Red Lion

I think there are lots of good deals in the markets right now, but I think we might be quite far from a bottom. I could see the FED raising interest rates until something breaks. I'm not a market expert by any means, but I have not seen signs of forced selling which seem to be the hallmarks of equity bottoms. Maybe this is because people pulled equity out of their homes to invest in the markets rather than using margin loans. I have a large cash position, because I've been hoping for an opportunity to deploy into real estate. Right now I'm seeing a lot more in the public markets that looks interesting, if we see signs of forced selling I'm going to probably consider just putting this money into public markets instead of real estate.

I sold my position a few months ago into the strength for around a 10% long term capital gain and reinvested the money in other areas (that are all underwater right now). I am conflicted, I think the valuation is solid, Juul is a non issue, they've always managed to raise their prices faster than they lose customers, but that certainly seems to be slowing down. If FDA cuts nicotine by 95% in cigarettes, maybe that would be the final nail in the coffin. Are you opposed to tobacco investments generally, or Altria in particular because of its huge exposure to the US regulatory risk?

I've been adding to BX over the last few trading sessions in the low 90s. Would like to build this into a big core position especially if it keeps going down closer in valuation to the other alt managers. Seeing a lot of other companies I've been interested in that I think are buys right now. META/GOOGL/AXP/WMT/LEN.B/MO May be adding to these soon, I've been trying to hold onto more cash for this downturn and add in a more measured pace until we see how far the FED goes with interest rates, and when and where the forced selling starts.

You're probably right about this too. I don't see any big reason for distress in the housing market specifically, but lots of reasons for sales volume and new construction starts to decline and rents to continue to rise. Most regular young families can't afford homes in lots of the country, but those who already own them should be in no rush to sell with equity and a substantially below market rate mortgage. Where I live in California median homes are 11 or 12X median family income, and this is a historically affordable part of the state, at 6% mortgages this doesn't really make sense to the marginal buyer, and I don't think I would find it very attractive even at 20% lower prices. I know a lot of the west coast is like this right now and many parts of the country and the world. Meanwhile I can buy new houses in some growing mid size cities in the South for under 4X median family income which seems much less sensitive to 6% (or 8%) mortgages, and probably make a 4-4.5% CAP rate, I'm sure the locals are still complaining but housing looks very affordable from my position. I think there's still a lot of population migration to more affordable communities likely to happen over the next decades, which I know is a theme you've had a ton of success with. It seems like a lot of the long term destinations are now hot markets, and no longer super affordable based on local fundamentals (e.g. Austin, Miami, Nashville, raleigh/durham, Atlanta), but there are a lot of other cities that seem to be up and coming at better valuations.

I think we are in agreement, and I think these types of assets are incredibly attractive right now. I've been thinking of buying single family houses with cash in some of the still moderately priced sun belt markets, putting property management in place, and trying to get 4-4.5% cap rate and hopefully significant rental increases over the next 5 years. I'm seeing cap rates like this around Columbia, SC, Huntsville, AL, or Little Rock, AR on new or newish single family homes. With interest rates higher than cap rates, buying with cash seems like the only viable alternative here to avoid huge carrying costs, so I'm hoping that means we see some inventory stack up, and I can get some higher cap rates on cash purchases even if prices don't fall very much.

So I see CMBS loans in the 5.75% minimum range. This is a super prime asset I would think with good location in NAPA and a ground lease and some lease escalators, but I'm not sure how you would finance this. Running some numbers I think you would need to put down somewhere around 60% of the asset price to get decent DSCR numbers and that would yield only a 2% Cash on Cash return after paying debt amortization. So something like this seems like it must be an all cash transaction or at least very cash rich transaction, or some type of bond substitute, especially with 5% rent increase every 5 years which seems destined to underperform inflation on the cash flow side of the deal. Maybe the idea is that this real estate will be worth much more in the very long run as NAPA continues to benefit from Bay Area and international tourism which seems possible.

