Category Archives: Asset Classes

Housing Collapse Redux

Take a look at this chart:

2022-11-16_07-05-40_0

That is a collapse in process. An unprecedented collapse in modern times. Perhaps 1346-53 showed something similar. It will take 4-6 months to work its way into the hard data, but it is coming. Recall Stephanie Pomboy’s observation that in July of 2008, inflation was at 5.6%. By July of 2009, it was at -2.1%. There’s a Fed pivot of some kind. Now look at John Hussman’s pivot chart:

Bears follow pivot

Which clearly shows that the real bear market will follow the pivot. Then contemplate another of Hussman’s charts which shows the potential losses from here:

Potential Losses

Now look at the international context. China has its own housing bubble collapse going on, to say nothing of choking its economy with a stupid Covid strategy because a dictator like Xi cannot admit error. Europe is seized with political correctness, internal division over immigration from Africa and an energy catastrophe. Oh and there’s a proxy war with Russia going on and another with China waiting in the wings, to say nothing of a demented President. Just don’t choke on that turkey.

Whitewashing

The Democrat machine swings into action to preserve Sam Bankman-Fried from any consequences from the collapse of FTX. I can scarcely believe the nerve of these people, but after all this is the Hillary Clinton tradition. Add this to the list of howls of outrage. The New York Times Confirms SBF To Speak Alongside Zelenskyy, Yellen,

A Star

If you are tired of mealy-mouthed, politically correct politicians, you need to listen to Italy’s new prime minister, Giorgia Meloni.She speaks with passion and conviction, and so clearly that with only a little Italian you don’t need the subtitles. This is a leader. Remember that there are only two capitals in Europe that have ruled the world. Rome is one.

Lehman II?

The second-largest crypto exchange, FTX, has halted withdrawals and appears to be bust. Formerly valued at $32 billion, one must assume that it is now worth a lot less than that. The largest exchange, Binance, negotiated a non-binding bailout agreement and then withdrew it after a look at the books. I wonder if this is crypto’s Lehman moment? The time when the fantasy meets hard, cold reality?

Edit: FTX has/had more than five million customers worldwide. The Miami Heat’s home stadium, named FTX Arena, will be getting a new name. Porn movie producers Bang Bros. tweeted that their 2019 $10 million bid for the naming rights was still good, and they added that they promised that a lot fewer people would be f***ed.

Bubble Rupture

Interesting tidbits from Stephanie Pomboy. In July of 2008, inflation was at 5.6%. By July of 2009, it was at -2.1%. The price peak of the housing bubble was in September 2005. The shelter component of the CPI continued rising until its peak in February of 2007, nearly a year and a half lag. The total seasonal adjustment so far this year is +1 million, the largest ever. Of course seasonal adjustment needs to net to zero over the year. Of course the BLS is not political.

Central Heating Poverty

When I was growing up in the UK, our house had no central heating.  It was rare. In cold weather, I had a hot water bottle in my bed to take the chill off. Other than that, there was no heating in the house overnight. When I was old enough, it was my job, first thing in the morning, to light the fireplace in the living room, which burned coke. The black stuff, not the white stuff. There was a gas poker that was used for a few minutes to light off the coke. Until age 11 I went to school in shorts year round, long trousers being the exclusive privilege of the upper forms.

We had a gas cooker and water heater, electric lights and refrigerator, plus a few small electric appliances such as a vacuum cleaner. The gas supply was not natural gas, it was made from coal and, unlike natural gas, was highly toxic. It was common that people, especially those living in flats (apartments), would have a coin-operated gas meter that needed to be fed to provide gas.

I couldn’t find data earlier than 1970, at which time adoption of central heating was at 30% of households and rising steeply. By 1990, it was 79% and by 2018, it was at 95%. (Statista). Almost all of that is based on natural gas. So now there is widespread panic about fuel poverty in the UK, as there is a shortage of natural gas. The government can print money, and even generate hot air in small quantities. But not natural gas. So, folks, you are going to have to turn down the central heat. Or off. But I can testify that you will survive.  Got eiderdown?

When I was 14, the family moved to Canada. Now, there, winter is a more serious matter.

Disintegration

The world is disintegrating. Trust has been lost, both within countries and between countries. Without trust, economic relationships cannot operate.

China

China is a poor country, despite the glitz and glamor of its big cities and its showpiece infrastructure, with a per-capita annual GDP of about USD 11,000.

