End Times at the OD Corral

By James Howard Kunstler

Personally, I believe that the plodding, implacable Robert Mueller, white knight of the Deep State, will flush the Golden Golem of Greatness out of office, probably on some sort of money-laundering rap having nothing to do with “Russian meddling.” Anderson Cooper will have a multiple orgasm. Rachel Maddow will don a yellow hard-hat and chain-saw a scale model of Mar-a-Lago to the glee of her worshippers. The #Resistance will dance in the streets. And then what?

I doubt that Mr. Trump will go gracefully. Rather he’ll dig in and fight even if it means fomenting a constitutional crisis. He’ll challenge Mr. Mueller on veering into matters unrelated to alleged Russian pranks in the 2016 election. He may well attempt the self-pardoning gambit. He will have a lot of support out in the Deplorable gloaming. But, at some point, I expect a bipartisan consensus to emerge in congress that the guy has got to go. He’s making it impossible to conduct even the routines of bribery and domestic collusion that Washington exists for. Nobody is getting paid — at least not the bonuses they’re accustomed to seeing.

Continue reading End Times at the OD Corral

The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

By David Stockman

The heart of the Fed’s monetary central planning regime is the falsification of financial asset prices. At the end of the day, however, that extracts a huge price in terms of diminished main street prosperity and dangerous financial system instability.

Of course, they are pleased to describe this in more antiseptic terms such as financial accommodation or shifting risk and term premia. For example, when they employ QE to suppress the yield on the 10-year UST (i.e. reduce the term premium), the aim is to lower mortgage rates and thereby stimulate higher levels of housing construction.

Likewise, the Fed heads also claim that another reason for suppressing the risk free rate on US Treasuries via QE was to induce investors to move further out the risk curve into corporates and even junk, thereby purportedly boosting availability and reducing the carry cost of debt financed corporate investments in plant, equipment and technology.

Continue reading The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

The Authority Fallacy, Or The Quarles Quandary

By Jeffrey Snider

In early September 2007, just a month after the eurodollar system broke and still weeks before the FOMC would finally see the need to do something, anything, private equity firm Carlyle Group added six new “senior investment professionals” intending on making investments in global banking and insurance. The timing was, well, suspect.

Among those added to the firm was Randal Quarles, a former Treasury official in the Bush administration who had become Undersecretary for Domestic Finance. In that position, Quarles had delivered a speech in New York in May 2006 addressing the irregularities becoming undeniable throughout markets. It was, to say the least, an auspicious time to be talking his book.

It was, in reading it this much later, a far more realistic assessment than most that had been offered particularly by anyone in any official capacity. He addressed the potential issues with the GSE’s starting with their role in the then housing bubble mania, admitting quite frankly, “The concentration of risk inherent in these portfolios along with the GSEs’ thin capital structure are an important policy concern and a high priority for the Treasury.”  Priority in name only, apparently.

Continue reading The Authority Fallacy, Or The Quarles Quandary

Bi-Weekly Economic Review: One Down, Three to Go

By Joseph Calhoun

Economic Reports

Economic Growth & Investment

We pay particular attention to broad based indicators of growth. The Chicago Fed National Activity Index and the Conference Board’s Leading Economic Indicators are examples. We watch them because we are mostly interested in identifying inflection points in the broad economy and aren’t as interested in the details.  Why? Because, while bear markets do happen outside of recession, it is rare and unpredictable. Our best chance of acting in advance of a bear market is to identify the onset of recession. And concentrating on the details of the economic data can cloud one’s judgment about the overall economy which is what matters to the market as a whole.

But we also think you have to be careful in interpreting these indexes. You don’t want to overreact to noise or not react to a real warning. So it is interesting, in the case of the LEI, to see what factors are moving the index. The most recent release showed a rise of 1% in the LEI, quite a bit stronger than expected. But what drove the rise? Building permits, stock prices and ISM new orders, none of which, by themselves, are very informative about future growth. All of them are, to some degree, measures of sentiment rather than actual hard data about the economy. Building permits are not a commitment to actually build anything even if they do show intent. Stock prices, as the old Wall Street saying goes, have predicted nine of the last five recessions. And the ISM report has been showing robust growth for over a year that quite simply refuses to show up in the hard manufacturing data. So don’t get too excited about the LEI; it isn’t as strong as it appears.

And no, the positive ISM and regional Fed sentiment still hasn’t found its way into the industrial production report, down 0.1% in January with the manufacturing part of the report flat. December was revised down significantly as well. One can’t help but wonder if the Trump administration’s honeymoon period is about over; sentiment works for a while but at some point the growth has to actually show up.

One recent big bright spot was the Quarterly Services survey which showed an 8% rise in information services spending. That’s a huge improvement over last quarter which was up just 1.1%.


Continue reading Bi-Weekly Economic Review: One Down, Three to Go

The Pricking of the Canadian Real Estate Bubble?

By Kevin Muir

First of all, sorry for the lack of posts lately. Long story, but rest assured, I am back on track and the old ‘tourist regular postings have resumed.

Next up, today I will write about Canadian real estate. I know, many of you find that about as exciting as watching Winter Olympic curling, but give me a chance – after all, we Canadians have a way to make even curling entertaining.

The Canadian real estate bubble

As most everyone knows, over the past decade, Canada has experienced a massive real estate boom.

Continue reading The Pricking of the Canadian Real Estate Bubble?

