Monday, January 17, 2022

Record Number Of Dallas Police Officers Quit In July Amid Ongoing Pension Crisis

by ZeroHedge:

We first introduced readers to the Dallas Police and Fire Pension (DPFP) crisis last summer in a post entitled “Dallas Cops’ Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid.”  For those who have managed to avoid this particular storyline for the past 15 months, here is a brief recap of how it all started from our original post on the topic:

The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure.  According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016and the fund was subsequently forced to mark down their entire real estate book by 32{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.  Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”.

 

To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP’s administrator for a couple of decades right up until he was forced out in June 2014.  Starting in 2005, Tettamant oversaw a plan to “diversify” the pension into “hard assets” and away from the “risky” stock market…because there’s no risk if you don’t have to mark your book every day.  By the time the “diversification” was complete, Tettamant had invested half of the DPFP’s assets in, effectively, the housing bubble.  Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.

 

Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets “performed” remarkably well throughout the “great recession.”  But as it turns out, Tettamant’s “performance” was only as good as the illiquidity of his investments.  We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have “discretion” over how they’re valued.

 

In 2015, after Tettamant’s ouster, $600mm of DPFP real estate assets were transferred to new managers away from the fund’s prior real estate manager, CDK Realty Advisors.  Turns out the new managers were not “comfortable” with CDK’s asset valuations and the mark downs started.  According to the Dallas Morning News, one such questionable real estate investment involved a piece of undeveloped land in the Arizona desert near Tucson which was purchased for $27mm in 2006 and subsequently sold in 2014 for $7.5mm.

 

Then the plot thickened when, in April 2016, according the Dallas Morning NewsFBI raided the offices of the pension’s former investment manager, CDK Realty Advisors.  There has been little disclosure on the reason for the FBI raid but one could speculate that it might have something to do with all the markdowns the pension was forced to take in 2015 on its real estate book.  At it’s peak, CDK managed $750mm if assets for the DPFP.

The sudden implosion of the fund left active-duty Dallas police and firemen wondering whether that pension check they had been counting on to fund their retirement was about disappear for good.  All of which sparked a mass exodus of Dallas police and firefighters eager to lock in their payout rates before they were slashed by the DPFP board (see:  Dallas Police Resignations Soar As “Insolvent” Pension System Implodes).

Now, despite the passage of a plan designed to ‘save’ the pension by the Texas legislature back in May, a record 72 officers decided to quit the force in July.  Apparently they were not convinced that the legislature’s plan is going to work.

Read More @ ZeroHedge.com

How Much Gold Should the Common Man Own?

0

by Mish Shedlock, Mish Talk:

Earlier today, I had the pleasure of discussing gold, equity valuations, bond bubbles, and inflation with Greg Hunter at USA Watchdog.

In the interview, I mentioned the nearly “everything bubble” and stated a belief that gold was one thing that was not in a bubble.

Following the interview, Hunter asked me to put my thoughts on gold and the “nearly” everything bubble in writing. Specifically, Hunter asked: “How Much Gold Should the Common Man Own?”
My answer follows. First, please consider my USA Watchdog interview: The Everything Bubble – Mike “Mish” Shedlock

How Much Gold?

There is no one correct percentage, but this rule applies: If you have trouble sleeping at night or are constantly worried about the price, then you likely have too much. If you are worried about a price drop of a few hundred dollars, or the equivalent percent in stock or bonds, you probably should not be investing in anything.

It’s curious that people are worried about gold but not the obvious bubbles that surround them. Media contributes to the ignorance by demonizing gold while praising bubbles.

It should be clear to any rational thinker that the Fed (central banks in general) blew amazing asset bubbles in equities and junk bonds in their response to the “Great Recession”. In their misguided quest to produce inflation, which they do not even know how to measure, central banks even re-blew the housing bubble.

In general, 10{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to 25{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in physical gold and silver seems like a reasonable amount. At major lows, miners offer tremendous opportunities. They were practically giving away miners in late 2015 and early 2016.

Outside of precious metals and miners, good investment opportunities are scarce. High cash allocations are likely to be wise. To be fair, I have been saying this for several years. This only proves that bubbles can always get bigger, until they don’t.

