A Tale of Trappist Ales

Getting into the travel mood with an old story. [The Rude Awakening] August 10, 2023 [WEBSITE]( | [UNSUBSCRIBE]( A Tale of Trappist Ales - Many moons ago, my friend Hung-Wah fancied some Belgian waffles. - As we lived in London, I assumed we’d eat somewhere in the West End. - But as fate would have it, I got the ferry across the Channel to the OG place. External Advertisement [“You need at least $100 of this asset — and it’s NOT gold” — Dr. Nomi Prins]( [Click here to learn more]( $100 is all you need… Former Goldman Sachs managing director Dr. Nomi Prins has identified an investment she’s calling ‘the world’s hardest asset’ – and she’s recommending it to friends, family, and followers. She’s talked about it on podcasts… live TV… and in her newest, bestselling book, Permanent Distortion. Dr. Prins says: “This asset has nothing to do with gold or silver, but it has many of the same features to protect your wealth – and preserve your privacy.” As the turbulence in our world grows worse and worse… [Click here now to see what Nomi is recommending before it's too late.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Thursday! I just arrived in Milan, but we’re not doing the tourist thing today. We’re meeting one of Pam’s cousins and her family. And yet, it’s the start of our Grand Tour this summer. We fly to Barcelona on Friday, then take the train to Paris, Amsterdam, Brussels, and Antwerp. I’ll write the entire way, except when my kind colleagues give me a break. For example, tomorrow Byron has a treat for you! He’ll follow up my article about gallium and germanium a month ago in a way only a great Harvard geologist/storyteller can. But for now, there’s not much to report from Milan. So let me tell you about this particularly warm memory that reignited my wanderlust. There once was a man named Hung-Wah, Who looked like Oddjob, but spoke like Bond, He fancied Belgian waffles, Didn’t mind the kerfuffle, And packed me off in his car. I just wrote that now. That’s how good a mood I’m in! “Canterbury?” I first shook Hung-Wah’s hand in Credit Suisse’s operations office in Cabot Square, Canary Wharf. It was October 1999, and I was just transferred from our Eleven Madison Avenue office in New York. I visited London in June of that year to learn about global operations. But as everyone seems to party every night of the week, I really wanted to move there. Securing my transfer by pitting my London boss against my New York boss was a stroke of genius, if I do say so myself. A lovely lady named Lisa walked me around the office, introducing me to my new teammates. My teammates were to become bosom friends, some of whom I still speak to this day (at least the ones who aren’t offended that I supported Trump). But one man, in particular, stood out. He was Chinese but spoke with the most amazing cut-glass English accent. When he extended his hand and said, “Hello, I’m Hung-Wah,” I did an involuntary double-take. There are, of course, loads of British-born Chinese in London, but Hung-Wah still has the best accent if you ask me. Over time, we became great friends. And we’re still friends, though being continents apart makes it hard to keep in touch. (He moved to Hong Kong about 15 years ago.) As a sufferer of the Asian Flush, Hung-Wah marveled at how much alcohol I could consume. Lest you think I’m a racist, read [this](. Whenever Hung-Wah drank, his head looked like a giant strawberry. He wisely avoids alcohol. But that didn’t stop him from coming to the pubs with old Seanie! One night, we were at the Henry Addington, the local pub in Canary Wharf, where the operations staff escaped every Friday at 5:30 pm. I was necking pints of Kronenberg 1664 when Hung-Wah suddenly said, “Do you know what? I fancy Belgian waffles. Let’s do that for breakfast tomorrow.” Having no idea how I would get through the night, I agreed anyway. The following day, at 8 am sharp, my phone rang the loudest it had ever rung. “It’s me. I’ll be ‘round yours in 15 minutes.” “Eh?” “Belgian waffles!” “Uh… ok.” Hung-Wah rocked up in his navy blue Mercedes. I got in the car… and immediately passed out. The hum of a car puts me to sleep, especially in a well-made German car—just a fabulous ride. About an hour into the journey, Hung-Wah suddenly jerked the wheel to the right to avoid hitting another car. As I was a drunken mass of silly putty, I smashed my head into the left-hand side window. It’s Britain, after all; the steering wheel is on the wrong side of the car. Waking up from the considerable thump, I noticed a sign fly past me: “To Canterbury.” Canterbury? “Hung-Wah, that sign said, ‘To Canterbury.’” “Yeah?” “Where are we going?” “To Belgium, you idiot!” [SJN] I thought we were going to Belgo’s, a famous restaurant in Covent Garden, or something of that ilk. To this day, I don’t know if Hung-Wah palmed my passport or asked me to bring it, and I unconsciously did. So off to Belgium, we went. Down the M20. Onto the ferry. Left turn at Calais, straight past Dunkirk, and over the border to a city lost in time. [Man Who Predicted Bitcoin Warns: “Don’t Buy Bitcoin!”]