There's a lot of misinformation and worse flying around -- and given that after doing things that destroy your health errors here are the second-most difficult to recover from and can ruin you financially, this is truly sad.

First, interest rates on loans are not historically high, nor unreasonable.  In fact they're bog-standard up-the-middle from a historical point of view in an economy with an actual 1-2% inflation rate.  The rate of short-term (that is, less than one year) borrowing in a 2% inflation economy with a 2-3% productivity improvement (historically about average) should be about 5%, and that for longer-term money about 7%.  Why?  Because time has value; go ask any 60 year old how much they'd pay to have the last 20 years back.

In a normal market the average ownership period is about 7 years.  You have a 30 year loan as the "usual" but the average ownership is 7 years; this is why most mortgages are based on the TNX, or 10 year Treasury rate -- its the closest large-liquidity government bond issue.

So spare me the whining driven by the industry and, I might add, the belief of many cultivated by the press and government that time has not only no value but negative value, just like the fantasy land world they cultivate where as long as your credit card still works all is well.

Thus it is a false statement that rates are "high" right now.  Rates would in fact be normal in a 2% inflation and 3% productivity economy but we currently have inflation above that -- and wildly so in several mandatory purchase items such as car and homeowner's insurance, so in point of fact they're "a bit below where they should be" -- not "high."

Second, these policies and beliefs have directly driven up costs of home ownership that you have little or no control over -- specifically, property taxes and insurance.  You can insulate yourself somewhat from the tax problem by where you buy and live in that some governments are more-crazed with the premise of "no cost to spend without limit" than others, but the insurance problem is not so-easily avoided.  Simply put as prices go up for materials and labor, never mind the price of a given house so does insurance because every time there is a loss it has to be paid and that is recovered in premiums, otherwise there's no insurance at all.  Further, said price ramps are doubled into insurance and the reason is that if there is a loss that prohibits you from living in the house (e.g. a fire) for a period of time the policy covers your replacement lodging, unlike renters insurance that only covers your personal property, since if a rental is destroyed you don't have to pay rent for the destroyed property and can go rent something else.

Do not underestimate the tax problem -- the insurance problem is somewhat new, but the tax problem is not and I have seen it my own family.  My parents' home had two decades worth of potential appreciation destroyed by a rough tripling of the property tax bill over that period of time.  I warned them when it started that this was going to happen because it goes into the PITI amount someone has to pay to buy it (principal, interest, taxes and insurance) so if you take that tax increase and, for example, put it and the escalation rate into a calculation over, say, 20 years that increase is the imputed decrease in the value of the house!  That's exactly what happened and it destroyed all value add over two decades of time.

It can be worse if that ramp causes you to be unable to afford routine maintenance and a sinking fund for all the ordinary things that can and do go wrong in any house.  HVAC systems wear out as do water heaters, refrigerators, washers and dryers, roofs and similar, and that ignores the "oh crap!" surprises which occur too -- sewer or water service line problems, septic or well problems if you have them and similar.  The latter two are especially nasty if you're on private water and if they occur you need to spend that money right now or you might not be able to flush the toilet -- for real.

The basic issue is that a decade-long repression of interest rates, which was foolish and especially when Covid hit along with all the handouts into the economy has driven prices to outrageously-ridiculous levels, and for a financed transaction this compounds the damage.  But even for those who laugh because they owned a house before that and now have an alleged "big gain" the problem is that tax and insurance exposure goes up as fast (in one case) and faster in the other, so existing owners are not exempt.

In addition there is a huge fraud problem in certain markets with insurance, particularly (but not limited to) Florida, never mind places that are casualty-rich (e.g. mountainsides and similar where fire exposure is serious) but builders and planning commissions have done nothing to enforce constraints that significantly mitigate risk and buyers who continue to think said risk isn't real and drive up price, and at the same time they refuse to permit insurance companies to price said risk as it really is without making others who are not exposed to that risk eat it.  Nowhere in Florida was this more in evidence than at Mexico Beach where the homes on the beach were originally built as cinderblock disposable places as everyone who built them knew darn well a hurricane would eventually come and destroy it.  When they were literal vacation shacks nobody cared; if the interior got flooded you took the stuff out, got out a shovel and pressure washer, dried it out and there you go -- and if the storm was really bad you put up more cinderblock and a new roof on top of the poured slab which was all that remained after the storm but then the craze began and people took what were $100,000 cinderblock places where $50,000 of that was the nice sand beach you had and tarted them all up into very nice and expensive places that someone was willing to pay a million dollars for yet had the same risk of being destroyed by said storm as the base risk to that structure had not changed at all!  Then the storm comes and...... they're gone.

