Bondage Is Cruel

Posted on April 7, 2023 by MN Gordon

Did you know that San Francisco’s recently completed 1.7-mile Central Subway cost $1.95 billion?  That amounts to over $217,400 per foot.  On a per inch basis, this is over $18,000.

Is $18K per inch a good deal?

Currently, less than 3,000 daily riders take the Central Subway.  This represents about 0.37 percent of the city’s total population.  Perhaps for these riders it’s a good deal.  For everyone else it’s a complete rip off.

Still, this should come as no surprise.  After more than a decade of artificially low interest rates, courtesy of the Federal Reserve, reckless municipal projects are everywhere.  When borrowing is cheap, hideous waste is the standard.

Politicians, no doubt, are enamored with these mega spending projects.  They’re bold, daring, and stimulating.  Moreover, they offer countless opportunities for the politicians to buy votes.

In Los Angeles, for example, it costs $837,000 to build a single housing unit for one homeless person.  Certainly, there’s plenty of grift built into LA’s homeless industrial complex, which merely exercises the malady to keep the money flowing.  This is terrible for the city’s working and taxpaying residents.  But it’s fantastic for politicians and their friends. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 4 Comments

Is the Bank Crisis Already Over?

Posted on March 31, 2023 by MN Gordon

Taking the path of least resistance eventually leads to disastrous places.  Like the Alexandria Hotel in Los Angeles, circa 1990s, these are places that are best to be avoided.  Still, some people, after consistently choosing the easier and softer way, ended up there, going mad, in their SRO unit.

The same holds true for monetary policy.  Terminally intelligent policies, which favor short-term expediency, have the effect of layering society up with an abundance of long-term mistakes.  Intervening in credit markets to suppress interest rates via central bank asset purchase schemes is not without consequences.

What’s more, once set in motion these consequences cannot be readily undone.  The booms of plentiful credit must always be followed by the busts of unserviceable debt.  There’s no way around it.

Over time the easier and softer way becomes fraught with pain, upset, and turmoil.  Debt problems that could have been addressed with hard work and perseverance become all consuming.  The debt pile becomes too mega. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , , | 3 Comments

Will You Play It Fast And Loose?

Posted on March 24, 2023 by MN Gordon

“How should I play that one, Bert?  Play it safe?  That’s the way you always told me to play it: safe… play the percentage.  Well, here we go: fast and loose.  One ball, corner pocket.  Yeah, percentage players die broke, too, don’t they, Bert?”

– Fast Eddie Felson, The Hustler

QT2 Master Plan

Stopping the excess is always much harder than starting it.  But sometimes it must be done.  And done all the way.  Half measures avail nothing.

On June 1, 2022, Fed Chair Jay Powell commenced Quantitative Tightening (QT) Part 2.  “Brace yourself,” was the advice of JPMorgan Chase CEO, Jamie Dimon.  Were his banker cohorts listening?

The master plan for QT2 was for the Fed to reduce its holdings of Treasury notes and mortgage-backed securities by a combined $47.5 billion per month for the first three months (July thru August 2022).  Then, by September 2022, the Fed would start reducing its balance sheet by a total amount of $95 billion a month (i.e., $60 billion in Treasuries notes and $35 billion in mortgage-backed securities).

Wells Fargo Investment Institute took the Fed at its word and even projected that its balance sheet could shrink by almost $1.5 trillion by the end of 2023.  Taking it down to around $7.5 trillion. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 25 Comments

Occupy Wall Street Redux

Posted on March 17, 2023 by MN Gordon

“The bank is something more than men, I tell you.  It’s the monster.  Men made it, but they can’t control it.”

– John Steinbeck, The Grapes of Wrath

Negative Carry

Borrowing short and lending long works mostly well most of the time.  This is how modern banking works.  You may be a customer at a bank.  But you also supply the product.

In short, a bank will pay you a small percent for the deposits in your checking and savings accounts, which you can withdraw at any time.  This is the borrowing short side of the operation.

The bank then takes your deposits and invests the money in some longer-term assets, such as loans and bonds that aren’t paid back for years.  Say the bank earns 2 percent on its money while paying depositors a fraction of a percent.  The bank pockets the spread, the net interest margin.  Easy money.

However, when the Federal Reserve intervenes in the market and presses the federal funds rate to zero and holds it there for 2 years (March 2020 to March 2022), driving yields across the range of maturities to 5,000-year lows, something bad is bound to happen. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 26 Comments