Failure to Launch

 

The borrowing consumer (and the businesses that rely on him or her) is the next shoe to drop.  It won’t be unusual to see people who are superficially successful file for bankruptcy in the coming years.  A large number of people participate in the “fake it ‘till you make it” mindset.  They fake it by borrowing excessively.

Since the bursting of the last bubble in 2009, the credit reporting and ratings agencies have redefined the term “subprime”.  There are all sorts of ways that the consumer can boost his or her credit score and improve his or her chances of being approved for credit.  Applications for credit (all sorts of credit) are routinely full of fraudulent information and most thinking persons involved know it.  Many just go along with the scam even though they know better.  Others are genuinely stupid and many of them hold technocratic positions with some level of authority over the minions who churn out the paper.  It’s largely bullshit.  The ratings agencies have for years now been figuring out how to hit the numbers and magically turn poorly qualified applicants into triple-A rated candidates for credit.  That's not just for receiving a lowly consumer loan.  That extends out to issuing bonds as well but that's a post for a different day.  It is the equivalent of “polishing a turd”.  The ratings agencies know this to be true but won't admit it.  The Fed will be the bag holder on this deal as they have been the dumping ground for all of the securities that are backed by these contracts for years.  It is entirely fitting that the Federal Reserve be the end bag holder.

Think of the Fed as an enabling parent who coddles and cuddles his or her “amazing” child to the point of being ridiculous.  Think of markets as being their “amazing” children. 

The parent shields the increasingly spoiled child from the consequences of his or her actions for years and showers the “amazing” child with undeserved praise and gifts.  The parent insists that the surrounding public praise the “amazing” child and treat him or her with kid gloves.  Then, years later, the enabling parent grumbles about the 35 year old son or daughter who can’t get their life together and lives in the basement or who requires regular parental cash infusions to pay his or her rent, pay for utilities, buy groceries, keep insurance on his or her car, etc., etc., etc.  Perhaps the “now not so amazing” son or daughter has now gifted the heretofore overprotective parent with an “amazing” grandchild or grandchildren (likely a grandchild born out of wedlock) and they can “wash, rinse, and repeat”…or change course.  The Fed is in a difficult spot and I think that they know this.

The shit has not as yet hit the fan but it will very soon.  Despite all of the happy talk in the financial news about the resilient consumer and the low level of current loan delinquencies, the “fake it ‘till you make it” consumer is struggling right now and he or she will prove to be not so amazing.  Over the long haul, they all implode.  They always do.  The businesses that rely on this consumer to make their margins had better be planning for the inevitable.  We may have reached the point where the Fed has to make a difficult choice between once again “saving the spoiled children” or saving the currency.  My thought is that they will throw the spoiled children under the bus and save the currency.

If you fully believe in the current Standard and Poors rating for US debt (AA+), I’ve got some Florida land for sale that you might be interested in…you can’t go wrong with real estate.

It Has Not Really Hit Home....Yet

 I went out to dinner last night with a couple of friends.  The restaurant was packed to the gills with working people.  Nothing fancy - just some cheap Mexican food on Margarita night.  

The markets got slaughtered that day (and rightfully so).  All of the indexes were down, Target got gang raped, Walmart took a hit, etc.  Nearly everyone I know participates in the stock market via their 401k accounts or a brokerage account.  I've long held a suspicion that the indexes get artificially juiced up just prior to a payroll date (like the 15th, end of the month, etc.) even as the major players know that the markets will tank in the days afterward.  Fleecing the sheep and getting them to employ the "buy high and sell low" strategy. 

A trader for Goldman Sachs once famously referred to his clients as "Muppets".  He would purposely advise them into trades that he knew were crap and surreptitiously take the short side of the trade knowing that his bet for the firm would win and he'd collect a handsome commission.  "It's a big club and you ain't in it" is a George Carlin phrase that is the best way to think of it.

My retort to that sentiment is from Groucho Marx

It's always so satisfying to tell cliques and "exclusive groups" to go fuck themselves.

Originally Posted September 2021

 I watched people go back to their old ways from 2014 to 2020 and mistakenly thought that the Covid-19 event would be the pin that pricked a large but somewhat harmless credit bubble that had inflated post "Great Recession".  True, the CFPB was put into place during that time but I was a first person witness to consumers and bankers returning to the use of credit at unhealthy levels.  I made a mistake in not realizing that Congress, the Federal Reserve and politicians who were jockeying for power would answer Covid (and the needless hysteria that they fostered surrounding Covid) with an avalanche of digital "currency/credit".  Astonishing.  So, now we have Yellen telling Congress to allow the debt ceiling to rise or face a default even as the Fed serves as a monthly dumping ground for mortgage backed securities, treasuries, collateralized debt obligations, etc.

