Authored by Alex Pollock via The Mises Institute,

The 21st century, only 23 years old, has already had two giant, international housing bubbles. It makes one doubt that we are getting any smarter with experience…

Among the countries involved in the second bubble, both the U.S. and Canada fully participated in the newest rampant inflation of house prices. Prices this time reached levels far above those of the last boom peak. In the U.S., the S&P/Case-Shiller National House Price Index by mid-2022 had risen to 67% over its 2006 bubble peak (130% over its 2012 trough). In Canada, the Teranet-National Bank House Price Index had soared to 143% over its 2008 peak (168% over its 2009 trough). What the Federal Reserve and the Bank of Canada both wrought with their hyper-low interest rate policies, were house prices which would be unaffordable as soon as mortgage interest rates returned to more normal levels. For a number of years, one could ask: When would that ever happen? Now we know: in 2022.

Now, in late 2022, with mortgage interest rates higher, housing bubbles are deflating, and house prices are dropping on a nationwide basis in both the U.S. and Canada. Here we go again into another house price fizzle following another house price boom.

How is it that we could find ourselves caught up in the problems of another housing bubble so soon? It is only ten years since 2012, the year house prices stopped falling in the U.S., and formed the trough of the painful bust which had followed the preceding bubble of 1999- 2006. Up to the point when house prices started falling across the U.S. last time, expert voices pronounced that U.S. house prices could fall on a regional basis, as they had numerous times, but that it was not possible for house prices to fall on a national basis in an economy so large and diversified. That theory could not have been more mistaken, and national average house prices fell 27%. In 2022, the theory is again being shown to be wrong, but how big the fall will be this time is not known or knowable.

We can take as a key ironic lesson that when large numbers of people believe house prices cannot fall, especially when they are emboldened by central bank behavior, it makes it more probable, and finally makes it certain, that the prices will ultimately fall. When they do, what had been built into everybody’s financial models as “HPA,” or “House Price Appreciation,” becomes instead “HPD”— “House Price Depreciation.” It would be better all along to refer to it as “HPC,” or “House Price Change,” thus reminding ourselves that prices of any asset can go both up and down, perhaps by a lot.

Ten years, it seems, is long enough to dim the memories that prices can move dramatically in both directions, even on a nationwide basis. A bubble market when extended for years makes a great many people happy, since they are making money and seem to be growing richer, and the higher their leverage, the faster they seem to be growing richer. As the great financial observer Walter Bagehot wrote 150 years ago, “the times of too high price” mean “almost everything will be believed for a little while.”

Then the reversal comes and different beliefs come to prevail. In just four months, from June to October 2022, U.S. median house prices dropped a remarkable 8.4%, with prices declining from their peak in all 60 of the largest metropolitan areas in the country. In October, sales of existing houses declined for the ninth month in a row, and were down 28% from a year earlier. Applications for a mortgage to buy a house were down 42% from the year before. Mortgage banks reported they were on average losing money on mortgage originations and many were laying off staff. The share price of 2021’s largest mortgage bank, Rocket Companies, was down 70% from its 2021 high. The CEO of the National Association of Home Builders stated, “We’re heading into a housing recession.”

In Canada, average house prices fell 7.7% from May to October, the largest five-month drop in the history of the Teranet index, which goes back to 1997. In Toronto, the country’s financial capital and a former star of rapid house price inflation, the May to October house price drop was a vertiginous 11.9%. Successive headlines in monthly Teranet-National Bank House Price Index announcements read: “Record price drop in August”; “Another record monthly decline in September”; “Another monthly decline in October.”

In spite of these rapid percentage rates of decline, house prices in both countries are still at very high levels. How much further can they fall from here? For the U.S., the Federal Reserve carefully stated in its latest Financial Stability Report, “With valuations at high levels, house prices could be particularly sensitive to shocks.” Coming to specifics, the AEI Housing Center predicts a 10%-15% nationalaverage fall in house prices during 2023. That would wipe out a lot of housing wealth that the bubble made people think they had, a reduction of perhaps $4 or $5 trillion of perceived wealth on top of the $3 trillion lost so far this year. It would put many houses bought near the top of the market, especially under government low- down payment programs, into no or negative owner’s equity.

For Canada, the Wall Street Journal suggested that its housing market is “particularly sensitive to monetary tightening,” and reported that Oxford Analytics “estimates that home prices in Canada could fall 30%.”

Recall that a price has no substantive reality: it is an intersection of human expectations, actions, hopes and fears. I like to ask audiences, “How much can the price of an asset change?” My proposed answer: “More than you think.”

Of course, nobody, including the Federal Reserve and the Bank of Canada, knows just where house prices will go, but we can all guess. Noted economist Gary Shilling wrote in November, “Price declines are just starting,” and “recent weakness probably has far to go.” This seems to me likely.

In any case, the second great housing bubble of this still young century is over and a new phase has begun.

*  *  *

Originally published in the Housing Finance International Journal.

Oil prices are lower this morning (despite a small crude draw reported by API overnight) amid concerns about a jump in Covid-19 cases after China suddenly rolled back pandemic rules (which is ironic because prices were down just weeks ago because of the Zero-COVID rules). Rising infections may dampen enthusiasm for the possible rise in demand as the country works to restore productivity.

“The lack of clarity over the virus situation in China has prompted some new travel rules from various countries, which could serve as some dampener for previous optimism,” said Jun Rong Yeap, market strategist at IG.

The U.S. refilling its strategic petroleum reserves “should be supportive for the market and could have put a bit of a floor in place,” said Craig Erlam, senior market analyst at OANDA.

The impact of the huge winter storm is unlikely to have hit these data yet.

