Gregmal

So multiple years later you can’t afford the same rate the mortgage was when you purchased?

The tech framework used for investing the last decade isn’t going to work going forward. I think some stuff has gotten cheap, but even there, it’s gonna be awhile. Lotta folks learning the hard way. I mean AAPL and GOOG not long ago traded at like 15x. It’s not inconceivable that at some point Mr. Market assigned that to AMZN, NFLX, SHOP, etc. and if he wants to use real GAAP earnings? What are the share prices then? I wouldn’t not be a buyer for the longer haul. Just mindful that you are basically making private placements at this stage in the game because these sort of reckonings often take a while to sort out.

I sense a lot that people are just mad. Savers are mad they didn’t get in on the free money bonanza. Bad or lazy investors are mad that now buying SHOP at 60x revenue doesn’t work simply because it’s “cheap” compared to 70x. The leverage crowd is mad because it’s more expensive to put on less profitable trades. And FANG investors are mad because price is what they’re paying but value is still scarce in GAAP terms, or just generally if you account for things like SBC. But really, all this was just a great chance to dance. Now you actually have to earn your returns. People don’t like having to work for things.

I’ll copy and paste cuz I’m lazy and sent out like the same thing to several people already but I think there’s a much simpler reason for much this this and people feel comfortable using the Fed as an excuse or blaming them for every market move. The explanation is much simpler IMO and it started before the Fed did much of anything: End game here, little of this makes sense in any context other than well, ridiculously overvalued tech stock bubble burst. Funds owned way too much of that stuff and are now getting blasted. Too much leverage forces wind downs. Seems to be consistent with that read and how markets have been acting for last year or so. I don’t really believe that the 10 year going back to 2018 levels is really doing this. That’s just the excuse or maybe the straw that broke the camels back.

I think before we do anything we need a “this is what happens when…” explanation for these events. Added a hair to eBay

Sure, you have to use your head. I don’t know why anyone thought last year, that the inflation wasn’t going to persist longer than everyone was telling us. I was shocked you kicked the Stelco cuz you were on it too. If I’m recalling accurately, you got the lumber trade right. Both seemed pretty obvious along with crude and nat gas, at least to me. But with the actual adjustment of rates, you have to ask why they’d deviate from what they’ve communicated? It’s one thing to say you think inflation is transitory. But so what? That’s a guess. So is predicting what happens in June with the start of run off. You know for certain? I don’t. What’s Powell gonna say? Well I think the Nasdaq will fall 4.7% but the S&P being a little more diverse only 3.9? That is dumb. Why rail on him for making an obvious statement or refusing to attempt to predict something like that? Consistently I’ve seen this bizarre animosity towards the Fed. For basically the whole decade. My father does it all the time and on and on about how incompetent they are as if it’s personal. And finally one day I asked and he didn’t have a good answer for why he feels this way but did mention how he thinks they are “stealing” from savers by manipulating interest rates. And then it kind of made sense to me. He s older and risk averse. And feels entitled to interest. But guess what? Life changes and just like David Tepper did on the spot in February of 2009, he listened. They told you what their goals were and what they were going to do. And if you missed it, because you wanted to earn interest, who’s fault is that? The Fed has never desired to destroy wealth, just kind of balance things. They basically said “we re going to fix the economy”. They have done that. Now they’re saying “we re taking the training wheels off”. It doesn’t necessarily have to mean the entire market is going to implode or that they’re going to wreck the economy just cuz. Most people are doing well. They bitch, but it’s their choice. I was picking up my son from a Lego themed engineering class(he s 5, how awesome is having classes like that? Wish I did) and this mom is talking to another mom bitching about how her new Buick SUV cost $6k more than sticker because of the dealer mark to market price bump. And I just thought, “you bought it though right?”. And that’s the thing. Everyone’s got their complaints and yea stuff is more expensive, but folks can handle it to a greater deal than the WS spreadsheets seem to think. So no, the Fed probably doesn’t find it terribly urgent to fuck up what they’ve spent a decade restoring. They’ll stick to the plan, and hike 50 or whatever amount of bps they’ve communicated until shit slows. As I’ve detailed before, the majority of this stuff is just a matter of time before it fixes. Cars aren’t hard to produce. Eventually things will get back to normal and folks will have as many of them as they want to purchase at MSRP.

