On Saturday, the Wagnerians were on the road to Moscow to confront Putin. By Sunday, a ‘deal’ had been worked out.
But we’re talking about something much more amusing, the upcoming battle between Elon Musk and Mark Zuckerberg. The two ultra-billionaires, both serious martial art enthusiasts, were set to square off after Musk — supposedly prompted by Zuckerberg’s move to compete with Twitter — issued a challenge.
It was probably a joke; Musk proposed a ‘cage match’.
Zuckerberg shot back ‘send me location’.
So, the fight is on…maybe. We hope so. It would be entertaining. And extremely lucrative for everyone involved — ringside seats, hotel bookings, broadcast rights, T-shirts and memorabilia…it would probably be the single most profitable event in history. Vegas odds-makers are going 3-2 for Musk.
Settling rivalries with a battle of champions is a venerable way to spare the money and lives that would be lost in a real battle. It’s also much more honourable. In the Bible, David and Goliath faced each other single-handedly. So did Achilles and Hector in Homer’s Iliad.
Typically, the cost of war is borne by those who are least responsible for it — taxpayers and draftees. Instead, why not just let the deciders settle it on live TV…and make a profit on it? Zelenskyy and Putin, for example, are fighting over who controls the eastern section of Ukraine, traditionally a ‘borderlands’ area. How about a cage match?
While disputes between nations are often resolved by force, elections are usually a matter of fraud. ‘He’ll keep us out of war’, promised supporters of Woodrow Wilson. ‘He’ll create a Great Society’, they pledged for Lyndon Johnson. ‘He’ll make America great again’, they vouchsafed on Donald Trump’s behalf. Once elected, the president then undertakes to reward his campaign donors. Voters are often forgotten or stabbed in the back.
Think about how much expense, corruption, and bombast could be avoided by replacing national elections with cage matches. Hillary versus Donald…Donald versus Joe. Who knows which way these rumbles would go…but they could hardly be worse than the verdict of the voters.
Back on the beat
But let’s move on…the Fed has paused. Stocks are still high. Unemployment is still low. And the credit catastrophe, if there is one, is still ahead.
As to the coming catastrophe…David Rosenberg, former head economist at Merrill Lynch, is on the case.
‘He…cautioned that investors appear overly optimistic today, just as they were nearly 25 years ago. For example, they’ve roughly tripled Nvidia’s stock price this year, lifting its market capitalisation to north of US$1 trillion. They’ve also more than doubled the stock prices of Tesla, Meta, and other popular tech names too.
‘“The smug complacency in 2000 looks eerily similar to what we have on our hands today,” Rosenberg said, adding that a recession is “coming sooner than you think.”
‘He noted the inverted yield curve is signalling a 99% chance of a recession, and based on past economic cycles, that may mean the downturn arrives before the end of this year.’
Speculators so loved US commercial real estate…and were so sure that the lowest interest rates in 5,000 years would stick around for years more…that they looked to make easy money buying property in the heart of the US’s most dynamic cities. For an entire generation, they were in the money. Interest rates went down. The players could refinance…and refinance…even ‘taking out equity’ as the price of the buildings went up while interest rates went lower. Then, in 2009, the Fed began a ‘zero interest rate’ policy…holding its key lending rate below the rate of inflation for most of the next 14 years. It was a dream come true for leveraged real estate speculators.
‘Extend and Pretend’
But now, they face a ‘whole new ballgame’. Bloomberg reports: ‘The World’s Empty Office Buildings Have Become a Debt Time Bomb’:
‘In New York and London, owners of gleaming office towers are walking away from their debt rather than pouring good money after bad. The landlords of downtown San Francisco’s largest mall have abandoned it. A new Hong Kong skyscraper is only a quarter leased.
‘…the trouble in property is set to play out for years.’
Bloomberg continued: ‘The “Extend and Pretend” Real Estate Strategy Is Running Out of Time’:
‘It’s not that the market participants had forgotten the lessons of the global financial crisis that followed the 2000s boom. It’s that they remembered them. Faced with delinquent loan payments, lenders decided to be patient: Instead of foreclosing on properties whose value was plummeting, they lengthened loan terms and ignored short-term valuations. They called it “extend and pretend”…’
In the commercial property slump of 1992, for example, Donald Trump was nearly ruined. He was as much as US$900 million in the hole. But extending and pretending worked for him as it did for others. The Fed was committed to low interest rates…and the bull market in bonds (with lower and lower yields) that began in 1982 was only about half over. As rates went down, the value of properties went up — especially in New York. By 2016, when he ran for president, Mr Trump said he was worth US$10 billion. So, it was no accident that he told the Fed to cut rates when he got into the White House. He was a ‘low-interest rate guy’, he said.
As long as the bear market in yields (falling interest rates/rising bond prices) continued, you could survive a tight real estate market just by maintaining your cool. You refinanced…and waited for the buyers/renters to come back.
But what about now? Stay tuned…
For The Daily Reckoning Australia