Inflation, Where Is It?

Central banks cannot see inflation because they are totally clueless how to measure it. For discussion, please see: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

  1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
  2. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Read More @ MishTalk.com

Shakespeare on Finance

by James Turk, GoldMoney:

We are told by Shakespeare: “Neither a borrower nor a lender be.” Is it good advice?

Like so many things in life, the answer is – it depends.

Individuals are different, and what is right for one person may not be suitable for another. What’s more, everyone’s circumstances are different, which may require different decisions that result in a myriad of outcomes.

Consider too what has happened to money in the four centuries that have passed since Shakespeare penned those immortal words. The Bard himself lived during a time of sound money, with commerce conducted using gold and silver coins. But sound money ended in Britain and pretty much the rest of the world with the outbreak of war in 1914, though the last remnants survived until 1971.

We now live in a world of fiat currency, where money-substitutes called dollars, pounds, euros and yen circulate rather than money itself. So what would Shakespeare be saying today?

It’s an interesting question. Unfortunately The Bard is not around to answer it. But here’s how I see it.

Let’s look at lending first. The interest rate one can earn on a savings account or other bank deposit is near zero. Even though the Bank of England and other central banks are talking about raising rates – and the Federal Reserve recently bumped up interest rates slightly – central bank policy across the globe is aimed at keeping interest rates low.

More importantly, interest rates on bank deposits are generally lower than the rising cost of living. What this means is that money put on deposit in a bank loses more purchasing power from inflation than it gains from the interest income earned on the deposit. It is in effect a tax on your wealth – your purchasing power. So Shakespeare’s advice could apply to making bank deposits, but borrowing is a trickier proposition.

Borrowing is always a two-edged sword. There are always risks when borrowing money, but there can be benefits too.

For example, it often makes sense to obtain a mortgage to purchase a house, given that having a shelter is a basic human need. But even here there is a risk. If mortgage payments are not paid on schedule, one risks losing their house, and perhaps even the equity they have built up in it.

Borrowing for whatever purpose requires a lot of thought, but so does lending because it has risks too. These realities lead to an important question that tests Shakespeare’s admonition. Should one borrow or lend in today’s fiat currency world?

To help answer this question, I’ve created Lend & Borrow Trust Company Limited (“LBT”), and am pleased to say that Goldmoney is one of its investors. In fact, it is Goldmoney’s customers who I believe will understand the potential that LBT offers, as I explain in the following FAQs.

What is LBT?

LBT is an online peer-to-peer platform where lenders and borrowers interact to lend and borrow British pounds, Canadian dollars, euros, US dollars and Swiss francs. LBT is unique because it is the first P2P platform where all loans are secured by the borrower’s investment-grade gold and silver.

What does LBT offer to lenders?

LBT provides an alternative to bank deposits. It enables lenders to earn interest income outside the banking system with five major national currencies. Through LBT’s online auctions, lenders:

  • may earn interest income at a rate above the inflation rate, and
  • are secured by the borrower’s gold/silver, which is sold to repay the lender if the borrower defaults.

What does LBT offer to borrowers?

LBT enables borrowers to monetise their precious metals. Through LBT’s online auctions, borrowers:

How much can I lend?

There is no maximum, and the minimum is £5,000 or currency equivalent.

How much can I borrow?

You can borrow up to 65{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the value of your gold and silver that you pledge as collateral at loan commencement. LBT actively monitors this loan-to-value and makes a margin call if it rises to 75{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, requiring the borrower to pledge more collateral and/or partially repay the loan to reduce it back to 65{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. If the margin call is not met, LBT sells enough metal to meet the 65{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} benchmark.

Is LBT regulated?

Yes, LBT is based in the England and regulated by the Financial Conduct Authority to operate an electronic system in relation to lending. LBT does this through online auctions in which its customers participate.

How are auctions started?

Online auctions are started by either the borrower or lender. Through these auctions lenders and borrowers compete with each other to seek an interest rate at which they are prepared to lend or borrow.

Can I borrow using my gold and silver in Goldmoney?

