33.   When Dementia Replaces Meritocracy – Desperate Bets or Wise Investing?

We have a front row seat on and historic drama that is playing out on the global stage.  You thought I am talking about Trump versus the Department of Justice.  That historic drama is probably part of the J6 Democratic Socialists of America Show Trail which is appears to be the fourth step of the unrelenting abuse of Trump by the Marxists and mentally ill (pardon the redundancy) third Obama Administration.  It seems they are petrified of Trump exposing whatever they did from 2008 – 2016.

Actually, I am referring to what is happening in the global financial markets. Few folks outside of those markets are paying attention to what on the surface is confusing but if viewed correctly are ominous signals being sent by them.  The participants in those financial markets clearly expect events over the next 6 to 18 months to have an enormous impact on the global economy including the land market.

Several financial market participants have now separately stated that the Dollar value of all the financial assets in January 2022 was $140 Trillion.   In reaction to the combination of central banks increasing interest rates and the economic collapse of China, the value of numerous assets including commodities collapsed in June and July by an estimated $30 Trillion. That reduced the total assets in Dollars terms to $110 Trillion.   The effect of that collapse in total assets means that the collateral for an enormous amount of loans has vaporized.  Assuming loans equal to only 50% of those assets means that there are approximately $15 Trillion in non-performing loans in the global financial system.

For comparison, one of the reports stated that the collapse in total global asset values expressed in Dollars in 2008 was $6 Trillion.  You will recall that collapse in asset values triggered The Great Recession.  Obviously the 2022 collapse in global total assets values is 5 times larger than what occurred in 2008. 

While the Dodd Frank legislation has strengthened USA banks, it also penalizes them for making loans that grow their Balance Sheets.   A side impact is that American banks cannot provide liquidity to the market when it is in distress.  As a result, an unregulated shadow banking system has developed which is dominated by hedge funds.

This shadow banking system is where the drama is occurring. As a result, the global financial market players are forecasting that the ripple effects from the vaporization of $30 Trillion will cause a recession in the next 6 months that is so severe that it will result in our economy moving from a high rate of inflation to DEFLATION thus forcing The Fed to reduce interest rates in 2023.

Just as Lehman Brothers became the symbol of The Great Recession which originated in America, this economic event symbol will be China Evergrande Group and has originated in China.  While private real estate developers in China are the current target of Premier Xi’s effort to eradicate capitalism from China, they are simply the last of the string of industries he has successfully targeted.  His stated goal is “Common Prosperity”, (obviously excluding the ruling elite who have become the new owners of the destroyed companies). 

There are reports that in China privately owned banks are failing and suggestions the shutdown of cites is meant to warn citizens to not rebel or their bank assets will disappear.  Some of the commodity price collapses are being driven by Chinese companies liquidating their holding such as copper ore and aluminum.

My analysis is that China will devolve into a huge, heavily armed Venezuela that cannot feed its population.  A critical question is will that result then lead to China to pursue conquest?   Looking for a positive, it would mean that China will no longer rival the USA for the largest economy in the world, assuming we get some real American leadership in Washington. 

Add to this toxic mix, the economic turmoil in Europe.  Some reports on government actions in Europe give the impression that Europe is going into a “Economic and Climate Shutdown”.  Among the items I have read (unsubstantiated) include Germany turning off traffic lights, Hungary telling its schools to heat with wood, and other countries demanding citizens to only shower every other day.  The champion of idiocrasy is the countries seizing farmland from its owners to convert into solar farms.  They seem to value intermittent electricity even if they are starving.

America is currently led by an Administration comprised primarily of mentally ill individuals  busily demonstrating that they have no concept of reality because they are convinced:

1. They can tax us into prosperity.
2.  A minimum tax on corporations will not dramatically increase inflation by raising prices for their products.
3. To aid their efforts, they need to build an army for the Internal Revenue Service shake down the average taxpayer.
4. That tripling the cost of electricity is a benefit to the average American.

This week I read that Liz Cheney came into her current office with a net worth of $7 Million and has grown her financial net worth to $44 Million on a government salary. She is not alone.  But the next 18 months is where we will be able to quantify the impact of having people in leadership positions that are only interested in their own financial success. 

Does this remind you of Prince John in England during the Crusades. Do we need a Robin Hood?

Here are the two scenarios that I believe bracket the economy over the next 12-18 months:

1. If the financial markets are correct, we are in for a whipsawing, brutal 18 months.
2. While I do not know if the financial markets are investing wisely or making desperate bets, I do believe the confluence of events over the next 12-18 months will be painful. Here is a potential Black Swan – the financial markets are wrong, and all those investments are unwound at the same time. That would be like shouting fire in a theatre.

Numerous times I have shared with you my perspective that the USA is in the middle of a swirling maelstrom of multiple existential crises. With the American consumer already having to prioritize food and gas over other goods, the retailers are in the tank, and so is our economy. The next leg down is higher unemployment, then the housing market correction.  Remember my description of heading into the Bermuda Triangle during a category 5 hurricane on a little sailboat with a senile captain?  I was optimistic.

Our perspective on the land market remains that Grant Massie Land Company has had a fantastic year despite the number of tracts of land on the market being approximately 30% of normal but there is reasonable demand.  Commercial banks are getting cautious which is creating serious cross currents in the residential land development market.  Retail land is recovering from the pandemic, but buyers are value hunting. No one is inquiring about office zoned land. The Industrial Market is driven by land zoned for distribution centers – primarily 50-150 acres sites but even here we are finding some caution.

Please pray:

1. That God exercises his control over our government at all levels.
2. For the “Forgotten 599” surviving Americans being held as political prisoners by Biden and the Demented Marxists in hell hole conditions in the DC Gulag. 
3. For honest elections because without them we are not free.
4. For the valiant Ukrainians.

Let’s Go Brandon!

“For where there is envy and selfish ambition, there will also be disorder and wickedness of every kind”

(James 3:16)   New Revised Standard Version, Oxford University Press)

Stay healthy,

Ned 

August 18, 2022        

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