API

• Crude -1.30mm

• Cushing -338k

• Gasoline +510k

• Distillates +38k

DOE

• Crude +718k

• Cushing -195k

• Gasoline -3.105mm – biggest draw since Sept

• Distillates +283k

Following API’s reported small crude draw, the official data showed a small crude build (+718k), but gasoline stocks plunged for the first time since early Nov…

Source: Bloomberg

The small commercial crude build was more than offset by a 3.mm barrel drain from the SPR, which dragged the emergency reserve for to Dec 1983 levels…

Source: Bloomberg

US crude production remained flat last week…

Source: Bloomberg

WTI hovered around $77.75 ahead of the official data and extended losses after the surprise build

Amid the extremely low liquidity, volatility is heightened this week after the Kremlin said this week it would ban exports of Russian crude oil and refined products to foreign buyers that adhere to a price cap.

“The outlook remains highly uncertain for the oil market,” said Craig Erlam, senior market analyst at Oanda.

China’s success in pivoting away from Covid-Zero could be key to a recovery but it will take time to understand the implications on oil demand, he said.

But oil still looks set to close the year with a gain.

Ukraine has been hit with a “massive” attack of over 120 missiles across the country Thursday, its military and presidency’s office said. “December 29. Massive missiles attack… The enemy is attacking Ukraine from various directions with air and sea-based cruise missiles from strategic aircraft and ships,” Ukraine’s air force said in a public statement. 

It marks the largest barrage of missiles since there was weekend talk from both sides of mutual ‘openness’ in getting to the negotiating table. Ukrainian leadership floated the proposal of UN-brokered talks by the end of February, but its insistence on Russian officials facing a war crimes tribunal first was seen in Moscow as not serious and a non-starter.

Regardless, at this point, Thursday’s fresh aerial attack effectively slams the door shut on the possibility of talks. According to a blistering statement from Zelensky aide Mykhaylo Podolyak, the missiles were launched:

…by the “evil Russian world” to destroy critical infrastructure & kill civilians en masse. We’re waiting for further proposals from “peacekeepers” about “peaceful settlement”, “security guarantees for Russian Federation” & undesirability of provocations.

Thus with the obvious sarcasm Zelensky’s office has clearly signaled talks at this point are all but an impossibility from its point of view.

The Ukrainian military said missiles reached as far West as Lviv, parts of which were left without electricity Thursday morning. “Ninety percent of the city is without electricity,” Lviv’s mayor said in a social media post. “We are waiting for more information from energy experts. Trams and trolleybuses are not running in the city.”

🇺🇦Air-Defences under attack according to the woman filming pic.twitter.com/P9thsLkKND

— Tony (@Cyberspec1) December 29, 2022

The capital of Kyiv also saw limited strikes, and is still facing rolling blackouts and even bouts of water shortages. The military said two residences were hit by falling missile debris after an intercept while an industrial area was damaged, as well as a playground. Kharkiv in the east was rocked by major explosions, along with a number of other towns and cities, including the port city of Odesa.

As for Kiev, its mayor Vitaliy Klitschko has estimated 40% of homes are now without power, writing on Telegram: “40 percent of the capital’s consumers are without electricity after the missile attack. In connection with the necessary safety measures used by power workers during an air alert. Power engineers are currently working on restoring the power supply.”

Ukraine’s military claimed to have shot down dozens of inbound Russian missiles, with Ukraine’s top general, Valery Zaluzhny, confirming of the large-scale attack: “This morning, the aggressor launched air and sea-based cruise missiles, anti-aircraft guided missiles to the S-300 ADMS at energy infrastructure facilities of our country.”

Today, 54 missiles out of 69 were shot down. Because of the attack, energy facilities were damaged. The most difficult situation is in Odesa, Kyiv and Western Ukraine.

📷 Missile shot down in Kyiv region pic.twitter.com/DVzzNm4xm9

— Maria Avdeeva (@maria_avdv) December 29, 2022

Ukraine’s intercept efforts may have also resulted in a missile entering neighboring Belarus, with Belarusian state-run BelTA news agency reporting finding a Ukrainian S-300 missile after falling on its soil.

Belarusian President Alexander Lukashenko “was immediately informed,” according to reports. The Belarusian defense ministry says it’s investigating whether its air defense systems had shot down the rocket, or else “the missile flew into Belarus’ territory similarly to a recent incident in Poland.”

⚡️Footage of the Ukrainian S-300 that fell in Brest, Belarus. pic.twitter.com/kMpZEzUEGF

— War Monitor (@WarMonitors) December 29, 2022

Meanwhile, concerning the possibility of peace talks, Russian Foreign Minister Sergei Lavrov the day prior to the fresh Thursday missile attack said “We are in no hurry” and pledged that Moscow’s military objectives in Ukraine will be achieved through “patience” and “perseverance”. It’s expected that there are more major Russian missile attacks against Ukrainian energy infrastructure on the horizon, already as the national grid is in crisis mode amid freezing temperatures.

The number of Americans filing for jobless claims for the first rose last week from 216k to 225k (in line with exp), with the non-seaonally-adjusted pace of initial claims trending notably higher…

We do note that the state with the biggest drop in claims (which helps make the picture less ugly) is California… but that number was ‘estimated’…

But it is the ongoing rise in continuing jobless claims that should be a worry for Americans (and ‘cheer’ for The Fed?).

1.710 million Americans are filing for jobless claims on a continuing basis – the most since early February…

This is the largest rise in continuing claims since the peak of the COVID lockdowns in June 2020.

So the labor is still “tight”?

The 11 straight weeks of increasing continuing claims suggests that Americans who are losing their job are having more trouble finding a new one.

Perhaps the Establishment survey is completely decoupled from reality…

Source: Bloomberg

With claims and the household survey both signaling weakness in American jobs… ‘great news’ for The Fed?!

US index futures rebounded on Thursday from another painful selloff the day earlier, as technology shares rallied on the second to last trading day of what’s been a brutal year for financial markets, even as growing concerns over a surge in China’s Covid cases snuffed optimism over the nation’s reopening of its border. At 7:45am S&P futures traded 0.4% higher to 3,823 while Nasdaq 100 futures rose 0.6% to 10,837 following gains for Asian tech stocks earlier amid signs China is easing a regulatory crackdown. Treasuries were steady and the Bloomberg dollar index declined.

