thepupil

Yea, obviously out much greater weight on the FRED data than my own poll, just saying that’s what it feels like.

I struggle to think of one example in my admittedly small circle of folks of this being the case. Honestly, don't know anyone who would describe what's occured thus far as damage. maybe that's my bubble talking, but to me it's like we have much higher risk free returns (real and nominal) with almost no damage, whchi feels like a free lunch. There is no free lunch of course. people lie on social media, but this graph is closer to my personal experience and those around me than your characterization of "very few" being better off today than a few years ago. To me it's going to take years of malaise to unwind the glorious and ongoing boom in household wealth that's occured over last few years.

the 10% losses if you bought the entirety of your nut on the tippy top DAY of markets make you conclude this? I think you need to distinguish between a prediction (which may become true) and what is true today. I think it's quite debateable. I think the majority of mass affluent people who already own their home (like the top 25% of americans who drive a huge portion of spending) have never felt wealthier and investment incomes (divvies and interest) at all time highs and balances within 5-10% of nominal peak. this is both borne out in the aggregate FRED type data and my own personal anecdata. more middle class folks who own home are feeling okay until they have to buy their next car at 9%. I like bonds just like you, but I don't understand some of the statements you are making. incomes at ATH, Net worth very close to ATH's. shit may get worse (in fact I think it will) but looking at the data, I struggle to see what you're seeing. I think US households in aggregate are gorging on interest income with locked in borrowings from yesteryear. Until you need to buy a finance a new house/car, it's a bit of a gravy train, no?

The Vanguard Balanced Index (60 / 40) is down 11% from its peak. The total stock market is -10%. total world stock market is -11%. on a 3 yr basis balanced portfolio is up 3.5% /yr, 5 yr 5.7%/yr, 10 yr, 7.3%/yr. what losses are you talking about? there's a whole lot of deposits,cash, US govvy securities, etc in the $112 trillion of financial assets owned by US housholds.

where is the data to support this? total household net worth wrt stocks mirrors the indices. there's in aggregate huge net worth and cash balances in those measures. my own anecdotal evidence of mass affluent people is they just own indices/cash/bonds/primary residence. i'd wager the people "severely punished" by peloton/rivian/gamestop/crypto is a very small minority of people.

my point for resurrecting thread was we had a debate about the credit health of S&P 500 a while back. Rates have skyrocketed since then and for now at least, the credit health (as defined by net interest expense in that chart, assuming its right) has potentially improved. my view then ( and now) is that anyone who actually looks at the data for large cap corporate america will have close to zero worries about the DIRECT effect of increased rates on the companies. there are far reaching and important INDIRECT effects, but in terms of credit risk, I think it's almost entirely confined to the private market (which is actually consistent with history, the S&P 500 is and has been mostly IG which has a very low historical default rate). @wabuffo also has been a consistent pointer-outer of US households on the whole being cash rich and how rising rates improves their income...so if households in aggregate are seeing incomes go up, large cap corporate seeing them go up because of rising rates, it feels like rising rates is actually stimulative. But we have to balance that with car / house / durable goods payments for new purchases being terrible and you should start seeing companies and buildings with floating rate debt getting hurt.... that's a bit of a ramble...

I'm not. It will take 3 bad fund cycles (15 years ish) to kill PE. Right now we only know 2020-2021 PE vintages will be bad. same guys all have more uncalled capital and private credit funds to sweep up their own mess. LPs impairing their capital or making really bad returns on 1-2 vintages won't kill (most) PE / alts.

for me the biggest questions is how will the economy handle a (inevitable/already happening ?) slowdown in everything that's financed (cars, housing, appliances) by the bottom 80%-99% (in case of housing) of people and the jobs that are connected to those and will we start to see actual real bankruptcies which affect employment of the 12 million people in the U.S employed by private equity backed companies. these companies can't handle the current cost of financing. if there was a stock index of these companies and they were treated like the public market, they'd be down 60%. Leveraged loans have gone from costing 5% to 10% and that's the index. worse off than index borrowers will be more. for me the biggest quesiton is will those companies change significanlty in operations (fewer people / job losses / closures of locations) or will they just have new capital structures. I don't know answer to that.

