Housing Supply Jumps Most On Record As Market Freezes
A downturn in the residential real estate market could be nearing, Kieran Clancy, a senior US economist at Pantheon Macroeconomics, recently warned. The potential for a major price decline has been on our radar in recent quarters as elevated mortgage rates and record-high prices create an unfavorable environment for buyers.
The only reason housing prices have yet to plummet is because of the lack of housing inventory. That’s the primary difference between the current market and the market during the 2008 housing crash.
For now, we keep our eyes peeled for the changing dynamics in supply/demand. A new Redfin report might be the first sign inventory is increasing.
For the four weeks ending Dec. 25, the total number of homes for sale jumped 18% compared to the same period a year ago. Redfin said this was a record year-over-year increase, adding homes are lingering on the market longer.
“Inventory is up even though new listings are down by double digits because homes are taking a long time to sell amid 6%-plus mortgage rates (the average 30-year rate ticked up to 6.42% this week), economic uncertainty and the typically slow holiday season,” the report said.
The residential real estate market is freezing as homes on the market now take 40 days to go under contract, more than double from a record low of 18 days in May and the slowest pace since January 2021.
A jump in supply is not a promising sign for the market heading into 2023. Goldman Sachs analysts slashed their outlook for home prices from around flat next year to down 4%, noting “unsustainable levels of housing affordability to continue weighing on housing demand.”
The median home sale price was $351,860, up a measly 0.7% year-over-year, the slowest growth rate since the beginning of the virus pandemic.
During the four weeks leading up to Dec. 25, prices fell 9% year-over-year in San Francisco, 6.5% in San Jose, 6% in Los Angeles, 4.5% in Detroit, 4.4% in Pittsburgh, 3.7% in Sacramento, 3.6% in Oakland, CA and 2.3% in Austin. They slipped 2% or less in New York, Seattle, Anaheim, CA, Phoenix, Chicago, Newark, NJ, Riverside, CA, Boston, and Washington, DC.
And for more insight into what’s next. Industry insider and CEO of US home-furnishings company RH, Gary Friedman, warned in a recent earnings call “there will be no soft landing” in the residential real estate market.
The bottom line is that momentum in the housing markets has stalled, inventory is now building, and perhaps it’s just a matter of time before prices decline.
By Grant Smith and Mark Cudmore, Bloomberg markets live reports and strategists
Oil prices may have surrendered the bulk of this year’s gains, but the conditions are right to lure back bulls in the new year.
Brent crude futures are set to end 2022 with a modest increase of 7% — a mere fraction of the $60-a-barrel gain they had racked up in the spring, when alarm over the war in Ukraine was at its peak. Faltering fuel demand, fears over a US recession and China’s Covid resurgence have all helped to dissolve the rally.
Nonetheless, there are plenty of reasons why oil is poised for a renewed surge next year.
On the demand side, the coldest part of winter has yet to bite and should stoke the need for heating fuels in the first months of 2023. Later in the year, China’s re-opening may have gathered strength, bringing more cars onto the road and planes in the air. Hedge fund star Pierre Andurand estimates that demand growth could double mainstream expectations next year, soaring by 4%.
As for supplies, Russian exports may have defied the skeptics throughout last year but that’s because sanctions are only now going into full force. Insurers are shunning their traditional trade in Russian cargoes, a portent of the supply drop to come. The 15% plunge in Russian output long-predicted by the International Energy Agency may finally be on the way.
Meanwhile oil’s forward curves testify to the underlying market strength, with Brent spreads largely showing a premium — known as backwardation — that signifies supply tightness. If all else fails, Saudi Arabia and its OPEC+ allies have demonstrated they’re willing to defend the market by slashing oil production, even if it means enduring political outcry.
It’s this combination of demand surprises and supply shortfalls that may well send Brent — ending the year close to $83 a barrel — back towards triple digits in 2023.
Auto-Loan Rates From Credit Unions Are “Well Below” Rates Being Charged By Banks
We have been extensively covering the upcoming blowup in the automotive lending area for months now. To us, it seems like only a question of “when” and not “if” large looming defaults and delinquencies will begin their deluge in the auto sector.
But while lending rates are skyrocketing, there has been one secret corner of the financial world that hasn’t seemed to notice the distress that consumers are under: credit unions. Credit unions are offering some of the lowest rates on auto loans of anyone, a new report in the Wall Street Journal revealed this week.
They are “undercutting banks and other lenders by a wide margin”, the report says. In fact, in Q3, “credit unions charged an interest rate of 5.94% on average for used cars, well below the 8.36% on offer from banks,” it continues.
