A weekend topic starting with 48 Hills. “If you were looking for an event that epitomizes the neoliberalization of the University of California, you’d be hard pressed to top the UCLA Institute of Transportation Studies’ 2022 Lake Arrowhead Symposium. Despite being sponsored by a public institution, staged at a publicly owned venue, and funded in large part by public agencies (more about that below), the UCLA Lake Arrowhead Symposium is a decidedly private event. As at the mother of all such gatherings, the annual World Economic Forum at Davos, Switzerland, attendance at the Symposium is by ‘invitation-only.’”
“Despite its prioritization of equity and diversity in awarding scholarships, the UCLA Lake Arrowhead Symposium is an exclusionary gathering—even more exclusionary than Davos. The World Economic Forum publicizes it proceedings—to be sure, in carefully curated podcasts and briefs. But at least WEF cites people who attend the event. No such citations emanate from the Symposium. I haven’t found a single news story that reported on its proceedings, much less cited anyone who was there. The neoliberal bias is evident from the lineup of speakers posted on the event’s home page.”
“Missing from this roster are any dissenters from the dominant, neoliberal paradigm. That’s a problem, because there’s a big difference between the World Economic Forum and Chatham House on the one hand and the UCLA Institute of Transportation Studies on the other: The former are private institutions, the latter is a public one—and more importantly, a public institution officially dedicated to education. Genuine education involves debate, especially debate about conventional wisdom.”
The Los Angeles Times. “The Federal Reserve system was stung in late 2021 when it declared signs of emerging inflation to be ‘transitory’ and delayed taking strong action to tamp down price increases. The central bank has been running from its critics ever since. Under its chairman, Jerome H. Powell, it has instituted the most aggressive anti-inflation interest rate increases in more than 40 years as if to make up for its initially laggard response to what proved to be a nearly yearlong run-up in prices.”
“The Fed seems to have overlooked that the rate hikes would create a problem for banks completely different from the issues that brought the banking system to the brink of meltdown during the financial crisis of 2007-09. When venture investors advised their portfolio companies to pull their deposits out of SVB, the embedded losses became relevant. This is the situation that the Fed apparently overlooked. The Fed was fighting the last war, but not the existing war, in which the enemy was its own campaign of boosting interest rates (and thus crashing the values of long-term bonds) to fight inflation.”
From Money Wise. “With headline inflation figures coming down and a strong labor market, some say that the U.S. economy could be on its way back up. But billionaire investor Sam Zell does not share that optimism. ‘When you spread out free money for years at a time, you create significant drag, and I just don’t see how we are going to avoid a slowdown as that whole process comes to an end,’ he says. According to Zell, the problem lies with the U.S. Federal Reserve’s easy money policies. ‘I think the Fed screwed up by allowing zero interest rates to go on too long, I think we are just beginning to pay the price for that,’ Zell points out. ‘It would be nice to say that it would be great if the Fed got lucky. I’ve been around for 50 years and I’ve never seen the Fed get lucky.’”
From Newsweek. “A shift in tone from Treasury Secretary Janet Yellen has cast doubt over the federal government’s ability to respond to the recent banking crisis. Ross Gerber, a financial adviser and president of wealth and investment management firm Gerber Kawasaki tweeted: ‘Yellen trying to sooth markets… Didn’t really work. I don’t think people have any faith in Yellen and Powell at this point.’”
From Business Insider. “Prepare for stocks to crash and the American economy to suffer a sweeping downturn that rivals the Great Recession, Stephanie Pomboy has warned. ‘The everything bubble has now burst, and that’s going to hit everything, everywhere all at once,’ said the Macro Mavens founder. ‘There’s a lot of ugly stuff coming down the pike.’ The economist noted that debt levels are higher today than before the mid-2000s housing crash, and the Federal Reserve has dramatically raised interest rates over the past year. The upshot is that consumers are struggling to afford their car loans and credit cards, and many companies and real estate developers are feeling the squeeze, she continued.”
“‘This is really like 2007, 2008 all over again,’ Pomboy said. ‘Except I think it’s going to devolve even faster than it did then because of the speed and magnitude of the Fed’s rate hikes.’ Pomboy castigated the US central bank. She accused it of repeatedly pumping too much money into the economy, boosting asset prices to unsustainable highs, then ratcheting up interest rates and causing painful crashes. ‘The Fed basically has us ping-ponging from asset bubble to bust,’ she said. ‘It’s lather, rinse, repeat.’”
