Submitted by QTR’s Fringe Finance

Just days ago Zero Hedge reported that rent-controlled vacancies in New York City have soared. And it should also be no surprise that just yesterday they wrote about a mansion outside of Philadelphia that cost $35 million to build, but recently sold for just $9.26 million. 

That’s because indications are that Philadelphia, like many other home markets in the northeast, is seeing ownership rates collapse. My friend, and Philly-based realtor Kira Mason wrote this past week about how the city’s affordability issue “just got a lot worse” relative to where it stands against other Northeastern cities. These are her thoughts. 

Philadelphia has long been praised for its affordability when compared with other cities in the Northeast. Due in large part to relatively low-cost housing and some very compelling grants and regional loan programs, it has a higher percentage of individuals living in homes that they own than do DC, New York City, Baltimore, Pittsburgh, and Boston. But despite higher levels of homeownership, a key element of wealth-building, over 23% of Philadelphians live below the poverty line (double the US average).

Homeownership is an important piece of keeping that number from getting even higher, and I fear and suspect that the shift taking place in the housing market today will further stratify a Philadelphia that is already starkly divided along class lines.

Even before interest rates made their historic jump above 7% this fall, homeownership numbers in our city had started to decline. In 2019, they were down almost 9% from their highest recorded level of 58.2% in 2006. Many will attribute this shift to developers outbidding first time buyers in Philadelphia’s most affordable neighborhoods. I saw this firsthand in 2020 and 2021; those of my buyers who had the biggest hurdles to overcome on their paths to home ownership were repeatedly losing bidding wars to investors, even when putting forth offers that were significantly above asking price with favorable non-monetary terms.

While wages remained stagnant between 2013 and 2021, Philadelphia’s median residential sales price rose a staggering 80%. If wages had grown at the same rate as did the median sales price, the annual income of the average Philadelphian would have been almost $112,000 in July of 2021: an insultingly far cry from reality.

While rates were at historic lows in 2020 and 2021, many lower income Philadelphians were able to become homeowners despite rising prices. Now that rates have spiked above 7%, plummeting affordability to its lowest level in 37 years, these buyers are the first to be ejected from the market. Fortunately there are programs available to help keep rates as low as possible for buyers from a range of financial circumstances, but even the most competitive interest rates these days can be a tough pill to swallow.

For buyers with lower incomes, Pennsylvania Housing Finance Agency (PHFA) loans or Fanny Mae’s HomeReady loans are often a good fit. For buyers dealing with lower credit, FHA plans are generally offered. All of the above help keep rates and terms as favorable as possible by today’s standards.

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Higher income buyers have the option of buying a lower priced home in order to keep their monthly payments within bounds. Lower income buyers are limited by the bottom bracket of available home prices, and are therefore liable to be priced out of the market completely. A buyer in spring of 2021 with a 2.8% rate with a 10% down payment on a $300k house would have had a monthly principal and interest of $1,609. Today, at 7%, their monthly payment would be $2,296- a 42% increase. Today’s affordability strain makes the members of this population who are able to remain in the market at all especially likely candidates for higher risk loan offerings like Adjustable Rate Mortgages (ARMs) and temporary rate buydowns (TBDs).

ARMs, which had their reputation as a risky loan product cemented with the housing crisis of ‘08, are seeing renewed demand. Buyers are rightfully suspect of these loans with the crisis in recent memory, but ARM applications are still on the rise. They now comprise about 12% of total mortgage applications, up from 3% at the start of the year. Though this is fairly low in absolute terms, the recent spike has brought ARM applications to their highest level since 2008: nothing to sniff at.

While ARMs are growing in popularity, the real engine behind the plodding forth of the entry level housing market, to whatever degree it is still doing so, are temporary rate buydowns. These are the ARMs of 2022, and though they are without a doubt a safer proposition, they are not without their risks. I haven’t seen a deep dive into all of their implications, so let’s get into it.

First, a definition: a temporary rate buydown (TBD) is a device in which a seller or builder pays the buyer’s lender to offer them a lower rate for a given number of years. The buyer him or herself is not permitted to contribute. Once the sale is consummated, monthly payments and their associated interest rates begin on a graduated schedule, rising annually until reverting to what they would have been had the buydown never been enacted. Like an adjustable rate mortgage, this gives the buyer the opportunity to pay a lower principal and interest for a period of time. Unlike an ARM, every month’s rate (and associated payment) is known in advance.