In premarket trading, Tesla climbed more than 3% in, with tech giants including Amazon.com Inc. and Netflix Inc. also among the biggest gainers. Tesla rose after Morgan Stanley analyst Adam Jonas said a de-rating in the electric vehicle company’s stock has created an opportunity, and even though Jonas lowered his price target to $250 from $330, he stuck to an overweight rating. Among other EV stocks: Rivian Automotive +2.6%, Lucid Group +2.8%, Hyzon Motors +6.4%, Cenntro Electric Group +8.1%, Mullen Automotive +7.8%. Jonas wrote that his new target reflects “lower pricing and lower valuation of adjacent businesses;” and expects 2023 will be “a ‘reset’ year for the EV market, where the last 2 years of demand exceeding supply will be substantially inverted to supply exceeding demand.”

And speaking of Tesla a quick look at yesterday’s record, blowout put-to-call ratio suggests that much of the recent plunge in TSLA stock may have been due to a surge in 0DTE put buying on TSLA which has helped send the stock tumbling in an illiquid environment as the negative gamma forced dealers to short the stock the more it slumped.

Here are some other notable premarket movers:

• Getaround rises 3.3% as the stock was initiated with an overweight rating and $1.50 PT at Piper Sandler, with the broker saying the platform looks well-positioned to provide its peer- to-peer car-sharing marketplace.
• Gaotu Techedu falls 4.6% in US premarket trading after China said it will tighten oversight of private tutors that offer non-curricular services to primary and middle school students, including rules on fee charges and operating time.
• Keep an eye on Skechers shares after it was started with a neutral rating and $42 PT at Piper Sandler, which says the opportunities and challenges the footwear firm faces look balanced and mean its current valuation is fair.

Global equities have lost a fifth of their value in 2022, almost $20 trillion in market cap, the largest decline since 2008 on an annual basis, and an index of global bonds has slumped 16% amid sticky inflation and rising interest rates.

Thursday’s tech rally was a small ray of light as the year draws to a close with investors again focused on risks arising from the the spread of Covid-19. The US said it would require inbound airline passengers from China to show a negative Covid-19 test prior to entry. In Italy, health officials said they would test arrivals from China after almost half of passengers on two flights from China to Milan were found to have the virus.

Amid fears that China’s aggressive, accelerated reopening may lead to another global wave of covid infections, China’s CDC top epidemiologist Wu Zunyou said that covid outbreaks have peaked in Beijing, Tianjin and Chengdu, though the situation in Shanghai, Chongqing, Anhui, Hubei and Hunan remains serious. He added that the virus is still spreading fast in Henan, Jilin and Fujian provinces, and warned of the disease spreading during Lunar New Year, with many expected to travel around the holiday. Separately, Liang Wannian, China’s senior official overseeing epidemic response, says the country is strengthening the monitoring of the Covid variant and will report to the World Health Organization if it discovers any new variant.

Hong Kong removed limits on gatherings and testing for travelers in a further unwinding of its last major Covid rules, offering a boost to the global economy but sparking concerns it would amplify inflation pressures and prompt US policy makers to maintain tight monetary settings.

“Investors are going into 2023 with a cautious mindset, prepared for more rate hikes, and expecting recessions around the globe.” said Craig Erlam, a senior market analyst at Oanda Europe Ltd. “And then there’s China and its u-turn on Covid prevention. It’s been quite the shift from fighting every case to living with the virus and that creates enormous uncertainty for the start of the year.”

Going back to markets, the Stoxx Europe 600 index erased losses to trade little changed, with gains for technology stocks offsetting declines for retail and consumer-focused shares. The Stoxx 600 index was flat after erasing a drop of 0.6%. The gauge, which is down 12% this year, posted declines earlier in the session, as US and Italy joined an increasing number of nations requiring Covid tests for travelers from China. European airline stocks dropped on, leading the Stoxx 600 Travel & Leisure Index lower, amid concerns over the spread of Covid-19 from China. Long-haul carriers Deutsche Lufthansa -4.1%, IAG -1.7%, Air France-KLM -1.3%.

Investors are worried about any potential emergence of a new variant of the virus which might bring restrictions back onto the table and “hammer growth,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Earlier in the session, Asian stocks declined, heading for their worst annual loss since the 2008 financial crisis, as growing concerns over a surge in China’s Covid cases snuffed optimism over the nation’s reopening of its border.  The MSCI Asia Pacific Index dropped as much as 1.1%, pushing its annual slump to about 20% in the final trading week of 2022. Tech stocks including Alibaba and Samsung Electronics were among the biggest individual drags on the benchmark. South Korea’s Kospi was the worst performer with a near 2% slump, while gauges in Hong Kong also underperformed. 

“Investors are starting to pay more attention to the spreading virus given that the pandemic could set back the pace of economic recovery in 2023,” said Jun Rong Yeap, a market strategist at IG Asia. “Investors may have prematurely priced in that the worst was over.”  Tencent, Asia’s biggest social media and gaming company, was the best performer on the Hang Seng Tech Index after China approved its new game titles in the latest sign Beijing is easing up crackdowns on the sector.  

Japanese stocks declined for a second day, following US peers lower as investors continued to worry about the spread of Covid-19 on China’s reopening. The Topix Index fell 0.7% to 1,895.27 as of 3 p.m. Tokyo time, while the Nikkei declined 0.9% to 26,093.67. Out of 2,162 stocks in the index, 1,231 rose and 833 fell, while 98 were unchanged. “The rise in Covid-19 infections in China could cause supply chain problems in the short term, which could lead to inflationary concerns,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management. “Japanese stocks declined less than the US or Europe as China’s reopening has some positive effects on Japanese companies that are exporters.”