Yes, you choose how much and which metal or both you would like to pledge as collateral. At this time, only gold and silver stored in England and Hong Kong can be used.

How do I get started?

Click here to visit the LBT website and open an account.

  • may borrow at interest rates lower than available from banks,
  • use their investment-grade gold and silver bars as collateral to borrow, and
  • borrow in any of five currencies: GBP, USD, CAD, EUR and CHF.

Read More @ GoldMoney.com

Millennial Millionaire Reveals Financial Plan for “Asian Century”

from The Maestro Way:

Lior Gantz, Editor of Wealth Research Group joins me to discuss a multitude of topics including fiat currencies, retirement, stocks and bonds, precious metals, crypto currencies, generational wealth, North Korea, China and Russia, and President Donald Trump.

The Most Precious Metal Bullish Quote Ever

by Andy Hoffman, Miles Franklin:

For years, I deemed them “horrible headlines”; and recently, “PiMBEEB” – or Precious Metal bullish, everything-else-bearish.  But any way you slice it, the sum total of the global political; economic; social; and most of all, monetary situation – in which, a handful of unelected sociopaths, utilizing a “financial printing press,” garner 99{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the world’s wealth and power – has never been more conducive to the end of the mad, Frankenstein monster-like experiment that spawned it.  I.e., the Flintstones-like monetary system of “fiat currency” – in which all governments; commandeered by the bankers, billionaires, and oligarchs that own them; destroy the cornerstone of successful economic activity, and freedom.  I.e., SOUND MONEY.

After 1,000 years of monetary repression, technology has finally caught up to the “inflation thieves” – as the combination of the internet and cryptography will now enable money to be transmitted peer-to-peer, without the dilution, regulation, and strangulation of government control.  Which, in light of the imminent SegWit activation this afternoon – i.e., the “gold Cartel’s worst nightmare” – will enable the Bitcoin network to commence an era of innovation so dramatic, and “lightning” fast (that’s an inside joke to Bitcoiners) – that adoption is certain to take off parabolically, in the very near-term.  In other words, per the title of yesterday’s MUST LISTEN Audioblog, we are rapidly approaching the “ultimate monetary death cross,” when the “99{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}” realize that together, armed with nothing but their computers, can take out the 1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} – simply by eschewing their fiat toilet paper, with decentralized, unregulatable cryptocurrency.

In light of my professional responsibility – of spreading monetary, and financial market, truth; which in essence, has morphed into a labor of love, in the pursuit of the destruction of fiat currency; I have not been more excited, or optimistic, in my entire career.  Not to mention, the large financial investment I have in Precious Metals that I am more excited about than ever, given that I have used this summer’s Cartel-created “historic valuation anomalies” to “high-grade” my portfolio – by taking advantage of the lowest-ever numismatic premiums to increase both the “floor” and ceiling” of my PM portfolio.  And not just for the 100-plus year-old coins I acquired, but the limited-edition RCM “call of the wild” coins selling at barely above the price of generic Maple Leafs.

As for said “PiMBEEB,” never before – at least, since the heart of the 2008 crisis, when global debt was half of what it is today – have so many political, economic, and monetary situations portended the historically overdue crisis the powers that be have so desperately attempted to avert – particularly, since the “BrExit times ten” Trump victory – via unprecedented money printing, market manipulation, and propaganda.  For example, yesterday’s shocking disclosure that the Federal Reserve’s “Labor Market Conditions Index” – which for years, was considered Janet Yellen’s most reliable job market indicator – was discontinued.  Quite obviously, due to the fact that, for anyone who has been watching, it relentlessly portrays a labor market far weaker than the “strong” one represented by rigged NFP “headline numbers” like last Friday’s.

Be it purposefully or inadvertently, the powers that be have created “dotcom valuations in a Great Depression Era” and, from an inflation-adjusted perspective, the “most undervalued Precious Metal prices ever.”  This, at a time when Central banks are printing more “money” than ever, just as Bitcoin adoption starts to take off.  In other words, the perfect “monetary storm”; in which, the exodus from historically overvalued, fiat currency based assets, into historically undervalued “scarcity assets” will ultimately, be unprecedented in history; particularly, into the “twin destroyers of the fiat regime,” Precious Metals and Bitcoin.

