Commercial Loans and Fun Blog

Last week I blogged on whether Albert Einstein believed in God.  Einstein said, "I am fascinated by Spinoza's Pantheism."  Who???  A loyal blog reader, Tom Harrier, wrote and explained it to me.

God according to Baruch de Spinoza

When Einstein gave lectures at U.S. universities, the question students asked him most was: Do you believe in God? And he always answered: I believe in the God of Spinoza.

Baruch de Spinoza was a Dutch philosopher considered one of the great rationalists of 17th century philosophy, along with Descartes.  According to Spinoza, God would say: “Stop praying. I want you to go out into the world and enjoy your life. I want you to sing, have fun and enjoy everything I've made for you."

“Stop going into those dark, cold temples that you built yourself and saying they are my house. My house is in the mountains, in the woods, rivers, lakes, beaches. That's where I live, and there I express my love for you."

“Stop blaming me for your miserable life; I never told you there was anything wrong with you or that you were a sinner or that your sexuality was a bad thing. Sex is a gift I have given you and with which you can express your love, your ecstasy, your joy. So don't blame me for everything that others made you believe."

“Stop reading alleged sacred scriptures that have nothing to do with me. If you can't read me in a sunrise, in a landscape, in the look of your friends, in your son's eyes—you will find me in no book!"

“Stop asking me, ‘Will you tell me how to do my job?’ Stop being so scared of me. I do not judge you or criticize you, nor get angry or bothered. I am pure love."

“Stop asking for forgiveness, there's nothing to forgive. If I made you, I filled you with passions, limitations, pleasures, feelings, needs, inconsistencies, and best of all, free will. Why would I blame you if you respond to something I put in you? How could I punish you for being the way you are, if I'm the one who made you? Do you think I could create a place to burn all my children who behave badly for the rest of eternity? What kind of god would do that?"

“Respect your peers, and don't give what you don't want for yourself. All I ask is that you pay attention in your life—alertness is your guide."

“My beloved, this life is not a test, not a step on the way, not a rehearsal, not a prelude to paradise. This life is the only thing here and now—and it is all you need."

“I have set you absolutely free, no prizes or punishments, no sins or virtues, no one carries a marker, no one keeps a record.  You are absolutely free to create in your life. It’s you who creates heaven or hell."

Ooo, I'm in trouble now.  Haha!

Mortgage Banker Wealth is All About
Loan Servicing Rights.

“Live as if there is nothing beyond this life, as if this is your only chance to enjoy, to love, to exist. Then you will have enjoyed the opportunity I gave you. And if there is an afterlife, rest assured that I won't ask if you behaved right or wrong, I'll ask, ‘Did you like it? Did you have fun? What did you enjoy the most? What did you learn?’"

“Stop believing in me; believing is assuming, guessing, imagining. I don't want you to believe in me, I want you to believe in you. I want you to feel me in you when you kiss your beloved, when you tuck in your little girl, when you caress your dog, when you bathe in the sea."

“Stop praising me. What kind of egomaniac God do you think I am? I'm bored with being praised. I'm tired of being thanked. Feeling grateful? Prove it by taking care of yourself, your health, your relationships, the world. Express your joy! That's the way to praise me."

Hahahaha!

Is there a nice way to say, "You are brain dead
if you don't invest a lousy $29?"

“Stop complicating things and repeating as a parrot what you've been taught about me. Why do you need more miracles? So many explanations?
“The only thing for sure is that you are here, that you are alive, that this world is full of wonders.”

The above is what Albert Einstein believed.

For myself, I will keep praying and thanking God for this beautiful world and this wonderful life, with my lovely wife of 40 years and my three great kids.  I will continue to beg Jesus, in whom I believe, to please forgive me and advocate for me when it ends.  Heaven knows I am an unworthy bum.  :-/

Albert Einstein was once asked if he believed in God.  His answer was interesting:

"I am not an Atheist. I do not know if I can define myself as a Pantheist. The problem involved is too vast for our limited minds. May I do not reply with a parable?