The Covid "meth-money" is drying up.  It felt exhilarating while it lasted but it is going to leave many with an insatiable craving for more and a really bad set of teeth.

There is talk within the Federal Reserve of tapering its purchases.

The currency is losing value.  Outside of the U.S., many are asking, and rightfully so, "Why should the dollar remain the world's reserve currency?"

Many gullible young people who supported the Democrats in the hopes that they would have all of their student loan indebtedness forgiven are realizing that they participated in a lottery and while a few will be fortunate enough to be picked to have their debts forgiven, most will be left holding a worthless, losing lottery ticket.  The large education debt remains but hey, at least you didn't support the evil Orange Man.

Boomers are no longer the country's largest demographic but they do control the lion's share of the wealth.  The wealth effect went into high gear during the past year.  Boomers who saw their homes shoot up in "value" and their 401k's shoot the moon during all of the Federal Reserve inspired spending partied like it was 1999.   It's hard to blame them.  When you don't have to do much to see your net worth increase by double digits month after month, you'll "get the big head" as we used to say in Mississippi and start thinking that your shit does not stink.  All of that "paper wealth" translated into a lot of spending of current income and not just on necessities.  No "want" would go unmet - sky's the limit.  When the "wealth effect" shifts into reverse (and it will just as it did in 2009), Boomers again will re-think their spending habits.  Few will see the folly of their ways - as a dog returns to its vomit, so too does the fool return to his folly.  Boomers seemingly invented the habit of doubling down on stupid.  2 Bush terms, 2 Obama terms, yikes.

When your "asset values" on paper are going red and each week it costs more to go to the grocery store, automobile parts house, gas station, etc. and each month the utility bill seems a little higher than the same month in the previous year, it no longer seems prudent to blow through money on needless items or go on weekly retail therapy junkets.  The "incurable financial herpes" of these bubbles are tax rates and amounts.  For grins and giggles, I checked my old home's valuation and tax record.  The "value" shot up like a rocket during the Covid months and began its descent during this past month having lost $3,000 in resale value.  The taxes during the previous decade have gone from just under $2,000 per year to $3,000 this year.  Taxes on these "bubble values" linger into eternity.  It's just a fact of life.

Riddle Me This, Batman

 

When the Fed says it is aiming for a "soft landing", it means this: they have a dual mandate.  Price stability with very low inflation is the first goal.  The second goal is low unemployment.  All of the current crying and whining has been produced by two things.  The first is the failure of the Fed to keep inflation at a low level.  The second is the Fed making some movement toward lowering inflation; the two very small overnight interest rate increases that they have implemented thus far are driving up costs on credit and thereby pissing off both producers and consumers of high end products that require the grease of cheap credit to facilitate the sales.

Now, the real shit show does not begin in earnest until next month.  The Fed has for the past two (plus) years been the dumping ground for treasuries, mortgage backed securities and bonds of all stripes.  They have bought some real crap over the past two years.  In June, all of that bullshit ends.

From Reuter's Explainer:  The Federal Reserve on Wednesday said it will start culling assets from its $9 trillion balance sheet in June and will do so at nearly twice the pace it did in its previous "quantitative tightening" exercise as it confronts inflation running at a four-decade high.

The central bank's stash of assets has roughly doubled in size during the coronavirus pandemic as it used purchases of Treasuries and mortgage-backed securities to smooth market functioning and augment the effects of its interest rates cuts. Now it wants to reverse much of that, and in relatively short order, alongside rate hikes meant to cool inflation.

Starting in June, we are going to find out just how many employers and companies exist only because there has been an abundance of artificially cheap and free flowing credit compliments of the Federal Reserve.  If a company has no exit strategy and the ability to pivot, it will cease to exist and its employees will no longer have an employer.  It will get very interesting in the months after QT (quantitative tightening) begins.  

I read recently that the home builder's association is petitioning Joe Biden to help with lowering costs and regulations so that "they can provide housing for great Americans".  Let me clarify their true motives: please remove the tariffs on Canadian lumber and lower permitting costs so that our profit margin can remain super fat.  We all know we will need to lower prices in the face of higher mortgage interest rates - otherwise we will have no buyers and our $75,000 new Ford F-250's will be repossessed by the banks that are holding the liens on the titles and we won't be able to satisfy the never ending superficial wants and desires of our wives who sport a Karen hairstyle and the wonderful crotch muffins that we created with said wives.