Rates are up a lot non-financial corporate america is seeing its net interest payments decline steeply as it earns high rates on its cash and pays low rates on its debt. the S&P 500's debt has a wgt average maturity of 10.5 years so this dynamic will likely persist. wealthy consumers with locked up mortgages are the same way.

agreed here, and I mostly think/invest pre-tax for bonds, but have bought bonds in taxable recently (mostly w/ duration so there will be significant capital appreciation/loss component). taxation definitely messes w/ the math on bonds (or dividend paying stocks) I used 8/2020 as the worst example to the day and yes, realized inflation since then is bad. I'm not sure what realized inflation has been since 4/2022 (the point at which I thought bonds were becoming attractive and the point at which bonds have lost 5% cumulatively / underperformed bills by ~9% cumulatively). 5 yr TIPS yield 2.5% if you want to use that instead as the "very hard to lose money in tax free account" thing. my broad point is that I think bonds are very attractive and am struggling to fight the urge to invest more in them. I think over very long time frames, stocks will beat bonds, so I have to constantly remind myself of that before I end up with much less in stocks than I have now. you can buy 1 median HHI for $1.3 million of 20 yr IG bonds. 2 for $2.6mm 3 for $3.9mm. That just seems cheap to me. like it only takes a few million to have a couple households of nominal income. that's a world in which I have never lived. if inflaition persists, then the HHI will probably go up faster than the income from bonds and it won't be all that great for bondholders, but for now, I think it's pretty awesome.

as someone who started this thread in 4/2022, I've obviously been way too early...but the nature of bonds is such that we're at levels where (absent wild debasement/currency collapse), it's very difficult to lose money. If you bought at the absolute peak (8/6/2020), you're now down 16% with coupons reinvested. bought at beginning of thread, down 5.6% in the agg index and that's with the yield on the index going up 2% in less than 2 years. just keep buying and reinvesting coup, extending duration a little. I daresay it's very hard to lose money in bonds. if we do, then you're talking major collapse of currency/fiscal state. could happen, but wouldn't be my base case. honestly, I'm just trying to keep my greed in check. want to keep buying more...

Well today I bought some bonds maturing in 2112, so my approach is slightly different . specifically, I’ve spent the past month or so accumulating the illiquid Bowdoin 4.69%’s of 2112 at $76 / 6.2% yield. delicious perpetual yield.

I own both. I bought the equity first @ like 6 cap and bought this thing at 6.4%. One has long term inflation protection / growth, the other has more bounded return profile (absent extreme increase in rates). I don’t think either are “high conviction” or super special, but just part of a portfolio that will hopefully preserve/grow purchasing power.I like todays environment of 6%+ caps and 6% + IG yields instead of 4 caps and 3 yields. bonds are cool and all but I still always want to have bull of assets in stuff that isn’t nominal obligations.

Here's kind of a cool illustration of the nice (IMO) risk profile of bonds right now. the ESS 2048's yield 6.5% right now. they won't default unless the value of apartments in california declines by like 70%, so let's ignore the whole credit risk thing. On a 5 yr basis, they'll return between 2%/yr and 13%/yr depending where yields end up at +-300 bps. So you can buy a bond that's maturing in 25 years, rates could go up over the next 5 year ssuch that that bond will be yielding 9.5% and you won't lose money. you may lose purchasing power for sure, but you won't lose nominal $$$. now I'd probably dismiss the extreme upper end (the 12%/yr) and the extreme lower (the 2% / yr). I also think it's a nice illustration of why it makes sense to potentially take a little corporate spread/liquidity risk (they have the 30 yr treasury return next to it) the ESS bond does better in all scenarios except the extreme -300 bp change in yields.

In the US, eggs' protective coating is, by law, washed off. therefore eggs must be refrigerated in the US (and shouldn't be refrigerated in Europe).

not sure I understand this math. if FFO is going to grow by inflation +2-3%/yr, then wouldn't total return be 8-9% inclusive of inflation? Let's say inflaiton = 3%. So FFO growth = 6%. So at a constant FFO payout ratio, wouldn't dividend growth be 6%? Ergo wouldn't total return be current yield of 3% + 6% growth = 9% (just simplified DDM, assuming no kind of re-rating). how do you get to 8-9% + inflation?

the bodies are in here. you can't see them yet;. higher for longer will really hurt a few buyout/private RE vintages. publicly traded mostly IG corporate america and the locked in debt at fized rates consumer are fine. privately held, levered to the tits with floater, private equity is not. there's big equity cushion and tons of uncalled commitments and private credit to extend / can kick / distract, but if we stay here for a while, you're gonna start seeing problems. the real world impact is not clear to me. institutional investors won't be able to make 15%/yr buyouts anymore. they'll take some writedowns and continue to invest with the same folks after a few shitty vintages. the question to me is it a big enough issue to cause banking problems or problems in the REAL economy. for now, I'm at a "not yet"...and most of the risk on credit/loan side is likewise w/ instititions/not in the banking system.

perhaps to illustrate better, on 12/31/2021 the trailing 5 year return for CPT was 20%/yr. the trailing 5 yr return now is 5.7%/yr. changes in valuation have HUGE impacts on 3,5,10 year track records.

