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Blain On QE’s Consequences For Bitcoin, Bonds, & Bullion

Blain On QE’s Consequences For Bitcoin, Bonds, & Bullion

Authored by Bill Blain via MorningPorridge.com,

“Weebols wobble but they don’t fall down..”

This morning’s comment is going to be brief for two reasons. 1) I am busy on…

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Blain On QE's Consequences For Bitcoin, Bonds, & Bullion

Authored by Bill Blain via MorningPorridge.com,

“Weebols wobble but they don’t fall down..”

This morning’s comment is going to be brief for two reasons. 1) I am busy on a deal, and 2) it’s about bonds, which are definitionally boring and I don’t want held responsible for readers falling asleep at their desks….

US bond yields have been rising since New Year, so yesterday’s US 10-year Bond auction was more interesting than most – the market was looking carefully for signs, signals and auguries of further rises in bond yields to come: a Bond Bear Market! I even read that most dangerous of comments: “bond yields have reached an inflection point”, according to one bank rates strategist. 

Should we pack our bags and run for the hills in terror and fear of a looming bond market panic? (If you are not a fixed income/bond market aficionado perhaps I should make clear: rising bond yields are a bad thing meaning prices fall, and rising prices mean yields fall. Clear? Excellent.. let us proceed.)

Watch bond yields very carefully. I’ve spent my career in finance believing the basis of everything is: In bond yields there is always truth

However, the first thing is that truth is about the last thing many folk want to hear at the moment when it comes to bubblicious equity prices and the speculative trades currently dominating the pages of the financial press. The market’s dirty little secret is it’s been ultra-low bond rates that have been fuelling market madness, making nonsensical concepts look like financial genius on a “relative basis” to negative yields. If bond yields were to rise, it won’t just be bond holders that suffer.

The second issue is that since the Global Financial Crisis 2007/31 began, central banks have been manipulating bond yields, compromising that fundamental truth of bond yields. When bond yields are no longer set by the market, but by the QE policies of central bans, then There Will Be Consequences…. I fear these are upon us!

The immediate threat receded when yesterday’s 10-year auction did better than expected – firming up around 1.13%. That’s still well above the 1% threshold we though were sacrosanct about a thousand years ago on Jan 1st 2021. The real yield of the US 10-year bond – its notional yield less inflation - is still deeply negative around -ve 0.90%! Who wants to own bonds that cost nearly 1% in real returns? 

Well… lots of people apparently do – or maybe did. This year we’ve already seen a slew of European sovereigns drop new negative yield bonds into the market. The ECB will be hitting the market with more of its rescue fund bonds to prop up ailing Covid ravaged economies. Over $18 trillion of global debt now trades with notional negative yields! And folk keep buying them – mainly because central banks like the ECB and The BOJ have promised to keep lapping them up. There is talk about the Bank of England finally going down the negative yield route because of the dire state of the economy – which would mean UK Gilts should rally.

The US 10-year bond yield was over 3% back in Nov 2018. Since then it rallied hard on the back of trade war slowdown, Trump demanding the Fed caved into his demands to juice the economy, and then the Pandemic. A 2% change in yields might not sound much, but the mathematics of bonds mean that a drop from 3% to 1% in yield creates a spectacular return for bond holders. 

(One day I will get round to writing an article on bond maths (US readers – note, its maths, not math), but at the moment life is too short to squander… (Adrian J… you’re bored.. fancy writing it for me?) 

Low bond yields have enormous consequences. They make bonds look less attractive from a return perspective – therefore other assets look more attractive. That rally in bonds has driven much of the relative value rally in stocks. Smart investors have ridden yields lower, and have piled their profits into higher-risk equities in search of relatively higher returns – so the conventional wisdom says. 

But now… .after 2 years of bond rally, it’s clear bond yields – which rallied all through the Pandemic year - have now turned. Oh dear.. that sounds rather like inflection point.. Rising rates would makes sense to investors – they all expect the global economy to recover post pandemic, they fear all the government aid, support and unrestrained money printing will create real inflation, and therefore bond yields will/must rise. 

Rising rates would hit the wisdom of low rates driving the equity rally: as long as equity prices continue to post startling returns (fuelled by low rates) then all is well and good. But if bond yields were to rise…. Then the equation starts to change.

As I wrote yesterday, its highly unlikely we will actually see yields rise by any significant amount… In the US, the new Biden presidency is expected to stimulate the economy. Central Banks will not contemplate tightening in the devasted post-Covid economic landscape… the economic strength of the Covid-ravaged global economy is too perilous, rising rates would hold back investment, etc…. but I suspect their real fear is a market collapse. As the Taper Tantrum way back in 2013 demonstrated (when the Fed tried to undo the supports given to markets after the 2008 global financial crisis) markets will go into meltdown at any sign of rates being normalised. 

