Ron Kirby on Canadian Real Estate Lender Breakdown

 hi and welcome to the x-22 report spotlight today we have a returning guest Rob Kirby Rob runs the website Kirby analytics comm and I am very happy to have him back on the x22 report spotlight Rob welcome back to the spotlight pleasure to be with you again dear hey thanks for being here and there's a lot going on right now and I wanted to start off with your take on the economy last time we spoke was back in January before Trump was inaugurated since January up to this time what's your take on how the economy is doing has it gotten better has it gotten worse where are we right now I feel that the US economy has deteriorated significantly since we last spoke retail in my view as pretty much flatlined in America projected retail closures this year I was reading a couple weeks ago the anticipated closures teased everything from Sears to there was there was a host of retail a brim brick-and-mortar places that were due to be closing this year and we've also as evidence that the economy is slowing we've also seen the Fed back off from its bellicose chatter about rising rates or raising rates and it would seem to me at least and I know we have a Fed decision coming on interest rates and I think the consensus currently is that the Fed is expected to do nothing as in leave rates as they are and this this in my view is very consistent with the poor performance we've had we've had downward revisions in GDP the economy is not doing well plain and simple it just isn't doing well and there's there's plenty of economic that were data reporting to to back to back that claim up and so you know as a result I see very likely I'll be surprised if we see another rate rise this year and come fall I think the Fed might be posturing to lower rates again well so you think they're going to start lowering rates because they realize that the economy is not doing what it was supposed to be doing where they thought it was going to improve because other parts of the Fed I hear that they're expecting the second quarter to have I think around a 3% GDP rate I mean I don't know how they're going to get that I don't even know where they came up with this number but they were saying oh this is just a one-off thing and the second quarter it's going to be much much better I mean you believe them well Dave listen the biggest the biggest telltale probably and most most people who watch interest rates I believe would concur with this with his claim you know back when we spoke in January the 10-year bond I think was probably yielding a little north of 250 or was certainly around 250 and if you look at where it is today it's around 230 and it's been as low as 221 in the last week but anyway in a big picture sense what we've seen occur is the yield curve is flattening the two to ten-year spread as flattened dramatically and a flattening yield curve is usually a harbinger of a recession coming or weaker economic times in the offing so from that standpoint I would say that the bond market is concurring with the notion that the economy slowing on top of all the empirical digging so if we're heading into a recession there are some people out there saying that we're already in the recession do you think the Fed is going to have to increase stimulus once again yes I think it's I think it's just a matter of time before we see it and whether we get a whether we get a note right QE or whether we just see them back off on the Fed Funds rate it's funny there are many different ways you can put a beard on amazing you know you can do it by lowering reserve quirements for the banks you can do it by lowering the Fed Funds rate you can do it through open market operations in the bond market whether whether it's a you know like an operation twist or whether it's outright purchases a you know of government bonds and marketplace now you're in Canada correct yeah Toronto Canada in the news we've seen home Capital Group where they're having a huge amount of trouble and it looks like they've been bailed out and people are very nervous about this what is your take on what is going on with home Capital Group and the housing market in Toronto and Vancouver what do you see up there well she's home capital is something that I've been passively following for the last couple of years a just a just fact chief executive of home capital was it was a client of mine in the interbank market in the 1980s when he worked for deutsche bank and his name is Martin Reed and he was just recently let go of his position from as the CEO of home capital and my view of what of what I've been able to consume publicly regarding their their fate the the public message that's being fed to the public by the media is that they had issues two years ago where they had independent brokers who were feeding them mortgage applications and the concern was that the applicants were effectively doing or actively did liar loans so and for people who don't remember what liar loans are all about it's it's when people come in and say that they have an income of X when they really don't and they qualify for the mortgage on the basis of having an income of and they don't have it and then as a result or the you know the ultimate outcome of all this is that the mortgages don't perform and if the mortgages have been bundled and sold as a mortgage-backed security the people that are in possession of those mortgage back debt obligations you know could could could have failing grade paper when they thought that they were buying something that was you know let's just say credit worthy but let's just say this in relation to home capital to begin with home capital is an alternative lender which means that they're you know anybody who'd be buying bundled mortgages from home capital knows that they that they're coming from the alternative space and they they typically are not insured mortgages so the people buying this kind of a debt obligation would have would have a higher appetite for risk than somebody buying insured mortgages and the other thing that's occurred because it's been well