Today alone, we’re watching America initiate wars – in nearly all instances, unprovoked – on both allies and “enemies” alike.  Be it “traditional,” propaganda-created enemies like Russia, Iran, and North Korea; or “trade” enemies like China; Mexico; and according to Donald Trump, Canada and Germany; America appears hell-bent on creating as much conflict as possible, with as many “opponents” as it can find.  Which, anyone with an even modest knowledge of history knows to be the tell-tale sign of a dying empire.  In America’s case, one where debt has replaced wealth; “service” has replaced manufacturing; socialism has usurped entrepreneurship; dependence has co-opted self-sustenance; and self-interest has replaced community.

Throw in the monetary destruction wrought by the ill-fated, historically disproven attempts by the “1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}” to retain the cancerous status quo with the “reserve currency” printing press; which potentially, could explode during the upcoming “debt ceiling” crisis; and we’re talking about a very strong likelihood that the monetary reset guaranteed to engulf the world in the coming years will negatively impacting America, on a relative basis, more than any other nation.  Which is why, more than ever, the necessity to shed overvalued, dollar-denominated assets for real items of value – like historically undervalued Precious Metals – has never been more urgent.

That said, no “PiMBEEB” action or event I have seen or heard, so perfectly describes why I see little, if any downside in today’s historically undervalued Precious Metals market.  And to the contrary, unprecedented upside potential, as the confluence of ragingly bullish supply/demand fundamentals and the inevitable destruction of the “New York Gold Pool”; not to mention, the fiat-killing power of the Bitcoin revolution; have created, in my view, one of the best risk/reward trade-offs in investment history.  This, being a quote from none other than the self-proclaimed “King of Debt” – who just happens to double as the President of the United States – in an interview last week.

Read More @ MilesFranklin.com

Gold-Backed Scholarship Helps Students Cope With Runaway Tuition Inflation

from Activist Post:

A major national precious metals dealer has just opened its gold-backed scholarship fund for 2017 applicants.  Funds will be awarded to students who understand that gold is money and are able to clearly articulate the many failures of the inflation-creating Federal Reserve System.

Money Metals Exchange, a national precious metals dealer recently ranked “Best in the USA,” teamed up with the Sound Money Defense League, setting aside 100 oz of physical gold, currently worth almost $130,000, to help outstanding students pay for ever-rising education costs.

“The Federal Reserve’s inflationary policies have jacked up education costs, and our company is proud to help students who understand this problem as they cope with this unfolding disaster,” said Stefan Gleason, president of Money Metals Exchange. “Because of abusive and ongoing devaluation of the Federal Reserve Note, we expect the gold that we have set aside to fund the scholarship program will grow in nominal value dramatically over time.”

This scholarship will be open to high school seniors, undergraduate students, and graduate students with an interest in economics, specifically the tradition of the Austrian school. However, one does not have to be an economics major to apply.

The ongoing devaluation of the Federal Reserve Note “dollar” pushes up the nominal prices of assets, goods, and services across America.

Central planners have further contributed to the problem of skyrocketing education costs through easy access to government-subsidized loans which are usually awarded regardless of merit or creditworthiness. Colleges and universities can spend frivolously and raise their tuition costs aggressively.  Meanwhile, students frequently leave college with debt that exceeds a home mortgage.

Essays will be reviewed by a blue ribbon committee of professors, economists, and executives of Money Metals Exchange and Sound Money Defense League. The panel will select two (2) undergraduate winners and two (2) graduate winners. All four (4) articles will be published on one or both organizations’ websites. The four (4) winners will also have the opportunity to win the People’s Choice Award which goes to the student whose article attracts the most interest from social media (Facebook, Twitter).

Jp Cortez, Assistant Director of Sound Money Defense League, said, “Last year was a huge success. We had well over one hundred entries from students. Applicants are excited at the prospect of having their essays read and graded by some of the most notable sound money economists and thinkers in the world.”