SUI has been a serial issuer of equity (EV from $2.6B 10 or so years ago to $23B today). That's not necessarily a bad thing. But what it means is that it's an ever growing and complex portfolio. Every time I've looked into it, I've had to stop and divert my attention elsewhere. Just never a company I've been able to fully grasp. happy to hear your thoughts on it. haven't done any works since wrote this on your thread

I think valuation has a significant impact on returns with a time horizon of even 10 years. for example, if you looked at MAA at the peak, the trailing 10 yr was 18%/yr (12/2011 to 12/2021). Today it's 12.8%/yr. Are they a worse management team because the stock is down 36% from 12/2021? Generally, I think the large high quality guys (MAA/CPT/ESS/EQR/UDR/AVB) etc should be expected to be run like they always have, which generally provide decent returns to shareholders w/ low risk (but not wild and crazy super high @gregmal returns. For something like ELME. ELME hasn't existed in its current form until like today. Until 2021 it was a multi-asset regional REIT. Now it's a single property type REIT of decent scale. but the mediocre mgt remains same, but it's probably a slightly easier target.

i thought we were talking "pre-covid". Of course everything is going to look bad bringing to today. We've had cap rate expansion of 200-350 bps and drawdowns of 40%+. that's the appeal right? a nice reset of expectations and pricing which works at low rates of rental growth. the way we lose substantial money from here is if we get MANY years of negative rents/big declines in occupancy. the 10 yr return on bloomberg apartment REIT index is 7.8%/yr, 5 yr is 3.4%, 2 yr is -10.5%/yr

from 1993 to 2021 apartment REIS returned 12%/yr / 23x w/ divvies reinvested. if you end at 8/2023 it goes to 10%/yr and 17x. I don't really know which start date to pick, but 1/2014 to 12/2019 is 14-16%/yr for apartment REITS, 16%/yr for ESS, 16% / yr for CPT, 14%/yr for EQR. it's 11-12%/yr if I start on 12/2016, 9-14%/yt if i start 12/2011. it's weird to me you think apartment REITs didn't do well pre-covid. They did spectacularly in the 2010's. I wouldn't expect that going forward. I think right now, they are (without re-rating) HSD IRR's which offers a premium to bonds and TIPS for very low levered properties. Good stay rich stocks. They're not gonna be get rich stocks unless something changes with financial conditions. most NAV's / green street stuff at peak was like 4% cap rate, 6% unlevered IRR assumption. No we're like 6-7%+ cap rate and 8%+ unlevered IRR assumption. that's a meaningful change. but the ability to flip to BREIT at some stupid price is no longer there.

I disagree with this. It's not a given that there is a public market discount. It's cyclical and the LT average is actually a slight premium (of 2%) according to Green Street. REITs do not have an incentive to go private. I'll concede that, but most studies suggest public core RE outperforms similarly levered private core real estate. The idea that a) public REITS "always" trade at a discount and "always" underperform is not supported by data. So in terms of optionality, I'd say there's scenarios where in 1,3,5,10 years thinks look different and you trade at NAV for whatever reason. obviosuly a 1x big move up on a take private has its appeal, but you could just have something more mundane happen (like record outflows stop happening) or whatever. I think there's plenty of ways for the HSD IRR to become a LDD IRR (but only one way for them to become short term 50%+ whcih is take private which can't happen at current financing)

I don't think outright take privates will occur, without a change in the cost of financing. I think most of these are likely to return high single digit IRR's with relative safety, with a degree of optionality. I think they offer a return profile that is higher than say 10 yr TIPS. You're buying <40% (in some cases <30%) levered diverse portfolios. I don't think one should expect to get paid anymore absent panic in the market causing lower prices. I think that's attractive. As an illustration of the type of things that can occur, UDR sold in JV a portion of its older properties at low 5's to cash institutional buyer. REITS can slowly JV/sell assets, buy back stock (or one can buy back w/ divvies), provide capital to overlevered owners, etc). they're cheaper / better capitalized than anyone. but that doesn't mean they're going to provide crazy high returns. the math isn't there and leverage not high enough. https://www.businesswire.com/news/home/20230629089950/en/UDR-Announces-Formation-of-510-Million-Joint-Venture

I think this is a great point and to be clear, I have positions in CPT, ESS, MAA, etc that are more in line with this thinking. In steady state, I'd probably expect them to grow in value at greater rates than ELME. But I think at this price, recognizing it could and probably will get cheaper, one should also mix in some ELME. the low leverage is such that you'll start to get pretty wild headline per units/cap rates with another 10/20% down. Like these folks may not be super wealthy yuppies, but new renters in their washington metro area apartments make $92K/year...the per unit value ($170K/unit to $200K depending on watergate) seems pretty darn low in that respect, right?. also with rates are, people who make $92K have to save a hell of a lot of money to be able to buy a home. renting is much more affordable than buying.