The shit does not truly hit the fan until around September.  We're going to find out how many companies are a lot of smoke and mirrors after all of the cheap and easy credit is gone.  The Federal Reserve has been purchasing mortgage backed securities at nearly full face value thereby driving down yields.  Private investors are not going to be nearly as generous.  Bonds will not be bought unless they yield a reasonable return and are priced commensurate with the risks.  If you're a borrower, the good times are over.  It's time to start coughing up some real interest.

Enjoy The Show

How does a compulsive gambler think?

Being preoccupied with gambling, such as constantly planning how to get more gambling money. Needing to gamble with increasing amounts of money to get the same thrill. Trying to control, cut back or stop gambling, without success. Feeling restless or irritable when you try to cut down on gambling.

Markets don't move in a linear fashion.  There will be ups and there will most certainly be downs.  The "downs" can be explained by logic.  The Federal Reserve's quantitative tightening and the rising overnight federal funds rate will explain the downside.  No more free Federal Reserve rocket juice to fuel the markets.  

The inevitable "ups" will be driven by emotion.  The gamblers will come out when they believe that we are at bottom and create an uptick with their cumulative buying.  For a brief time, you'll see an uptick and then the gamblers run out of juice and out of buyers and the decline will continue.  People are fun to watch when they are doubling down on stupid.

There Are No Free Lunches

 The Cleveland home builder comment below hits the nail on the head on why the housing market will crash.  The current housing market is smoke and mirrors.  The only reason "values" have hit the stratosphere is because the Federal Reserve has been juicing the market with artificially low interest rates and has been making large scale purchases of mortgage backed securities that no one in their right mind would buy at current prices.  In the words of George Carlin, "It's all bullshit".  And why was this done?  Because the Democrat party and many Republicans used the "Covid emergency" as an excuse to get rid of the Evil Orange Man and completely queer the financial markets.  This will go down in history as the most moronic and stupid action ever taken by the "leadership" of the country.  If you think that your house is truly worth what Zillow tells you it is worth, you are in for a reality check in the coming months.  The Federal Reserve's moronic activity is coming to an end only because:

a. price inflation on every item under the sun is not going away anytime soon

b. the dollar is on the cusp of losing its world reserve currency status

If you bought a house during all of this bullshit, congratulations.  You are now the proud new owner of a snorkel mortgage.  Enjoy.

The regional breakdown is shockingly uniform in just how quickly it got ugly across the entire nation:

• Dallas builder: “Interest lists are shrinking or buyers are truly pausing.”

• Houston builder: “Many first-time buyers simply no longer qualify with the increase in interest rates, as their debt-to-income ratio gets out of whack.”

• San Antonio builder: “Traffic has been cut in half since the hike in rates.”

• Raleigh builder: “Investor activity has slowed dramatically.”

• Provo builder: “Investors are evaluating the investment more critically than in the past.”

• Washington DC builder: “Traffic half what it was in March. Worried about first time buyers. Many fewer REAL buyers than number of people collected on interest list last 6 months. Certainly more attempts [from buyers] to negotiate.”

• Seattle builder: “Pause by a large population of buyers. To achieve our desired [sales] pace, we had to make price adjustments. Rates starting to knock people out of qualification.”

• Riverside San Bernardino builder: “Cancellations are starting to creep up due to loan declines and job losses. Waiting lists are certainly smaller. Saw an immediate change in buyer behavior when rates climbed over 5%.”

• Los Angeles builder: “Buyers who are stretching to purchase have become more cautious.”

• San Diego builder: “Buyers are definitely a bit more edgy.”

• Denver builder: “Sales are slowing due to higher prices and rates. Backlog of buyers have remained but we are seeing new prospects priced out with interest rates and anticipated payments. Conforming loans quoting over 6%.”

• Boise builder: “Rising interest rates may have pulled some buyers forward, and we expect to see a slowing of sales in the coming months as a result.”

• Salt Lake City builder: “In our lower priced segments, buyers are compromising and reducing options.”

• Bend builder: “Our market has slowed and prices are starting to drop.”

• Atlanta builder: “Seen a decrease in the number of potential buyers who are participating in best and final offers on homes/homesites.”