Read More @ ActivistPost.com

Is Bitcoin Money?

by Jim Rickards, Daily Reckoning:

At various times in history, feathers have been money. Shells have been money. Dollars and euros are money. Gold and silver are certainly money. Bitcoin and other cryptocurrencies can also be money.

People say some forms of money, such as Bitcoin or U.S. dollars, are not backed by anything.

But that’s not true.

They are backed by one thing: confidence.

If you and I have confidence that something is money and we agree that it’s money, then it’s money. I can call something money, but if nobody else in the world wants it, then it’s not money. The same applies to gold, dollars and cryptocurrencies.

Governments have an edge here, because they make you pay taxes in their money. Put another way, governments essentially create an artificial use case for their own forms of paper money by threatening people with punishment if they do not pay taxes denominated in the government’s own fiat currency.

And the dollar has a monopoly as legal tender for the payment of U.S. taxes. According to John Maynard Keynes and many other economists, it is that ability of state power to coerce tax payments in a specified currency that gives a currency its intrinsic value. This theory of money boils down to saying we value dollars only because we must use them to pay our taxes — otherwise, we go to jail.

So-called cryptocurrencies such as Bitcoin have two main features in common. The first is that they are not issued or regulated by any central bank or single regulatory authority. They are created in accordance with certain computer algorithms and are issued and transferred through a distributed processing network using open source code.

Any particular computer server hosting a cryptocurrency ledger or register could be destroyed, but the existence of the currency would continue to reside on other servers all over the world and could quickly be replicated. It is impossible to destroy a cryptocurrency by attacking any single node or group of nodes.

The second feature in common is encryption, which gives rise to the “crypto” part of the name. It is possible to observe transactions taking place in the so-called block chain, which is a master register of all currency units and transactions.

But the identity of the transacting parties is hidden behind what is believed to be an unbreakable code. Only the transacting parties have the keys needed to decode the information in the block chain in such a way as to obtain use and possession of the currency.

This does not mean that cryptocurrencies are fail-safe. But on the whole, the system works reasonably well and is growing rapidly for both legitimate and illegitimate transactions.

It’s worth pointing out that the U.S. dollar is also a digital cryptocurrency for all intents and purposes. It’s just that dollars are issued by a central bank, the Federal Reserve, while Bitcoin is issued privately. While we may keep a few paper dollars in our wallets from time to time, the vast majority of dollar-denominated transactions, whether in currency or securities form, are conducted digitally.

We pay bills online, pay for purchases via credit card and receive direct deposits to our bank accounts all digitally. These transactions are all encrypted using the same coding techniques as Bitcoin.

The difference is that ownership of our digital dollars is known to certain trusted counterparties such as our banks, brokers and credit card companies, whereas ownership of Bitcoin is known only to the user and is hidden behind the block chain code.

Bitcoin and other cryptocurrencies present certain challenges to the existing system. One problem is that the value of a bitcoin is not constant in terms of U.S. dollars. In fact, that value has been quite volatile, fluctuating between $100 and its present high above $3,400 over the past few years. It’s currently around $3,467.

It’s true that dollars fluctuate in value relative to other currencies such as the euro. But those changes are typically measured in fractions of pennies, not jumps of $100 per day.

Read More @ DailyReckoning.com

This Hits the Wheezing Commercial Real Estate Bubble at Worst Possible Time

0

by Wolf Richter, Wolf Street:

The last big enthusiastic buyer, China, is leaving the party.

Commercial real estate, such as office and apartment towers, in trophy cities in the US and Europe has been among the favorite items on the long and eclectic shopping lists of Chinese companies. At the forefront are the vast, immensely indebted, opaquely structured conglomerates HNA, Dalian Wanda, Anbang Insurance, and Fosun International. In terms of commercial real estate, the party kicked off seriously in 2013. Over the two years in the US alone, according to Morgan Stanley, cited by Bloomberg, Chinese firms have acquired $17 billion worth of commercial properties.

In the second quarter in Manhattan, Chinese entities accounted for half of the commercial real estate purchases. This includes the $2.2 billion purchase in May of the 45-story office tower at 245 Park Avenue, the sixth largest transaction ever in Manhattan. At $1,282 per square foot, the price was also among the highest ever paid for this type of property.