How can this be addressed?  Realistically there is only one way: Prices have to crash, meaning down by half or more, and remain there.  That will of course cause insurance costs to crash as well, although on the property tax side the resistance of state and local governments to cutting their budgets back will remain severe.

The insanity coming out of "financial media" on the GDP report is amusing -- but not surprising.

Real gross domestic product (GDP) increased at an annual rate of 1.6 percent in the first quarter of 2024 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2023, real GDP increased 3.4 percent.

Here's the basic problem in this report -- the last three reports are a declining trend and the Q3 2023 number looks like a pull-forward rather than an acceleration in growth, as the overall trend from Q3 2022 looks like those two interim reports were people having "one last party."

The increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods. Within services, the increase primarily reflected increases in health care as well as financial services and insurance. 

Health care and insurance are not discretionary purchases and this is extremely bad news economically as it wasn't absorbed; it  came out of everything else.

Oh, and as for inflation?

The price index for gross domestic purchases increased 3.1 percent in the first quarter, compared with an increase of 1.9 percent in the fourth quarter (table 4). The personal consumption expenditures (PCE) price index increased 3.4 percent, compared with an increase of 1.8 percent. Excluding food and energy prices, the PCE price index increased 3.7 percent, compared with an increase of 2.0 percent.

ALL of these figures, including core, are well above target -- in fact, approaching double said target.

These are extremely hot inflation numbers and they're in non-discretionary purchases which nobody can get around and extremely sticky too as car insurance is typically a six-month term with property insurance renewing annually.  There are lots of reports of 20% increases in insurance costs for autos and homes -- and in many cases they're actually higher, and this is among people without any claims.  I'm seeing it here, and I'm not in a high-risk area.  If you are, or in a place where various government policies have driven up loss rates (e.g. uninsured motorists) then you may be looking at doubles and again, no insurance means either no driving or running the risk of driving on a suspended license which, when you get caught, will mean SR-22 policies to get reinstated (and don't ask the price -- its eye-watering.)

If you're still in the camp that rates are coming down this year you're wrong.  No they're not with price indices going up like this, and yet that has been the mantra for the last six months+ in the asset markets.

I'll take the under on that and that nice, safe 5%+ in the short end of the Treasury curve looks real good compared with a likely 30%+ loss in equities or (much worse, due to it being illiquid) Real Estate.

Last night's Tesla earnings would have, you'd think, cut the stock in half.

Tesla is of course a car company.  Elon would love to claim its a bunch of other things, but none of them have been deliverable over the firm's life in meaningful ways.  This includes all of the "revolutionary" lines of business he has tried to argue he'd have sewn up -- the most-intriguing, of course, being driverless cars that entirely change the paradigm of personal transportation.

Being able to buy such a vehicle means you can immediately (subject to various legal constraints, of course) now own a taxi that can take people from here to there when you're not using it, wildly increasing utilization and generating income that offsets its expense.  Said vehicle could be programmed that "I have go to the store at 3:00 PM" and thus it would return and charge with time to do that, but from 2:00 AM when the bars close until then it might run around as "summoned" to various people and take them wherever.

In addition it is a huge mobility boost in that anyone currently unable to drive for medical or age-related reasons, or those who wish to go somewhere but are intoxicated, now can do so without constraint -- if you buy such a vehicle.  Of course the problem with it in the EV space is range (which means in an ICE context its even more valuable as now I can, for example, crawl in the back with a sleeping bag, sixpack of beer and punch in a destination over a thousand miles away and do whatever., having to intervene only to put more fuel in the tank.)

This both opens up the commuter space and intermediate-range (under 500 mile) business travel in ways that today are simply unreasonable, particularly until you get into the realm of private aviation making economic sense -- which for nearly everyone it doesn't.

It also immediately shifts all liability -- and thus insurance -- off you as the owner and to the company that makes it.  The earthquake-level implications of this are obvious but Musk has claimed that it would be available "imminently" -- within a year -- now since 2019 and yet no such advancement from the original capability, in legal and operational terms, has occurred.

You'd think that at some point running this "blue sky" nonsense would fold back on him -- but so far it hasn't.

The latest round of this nonsense included even more ludicrous claims, but follows a pattern seen in all the other big market blow-ups.  Now the word is "AI" and of course Tesla is supposed to be an "AI Company."  Except it isn't, of course, although somehow Elon spun this idea that it shall buy many more Nvidia AI "chip stacks" and by doing so become one, never mind solving the driving problem.  Musk even alluded to literally using the "excess" CPU power (and the energy to run it!) in customer vehicles without any indication the owner would be paid for it!

Many of you don't remember 1999, but I do.  I was in the middle of the 1990s.  The number of times I heard phantasm-invoking nonsense out of CEOs on earnings calls couldn't be counted.  It all ended in tears, and this time it will as well.