( [Click here to learn more]( James Altucher first predicted Bitcoin all the way back in 2013… And ever since, he’s been one of the biggest advocates for it. But now, he’s warning Americans that buying Bitcoin could be a big mistake… [Click here now to see why](. [Click Here To Learn More]( Medieval Heaven: Bruges [SJN] At about 2 pm, we parked the car in Bruges, one of the world’s great medieval cities. Starving by now, I asked Hung-Wah if we could do moules and frites (steamed mussels and fries) before a dessert of Belgian waffles, and he happily agreed. If you ask for it, they steam the mussels in beer. A double treat for me. Yum! And yes, in Belgium, the French fries come with mayonnaise. Seriously, it’s stupid in the US. But for some reason, it works in Europe. [SJN] I washed it down with one of my all-time favorite Trappiste ales, Abbey de Leffe blonde. Funnily enough, Rob, my old bartender at the Wood-Ridge Inn in New Jersey, introduced it to me many years before. But having it on tap in the country of origin was a treat. A few half pints of Leffe drove my hangover underground, and I started to feel human again. And then, la pièce de résistance... We ordered Belgian waffles covered in Belgian chocolate ice cream, whipped cream, and Belgian chocolate sauce. Ah, heaven. We walked around that fantastic city for a few hours. Sometimes it’s called “The Venice of the North,” but it has a much different, quieter feel. The Hanseatic League It’s a far cry from its heyday as a leading Kontor, or office, of the Hanseatic League. The Hanseatic League is one of history’s coolest clubs. It was a commercial and defensive confederation of Northern Europe merchant guilds and market towns. [SJN] Click [this]( to get a bigger version. The League dominated Baltic maritime trade for three centuries along the Northern Europe coasts starting in the late 1100s. It started to diminish in importance after 1450. The League protected the guilds' interests and privileges in their cities and countries and along the merchants’ trade routes. The Hanseatic cities had their own legal system and operated their own armies for mutual protection and aid. Alas, it wasn’t going to last forever. Bruges fell in importance from 1500 onward. But in the 1950s, the city saw a revival that continues to this day. Though it’s no longer a massive trade center, Bruges is a must-see for tourists and students of medieval history alike. The ale, food, and architecture are outstanding, as is its history. Ah, what a great walk down memory lane! Have a lovely day. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Moody Sheep Says, “Baa!” [Sean Ring] SEAN RING Good morning from bright, sunny Asti! We begin the family’s Grand Tour tomorrow, so I’ll be in Milan. From there, we will fly to Barcelona on Friday, staying for five days. Then we start train-hopping through Northern Europe. I will write on the road for the next two weeks, interspersed with contributions from my friends and colleagues at Paradigm. They’ve kindly agreed to ride shotgun and help out while I’m away. Byron King kicks it off on Friday with a follow-up to the gallium/germanium piece I wrote a few weeks ago. Byron, a Harvard-educated geologist, goes into much greater detail. I’m sure you’ll enjoy it. Today, we’ll look at Moody’s downgrade of ten regional banks, about six months too late. But since the publicity worked so well for Fitch, why not? Let’s dropkick the markets when everyone’s on vacation! What Did Moody’s Do? Moody’s, one of America’s credit rating agencies, downgraded the credit ratings of ten regional banks. Here’s the summary from their website: [SJN] Credit: [Moody’s]( The first column shows the new rating. The second shows the post-new rating outlook. The third column shows the previous rating. The fourth offers the prior outlook. STA = stable, and NEG = negative. RUR DOWN = “ratings under review: for downgrade.” It’s essential to see that none of the banks on this table are in danger of becoming “fallen angels.” That’s when an investment grade bond descends below baa3 into “junk status.” However, the market ignored that tidbit. We’ll see that a bit later. But first, why did Moody’s pick yesterday to do this? [Over 62 And Collect Social Security? Take Action Immediately!]