Most of HNA’s funding for this deal — one of its 30 major acquisitions since the beginning of 2016 — was borrowed from China’s state-owned banks. But HNA also borrowed $508 million from JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale. This has been the hallmark for all Chinese acquirers: a lot of borrowing from China and some funding from offshore sources.

Similarly, Chinese acquirers accounted for about one-quarter of commercial property transactions in central London in 2016, according to the Morgan Stanley report. In Australia, over the past few years, Chinese firms accounted for 12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to 25{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of all office transactions by value.

But now these conglomerates and other Chinese firms engaging in outbound acquisitions have run into a veritable buzz saw of regulatory efforts by Chinese authorities designed to accomplish two things: slow down these capital outflows; and keep the Chinese banks from getting perforated by their exposure to the overleveraged conglomerates.

The authorities put the banks under intense pressure to deleverage. And the banks put the conglomerates under pressure to deleverage. A number of deals have already gotten scuttled.

US and European banks too are getting second thoughts about funding these deals. Bank of America, for example, has already pulled back from doing business with HNA — “We simply don’t know what we don’t know, and are not prepared to take the risk,” BofA president for Asia Pacific, Matthew Koder, had said in an internal email.

Morgan Stanley estimates that China overseas direct property investment could plunge by 84{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in 2017 and another 15{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in 2018 — to just $1.4 billion. In other words, just a tiny trickle.

So what would happen to the US commercial property sector when the last big enthusiastic buyer, China, is leaving the party? Will the sellers get to dance with each other?

The party isn’t entirely over just yet: For example, Sunac China Holdings, now one of China’s most debt-burdened property investors after buying assets from Dalian Wanda, was able to sell $1 billion of dollar bonds last week, according to Bloomberg. So foreign-currency funding is still available to Chinese property buyers, but getting harder and more expensive to come by.

Commercial real estate prices in the US, after a seven-year boom, peaked last year. Green Street’s Commercial Property Price Index in July 2017 was below where it had been in June 2016. This marks the first year-over-year decline – albeit a small one – since the Financial Crisis. December had been the peak:

In many markets, transaction volume has dropped, as domestic buyers have become leery. Across the US, deal volume fell 8{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in the first half of 2017. And Q2 (down 5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}) was the third quarter in a row of year-over-year declines. “Investor caution” hurt higher-priced markets such as Manhattan in particular, according to Real Capital Analytics.

Everyone had been hoping that China’s formerly insatiable appetite for US properties would keep the market afloat and would let domestic sellers, after running up the seven-year boom, get their money out at peak prices.

Read More @ WolfStreet.com

Why Is The Dow Outperforming The SPX And Naz?

0

by Dave Kranzler, Investment Research Dynamics:

“The combination of central banker-applied brute force (buying everything in sight) and deitylike central banker pronouncements has dampened market volatility and frisky free-lancing, but at the same time it has encouraged risk taking (in market positioning, not it business formation). We have thought, and still think, that confidence in central banks and policymakers has been unjustified and thus could erode or collapse at any time. Since the major financial institutions which comprise the financial system are still way overleveraged and opaque (in fact with record amounts of debt and derivatives at present), such a break in confidence could happen abruptly and without warning.” – from Paul Singer’s Q2 investor letter (note: Paul Singer is the founder of Elliot Management, one of the most successful hedge fund management firms since its inception in 1977).

Singer is considered one of the most shrewd and accomplished investors in the modern era. The quote above embodies two of the concepts I’ve been discussing for quite some time in the weekly Short Seller’s Journals Central Bank intervention will ultimately fail in spectacular fashion; the Too Big To Fail Banks (TBTFs) currently have more leverage and OTC derivatives – the latter well hidden off-balance-sheet – than just before the 2008 financial crisis/de facto collapse.