This marks the widest gap in at least 5 years. Credit unions have offered a rate of 4.43% for new cars, versus 6.6% for banks, the report continues. John Toohig, who trades credit unions’ auto loans as head of whole-loan trading at Raymond James, told WSJ: “They kept rates low when the rest of the market just exploded.”
Mike Schenk, chief economist at the Credit Union National Association, a trade group, added: “In a market where interest rates are going up, credit union loan rates will lag the market up, and then on the other side of the coin, savings yields will lead the market up.”
Keeping rates low has allowed some credit unions to add “billion of dollars” worth of auto loans to their books over the year. For example, the Journal noted:
SchoolsFirst Federal Credit Union grew its total auto loans by 29% in the first nine months of the year. Navy Federal Credit Union’s auto loans rose by 13% and Golden 1 Credit Union’s climbed by 18%, according to financial disclosures.
Capital One Chief Executive Richard Fairbank said this past fall: “Many auto lenders appear to have reflected rising interest rates in their marginal pricing decisions, but others have not, and they have gained market share and pressured industry margins.”
But one thing is clear to us – no matter what rate you get currently, the industry appears to be in distress. This lengthy writeup from days ago details how a “perfect storm” is brewing in autos and how a “massive wave” of repos and loan defaults are likely on their way.
For almost a year now, we have been dutifully tracking several key datasets within the auto sector to find the critical inflection point in this perhaps most leading of economic indicators which will presage not only a crushing auto loan crisis, but also signal the arrival of a full-blown recession, one which even the NBER won’t be able to ignore, as the US consumers are once again tapped out. We believe that moment has now arrived.
But first, for those readers who are unfamiliar with the space, we urge you to read some of our recent articles on the topic of car prices – which alongside housing, has been the biggest driver of inflation in the past 18 months – and more specifically how these are funded by the US middle class, i.e., car loans, and last but not least, the interest rate paid for said loans. Here are a few places to start:
So while the big picture is clear – Americans are using ever more debt to fund record new car prices – fast-forwarding to today, we have observed two ominous new developments: the latest consumer credit report from the Fed revealed a dramatic spike in the amount of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record), to $40,155 (a new record).
As Twitter’s CarDealershipGuy – who claims to be an anonymous auto-industry CEO and whose analysis has been featured in places like the NY Post and who frequently Tweets about the state of the auto market – laid out a long thread on Thursday, all of the above may end up being an overly optimistic assessment of the perfect storm that’s about to hit the auto sector:
“This morning I discovered something *extremely* alarming happening in the car market, specifically in auto lending. I’m now convinced that there is a massive wave of car repossessions coming in 2023,” he wrote.
Recapping much of what we said above, he noted that over the past 2 years, many people took out exorbitant loans on cars and while car values were inflated (and still are) but many people simply had no choice and bought an overpriced a car. Then, echoing the Fitch assessment, he notes how those buyers are underwater: “Car valuations are now plummeting. Some cars have declined in value as much as 30% y/y. And these same people that took out these big loans are now ‘underwater’. Basically, they owe banks more on these cars than they are worth. And the banks are well-aware of this.”
The punchline is his personal experience from late last week. “This morning, one of our General Managers opened up DealerTrack — a portal that dealers use to communicate with auto lenders — and highlighted something very concerning. 9 of our lending partners have started WAIVING ‘open auto stipulations’ for consumers.”
What this means, he explained, is that once consumers are stuck with a vehicle they paid too much for, they can’t trade it in without putting some money up front to cover the difference of what is owed on it versus what it is worth. At that point, he notes, “Dealer can’t sell consumer a car, Consumer can’t buy a car, And, you guessed it, lender can’t finance a car!”
The lender then knows that most consumers are stuck and waives the open auto stipulation – meaning they allow the consumer to buy the new car with a second loan knowing they already have a first one. But the lender does it because they know that the buyer will default on the old, other car.
Cue default avalanche: “This is NOT normal. But it’s the only way lenders can finance cars and dealers can put cars on the road. And the implications of this will be tons of repossessions,” the CEO wrote.
He concluded: “I’ve been a doubter, but after what I saw this morning, I’m now FULLY convinced that a wave of car repossessions will hit in early/mid 2023. If lenders are willing to backstab each other in order to put more loans on the road, we’re in trouble.”