reported in the Canadian media that the issue of brokers sending unqualified mortgage applications that issue was dealt with two years ago and and the issue was supposedly addressed and then when you factored into the equation that home capital does virtually all of its mortgages that are on their books are in the Greater Toronto Area and when you consider that the Toronto Area in the last two years has home prices across the board have appreciated probably somewhere in the neighborhood of 70 or 80 percent this this whole stated issue of what's giving them problems in my view should be non issues because what a what's occurred in the Toronto market in the last two years since they address the issues they had should should take away any problem there might have been with with the collateral being you know as in the value of the home not not covering the value of the mortgage there should be there should be absolutely no loans on their books where they where they'd be upside down on a mortgage so I don't really see what the issue is my true guess is that it's something that hasn't been stated and my true and I'm not saying that there hasn't been malfeasance I think there has been malfeasance very likely has been malfeasance at home capital but my my guess is the people that have actually been engaged in the malfeasance probably have not been accurately identified as yet and very likely the people who can been engaged in the malfeasance they're very likely looking looking for a patsy or a fall guy and with regards to the chap that I that I used to he used to be a client of mine who was the former CEO there I I when I knew him in the 1980s I would have I would have classified him as a person of extremely high regard extremely straight shooter and an extremely honest guy so the real story of what's going on at home capital I don't think we know the real story as yet and and how it falls out in in what a lot of people consider Toronto to be a bubbled real estate market we'll have to wait and see because I don't think the book is closed on this yet do you think once the bubble pops this is going to hit many of these type of companies well I mean home capital is really something unto itself in the in the portion of the market that they've curved out but that being said they are a large provider of liquidity in the alternative space so people that did not qualify for bank financing and people who do not qualify for an insured mortgage these are these are the kind of people that that may be that may be somewhat at the margin but you know these people added home capital added liquidity to the to the financing of possibilities in you know for real estate in the Greater Toronto Area a significant source of liquidity and with that being taken off the board it you know it's if there's going to be less there's going to be less mortgage available to people who are marginal you know qualifiers to on a home and there's also the issue of their outstanding book if the company is forced into a liquidation who's going to pick up the pieces because the piece is the you know the type of mortgages and the type of credits that that home capital was a lender to these are not these are not the kind of credits that the banks are trying to solicit so it'll be very interesting to see who who would be willing to buy the the pieces of home capital if they're forced into a liquidation and I suspect we're going to find that out very soon because they have retained I know Royal Bank and the Bank of Montreal to explore strategic alternatives for the company so it looks to me like they might be trying to position the entity for for a sale or a breakup but but exactly where that goes I think we're going to have to wait to see what kind of due diligence BMO and n RBC when they complete what the recommendations might be now in the beginning you said that the bond yield they're signaling a recession and I wanted to get your take on how this would affect the derivative market if we're heading into a recession where we might see the stock market come down where we might see things you know start to happen within the economy how would this affect then the derivative market well you know Dave it's interesting with with regards to the derivative market what's been going on really in the past 18 months as we've seen a significant reduction in the aggregate of outstanding derivatives held by the big of big American financial institutions as reported by the office of the controller of the currency in their quarterly derivatives report the latest numbers we have are from queue for 2016 and at December 31 the value of outstanding aggregates held by the American financial holding companies totaled 222 trillion which was a decrease from 243 trillion in outstanding aggregates at q3 of 2016 and the the amounts outstanding of of the American bank holding companies I believe had a high-water mark about two and a half years ago over 300 trillion and we're now down to 222 so the amount of outstanding derivatives have been dropping and have been dropping at a very very aggressive rate so I mean to get back to your pure question specifically what does what does rising or falling rates have to do with with derivatives or what kind of systemic or what kind of feedback does does that create when in my and what I can say is in my experience its volatility in interest rates that cause or wreak havoc in large derivatives books and the reason for that is because the banks which try to play hedge books their hedges are dynamic and when when there's extreme volatility in interest raids the the the value of the hedges can can be altered dramatically in a very dynamic environment or when when rates are really whipping around which which is why we've seen very very very gentle movements and rates because the powers that be understand that extreme volatility in interest rates can cause can cause banks to get wrong-footed with the hedges in their derivatives books so you know I guess really the reality is we haven't seen interest rates move dramatically and not at least in my view to cause