A Different World
BALTIMORE – We left the fantasy island of modern finance today. We had to take our pick-up truck in for repairs. The dealers all seem to be in East Baltimore… or east of Baltimore… so we drove out of Mulberry Street to Pulaski Highway and finally over to Merritt Boulevard.
Just three blocks east of our office, in the Mt. Vernon district, a different world begins. The first indication of it is the old stone prison at the bottom of the hill, first commissioned in 1801. For more than 200 years, Baltimore’s jail has been a disgrace to the city and its correctional efforts. Overcrowded. Filthy. Degenerate.
The forbidding Baltimore detention center
Photo credit: Lloyd Fox / MCT / Landov
The critical reports go back almost to the day it was built. Back then, as many as half the prisoners were there for failing to pay their debts. (Today, a similar percentage is there for drug crimes. How times have changed! Now, you can stiff your creditors all you want. But watch out. Don’t take drugs. IT’S THE LAW.) But the most recent scandal must top them all…
Looking into the Baltimore Jail’s courtyard from above …
Photo credit: Weyman Swagger / Baltimore Sun
In the 1970s, Baltimore began employing women to police the men in the prison. Then, in 2013, the U.S. Attorney’s Office indicted 44 people, including 27 employees of the prison… and some inmates, too… on charges including racketeering, conspiracy, drugs, and money laundering. But the crème de la crème of the indictment concerned Mr. Tavon White, prisoner and ringleader of the Black Guerrilla Family.
First, he earned, while a prisoner, as much as $16,000 a month from drugs and contraband. Second, it turns out that, since 2009, he had also fathered five children with four of the female guards – two of whom had his name tattooed on their bodies. Mr. White was convicted and sentenced to another 15 years in the can.
Gang leader Tavon White fathered five children with four female guards in the Baltimore City Jail …
Image via miseeharris.com
We will continue with a description of our drive across Baltimore in a moment. First, a bit of news.
A Curious Issuance
On Wednesday, investors drove the Dow up 258 points – more than 1.5%. But the most interesting financial news concerned tech darling Apple. The company said it will not cooperate with the feds’ effort to break into an iPhone.
Apple’s new smartphone came equipped with a certain level of security, Apple executives argued. Giving the feds a passkey would be undermining the privacy its customers paid for. Several Republican candidates have already sided with the feds. “Who do they think they are?” asked Donald Trump.
Also, the company announced a $12 billion bond sale. It’s not hard to see why Apple management would want to borrow. It doesn’t need the money; it has plenty of cash on its books already. It doesn’t even say what it will do with it, describing the use as “general corporate purposes… including repurchasing of our common stock… and paying dividends…”
In effect, management is borrowing money from one set investors and giving it to another set of investors. The company gets a loan from bond buyers to give a bonus to equity buyers. Both sides of the trade think they are coming out ahead; most likely, neither will.
Apple is regarded as a good credit risk, so it can borrow inexpensively. And interest rates are at historic lows. Borrowing may be a good deal for the company.
What puzzles us is why anyone would lend. There are two questions to ask yourself before you make a loan: How much will you get back? And will you get your money back at all? (The return on your investment and the return of your investment.)
The bonds Apple is peddling carry various terms, some as much as 30 years. But 30 years is a long time to lend to a tech company. New technology is always replaced by newer technology. By the time the last coupon is ready to be clipped, Apple’s products could be as out-of-date as an eight-track tape, and debt payments might have long ago ceased.
Not that we’re predicting anything of the sort. But Apple is one of the world’s richest and most successful corporations – ever. That is such a remarkable achievement; it seems like we’re asking too much if we expect it to be still healthy and prosperous in 2046.
But back to our drive through Charm City …
Once past the prison, we found blocks of public housing – three-story brick buildings with air conditioners sticking out of windows and trash blowing down the alleys. A boarded-up brick house. A boarded-up stucco house. A boarded-up slipform-stone house. The Pillar of Truth Apostolic Church. Ray’s Liquors. Jane’s Liquors. Pam’s Wine and Spirits. Johns Hopkins Hospital. Bail Bonds 24 Hours. More boarded-up houses.
Boarded-up row houses in East Baltimore – there are an estimated 16,000 abandoned houses in the city
Photo credit: Eric Parker
Convenience Mart. Sister Beth’s Palm Reading. Heating Repairs. Mufflers. A Moslem community center. More boarded-up houses. Sally’s Show Bar. Everyday Painting Company (in a house that badly needed painting). Blacks. Hispanics. Burger King. McDonald’s. Kentucky Fried Chicken. Dot’s Sandwiches and Subs. Kae Won Fu Asia Carry Out. Used cars… no credit… bad credit… no problem; $795 Down and You Have a Ride.
Whiskey River, apparently closed. Discount Shades and Blinds. Sudsville, 24-hour laundry. Pompeiian Olive Oil. Tombstones and monuments. “Pray for Baltimore,” said a billboard. “Vote for Catherine Pugh,” said a large sign. “Where will your next meal come from? Call 211…” More boarded-up row houses, these with porches.
Boarded-up shop fronts in Baltimore…
Photo credit: Edwin J. Torres
We took the road toward Dundalk. More auto dealers. Rundown bars. White men in pick-up trucks. The Poplar Restaurant. Central Masonry Supplies. A liquor store with a purple door. Subs. A huge lot full of white delivery vans. Trucking companies. Strip malls. Auto painting. Bay Concrete. Plumbing Distributor. Chesapeake Pets. Dundalk Liquors.
Now the brick-and-form stone disappeared. There were individual houses, wood frame with siding or shingles. White. Boxy. Built in the 1940 or 1950s. Thousands of them. The cars in the driveways are recent, but the houses are the same as when they were built. Cheap. Simple. Small.
Another Baltimore ghetto view …
Photo credit: PurpleHaze1100
These suburbs were built when Baltimore’s industries were running hot. The GM assembly plant. Beth Steel’s Sparrow’s Point furnace. Domino Sugar. McCormick Spice. Ordinary working stiffs earned decent wages and lived well.
But here we are a half a century later… and ordinary working stiffs are in the same houses… earning the same wages (roughly) as they did in the 1970s. Judging from the polls and presidential primary results, they’re not too happy about it.
A city official visiting the recently closed squalid detention center
Photo credit: Baltimore Sun’s The Darkroom
Chart by: StockCharts
Chart and image captions by PT
The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- The Gold Situation
A Growing Bullish Chorus – With Somewhat Muted Enthusiasm A few days ago a well-known mainstream investment house (which shall remain nameless) informed the world that it now expects the gold price to reach “$1,500 by early 2017”. Our first thought was: “Now they tell us!”. You won't be surprised to learn that the same house not too long ago had its eyes firmly fixed in the opposite direction. Da bling be goin' somewhere, fellow rastas and homies! Photo via...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- European Banks and Europe's Never-Ending Crisis
Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- Gold – Eerie Pattern Repetition Revisited
Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise. A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- Planet Debt
Low Interest Rate Persons She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems. — Donald Trump Two low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...