The human mind, no matter how highly trained, cannot grasp the universe. We are in the position of a little child, entering a huge library whose walls are covered to the ceiling with books in many different tongues.

The child knows that someone must have written those books. It does not know who or how. It does not understand the languages in which they are written."

"The child notes a definite plan in the arrangement of the books, a mysterious order, which it does not comprehend, but only dimly suspects. That, it seems to me, is the attitude of the human mind, even the greatest and most cultured, toward God.

We see a universe marvelously arranged, obeying certain laws, but we understand the laws only dimly. Our limited minds cannot grasp the mysterious force that sways the constellations. 

I am fascinated by Spinoza's Pantheism. I admire even more his contributions to modern thought. Spinoza is the greatest of modern philosophers because he is the first philosopher who deals with the soul and the body as one, not as two separate things."

-- Albert Einstein (1879-1955), as mentioned in Glimpses of the Great by G. S. Viereck (1930), paraphrased in Walter Isaacsson's Einstein: His Life and Universe

I saw this analysis on LinkedIn or X recently, so I thought I'd share.  I can't find the author again to give him credit.  Sorry.

What happened to NY Community Bank yesterday? The stock was $10 in January, yesterday it dropped below $2 (an 80% drop from January). An investor group led by former Trump Treasury Secretary Steve Mnuchin injected $1B of capital, removed all legacy board members, and replaced the CEO Allesandro DiNello (who had the job less than a week) with Joseph Otting, former head of the OCC. The stock popped back up to ~$4 on the news.

This is a $100B bank, not some mom-and-pop shop. It's turning into a convention of ex-government officials too.

Plus, this isn't Mnuchin's first rodeo rescuing a failing bank. In 2009, with an FDIC assist, he swooped in and bought IndyMac. He eventually made hundreds of millions when he sold IndyMac to CIT Group. Which leads to the question: Why did this happen?

NYCB bought Flagstar in 2022. Flagstar has an excellent mortgage servicing platform with about $300B in loan servicing. This has a high value and can be sold; but if I'm understanding this correctly (please chime in if I'm misinformed), the fact that Moody's downgraded NYCB to below-investment-grade significantly limits their capital market flexibility.

Without an investment grade credit rating, banks aren't allowed to hold escrow balances for conventional or government loans. If that's true, I think they have to sell the Flagstar loan servicing business.

And why did they get downgraded?

NYCB's big problem is its $40B multifamily CRE portfolio, made up mostly of rent-controlled apartments. In 2019, Governor Kathy Hochul signed the Housing Stability and Tenant Protection Act (HSTPA) into law. Per Chris Whalen, "...all banks in New York that hold rent stabilized assets on the books are now considered impaired... several banks in New York City may fail as a result."

What did this rent control law do that is so onerous?

Well, I think the gist of it is this: if a renter leaves an apartment, the landlord has no right - no right - to raise the rent on that apartment for a new tenant more than 2%. The law prior to 2019 was a max 20% increase.

This law dis-incentivizes landlords from investing any capital to improve the look and feel of apartment buildings. They will just sit there and deteriorate, and drop in value.

Think about it: why would you put any money into an existing building if you can't pass on the expense into higher rents to new tenants? It's not worth it.

So it's a Law of Unintended Consequences situation. A law passed to benefit renters will slowly deteriorate living standards for renters. Investors will sell and leave NYC and move to a location where they have the freedom to pursue profits.

Puts the whole NYCB / Signature Bank situation in a new light, right?

I didn't write this article.  I found it on LinkedIn, and I am reposting it here, with the author's permission.

It took me a really long time to truly understand liquidity when it comes to investments. It's not just about cash balances in the bank, but about the ability and willingness to transact.

According to MSCI, apartment/multifamily sales volume fell to $119 billion last year, a 61% drop from 2022. That shows a lack of liquidity in a market which recently saw as much as $300B of volume in 2021/22.