While the predictability of a temporary rate buydown makes it a safer bet than an ARM, the truth is that many buyers who opt for either of these programs are doing so with the intention of refinancing in the future. In either case, if home values drop significantly enough, they would be prevented from following through with any refinancing plans, leaving them to contend with either an unpredictable future rate (ARMs) or a higher-than-desired monthly payment (TBDs). Let’s say a home is purchased today for $325k at 5% down and the buyer makes use of a 2-1 temporary buydown. If they later want to refinance, homes in that range would need to appraise for at least $320k in order for the refinance package to work.

While concerning, it’s important to keep in mind that the presence or absence of a TBD cannot factor into a buyer’s loan eligibility. These loans are still underwritten at the base rate. If a buyer is prequalified for a loan of a given amount, their lender has determined that they are capable of paying off the loan with or without a temporary rate reduction. This offers some real stability, but I can’t help but see the danger of buyers wedging themselves into homes at the very tops of their budgets because they are enamored with those year one and two rates. I’ve often thought of maximum prequalification amounts as akin to credit card limits: just because someone says you can, doesn’t necessarily mean that you should. I always advise my buyers to purchase below their means if they can afford to do so.

Temporary buydowns are not a long term financial plan. They are a temporary solution that should be used with full understanding and caution. – Laura Corley, CrossCountry Mortgage

We’re on the brink of a recession, and if history repeats itself, the same population opting for TBDs and ARMs could also be the first to face layoffs. Many of these buyers expect to either make more money in the future or refinance their home if it appreciates normally. What if neither of these scenarios come to pass? We could find ourselves with today’s buyers underwater in the not-too-distant future.

Temporary buydowns have become a popular option because they appear to help everybody in what has proven to be an exceedingly (and increasingly) difficult market. They offer sellers higher net proceeds when compared with a price reduction that would result in an equal monthly payment for the buyer, they help buyers to manage soaring monthly housing costs, and they help real estate agents and mortgage lenders to continue transacting at a business-sustaining pace. Their full implications are yet to be seen. For now, we should be keeping as close of an eye on seller assist data as we do on home prices, especially as the homes that went under contract this and last month settle in November and December.

Almost everyone is feeling the pain of today’s viciously unhealthy housing market. Buyers who finance at all price points are getting sucker punched by high rates, cash buyers are still transacting on Philly homes that are 35% more expensive than they were three years ago, and anyone compelled to sell is often getting less than their neighbors did and waiting longer to get it. But many first timers and less financially solvent buyers are being forced to quit before they’ve even begun. I think we’re likely to see Philadelphia’s historically impressive homeownership rate take a serious hit in the years ahead, with potentially far-reaching consequences for the health of the city as a whole. Those who remain on the market should be advised to proceed with caution; all of us could benefit from revising our boomtime “consumption without consequence” mindset to better suit our impending reality.

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About Kira Mason

Kira is a realtor with Berkshire Hathaway Fox & Roach and The Kevin McGillicuddy Team, winner of the 2021 Chairman’s Circle award and ranked within the top 1% of the national Berkshire Hathaway HomeServices network. She independently won Homesnap’s “Fastest Growing Agent” award in 2021 and specializes in the purchase and sale of residential real estate in Philadelphia. 

Kira runs the Substack Gritty City Real Estate, which you can read & follow free here and she is @kmasonrealtor on Twitter. She can be reached via e-mail at the address: contact@kiramasonrealtor.com.

Social media stocks jumped following an interview from Brendan Carr, one of five commissioners at the Federal Communications Commission (FCC), who told Axios that the Council on Foreign Investment in the US (CFIUS) should take action against the hugely popular (Chinese-owned) short-video app TikTok. 

US lawmakers demanding TikTok banned from US phones is nothing new (see: here & here), but as Axios explained in Carr’s interview:

“It’s the strongest language Carr has used to date to urge action on TikTok. With more than 200 million downloads in the US alone, the popular app is becoming a form of critical information infrastructure — making the app’s ownership by a Chinese parent company a target of growing national security concern.”

Even though FCC has no authority to regulate TikTok directly, they can certainly call on Congress to act. 

Axios said TikTok is in talks with CFIUS about whether it can be divested from ByteDance, a Chinese company, to an American company to remain operational in the US. 

Though, Carr wasn’t too optimistic about the future of TikTok in the US. He indicated:

“I don’t believe there is a path forward for anything other than a ban.” 

He warned there is increasing concern about the high amount of user data flowing back to China and the risk Beijing could influence US politics. He added:

There simply isn’t “a world in which you could come up with sufficient protection on the data that you could have sufficient confidence that it’s not finding its way back into the hands of the [Chinese Communist Party].” 