Australian stocks dropped to a seven-week low; the S&P/ASX 200 index falling 0.9% to close at 7,020.10, marking a third straight session of declines. The benchmark settled at its lowest since Nov. 10. Energy stocks led sector losses on weaker oil prices. Real estate shares trading ex-dividend also weighed. In New Zealand, the S&P/NZX 50 index was little changed at 11,538.45

In FX, the US dollar fell against most Group-of-10 currencies while Treasuries rallied as investors monitored the spread of Covid-19 within and from China. The Japanese yen bounced after two days of losses. US employment data in focus later. The yen led Group-of-10 currency gains after performing the worst on Tuesday and Wednesday. USD/JPY fell as much as 0.7% to 133.47, the biggest drop in more than a week. Swiss franc is the other outperformer amid concern over the spread of coronavirus, with the US and Italy among countries requiring Covid tests for travelers from China. The Bloomberg Dollar Spot Index declined 0.3%, with the greenback only higher against some risk-sensitive currencies including the Australian dollar and Norway’s krone. Traders will be watching data on US initial jobless claims later Thursday for more clues on the Federal Reserve’s policy path.

In rates, Treasury yields were mixed in early US trading with the curve modestly flatter as the short end cheapens by ~1bp. The 10-year TSY is lower by 1bp at 3.873%, but remains near the highest since mid-November and just above 50-DMA level; most euro-zone 10-year yields are higher ~1.5bp on the day; UK yields are leading the way higher with 10-year up 4bps. Treasury market was firmer overnight until a selloff in UK gilts dented global bond market sentiment. Final coupon auction cycle of the year concludes with $35b 7-year note sale at 1pm New York time; Wednesday’s 5-year saw a modest tail, after cheapening from session highs.  

Elsewhere in markets, oil dipped amid thin liquidity as investors weighed the fallout from a Russian ban on exports to buyers that adhere to a price cap.

Looking at today’s calendar, it’s a thin docket with just initial (exp. 225K) and continuing claims (exp. 1.690MM) on deck.

Market Snapshot

• S&P 500 futures up 0.3% to 3,820.00
• STOXX Europe 600 little changed at 427.43
• MXAP down 0.6% to 154.83
• MXAPJ down 0.7% to 503.83
• Nikkei down 0.9% to 26,093.67
• Topix down 0.7% to 1,895.27
• Hang Seng Index down 0.8% to 19,741.14
• Shanghai Composite down 0.4% to 3,073.70
• Sensex up 0.3% to 61,097.06
• Australia S&P/ASX 200 down 0.9% to 7,020.06
• Kospi down 1.9% to 2,236.40
• Brent Futures down 2.0% to $81.59/bbl
• Gold spot up 0.3% to $1,810.19
• U.S. Dollar Index down 0.22% to 104.23
• German 10Y yield little changed at 2.48%
• Euro up 0.3% to $1.0639
• Brent Futures down 2.0% to $81.59/bbl

Top Overnight News from Bloomberg

• The US and Italy joined an increasing number of nations requiring Covid tests for travelers from China, with concerns mounting over the risk of any new variants emerging from the surge in infections in the country of 1.4 billion
• Covid outbreaks have peaked in Beijing, Tianjin and Chengdu, though the situation in Shanghai, Chongqing, Anhui, Hubei and Hunan remains serious, China’s CDC top epidemiologist Wu Zunyou says in a briefing
• Russian Foreign Minister Sergei Lavrov said Moscow won’t enter into negotiations with Ukraine to end the war, even after suffering a series of battlefield setbacks
• Goldman Sachs Group Inc. is working on a fresh round of job cuts that will be unveiled in a matter of weeks, Chief Executive Officer David Solomon said in his traditional year-end message to staff
• The Bank of Japan announced two additional rounds of unscheduled bond-purchase operations, fighting back against traders betting it will further relax its yield-curve control policy

US Event Calendar

• 08:30: Dec. Continuing Claims, est. 1.69m, prior 1.67m
• 08:30: Dec. Initial Jobless Claims, est. 225,000, prior 216,000

Twitter users globally struggled to access the social media platform Wednesday evening. There were reports of glitches and other issues; some users said they received error messages or were logged out. Elon Musk tweeted after the disruption that backend upgrades were being completed. 

As the outages spread, the hashtag “#TwitterDown” trended, and by 7:13 pm EST, outage detection website Downdetector reported a surge in users that indicated the social media platform was experiencing outages. More than 9,000 users on Downdetector reported issues. 

Here’s a timeline of the outage. 

The disruption was the largest since Elon Musk’s $44 billion takeover of Twiter, axing three-quarters of its workforce. Users from New York to San Francisco to Hong Kong all reported disruptions. The number of glitches has since dissipated early Thursday. 

My retweets are currently broken. #TwitterDown pic.twitter.com/SK0RAGfLnn

— David Lytle (@davitydave) December 29, 2022

ℹ️ Note: Twitter is experiencing international outages affecting the mobile app and features including notifications; incident not related to country-level internet disruptions or filtering #TwitterDown pic.twitter.com/eA3n5ow1aZ

— NetBlocks (@netblocks) December 29, 2022

More than an hour into disruptions, Musk replied, “works for me,” when asked by one user about outages. 

Works for me

— Elon Musk (@elonmusk) December 29, 2022

Then around midnight, Musk provided an answer to why the disruptions were happening. He said:

“Significant backend server architecture changes rolled out. Twitter should feel faster.” 

Significant backend server architecture changes rolled out. Twitter should feel faster.

— Elon Musk (@elonmusk) December 29, 2022

While it’s hard to say if backend upgrades at Twitter have made the social media experience meaningfully faster, Musk has said he would step down as CEO once he found “someone foolish enough to take the job,” adding that he would “just run software & servers teams.” 

Authored by Mark Glennon and John Klingner via Wirepoints.org,

Are political preferences truly behind the census data showing migration away from places dominated by Democrats? Where is that heading?

We finally have at least some empirical evidence for the answers beyond the net population changes which we’ve already seen showing flight from blue states. It’s a national survey conducted by the Trafalgar Group last month indicating that America may be politically segregating at a much faster pace than is apparent from net population changes.

The national survey asked likely voters, “Have you moved in the last 3 years, or plan to move in the next year, to a region that aligns more closely with your political and/or personal beliefs?”

Over 4% of Republicans and independents said they had already moved, in the last three years, to a region more closely aligned with their political beliefs.

