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2024-06-12 08:41 by Karl Denninger
in Market Musings , 481 references
[Comments enabled]  

This is not a "cold" report folks....

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in May on a seasonally adjusted basis, after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment.

The unchanged was caused by a decrease in gasoline, mostly, which everyone has seen in advance.

But the index in rents and owners equivalent rent were both up 0.4% which would annualize to 4.9%, or 2.5x the Fed's "target" in these very large and unavoidable consumer expense.  Further, medical care (another mandatory expense for most) was up even more, up 0.5% on the month and what's worse is that prescription drugs were up 2.1% on the month which would annualize to more than 20%.

While the futures immediately spiked higher on the release if you think we're getting imminent rate cuts IMHO you're going to be dead wrong and what's much worse is that the immediate spike downward in the IRX/TNX ratio (more-deeply into negative territory) continues a now record long trend of said inversion.

The longer the markets continue to believe in that which there is in fact no evidence for, simply because at every turn rates have continued to inflate bubbles for the last 20 years along with the fiscal insanity in our government since 2020 the worse the eventual outcome when recognition shows up in said markets will be.

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2024-06-10 07:44 by Karl Denninger
in POTD , 203 references
 

 

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2024-06-10 07:00 by Karl Denninger
in Corruption , 310 references
[Comments enabled]  
Category thumbnail

Oh look what we have here!

In a dramatic turn of events that could have far-reaching implications for renters nationwide, the Federal Bureau of Investigation (FBI) conducted an unannounced raid on Cortland Management’s headquarters in Atlanta on Wednesday, May 22. This action is part of a criminal antitrust investigation by the U.S. Department of Justice (DOJ) into allegations that Cortland has been involved in a conspiracy to artificially inflate apartment rents. This raid is more than just a legal drama; it’s a significant development that could impact millions of renters, including those in Rhode Island, who have been grappling with soaring rental prices.

The allegations in this article are damning; the goal is allegedly to prevent landlords from "undervaluing" their properties.

Its a felony to collude between providers to restrain trade or fix prices.  Even the mere attempts counts; you don't have to succeed.  This is not a "fine" style offense either; it is a criminal felony carrying hard prison time.  You could be excused if you didn't know this in recent years since virtually nobody in the corporate world is ever prosecuted for this conduct over the last several decades -- but that law has been on the books for over a hundred years, and was put into place during the time of Standard Oil and other monopolists.

There are some economists who have claimed that cartel-like behavior is basically impossible to police in that someone will always defect and take market share by doing so.  That's a convenient fantasy unsupported by the facts.  Find me, for example, a hospital or doctor's office that takes said approach and forces the others to match their pricing or go out of business for lack of customers.  I certainly did in the 1990s with MCSNet and spent a lot of my time and mental firepower trying to figure out how to undercut competitors and most of that focus was on how to do more with less internally; that is, to advance productivity.  But that's hard -- it requires a lot of effort and of course its pretty easy to be wrong when you go down a path you believe will lead to lower costs -- and it doesn't.

What's interesting here is that the conduct in question dates back to well before the pandemic, allegedly originating in 2015, and the allegation appears to be linked to a private equity firm that also bought up and combined a competitor to RealPage's management and pricing systems.

Algorithmic pricing systems are nothing new and are legal as long as they're constrained to a single supplier.  There's nothing wrong with a vendor deciding to use such a system as "yield management" (as is often done by airlines or a trucking company) but when extended over more than one competitor it raises serious legal questions.  Our government has flat-out refused to look at obvious areas where this sort of collusive behavior is in clear evidence (health care being the most-outrageous, but hardly the only place) but apparently the runaway cost of housing and political backlash from it has finally overcome glad-handing refusal to enforce long-standing law.

Now if we could just get the FBI to be equally-interested in similar collusive practices between hospitals and insurance companies, or the buying up of doctor and dental practices by both hospitals and private equity firms that also lead to price escalations that are even more egregious than in the rental market.

After all you can move somewhere else but its quite a bit more-difficult to decide to shop around for a hospital while having a heart attack, isn't it?

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2024-06-07 09:11 by Karl Denninger
in Employment , 220 references
[Comments enabled]  

So sayeth the sooths at BLS....