Needs a $13MM bridge loan.  Contact me.

To put that into perspective, the coming maturity wall (which has gotten worse with extensions, by the way) is up to over $900B. Let's assume that multifamily makes up the same % of this volume as it does CMBS, which is about 35% (this would be a hypothetical assumption in an appraisal). That would mean ~$315B of multifamily loans are to mature in 2024, and assuming a 65% LTV, that's about $450B in estimated value of multifamily assets maturing.

Right now, cap rates AND interest rates are significantly higher than they were for nearly all of these maturing loans at origination, and many do not qualify for a new loan at "market" terms. If only 50% of that maturing loan volume needs to trade via sale, that would mean that transaction volumes would need to double in 2024 to work through the backlog, without even accounting for everyday sales like those caused by 1031, death, divorce, or disaster.

When you have a rush of inventory and folks looking for the exit, that's when prices really drop due to lack of liquidity. I think that this is the single biggest risk in CRE today, especially given the new data on 2024 maturities increasing nearly 50%. I am not personally confident that cap rates and interest rates can or will drop in time to avoid this type of outcome.

How can an asset owner avoid being burned by this? Buy cash flowing assets from day 1 (hard in this environment), don't take on maximum leverage, and build or maintain cash reserves that would enable you to refinance at current market interest rates and leverage. It may not be the most efficient way to run a business, but being in real estate investing is not a finite game.

Written by Dillon Freeman, LBC Capital - 818-648-9470

You need to follow me on LinkedIn.  I am posting important news daily.  I posted this yesterday:

Russia may have placed nuclear EMP devices in space over the U.S. If exploded 75 miles above, almost every electric device in the country would be fried. Most of us would die in 18 months from starvation, disease, and crime.  Our National Security Advisor is... "quite concerned."  (Folks, he is freaking out.)

The United Kingdom has recently reported increasing cases of humans dying of Mad Cow Disease.  In humans, the disease is called Creutzfeldt-Jakob disease (CJD).

Creutzfeldt-Jakob Disease (CJD) is a devastating brain disorder that manifests in rapid progression, causing distinct alterations in brain tissue and severely impacting muscle coordination, cognitive abilities, and memory.  With an estimated annual incidence of approximately 350 cases in the United States, CJD remains a significant concern in the field of neurology.

Abnormal proteins called prions accumulate in the brain, causing irreversible damage and impairing the normal functioning of neurons. This disruption in neural activity results in the characteristic symptoms of CJD, including difficulty with muscle coordination, confusion, memory loss, and changes in behavior.

One of the most distressing aspects of CJD is its rapid progression. Unlike other neurodegenerative disorders, this condition swiftly advances.  Complete dementia usually occurs by the sixth month, and death follows quickly.

Do any of you old football fans remember Lyle Alzado?  He was a 6'5" defensive end for the Oakland Raiders in the late 1980's.  He was a monster who couldn't be stopped.

Alzado took human growth hormone injections in order to get even bigger.  The problem was that the hormone was taken from cows, and many of them were infected with Mad Cow Disease.  

Alzado contracted CJD and was dead within a year.  I remember that he came on a talk show with his brand new bride.  She had to do most of the talking because he was already losing it.  They explained that there was no cure for these horrible prions.  Despite being newly-wed, he was a dead man walking.  It was pretty sad because she clearly loved him.  

The thing about prions is that you can't kill them.  They are not alive - not even in the sense of a virus.  They are merely a protein that twists to the right rather than to the left.  (Gross oversimplification.)

Apparently "twisting to the right" is what "all the cool kids are doing," so if a prion-infected brain cells rests next to a healthy cell, the healthy cell twists to the right too.  Each time brain cells multiply, the infected cells touch even more healthy cells.  Soon everyone gets Reefer Madness.  (Haha!  From an anti-marijuana movie in my school days.)