Far more importantly, over 10% of Republicans and over 9% of Independents say they plan to move in the next year to a region in which they are more politically aligned.

Just as significantly, those numbers are far smaller for Democrats. Results are summarized here:

If those answers are even close to accurately reflecting the direction of political migration, a national re-sorting is unfolding on an historic scale and it’s mostly right-of-center voters who are moving, though a few caveats are in order.

First, it’s possible survey respondents exaggerated since it implies that 10.7 million voters will be moving in the next twelve months for a region to which they are more aligned. That’s a large number given that only around 30 million Americans (not just voters) have moved annually for any reason over the last several years, according to the Census Bureau.

On the other hand, in earlier periods moving was far more common, often exceeding 40 million Americans annually in the 1980s and 1990s, so perhaps the survey reflects a coming return to high migration rates thanks to growing political division.

It’s also possible that far more people are moving for political reasons than a survey would uncover. A person who cares nothing about politics might well say, for example, that she moved to Florida for a good job, low taxes and less crime, not recognizing such things are inherently political.

Second, the survey asked about moves to a different region, which may or may not be a different state, so you cannot necessary let the survey characterize all interstate migration. Intrastate political migration happens, too. For example, liberals in southern Illinois may move to Chicago; conservatives in Portland may head to eastern Oregon and liberals in upstate New York might prefer NYC.

Still, what’s striking about the survey results is how much more likely Republicans and Independents are inclined to move for political reasons than Democrats. The survey therefore certainly does seem to confirm that political preference is a major factor behind the recently released new Census Bureau estimates of interstate migration. For 2022, the bureau estimated particularly severe population losses for New York, Illinois, California and other blue states, with Texas and Florida as the big winners. Taking the survey and census numbers together, in other words, certainly seems to indicate that conservatives and independents are fleeing the most liberal states and dominating interstate migration.

It’s key to remember, when thinking specifically about political segregation, that net population changes shown in census numbers don’t really matter. Net population changes may be small or large for any given state, but they say nothing about the gross numbers moving in and out, which are always far higher than the net. If those gross in and out numbers are based on politics, then the nation is politically segregating at much faster pace than is apparent.

The implications for America are huge. As right-of-center people move to more right-of-center places and vice versa, their new jurisdictions will be more inclined to accommodate them politically, expanding the division and becoming more still more unwelcoming to the other side.

We’ve seen much of that already. For example, Illinois voted in November to constitutionally outlaw right-to-work while Tennessee voted to enshrine it; some conservative states strictly limited abortion after the Dobbs decision while some liberal states moved to further protect it; and many states adopted voting procedures designed to favor the party in power.

If the net result is accelerating population gains for conservative states, their political power will likewise expand. If just the most recent interstate migration trends continue, without any acceleration, the next Congressional seat allocation in 2030 will mean gains of four House seats for Texas and three for Florida, with losses of 5, 3 and 2 for California, New York and Illinois, respectively, according to Michael Li, an analyst at the Brennan Center.

The Trafalgar survey is just a start. Much more research on this topic is badly needed. Given its importance, political scientists and pollsters should be all over this, targeting people who are confirmed movers with multiple, specific questions about their reasons for moving, where they left and where they went.

Call it what you want – the U-Haul Revolution, the Great Re-Sort or the National Divorce – it’s underway, it’s important and we need much better research on it.

States are “the laboratories of democracy,” as Justice of the Supreme Court Louis Brandeis famously wrote. Some are working and some are failing miserably. Get used to it. It’s working beautifully.

Authored by Nick Hubble via FortuneAndFreedom.com,

Is Russia really worse than climate change?

Good news, everyone. Vladimir Putin has single-handedly solved the problem of climate change. How? By invading Ukraine. To understand, let me take you back in time, to when a white policeman ended the pandemic…

Do you remember any significant event taking place in 2020?

Let me help you.

It was the year when the issue of racism in the United States became so important that it triggered a global protest movement. A white policeman killed a black man during an arrest, sparking international chaos and a global movement.

Well, believe it or not, that was also the year a pandemic began. But you wouldn’t know it from reading the news or health advice at the time of the George Floyd arrest. The pandemic was simply suspended to make way for the issue of racism. Black Lives Matter suddenly mattered more than saving the NHS.

Public health officials who had demanded we remain in our homes suddenly advocated gathering in large groups.

Medical experts who told us to limit our breathing recommended screaming at one other.

Advocating for social distancing was replaced with excuses for anti-social behaviour.

Well, it’s the same with Russia and climate change today.

Our attempt to punish Russia’s economy for the invasion of Ukraine has taken precedence over saving the planet.

The shift is equally swift and absolute.

The Germans are so desperate to avoid Russian gas and Russian pipelines that they are felling their own windmills to get at the coal underneath.

United States President Joe Biden is demanding oil companies produce more of what was the world’s most perilous substance before February – oil. He’s even releasing the dangerous stuff from the government’s reserves, presumably to try and fight the coming Russian winter with a little more global warming.

It’s not just the politicians. Bloomberg uncovered that business executives are already trying to hide their efforts to save the planet:

“Survey findings suggest that the stigma of so-called greenwashing is so feared that corporate executives will do anything to avoid being accused of it.”

Greenwashing and greenhushing have taken over from ESG as the themes most covered by the media. In case you didn’t know, because I didn’t, greenhushing is the practice of keeping your company’s environmental efforts secret to avoid any scrutiny.

How’s that for a shift!? From virtue-signalling PR stunts to undercover gardening in the space of a few months. Why? Because we need more energy to fight Putin, not less energy to fight climate change.

Are politicians urging you to shorten your cold showers to save polar bears and the Great Barrier Reef, or to stick it to Putin?

Are pipelines top of the news because of carbon or Crimea?

Are utilities commandeering thermostats to reduce emissions or save gas supplies?

In case advocating for fossil fuels to destroy the planet isn’t virtuous enough, these days, it’s acceptable to risk nuclear Armageddon just to look tough on Russia. Heck, the crazy Germans are keeping their nuclear power plants open, risking another Chernobyl, just to avoid a bit more Russian gas!