Yeah, About This Boom

By Jeffrey Snider

In October 2006, the Communist Party of China unveiled a landmark new policy aimed at easing social and societal unrest in the country. The Chinese leadership would strive for a “harmonious society”, reaching this goal no later than 2020. As one of the final works for 16th Party Congress convened in 2002, it would stand as the template for how the 17th Party Congress would attempt to rule.

A year later, in October 2007, Communist Party leader Hu Jintao built further upon that foundation, stressing harmony if in the background of all the Party’s major initiatives. In many ways, he said, the Chinese were fortunate in being given the opportunity to address any issues from the position “of this new historical point.” Rapid economic expansion had radically transformed the country.

Economic strength increased substantially. The economy sustained steady and rapid growth. The GDP expanded by an annual average of over 10%. Economic performance improved significantly, national revenue rose markedly year by year, and prices were basically stable. Efforts to build a new socialist countryside yielded solid results, and development among regions became more balanced.

The key pieces of the harmonious society were to be democracy, rule of law, equality, and environmental stewardship.

Continue reading Yeah, About This Boom

The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 3

By David Stockman

Here’s why our mountainous $67 trillion of public and private debt matters. To wit, it has caused the historic relationship between trends on main street and Wall Street to go absolutely haywire.

A week or so back, they reported January industrial production at 107.24, which was only a tad higher than it had been three years earlier in November 2014 (106.61), and just 1.8% above where it had been at the pre-crisis peak way back in November 2007 (105.33). If you cotton to CAGRs, that’s a microscopic 0.18% per annum growth rate over the course of a full decade, and during the third longest business cycle expansion in history, to boot.

By contrast, the S&P 500 at the January 26th peak (2873) was up by 84% from its November 2007 level (1560). And let us make haste to squeeze out the inflation component so as to conform on an apples-to-apples basis that sizzling gain with the volume-driven industrial production index. As it happened, the GDP deflator rose by 17% over the same period, so in real terms the S&P 500 is up by 58%.

And that’s not from the horrid March 2009 bottom, but from the tippy-top of the “goldilocks” stock market fantasy a year before the roof fell in. Accordingly, the question at hand already has the benefit of the doubt factored in: Namely, how can the stock market rise by 58% from the dubious pre-crisis high, while the industrial economy has only expanded by 1.8%?

Continue reading The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 3

New Home Sales Decline 7.8% In January (Back To 1995 Sales Level) – Did Mortgage Rate Increases Lower NHS?

By Anthony B. Sanders

Despite America’s growing population, new home sales are only back to levels seen in 1995 when the Clinton push for homeownership began. It was called “The National Homeownership Strategy: Partners in the American Dream.”

They should have called it “Partners in the American Scream” since the house price bubble burst in spectacular fashion.


After the house price bubble burst starting in Q4 2007, median prices for new homes and existing homes diverged.

Continue reading New Home Sales Decline 7.8% In January (Back To 1995 Sales Level) – Did Mortgage Rate Increases Lower NHS?

The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 2

By David Stockman

In Part 1 we postulated that the chart below embodies nothing less than the nightmare that will be coming to Wall Street right soon. It means, in effect, that you can climb the financial tiger’s back for an extended time, but when you reach the mane its generally impossible to get off alive.

Needless to say, we have reached the mane. What drove the US economy for the past three decades was debt expansion—-private and public— at rates far faster than GDP growth. But that entailed a steady ratcheting up of the national leverage ratio until we hit what amounts to the top of the tiger’s back—that is, Peak Debt at 3.5X national income.

Continue reading The Albatross Of Debt: The Stock Market’s $67 Trillion Nightmare, Part 2

The Under-utilization of Housing Wealth In Retirement…

By Anthony B. Sanders

The Under-utilization of Housing Wealth In Retirement (Is Credit Too Tight and Shared Appreciation Mortgages As A Solution?)

There is an interesting event coming to Washington DC — the 2018 Housing Wealth in Retirement Symposium brought to you by The Funding Longevity Task Force at The American College of Financial Services and the Bipartisan Policy Center (BPC).

The goal? The goal for the Symposium is to facilitate collaboration among stakeholders – including regulatory agencies, NGOs, and the financial services community – to address the under-utilization of housing wealth in retirement.

The speaker list is excellent. The Urban Institute’s Laurie Goodman is the apparent headliner.

Here are my two cents (which has been devalued to less than a cent).

The American population is aging and many are entering retirement. But are they prepared?

First, The Federal government and its stakeholders have already tried to get more households to be stakeholders (that is, homeowners). And this happened.

Yes, the great leap forward in home ownership ultimately failed after almost reaching 70% before subsiding back to around 64%. That is, trying to get marginal households to switch from renting to owning. (By lowering credit standards and down payment requirements).


Continue reading The Under-utilization of Housing Wealth In Retirement…

Is it Ever Different This Time?

By Jeffrey Snider

As my colleague Joe Calhoun likes to point out, nothing is new, everything has happened before. We like to think that’s not the case, as the saying goes every generation thinks it has invented sex. What changes is the form, the format largely remains the same. Human beings in 2018 are the same as they were in 1918.

Quite recently, the stock market suffered a bout of liquidation. Whether or not that has concluded isn’t yet determined. The reasons for it, at least those given in the mainstream, tend to be related to how things are so good. Inflation is about to breakout, the economy booming with it, and so the Federal Reserve will be forced to move faster than its otherwise snail’s pace. This is bad for stocks apparently.

So, we get headlines like thisInflation Fears Rattle Stocks.

Continue reading Is it Ever Different This Time?