A market collapse would not just be the optics of falling stock market valuations. It would have very real consequences on individual savings and pensions, on banks, on the flow of the economy and, as we saw in 2007/08, create very real economic misery in terms of employment and growth. Its politically unacceptable. 

The threat of higher yields will no doubt trigger further Fed action to continue to “average down” rates via bond buying QE programmes. The danger is such market intervention, manipulation or even repression – depending on your political stance to markets – has its own consequences. These have been piling on top of each other since 2008.

One of the Big Questions in markets at the moment is the adoption of Bitcoin. The fanboy shysters say Bitcoin has now been widely adopted and accepted as better than gold, and that’s why it’s rising. The nay-sayers look at the volatility and say it’s a speculative bubble…   

I suspect a big issue behind sensible, serious investors actually taking time to even consider Bitcoin is the as yet unfelt consequences of the QE repression of real interest rates. 

Bitcoin was founded in financially illiterate libertarian mumbo-jumbo about how fiat money is controlled by pernicious governments. The bitcoin touts say their money is better than Govt money: “why trust government and take the risk of fiat money when governments are abusing their position as monopoly money suppliers by devaluing currencies through unrestricted money printing and negative yields..” Terrrible! Shocking! they say… “Trust us instead… Give us your money in exchange for these magic beans imaginary coins.. sure you can trust us and our imaginary invisible currency that only exists on an ethereal platform we say exists…” 

Sure.. makes sense to me… NOT! If the consequence of these many years of QE is Bitcoin.. then we really are in trouble.

Bitcoin is just one of many speculative bubbles feeding off the detritus and consequences of QE and monetary yield repression. Which is why I’m staying long on gold for the time being…

Tyler Durden Wed, 01/13/2021 - 08:25

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Government

Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis…

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Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis ours),

Public officials may block people on social media in certain situations, the Supreme Court ruled unanimously on March 15.

People leave the U.S. Supreme Court in Washington on Feb. 21, 2024. (Kevin Dietsch/Getty Images)

At the same time, the court held that public officials who post about topics pertaining to their work on their personal social media accounts are acting on behalf of the government. But such officials can be found liable for violating the First Amendment only when they have been properly authorized by the government to communicate on its behalf.

The case is important because nowadays public officials routinely reach out to voters through social media on the same pages where they discuss personal matters unrelated to government business.

When a government official posts about job-related topics on social media, it can be difficult to tell whether the speech is official or private,” Justice Amy Coney Barrett wrote for the nation’s highest court.

The case is separate from but brings to mind a lawsuit that several individuals previously filed against former President Donald Trump after he blocked them from accessing his social media account on Twitter, which was later renamed X. The Supreme Court dismissed that case, Biden v. Knight First Amendment Institute, in April 2021 as moot because President Trump had already left office.

At the time of the ruling, the then-Twitter had banned President Trump. When Elon Musk took over the company he reversed that policy.

The new decision in Lindke v. Freed was written by Justice Amy Coney Barrett.

Respondent James Freed, the city manager of Port Huron, Michigan, used a public Facebook account to communicate with his constituents. Petitioner Kevin Lindke, a resident of Port Huron, criticized the municipality’s response to the COVID-19 pandemic, including accusations of hypocrisy by local officials.

Mr. Freed blocked Mr. Lindke and others and removed their comments, according to Mr. Lindke’s petition.

The U.S. Court of Appeals for the 6th Circuit ruled for Mr. Freed, finding that he was acting only in a personal capacity and that his activities did not constitute governmental action.

Mr. Freed’s attorney, Victoria Ferres, said during oral arguments before the Supreme Court on Oct. 31, 2023, that her client didn’t give up his rights when using social media.

This country’s 21 million government employees should have the right to talk publicly about their jobs on personal social media accounts like their private-sector counterparts.”

The position advocated by the other side would unfairly punish government officials, and “will result in uncertainty and self-censorship for this country’s government employees despite this Court repeatedly finding that government employees do not lose their rights merely by virtue of public employment,” she said.

In Lindke v. Freed, the Supreme Court found that a public official who prevents a person from comments on the official’s social media pages engages in governmental action under Section 1983 only if the official had “actual authority” to speak on the government’s behalf on a specific matter and if the official claimed to exercise that authority when speaking in the relevant social media posts.

Section 1983 refers to Title 42, U.S. Code, Section 1983, which allows people to sue government actors for deprivation of civil rights.

Justice Barrett wrote that according to the so-called state action doctrine, the test for “actual authority” must be “rooted in written law or longstanding custom to speak for the State.”

“That authority must extend to speech of the sort that caused the alleged rights deprivation. If the plaintiff cannot make this threshold showing of authority, he cannot establish state action.”

