The Fed raised interest rates by 0.25% on Wednesday to a range of 4.75-5.00%. The upper range of that bound is now 20 times what it was a mere 12 months ago. Rapidly rising rates were always going to put pressure on various sectors of the economy that have benefited from cheap money for the last decade plus (that’s kind of the point). We’ve seen it with startups who scored cheap equity financing a couple years ago that are now having trouble raising up rounds. We’ve seen it with families no longer being able to afford mortgages that are as large (with monthly interest payments almost tripling), resulting in a housing market slowdown. We’ve seen it with the regional bank runs that declines in the values of banks’ bond portfolios have sparked.
The question is now which sector is going to be the domino that tips the economy over the edge into a recession? Commercial real estate seems to have arisen as the most likely candidate, with falling tenancy rates combining with a lot of maturing loans that are coming up for refinancing at today’s much higher rates appearing as storm clouds on the horizon.
We had our third prolonged power outage this year. Again on a Tuesday. An extra-tropical cyclone parked itself just off the coast of San Francisco causing more fallen trees and localized flooding. Power was out for us for about 30 hours, and we ended up spending yet another night in our hotel. We now also have a great view into our neighbor’s back yard because most of our fence is gone. And next Tuesday the forecast is for another period of “excessive rainfall with localized flooding”. Sigh.
Last week, I wrote about the fallout from a protest incident at Stanford Law School. This week, SLS Dean Martinez penned a detailed explanation of why she did what she did. It’s a well written missive, and I agree with almost all of it. However, I had two observations. The first is the practical impact of deciding not to sanction anyone for their behavior, ostensibly because it was too hard to figure out who was breaking policy and who was not. Everyone is instead going to have to sit through a mandatory training. Will this mean that a future protest tactic is to flood a talk with bodies because it’s just too hard to identify who was doing what? The second is that the letter only mentions in passing something about respectful discourse. The letter also expressly notes that asking vulgar and provocative questions when you’re given the microphone is ok and not disruptive. That may be true from the point of view of free speech, but as lawyers, respectful argument is part of the job and—normally—a positive value to encourage. (Try spewing profanities at a judge in court and see how far that gets you.) One protester allegedly called for the judge’s daughters to be raped.
“Our world needs climate action on all fronts—everything, everywhere, all at once,” said UN Secretary-General António Guterres in a speech on Monday. He was referencing an IPCC report which once again is warning we’re nearing the point at which it will not be possible to avoid a rise in the global average temperature by the end of the century of a magnitude that will cause severe human misery. “Unless nations adopt new environmental policies — and follow through on the ones already in place — global average temperatures could warm by 3.2 degrees Celsius (5.8 degrees Fahrenheit) by the end of the century, the synthesis report says. In that scenario, a child born today would live to see several feet of sea level rise, the extinction of hundreds of species and the migration of millions of people from places where they can no longer survive.” It’s going to be a slow burn, but wild weather is going to be increasingly common, and difficult to adapt to in our lifetimes, regardless of where you live in the world.
For those who have the fortune of being able to decide where they want to live and work in the world, I think climate factors are going to rise to one of the top considerations within the next couple of decades. Not just whether the weather is “nice”, but whether that cliffside house or oceanfront view is such a good idea, or whether 100 year flood zones really are 10 year flood zones, or whether water scarcity might be a real problem.
Deal Alert: We use Doordash a lot. If you live near a Lucky Supermarket, they have a promotion right now where you can buy six $50 Doordash gift cards and you’ll get 6000 rewards points, which is good for $66 of store credit (and which can be applied to buy more gift cards). Buy with an Amex Gold card and you’ll also get 1200 Membership Rewards points.
How can AT1 bonds be zero'd when they're more senior than equity which is getting paid 2bn, you ask?
Because bondholders agreed they could be.
Here's the section in the $CS 9.75% AT1 prospectus (don't worry if you weren't aware, half the holders prob haven't read this either): pic.twitter.com/Q5FbnOMRM4
Eyes on Tuesday for (again) excessive rainfall with localized flooding issues per @NWSWPC A rapidly developing surface low off the NorCal coast will also bring another round of gusty wind to the region as well. Best to use the relatively quiet weather through Sunday to prepare… pic.twitter.com/al2GNcJCEb
9:00pm 