But the change has been social, too. Drivers are dragging protestors off their anti-emissions roadblocks. Defacing art is no longer considered acceptable for those trying to save the planet (unless the artwork is a sculpture of someone right-wing and racist). And some marketing genius at Porsche just came up with an absolute masterstroke:

‘Nine of us glued to the floor and some of us on hunger strike until our demands to decarbonise the German transport sector are met.

[Porsche] told us that they supported our right to protest, but they refused our request to provide us with a bowl to urinate and defecate in a decent manner while we are glued, and have turned off the heating.’

It makes me warm inside. Only the Children’s Crusade ended more ignobly than that.

The shifts we’ve seen would have seemed impossible just months ago, when saving the planet was considered more important than fighting Russia. How naïve we were.

But all this must beg the question for all the enthusiastic idealogues gluing themselves to the latest natural element non grata: what if they’re just a bunch of useful idiots?

What if the anti-Russia craze is just another financial fad designed to make politicians more powerful, the wealthy richer, conglomerates cosier and you more compliant?

We’ve seen a lot of financial fads play out over the past few decades. Tech stocks, house prices, bonds and plenty more assets all went the way of the Grand old Duke of York – all the way up, and all the way back down again. But it’s looking like climate change is the latest bubble to burst, and it’s replaced by the issue of Russia.

Of course, it’s understandable. As American philosopher Eric Hoffer famously wrote, “Every great cause starts as a movement, becomes a business and eventually degenerates into a racket.”

We don’t need to guess where we were at in that sequence back in 2021. Green tech investors made off like bandits. I watched them, jealously. But, as every good communist knows, after the racket come the consequences.

In 2022, the winds began to change. The green tech bubble imploded quite badly. Coal and oil stocks boomed instead as the Russia narrative delivered stock returns.

What will 2023 bring? What racket will replace the “Russia” one?

It depends on who or what we all decide to obsess about. Or what the media, social media, and politicians decide we should obsess about.

But one thing’s for sure. Vladimir Putin will suddenly matter a lot less, just as saving the planet is unpopular today.

Submitted by QTR’s Fringe Finance

While I work to put the finishing touches on my “23 Stocks I’m Watching for 2023”, which should be out this week, one of my favorite investors that I love reading and following, Harris Kupperman, has offered up his own position review for 2022 heading into 2023.

Harris is the founder of Praetorian Capital, a hedge fund focused on using macro trends to guide stock selection. Mr. Kupperman is also the chief adventurer at Adventures in Capitalism, a website that details his investments and travels.

Harris is one of my favorite Twitter follows and I find his opinions – especially on macro and commodities – to be extremely resourceful. I’m certain my readers will find the same. I was excited when he offered up his latest thoughts to Fringe Finance, published below – bold emphasis is QTR’s.

Harris Kupperman’s 2022 Position Review

It seems that everyone has a blog these days. Once a year, we must stop everything, tally up the scores and see who got it right. Besides, what’s the point of going through all this effort, if you cannot point to your record of continuously nailing major trends and investment themes. Even when I get one wrong, there’s a learning process involved in admitting the mistake and avoiding future ones. With that preamble out of the way, let’s dive into the 2022 Position Review. (Prior Position Reviews 2021, 2020, 2019, 2018)

*Normally I publish the review a bit closer to the last day of the trading year, but I’m headed out to Sicily and then Malta for a well-deserved vacation. Don’t worry, I’ll post plenty of vacation pics…

Historically, the year-end review has focused on individual stock tickers, but over the past year and change, I’ve been migrating this blog to focus more on the big picture trends, while Kuppy’s Event Driven Monitor (KEDM) picks up the tickers themselves (or at least the ones that aren’t small caps). With that in mind, let’s dig into the trends, before doing a recap on some legacy positions held over from prior years.

From a performance standpoint, 2022 was something of a listless year after two big years (2020 & 2021) for the home team. For whatever reason, the themes on my books simply didn’t trend; meanwhile I failed to properly capitalize on the trends that dominated the year. That said, 2022 was a painful year for many and a slight positive return certainly feels like a win—especially as I frequently run my book well over 100% net long.

In my mind, there are times like 2020 and 2021 when they literally give the money away, and then there are times when it becomes harder. The pros know the difference between the two and when it gets difficult, they pull back on exposure, score small wins, and wait for the easy times to return. Meanwhile, the amateurs get chewed up during the hard years and have no capital left for when it gets easy again. As the Fed became increasingly dominant in 2022, I continued pulling back on the exposure and risk side. Those who’ve followed this blog for some time know that I’m fast to ramp up market exposure if the narrative changes. Until then, my goal has been to avoid doing anything stupid, slowly stack my chips, and make it through to the other side for when things get easy again.

Fortunately, my roadmap for 2022 saved me from a whole lot of trouble. Admittedly, it was an incredibly contrarian and ballsy call (precisely the type of call that you’ve come to expect from this blog). I challenged orthodoxy by pointing out that after a decade of out-performance, Ponzi Schemes would have a rough year. That undertow would eventually drag down the Tiger-40 list of slightly more “real” businesses, and finally the rot would creep up into the “compounders” that a generation of investors had learned to buy without any regard for valuation metrics. I’m proud to say that I positively nailed this call.

Looking back on that call, I cannot believe how incredibly contrarian it was to say that investing in frauds would be a bad idea. In retrospect, this should have been obvious to everyone, but a decade of outperformance made everyone forget this simple fact. Unfortunately, the other side of my pair trade (value stocks) didn’t perform as well as I had expected. Many of them are up on the year, just not up as much as I had hoped. This is likely caused by an anticipated economic slowdown, due to rapidly increasing interest rates. One could say that the market is looking through a period of over-earning and penalizing their share prices—despite many of these companies trading at low single-digit earnings multiples on full-cycle earnings.

While my exposure remains subdued, I have an amazing shopping list of near-monopoly value names to purchase when The Pause comes, if it becomes obvious that the long end doesn’t completely panic. I’ve spent much of the year building on this list, but have done little besides continue to learn the names better.