“For social-media activity to constitute state action, an official must not only have state authority—he must also purport to use it,” the justice continued.

State officials have a choice about the capacity in which they choose to speak.

Citing previous precedent, Justice Barrett wrote that generally a public employee claiming to speak on behalf of the government acts with state authority when he speaks “in his official capacity or” when he uses his speech to carry out “his responsibilities pursuant to state law.”

“If the public employee does not use his speech in furtherance of his official responsibilities, he is speaking in his own voice.”

The Supreme Court remanded the case to the 6th Circuit with instructions to vacate its judgment and ordered it to conduct “further proceedings consistent with this opinion.”

Also on March 15, the Supreme Court ruled on O’Connor-Ratcliff v. Garnier, a related case. The court’s sparse, unanimous opinion was unsigned.

Petitioners Michelle O’Connor-Ratcliff and T.J. Zane were two elected members of the Poway Unified School District Board of Trustees in California who used their personal Facebook and Twitter accounts to communicate with the public.

Respondents Christopher Garnier and Kimberly Garnier, parents of local students, “spammed Petitioners’ posts and tweets with repetitive comments and replies” so the school board members blocked the respondents from the accounts, according to the petition filed by Ms. O’Connor-Ratcliff and Mr. Zane.

But the Garniers said they were acting in good faith.

“The Garniers left comments exposing financial mismanagement by the former superintendent as well as incidents of racism,” the couple said in a brief.

The U.S. Court of Appeals for the 9th Circuit found in favor of the Garniers, holding that elected officials using social media accounts were participating in a public forum.

The Supreme Court ruled in a three-page opinion that because the 9th Circuit deviated from the standard the high court articulated in Lindke v. Freed, the 9th Circuit’s decision must be vacated.

The case was remanded to the 9th Circuit “for further proceedings consistent with our opinion” in the Lindke case, the Supreme Court stated.

Tyler Durden Sun, 03/17/2024 - 22:10

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International

Home buyers must now navigate higher mortgage rates and prices

Rates under 4% came and went during the Covid pandemic, but home prices soared. Here’s what buyers and sellers face as the housing season ramps up.

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Springtime is spreading across the country. You can see it as daffodil, camellia, tulip and other blossoms start to emerge. 

You can also see it in the increasing number of for sale signs popping up in front of homes, along with the painting, gardening and general sprucing up as buyers get ready to sell. 

Which leads to two questions: 

  • How is the real estate market this spring? 
  • Where are mortgage rates? 

What buyers and sellers face

The housing market is bedeviled with supply shortages, high prices and slow sales.

Mortgage rates are still high and may limit what a buyer can offer and a seller can expect.  

Related: Analyst warns that a TikTok ban could lead to major trouble for Apple, Big Tech

And there's a factor not expected that may affect the sales process. Fixed commission rates on home sales are going away in July.

Reports this week and in a week will make the situation clearer for buyers and sellers. 

The reports are:

  • Housing starts from the U.S. Commerce Department due Tuesday. The consensus estimate is for a seasonally adjusted rate of about 1.4 million homes. These would include apartments, both rentals and condominiums. 
  • Existing home sales, due Thursday from the National Association of Realtors. The consensus estimate is for a seasonally adjusted sales rate of about 4 million homes. In 2023, some 4.1 million homes were sold, the worst sales rate since 1995. 
  • New-home sales and prices, due Monday from the Commerce Department. Analysts are expecting a sales rate of 661,000 homes (including condos), up 1.5% from a year ago.

Here is what buyers and sellers need to know about the situation. 

Mortgage rates will stay above 5% 

That's what most analysts believe. Right now, the rate on a 30-year mortgage is between 6.7% and 7%. 

Rates peaked at 8% in October after the Federal Reserve signaled it was done raising interest rates.

The Freddie Mac Primary Mortgage Market Survey of March 14 was at 6.74%. 

Freddie Mac buys mortgages from lenders and sells securities to investors. The effect is to replenish lenders' cash levels to make more loans. 

A hotter-than-expected Producer Price Index released that day has pushed quotes to 7% or higher, according to data from Mortgage News Daily, which tracks mortgage markets.

Home buyers must navigate higher mortgage rates and prices this spring.

TheStreet

On a median-priced home (price: $380,000) and a 20% down payment, that means a principal and interest rate payment of $2,022. The payment  does not include taxes and insurance.

Last fall when the 30-year rate hit 8%, the payment would have been $2,230. 

In 2021, the average rate was 2.96%, which translated into a payment of $1,275. 

Short of a depression, that's a rate that won't happen in most of our lifetimes. 

Most economists believe current rates will fall to around 6.3% by the end of the year, maybe lower, depending on how many times the Federal Reserve cuts rates this year. 