News of Carr’s interview sent beaten down social media companies, such as Meta Platforms, up more than 3% on the session. 

 Snapchat jumped more than 5%. 

A TikTok spokesperson responded to the interview by telling Axios:

“Commissioner Carr has no role in the confidential discussions with the US government related to TikTok and appears to be expressing views independent of his role as an FCC commissioner.” 

“We are confident that we are on a path to reaching an agreement with the US Government that will satisfy all reasonable national security concerns.”

Just days ago, one of the Democratic Party’s leading figures, Sen. Mark Warner (D-Va.), head of the US Senate intelligence committee, admitted that President Trump was right regarding the security risks surrounding the video app. 

Across the political spectrum, Republican lawmakers are in line with Democrats about TikTok: 

“No surprise there, TikTok is just another invasive tool for communist China to infiltrate Americans‘ personal and proprietary information,” Rep. Ken Buck (R-Colo.) told The Epoch Times. “This app presents a very real threat to our national security, and the United States should take strong action to stop the CCP’s espionage campaign.”

*Developing

A prominent figure in cryptocurrencies who claimed his ex-girlfriend was a spy and thought he might be “suicided by the CIA” was found dead one day after tweeting about an alleged “sex trafficking entrapment blackmail ring out of Puerto Rico and caribbean islands.”

Nikolai Arcadie Muchgian, the 29-year-old founder of MakerDAO, Balancer Labs, and the decentralized Dai stablecoin, was found dead last Friday in San Juan, Puerto Rico. According to local officials he was ‘swept away by sea currents’ behind Ashford Hospital in Condado and drowned.

On October 29th, Tether.to co-founder Craig Sellers tweeted of Mushegian’s death, noting that it came five days after the MakerDAO community approved custodian partnership with Coinbase.

Nikolai Muchgian, 29-yr old #stablecoin innovator, #BitShares contributor, $DAI architect/@MakerDAO co-founder has died in San Juan #PuertoRico, five days after #MakerDAO community approves custodian partnership with @Coinbase

Rest In Peace, Nikolai 😞🙏🏼https://t.co/WFlyGnfP2S

— Craig Sellars 🌈🗽 (@OmniCraig) October 29, 2022

And while Trustnodes.com notes that Condado “is considered a dangerous beach with strong undercurrents,” Mushegian’s death comes days after he tweeted that “CIA and Mossad and pedo elite are running some kind of sex trafficking entrapment blackmail ring out of Puerto Rico and caribbean islands,” adding that “They are going to frame me with a laptop planted by my ex gf who was a spy. They will torture me to death.”

This isn’t the first time Mushegian had tweeted about potential #WetWorks.

On September 4th, he laid out three “possible futures for me”: 1) suicided by CIA  2) CIA brain damage slave asset  3) worst nightmare of people who fucked with me up until now

3 possible futures for me 1) suicided by CIA 2) CIA brain damage slave asset 3) worst nightmare of people who fucked with me up until now, I am sure these are the only options

— ☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️☀️ (@delete_shitcoin) September 5, 2022

In August, he tweeted “Let it be known that if I am somehow set up and framed or shot, it wasn’t through sophisticated actions, but from sheer perserverence by people with infinite time and money to waste.”

Wow. pic.twitter.com/vx9F9uwyEG

— Dylan LeClair 🟠 (@DylanLeClair_) November 1, 2022

On September 24, he tweeted: “Imagine how evil someone has to be to transform me from antistate cryptoanarchist of 12 years to someone who prays to god to guide the top of food chain national security feds and their ancient karmic laws of banking handlers to come demolish this illuminati roleplay circlejerk.”

Who was Nikolai Mushegian? As Being Crypto notes:

Mushegian also had his own website, where he talked about various projects and what inspired him. These projects include the DAI fork RAI, Balancer, and DAI, among many other initiatives.

In a world where everybody in the crypto space seems to have an opinion, Mushegian was notably quiet. He predominantly let his development do the talking, offering his thoughts on various aspects of the market occasionally.

Mushegian was also a charitable figure, donating over $1 million to his alma mater Carnegie Mellon in 2020. He wished to support a research program for decentralized technologies, including dApps and protocols.

As TrustNodes further notes, “this is the second death by drowning of a cryptonian in 15 months with the far better known old time bitcoiner Mircea Popescu drowning in Costa Rica in June last year.”

Of course, we’re sure ‘fact checkers’ will be all over the ‘notoriously dangerous tides’ at Condado and ‘baseless conspiracy theories.’

What say you?