any major commotion in the books of the big banks and should that occur because I believe it did occur in 2000 and in the 2008 timeframe when they were dropping rates you know plunging rates short-term rates in particular from like 300 basis points down to zero I do believe in that timeframe institutions like Morgan Stanley possibly were wrong foot it might have been insolvent but just bear in mind that the US has this funny little law on the books since 1934 and that law allows a designate of the President of the United States to excuse a company from publishing accurate financial it's actual financial state which means that if a company were given a waiver they could keep two sets of books and they could falsely report that everything is well affect effectively they could have accounting you know accounting suspended so if you have a bank that's technically insolvent but they've been granted a waiver where they don't have to declare it and and and by virtue of this law it's it's legal for them to why how would we know and this this thing this law that's been on the books since 1934 there's absolutely no doubt in my mind that this this waiver was in use during the financial crisis in 2008 and I completely believe that Morgan Stanley was was operating under that and Goldman Sachs might very well have been – so that's that's what my view is the law is on the books there was reporting about that law in a 2006 time frame that the both both about the authority being transferred from the president's office to be to the chief intelligences are of the designate of the of the president who at the time was John Negroponte II and the fact that they were transferring the ability to enact this law tells me that it was very likely in use because you don't dust something off from 1934 and make a public pronouncement about it unless unless you're either using it or contemplating using it and I believe it was in use I mean if they're using this law how would anyone ever know how any of the banks are doing if they are using this it would be impossible it's a what it amounts to it really becomes a real shell game and I think we've I think we've been in in positions where shell games have been being played and and you know to what extent you know the shell games will continue in the future I don't know and I'm not necessarily saying at all that I think the shell game is being played right now but I do believe it was certainly being played in the 2008 conquering now I just wanted to go back for a moment to the Fed and their interest rates and with derivatives if the Fed decides not to raise the interest rates and I remember they've been telling us that the economy has been improving you know since Obama handed off this incredible economy to trump and they they were going to raise interest rates you know multiple times during this year and if they all of a sudden say that the economy is not doing as well as it was before and they start lowering the interest rates I mean what effect is this going to have on the stock market on derivatives and if we're heading into a recession is this going to be like a trigger where people are going to settle wait a minute all of a sudden we're not doing well is there something wrong is this economy not doing what you said it was doing all you know all the way going back to 2016 and 15 what's changed I mean well what's changed is that the recovery that's been been being reported certainly hasn't been as robust as what's been reported and there's a lot of people who argue that we very likely never really did come out of the deep recession from the financial crisis I mean things might have improved at the margin but Dave we do know for a fact because we can follow the the fine workings of forensic accounting professionals like John Williams at shadow STATCOM who reverse engineers data that the that the elites put out and you know he tells us he tells us that if we measure inflation today the same way it was measured in 1980 we would very likely have double-digit inflation or close to it right now he tells us that if we measured the unemployment rate today the same way it was measured in 1980 we would very likely have something just north of 20 percent unemployment rate and you know through through the through the doctoring of numbers and through the changing the definitions of what of what you know being employed is or what being unemployed is you can you can make a you can make a situation where you know by the old methodology you'd have a 22 percent unemployment rate but it by by the new method of what I'm measuring what unemployment means you can you can say that you have 5% or full employment you know so so this this is the way numbers have been and methodologies have been changed through the years to to basically make the economic picture look better than it is and metaphorically the best way to explain this Dave is if if you stand on the 20-yard line and you put things in football terms most people in America understand it pretty well but if you if you put somebody on the 20-yard line and tell them to kick a field goal a lot of people would have no trouble kicking a 20-yard field goal but if we leave you standing on the 20 but move the goalposts back 30 yards and we still say you're kicking a 20 yard field goal you really aren't you know the reality is if you're standing on the 20 you know you can tell people that you're kicking from the 20 but what you're really doing is you're kicking a 50 yard field goal if the goal posts have been moved back 30 yards well in the economic reporting parlance they've moved the goalposts back 30 yards and they keep telling us that we're you know you're on the 20 all you have to do is kick a short field goal well the 20 yard field goal of today if you in 1980 terms it's a 50 yard field goal because they move the goalposts this is why this is why our employment picture looks much better than it is and this is why inflation is reported much lower than it really is because they've moved the goalposts so you know where does that leave us it leaves us with a lot of people