Singer has been quite vocal recently about the inevitability of an eventual market/systemic collapse. It’s not a question of “if,” but of “when.” I read an analysis last week from Graham Summers of Phoenix Capital in which he suggests that the Fed would lose control of the VIX – lose control of its ability to keep the VIX suppressed – and a large spike up in the VIX would trigger an avalanche of selling from the $10’s of billions in Risk Parity Funds. These funds buy stocks when the VIX falls and unload stocks when it rises – all based on algorithms which are automatically executed by “black box” computerized trading systems.

I have to believe that the Fed (not the FOMC figure-heads but the Phd “rocket scientist” personnel who work behind the scenes at the Fed) is well aware of this possibility and has
taken the necessary steps to ensure the readiness of a “safety net” that will buffer the selling deluge that would accompany an uncontrollable spike in the VIX.

Upon further reflection, I believe that the eventual “black swan” event will be an unanticipated derivatives explosion that occurs from an out-of-control OTC derivatives position buried deep off-balance-sheet on one of the TBTFs. This is what occurred in 2008. The Lehman bankruptcy/liquidation triggered a massive counter-party failure by AIG on OTC derivatives underwritten by Goldman Sachs. This was the event that prompted then-Treasury Secretary and ex-Goldman CEO, Henry Paulson, to scramble furiously to arrange a Fed/taxpayer bailout of AIG and Goldman. The bailout was extended to dozens of banks, domestic and foreign. But the Goldman/AIG implosion was the nexus.

Circling back to the relevancy of Paul Singer’s quote, the degree of risk embedded in TBTF bank OTC off-balance-sheet derivatives can not be properly assessed because, not only did changes to accounting regulations enable banks to hide derivatives more easily and thereby lie to the institutional investor universe, but bank officials (including CEO’s) lie about their risk exposure to the Fed and to Government regulators. Some bank CEO’s do not even know the full extent of risk hidden on their bank’s balance sheet. Jamie Dimon admitted this when the JP Morgan London derivatives “whale” catastrophe occurred (2012). Having been on a risky bond trading desk in the 1990’s, I can attest first-hand that trading desks have the ability to hide risky or bad positions from a bank’s upper management. We did this every year before our books were marked to market and squared for bonus pool assessment by the risk control and accounting people.

At this point, I thus think that stock market crash event-trigger will be the detonation of a derivatives bomb (Warren Buffet’s weapon of mass financial destruction). Likely a credit, interest rate or currency based derivatives position and related counter-party default. The Fed will not see it coming because it was covered up and never disclosed to the Fed. Is this the flight-to-quality that marks the beginning of the end for the stock market
run?

The Fed heads dating back to at least Alan Greenspan always remark that it’s impossible to know whether or not an asset bubble is occurring until after it pops. Yellen went as far as to suggest there would not be another financial market crisis in our lifetime. These assertions are so absurd that I don’t think a response is necessary. But I ran some varying duration index comparisons and discovered this (click to enlarge):

You can see that the SPX, Dow and Naz were tightly correlated in mid-July. This correlation extends further back in time. You see that the Dow began outperform the SPX/Naz starting Tuesday, July 25th, after AMZN reported an unexpectedly huge earnings miss (the plunge in the green line), the SPX and Naz entered a downtrend while the Dow continued higher.

Back in the day when investors were more likely to on focus fundamentals rather than stockprice momentum, a chart like the one above would elicit references to Dow theory, which asserts that the final stage of an out-of-control bull market culminates with a “flight-to-quality” from risky stocks into the lowest risk market sectors. Traditionally the Dow is considered less risky than the universe of stocks that comprise the SPX and Naz.

The idea behind this theory is that, as big investors sense that smaller-cap, higher-beta stocks have reached a point of overvaluation and high risk, these investors move money from the overvalued stocks into the Dow stocks, which are traditionally considered more stable and more liquid. Investors ride the Dow until the entire market rolls over. Some articles appeared last week which made note of the deterioration in technical indicators. For instance, one analyst noted that the recent string of Nasdaq new highs occurred with “negative breadth” to a degree that ha not been seen since 1999-2000. Negative breadth is when an index has more stocks declining than advancing. It’s a negative divergence that often signals that large investors are moving more cash out of the stocks than is flowing into stocks.

Read More @ InvestmentResearchDynamics.com