Total nonfarm payroll employment increased by 272,000 in May, and the unemployment rate changed little at 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.

Chugging on we go but do note that "little changed", when looked at on a 2022 to today basis does have a positive slope.  Also note that historically 5% unemployment has been considered "normal" so no, that does not mean we should cut rates (never mind The Fed doesn't set rates; if you want to know where rates are going simply look at the IRX (13 week bill.)

Health care continued to roar in its consumption of GDP with 68,000 adds.  That's bad, not good.  But you won't hear that one anywhere but on this column.  It might be neutral if those 68,000 were all doctors and nurses, but they're nearly-all bill collectors of one form or another.

One important point is that transportation and warehousing is flat and, on an hours-worked basis, down slightly.  To expand the economy you have to move "stuff" and the amount of "stuff" is not moving at a greater rate.  On the other hand it also isn't falling off a cliff, so those who are looking for a sign of imminent rate cuts from that reason are not going to find it in this report.

There's not a lot else of note in here but on a 12 month rolling basis, adjusted for population, employment is down by 1.291 million and accurately reflected in the employment:population rate which fell two ticks last month to 60.1%.

The immediate reaction in in the term rate structure was for the 10 year to move up in rate by about 3% to 4.41% while the IRX was little changed (+0.05%), so the curve has headed back to less-negative.  The last few days have been particularly interesting in that regard as it appeared to be headed for a more-steep inversion after a three-day dive session, but today looks to have aborted that.

Bless your heart if you bought something financed at high interest rate and were sold on the idea that you'd be able to refinance lower in the coming months.  With this data, and the IRX being where it is, that's not going to be possible so I hope you can afford the payments as originally contracted.

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2024-06-06 07:00 by Karl Denninger
in Technology , 316 references
[Comments enabled]  

Even the mighty Elon Musk falls prey to it.

But emails written by Nvidia senior staff and widely shared inside the company suggest that Musk presented an exaggerated picture of Tesla’s procurement to shareholders. Correspondence from Nvidia staffers also indicates that Musk diverted a sizable shipment of AI processors that had been reserved for Tesla to his social media company X, formerly known as Twitter.

This sounds like a problem you'd love to have -- shift demand from one company you control to another that can use it right now, etc.

Except.... it isn't.

Why not?

Because while Moore's Law might in fact be at or near the limit the reality of technology pricing is unlikely to ever change.  It certainly hasn't in the consumer graphics card space, although there were times in the last four years that distortions got in the way -- and if you absolutely needed them then you had to buck up and pay.

But here's the basic problem with buying ahead of actual need: The price always goes down for a given capability over time; absent temporary distortions caused by various oddball things (like a pandemic and the supply chain disruptions that came with it) this is a story has never changed in over three decades.

And that makes things quite-dangerous for those who buy ahead because the person who buys after you, when the need is actually evident, winds up with the better, faster and often cheaper next generation -- and God help you if in addition (as is frequently the case) that also comes with lower power consumption which of course is a recurring, entire life cycle cost.

I had to deal with this in the 1990s with MCSNet and it was a serious concern with anything that I had to try to plan deliveries forward on.  Generally-speaking every one of those was a potential self-immolation event for the company because if you had a committed PO outstanding to some supplier and then the dislocation in price or new product came you were stuck with a higher cost of service than the other guy.

There are plenty of people who got it in the shorts with "Bitcoin mining setups" this way and for the same reason, but that was mostly a niche.  The AI craze is basically everywhere and thus the pratfalls are everywhere too., and those who clamor to be first but can't immediately deploy and make back the invested cost rapidly, certainly within a year or so of acquisition of the hardware are probably going to have happen to them what happened to people in the 1990s when Pentium 90s turned into Pentium 200s for less money and if you had a room full of the former while the other guy had the latter you got tattooed as his cost of operation on a space and dollar basis was half of yours.

(It has been even more-brutal in storage over the last 30 years.....)

I will be watching with quite some bemusement as this story continues to unfold.  While First Mover advantage is real that only works if you can immediately monetize the thing you are first with; if the "first" is a cost center but you can't recognize revenue from it until after the next iteration shows up you're at severe risk of being buried by the second guy who is a bit more-patient.

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