Written by Bryan Lutz, Editor at Dollarcollapse.com:
Every Sunday morning I sit down to write a few thoughts.
Sometimes these thoughts end up being about life, other times they are on gold, geopolitical issues affecting the markets, or the economy.
Here are three thoughts for this morning:
1. Commercial Real Estate is in big trouble. Banks will suffer losses, but investors will feel it the most. Here’s how.
On recent example was reported from Wolf Richter at WolfStreet.com.
One bank recently off-loaded one of the largest commercial properties in San Francisco.
It was a two-tower property, which sold at a 75% discount.
Richter writes:
“ING lost about $235 million…
…Investors lost about $320 million, or 100% of their equity in the property”
Much of the data for commercial real estate is caught up in banking systems and hidden in balance sheets, but the big picture data shows what happened at ING is just the start.
The Financial Times reports:
Regulators warn of hidden vulnerabilities in $12tn commercial property market
“The world’s financial stability watchdog has called for regulators to tackle “vulnerabilities” in the $12tn commercial property market stemming from high levels of debt, liquidity mismatches and a lack of data on banks’ exposure to the sector…
…Banks still have the most exposure to commercial real estate, worth about $8.5tn globally, the report said.
It said banks had “complex interlinkages” with non-bank commercial property investors, raising the risk of property shocks “spilling over to the banking system”.
8.5tn is a huge chuck of change, globally.
And you can bet a huge chuck of that sits on properties inside the United States where investors may be waiting to receive more losses from their banks that have been over-leveraged for years.
2. This week, dollarcollapse.com subscriber, John Calandra asks about the Fed keeping interest rates high. He writes “Please re-explain like I’m 5 years old.”
Mr Calandra wrote:
“I confess to financial ignorance.
Can’t see how paying higher interest helps the GDP factor enhance currency credibility.
Whereas lower interest rates will ease the Treasuries burden and, ergo, reduce the deficit and will allow GDP to focus on making widgets.
Please re-explain like I’m 5 years old. Thank you.”
So, imagine the country is like a big lemonade stand.
When we borrowed money to build the stand, we promised to pay it back with interest.
If the interest is high, we’re stuck giving all our lemonade money to the lenders instead of growing our stand. That’s why you’re totally right to wonder:
“Why are we raising interest when we owe so much?”
It’s tricky!
Because the Fed isn’t in charge of the lemonade debt. They just try to manage the weather (the economy).
Sometimes they use their tools…
If they lower interest rates, the cost of lemons will rise, along with many other costs, AND the amount the lemonade stand owes will eventually rise too.
This leads to a dilemma.
Whether the Fed raises or lowers interest rates, the lemonade stand will find it hard to do business.
There just isn’t enough money available to keep running the lemonade without the weather changing for the worst.
The big person term is: stagflation.
3. When it comes to using and integrating AI, context is King. In the future, everyone should know the basic format for prompting. Otherwise, bad things can happen.
So, when comes to understanding any new communication technology, establishing literacy for yourself is very important.
For example, we do not fully understand the proper use for social media.
Facebook was first introduced in 2006, and it was one of the first digital social mediums to acquire mass customer use.
Here are some things we still haven’t figured out how to overcome almost 20 years later.
- Users report decreased attention spans and “doomscrolling” habits.
- Algorithms often show more of what you already believe, deepening polarization.
- Constant feedback loops (likes, comments) can create validation dependency.
- Social comparison (especially on Facebook) contributes to anxiety, depression, and self-esteem issues.
- More time online = less time in face-to-face interactions. And physiologically speaking, face-to-face interaction is how we learn to self-regulate our emotions.
Now we have ChatGPT.
And people are doing very weird things while engaging with AI.
For example, losing loved ones, spiralling into conspiracy theories, and believing themselves to have become a prophet bringing salvations to all.
People are literally co-creating their identity with a system that is programmed to be extremely agreeable, flattering, almost sycophantic.
This is what can happen if a person does not understand how the AI’s system works.
Context is king.
In fact, it is the first thing any prompt should provide.
A basic prompt format looks like this:
1. Provide context.
2. Name the task.
3. Include constraints.
4. Support the context with extra information.
With every prompt, you create the sandbox AI plays in. Depending on the AI, the output will be different. That’s because its programming is the process.
So, you choose the tool (which AI). Then you choose the context. Then you choose how to explore, curate, and direct the AI for your own goals, and even… surprising answers.
I asked ChatGPT to show me our relationship, what “we” looked like
That’s sanity.
Take care.
P.S.
Me & ChatGPT (below)