CJD is very difficult to treat, but if you catch it earlier enough, surgeons can carve out a huge chunk of your brain.  You're left severely impaired, but at least you're alive   (as saliva drips down my chin.)

The hospital has to throw away the surgical instruments because no amount of heating or chemical treatment can "kill" the prion.  You can cook them at 600 degrees, but it doesn't help.  The next patient that falls under that particular knife dies of CJD.

The use of human growth hormone continues to this day.  My precious Cisca and I were considering using it on my shortest child, but she talked me out of it.  "Let them experiment on someone else's child."  

Three years later, we read that every child - about 250 of them - that got human growth hormones injections died.  Yup.  I know.  I have a very smart and wonderful wife.

Anyway, a lot of old people are dying in Britain right now from what is originally diagnosed as Alzheimers, but which is in fact CJD.  

If you are exposed to CJD as an adult, when your brain cells are growing more slowly, you can sometimes live with CDJ for decades.  These folks in Britain who are being incorrectly diagnosed as Alzheimer's victims are actually victims of CJD.  They probably got it from eating contaminated beef.  Fortunately this is not terribly common.

You will recall that, almost 20 years ago, British cows were being fed bone meal made from cows who had collapsed from Mad Cow Disease.

I saw an advertisement on LinkedIn this week where a lender was tying his interest rate to SOFR.  Look in the lower left-hand quadrant of the Stabilis ad below.  Do you see where it says, "Starting Rate SOFR + 5.49%?"

What on Earth is SOFR?

SOFR stands for the Secured Overnight Financing Rate.  It may sound like a complex financial term, but it is actually a significant development in the world of interest rates. In simple terms, SOFR is a benchmark rate that is used to determine the cost of borrowing cash overnight, collateralized by Treasury securities.

Unlike the traditional benchmark rate, LIBOR (the London Interbank Offered Rate), which relies on the expert judgment of panel banks, SOFR is based on data from actual transactions in the marketplace. This shift from subjective judgment to objective data is aimed at increasing transparency and reducing the risk of manipulation.

SOFR is replacing LIBOR because LIBOR broke down about ten years ago.  During the global financial crisis in 2008, European banks became so worried about their own and each other's solvency that they refused to lend to each other, even on an overnight basis.

What Went Wrong With LIBOR?

The London Interbank Offered Rate, or LIBOR, had been the go-to benchmark rate for commercial real estate lenders for decades. However, the global financial crisis in 2008 led to a breakdown in trust and a severe lack of liquidity in the interbank lending market.  

This lack of lending activity caused a significant problem for LIBOR, which is calculated based on the borrowing rates submitted by a panel of banks. With banks being hesitant to lend, the data used to determine LIBOR became unreliable and subjective.

The crisis revealed that LIBOR was vulnerable to manipulation and lacked transparency. The rates submitted by the panel banks were based on their own judgment and could be influenced by various factors, including their own financial health or even market pressures.

In response to the crisis, regulators and financial institutions recognized the need for a more robust and objective benchmark rate. This led to the development of the Secured Overnight Financing Rate (SOFR), which is based on actual transactions in the marketplace.

Unlike LIBOR, which relied on the subjective judgment of panel banks, SOFR is calculated using data from observable transactions in the repo market. These transactions involve borrowing cash overnight and using Treasury securities as collateral. By using real transaction data, SOFR provides a more accurate reflection of the cost of borrowing cash overnight.

Note:  The data doesn't come primarily from interbank lending, so if the banks freeze up and interbank lending dries up, the regulators can still compute SOFR.

When To Use Blackburne & Sons:

Blackburne & Sons Realty Capital Corporation is a 44-year-old commercial hard money lender based out of Sacramento, California.  Unlike other hard money shops, which only make bridge loans, we make 15-year loans with a 30-year amortization.  There is no prepayment penalty, so our loans are perfect for your bridge loan needs; But... your client will never have a balloon come due during a bad recession.

Our specialty is making small hard money loans on junky little commercial properties in the Boonies.  