With oil prices set to soar after the midterms as the SPR drain ends and markets no longer have desperate democrats to help fulfill their immediate energy needs, moments ago the WSJ unveiled another potential oil price powder keg, so to speak, when it reported that according to Saudi and U.S. officials, Saudi Arabia has shared intelligence with the U.S. warning of an imminent attack from Iran on targets in the kingdom, putting the American military and others in the Middle East on an elevated alert level.

The report goes on to note that Iran is poised to carry out attacks on both the kingdom and Erbil, Iraq, in an effort to distract attention from domestic protests that have roiled the country since September.

In response to the warning, Saudi Arabia – which until recently was on the Biden admin “naughty list” after the crown prince snubbed Biden’s demands for no OPEC+ output cut – the U.S. and several other neighboring states have raised the level of alert for their military forces, the officials said. They didn’t provide more details on the Saudi intelligence.

Separately, the White House National Security Council said it was concerned about the warnings and ready to respond if Iran carried out an attack.

“We are concerned about the threat picture, and we remain in constant contact through military and intelligence channels with the Saudis,” said a National Security Council spokesperson. “We will not hesitate to act in the defense of our interests and partners in the region.”

It wasn’t exactly clear how attacking Saudi Arabia and launching a war with a far better armed opponent would “distract attention” from Iran’s internal troubles, but what is very clear is that if Saudi Arabia wanted to send the oil price soaring, it wouldn’t use another OPEC+ cut but would simply take production offline indefinitely; and if it can arrange Iran to help out… well, why not.

Iran has allegedly attacked northern Iraq with dozens of ballistic missiles and armed drones in recent weeks, one of which was shot down by a U.S. warplane as it headed toward the city of Erbil, where American troops are based. Tehran has publicly blamed Iranian Kurdish separatist groups based there for fomenting the unrest at home.

Iranian authorities have also publicly accused Saudi Arabia, along with the U.S. and Israel, of instigating the demonstrations.

While there is no indication at this point that this report is anything more than just Intel agency jawboning and propaganda, if it does in fact escalate into another Persian Gulf powderkeg, watch how high the price of oil will shoot to.

By Simon White, Bloomberg Markets Live reporter and analyst

Stocks will be stuck in a bear market for several more months even with a peak in Fed hawkishness.

Peak global inflation is likely here, allowing global central banks, including the Fed, to begin a gradual tempering of their hawkishness. The Fed will announce Wednesday the outcome of its rate-setting meeting, with a 75 bps hike expected. (To be clear, even while global inflation may have peaked, there are likely still several countries that will see another inflation peak later in this cycle.)

This might be taken as an all-clear for stocks and a swift end to the bear market, but current formidable headwinds and history suggest otherwise.

First, a distinction needs to be made between peak Fed hawkishness and the Fed pivot. A peak in hawkishness does not mean an immediate flip-flop to dovishness. Instead, it means the peak Fed Funds rate should stop rising – which we have seen – and be maintained. As the market starts to price this in, the front of the very steep Fed Funds curve should flatten, and the back of the curve – where the pivot is – should disinvert, taking the pivot out.

The negative correlation between the front and the back of the Fed Funds curve – pivoting around the peak in the Fed Funds rate – is very unusual. The last time was during the aggressive Fed hiking cycle in 1994, and then in again in the late 1990s.

The pricing out of the Fed pivot has implications for volatility as the relative price of crash insurance has a strong relationship with expected Fed cuts. No pivot likely means more expensive out-of-the-money S&P puts, and hence a higher VIX.

The end of the 1994 rate-hike cycle set the stage for a multi-year equity rally into the tech bubble. However, that is not the typical case. In median terms, the S&P moves sideways for about six months after the last Fed hike before putting in a pronounced rally.

Given we likely have three (perhaps more) rate moves to go before the Fed pauses – along with an increasingly likely earnings recession – any sustainable rally in equities and an end to the bear market is a way off.

Less than a month after the most recent JOLTS report (for the month of August, recall JOLTS is 2-months delayed) showed a near record plunge in job openings – in line with Fed hopes for a slowing economy and the reality of the slowing labor market – moments ago the BLS, perhaps carried away by next week’s midterms and the relentless taps on the shoulder from various Biden appartchiks, reported that in September – some two months before the midterms – job openings shockingly soared by 437K from a (upward revised) 10.280MM in August (10.053MM pre-revision) to 10.717MM. This was the second highest monthly increase of 2022 and the highest since  the 511K added in March!

And with expectations of a notable drop back under 10MM, this was the third biggest beat of expectations on record!

