Category Archives: Asset Classes


Much is being made of the report from the National Ignition Facility (NIF) of a positive energy gain from their inertial confinement technology. This means that more energy was released from the hydrogen pellet than was received from the laser array, a 154% gain.. It is nowhere near break-even when the energy consumed to generate the laser pulses is included (about 100x the output) or create the hydrogen pellet. The best that can be hoped for from the laser efficiency is about 10%, which is a steep wall to climb for this approach. Remember, this is a cost-no-object government project that should have been shut down years ago, desperate for a press release so it can continue p***ing taxpayer money away. It is worth noting that the NIF first claimed to have achieved break-even in 2013, based on the energy delivered to the fuel. This time the definition has shifted slightly, to the energy in the laser pulse, but is 0.01 times any reasonable definition of breakeven. Still BS.

Panic Buying

Panic buying this morning resulted from this morning’s CPI report. Core inflation was reported at 0.2% for the month and 6.0% y-o-y, down from 6.3% in the previous report. This disinflationary update resulted almost entirely from falling energy prices, courtesy of Biden’s draining of the SPR, with some help from used car prices. Anyone who thinks that falls in energy prices are sustainable in the face of suppression of the use of fossil fuels is probably still checking to see if the Tooth Fairy has been.

What Happens Next

Well 2022 is just about over. I traded badly this year but that is behind me, I hope. Especially annoying since I have been expecting this bubble to burst for a long time. The big question is, where do we go from here. Some thoughts:

  • Housing. Sales volumes are falling very rapidly because affordability is poor, but prices are holding as sellers are reluctant to drop their expectations. In the last housing bubble pop, it took a year and a half for this process to work through so that sellers finally acknowledged that prices could actually fall. This means that housing costs, which make up a disproportionate share of CPI, will be sticky.
  • Employment. The pandemic significantly reduced the labor pool as many people retired or just dropped out. In China, the pandemic and measures to suppress it have badly damaged the economy and look to continue to do so. It seems likely that the offshoring that reduced labor demand in the US is over, and will be replaced by onshoring and relocation of production. Either way, labor demand is likely to remain relatively strong well after consumption growth falls. Labor looks to reclaim at least part of the loss of its share of economic output, at the expense of capital, i.e. profits.
  • Energy. The idiocy of belief that minor reductions in CO2 output will have a material affect on the climate is hampering investment in energy sources. Of course this will throttle growth in energy production and keep prices high, even as a slowing economy will reduce demand for other commodities. I was amused to find that DNA recovered from northern Greenland revealed that during the region’s , when were 20 to 34 degrees Fahrenheit (11 to 19 degrees Celsius) higher than today, the area was filled with an unusual array of plant and animal life, including aurochs and mastodons. Then of course there are the (hopefully temporary) supply constraints that have been caused by the sanctions on Russian production.
  • Food. The good news is that more CO2 in the atmosphere helps food production. But modern farming depends heavily on diesel fuel for big equipment and natural gas for fertilizer production. Fossil fuel prices directly affect food prices, because even though yields may be good, farmers will not plant crops on which they cannot make a profit. In addition to high prices, shortages of some crops will develop as farmers pivot to crops which require less of these costly inputs.
  • Interest Rates. It seems that no-one believes that Fed Chair Powell will actually carry out the attack on inflation that he has outlined. Some argue that a recession will “force” him to abandon his current goals and resume ZIRP and QE, redefining his goals in the process to accept a higher level of inflation on an ongoing basis. Others believe that the recession will cause inflation to fall quickly and make the question moot as his goals, such as positive real rates across all maturities, will be automatically met.It is certainly true that this long-suppressed business cycle is moving fast, but there is a long way to go to normal. My personal view is that his vision for his legacy is an economy that does not depend on massive growth of debt relative to GDP as has been the case in recent years, and he will do “whatever it takes” to get there

In summary, inflation will prove sticky although not runaway, and Powell will accept a recession. But as the recession gains hold, it will accelerate as defaults reduce credit availability regardless of Powell.

China Property

Price to Rent ratio compares median sales price to median annual rents for similar properties. Here (read off a chart so approximate, then annualized) are price to rent ratios for major cities in China:

  1. Shenzhen: 58
  2. Shanghai: 53
  3. Beijing: 51
  4. Guangzhou: 48

Here, from Yahoo Finance, SmartAsset reports Price to Rent ratios for the top 50 cities in the US.

  1. San Jose: 42
  2. San Francisco: 37
  3. Long Beach : 33
  4. Seattle: 33

While in San Jose it takes 42 years of rent to buy the property, which is expensive enough, in Shenzhen it takes 58 years. Comparing the top four cities, China is around 45% higher – or more speculative. And you thought that we had a real estate bubble.   At the other (cheapest to buy) end, in the US, you can buy the property for as little as 6 years rent:

  1. Detroit: 6
  2. Cleveland: 8
  3. Baltimore: 12
  4. Milwaukee: 14

And of course this ratio uses gross rent and, unlike the “cap rate” often used to evaluate rental properties, does not take into account the expenses of operating a rental property, such as taxes, maintenance, security, insurance, etc.

Housing Collapse Redux

Take a look at this chart:


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.


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.