Duane Peters worked really, really hard at being “The Master of Disaster” for over 40-years. Day after day. Year after year. Decade after decade. He gave it his all.
It was a tough job. The broken bones. The knocked-out teeth. The many face pummelings. But he was good at it.
When inducted into the skateboarding hall of fame in 2015, Peters delivered, what must be, without question, the greatest acceptance speech of all-time. This was the high-water mark of a turbulent life and career.
The last several years haven’t been kind to Peters. The Master of Disaster was never supposed to live into his 60s.
Yet, somehow, he did. And like the rest of us, he’s trying to make the most out of life in America circa 2023.
This week, the yield on the 10-Year Treasury note eclipsed 4.3 percent. A 15-year high. If yields continue to rise, and credit markets continue to tighten, this one thing will change everything.
Where to begin?
In 1981, professional skateboarder Duane Peters was busy inventing tricks like the invert revert, the acid drop, and the fakie thruster, in empty Southern California swimming pools. As part of his creative pursuits, he advanced and perfected the art of self-destruction with supreme enthusiasm.
His many broken bones, concussions, and knocked out teeth earned him the moniker, “The Master of Disaster”.
But at the exact moment The Master of Disaster was risking life and limb while pioneering the loop of death, the seeds of a mega-disaster were being planted.
In particular, the rising part of the interest rate cycle peaked out in 1981. Then, over the next 40 years, interest rates fell, and these seeds of mega-disaster were multiplied and scattered across the land.
Credit and Asset Prices
The relationship between interest rates and asset prices is generally straightforward. Tight credit generally results in lower asset prices. Loose credit generally results in higher asset prices.
When credit is cheap and plentiful, individuals and businesses increase their borrowing to buy things they otherwise couldn’t afford. For example, individuals, with massive jumbo loans, bid up the price of houses. Businesses, flush with a seemingly endless supply of cheap credit, borrow money and use it to buy back shares of their stock…inflating its value and the value of executive stock options.
When credit is tight, the opposite happens. Borrowing is reserved for activities that promise a high rate of return; one that exceeds the high rate of interest. This has the effect of deflating the price of financial assets.
In 1981, credit was expensive, while stocks, bonds, and real estate were cheap. For example, in 1981, the interest on a 30-year fixed rate mortgage reached a high of 18.63 percent. That year, the median sales price for a U.S. house was about $70,000.
In contract, the interest rate on a 30-year fixed rate mortgage bottomed in January 2021 at 2.65 percent, and the median price of a U.S. house inflated to about $416,100. Along the Country’s east and west coasts, prices are much higher.
Similarly, the Dow Jones Industrial Average (DJIA) was roughly 900 points in 1981. Today, the DJIA is about 34,500 points. That comes to over a 3,733 percent increase. Yet over this same period, nominal gross domestic product has only increased by roughly 764 percent.
We suspect a 40-year run of cheaper and cheaper credit had something to do with ballooning stock and real estate prices. Asset prices and other financialized costs, like college tuition, have been grossly distorted and deformed by four decades of cheaper and cheaper credit.
What’s more, the disparity between high asset prices and low borrowing costs has positioned the world for an epic mega-disaster.
Master of Disaster
The Federal Reserve has an extreme and heavy-handed influence over credit markets. But the Fed is not masters of it. The fact is, Fed credit market intervention plays second fiddle to the overall long-trend rise and fall of the interest rate cycle.
From a historical perspective, today’s 10-Year Treasury note yield of 4.3 percent is still below its long-term average of 4.49 percent. But if you consider just the last three years, it’s extraordinarily high.
The yield on the 10-Year Treasury note bottomed out at just 0.62 percent in July 2020. At 4.3 percent today, the yield has increased dramatically. In fact, the yield on the 10-Year Treasury note has increased over 593 percent over the last 36 months.
The last time the interest rate cycle bottomed out was during the early-1940s. The low inflection point for the 10-Year Treasury note at that time was a yield somewhere around 2 percent. After that, interest rates generally rose for the next 40 years.
What hardly a living soul remembers is that the Fed’s adjustments to the federal funds rate have drastically different effects during the rising part of the interest rate cycle than during the falling part of the interest rate cycle.
Between 1987 – with the advent of the Greenspan put – and 2020, each time the economy went soft, the Fed cut interest rates to stimulate demand. In this disinflationary environment, the credit market limited the negative consequences of the Fed’s actions.
Certainly, asset prices increased, and incomes stagnated. But consumer prices did not completely jump off the charts.
The Fed took this to mean that it had tamed the business cycle. This couldn’t be further from the truth.
During the rising part of the interest rate cycle, as demonstrated in the 1970s, after the U.S. defaulted on the Bretton Woods Agreement, Fed interest rate policy was repeatedly disastrous.
Over this decade, Fed policy makers were politically incapable of staying out in front of rising interest rates. Their efforts to hold the federal funds rate artificially low, to boost the economy, didn’t have the desired effect.
In this scenario, and as we’ve experienced since 2020, monetary inflation produced consumer price inflation. Fed policies during the rising part of the interest rate cycle are policies of disaster.
An Urgent Appeal for Duane “The Master of Disaster” Peters
It appears that in July 2020, roughly 40 years after they last peaked, interest rates have finally bottomed out. Yields are rising again. In truth, they may rise for the next three decades.
This means the price of credit will increasingly become more and more expensive into the mid-21st century. Hence, the world of perpetually falling interest rates – the world we’ve known since the early days of the Reagan administration – is over.
But what about The Master of Disaster, Duane Peters?
Well, Peters, you see. He didn’t get the memo. And even if he had, he wouldn’t have read it or heeded its advice.
Several years ago, at the precise moment that interest rates were hitting their secular bottom, Peters ran his mouth off just like he’s done his entire life.
Various rants were posted to social media of Peters disparaging “libtards”, the PC police, and transgender surgical mutilation, among other off-limit topics.
Peters was too busy pursuing disaster with the relentless poise of a fly smashing into a kitchen window to realize that tattoos had become marks of conformity. Skateboarding had become part of the establishment. The whole scene had gone woke.
In the blink of an eye, Peters was cancelled. His sponsorships were dropped. His product lines were discontinued. Forty years of being The Master of Disaster flushed down the toilet.
And now he needs your help – and quick! He’s been evicted.
Peters isn’t asking for a handout. He’s merely looking to raise cash by liquidating his assets.
Many of these assets are of suspect value. Used sneakers, for example. And old T-shirts. But if you’re interested in helping a living legend, you can take a look here, and see if anything tickles your fancy.
Ultimately, the Duane Peters Story, aptly titled, Who Cares, offers a cautionary tale about not preparing for your future, and what happens when you outrun your means, resources, and good luck.
Peters, no doubt, isn’t a role model. He never said he was. But he’s also not much different than the millions of aging Americans that are heading into retirement without two pennies to rub together.
And now, after loading up on debt for 40-years, the credit cycle has turned. Disaster is knocking.
“When the nuclear bomb comes run towards the light,” counseled Peters several years back.
For many individuals, businesses, and governments, who will confront disaster in the years ahead, this may be their most practical option.
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Sincerely,
MN Gordon
for Economic Prism
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