According to the BLS, the largest increases in job openings were in accommodation and food services (+215,000); health care and social assistance (+115,000); and transportation, warehousing, and utilities (+111,000). The number of job openings decreased in wholesale trade (-104,000) and in finance and insurance (-83,000

Coming a time when the number of unemployed workers allegedly continue to shrink, the surge in job openings meant that we are back to 5 million more job openings (10.717MM) than unemployed people (5.753MM), just shy of the all time high 5.9 million hit in March of 2022.

This means that there were almost 2 job openings for every unemployed worker, or – alternatively – the number of workers competing for every job opening slumped again, and was down to just shy of record lows, at 0.54.

Curiously, while job openings soared, hiring tumbled and in September the BLS reported that total hires dipped to 6.082 million which was the lowest since Feb 2021. The trend here is clear: down and to the right. According to the BLS, hires decreased in durable goods manufacturing (-57,000) and in state and local government education (-40,000).

Needless to say, while last month’s huge JOLTS miss sparked a frenzied rally, today’s shocking beat is not helping risk sentiment because if anything, the Fed will have to once again come out as hawkish, as the Fed’s WSJ mouthpiece was quick to remind us.

The number of job openings in September rose by 437,000 to 10.7 million (and the August figure was revised up by 200,000).

The Fed would like to see the ratio of vacancies to unemployed workers decline, and it ticked up in September to 1.86 from 1.68.https://t.co/RwwwVqBmFp

— Nick Timiraos (@NickTimiraos) November 1, 2022

Despite better-than-expected US macro data in the last few weeks, the ‘soft’ survey data on the Manufacturing side of the economy has been rapidly losing momentum.

However, according to this morning’s final October print for S&P Global’s PMI, things improved throughout the month from a 49.9 (contractionary) preliminary print to a final of 50.4 (still notably down from September’s final print of 52.0). That is the weakest print since June 2020.

The ISM Manufacturing survey also printed slightly better than expected at 50.2 (50.0 exp) but was lower than the September print of 50.9. That is the weakest since May 2020.

Source: Bloomberg

This comes after the overnight session saw China and UK PMIs remain in contraction (deepening in the latter).

The PMI data showed the sharpest drop in new orders since May 2020, but on the positive side, inflationary pressures softened further.

On the ISM side none of the major components are in expansion with new orders at 49.2 and employment at 50.0, but, like PMI, prices plunged to 46.6…

Source: Bloomberg

Inventories and production added very marginally to PMI…

Source: Bloomberg

ISM Respondents did not sound upbeat at all:

• “Flat business activity: continued electronics market challenges.” (Computer 8 Electronic Products]

• “Customers are canceling some orders. Inventories of finished goods increasing. Expect some bounce back as some customers may be waiting for commodity prices to decline (further).” (Chemical Products]

• “Challenges with labor and parts delivery are easing. Order levels are slowing down after pent-up demand in the previous month.” [Transportation Equipment]

• “Growing threat of recession is making many customers slow orders substantially. Additionally, global uncertainty about the Russia-Ukraine (war) is influencing global commodity markets.” (Food. Beverage 8 Tobacco Products]

• “We have seen a general pullback in available capital budgets from our customers, and that is having a significant impact on our sales in the fourth quarter.” (Machinery]

• “Housing market is down, so our business is affected. Capacity has increased over the last two years due to high orders of consumer goods and appliances, so now we re trying promotions to get our orders up to where we can use all our capacity.” [Electrical Equipment. Appliances 8 Components]

• “Customer demand has been slower for two months. Production is decreasing our inventory and (we are) implementing forecasts carefully. The headwind seems to be very strong, so we need to be prepared for that.” (Fabricated Metal Products]

• “International conditions loom large and seem very foreboding. Overall, we still think 2023 will be a positive year, with at least some moderate growth.” (Nonmetallic Mineral Products]

• “Lead times are improving. Plastic prices are coming down.” [Plastics 8 Rubber Products]

• “Prices are continuing a slight decline. Suppliers are trying to hold off decreases, but competition is increasing.” [Miscellaneous Manufacturing]

Looking forward, things are bleak as output expectations for the coming 12 months weakened in October. Although still generally upbeat, the degree of confidence was the lowest since May 2020 as firms expressed concerns regarding inflation and overall demand conditions.

Siân Jones, Senior Economist at S&P Global Market Intelligence, said:

“October PMI data signalled a subdued start to the final quarter of 2022, as US manufacturers recorded a renewed and solid drop in new orders. Domestic and foreign demand weakened due to greater hesitancy among clients as prices rose further and amid dollar strength. As such, efforts to clear backlogs of work, rather than new order inflows, drove the latest upturn in production.