• Knoxville builder: “Detached 2,000-3,000 square foot product still selling, just not with 3 buyers for every home like a few months ago.”

• Allentown builder: “Double hit of higher home prices and higher mortgage interest rates clearly has reduced the number of qualified buyers. Our waiting list is almost zero as of April 30th.”

• Philadelphia builder: “Between higher interest rates and higher sales prices, along with high gas prices and a volatile stock market, we’re seeing a pullback in our sales.”

• Tampa builder: “We’ve seen a significant shift in buyer behavior in the last 30 days. Florida was on fire and pricing has really come to a high point, and people are not willing to pay the prices anymore.”

• Indianapolis builder: “Traffic has significantly declined and people have paused on moving forward with purchases.”

• Kansas City builder: “Our lower end product has paused or slowed dramatically.”

• Columbus builder: “Higher rates are definitely tempering buyer enthusiasm and traffic.”

• Baltimore builder: “Buyers aren't putting in as many options as they did last year.”

• Reno builder: “Cancellation rate last month more than doubled from 6% to 16%. We attribute this to buyers that did not lock interest rates early in purchase process. Also seeing many buyers put buying decision on hold.”

• Fresno builder: “Finding an increase in cancellations due to the rate increase. The majority of cancellations are resulting from fear vs non-qualification.”

• Cleveland builder: “Once we reach home closings, about 5% of our current customers on the books will be forced to bust out as they originally qualified at a 3.25% rate and won't be able to stretch beyond this.”

• Sacramento builder: “Seeing trouble qualifying for entry-level buyers as they are priced out by rates.”

• San Jose builder: “Quality traffic has significantly decreased.”

Obama's Surrogate Mother Takes a Stance on Abortion

 I am in the habit of referring to Ben Bernanke and Janet Yellen as Barry Obama's enabling, over protective surrogate parents as it seemed they were both dead set upon protecting the nation's precious and first El Presidente' of Color from his own fuck ups.

There's nothing more dangerous than a moronic woman with a plan and a desire to influence outcomes that she has no business sticking her nose into.  If you doubt that statement, I suggest that you go have a chat with the ex-Mrs. Bing and her lovely crotch muffins.

But, Ms. Yellen has an opinion and she is going to share it with you come hell or high water.  Brace yourself.  So now comes Janet Yellen with this pearl of wisdom on the abortion subject:

WASHINGTON, May 10 (Reuters) - U.S. Treasury Secretary Janet Yellen on Tuesday said eliminating women's access to abortion would have "very damaging effects" on the U.S. economy, keeping some women from completing their educations and reducing their lifetime earnings potential and participation in the labor force.

????WTF????

Janet shops at Hillary Rodham Clinton's Pantsuit Emporium (evidently).

It Will Get Worse Before It Gets Better

"Inflation is starting to have an impact on people’s spending expectations over the coming months, with 61% of Americans saying they’re worried about their financial situation, according to a survey of more than 1,000 adults conducted by Toluna from March 23 to 29."

By the 4th of July, people will begin to open their 2nd quarter 401k statements and notice that the neighbor's house has been for sale for what seems to be a long time and that another house down the road that was bought by a flipper hasn't had any work done to it in quite a while and that they are still paying over $10 for a pound of premium bacon and over $4 for a gallon of low grade gasoline... The epiphany will be upon them.

The Dow (which is a bullshit measurement), the S&P500 and the Russell 2000 are all solidly in the red for the year.  Mortgage lenders see the writing upon the wall and are laying off staff.  The Federal Reserve is playing major league catch up and using only half measures to do so at this point for fear of crashing the economy.  The current White House occupant is a corrupt moron and his second in command is a dick sucking moron (nothing wrong with a woman who knows how to suck a dick but it should not be her only talent).  If you have not prepared for what is to come for the remainder of the year, you're fucked.  There is no way to sugar coat the news.  You're just fucked.

My Money is On the Advice Given by the Dead

"There are several different versions explaining the gift and curse of Cassandra; the most popular one is that God Apollo fell in love with her and granted her with the gift of prophecy. When Cassandra denied the God and his advances, he placed a curse on her, so that no one would believe her words or her predictions. He gave her a gift that would bring frustration and despair to her."

From The New Empire of Debt by Bill Bonner and Addison Wiggin:

"Avoid foreign entanglements," cautioned the father of the country. But corpses have no voice and no vote, neither in markets nor in politics. George W. Bush was undoubtedly better informed than George Washington. He may have neither the wisdom of a Washington nor the brain, but at least he had a pulse.