( [Click here to learn more]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( Why Did Moody’s Do It? [Moody’s named three big reasons]( why they downgraded the banks: - Rising funding costs and declining income metrics will erode profitability, the first buffer against losses. - Most regional banks have comparatively low regulatory capital versus the largest US banks and global peers. - Asset risk is rising, in particular for small and mid-size banks with large commercial real estate (CRE) exposures. Let’s take each of these in turn. As Moody’s analysts write in financial jargon and gobbledegook, I’ll try to write in as plain an English as possible. Rising Funding Costs We know Chairman Pow has hiked the Fed Funds rate. Deposit rates followed that Fed Funds rate up. That means it’s more expensive for banks to acquire the funds to loan out. If it’s more expensive to get those funds, then their profit margins (for banks, it’s known as the net interest margin) are getting smaller. Analysts know net income or net profit as “internally generated funds.” That profit is the cheapest to generate. So net income is the first buffer against losses. If the banks lose much more, they’ll have to “tap the capital markets” by raising either debt or equity. With debt, banks pay coupons and repay the principal. With equity, banks pay dividends, and the equity holder gets the capital gains. That’s a much more expensive proposition. Low Regulatory Capital If you’re a bank, you must hold reserve funds against losses. The bigger the bank, the bigger the reserves. So I’d file this one under “No shit, Sherlock.” But in this high-rate environment, some regionals have significant unrealized losses not reflected in their regulatory capital ratios. Moody’s also expects a US recession in early 2024 that will worsen banks' asset quality and increase the potential for capital erosion. Asset Risk With CRE Exposure This is the big one. High CRE exposures are a crucial risk given sustained high interest rates, declines in office demand due to remote work, and reduced availability of CRE credit. If you’re wondering why newspapers suddenly print articles questioning the efficiency of “work from home,” wonder no more. Their betters have instructed them to write that crap to get people back into the cities and prevent the commercial real estate market implosion. If you can’t see the below chart clearly, it reads that a median of 46% of banks’ tangible common equity is exposed to CRE loans in the next eighteen months. Scary. [SJN] Credit: [Moody’s]( We’ve long said Powell’s hikes require time to filter through the system. Eighteen months from now seems like as good a time as any for the chickens to come home to roost. Market Reaction In last night’s [Five Bullets, friend and colleague Dave Gonigam wrote]( With that, the KBW Regional Banking Index is down nearly 4% on the day — dragging down the rest of the market with it. At last check, the S&P 500 is down 1% to 4,474 — all of yesterday’s gains wiped out, and then some. The losses in the Nasdaq and the Dow are even steeper, the Dow down 400 points and in danger of surrendering the 35,000 level. ➢ Not helping matters is news that China’s mighty export engine is sputtering: July exports are down 14.5% from a year earlier, to the lowest level since the Middle Kingdom’s early lockdowns of February 2020. Well, Jim Rickards kept telling us the China comeback story was overblown. The market chill is reaching into the commodity space, too — gold down a few bucks to $1,930, silver cracking below $23, and crude down about 1% to $81.15. [SJN] The KBW indeed fell off a cliff on the downgrade news. But it recovered half its losses by the end of the session. (In the above chart, one bar represents an hour’s move, not a daily move.) The rest of the indexes finished with small losses on the day. [SJN] Wrap Up I’m reluctant to call this a “nothing burger,” but it isn’t the bombshell everyone thinks it is. It looks like Moody’s took a play out of Fitch’s book to get some attention. I wonder if Standard & Poor’s will be next. To be sure, the banks are in trouble, but not immediate danger. Until those CRE loans come home to roost, we’ve got time—about eighteen months. Have a great day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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