China Hit By Tsunami Of COVID Infections In Reopening Scramble But It’s All Just Omicron, As No New Variants Emerge
There are good and bad news in China’s scramble to emerge from its catastrophic 3-year long zero-covid hangover, into a country reborn, metaphorically speaking, and with herd immunity.
First, the bad news: Bloomberg reports that according to Airfinity Ltd., a London-based research firm that focuses on predictive health analytics, China could see as many as 25,000 deaths a day from Covid-19 later in January, casting a shadow over the start of the first Lunar New Year festivities without pandemic restrictions.
Mortalities from the contagious respiratory illness will probably peak around Jan. 23, the second day of the annual holiday in the country of 1.4 billion, Airfinity estimated, adding that daily infections will peak 10 days before at around 3.7 million cases. These numbers are roughly in line with our own calculations.
“Using the trends in regional data our team of epidemiologists has forecast the first peak to be in regions where cases are currently rising and a second peak driven by later surges in other Chinese provinces,” Airfinity said in a statement late on Thursday.
Daily infections are currently at around 1.8 million, with mortalities at 9,000, the researcher said. That’s up from the 5,000-plus daily estimate by Airfinity earlier this month, and contrasts sharply with just around a dozen Covid deaths the Chinese government has reported in total since the dismantling of Covid restrictions in early December. By the end of April 2023, China may see 1.7 million deaths from this wave of infections, Airfinity said.
Airfinity’s estimates are based on data from China’s regional provinces, which had reported numbers far higher than official national figures, combined with trends seen in Hong Kong, Japan and other countries when they lifted strict restrictions, the researcher said. The extent of the latest outbreak has been difficult to gauge after officials abandoned publishing an accurate case count and narrowed their definition of a virus death.
Amid expectations that China would maintain its strict anti-covid policy well into 2023, Beijing suddenly ended its Covid Zero framework in mid/late December, abandoning the strict testing and lockdown measures embraced by the world’s second-largest economy since the start of the pandemic almost three years ago. The resulting outbreaks have been difficult to gauge without an accurate count, forcing observers to rely on outside estimates and anecdotal evidence.
And while the chief epidemiologist at the Chinese Center for Disease Control and Prevention, Wu Zunyou, said in a briefing Thursday that Covid outbreaks have peaked in Beijing, Tianjin and Chengdu, he added that the situation in Shanghai, Chongqing, Anhui, Hubei and Hunan remains serious. More ominously, Italy’s Milan reported that up to 50% of passengers on a recent flight from China have covid. Wu added that the disease will probably spread during Lunar New Year, with many expected to travel around the holiday, he added. With the lifting of travel and other restrictions for the first time since the start of the pandemic, a huge rebound in travel is anticipated during the holiday week in January.
Meanwhile, with scenes of overwhelmed hospitals playing out across the country, officials on Thursday said some regions are now grappling with a surge in severe Covid patients. The occupancy rate of intensive care unit beds for the whole country hasn’t crossed the red line of 80%, but some parts of the nation are bracing for a peak in severe cases, said Jiao Yahui, an official overseeing hospitals at the National Health Commission.
The jump in cases has fueled concern across the globe about the emergence of new Covid variants that could be more contagious, lethal, or both. That has prompted numerous countries to adopt mandatory testing and entry restrictions for travelers from China, which also announced this week that it would reopen its borders on Jan. 8. Liang Wannian, China’s senior official overseeing epidemic response, said the country is strengthening the monitoring of Covid variant and will report to the World Health Organization if it discovers any.
Now the good news: while China’s rushed reopening will likely lead to another wave of global covid infections, it will likely be the mostly innocuous Omicron variant; the risk is that a new, more dangerous/virulent variant emerges. However, so far no novel Covid-19 variants have emerged in China, according to a global consortium that’s tracking coronavirus mutations, easing concerns that the country’s record wave of infections would give rise to new strains that could circulate around the world.
National, provincial and private health-care authorities in the country have provided nearly 1,000 genetic sequences from infected patients to GISAID in the past five days, said CEO Peter Bogner. So far, all the samples continue to be omicron, though subvariants that have hit other parts of the world – including XBB.1 and BQ.1.1 – have emerged, he said.
“The variants continue to circulate without any significant changes that raise any specter of concern,” Bogner said. “You do not have any kind of data that suggest anything but business as usual.”
China is also ramping up efforts to track mutations, with the recent upload of sequencing data comparing with just 25 samples submitted in the previous month, he said. The data are important for helping with future needs as statistics on cases and deaths provide backward-looking information, he said.