From Ambrose Evans-Pritchard. “Swiss regulators have tossed nitroglycerin onto the global financial fire. They have also committed shameless expropriation. So much for the safety of Zurich. The total wipe-out of $17bn of Credit Suisse’s tier 1 bonds renders the convertible debt market in Europe almost uninvestable. These junior bonds ought to trump equities in market hierarchy. Clearly they do not. ‘It means the banking crisis we’ve seen over the past few weeks has started a new chapter,’ said Russ Mould from AJ Bell.”
“You can date the moment that the small Greek crisis turned into the larger Italian and Spanish crisis, and therefore became an existential threat to Europe’s monetary union. It was when Angela Merkel and Nicolas Sarkozy – walking on the beach at Deauville in October 2010 – opened the door to haircuts on sovereign debt. Investors hurried to the exits, sauve qui peut. The justification for selling Credit Suisse at 7pc of book value and vaporising its bonds is that the bank is in worse trouble than supposed. Either Swiss regulators are exaggerating – in order to expropriate $17bn (3pc of Swiss GDP) – or global monetary tightening has already done widespread systemic damage.”
“We are now stuck in this brave new world. Central banks have swung from frenetic money creation in 2020-21 to the monetary death march of 2023, with all key measures of the money supply flashing red warnings in America and Europe. Central bankers have yet to acknowledge that the money supply is dangerously out of kilter. So brace for a long hot summer of financial accidents until they get the message.”
The Dallas Morning News in Texas. “Commercial real estate lenders are keeping a close eye on developments in Dallas and across the country. Some of the Dallas properties with potential problems are office buildings. Byron Carlock, who leads PriceWaterhouse Coopers U.S. real estate practice, said unlike in previous cycles, the credit woes aren’t the property sector’s fault. ‘Yet the lack of liquidity in the industry to consider refinancing pending maturities plus fears about office and buildings that have lost relevance has all of a sudden created a panic,’ Carlock said.”
CNBC on California. “The owner of this over-the-top, seven-bedroom and 11-bath mansion in Los Angeles is prepared to accept $6 million less than what he paid for it less than two years ago — all to beat a ticking clock. The home features a basketball court, car showroom and a 70-foot infinity pool that appears to float some 45 feet above the mountainside, and it’s on sale for a reduced price of $38 million. If it doesn’t sell by April 1, the property would be subject to a looming new, local mansion tax, which goes into effect next month and could cost the owner a further $2 million.”
“The almost 16,700-square-foot residence was purchased by the trust of wealthy investor Jeffrey Feinberg. About a year after buying it, Feinberg put the home back on the market for $48 million but couldn’t find any takers. The original asking price was chopped down $10 million, or almost 21%. To put that price cut into perspective, it amounts to the home dropping almost $64,000 in value every single week for 94 weeks straight since Feinberg bought it.”
From Bloomberg. “South Korea’s property market risks an accelerated slide triggered by quirks in renting practices. The vulnerability stems from the common choice of tenants to stump up outsized deposits known as jeonse for landlords instead of paying monthly rent. This widespread practice supplies property owners with leveraged cash, putting jeonse at the heart of real estate speculation and financial imbalances in the country. The Bank of Korea and most economists still expect the property downturn to remain contained as a modest and even desirable correction. But economists warn that a deeper real estate slump, fueled by changes in jeonse use, can’t be ruled out.”
“‘Jeonse and purchase prices are falling and they are feeding off each other,’ Kim Woong, director general of research at the BOK, said after the central bank slashed its economic growth forecast, partly on property-market concerns. The rising number of unsold home offerings and the decreasing appetite for mortgage loans indicate that many buyers still consider housing to be too expensive after explosive price growth in recent years.”
“The property market falls are also adding to woes for construction companies already struggling to sell housing. The number of unsold homes nationwide surpassed 75,000 in January, the highest level since 2012, according to the Ministry of Land, Infrastructure and Transport. That’s more than a five-fold jump from just a year and a half ago. Real estate companies are pulling out all the stops to try and sell property.”
“Now as the housing market wobbles, even a small credit-related event could rekindle risks associated with project financing, according to a NICE Investors Service Co. report last month. ‘It’s like SVB,’ Lee Kang Wook, a general manager for ratings at NICE, said. ‘You must sell these homes to repay the PF loans if you’re a developer,’ he said. ‘Companies that have borrowed more than they can handle will become an issue.’”