We will also finance politically-incorrect properties, such as cannabis properties and gentlemen's clubs.  We once financed the World's Largest Female Mudwrestling Palace in Los Angeles.  The loan paid like clockwork.  This month we are working on a drag show bar.  

The next great regression is well past due.  Maybe a bitcoin blowoff?  Look around.  All of those hard money mortgage funds with whom you work?  Over 90% of them will be out of business within months of the next crash because they charge their investors only 1% for loan servicing.  It will take a management fee or servicing fee of 3% to 4% for them to survive.

The S&L Crisis wiped out 90% (100%?) of all hard money funds.  A new generation of funds arose, but the Dot-Com Meltdown wiped out 90% (100%?) of them.  Another generation of hard money funds arose, but the Great Recession wiped out 90% (100%?) of them.

In contrast, Blackburne & Sons instantly puts together a new syndicate of private investors to fund each deal, so we are not reliant on the health of some fund.  Blackburne & Sons is the only hard money shop that can boast that it was in the market every day of all three great recessions.

You need to develop a relationship with Alicia Gandy, our Loan Goddess, or with George IV, my oldest son.  Success in commercial mortgage brokerage is all about relationships.

Get one short lesson or joke every day.

What is a NAV Loan?

A NAV loan, also known as a Net Asset Value loan, is a specialized type of loan that is based on the value of the assets in a fund's or individual's investment portfolio.  These assets might include mortgages, stocks, bonds, and equity interests in companies.

NAV loans allow fund sponsors (the guys who raised the money in the fund and manage it) and individual borrowers to leverage the value of their investments to obtain financing for various purposes.  

For funds, this might mean buying more assets for the fund or buying out investors or retiring partners.  For individuals, this might mean purchasing real estate, starting a business, or funding education expenses.

Unlike traditional loans that require collateral such as a house or a car, a NAV loan uses the borrower's investment portfolio as collateral. The lender assesses the value of the portfolio and provides a loan amount based on a percentage of that value. Obviously, the bigger and more successful the investment portfolio, the more the sponsor or borrower can borrow.

One of the key advantages of a NAV loan is that it allows borrowers to access funds without liquidating their investments. This can be particularly beneficial for individuals who want to maintain their investment positions or avoid incurring capital gains taxes. By using their investment portfolio as collateral, borrowers can continue to benefit from potential investment growth while still obtaining the financing they need.

Another advantage of NAV loans is that they often come with competitive interest rates. Lenders are more willing to offer favorable terms and rates due to the reduced risk associated with the collateral. Additionally, NAV loans typically have flexible repayment options, allowing borrowers to customize their repayment schedules based on their financial circumstances.

It is important to note that NAV loans are typically only offered to individuals with substantial investment portfolios. Lenders may have minimum requirements in terms of the value and composition of the portfolio. Additionally, borrowers should carefully consider the risks and potential drawbacks of using their investments as collateral, as market fluctuations can affect the value of the portfolio and impact the loan terms.

Who Makes NAV loans?  

NAV loans are typically offered by financial institutions, such as banks, credit unions, and specialized lending firms. These institutions have the expertise and resources to assess the value of investment portfolios and provide loans based on that assessment. They have dedicated teams that understand the intricacies of NAV loans and can guide borrowers through the process.

In addition to traditional financial institutions, there are also alternative lenders that offer NAV loans. These lenders might include private equity firms, hedge funds, or other investment firms that specialize in providing financing options to individuals and funds.

I am sharing some GREAT stuff on X.

You probably have money invested in the stock market.  You need to listen for the words, "deflation" and "China."  The moment you hear these words, you might want to stop and pay attention.  These words are important to your stocks.

If China enters a disinflationary or deflationary slowdown, bad things could happen.  Disinflation is not the absence of inflation.  Disinflation is merely a slowing in the rate of inflation.