If 6%, the payment on our median-priced home is $1,823.

But under 5%, absent a nasty recession, fuhgettaboutit.

Supply will be tight, keeping prices up

Two factors are affecting the supply of homes for sale in just about every market.

First: Homeowners who had been able to land a mortgage at 2.96% are very reluctant to sell because they would then have to find a home they could afford with, probably, a higher-cost mortgage.

More economic news:

Second, the combination of high prices and high mortgage rates are freezing out thousands of potential buyers, especially those looking for homes in lower price ranges.

Indeed, The Wall Street Journal noted that online brokerage Redfin said only about 20% of homes for sale in February were affordable for the typical household.

And here mortgage rates can play one last nasty trick. If rates fall, that means a buyer can afford to pay more. Sellers and their real-estate agents know this too, and may ask for a higher price. 

Covid's last laugh: An inflation surge

Mortgage rates jumped to 8% or higher because since 2022 the Federal Reserve has been fighting to knock inflation down to 2% a year. Raising interest rates was the ammunition to battle rising prices.

In June 2022, the consumer price index was 9.1% higher than a year earlier. 

The causes of the worst inflation since the 1970s were: 

  • Covid-19 pandemic, which caused the global economy to shut down in 2020. When Covid ebbed and people got back to living their lives, getting global supply chains back to normal operation proved difficult. 
  • Oil prices jumped to record levels because of the recovery from the pandemic recovery and Russia's invasion of Ukraine.

What the changes in commissions means

The long-standing practice of paying real-estate agents will be retired this summer, after the National Association of Realtors settled a long and bitter legal fight.

No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.

Both sellers and buyers will have to negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like. The change will continue a trend of adding costs and complications to the process of buying or selling a home.

Already, interest rates are a complication. In addition, homeowners insurance has become very pricey, especially in communities vulnerable to hurricanes, tornadoes, and forest fires. Florida homeowners have seen premiums jump more than 102% in the last three years. A policy now costs three times more than the national average.

Related: Veteran fund manager picks favorite stocks for 2024

 

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Uncategorized

Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San…

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Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San Francisco Four Seasons luxury hotel building, has been served a notice of default, as the developer has failed to make its monthly loan payment since December, and is currently behind by more than $3 million, the San Francisco Business Times reports.

Westbrook, which acquired the property at 345 California Center in 2019, has 90 days to bring their account current with its lender or face foreclosure.

Related

As SF Gate notes, downtown San Francisco hotel investors have had a terrible few years - with interest rates higher than their pre-pandemic levels, and local tourism continuing to suffer thanks to the city's legendary mismanagement that has resulted in overlapping drug, crime, and homelessness crises (which SF Gate characterizes as "a negative media narrative).

Last summer, the owner of San Francisco’s Hilton Union Square and Parc 55 hotels abandoned its loan in the first major default. Industry insiders speculate that loan defaults like this may become more common given the difficult period for investors.

At a visitor impact summit in August, a senior director of hospitality analytics for the CoStar Group reported that there are 22 active commercial mortgage-backed securities loans for hotels in San Francisco maturing in the next two years. Of these hotel loans, 17 are on CoStar’s “watchlist,” as they are at a higher risk of default, the analyst said. -SF Gate

The 155-room Four Seasons San Francisco at Embarcadero currenly occupies the top 11 floors of the iconic skyscrper. After slow renovations, the hotel officially reopened in the summer of 2021.

"Regarding the landscape of the hotel community in San Francisco, the short term is a challenging situation due to high interest rates, fewer guests compared to pre-pandemic and the relatively high costs attached with doing business here," Alex Bastian, President and CEO of the Hotel Council of San Francisco, told SFGATE.

Heightened Risks

In January, the owner of the Hilton Financial District at 750 Kearny St. - Portsmouth Square's affiliate Justice Operating Company - defaulted on the property, which had a $97 million loan on the 544-room hotel taken out in 2013. The company says it proposed a loan modification agreement which was under review by the servicer, LNR Partners.

Meanwhile last year Park Hotels & Resorts gave up ownership of two properties, Parc 55 and Hilton Union Square - which were transferred to a receiver that assumed management.

In the third quarter of 2023, the most recent data available, the Hilton Financial District reported $11.1 million in revenue, down from $12.3 million from the third quarter of 2022. The hotel had a net operating loss of $1.56 million in the most recent third quarter.

Occupancy fell to 88% with an average daily rate of $218 in the third quarter compared with 94% and $230 in the same period of 2022. -SF Chronicle

According to the Chronicle, San Francisco's 2024 convention calendar is lighter than it was last year - in part due to key events leaving the city for cheaper, less crime-ridden places like Las Vegas

Tyler Durden Sun, 03/17/2024 - 18:05

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