Yea but this is why this spreadsheet shit with real estate gets annoying. Because it lacks context. Why did rates go from 2.5 to 5? Cuz your home value went up 30%.

Isn’t there a degree of bias here though. It seemed obvious in terms of one thing, the Fed has been VERY GOOD at communicating their intentions. They told us this is what they are doing. But at some point the computers and fear mongering outlets drew up this wild thesis that they’d go rogue and raise unexpectedly by 75 bps MULTIPLE times? This started driving thing. But ultimately Powell did and said what he s said all along, no?

Thats also not really how it works. You could have bought AAPL 5 years ago cheaper than today too. Things grow in value. Homes have lots of "things" that are appealing to people working in their favor. Get a big event like covid and that forces people to make decisions. First your parents move. Then some friends. Then you look at the numbers? Speeds things up. Just cuz stuff goes up doesnt mean its less attractive. The only answer is a) build more if you can to bring price down, or b) beg the Fed or politicians to destroy stuff so you wealthier brethren can take it cheaper. Thats all that really happened in the aftermath of GFC. Wealthy folks got amazing deals on desirable real estate. Maybe vacation homes too.

Thing is if you own a house you don’t need to buy and take out another mortgage. If you are looking to move, you can move to places that are better and cheaper. If you don’t own anything you’re kinda fucked. A $700k home in NY with a 500k mortgage also carries probably $15-20k in property taxes, maybe more, Another $10k state taxes at least. My place in Florida Keys is ~$800k and taxes are $4k annually. Even if you don’t own, the benefits and work from home tailwind make a difference. That’s why it’s dumb to fight a secular trend.

Do the math on a couple who gets a 10% bump on wages, and decides to move from NY to FL. Even if you used dislocated theoretical figures like only a 10% pay increase, but mortgages doubling, it’s still favorable. However right now, lots of folks are getting 10-20% raises(if they want them) mortgages are 5.5% up from 3.5%, and reducing annual property taxes and income tax is just another big lever.

People completely miss factoring in wage inflation when doing their thing with the whole rates rising doomsday thesis

Leaked transcripts from the Fed: Highlights: -"Average folks are doing too well, we dont want competition for goods and services, have you tried getting a reservation at a good restaurant lately?" -"Everyone has too much home equity. If we jack up rates we can at least keep those annoying social climbers where they belong" -"I was disgusted, being a Wharton grad with five generations of members at the country club, to see some younger guy arrive in a Porsche. Smells like speculative excess to me!" -"You know, I am just not that confortable investing in the stock market with so many plebs. We dont want any more Melvin situations. Its just so much easier making money on investments when the only people participating are playing by the rules we all learned at Columbia Business School" -"You know, I have this theory, that if we start scaring the market, the first to go will be the uneducated plumbers. Why theyre even in the market, I dont know. But theyre probably using leverage too. Not responsibly like Bill Hwang, but like ignorant poor folks do. If we wipe them out we can put our cash to use" "Anyone finding it hard to get a vacation home? My third property in Hilton Head is overrun by new buyers. Its horrible. Some under 30 couples as well. They need to be stopped" "I think the easiest way to spin this is that crushing lumber and steel price inflation helps the normal people. They are probably too dumb to realize it will also deflate the value of their homes so lets just focus on the smaller picture stuff" "I'm am frankly soooo tired of constant messages from our friends. Ackman, Pelosi, and Einhorn keep sending late night rant emails about how we need to move faster on rates. Theyre cash up, holding their desired derivative allocation, and just waiting for the opportunity to buy all the stonks and real estate they want from all these annoying middle class aspirers. Please note, avoid using the term wealth transfer at all costs. Instead, use "speculative excess, tide going out, reining in inflation, irresponsible capital allocation".