Isn't disinflation good?  Certainly a voluntary disinflation can be good.  The U.S. is enjoying disinflation because the Fed is voluntarily reducing its portfolio of bonds.  As private buyers snatch up these old Treasury bonds and mortgage-backed securities, they take money out of some bank to pay for them.  This reduces the money supply and inflation.

But there is another kind of disinflation - the involuntary kind.  Involuntary disinflation and outright deflation occur when investors get scared.  They stop borrowing, and they stop spending.  They start paying down their debt faster, and they start hoarding money.

This crushes the money supply of the country because the multiplier effect works in reverse.  If a single borrower pays off a debt of $1,000 - the money supply of the entire country declines by $10,000 (a multiplier of ten).

Disinflation and deflation also have a psychological effect.  Why buy a car today when the price of the same car won't be much higher next year?  Your existing car can last another year.  Why buy or invest in a condo if the value of the condo is only going to be lower next year?

As investors and consumers put off their major purchases, home builders will be forced to reduce their rate of construction.  Car companies may have to reduce their number of shifts.  Both types of companies may have to start laying off workers, which means ever fewer potential buyers.

Deflation terrifies economists and politicians
because it is self-feeding.

The more deflation, the more layoffs, the more fear, the more deflation, and the more layoffs.  During the Great Depression in the 1930's, the Federal government had a near-impossible time trying to stem the deflationary vortex.  The only thing that "saved us" was gearing up for World War II.

The Point of Today's Article:

I had an epiphany last night.  I had been listening to a Youtube video describing China's economy as sluggish.  This is surprising considering that 1.4 billion people had been locked up in their homes for three years.  

When these folks were finally unleashed, one might have thought that their economy would explode with activity.  Nope.  Their economy is doing better than during the COVID years; but it appears unlikely to surpass that of the U.S. any time soon.

What's going on?  Why is China's prodigious growth rate slowing?  The standard answer is that China's real estate bust destroyed a lot of wealth.  They built too many homes that will never be occupied.

Their banking system is also in serious trouble because it has a trillion dollars invested in mortgage loans and in loans to near-bankrupt real estate developers.  I heard that one of China's five largest banks is limiting withdrawals because, among other things, many mortgage borrowers are refusing to pay their mortgages.  The homes that they paid for never got built.

Because China's banks are taking massive losses, they are also reluctant to make new business loans.  This chokes off the formation of new businesses.  But I think there is even a bigger reason why the Chinese economy is slowing, and this was my epiphany.

When President Xi threatened an imminent world war
to re-take Taiwan, he scared the poop out of the Chinese people.

(Please read the above again.)

As a result, the Chinese people have reduced their spending, postponed large purchases, reduced their debt, and began hoarding money.

Now we have all heard how Xi's threats have so frightened international business owners that they have stopped opening up new manufacturing plants in China.  If a company with operations on the Chinese mainland makes a profit these days, that profit is immediately repatriated back to the home country, rather than being re-invested in expansion in China.  

U.S. Commerce Secretary Gina Raimondo said U.S. companies have complained to her that China has become “uninvestable,” pointing to fines, raids and other actions against firms that have made it too risky to do business in the world's second-largest economy.  This capital flight has clearly slowed China's meteoric growth; but far more importantly - 

I think that fear of the future is causing
the Chinese people to hoard their money.

I post insights daily on Twitter or a hilarious joke.

The Chinese middle class and up-middle-class is huge - 707 million as of 2018.  If many of them are putting off large or discretionary purchases in order to to squirrel away money to survive a war, that's a whole lot of nuts.

Every month, President Xi or one of his admirals threatens war against Taiwan and the U.S.  Those threats have recently expanded to include Japan, the Philippines, South Korea, and Vietnam.  I think most Chinese people believe him.

China's economy is slowing because its people
are basically preparing for a famine.  

The Chinese invest 70% of their savings in real estate, and real estate values in China are falling sharply.  The CCP has recently injected $1.3 trillion into their giant home builders - Country Garden and Evergrade - to help them complete many of their unfinished homes.

Chinese billionaires have long since moved their money and their families off-shore. With a possible war coming, foreigners are fleeing China, and they are taking their money with them.  Consumer spending is lackluster, and it is falling from fear.  

At a minimum, China is facing a deflationary recession.  Just like a pandemic, this deflationary slowdown will not be confined to Chinese shores.  Will it deteriorate into a full-blown Chinese depression?  It happened in Japan in 1990, and the Lost Decade became thirty years.  

Your stocks may be affected.  So pay attention.  You do NOT want to hear deflation and China mentioned in the same sentence.

Ancient Egyptian texts talk about the Sea Peoples.  “They came from the sea in their war ships, and none could stand against them.

The Sea Peoples were a confederacy of naval raiders who harried the coastal towns and cities of the Mediterranean region between c. 1276-1178 BCE, concentrating their efforts on Egypt.  They are considered one of the major contributing causes to the Bronze Age Collapse.

Perhaps the Sea Peoples were the cause of the First Great Migration Period.

The arrival of the Huns in Europe in 375 is considered the beginning of the Second Great Migration Period.  This migration period is said to have ended in 568 A.D.  

The Huns were a fierce nomadic people from Steppe.  The Steppe was that vast plain of grasslands that stretched from outer edges of the Chinese empire in the East and then West across Russia, Ukraine, Poland, and eventually Hungary.  The Steppe people lived and fought on horseback, herding sheep and horses for a living.  They did not grow crops, but they instead traded with the “dirt eaters” (farmers) for grain.

Normally, the Steppe tribes were busy fighting and killing each other.  They used the same fighting strategy again and again.  They would attack the enemy Steppe horsemen.  The enemy would then counterattack them.  The original attackers would feign terror and run like Hades, shouting something like, “The Russians are coming.”  Once the enemy had chased them miles from their own lines, the original attackers would stop and spring their ambush.

How many times did Lucy taunt Charlies Brown into trying to kick the football?  As soon as poor Charlie tried to kick the football, Lucy would always move the ball away.  Poor Charlie would kick, miss, and fall on his butt.  And just like Charlie Brown, horseman never seem to learn.  

Interesting story:  The grandson of Genghis Khan tried to invade the Holy Land, and the Mamluks (Egyptian slave soldiers) pulled the same trick on the Mongols.  The Mamluks wiped out the entire Mongol horde, almost to a man.  Hellooo, you guys on horses:  Lucy is going to move the football!

But let’s go back in time 800 years to the Huns again.  The Huns brought with them a high-tech military weapon - the HIMARS high mobility rocket launcher system.  Oops.  Wrong war in the Ukraine.  The Huns actually brought with them the composite bow, which they wielded from horseback and which could easily pierce shields and armor. 

The Huns decimated any army of armored foot soldiers that tried to stand against them.  Tribe after tribe of barbarians was forced to flee from the Hunnic onslaught.  Eventually, all of Eastern Europe was on the move.  The Second Great Migration Period had started.

A huge migration of Alans, Suebi, Goths, Visigoths, Germans, and Slavs tried to cross or successfully crossed the Danube River into the Roman Empire.  The parallels with the U.S. are uncanny.

Folks, the Third Great Migration Period has begun.  Playing the role of the Huns this time is global warming and rising sea levels.  I’m exaggerating, but the highest point in Bangladesh is about two inches above sea level.  There are bazillions of Bangladeshis, who seem like perfectly nice people.  When they can no longer tread water and climb onto boats in search of a new home, where are they going to go?

I’m not crazy about the idea of the U.S. accepting a bunch of Gazan refugees; but what about a ship containing a nice Bangladeshi family, with a loving dad and mom and three kids, where the dad practices soccer with his sons every night after work?  , But what if that Bangladeshi refugee ship makes it to the U.S.?  Certainly, we have a ton of room, and the U.S. could easily feed a billion people.  

But the folks in Bangladesh are Muslim, and sooner or later they will be calling for Sharia law.  Sharia law is is fundamentally inimical to democracy.

So what do we do?  Riddle that overloaded ship from Bangladesh with bullets and let these good folks drown?  That can’t be the answer.  Do we put armed robots on our Southern border with instructions to shoot intruders on sight?  A robot would have no trouble shooting a precious little baby and its loving mother.  

This is a Christmas Letter that offers no solutions.  “Holy Mackerel, George, you choose this as the subject of your Christmas Letter?  Maybe we ought to put you in a leaky wooden boat…”

Merry Christmas, everyone.  

I try to post a cute joke or an interesting tidbit on Twitter every day.

I have a new Commercial Loan Tip for you further down.  Feel free to skip there.

Joke Du Jour:

A man asks a farmer near the field, "Sorry sir, but would you mind if I crossed your field instead of going around it?  You see, I have to catch the 4:30 PM train."  The farmer says, "Sure, go right ahead.  And if my bull sees you, you'll even catch the 4:00 one."

Treasuries Are No Longer the Risk-Off Asset - Very Disturbing:

Something momentous happened in the financial markets this week, and no one noticed.  Gold suddenly became the flight asset of choice for worldwide investors.  The former asset of choice was U.S. Treasuries.

As Hamas terrorists inflicted horrible tortures on Israeli civilians, gold soared from $1,806 per ounce two weeks ago to $1,993 as of Friday.  That’s hardly a big deal in times of geopolitical crises.  Most times when there is some crisis, gold goes up.  

This time, however, U.S. Treasuries went down (the yields went up).   The Treasury had to raise rates even higher to sell out its latest auction.  Normally, when world investors are frightened, they flock to the perceived safety of U.S. Treasuries, and Treasuries increase in value, and yields fall.  Now, not so much.  

This is hardly surprising.  The Japanese used to be the biggest consumers of U.S. Treasuries.  Nowadays, Japan seldom buy U.S. Treasuries.  China has become a net seller.  

Mohamed El-Erian wrote in the Financial Times words to the effect that the U.S. Treasury no longer controls and dominates the long-term bond market (what El-Erian calls “footing” or “anchoring”), and it is in danger of losing control over the short-term bond market as well.

Currently, long-term Treasury yields are hovering near 5% amidst a massive US bond sell-off, due in part to a strong US economy that will require extended tightening to further rein in inflation.  This also comes as the US ran a $1.7 trillion deficit in fiscal year 2023, with the Treasury Department issuing a massive supply of bonds.

The goal of every mortgage broker should be
to become a mortgage banker.  

With the Fed now shrinking its balance sheet, he asks who will buy our bonds?  High rates are attracting some new investors, especially households; but the continued resilience of the bond market (the presence of hungry buyers) is not something investors should take for granted, he warned.

Noted economist, Peter Schiff, recently expressed concern about long-term U.S. Treasuries and suggested gold as the new safe asset for investors.  “Right now, one of the riskiest financial assets is long-term U.S. Treasuries.  But for the past several decades, they’ve been the go-to, risk-off asset.  Investors need a new safe-haven asset, and the only one left standing is gold.”

What does “risk-off” mean?  During periods when risk is perceived as low; i.e., risk-on, investors tend to engage in higher-risk investments.  When risk is perceived to be high; i.e., risk-off, investors have the tendency to gravitate toward lower-risk investments.

Commercial Loan Lesson - Loan Constants:

In the old days, when no one had cell phones or even hand-held calculators, how would you calculate your loan client's expected payments?  

Fannie Mae would use its big "supercomputer" to calculate the monthly loan payment on a loan of exactly $1,000 over 30 years at the new interest rate.  Your loan origination manager would announce that, "Fannie Mae just went up to 4%.  The new loan constant is 4.77." 

In other words, if you paid for $4.77 every month for 30 years on a 4% loan, you would pay it off in full.

So if your client was applying for a $16,000 loan, you would simply multiply the loan constant by 16.