“Confidence in the outlook waned as underlying data also highlighted efforts to cut costs and adjust to more subdued demand conditions in the coming months. Input buying fell sharply and resilience in employment stumbled, as the pace of job creation eased to only a marginal rate.

“On a more positive note, input costs rose at the slowest pace in almost two years amid signs of reduced disruption in supply chains. Lower demand for inputs was a contributing factor to this, however. Nevertheless, softer hikes in costs were reflected in a slower uptick in output charges, as firms sought to pass on cost savings where possible to try and boost sales.”

Finally, this ISM print is important as JPMorgan warned this morning:

“The Fed may have comments on economic risks becoming more balanced between growth and inflation; in that regard, ISM numbers matter as once the US falls into contractionary territory, the market will increasingly look for a change to the Fed’s hawkish behavior.“

The question is – are these ISM/PMI prints on the day the FOMC begins its deliberations enough to spook Powell into pausing or ‘stepping down’?

by Michael Every of Rabobank

The times are not just a-changin’ – they have changed. Let’s take six of the top seven headlines in the Financial Times this morning in Asia as Exhibit A:

• ‘Biden claims oil companies are ‘war profiteering’ as he floats windfall tax’
• ‘The Long View. Is Europe winning the gas war with Russia?’
• ‘Military Briefing: Russia and Ukraine prepare for the rigours of winter war’
• ‘The Big Read. Egypt and the IMF: will Sisi take the economy out of the military’s hands?’
• ‘The nuclear threats that hang over the world’
• ‘Live news updates: Putin says grain deal ‘suspended’ not terminated’’

Do you spot a pattern? War; economic war; war; military; war; economic war. Are you incorporating them into your forecasts? I can assure you that the vast majority of analysts still aren’t because this is apparently ‘exogenous’. If so, what is endogenous is irrelevant. Anyway, on we go into those murky waters, via a mini-edition of the Global D’Oily.

The White House has come out all guns blazing against Big Oil, calling them war profiteers (which the US is no stranger to: **cough** The 2003 Iraq War **cough**), and threatening windfall taxes. President Biden gave a public address and specifically tweeted that: “The oil industry has a choice. Either invest in America by lowering prices for consumers at the pump and increasing production and refining capacity. Or pay a higher tax on your excessive profits and face other restrictions.” Recall when in 2016 I talked of geopolitical ‘Thin Ice’ we could fall through, after which markets would no longer operate the way they used to? Well, it wasn’t just about tariffs: the US is now laying down the law to not only the Russian energy industry, but its own.

Public anger at firms making huge profits during periods of high inflation and low growth is understandable: just wait for high unemployment too and then see how angry the atmosphere gets. Yet saying a private firm can make a fixed % return on the nominally-priced volume of a product it sells –until it exceeds an unclear threshold that is no longer “a fair return on hard work”– is not neoliberal laissez-faire. The last time we saw that in the US was 1980. (And if we saw it again now, who might be next, as commodity trading house profits echo those of Big Oil?)

The way the tweet is worded, could we see the use of the Defence Production Act to force Big Oil to build more refineries, which will take years to come on line, or key pipelines, including the one which the White House put the kybosh on early in this administration? The industry itself claims aggressive federal regulations aimed at preventing it growing, and in favour of a green transition, are the real culprit. Or is Big Oil expected to directly subsidise energy prices from current profits, as well as to increase production against a backdrop of lower prices? Or might we see export bans, which would make energy cheap in the US, but extortionate elsewhere? Or is this just a sham?

Since the news broke, oil has failed to fall back – which is what has happened in most other economies where governments lean on their energy sectors to “step up” and help the public by “lowering prices at the pump”. Indeed, the Saudis are still pressing ahead with their 500km-long, glass-walled, linear city called Neom, which looks like something from Logan’s Run. (But, I suspect, won’t age as well as the inhabitants of that movie’s city.)

That is despite the looming COP27 summit in Sharm el-Sheikh, Egypt, who got that FT mention today, and are hosting the Green Team while building a new Pharaonic capital city that includes a vast public park in the middle of a desert, backed by earnings from LNG exports. Saint Greta of Thunberg says she, like UK PM Sunak, will not be attending this year because, in so many words, she sees it as ‘Sham el-Chic’ (hat tip to Michael Magdovitz for that one).   

Also in the energy mix, the US is to exempt Russian oil loaded before 5 December from its price cap (just to clarify, that’s a price cap on Russian, not US oil), with a deadline of 19 January 2023 before it is imposed on unloaded cargo. How this will all work out in practice also remains to be seen. Sham is very much the word on the energy street.