Labor markets for instance. How fuckin easy is it to responsibly be a world leader in practical immigration? Canada does this well. Instead we need a border circus breeding criminals. Literally, entering illegally is a crime. So the majority of the people we are encouraging to come here are criminals out of the gate. Why not fix the system and open the doors to people who want to do it the right way? Lots of people in Eastern Europe who probably want to take that up right now. Programmers and engineers. Blue collar….too easy. So yea interest rates don’t fix this either.

It also makes sense for valuations to loosely get higher over time. Simply put, there is an expanding population and supply of money but a relatively fixed or substantially slower growing pool of desirable assets. Housing again is a good example of this. Good house on a good street in a great hood is just gonna go bottom left to top right if all else remains equal.

Put another way, look at the beginning of the whole COVID ordeal. There were SEVERE mask shortages. You couldn’t get them if you wanted to and if you really had to, you got ripped off on pricing. What did we do? Incentivize the production of masks, ventilators, and all that junk. And what happened? Masks went back to normal prices, many places are now giving them away for free. The stuff people are all stressed out about ain’t all that much harder to produce than masks were. Building a house? Sure. Can’t do it overnight. Produce a fuckin 2x4, sheet of metal, or computer chip? Come on.

Eh 50% would be pretty wild. I could see another 10-15% maybe. The Fed wants to control inflation why? The answer to that is the same reason purposely destroying the markets, peoples savings, job security, etc is of no interest to them. Not to mention most of this inflation is not solvable with any amount of rate hikes. Get the president to stop focusing on stupid shit like Ukraine, COVID, abortion and green energy and get supply chains and infrastructure fixed. Commodities are driving the inflation. It’s pretty freakin easy to understand that commodities are all supply and demand. Gas can go to $1500 a barrel and rent to $5000 a sq/ft, people still need both. If you price people out of both you create poverty/third world conditions. Why would they do that? You can incentivize fixing the issues or you can just hand waive about broad “inflation” and rates. The politicians obviously don’t care but I think the Fed does have some understanding that raising rates for things such as the above becomes unproductive at some point.

Wait til the VIX is over 30 and then short 10% OTM puts on stuff you wanna own. It’s fool proof. Closest thing I’ve come across to free money

Don’t think it’s inclusive but Cheeca Lodge is A+. Chef Michaels and Kaiyo are right next door as well and easily the best food in the area.

Haha add in some ALCO and recently raised FRPH allocation and that’s pretty much it!

Somehow I have a feeling this topic may get interesting lol

Yea there’s definitely beneficiaries but it’s harder to gauge what’s sustainable in some ways. People last year said steel/iron ore “had to” come down because it always does and that’s the cycle. Same for lumber. People claimed there was a real estate bubble in the US before COVID, during COVID, and after COVID. Entertainment for instance, secular tailwind pre COVID and now people can’t get enough. Outdoor related stuff…same thing. That’s what I’m having trouble gauging.

How do you classify earnings enhanced by COVID? It seems flawed to draw that conclusion because 1) Government and COVID stole a year of earnings in 2020 and for some companies most of 2021 earnings. Airlines for instance are just finally being able to fly without restrictions 2) the true COVID fad companies like peloton and zoom are off like 90% already.

Why not a bit of everything? It’s all highly personal. But what elevated my investing to another level is when I came to the conclusion that you should ALWAYS have something that is working. It is more about correlation than diversification.

There is a difference between stretching, and not being able to afford. People who had no business getting loans got approved for houses they had no business being in, at the max that could be justified using an ARM with a teaser rate. Totally different than anything we had or likely will ever see again in the housing market. Too many people are still scarred by the GFC to have anything resembling a repeat occur for a long time.