January 26: Daily Contrarian Reads

Behold! An Honest Politician—-OMB Director Mulvaney Promises To Tell Trump The Truth On Entitlements

President Donald Trump’s pick for budget director, Mick Mulvaney, said Tuesday the nearly $20 trillion national debt needs to be “addressed sooner rather than later” and that he would push Trump to break his campaign promises and cut Social Security and Medicare. Mulvaney, a Republican congressman from South Carolina, told senators at his two confirmation hearings that he would “tell the truth” to Trump about the need for entitlement program changes. He said without doing something soon, the Medicare and Social Security trust funds could go bankrupt.

Mall Owners Rush For The Exits As Mall-Backed CMBS Defaults Soar

Last week we wrote about the epic collapse of the Galleria Mall at Pittsburgh Mills which sold for $100 after once being appraised for $190 million shortly after being opened in 2005.  Unfortunately for mall owners, while the Pittsburgh Mills Galleria is an extreme example, crashing mall valuations are hardly an anomaly these days.  In fact, just a few weeks ago Commercial Real Estate Direct wrote about the Foothills Mall in Tuscon, Arizona which was valued at $115mm in 2006 and backs a $75mm CMBS loan but recently appraised for just $18mm…or just a slight 75% loss for lenders. As pointed out by the Wall Street Journal earlier today, mall CMBS defaults are up all across the country with liquidations up 11% YoY.

Randolph Bourne Immortal 1918 Essay: “War Is The Health Of The State”

With the shock of war, however, the State comes into its own again. The Government, with no mandate from the people, without consultation of the people, conducts all the negotiations, the backing and filling, the menaces and explanations, which slowly bring it into collision with some other Government, and gently and irresistibly slides the country into war…….Wartime brings the ideal of the State out into very clear relief, and reveals attitudes and tendencies that were hidden. In times of peace the sense of the State flags in a republic that is not militarized. For war is essentially the health of the State…..

Tech Bubble Redux—-San Francisco Commercial Leasing Down 43% Last Year From 2014

Despite a flurry of leases to end the year, 2016 was the weakest year for transaction activity since 2009,” said Colin Scanlon, Research Manager, at Savills Studley, in the report on the San Francisco office sector. “Anemic demand and a deep pool of sublet space have finally brought rental rate growth to a halt.” For the year 2016, new leasing activity dropped to 5.3 million square feet (msf), the weakest annual total since 2009, down 34% from the long-term annual average of 8.0 msf and down 43% from glory year 2014.

Farewell, Welfare State—–Entitlements Will Devour It

Now, explained former Fed Chairman Alan Greenspan in his private conversation with us here in Baltimore a few days ago, entitlements are out of control. The system set up by German Chancellor Otto von Bismarck in the 19th century is going broke.  According to this chart, entitlement spending plus interest expenses will consume all tax revenues by 2033. A similar estimate made in 2007 predicted that this point would only be reached in 2052. The above is the most recent estimate we could find in chart form, but it is outdated already: more recent estimates are pointing to 2025, a mere 8 years from now. In other words, as of 2025, every cent of discretionary government spending will have to be borrowed (or printed by the Fed).

Trump and the Senate Neocons Are Headed for War on Russia

When Rex Wayne Tillerson presented himself before the Senate Foreign Relations Committee, one thing became perfectly clear: when it comes to America’s dealings with Russia, the Republican establishment is gearing up to fight Trump’s Russia “reset redux” tooth and nail. At his hearing, Tillerson met a fiery response from senators who expressed disgust over his ties to Russia’s Vladimir Putin. Tillerson came under particularly harsh scrutiny from Marco Rubio, who grilled the Secretary of State nominee over Russian involvement in the Democratic Party hacks and was “troubled” by Tillerson’s reluctance to support automatic sanctions against nations accused of launching cyberattacks against the U.S.

Neiman Marcus Bond Collapse Points to More Sinkholes In Junk Bond Land

It’s been a bad couple of months for Neiman Marcus. The luxury department store reported plummeting sales and a bigger loss than analysts expected. It then scrapped plans for an initial public offering. Meanwhile, it has a higher amount of debt relative to earnings than its competitors, has a low credit rating and relatively little real estate to sell in a pinch. So it’s not surprising that the company’s bonds have been losing value. But the already beaten-up Neiman Marcus notes plunged substantially further on Monday without an obvious explanation. While prices on bonds maturing in 2021 had dropped more than 19 percent from Dec. 12 through Friday, they fell an additional 6.7 percent on Monday for the biggest one-day loss in more than a year.

The 2017 “Davos Consensus”——More Welfare and Warfare

It’s a big club and you ain’t in it!” I often think of these words, spoken by the great comedian George Carlin, when I read about the World Economic Forum meeting in Davos, Switzerland….. short, it’s a bunch of out-of-touch, self-anointed elites meeting to hand down from above their uniformly bad “solutions” to the world’s problems. Then they pat each other on the back for all the good they’re doing. No matter the problem, their prescription is always more welfare, more warfare, more money printing, more taxes, and of course, more centralization of power into global institutions. Interestingly, Donald Trump has never been invited to Davos. But his many opponents surely have.

Reflation—-The Mirage Lives On

It has been out of hand for some time, but the longer it goes the further from sense it can get. Today’s news is apparently about a bipartisan effort for $1 trillion in “stimulus”, as if the last $1 trillion in “stimulus” had never happened. Apparently eight years is enough for memories to have been expunged, or as if IRS rules about keeping documents only seven years applies here. “Reflation” has always contained in the majority the form of dreams, ideas, and fanciful imagination, each always with an expiration date because at some point reality has to be factored if it hasn’t already rudely interrupted.

James Mill, David Ricardo And The Triumph Of Free Trade

This was challenged by a number of political economists, of whom the most important were Robert Torrens, James Mill, and David Ricardo. James Mill (1773-1836), in his Commerce Defended (1808) reminded his readers that individuals and nations only trade with each other when the costs of making something at home is greater than purchasing it from another in a different location or foreign land……. In 1836, the Anti-Corn Law Association was formed in London, which in 1839 was renamed the Anti-Corn Law League in Manchester. For the next seven years, under the masterful and powerful leadership of Richard Cobden and John Bright, the league fought unstintingly for the repeal of the Corn Laws and for the establishment of total free trade in the British Empire. Throughout the cities, towns, and villages of Great Britain, Anti-Corn Law League chapters were opened. Hundreds of thousands of dollars in voluntary donations were collected to fund rallies, meetings, public lectures, and debates. The league organized a vast publishing campaign of books, monographs, and pamphlets advocating the repeal of all protectionist restrictions and the freeing of all trade and commerce from government controls.