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.”

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.”

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.”

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.

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?