Looking Backwards …
LB #1
Friday morning the world woke up to the true depth of Microsoft dependence. It turns out Crowdstrike, a third party vendor, rolled out an update on the Microsoft platform and it crashed the Microsoft platform, worldwide for hours. Flights were cancelled, skies were empty, traders couldn’t trade, acres of cubicles showed the blue screen of death as the outage went worldwide in the biggest IT failure ever. This was one small update and look what happened. I have been saying for years that technologies are nice when they work but after seeing people hand write boarding passes I thought to myself, thankfully our enemies aren’t watching. No one has noticed that you can sneak up to 130 yards from a presidential candidate and shoot him and you can release one little bit of code in an innocuous update and stop air travel and commerce on a billion-dollar scale. I’m sure no one is noticing the inherent fragility in our day-to-day lives. When that gets taken away, please be ready.
LB#2
We have a new term that might be this crash’s CDO or collateral debt obligation of the great financial crisis. SASB bonds, or single asset-single borrower were supposed to be safe but that might not be the case. Matt Wirz from the Wall Street Journal reports, “The commercial real-estate meltdown is spilling over into the bond market…There are about $260 billion of the deals, known as single-asset, single-borrower bonds, held by investors such as banks, insurers, pensions and mutual funds. Landlords, often private-equity firms, used that money to purchase skyscrapers, shopping centers and other properties.
Much of the debt is coming due and refinancing markets are frozen for many office and retail landlords. Some are defaulting even before their due dates because their interest expenses soared when the Federal Reserve raised rates. These so-called SASB bonds were meant to be ultrasafe, but the rate of loans at or near default has nearly tripled over two years, hitting 8.7% in 2024, according to data from the CRE Finance Council, a trade group. The losses are particularly jarring for investors because credit-rating firms initially gave many of the bonds triple-A ratings—higher than even U.S. Treasury bonds…Historically, most commercial mortgage bonds were backed by large pools, or “conduits,” of loans for properties ranging from offices to apartment buildings owned by a hodgepodge of borrowers. Many of the complex deals defaulted after the 2008 financial crisis.
In the aftermath, Wall Street started selling more bonds backed by a single large property, or by a small pool of similar properties owned by one landlord. They lacked the diversification of conduits, but were simpler to analyze and viewed as safe because owners of the underlying property committed much of their own money to the purchases.”
Oh boy, super safe, bonds that were supposed to be held by really strong anchor tenants and large companies that are now not so large and not tenants. I have a news flash for you, the diversified mortgage bonds are dog shit too…
LB #3
We talked about Robby Starbuck and how he used his voice and his platform to force Tractor Supply to drop their DEI program and he is back and he did it to John Deere. People were starting to cancel tractor contracts and they hit reverse on the big green machine. This guy is truly showing the direct power of conservatism and its affect on business. What’s weird about this is how these execs get hired and there is no outrage. Reversing the policies and leaving the execs in charge that institured the policies is strange. Let’s not cure the cancer? There needs to be consequences and those should be more than them rolling back to a previous status quo. It is a good start for individual freedom though and we salute you Robby, again.
Looking Forwards…
LF#1
Do you remember Covid? No one had to make a student loan payment, no one had to make a rent payment, the government gave everyone checks and said spend this but don’t go out to do so. Just buy stuff from necessary businesses that donate to our campaigns. This was when the nation was shut down over the worst flu in a century. I say that because we wiped out the flu that year, it doesn’t exist in the records at all anywhere. We cured it like small pox. Now if you substitute the covid numbers for the flu it is a really bad flu so I will just call it flu proxy. Well flu proxy shut just about every small business down, caused inflation, basically screwed American debt situation forever, but now there is some sense of normalcy. They are throwing people out of their homes, and I couldn’t be happier. The government is actually enforcing the law again.
This from Will Parker in the Wall Street Journal, “Tenant evictions look stuck at elevated levels in several corners of the U.S., showing little sign of returning to what was typical before the pandemic.
Eviction filings over the past year in a half-dozen cities and surrounding metropolitan areas are up 35% or more compared with pre-2020 norms, according to the Eviction Lab, a research unit at Princeton University.
This includes Las Vegas, Houston, and in Phoenix, where landlords filed more than 8,000 eviction notices in January. That was the most ever in a single month for the county that includes the Arizona capital. Phoenix eviction-court hearings often run for less than a minute.”
LF#2
These silly government policies caused real damage but the government over reach isn’t done yet. Just this week Biden announced that he wants to do rent controls. This from Josh Boak from the AP, “President Joe Biden is ready to propose a 5% cap on annual rent increases for tenants of major landlords as he tries to show he’s doing something about the high cost of housing, according to a person familiar with the plan.
The proposal, to be announced while the president visits Nevada on Tuesday, is being championed by Biden in the middle of a tense presidential campaign and a time when housing costs have been a major driver of overall inflation.”
The plan supposedly has two caveats, it would only apply to landlords that owned over 50 units and it wouldn’t apply to units not built yet. Duh, of course not or the mom and pop landlord would vote his geriatric ass out of office and the builders would cancel all new construction projects and crash the unemployment rate. What a wrench.
Speaking of dumb policies, SunPower stock collapsed over 70% this week. They were an installer of solar systems and they ran out of money. More malinvestment down the drain. Spencer Kimball writes for CNBC, “The decision to effectively suspend operations is the result of SunPower’s weakened cash flow and balance sheet as well as its inability to tap capital markets because the company is not current with the Securities and Exchange Commission, JPMorgan analysts led by Mark Strouse told clients.”
LF#3
We got to ZeroHedge now “Goldman’s head of research admits is an AI bubble – the largest drop since October 2022, the month before chatGPT was launched.
So in retrospect – and keeping in mind the historic rout for the Mag 7, which have lost over $1 trillion in market cap in just the last 5 days…” Go on, I’m listening. They basically note that there was a huge rotation out of tech and into small caps which included as we laughed at regional banks. That’s what made that $1 trillion loss in market cap all the more exciting this week as it was being picked up in small caps for awhile, but then Thursday and Friday the markets just sold off. Bonds sold off, oil sold off, gold sold off and on and on. It seemed as connected as the Microsoft connection issue that was the initial cause before they market bounced just fine and then sold off later in the day. The market is very elevated, it is historically overvalued, but just because we have had a sell off that doesn’t mean that it has to crash now. It will crash, but trying to call when is difficult as I have learned over 230 plus episodes. When is not important if you get the thesis right.
Sincerely Yours,
C Thomas Printer
The Dow Jones finished trading …at 40,287.
The 10-year Treasury bond is at …at 4.24%
The price of Brent Crude is … at $82.63 per barrel.
The price of gold is … at $2,402/oz.
The price of silver is … at a $29.40/oz.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.