More deliberate shambles, 90% of Kyiv is now reportedly without running water and/or electricity – and winter is coming. Are we really going to see a modern European city of millions having to see its population melt snow with firewood to get by? Perhaps, yes; or millions of refugees.

On the upside, several ships departed from Ukraine laden with grain yesterday despite the Russian threat of a blockade: that’s some relief for food prices, if so – but let’s wait and see.

Yet given the Eurozone inflation numbers yesterday –October headline CPI was 1.5% m-o-m, taking the y-o-y rate up to a record high of 10.7% vs. consensus estimates of 10.3%, and even core CPI was 5.0% y-o-y– there may yet be some other Europeans having to rely on firewood in 2023 too.

Sadly, those who think of this is as ‘exogenous’ sadly includes ECB President Lagarde, who gave an interview on Irish television in which she stated the “energy crisis is causing massive inflation,” and that said inflation came from “pretty much nowhere”.

European Central Bank President Christine Lagarde: “Inflation came from nowhere”
Source: https://t.co/xk4sNujsDU pic.twitter.com/YMNNuKBA7L

— Wittgenstein (@backtolife_2023) October 30, 2022

I guess that’s true if you don’t understand the real physical economy, or economic theory, or economic history, or geopolitics, which is true of most of the economics trade. They too specialise in Sham el-Chic

Update (0950ET):

Both boosters have successfully landed. 

*  *  *

Update (0946ET):

The SpaceX Falcon Heavy rocket’s side boosters have separated. 

Falcon Heavy’s side boosters separate: pic.twitter.com/QqDYgRiqja

— Michael Sheetz (@thesheetztweetz) November 1, 2022

*  *  *

Update (0942ET):

The SpaceX Falcon Heavy rocket has lifted off the launch pad at NASA’s Kennedy Space Center in Florida. 

The world’s most powerful rocket carries a classified payload for the Space Force. 

You can watch the Falcon Heavy launch live here:

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The launch of a SpaceX Falcon Heavy rocket is expected at 0941 ET from NASA’s Kennedy Space Center in Florida. If all goes well, a classified payload for the US Space Force will be catapulted into low-Earth orbit. 

All systems and weather are looking good for Falcon Heavy’s launch of USSF-44; the 29-minute launch window opens at 9:41 a.m. ET → https://t.co/EDwAlAYGuI

— SpaceX (@SpaceX) November 1, 2022

“Falcon Heavy rolling up the ramp ahead of tomorrow’s targeted launch of the USSF-44 mission; weather is 90% favorable for liftoff,” SpaceX tweeted Monday evening. 

Falcon Heavy rolling up the ramp ahead of tomorrow’s targeted launch of the USSF-44 mission; weather is 90% favorable for liftoff pic.twitter.com/ZhLHUkSPKV

— SpaceX (@SpaceX) October 31, 2022

SpaceX then tweeted a video of the Falcon Heavy being lifted into a vertical position around midnight. 

Falcon Heavy going vertical at Launch Complex 39A pic.twitter.com/4rOUg5q2tY

— SpaceX (@SpaceX) November 1, 2022

Space Launch Delta 45, the official account of Patrick Space Force Base and Cape Canaveral Space Force Station, warned of a “double sonic boom” during this morning’s launch. 

“Please be advised, tomorrow morning’s launch will be followed by a double sonic boom. This will occur shortly after launch, as the boosters land on landing zone 1 and landing zone 2 at Cape Canaveral Space Force Station,” the space agency said. 

Please be advised, tomorrow morning’s launch will be followed by a double sonic boom.

This will occur shortly after launch, as the boosters land on landing zone 1 and landing zone 2 at Cape Canaveral Space Force Station. pic.twitter.com/2wAHkyyx3q

— Space Launch Delta 45 (@SLDelta45) October 31, 2022

USSF-44 will be just the fourth-ever Falcon Heavy mission and its first since June 2019. The world’s most powerful rocket in operation can lift a 140,000-pound payload to low-Earth orbit and beyond. There were no further details on the classified payload for the Space Force. 

The ranks of rebellious treasonous Democrats willing to meddle in the “independent” machinations of The Fed is growing as the countdown to the midterm meltdown continues to accelerate.

Who could have seen this coming?

In early September, we warned that The Fed’s actions mean millions of Americans are about to lose their jobs… and Democratic lawmakers will not just quietly sit by:

…due to the recency bias of Biden’s trillions in stimmies, and a world where workers – whether working form home or the office – have virtually all the leverage, few today can conceive of a world where inflation is zero or negative and is instead replaced with millions in unemployed workers, an outcome which one could (or rather should) say is even worse for the ruling democrats than roaring inflation. At least, with runaway prices, most people have a job and their wages are rising (at least nominally, if not in real terms).