“There is huge self-interest,” he said. “That’s the one you can act on. It’s actionable information. You can adjust your diagnostic kits, your vaccines. There’s not actionable information in how many people died. It’s the rear-view mirror. Genomic information provides actionable insights.”
South Korean President Yoon Suk-yeol has vowed more aggressive retaliation to military action by Pyongyang, calling to “punish” the DPRK soon after Seoul unveiled a new $440 million military spending package.
Briefing reporters following a meeting between the president and South Korea’s National Security Office this week, Yoon’s press secretary Kim Eun-hye said officials were instructed to react forcefully to any future “provocations,” citing a major breach of South Korea’s airspace by North Korean drones earlier this week.
“President Yoon told them to punish and retaliate in no uncertain terms in response to any provocation by North Korea, saying that is the most powerful way to deter provocations,” she said, adding that Yoon “also emphasized that we must not be fearful or hesitant just because North Korea has nuclear weapons.”
The Wednesday national security meeting took place days after Pyongyang flew five reconnaissance drones over the border separating the two Koreas, prompting the South to scramble military aircraft in response. Though the drones remained in Seoul’s airspace for up to seven hours, some flying over the country’s capital city, the South Korean military was unable to shoot down any of the UAVs.
Yoon reportedly“berated” Defense Minister Lee Jong-sup over the failure to bring down the aircraft, saying the incident showed that the military was “greatly lacking” in preparedness, and also vowed to bolster South Korea’s air defenses and surveillance capabilities to prevent similar incursions in the future.
Toward that end, the Defense Ministry announced on Wednesday that it would spend some $441 million over the next five years on a variety of different projects, including the development of ‘non-kinetic’ weapons platforms, such as an “airborne laser” designed to bring down drones, as well as a new signal jammer.
South Korea conducted an anti-drone drill to simulate identifying, tracking, and shooting down small drones. This drill also included air-assets like the ROK AH-64, MD-500s & fighter jets. This comes after South Korea failed to neutralize tiny drones that crossed from NK into SK. pic.twitter.com/pxe9xEEEpa
Tensions have soared between the North and South in recent months, with the DPRK conducting more weapons tests in 2022 than any year prior. South Korea, meanwhile, has significantly stepped up live-fire military drills with the United States and Japan, despite vocal condemnation from Pyongyang, which considers the exercises as preparations for an attack. Seoul, Washington and Tokyo have additionally pledged to further boost trilateral military ties between themselves, largely citing alleged threats from North Korea and China.
Andrew Tate Detained In Romania In Human Trafficking Case As Greta Gets Last Word
Controversial social media personality Andrew Tate and his brother have been detained by Romanian police on suspicion of rape and human trafficking following a raid of his home and other properties in Bucharest.
The 36-year-old British-American former professional kickboxer and his brother Tristan were detained for 23 hours according to Romanian prosecutors. They have been under investigation since April along with two Romanian nationals, with prosecutors alleging that the brothers are engaged in an organized crime ring that sexually exploited ‘cam girls.’
Video released by Romanian police shows a raid on a property carried out along side the arrest of social media influencer Andrew Tate.
The 36-year-old British-American and his brother Tristan have been detained for 24 hours.
“The four suspects … appear to have created an organized crime group with the purpose of recruiting, housing and exploiting women by forcing them to create pornographic content meant to be seen on specialized websites for a cost,” said prosecutors. “They would have gained important sums of money,” the statement continued.
Prosecutors say they have identified six women who have allegedly been sexually exploited by the suspects.
Back in October, Buzzfeed News reported on Tate’s so-called “Hustlers University 2.0,” a series of virtual courses which, according to Tate, aimed to help users “escape the Matrix.” The $50-per month course of lessons via a Discord channel included financial, career and dating advice (including a now-removed “Pimpin Hoe Degree”). Buzzfeed News reported that some individual courses were priced at $500 each.
Romanian prosecutors said they found six women who’d been sexually exploited by the suspects, according to Reuters. As reported by the Guardian, Tate was previously banned from Twitter for saying women “bear some responsibility” for being raped. -The Hill
Following the arrest, Tate’s Twitter account tweeted: “The Matrix sent their agents.”
Tate’s arrest came just one day after igniting a Twitter feud with 19-year-old climate activist Greta Thunberg.
Tate took the first shot, tweeting a photo captioned: “Hello @GretaThunberg, I have 33 cars. This is just the start. Please provide your email address so I can send a complete list of my car collection and their respective enormous emissions,” to which Thunberg replied: “Yes, please do enlighten me. Email me at smalld—energy@getalife.com.”