Turning to other themes, my strongest held view is that 2023 is the year of oil crushing all other CUSIPs. I know I made the case in early 2022 for a similar outcome, but sometimes things just don’t play out on my schedule. In the months since then, there has been minimal spending growth on exploration, while global demand has continued to rebound and grow. The postponement of my theme was mainly caused by the unexpected purge of SPR inventory, along with China going offline due to germs.

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These two trends seem destined to reverse during 2023. Meanwhile, Russian oil production is permanently impaired and likely in free-fall. When I tally these three components, I come to a mind-numbing swing of nearly 5 million bbl/d. Now, I know the swing cannot actually be this large—mainly because demand will suffer given the magnitude of the swing. However, demand will only suffer at triple digit oil prices.

While I was off on the price of oil, my energy investments mostly appreciated. I haven’t spoken about offshore oilfield services on these pages, but a pretty good chunk of my exposure is through Valaris (VAL – USA) and Tidewater (TDW – USA) and they’ve both been stalwarts in my portfolio during 2022. Given their valuations, I suspect that they’ll continue to lead the energy markets higher.

Of course, I also had an overweighted position in oil futures and futures options, and these did not appreciate as much as hoped, but maybe they’re just deferring my gratification until oil murders every other CUSIP. Once again, I think it’s important to repeat that if you haven’t stress-tested your portfolio for oil prices north of $200, you’re going to suffer dearly when that should come to pass.

My other core theme was a continuation of the housing strength witnessed during 2020 and 2021. On this score, I was wrong. Housing is now starting to roll over as interest rates take a bite out of affordability. I’ve since tossed my housing supply names, though they trade north of where I mentioned them. While I remain bullish, I’m going to wait for construction activity to bottom and begin its recovery. The demand is there, but not with current interest rates. As an inflection investor, I like to joke that the best inflections are the ones where I get the thesis horribly wrong, yet make some small money anyway, as I was disciplined on valuation. I know I won’t win them all, but not losing when the thesis is wrong, is a different sort of victory that isn’t spoken enough about.

With that waltz through the big picture completed, let’s go through all the positions I’ve publicly carried over from 2022.

Positions mentioned in alphabetical order and % change is from the closing price on 12/31/2021 and the closing price on the last trading day before mentioned or closed. All data is accurate as of the close on December 23, 2022.

Cornerstone Brands (CNR – USA) +38% until closed in 2022 and 232% since the original post

Cornerstone was the scene of a bold robbery as Private Equity lifted it from my hands, right as the demand for building components peaked. Sometimes, I just get lucky as I would have likely held through the pullback. In any case, I caught the recovery in housing components well, played it large, rode through a lot of volatility and exited with a really great return. Don’t cry too hard for the Private Equity boys, they’re going to absolutely bank on this one too, as they bought it simply too cheaply.

Lee Enterprises (LEE – USA) -49% in 2022 and -37% since the original post

During 2022, LEE continued to put up strong performance on the digital front with digital revenue increasing by 27% over the prior year and digital now represents a third of total revenue. Even more impressively, in the fourth quarter, digital represented 55% of total advertising revenue. Meanwhile, digital subscribers grew by 32% over the year. LEE is increasingly a digitally native business, especially when one looks at the adjusted EBITA number. Meanwhile, it trades at roughly one times adjusted EBITDA on an equity basis—which seems ludicrous for a rapidly growing digital business.

Of course, there’s a reason that it trades cheaply; the debt level is high, debt paydown was minimal and EBITDA didn’t convert to cash flow due to one-time charges. My expectation is that these one-time charges continue as the business pivots into the digital world and cash flow will suffer for the next year or two. As an investor, I’m content to look past this muddled performance, with the hope that things normalize at an attractive cash flow number at some future date. Given current growth on the digital side, this should end up as a much more profitable business in the digital format, when compared to the prior print format and we know that the market loves to put high multiples on cash-generative subscription businesses with rapid growth.

While the share price at LEE has not been rewarding during 2022, I’m content with how it’s all panning out.

Oil Futures, Futures Options and Futures Call Spreads 

There was surprisingly little movement in these positions during the year—primarily as the ’23 and ’25 curves stayed rather inert. Near year-end, I did use the decline in the spread between front-month and ’25 futures to swap my ‘25 futures for the Brent Oil ETF (BNO – USO) as I wanted to diversify from WTI, gain some roll yield (which has since become a contango) and get more exposure to the front of the curve as that’s likely to be where the action is going forward. I also picked up some shorter-dated futures positions near the lows in December as I sought to max out my energy exposure. As a consequence of these adjustments, the size of my oil position grew rather dramatically.

Russian Positions (RSX – USA and others)  (original post)

As a contrarian, I often run into a burning building as others flee. Usually this works, sometimes it doesn’t. In terms of my Russian positions, it’s still unclear how they will play out. On one hand, I have massive unrealized gains based on the current marks on the MOEX. On the other hand, I cannot realize these gains and it isn’t clear when or if I ever will be allowed to realize these gains. I’ve marked these positions to zero and like many other investors, I’m going to wait and see how they play out. While this isn’t my proudest investment, I have a sneaking suspicion that my overall IRR will be quite attractive over time—with plenty of risk along the way.

Sandridge Energy (SD – USA) -7% until closed since the original post

Sandridge is a good example of why my best advantage as an investor is my ability to average down as something gets cheaper. I had to average down on Sandridge, multiple times, but eventually I ended up with a large position at a great price and on the recovery in energy equities, I had a nice big gain on my SD position. Admittedly, it was a long road to get to that big win and I unfortunately show a small loss from when I first wrote about SD.

St. Joe (JOE – USA) -26% in 2022 and 82% since original post

My JOE position was one of my largest disappointments during 2022. While the company continues to execute and create value for shareholders, investors ignored this fact and sold the shares off anyway. I’m baffled by this performance, especially given the growth in population and home values in their core Bay and Walton Counties. In any case, I used the recent weakness to increase my position rather dramatically below $40. While investors are likely to continue shunning anything exposed to the housing sector, I’m perfectly content to wait things out, knowing the inherent value of what I own. There’s a whole lot of torque in JOE. It’s just a question of when this one finally gets noticed.