Chairman Xi presented his plan for world domination at the opening of the party congress. Not going to happen, sir. Your country is an economic and social house of cards that is in the process of collapsing. The housing market, investment of choice for the masses, is a bubble bursting and desperate local governments are even buying their own land use rights from themselves or one another because retail buyers have left the building. So to speak. Your Covid-zero policy has shaken the people’s faith in the benign CCP, while wreaking destruction on millions of small businesses. Unemployment is high and rising, college graduates cannot find jobs. Biden’s withdrawal of support for your semiconductor industry has condemned it to a bleak future without the production technology that your people cannot build. Export demand from the rest of the world is shrinking fast. Sir, your country is likely heading for a deep economic depression and social turmoil. This will further weaken China’s positioning for the world hegemony which you desire.

United States

In the USA, we live in a world now that George Orwell and Aldous Huxley would readily recognize. The state has commandeered the legacy media, as well as the new social media, to not only put out the “progressive” state’s version of reality but to identify, spy on, ostracize and  punish critics and dissenters.

President Biden, your “progressive” policies are not working. Democrat-run inner cities are being abandoned to crime and homelessness. Illegal immigrants are flooding in without any prospects for employment or training. You are continuing to feed the inflation which is mostly damaging the people you claim to represent. Your support for expansion of NATO triggered the invasion of Ukraine, with severe economic and social consequences.

You and your Democratic predecessors, notably Hillary Clinton, have created a deeply divided society, with those who have drunk the purple Kool-Aid and accept the state’s lies and propaganda on one side, and those with a more traditional view of reality on the other. Neither side trusts the other, respects the other’s views, or is willing to compromise. Both sides are preparing for more direct conflict as the sporadic clashes increase in frequency and severity. This is a recipe for a failing state with extremism on both sides. Negative economic consequences are to be expected.

Europe

Neither China nor Europe are democracies – by design. The architects of the European Union claimed that, since democracy had enabled Hitler, it could not be a part of the EU’s structure. As a result, bureaucrats who suffer no consequences for their failures and care little for the fate of the citizenry run the EU. Ursula van der Leyen is no less of an autocrat than Xi. Deep rifts have emerged as democratically elected governments have resisted the orders of the bureaucrats. These rifts are between rich north and poor south as well as conservative east and “progressive” west. It is only a matter of time before a second country leaves the EU, and that will spark a rush for the exits.

The coming winter is going to be hard, as the bureaucrats’ energy policy has been disastrous. Immigration policies have resulted in shocking increases in crime, with many countries reporting zones where the police dare not go in fear for their lives. Mario Draghi’s “whatever it takes” has left a legacy of irresponsible debt, as in the USA. As  interest rates increase, this is going to be a huge problem

Russia and Ukraine

Russia’s invasion of Ukraine has no winners. Regardless of the outcome, the invasion is an economic disaster for both of them. Their economies depend heavily on the export of commodities, such as food, energy and metals. The volumes of these commodities are large, and their absence are also a problem for the countries that have come to depend on them.

Conclusion

I could go on, but it is time to recognize that the future is not bright. Economies will get worse. Much worse. Be careful out there. Don’t focus on the narrative of the “Fed pivot.” The Fed is irrelevant.

China

The Covid-zero policy seems to be slowly destroying the Chinese economy and civil society. Even the slightest sign of infection sets off massive lockdowns, quarantines and daily testing, enforced by anonymous people with automatic weapons. Of course social media censorship is stringent, but even so there is trouble brewing in my opinion.  It seems to me that a single positive test is enough to shut down a city – haven’t they heard of false positives? It seem that at this rate the turmoil will never end.

And then there’s the collapse of the housing market, in a country where speculation in residential real estate, often sold and paid for pre-construction, has been the investment strategy of choice for most people.

Flippy

Shortage of labor + higher wages and benefits = Flippy 2 

Miso-Robotics-Flippy-2

PASADENA, Calif., Oct 4 (Reuters) – Fast-food French fries and onion rings are going high-tech, thanks to a company in Southern California. Miso Robotics Inc in Pasadena has started rolling out its Flippy 2 robot, which automates the process of deep frying potatoes, onions and other foods. A big robotic arm like those in auto plants – directed by cameras and artificial intelligence – takes frozen French fries and other foods out of a freezer, dips them into hot oil, then deposits the ready-to-serve product into a tray. Flippy 2 can cook several meals with different recipes simultaneously, reducing the need for catering staff and, says Miso, speed up order delivery at drive-through windows. “When an order comes in through the restaurant system, it automatically spits out the instructions to Flippy,” Miso Chief Executive Mike Bell said in an interview.” … It does it faster or more accurately, more reliably and happier than most humans do it,” Bell added.

Of course this is in addition to the original Flippy, which does burgers, etc.

Can the fully automated fast-food restaurant be far off? Ordering is handled by kiosks, cooking by Flippy. What’s next?

Just An Inch

“Prices are up hardly at all, just an inch” says Joe Biden when reported inflation was up from 8.2% to 8.3%. Joe, what are you going to do when the SPR is empty? And China invades Taiwan? In wintertime?