However, the higher rates rise, the closer we get to that inevitable moment when the BLS – unable to kick the can any longer – admits what has been obvious to so many for months: the US is facing a labor crisis of epic proportions with millions and millions of mass layoffs.

In “Inflation and the Scariest Economics Paper of 2022“, Furman summarizes a paper written by Johns Hopkins macroeconomist Larry Ball with co-authors Daniel Leigh and Prachi Mishra of the International Monetary Fund released by the Brookings Papers on Economic Activity, whose conclusion is as follows: “To bring price increases down to 2%, we may need to tolerate unemployment of 6.5% for two years.“

What does this mean in absolute numbers? 

Assuming a modest increase in the US labor force, a 6.5% unemployment rate in 2024 would translate into no less than 10.8 million unemployed workers, an 80% increase from the 6 million today!

Still think that politicians – and especially Democrats – will sit quietly and blindly ignore how high the Fed is hiking rates if it means that to normalize inflation back to 2% it means nearly doubling the number of unemployed Americans (and a crushing recession to boot). Spoiler alert: no, they won’t, and this may be one of the very rare occasions when Elizabeth Warren is actually right to worry about what the coming mass layoff wave means for Democrats… and the 2024 presidential election.

Well, surprise, surprise, here comes Elizabeth Warren, Bernie Sanders, Rashida Tlaib and the rest of the progressive panderers to pressure The Fed to take its foot off the throat of the “strong as hell” economy.

Building on what Senate Baking Committee Chair Sherrod Brown recently warned last month:

“For working Americans who already feel the crush of inflation, job losses will make it much worse. We can’t risk the livelihoods of millions of Americans who can’t afford it. I ask that you don’t forget your responsibility to promote maximum employment and that the decisions you make at the next FOMC meeting reflect your commitment to the dual mandate.”

Warren et al. slam the implications of The Fed’s projected job losses from its official projections and its intention to continue raising interest rates at an “alarming pace”:

“You continue to double down on your commitment to ‘act aggressively’ with interest rate hikes and ‘keep at it until it’s done’…”

The lawmakers remind Powell that his tools are limp in the face of Putin’s price-hikes and corporate gouging…

Your “overarching focus” on “using [the Fed’s] tools to bring inflation back down to our 2 percent goal” no matter the cost is particularly troubling given the limits of interest rate hikes in addressing key drivers of today’s inflation, including lingering supply chain snarls, corporate price gouging, and the war in Ukraine.

Then they conclude with the same language that Brown used:

“These statements reflect an apparent disregard for the livelihoods of millions of working Americans, and we are deeply concerned that your interest rate hikes risk slowing the economy to a crawl while failing to slow rising prices”

They end with a series of questions that pointedly highlight the economic impact (and inequity) of The Fed’s actions, awkwardly bring up former Fed Vice Chair Richard Clarida recent comments that “Until inflation comes down a lot, the Fed’s really a single-mandate central bank,” asking Powell “Do you agree with that assessment?”

“Failure is not an option for Jay Powell,” says Former Fed Vice Chair Richard Clarida. “I think they’re going to 4% hell or high water. Until #inflation comes down a lot, the Fed is really a single mandate central bank.” pic.twitter.com/4hfLCVWZDP

— Squawk Box (@SquawkCNBC) September 9, 2022

Circling back to our initial thoughts, remember The Fed is apolitical and independent and anyone who tries to sway them is a treasonous traitor.

When President Trump publicly spoke about The Fed cutting rates, some former Fed officials were not happy:

“I am not pleased,” said Carl Tannenbaum, a former Chicago Fed official and chief economist at Northern Trust.

“The remarks certainly aren’t an immediate threat to Fed independence, but they break with the tradition of respectful distance.”

Randall Kroszner, a former Fed governor, said the central bank has withstood political pressure before and will continue to do so under Mr. Powell’s leadership.

“The Fed has often faced political pressures — from Congress, presidents, Treasury secretaries and innumerable outside groups,” said Mr. Kroszner, an economics professor at the University of Chicago.

“My experience at the Fed is consistent with what Jay Powell recently said — being non-political is deep in the Fed’s DNA — and I believe that Jay will keep it that way.”

But hey, it’s different this time… because “this economy is strong as hell”…

For now the market is reacting ‘with’ the politicians and shifting rate-trajectory expectations dovishly:

Read the full letter below: