14 November 2019

The Asymptote of Progress - part the sixteenth

Brrrr!! Baby it's cold outside.

Yet another bit of reporting on the effects of hitting the wall of Progress. You read about it here first; just not the reporting.
Recently regulators have become especially concerned that insurers have been loading up on a kind of investment known as collateralized debt obligations, or C.L.O.s for short. C.L.O.s are mortgages and other loans that have been packaged into securities. They bear ominous similarities to the securities that helped cause the 2008 financial crisis.

This is what happens, as you learned in your Econ 101 class (you did take that class, right?), that The Law of Supply and Demand really does exist, even if/when the levers of Mr. Market are obscured. The CxO class still hasn't found profitable ways to deploy fiduciary capital into physical capital. So they go chasing Treasuries or, in this reporting, they're so desperate to cover unfunded insurance liabilities (which Gummint Bonds used to take care of) that they load up on any kind of trash that 'promises' them the needed moolah. Good luck with that. There was a recent NYT piece (and elsewhere if you'd rather) on the China problem: way too much real estate development, both residential and commercial. Reporting on the problem goes back years. The current situation is the cancer recurring. Real estate is a non-producing asset; the only way to make money from it (both commercial and residential, in fact) is if the tenants/owners have sufficient excess cashflow to float the notes. And for that to happen residents have to have better paying employment today than they did before buying, and businesses have to have growth driving their cashflow. Unlike a spiffy new kind of machine which is X% more productive, and fills large unmet demand for the widgets it makes. That's how capital really makes money, rather than just taking it from sources that actually make money.

TIAA has been hawking its annuities in TeeVee adverts recently, promising 'guaranteed' income for life. Just buy our annuity!! Just one bad court case from vanishing. Poof, there goes your 'guaranteed income'. As with any private sector annuity.

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