‘You remember the Meister Brau commercial where the agent tells the movie star that the studios aren’t calling back, the ex-wife has taken him to the cleaners, and the only luxury he can afford is Meister Brau’, the Founder asked Legal. He picked a large bottle of Taiwan Beer off the table and filled the shot glasses in front of Legal and Economics. That was an invitation for Economics to fill his glass. ‘Their slogan was, ‘Tastes as good as Budweiser – but cheaper’. This stuff tastes like Meister Brau – but it is cheaper.’
‘You’d think they would serve us a fecking pint’, Legal said. He picked up the tiny glass in his right hand, touched the bottom with the fingers on his left and said, lai, lai, lai to the group of salarymen sitting next to them. They smiled at the atoga and drank.
‘I remember the commercial where the fat guy compared himself to a racehorse’, Economics said. ‘It was a pre-Trumpist dog-whistle. We are proud to drink camel piss, the message is. Who needs the scientific method and the rule of law? At least he had the class not to call himself a stallion.’
‘The Dutch call this ‘cat piss’’, Legal said.
‘Well, the Czechs call it Velbloudi moč’.
‘Show-off.’
‘Why are we in Taiwan’, Legal asked the Founder. ‘We are in the manufactured housing business. There are no mobile home parks here.’
‘It’s a boondoggle’, the Founder said. ‘The Comptroller wanted to come’. He lowered his voice and put his palm next to the side of his mouth when he said ‘Comptroller’.
‘Why did she want to come here’, Legal asked.
‘Dude’, the Founder said. ‘She controls the purse strings. We do what she says.’
‘Sounds like she has you on a short leash’, Legal said.
‘Fuck you’, the Founder said. He filled the shot glasses again. ‘This really does taste like – how do you say ‘camel’s piss’ in Czech, again?’
‘Velbloudi moč’.
A truck that needed a valve job stopped at a bing lan stand across the street. A skinny woman in short-shorts who looked like she was barely eighteen sat on an elevated stool behind a wall-sized window. She crossed her legs and showed the trucker who pulled out a wad of cash a sliver of foot-sole behind the bottom of her sandals. As she handed over a packet of bing lan, the Founder thought, she doesn’t look like an abo – but she looks very bored.
‘What happened to our portfolio on Friday’, the Founder asked Economics.
‘It happened what you think’, Economics said.
‘That’s not a sentence’, Legal said.
‘I had a vertical call spread on the VIX on as a hedge’, Economics said, ‘But the VIX is like the sea, or a cotton field in boll weevil country. It takes your money, teases you, hits on your sister, and makes you think it is your fault.’
While nobody was looking, Legal drained his glass by himself. He wondered if he could find an opium den or a barber shop, or whether that was orientalist bullshit.
‘The VIX doesn’t trend’, Economics continued. ‘It moves sideways and it spikes. Depending on the tide, it exhibits vertical skew, backwardation or contango. It never behaves rationally. You can only make money by holding a naked long position when lightning strikes, but you will go broke buying options when the market is quiet. The index went from nineteen to forty-something in two days, but it will revert to the mean before I can monetize our position. I need a drink.’
‘So our hedges are shit’, the Founder said. ‘At least we can still afford Meister Brau.’
The three men drank.
‘What do you think the market disruption caused by the tariffs will do to the manufactured housing market’, the Founder asked.
‘Frank Rolfe says it will be good for the industry’, Legal said.
‘Frank Rolfe says nuclear winter would be good for the industry’, Economics said. ‘It’s his job to pump up interest.’ He drank the beer in his glass. ‘Interest rates might be affected’, he said.
‘Really’, Legal asked.
‘Yes, dumbass’, Economics said. ‘Mortgage rates are the product of several factors. Two important factors are the yield on ten-year T Notes and the federal funds rate.’
Legal noticed a slim young woman at the bar with blond dyed hair. So many women doing that these days, he thought. Usually, I think that it looks cheap on an Asian woman, but on her, I like it. Overhead, they heard the sound of fighter planes. ‘The fuck’, he said. ‘Is the Mainland attacking?’
‘It’s just a drill’, the Founder said. ‘There is an airbase on the coast.’
‘It blows my mind that this is, still, considered occupied territory’, Legal said. ‘It’s like living in Gaza.’
The Founder looked past the bing lan stand to a new gated high rise complex offering two bedroom apartments starting at twenty million NT. A young couple walked past the gate with a poodle in a baby carriage. A pair of Indonesian domestic workers walked past, shawled and clad in black, arms linked, giggling. An a-mah selling chives hawked and spat. On the other side of town, unseen by the men, a young man with a promising future choked on a bubble tea starch ball and died. ‘Hardly’, he said.
‘Bond yields have already fallen’, Economics said. ‘As you know, when bond prices increase, yields go down.’
‘Wait – what’, Legal asked.
‘Dumbass’, Economics said.
‘Guys, the Founder said.
‘When equities got whacked because of the Trump tariffs, people bought bonds. People buy, prices go up. Prices up, yields down.’
‘How did the administration calculate tariff rates?’
‘A reciprocal tariff is a tariff imposed at the same rate as that on which exports to the counterparty country are taxed at’, Economics said. ‘Say South Korea charges us a twenty percent tariff. What would a reciprocal tariff rate be?’
Legal looked quickly at the blond-haired woman at the bar and then back to Economics. ‘Uh’, he said.
‘It’s not a trick question’, Economics said.
‘Twenty percent?’
‘Correct.’
‘So, that’s what we did?’
‘Nope. To set the rate for reciprocal tariffs with a given country, the administration divided our trade deficit with that country by total imports from that country and divided the result by two.’