After Tate’s arrest, a very unconfirmed report began to swirl that Romanian authorities were able to identify Tate’s location based on a pizza box seen in a video response he posted to Thunberg.
I see that Caraballo has posted an entire thread justifying why she made the pizza claim up. The bigger deal is news outlets keep citing someone who constantly spreads misinformation on social media as if they are a reliable source & even an expert on that very subject. https://t.co/zdPB3YhhLo
Texas state senators struggled for more than six hours last week to get straight answers from Wall Street giants BlackRock and State Street, two of the world’s largest asset managers, regarding what they are doing to compel companies whose shares they own to get in line with the ESG movement.
Having joined global Environmental, Social and Governance (ESG) clubs like Climate Action 100+ and the Net Zero Asset Managers initiative (NZAM), and signed pledges to leverage their voting power as the largest shareholders in 90 percent of the S&P 500 companies to “reach net zero emissions by 2050 or sooner across all assets under management,” the asset managers testified that, in reality, they are doing no such thing.
When asked by Senate Chairman Bryan Hughes to clarify BlackRock’s pledge to Climate Action 100+ “to secure commitments from companies to reduce greenhouse gas emissions consistent with the Paris Agreement,” BlackRock’s Head of External Affairs Dalia Blass responded that BlackRock merely talks to companies whose shares they own to learn about their “material risks and opportunities.”
“We participate in Climate Action 100 to engage in dialogue with other participants, market participants, governments so that we understand issues that are relevant to our clients,” said Blass, who recently joined BlackRock from the Biden Administration where she worked at the Securities and Exchange Commission (SEC). The motto of Climate Action 100+ is “Global investors driving business transition.”
“The website doesn’t say anything about engaging in dialogue in Climate Action 100,” Hughes responded. “BlackRock’s website says, ‘We have joined Climate Action 100 to help ensure the world’s largest greenhouse gas emitters take necessary action on climate change.’ True or false?”
To which, Blass responded, “Sir … what I can say … two things …”
Having repeated the question, Hughes asked, “Can BlackRock send us a witness who can tell us whether that’s a true or false statement on its website today?”
“Sir, if you pulled that off our website, then that is on our website,” Blass responded.
State Street and BlackRock are two of the “Big Three” largest asset managers. Together with Vanguard, they manage approximately $20 trillion in assets on behalf of corporations, governments, and endowments, as well as the savings of tens of millions of people who are investing through vehicles like 401K plans. Vanguard recently withdrew from its membership in NZAM and was excused from testifying in Texas.
Asset managers who support ESG policies typically make two contradictory claims. In order to make a case that they are not violating their fiduciary duty to people whose savings they manage, they argue that ESG is not an ideology but rather an essential risk-management tool that they use to generate higher returns for their clients.
In a 2021 Euromoney interview, State Street Global Advisors’ Chief Investment Officer Lori Heinel explained that “companies who pay attention to their ESG footprint and profile, and proactively manage that, actually are better managed companies and that accrues to a longer term shareholder result.”
Simultaneously, asset managers claim that, despite what they may have said or pledged, they actually don’t do anything to push the ESG agenda on companies, and are in fact active supporters of the fossil fuel industry.
Blass told the senators that it has $107 billion invested in public energy companies in Texas. “We’ve invested in Texas energy, just the past two years, $31 billion,” she said. “We believe in these investments; we do not boycott oil and gas.”
State Sen. Bob Hall asked: “Where’s the empirical data that supports that net zero is good for the bottom line, that it actually would improve income, improve revenue? And the rest of the things that are stuck in that woke analysis, where is the empirical data that says this will actually be a benefit to the investment?”
Blass responded that, based on BlackRock’s research, “we believe that an orderly transition to a low carbon economy is much more beneficial for our clients’ portfolios. A disorderly transition can cost the global economy about a 25 percent reduction in GDP.”
Heinel told the Texas senators, “I have no evidence that this is good for returns in any time frame. In fact, we’ve seen the evidence to be quite contrary. Last year if you didn’t own energy companies you did miserably compared to broad benchmarks. The year before, that was quite the opposite … but that was just a happenstance, that’s not because it’s a good investment.”
Regarding compliance with ESG criteria, BlackRock CEO Larry Fink stated at the New York Times 2017 DealBook summit that “behaviors are going to have to change, and this is one thing that we’re asking companies. You have to force behaviors, and here at BlackRock we are forcing behaviors.”
