russia. That was a bit disingenuous, you see, because Ukraine’s military lacks the know-how to actually launch the missiles, so American military “advisors” will have to be on hand to do it, meaning US military personnel will commit an act of aggression upon Russia.” What I like about how he put this is how Russia will see it. I’m sure the rhetoric that will come out of Washington will be far different. Either way, we are inching closer to actively participating. This from ZeroHedge, “Predictably, the Kremlin is fuming at widespread reports that the Biden administration has made a U-turn on its policy which previously prohibited Ukraine from attack Russian soil with US-supplied weaponry. Former Russian president and current Security Council Deputy Chairman Dmitry Medvedev has warned that Russian forces could strike back from any point where attacks are launched, including on “NATO specialists” advising Ukraine forces… He said that contrary to much of the West’s attempts to obfuscate the reality, Ukraine’s long-rage missile systems are actually “directly operated by servicemen from NATO countries.” He said this is tantamount to these countries’ direct participation in the war.” As we have said for a while, Ukraine is losing this war and now we are changing the rules regarding what is and what isn’t allowed.
Poking the Russian bear would be bad enough, but halfway around the world we seem to be doing the same thing with China. Dave Decamp writes for antiwar.com “The Chinese Defense Ministry on Thursday strongly condemned the US deployment of an intermediate-range missile system to the Philippines during military drills that were conducted in April and the first half of May.
During Washington and Manila’s annual Balikatan exercises, the US deployed a Typhon launcher, a covert system that is concealed in a 40-foot shipping container and fires Tomahawk and SM-6 missiles.
The Typhon system would have been banned under the Intermediate-Range Nuclear Forces (INF) Treaty, a treaty between the US and Russia that the US scrapped in 2019. It prohibited land-based missile systems with a range between 310 and 3,400 miles.” It seems we are actively trying to create a new cold war. Trump began this with the tariff policies against China, NATO has been creeping eastward for 20 years in Europe, and now we seem to be getting closer and closer to being drawn into this conflict on one or both fronts. This of course is in addition to whatever policy we are trying to enact in the Middle East.
US weapons are ok to use agaisnt Russia
Sincerely Yours,
C Thomas Printer
The Dow Jones finished trading at …..at 38,686.
The 10-year Treasury bond is at …a 4.502%
The price of Brent Crude is … at $81.62 per barrel.
The price of gold is … at $2,347/oz.
The price of silver is … at a $30.55 /oz.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.