Whether you have a gift from the gods or you are just a student of history who pays attention to and have respect for the wisdom of those who have lived before you, you are a rarity.

When I read passages like the above entry from Bonner's book, I ask myself, who are you going to believe?  The man who was most instrumental in the foundation of the country

or this idiot?

Biden Delights in Surrounding Himself With Crazy Bitches (Evidently)

 

If you're just looking to just get laid, she falls into the "Find, Fuck (but be sure to give her a false name and place of residence), Flee as Fast as Your Feet Will Carry You" category.

If you just want to live a happy and quiet little life, you avoid a bitch like this at all costs.

She's destined to grow old with a herd of cats.

Enslaving The Young With Debt - Who Evidently Are Cool With Being Enslaved With Debt

This is from an article criticizing a company called "Afterpay" that allows people (mostly women and particularly "women of color") to buy high end products on-line and pay for it in four months:

Financial experts who spoke with SFGATE expressed significant concerns about the way companies are targeting Gen Z consumers. 

“They are marketing very heavily to an audience that is younger, that might not just have as much experience on how to use credit and what credit implications are or what it means to have multiple loans at one time,” Marisabel Torres, the California policy director of the Center for Responsible Lending, told SFGATE.

If you ask me, it sounds a lot like a government backed student loan but that's none of my business.... s/ 

This country is chock full of retarded people.

"Colleges can set the price, knowing that the government is just going to give their customers, the student, a blank check to pay for that price," the Wall Street Journal's Josh Mitchell says.

"And so not only is there no incentive under this current system for colleges to keep the prices in check, there's actually every incentive for them to raise the prices."

Today, On Point: Beyond loan forgiveness. The federal government's role in causing and fixing the problem of high student loan debt.

Voting "Progressive" Democrat Has Consequences

 In Arapahoe County, CO 61.0% of the people voted Democrat in the last presidential election

From USA Today:  AURORA, Colo. – Kevin Tave stretches a pot of spaghetti for three days of meals. Esmerelda Cortez gets eggs and bread from the food bank so she can afford laundry detergent at the store. Donnie Whitfield buys generic cereal instead of the Kellogg's he prefers.

Although unemployment continues dropping and wages are on the rise, all across the country, low-income people are struggling to put food on the table as skyrocketing inflation and high gas prices take a bigger bite of their already-small paychecks.

America Does NOT Run on Dunkin. It Runs on Abundant and Artificially Cheap Credit.

 

"Recently, mortgage layoffs have been driven by a major decrease in refinance demand and a dwindling pool of eligible home buyers thanks to significantly higher mortgage rates.

I’ve seen a surge of user comments from former mortgage employees who have been laid off. Those are now being included on the list below.

Simply put, mortgage companies must “rightsize” as too many players chase far too few loans."

The executive class that makes the decisions within the home mortgage industry can clearly see the writing on the wall.  

Our government's moronic mismanagement of Covid and the complicity of the Federal Reserve created a gigantic bubble and it led to the inflation that you see today (and will continue to see for the next several months).  It did not help that the Democrats, some scummy Republicans and the entrenched bureaucratic class saw Covid and “Covid-aid” as a perfect way to remove a political foe from power.  That foe and his supporters were deemed to be “deplorable” to use an HRC descriptor.  Trump followers may have been "deplorable" but they sure as fuck beat the hell out of the imbecilic and braindead Biden and Hillary and Barrack "great American voters".  I'm not sure if they are just young and gullible or if they are truly so fucking stupid that they should not be allowed to reproduce, much less vote.

The Fed Calls It "Forward Guidance". In the 80's, We Called It "Head Games"

 “Credible forward guidance means market interest rates have increased substantially in advance of tangible Fed action. This provides another definition of ‘behind the curve,’ and the Fed is not as far behind based on this definition.” (per Bullard)

The Fed uses forward guidance, which provides clues to the market about where policy is going.

“You don’t do anything, but markets think you will, so you get response before action,” Bullard says. 

The presidents of the Federal Reserve Bank and members of the FOMC will continue to provide clues and warnings to their upcoming decisions, says Ernie Goss, Creighton University economist.

Playing mind games (also power games or head games) is the largely conscious struggle for psychological one-upmanship, often employing passive–aggressive behavior to specifically demoralize or dis-empower the thinking subject, making the aggressor look superior.  

I hate the new and improved Fed.