Hughes cited a statement from Fink to CEOs in 2020: “Climate change has become a defining factor in companies’ long-term prospects. … we are on the edge of a fundamental reshaping of finance.” He asked Blass how BlackRock thought finance should be reshaped.
Blass responded that the goal of finance as BlackRock sees it has always been “to find opportunities for our clients and to manage risks in their portfolios so that we can produce the best risk-adjusted returns.” BlackRock’s mission, she said, hasn’t changed.
Hughes told Blass: “What we’re learning is, BlackRock says whatever it needs to say to whoever it’s talking to at the time,” he said. “That’s what we’re experiencing today.”
Heinel testified that, like BlackRock, State Street joined various ESG clubs like Climate Action 100+, Ceres, and the Glasgow Financial Alliance for Net Zero (GFANZ) merely to learn “how to think about climate change,” Heinel said. “We’re trying to understand how these various risks are becoming as important as traditional financial risks,” citing as an example new taxes that may be imposed in Europe on “companies that they believe are bad actors from a climate standpoint.”
When asked to clarify why companies should follow ESG criteria, asset managers cite the effect of government policies, like taxes and penalties for companies that don’t comply with ESG criteria, as well as state subsidies for renewable energy, all of which are part of what Blass called the “net zero transition, the transition to a low carbon economy.” According to clubs like Climate Action 100+ and GFANZ, the role of asset managers who join these clubs is to compel companies whose shares they own into compliance.
Heinel testified that, as an index fund manager, Vanguard must buy and hold the shares of companies included in a given index such as the S&P 500. Therefore, if they want to influence companies’ behavior, they must work with executives of those companies rather than avoid their shares.
“We engage with companies in our portfolios; we do not divest,” Heinel said. State Street currently owns more than $140 billion in shares of energy companies.
On the other hand, she said, “we do not discriminate against companies in any sector, including energy companies … That means we do not tell those energy companies to shift their strategy, or to drill more wells.”
Texas senators brought up the case of the Pirky power plant, a coal-fired plant located near the hearing site, which though operationally viable is being shut down by its parent company, American Electric Power (AEP), shares of which are owned by BlackRock.
“Climate Action 100 says AEP is one of [BlackRock’s] focus companies, and as you know, Climate Action 100 assesses utility companies based on whether they’ve assigned a retirement date to each and every coal unit with a full phase out by 2040,” Hughes said. He quoted from a paper co-authored by BlackRock and GFANZ, titled “How to Facilitate the Early Retirement of High Emitting Assets,” which stated that asset managers must “manage down the greenhouse gas emissions from their portfolios rather than divest and transfer them to someone with less climate ambition.”
“That means that GFANZ, working with BlackRock, has said it’s better to make the companies keep the coal plants and manage them down, that means shut them down, rather than sell them to someone else who will keep operating them and keep the power and the jobs coming,” Hughes stated.
Blass responded that “managing down” doesn’t mean closing plants and that BlackRock is an investor in carbon-capture technology to reduce emissions.
State Sen. Brian Birdwell noted that one third of Texas electricity generation comes from coal-fired plants and said “we’re scared to death about what you’re going to do to our citizens in the state of Texas.”
“You told us earlier that your objective was to maximize investments,” Hall said. “Now you’re telling us that your objective is zero carbon emissions. Which is it?”
“Our objective as a fiduciary asset manager is to provide the best risk adjusted returns for our clients,” Blass said. “We do that by looking at how the companies are managing their risks and as the global regulators, including here in the United States, are moving more and more towards a regulatory system around net zero and carbon production, we look at how they’re managing that to make sure that long-term they’re able to produce results for our clients.”
Texas State Sen. Lois Kolkhorst said she worried about the “the disadvantage for our country as we bend to ESG but some of our competitors do not.” China has dramatically increased its investment in coal-fired power plants, she said, but “right here in the county in which we sit, we’re going to decommission a coal plant because of ESG scoring; because AEP is being forced to do that to be eligible to compete to get funds.”
“China, Russia, and India are putting their countries first,” Kolkhorst told Blass and Heinel. “While we’re all bending to some scoring where you all sit around a table.”
Hall said that when the pollution and emissions from the construction and disposal of wind turbines and solar panels is factored in, the environmental benefits of renewable energy are unclear.
“All the concrete and steel and construction, that gets left out of the carbon analysis and they just pretend that it only exists once it’s in place and the blades are turning,” Hall said. “The analysis that ignores the manufacturing and the disposal process of solar panels—huge impact to the environment, that gets left out. So we’re going to run around say, ‘Oh, this is low carbon impact.’