bewildered and confused and thinking it's their fault that they're not measuring up because they've got officialdom telling them that you know we're at or near full employment and if there's no inflation except it's tougher it's tougher to pay your bills every month because things that you need and things that you have to pay money for keep going up in price but you know with the way they measure in place if things go up in price they don't count them they substitute them for things that didn't go up in price anyway this this is the whole nature of economic reporting and officialdom yeah I agree with you I mean there's a lot of people that write in to me telling me that how things have completely changed in their lives where they can't find a job they were laid off and it's very hard for them to make ends meet today and of course you know the government and the central bank is telling us how great everything is and they just throw out these statistical numbers which kind of really mean nothing to any of us anymore because if they're manipulated who cares about them and yeah and but yeah and Dave what this has led to is the awakening of many people this is why so many people have lost trust in mainstream media this is this is why so much of the alternative media has has grown in popularity and grown in in terms of numbers of who's listening this is why you've seen the rise of the likes of the bright Bart's the daily callers the Infowars Alex Jones the these places are gaining the the ears and the eyeballs of people and the cliques because they don't report information to us in accordance with what officialdom is putting out they give us they give us a they apply a filter to the to the mainstream claptrap and and give it to us in layman's terms and they you know they call out they call out the lies that the mainstream media who's in bed with the with the politicos and and and the financial controllers you know they they they're in opposition to who what canned mainstream pablum information is so this this is the world we're living in of it but this is why people are waking up and and and the rise and the the awakened Asst of people in the world and the growing number of people who are awake in my view anyway probably means that the world as we've known it is probably you know not going to be viable on a go-forward basis because people have had people are sick of being lied to and you know Dave people under people understand and intuitively know when they're being sold a bill of goods and we've all been being sold a bill of goods for a very long time I wanted Rob I wanted to get your take on what Trump said and he just blurted it out he came out with it where he says that we should break up the big banks what is your take on why he just all of a sudden said that because the it's you know it's the big banks it's the big banks that have that it's the big banks that have the derivative books that have made a mockery of price discovery of strategic things in our world to give you a for instance I told you just recently that at q4 2016 the aggregate outstanding derivatives for the American banking system the American bank holding companies was 222 trillion I believe that was the number and that 222 trillion let's just say probably 220 of the 222 is held by five institutions and those five institutions are JP Morgan Bank of America Citibank Goldman Sachs and Morgan Stanley and these these banks through their derivatives books the lion's share of this 222 trillion is an interest rate contracts then there's then there's another big portion of it that's in foreign exchange contracts and another big portion that would be in commodity contracts or futures and what these banks do effectively by participating in in in the interest rate derivatives markets and in the commodities markets they effectively fix prices in the case of precious metals they suppress the price of precious metals because suppressing the price of precious metals makes the American dollar look relatively better than it would a rising a quickly rising price of precious metal is that is a failing grade to monetary authorities to central banking and central banking is is put in place to perpetuate the fiat currency of the nation that it that it presides over and if you have if you have precious metals prices rising it diminishes people's faith and willingness to hold the sovereign currency of the land this is why precious metals have to be suppressed energy contracts whether it's natural gas or crude oil their prices are rigged in accordance with geopolitical concerns and interests energy prices have been used in the past to crash the fortunes of countries that you know maybe maybe don't see eye to eye with America in certain and certain respects and then you have interest rate contracts that are used to effectively it's one thing to say you're going to lower the Fed Funds rate to zero but to actually get people to buy a three-month t-bill yielding five basis points is another trick altogether and that's that's accomplished by using generous applications of short-dated interest rate derivatives contracts called FR a's where where the Treasury can engage the banks to showing the bank's risk-free profits if they engage in these contracts but the but the upshot of it is they they have to buy bonds at ever decreasing yields to lock in risk-free profit and effectively by doing this it's the Treasury slash Fed complex that can make the bank's captive buyers of US government debt at at rates at any rate they wish and and the real arbiter of where interest rates are and where they go in my view anyway it's the US Treasury acting in conjunction with their broker the the New York Fed trading desk who disseminates their orders to these big behemoth banks that have that have in aggregate they have derivatives books numbering anywhere from forty to fifty three or four trillion dollars I believe Citibank is the biggest one at the moment around fifty two trillion in notional so what you're saying from what I'm hearing is that by doing this he would be breaking the banking system