The Crash this Fall is Now a Mathematical Certainty, but First, Market Goes Up Author’s Note: I started writing this a couple weeks ago when SPY was in the 430s. A fair bit of the “up” predicted in the title has already happened. That said I think we at least test the Morgan Collar at 4620 SPX before we top, and the gigantic IB trader’s long put position is acting as resistance at 4500 SPX. There’s a small chance we either match or exceed ATH before the end. There’s still around $1.7 Trillion left in ONRRP to exhaust, and so far, REITs and other large property holders are adding unsecured debt to cover investor withdrawals and prop up values. This delays the boom, but means it’ll boom harder when it happens.
TLDR: The convergence of bond value reduction due to rate hikes combined with CMBS notes going to zero will cause a deflationary bust with multiple bank failures, in turn tanking the market and leading to more “printer go brrr” yielding an inflationary death spiral last seen during the Wiemar Republic in 1923.
Hi, I’m u/catbulliesdog you may know me from such previous DD’s as: The 2022 Real Estate Crash is going to be worse than the 2008 One, and Nobody Knows about it Yet , This is How the (Financial) World Ends, Housing is a Big Bubbly Pile of Bullshit, and The 2023 Real Estate Crash Started 5 Months Ago, and It Just took Down it’s First Banks (some of the links are to my profile, the relevant DD is in the pinned posts or just under “posts”, can’t link 'cause all the finance subs be fite each other). Plus a bunch of DD I’ve written various places about China and Evergrande and how nothing was ever fixed there and its going to take down the whole country. (bonus, hidden $81 Billion loss revealed today!)
I’ve been saying for a couple of years now that we had three potential outcomes to the current mess:
a 2008 style crash - this was the best case scenario, and it’s window is long gone 1. a 1929 style deflationary bust - this is, as the title indicates, a mathematical certainty at this point, the problem is what follows 1. a 1923 Weimar republic style hyperinflation - yeah, this is the one we’re gonna get when the Fed tries to print its way out of number 2. I picked 1923 and Weimar over a long list of 3rd world countries that experienced hyperinflation because of the political consequences that followed.
Bonds
I’m going to end up talking a lot about Bonds in this post, so, lets go over what a bond actually is, and how they work, because I know you lot of smooth brained virgin baboons have gained basically all of your so-called knowledge from a Chappelle’s Show Wu-Tang Financial skit. A Bond is at heart a financial instrument representing debt that can be traded back and forth like a stock or other commodity. Bonds are described in four ways: Face Value, Coupon Rate, Yield and Price. Face Value is the total amount the bond is worth at maturation (the date it expires). Coupon Rate is the interest rate the bond pays. Yield is the effective interest rate when accounting for Price and time to maturation. Price is how much you can buy and sell a bond for today. So say you’ve got a $100 (face value) bond that pays 4% interest over 10 years (coupon rate). Mike buys this bond for $71.50 (price). You bought it from Mikey the Moron for $25 (price) because he really wanted to go get a pizza and six pack tonight. Mike made this deal because while the bond is worth more, the money is inaccessible for 10 years, its illiquid, and he really wants to impress his lady friend tonight, so he needs the money now. You’re making 300%, which is 30%/year (yield), but you have to wait 10 years to get it. This is basically what happened to regional banks in March, they bought an absolute fuckload of bonds at very low rates, and now that rates have risen along with inflation, the yield on those bonds has collapsed, crushing the price. But, they needed access to money before the 10 years was up, so they had to unload their bonds at a big loss to get cash now, just like Mikey.
The Fed stopped this bleeding with stuff like the BTFD program, but just like what China did by making banks post fake deposit numbers, it’s not actually a solution, and the problem will just continue to grow behind the scenes until it busts out like the Kool Aid Man during one of his frequent substance abuse relapses.
Now, there’s lots of complex bullshit that gets piled on top of this, so that people can pretend they’re super duper smart and too cool for school, but at the end of the day, that’s the gist of it, you’re buying and selling pieces of loans.
CMBS
This is basically the exact same story as 2008, except with commercial properties instead of residential ones. The valuations are fake and backed up by bogus revenue estimates. This is being blamed on the pandemic and work from home, but the truth is its been going on since 2008. When nobody went to jail, they all just moved over to commercial real estate and restarted the same fraudulent machine.
Don’t believe me? Think it’s too crazy to be true? Here, from the company’s website, is the corporate blurb about Brian Harris, founder of Ladder Capital. Brian Harris is a founder and the Chief Executive Officer of Ladder Capital. Before forming Ladder Capital in October 2008, Mr. Harris served as a Head of Global Commercial Real Estate at Dillon Read Capital Management, a wholly owned subsidiary of UBS. Before joining Dillon Read, Mr. Harris served as Head of Global Commercial Real Estate at UBS, managing UBS’ proprietary commercial real estate activities globally. Mr. Harris also served as a Member of the Board of Directors of UBS Investment Bank. Prior to joining UBS, Mr. Harris served as Head of Commercial Mortgage Trading at Credit Suisse and previously worked in the real estate groups at Lehman Brothers, Salomon Brothers, Smith Barney and Daiwa Securities. Mr. Harris received a B.S. and an M.B.A. from The State University of New York at Albany.
I mean, jesus, look at that company list, Lehman, Soloman, Smith Barney, UBS, Credit Suisse, its like a fucking directory of shady bullshit. And the year founded? Dude waited less than a month to realize he could do the same shit he was pulling with MBS if he just added the letter “C” to the front of it. If white collar crime enforcement existed in America, this Fredo-Wannabe would have been squeezed like one of the Killer Tomatoes for enough convictions to get six dozen people Epstein’d. Honestly, I’m just kind of in awe of how much fraud and crime this guy has been part of.
Ladder Capital is heavily involved in the massive fraud that is Dollar General’s real estate empire - one of the scummiest companies out there that has routinely put employees at risk and has gone so far in search of illegal profits I think they might have actually invented some new crimes.
MBS
Next we’ve got regular MBS - this is fucked in two separate ways. First, housing supply. The following is from a DD I wrote in 2021 showing that there wasn’t and isn’t a shortage of physical housing:
In 2004 (roughly the peak of US homeownership rates) the US homeownership rate was a bit over 69%. In 2021 it’s at 65%. In 2004 there were 122 million housing units in the US. In 2021 it’s 141 million. US population in 2004 was 292 million. In 2021 it’s 331 million. Throw all these numbers into a blender and you get:
A 13% increase in population, a 4% decrease in homeownership rate, and a 15% increase in housing supply. Yes, that’s right, the housing supply has increased faster than the population, and the homeownership rate during that time has dropped.
Now let’s update that to 2023: Population - 334 million. Homeownership Rate - 66%. Housing Units - 144 million. Over the last two years we’ve added 3 million people, and 3 million housing units. Most people don’t live alone - children, couples, roommates, etc. So, to be clear, between 2004 and 2021, we went from 41.7 housing units per 100 people to 42.6 housing units per 100 people, and in 2023 we’re at 43.1/100. That’s 43.1 housing units for every 100 people in America. In the last two years we’ve added half a housing unit/per 100 people, which as nearly as I can tell is the fastest rate in the history of America, and during that period of time, the price of the average house in America went up by 26%, from $346,900, to $436,800. (all numbers taken from the same data series at FRED to keep things normalized)
I’ll say it again, over the last two years housing supply has increased at the fastest rate in American history, and prices jumped 26%.
Everything I can find indicates that this “excess housing” is currently tied up in ABNB/short term rental/illegal hotels, REITs, and vacant “investment” properties that are being used as tax dodgescontinue