On Final Day Of Power, House Dems Release 6 Years Of Trump Tax Records; GOP Warns Of Retaliation
We had the preview(which was clearly a nothingburger as no mainstream media entity wrote anything of significant note about it), and we had the summary (which fizzled badly in an already quiet news cycle as no smoking gun was found), and now the Democrat-run House Ways & Means Committee has released the full details of six years of former President Trump’s tax records(and still, establishment reportage has nothing to offer but pure speculation).
As The Wall Street Journal reports, the 46 documents (numbering 100s of pages) showed that Mr. Trump and his wife, Melania Trump, reported negative income in four of the six years from 2015 through 2020. The Trumps paid some form of federal taxes every year, but they reported income-tax liability of $750 or less in three of the six years.
The couple’s adjusted gross income totaled negative $53.2 million during that period. From 2015 through 2020, the Trumps’ total federal tax liability was $4.4 million, the committee report showed.
The documents also showed Trump’s businesses lost tens of millions of dollars while he was campaigning for president and in office.
Personally, Trump paid very little in federal income taxes in several of the years between 2015 and 2020, including nothing one year.
While tax experts aren’t expecting huge revelations from the raw returns for 2015 to 2020, the more detailed documents could provide additional information on key areas of interest regarding the former president’s businesses and professional associations.
“Those of us who are interested in his relationship with Russia will be looking for any kind of confirmation of what Don [Trump] Jr. said in 2008 that Trump interests had received much of their money from Russian sources,” former CIA officer and journalist Frank Snepp told the Hill.
Tl;dr: “There must be something here… if we just keep looking… and Russia collusion…”
Sadly, given the entire lack of leaks of anything substantive, we strongly suspect there no ‘there’ there.
“With the publicly released transcript of Democrats’ secret executive session, Americans now have confirmation that there was never a legislative purpose behind the public release of these confidential records and that the IRS was conducting audits prior to Democrats’ request,” Ways and Means Republican leader Kevin Brady (R-Texas) said in a statement on Friday.
“Despite these facts, Democrats have charged forward with an unprecedented decision to unleash a dangerous new political weapon that reaches far beyond the former president, overturning decades of privacy protections for average Americans that have existed since Watergate.”
Finally, we note Bloomberg reporting that Democrats may end up regretting the move, as according to an anonymous aide, Republicans who will take charge of the House Ways and Means Committee in January will face pressure to retaliate by publishing the tax records of Democrats and their allies.
“Going forward, all future Chairs of both the House Ways and Means Committee and the Senate Finance Committee will have nearly unlimited power to target and make public the tax returns of private citizens, political enemies, business and labor leaders or even the Supreme Court justices themselves,” Brady said.
Former Trump responded to the release of his tax returns:
“The Democrats should have never done it, the Supreme Court should have never approved it, and it’s going to lead to horrible things for so many people.”
The big question, of course, is whether the GOP turn the now-‘weaponized’ IRS on President Biden… or his son?
Farmers Celebrate As Ag Boom Sends Incomes Soaring
Believe it or not, now is a great time to be a farmer. Agricultural commodities are set to lock in another year of annual gains, the longest stretch in decades, prompting higher farm incomes.
The Bloomberg Agriculture Spot Subindex, which tracks everything from corn, soybeans, and wheat to sugar and coffee, will lock in the fourth year of annual gains today.
Bloomberg said this would be the “longest stretch of annual gains since at least the early 1990s as drought and war cut production and erode inventories, keeping global food inflation simmering.”
High prices for crops and livestock indicate boom times for the US farm belt, making farmers, ranchers, and agricultural firms all winners after a decade of sliding net farm income.
According to the latest US Department of Agriculture forecast, US net farm income is expected to jump to $160.5 billion this year. If realized, farm income would be at the highest level since 1973 in inflation-adjusted dollars, which would be a significant reversal from the agricultural recession that crushed farmers in the last decade.
Kenneth Zuckerberg, a senior economist at agricultural lender CoBank, told WSJ that farm income for the current cycle has probably peaked but will remain high in 2023. He said, “there’s no way it’ll be as good as 2022.”
Perhaps all those millennials who were told “learn to code” only to be fired this year in a Federal Reserve-induced downcycle in tech might find more opportunity in farming.
“The difficulty, the extraordinary, is not to score 1,000 goals like Pele – it’s to score one goal like Pele.”
I was going to take the whole of this week off, but I could not resist a final comment on this, the very last business day of 2022…
2022 has been an … “interesting” year. What’s the main lesson we’ve learnt?