apart and maybe stopping the manipulation on precious metals he would wreak havoc in the derivative market and it would make it very well let's put it this way Dave the the the explosion in bank held derivatives the explosion occurred in the immediate aftermath of the repeal of glass-steagall by Robert Rubin in nineteen ninety eight and what what glass-steagall did is it separated investment banking from deposit taking banking and what I mean back back in the day back in the day glass-steagall was enacted because the politicos in America didn't didn't want a big deposit taking banks risking the risking the deposits of their depositors in in the capital markets by making by making leveraged bet on interest rates commodities or whatever and by separating traditional banking from Investment Banking and speculation it was it was it was felt that glass-steagall protected the depositors you know from from rampant speculation but the repeal of the glass-steagall in 1998 meant that the deposit-taking institutions were were now able to engage in much riskier Treasury operations than they previously could so what this basically did was allowed Citibank and and an Bank of America the big deposit-taking institutions to – basically it opened the spigots and allowed them to take massive amounts of risk in in these derivatives contracts and and it's interesting that when Trump made his comments about breaking up the banks he was answering a direct line of questioning regarding glass-steagall where I believe a reporter asked him you know I think the question was something to the effect that are you do you think it was a prudent thing to do to have eliminated the glass-steagall Act and I think he was asking him if he might favor a return of the glass-steagall Act and it was it was it was – that line of questioning that Trump made that made the offhand comment that he might be in favor of breaking up the banks so more than anything I think he was giving a hat tip Trump to me there was probably giving a hat tip to the notion that he knows that the banks are heavy have heavy hands in the markets and he knows that the banks are being are being utilized as captive players – let's just say create create premeditated outcomes kro level in markets and I don't think he's against that all right sorry I believe Trump is against that so Rob where do you think this is all headed right now I mean can the economy just continually chug along the way it's been for the last couple of years or do you think we're coming up to a point where the economy is pretty much done I believe that the u.s. dollar is is in extreme danger of losing its grasp as the world's reserve currency because we we've heard utterances from from the other side of the world whether it's Chinese whether it's Russian these people are not in favor of having the dollar continued as the world's reserve currency as the world's trade settlement currency and and direct actions have been being taken on the part of Russia and China and others making bilateral trade agreements with countries in their in their sphere of influence where the dollar is being caught out of you know bilateral trade like for instance you know deals where where Iran sells oil to China and they settle in Chinese yuan rather than the traditional way the an oil trade would have been done would be for Iran to sell oil to China in dollars China would have to buy dollars to to settle the oil trade and that's been bypassed now between those two parties where they just they just do the deal they do the deal in the Chinese currency and and the dollars bypass so this this creates less demand for dollars and America has printed an awful lot of dollars and what this means on a go-forward basis is the likes of China Russia Saudi Arabia need less dollars because things in the world aren't being transacted in dollars as they were in the past and this is why you've seen countries like China like Japan like Saudi Arabia like Russia decrease their holdings of US government securities because the world is changing into a you know we we are growing into a into a situation where the world is just going to need fewer dollars and America continues to print more dollars because you know America is still running annual deficits of a trillion plus a year and you know the likes the historical biggest creditors of America being Japan China and Saudi Arabia they have been reducing their holdings of US government debt and the US government debt is not shrinking the US government debts getting bigger and my real question Dave and I think we've talked about this in the past and it's a question I continue to ask and nobody gives me a good answer who's buying the debt and my belief it's the US Treasury that's been buying the US debt and they've been memory holing it and they're and they're buying that debt through the exchange Stabilization Fund which is a dark pool of extreme wealth likely many many trillions of dollars worth of off-book wealth and you know it's there the real question Dave how long can you keep fooling people how long can you keep playing a shell game with people that they realized that that you're just playing a shell game and they take their pail and shovel and they go home and they say we don't want to play at all and how long does it become where countries realize that America has created way more money than they'll even admit to and they say you know what you know you you think you think that we work for a living to sell you goods that you pay for in US dollars that you don't have to work for and that's that's the kind of moment we're coming to and and that's that's the kind of thinking and the awakened Asst that will dethrone the dollar as the world's reserve currency because the world is waking up because the evidence that these things have occurred is becoming quite blindingly overwhelming Robb's thank you very much for being on the x-22 report spotlight once again how can people see your work you can find me on the web at kirby analytics comm rob once again thank you very much pleasure being with you Dave [Music] [Music] you