Category: Uncategorized

The 10 year yields for selected countries is depicted below.
The western world bond market is the biggest disaster waiting to happen. The debt structure of some of these countries is mind boggling. Some countries roll over almost half their debt each year. This is analogous to the adjustable mortgage rates that homeowners took out in the early 2000’s. When interest rates went up a few hundred basis points they could no longer afford their mortgage payments.
Far more dangerous is the OTC derivative market. Interest rate contracts have a notional value of 500 trillion dollars. To put this number in perspective, the world GDP is 80 trillion dollars. What will happen when interest rates begin to rise and governments default? How much money is put aside to cover these OTC derivatives? I suspect the answer is close to zero.
Micheal Lewis wrote a book called, “The Big Short: Inside the Doomsday Machine“. They made a movie from the book. Micheal Lewis is an excellent writer. He correctly details how the OTC derivative market played an important role in the 2008 meltdown.
Basically, banks hold an enormous amount of OTC derivatives. 99% of them are fraudulent. That is, if they were ever called upon to perform their duty the banks would go bust. For years, the lie was the following:
“Housing prices don’t go down.”
When housing prices did go down and homeowners defaulted, the OTC derivative imploded.
The new lie is this:
“Governments don’t default.”
They will default though, in one form or another. Average Joe still thinks US government bonds are the safest investment.
The probability of the OTC derivative being this large over the next 30 years is unlikely. How it ends is anyone guess. The range is from World War III to cascading defaults.

Closed out VWO

Bitcoin Short got closed out.

Lots of chatter that the bond bull market that started in the early 80’s might be over. Here is a long term perspective.

The 10 year is closing in on 3%. It has been a few years since it has seen this level. Will Trumps massive deficits and the Feds QT kill it? Fundamentally, there has been no reason to go long this market for the past 10 years. However, it is the best of the worst at the moment considering other countries in the western world are closing in on zero. I don’t believe this bull is dead. Before it is over the USA might see negative rates. The perception of the market participants has not changed. The first sign of trouble, investors jump right back in. One day, some one will make a fortune shorting this market. I don’t believe the time has come yet.

The fed is way behind the curve. They are going to let the economy run on the hot side.

Major indexes have worked off some technical overbought conditions on the daily chart. The market is neutral at the moment. Waiting to see how it acts the next few weeks.

Yearly salary required to get into 1%

Detroit quietly banned Airbnb. Airbnb is used by middle/lower class people as supplemental income. Bureaucrats in Detroit have nothing better to do so they actually sent cease and desist letters to home owners.
The new zoning ordinance states the following:

“Use of a dwelling to accommodate paid overnight guests is prohibited as a home occupation; notwithstanding this regulation, public accommodations, including bed and breakfast inns outside the R1 and R2 Districts, are permitted as provided in Sec. 61-12-46 of this Code.”

David Bell, director of the Buildings, Safety Engineering & Environmental Department (BSEED), began backpedaling soon after:

Detroit homeowners have been able to rent out a room in their homes for more than 100 years and we don’t believe the new ordinance was intended to take away that right. The ordinance as written appears to ban all homeowners from having even their own friends and relatives stay at their homes if that friend or relative is paying them rent. The public was never told that was intended. I have asked the law department to review this question and give BSEED guidance.
Media reports that enforcement efforts have begun under this ordinance are false. Over the last two years there have been a few enforcement actions that have involved Airbnb properties, but those tickets have arisen from other complaints or violations related to those properties.
Until the law department review is complete, BSEED will not be ticketing homeowners for renting out rooms in their own residence, whether through airbnb or otherwise. BSEED and the administration will be working with City Council to resolve these issues.