Sprott Physical Uranium Trust (U-U – Canada) +8% in 2022 and 25% (both in Canadian Dollars) from original post

SPUT remains my largest single ticker position. The uranium macro continues to improve, and stockpiles continue to drain. I believe that 2023 is the year when all of this finally matters, and the uranium price begins to levitate. As far as I’m concerned, SPUT is the reincarnation of GBTC, and will become a highly reflexive situation as traders begin to chase the price higher, especially as the liquidity in the spot market continues to dissipate. I’ll have more to say about SPUT in January, but let’s just say I think that 2023 is the year when I get paid on this one. While uranium should not be correlated with oil, I have a suspicion that as oil recovers, ESG-focused investors will rediscover uranium as a substitute. Could uranium become oddly correlated with oil during 2023?

In summary, 2022 was a year where I avoided landmines, and survived to fight another day. I’m excited for the time when I can flex up my exposure, but I’m not going to rush things. For now, I want to stay conservative, stick to low-risk setups and stay highly liquid. I think that 2023 will be difficult for longs, especially as oil crushes everything else. There will be a time to take advantage of that pain, maybe even swapping some barrels for beaten down non-oil names, but this is all into the future…

For now, I want to wish everyone a Happy New Year and the best of luck in 2023.

Sincerely,

Kuppy

QTR’s Disclaimer: These are all the opinions of Harris Kupperman and not solicitations to buy or sell any securities. I am not a financial advisor. I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.

Authored by Chris Summers via The Epoch Times,

Police forces in England and Wales were unable to solve 1,145,254 thefts and burglaries in the year ending in June 2022, according to an analysis by the Labour Party.

The shadow home secretary, Yvette Cooper, said domestic burglaries cost victims an average of £1,400 and helped to drive up insurance premiums for everyone.

She told The Telegraph: “This is disgraceful. Theft and burglary are awful crimes and should be properly investigated, not just left for the victims to make an insurance claim.”

‘No Plan’

Criticising Home Secretary Suella Braverman, Cooper said: “The Home Secretary has no plan to turn this around.”

Theft & burglary are awful crimes – yet over 1 million went unsolved in last year.

After 12yrs of Tory policies on policing & crime, fewer crimes solved, more victims let down.

Tories have no plan. Labour will put 13,000 more police & PCSOs on streetshttps://t.co/PGRRglWaEm

— Yvette Cooper (@YvetteCooperMP) December 27, 2022

But the former leader of the Conservative Party, Sir Iain Duncan Smith, said: “Our constituents are complaining endlessly that nobody turns up to deal with burglaries—they just say here’s your crime number, claim your insurance.

“The problem is that the leadership of the police have succumbed to politically correct bullying on this to the extent that the last thing on their priority list seems to be dealing with crime,” he added.

Home Secretary Suella Braverman making a statement to MPs in the House of Commons, London, on Dec. 14, 2022. (House of Commons/PA Media)

Duncan Smith said the police were “overstretched” and were, “increasingly having to take on jobs that social services should be doing.”

He added: “The police service should be the police force and should be there to enforce the law. People want them to investigate crime.”

In the 12 months between July 2021 and June 2022 police forces in England and Wales closed their investigations into 1,145,254 thefts and burglaries, usually because they were unable to find any evidence to charge a suspect.

That amounts to 3,000 crimes every day.

Police forces have been criticised in the past for failing to send officers to do even rudimentary investigations following house burglaries.

According to the National Police Chiefs Council (NPCC), while some UK police forces already have a policy of attending all home burglaries, others only attend “where it has been established that there are evidential lines of enquiry or where victims are vulnerable or elderly.”

Earlier this year the Metropolitan Police Commissioner, Sir Mark Rowley, told the BBC the proportion of reported burglaries attended by an officer from the force had fallen to 50 percent.

In October, the chairman of the NPCC, Martin Hewitt, promised officers would start attending every residential burglary in an attempt to restore public confidence in the police.

A CCTV still from a robbery in Keston, UK, in an undated photo. (Metropolitan Police)

Hewitt’s comments followed a speech by Braverman in which she urged police forces to focus on fighting real crimes rather than making “symbolic gestures.”

In an open letter dated Sept. 23, Braverman said she expected the police to cut homicide, serious violence, and neighbourhood crime by 20 percent.

In her Conservative Party conference speech on Oct. 4, Braverman praised forces which were already promising to visit the scene of every burglary and said, “The law-abiding majority expect every force to investigate every neighbourhood crime—and so do I.”

Crime and policing is expected to be a major issue during the next general election, which could come as early as next year but is more likely to take place in 2024.

The leader of the opposition Labour Party, Sir Keir Starmer, is a former Director of Public Prosecutions.

Rishi Sunak took over as prime minister in October.

The pair went to head during the summer’s Conservative Party leadership campaign, during which Sunak promised to push back on “woke” policing, saying: “Police forces must be fully focused on fighting actual crime in people’s neighbourhoods, and not policing bad jokes on Twitter.”

The proportion of crimes in England and Wales that end with a charge or court summons has fallen since 2015, reaching 5.6 percent in the year to March 2022, down from 7.1 percent the previous year, and comparing unfavourably with a rate of 15 percent seven years ago.

Two million criminal investigations in the last year led to no suspect being identified, including 300,000 violent crimes.

Among the crimes which have not been solved is the murder of Kennie Carter, 16, who was stabbed to death in Stretford in January 2022, shortly after a game between Manchester United and West Ham at nearby Old Trafford. Ten teenagers have been arrested but nobody has been charged.

A spokesman for the Home Office told the Telegraph: “As the Home Secretary has made clear, we welcome the commitment for police attendance at home burglaries. We continue to support the police, including through record investment and the recruitment of 20,000 additional officers by March 2023.”