Tesla, on an annualized earnings basis of the reported "45 cents", which incidentally is bogus because that's non-GAAP earnings, sells at ninety times an annualized run-rate of $1.80.  At the same time the firm now is showing negative free cash flow, which is a change -- it was at least cash-flow positive before, even though much of it was tax farming of various sorts.  Nonetheless money is money and now the company is bleeding it at an arterial level, and it appears he's stretching payment times to vendors too, which makes the books look better for a while because the cash isn't flowing out as quickly.

This fever, like the one in 1999, will break.

Probably not today, but break it will, and when it does all of those who have repeatedly managed to sucker people into buying a hope and a dream will be faced with the reality that said dreams are and will be unrealized -- and what will be left is whatever can actually generated in operating income from actual products and services sold to actual customers.

Don't be the guy who's long stocks when that day comes.

One has to wonder from the USSC arguments the other day.

Legal experts said the Biden administration was "on the ropes" in Tuesday’s oral arguments at the Supreme Court in a case questioning whether a Jan. 6 rioter can be charged with a federal "obstruction" crime, which carries implications for former President Trump.

On Tuesday, Jeffrey Green, lawyer for Joseph Fischer – who is one of more than 300 people charged by the Justice Department with "obstruction of an official proceeding" in the Jan. 6, 2021, riot at the Capitol – argued that the federal statute shouldn’t apply and that it had only ever been applied to evidence-tampering cases. 

Biden's DOJ has "repurposed" the SarBox law, in short, to bring the most-serious of felony charges in the Jan 6 cases, and has won many convictions on those charges.  They also form the basis of the most-serious charges against Trump himself.

What's also interesting is that in 2019 the OLC issued an opinion -- which was never "formally" put into practice -- that the law didn't apply in this sort of situation at all.  I was unaware of that but the case process that led to the Supremes hearing the case has brought that into the forefront.

SarBox was passed in the wake of the 2000 tech crash and Enron specifically to provide serious criminal penalties for evidence destruction in a corporate context. As I've repeatedly noted lawsuits are not a deterring factor when aimed at corporations because the company pays them and thus there is little you can do to the actual directors and officers.  While theoretically piercing the corporate shield is possible there are myriad ways for very wealthy people to evade accountability even if you succeed.

Sarbox's particular target was corporate officer and/or board-level interference with auditors who are supposed to prevent such chicanery from going unchallenged.  Imposing hard, felony criminal penalties on directors and officers, particularly CEOs and CFOs, would have provided a meaningful check and balance in that going to prison sucks no matter how rich you are, and its arguably worse the more money you have for obvious reasons (its hard to enjoy that mansion, Lambo or Bizjet when you're behind bars.)

The irony is that prior to Jan 6th only a handful of cases have ever been brought against corporate officers, despite many instances of accounting chicanery.  Indeed the entire 08 market blow-up was arguably over precisely that -- various executives asserting that their "books were clean" and "all was well" while they knew they were making loans that were unsound and in fact the borrowers were committing fraud in their income statements, yet the securitizers were lending the money and selling the paper on to customers anyway.  I will remind you that unlike the S&L crash where a huge number of banking executives went to prison in the wake of 2008 nobody did, despite several instances of publicly-disclosed hard proof of financial frauds -- such as backdating deposits to avoid violating reserve requirements.

One line of questioning I did not hear was why the Government should be able to ignore thousands of such cases including when they're documented in the open press over the space of two decades and then, come a convenient political target, "repurpose" said law and throw a few hundred ordinary citizens in prison for it.

Yet that, I would argue, is precisely the root of the issue here, just as it is in many other contexts.  Indeed you can successfully argue that the Kavanaugh hearing disruptions, which were an official proceeding and undertaken specifically to disrupt or prevent his confirmation with what were later (in at least one case) proved to be a false predicate, has at least the same nexus to this law as do the January 6th events.

A nation that is allegedly governed by laws cannot tolerate those laws being used in this fashion -- where they are molded, scripted and enforced only against those of specific political persuasion while those of other political persuasions are left alone.  SarBox was, as I argued at the time, perhaps not a bad law but it was an unnecessary law in that fraud is a criminal offense already and thus the question turns on being willing to bring the charges, not whether the conduct is a crime in the first place -- and the last 20 years have proved that the Government didn't really "mean it" in that it has almost-never been used when accounting tricks and other similar games are discovered.

I'm very interested in reading the opinion that comes from this case -- should the Supremes toss this "creative interpretation" depending on its scope it could in fact void a huge number of existing convictions.  The Court is generally rather uninterested in doing that sort of thing, and as such I don't really expect that outcome, but even a more-nuanced decision might well stuff, to some extent, that Genie back in the bottle.

We'll see.