That interest rates don’t stay low for ever?
Inflation is real?
Real events overcome hopes and expectations?
All Ponzis are uncovered – sooner or later?
Or,
Financial markets are largely driven by idiots, shysters, charlatans and fools?
I suspect the final one contains a sizable element of truth.
Markets are just enormous voting machines calculating the opinion of every participant, therefore no single “idiot” can drive them.. but they can certainly influence how the other participants vote.
A few months ago I mentioned one of my favourite Sci Fi authors, John Scalzi. I’ve been reading him for years. He’s written some very clever series including Old Man’s War, and the off-the-wall Kaiju Preservation Society. He also written fantastic tales for the Netflix series Life, Death and Robots – with some very unsubtle digs at big tech barons! This week a client posted me this fascinating and insightful comment by Scalzi: The Worthless Billionaires of 2022
It is spot on.
Scalzi debunks the whole mythos of the assumed competence and virtue of billionaires with style and aplomb. He focuses on the implosion of value-bunkum across crypto and big-tech, and is particularly scathing about the self-immolation of Elon Musk. He warns on the danger of believing billionaires come with inherent virtue. Believe that, and it’s easy to follow dangerous ideological concepts like trickle-down economics – which simply doesn’t exist, btw!
Scalzi can be quite blunt:
“Billionaires do not deserve your respect simply for being rich, and that fact that people gave them respect because of that money allowed them to cover for their other and continuing ethical and moral deficiencies, of which there are many, and which continue to damage our society.”
The thing is… Billionaires are the not the only folk we should probably not be unquestioningly listening to.
It’s a false assumption to think people in positions of power know what they are doing or understand what they are saying. 2022 has been an extraordinary year for seeing our idols exposed as mere craven images.
If there is one lesson from this difficult year, it’s the realisation most folk are not that clever. Understand that, and suddenly everything becomes clearer in terms of how markets are driven by behaviour.
Behavioural economics: understanding why markets function the way they do by understanding why participants act in the ways they do…
Markets tend to follow the noise. Trading floors are absolutely littered with people who believe they are bone-fide geniuses – and loudly tell us just how clever they are. Typically, the successful ones might have been dealt a lucky hand or make a fortunate throw and ascribe their success to smarts. In reality, most don’t have a breeze about what they are doing, or the damage they could inflict upon us all. They got lucky – but think they are clever. Danger, Danger, Will Robinson, Danger!
Herd stupidity is a problem, but it’s also an opportunity. When you realise that its ok to question, disagree, argue and counter the propositions of the consensus (which is often built around luck and stupidity), then markets start to get interesting again! Understand why others are wrong, and you are halfway to grasping why you might be right.
2022 has been extraordinary for the sheer scale of mistakes people have made. The volume of miscalculations, most of which are then reinforced and magnified by denials and rebuttals after the initial mistakes have clearly been made, has been staggering.
From Liz Truss establishing herself as the least competent UK leader of all time, Putin beggaring Europe and Russia through the invasion of Ukraine, Musk buying Twitter, fund managers seeking bargains in big-tech, crypto-shills telling us this is the buy-moment before a new crypto-spring, to the man who is putting everything on Red because it’s come up Black the last three rolls (clue – its still a 50/50 discrete call), 2022 has been revelatory.
I suspect there are good reasons why 2022 represented “peak-silliness” in markets. We had a whole series of macro “behavioural” forces coinciding:
The end of the speculative era of easy QE money distorting markets
The instability in global systems from Covid, Supply Chains, Ukraine, Taiwan, etc
The growing income inequality caused by QE
Growing voter disenchantment and new generations feeling unwanted
FOMO (Fear of Missing Out) becoming a driver of wealth hopes
The rise of social media, fake news and news manipulation, and a pandemic of conspiracy theories..
Put all these trends/themes together, and its no wonder behaviours changed, people began to accept the unlikely as probable, and unquestioningly believed a pocketful of pixels was worth more than gold…
The bottom line is markets, and the factors that influence them, are full of idiots. They range from politicians making fundamental mistakes, fund managers dramatically mispricing risks, central bankers studiously miscalculating economic shifts, company boards focusing on all the wrong things, right the way down to investors who really did believe what the Reddit Boards told them.
It’s a skill to listen. Its even more skilful to question.
And on that piece of blindingly obscure advice…. Have a Guid and Prosperous New Year!
I will be back on Tuesday with my big worry for 2023 – The Bond Market!