‘What if we had a trade surplus with a country?’
‘Subject to a minimum rate of ten percent.’
‘What if, say, South Korea did not impose tariffs on our goods?’
‘Doesn’t matter.’
‘You mean the rate that we impose is not calculated with respect to the rate imposed by our trading counterparty? That doesn’t sound reciprocal to me.’
Economics gave legal a pitying look.
‘They dressed it up in econ drag and added some Greek letters to make it look pretty’, Economics said. ‘They multiplied the denominator by two factors, elasticity of import demand and elasticity of import prices with respect to tariffs. These were represented as ε and φ, respectively, but the value of ε was 4 and the value of φ was .25, so they cancelled each other out. ‘Tariff rate’ was expressed as ‘delta-tau-i’ because, you know, why not.’
‘So tariffs will lower interest rates?’
‘The market turbulence that they have engendered has lowered bond yields, but another factor that affects interest rates is the federal funds rate. That’s the rate at which banks can lend each other money overnight. The federal reserve bank sets that rate. The Fed increases the rate in inflationary environments and it lowers it in recessions. The idea is that by increasing interest rates, the Fed can tighten money supply and by lowering them, it can loosen it. Inflation is usually the result of an overheating economy. Tightening the money supply puts a damper on growth, which lowers inflation. Loosening money supply in the case of a recession gives business people access to capital, which increases entrepreneurial activity, which heats up the economy. The Fed tries to strike a balance.’
‘So – inflation and recession are MECE’, the Founder asked. He looked at Legal, who looked confused. ‘Mutually exclusive and collectively exhaustive’, the Founder said.
‘Usually’, Economics said. ‘Stagflation is the exception. That’s where you have inflation in a recessionary environment. That makes it difficult for the Fed to use monetary policy to regulate the economy.’
‘Does that ever happen’, Legal asked. ‘Stagflation?’
‘Oh, sure’, Economics said. ‘Ask anyone who lived through the Seventies.’
The woman at the bar lit a cigarette and Legal felt an erection coming on. He remembered the stories that male astronauts tell of the erections they have in zero gravity. Space Viagra, they call it. I would like to go up in space, Legal thought, if only to experience that. ‘What does that have to do with us’, he asked.
‘Tariffs cause inflation’, Economics said. ‘If a foreign car manufacturer has to pay a ten percent tariff, they will increase their prices by ten percent. That does not cause foreign manufacturers to build factories in the United States. It just causes all car manufacturers – foreign and domestic – to increase their prices by ten percent.’
‘So the Fed will have to increase interest rates to bring inflation down’, the Founder said. ‘But I thought that bond yields were depressed because of investor demand for a safe haven?’
The Founder poured more beer into the three glasses. Legal noticed that it did not taste that bad anymore. He thought that maybe that was the solution to Taiwan Beer – for it to taste better, you had to drink more.
‘But the way the stock market is going, we could be in for a recession’, Economics said. ‘The S&P lost ten percent on Thursday and Friday. As of Monday morning, futures are down further. That’s not recession territory yet, but we could be headed there.’
‘So, the Fed should lower interest rates, loosen money supply’, Legal said.
‘That would increase inflation’, Economics said, ‘When the Fed would want to suppress it’.
‘Oh, wow’, Legal said. ‘I guess we’d be scrod if we do and scrod if we don’t.’
‘The last time stagflation happened’, Economics continued, ‘Volcker managed to pull us out of it, but the remedy was almost as painful as the disease. He raised rates high enough to kill inflation, but high enough to kill pretty much everything else, too. Eighteen percent interest rates meant cheap dinners in Paris if your functional currency was the US Dollar, but it also meant that most people couldn’t afford a mortgage.’
‘So, what does this mean for us’, Legal asked. ‘For the manufactured housing business?’
‘Low interest rates are good for manufactured housing’, Economics said. ‘Real estate investing is interest rate arbitrage. A park with a seven cap might be profitable if your cost of funds is four percent. It is harder to make money from that park if interest rates are seven and a half.’
‘But we don’t know what will happen to interest rates.’
‘Nope.’
‘What would a recession do to the industry?’
‘We are not recession-proof, but we are recession-resistant. People need a place to live. When things get tight, they need affordable housing. We would be better off than people who sell plastic surgery or luxury cars.’
‘What about inflation?’
‘It could be disastrous for park owners in a state like New York, where rents are capped without reference to inflation. Remember what Covid inflation did to the industry?’
The Founder felt a bout of PTSD coming on. His vision narrowed and the world gripped his head in a vice.
‘What if there is inflation coupled with a recession’, Legal asked. ‘I mean, stagflation?’
‘Sufficient reserves, judicious use of debt, attention to good management could pull well-run parks through the bad times. For the rest, it would be nuclear winter. Maybe some of the bigger operators who do not run their businesses well will sell of parts of their portfolio. In a state like New York, it would be difficult for purchasers to turn these parks around. Could be a death-spiral for those parks and the people who live in them.’
Legal’s short attention span felt drained by the discussion. He looked to the woman at the bar and shouted, ‘Hey, xiaojie – there’s no going back, once you do it with a park owner.’
‘Knock it off’, Economics said. ‘She’s a man.’
‘The fuck you say’, Legal said.
‘The fuck I don’t’, Economics said.
Legal remembered the final scene in Some Like it Hot, where the Jack Lemmon character takes off his wig and tells the guy who is hitting on him, ‘I’m a man’. He drained his beer glass and stood up to walk over to the bar. It’s a boondoggle in occupied territory, he thought. We could all be dead tomorrow. The chick smoking at the bar might be a two-spirit, but nobody was perfect. She might even be a fighter pilot back from a mission.