Right this makes sense. I find BX,BAM, etc. to be attractive investments in their own right, but for someone who's trying to put a significant cash position into private real estate on reasonable terms (5% CAP rate in areas with long term tailwinds) the timing just couldn't be worse. I highly doubt these institutional homes ever get sold onto the market again (probably shuffled among each other, or just left in core products forever and refinanced every so many years). This certainly seems to make the backdrop that much more favorable for the long term for single family housing.

This is exactly what I worry about. I know there are people that made great money doing this in cities like San Francisco, but this is happening all over the country and in the sunbelt, and it just doesn't make much sense when these were always cash cows, and now you have to hope to increase rent 50-100% just to earn a fair cash flow return with leverage. I'm curious how companies like Blackstone are doing this. I'm assuming they have lower funding costs and serious economies of scale, but it's still hard to see how they're getting any cash flow up front, or maybe they just aren't getting any cash flow up front and this is purely a growth investment.

This is essentially what I'm doing. I haven't sold any investments, but I have not been investing cash quickly enough so I'm sitting on essentially a 40-50% cash position. I'm also looking to dip into real estate if I see opportunities. I live close to Lake Tahoe, and would love to buy a cabin there from a distressed tech bro, prices seem to be rolling over there as well, but would need to fall a long way before I would want to pull the trigger. It makes me uncomfortable to hold this much cash while we are seeing such high inflation, but I don't know what else to do.

Make sure all of you home and rental property owners keep raising your limits of coverage on homeowners insurance and not just sticking with the inflation adjustments from the insurance company. I'm sure this is very market specific, but in California the replacement costs have gone up exponentially to the point that most homeowners are way underinsured.

So what's the best thing to invest in with stagflation? Real estate, gold, commodities, royalties? Real estate seems ideal to me all else being equal, but cap rates are running below cost of capital, so I'm not really sure how that factors in. Most of these things seem like they're already priced as if they're the consensus right now.

And the fed tools would be raising the target rate plus (accelerated?) QT to get there. It seems like this would be designed to have a disproportionate impact on housing. Maybe transportation, and likely not on food and energy. I’m conflicted about where to invest now. I see some good opportunities in the stock market, but I would really like to buy cash flowing rental real estate that’s conservatively financed and producing NOI that I can offset with depreciation. 2 years ago you could borrow at 3.5-4% and get a 5-6% cap rate on a newer single family home in the sunbelt or Midwest markets that I follow. Now you can borrow at 6.5% and buy with a 3.5-4% cap rate in the same markets or sub 3% in the hot markets. Sure you can make money, as long as prices and rents keep going up and you have enough reserve to stomach the negative cash flow until they catch up. But I personally would want NOI > cost of debt capital going in at a bare minimum which seems impossible now without buying shitholes.

Agreed that this is a wild outcome. I bet the plaintiff's lawyer bought a vacation house in one of JOE's developments with his fee.

So I work in this field, and the deal is that insurance is a contractual arrangement. Most, if not all states, have an implied warranty of good faith and fair dealing implicit in every contract (insurance or otherwise). A lawsuit can be brought for "bad faith" or breach of the warranty of good faith and fair dealing, and the damages for bad faith are not limited to the contractual limits set in the first place. So if an insurance company has an underinsured/uninsured motorist coverage for $100k, you're rear ended by an uninsured motorist and suffer severe injuries, medical treatment, physical therapy, out of work, in severe pain, miss a family vacation to Portugal, etc. etc. and then your insurance company refuses to pay out your policy limits, and offers a $50k. Then you go to arbitration, and your damages come in at $300k. This would be a good case for a bad faith lawsuit, and damages can include the attorney's fees for arbitration, emotional distress related to your insurance company negotiating in bad faith, and even punitive damages. Your insurance company never has to accept an outrageous settlement offer. If they offer $90,000, and the arbitration comes back at $95,000 or $101,000, it's unlikely that a bad faith lawsuit would make it very far IMHO. So these issues do make insurance a tough business, but they're also all baked into the underwriting. So the more insurance claims, higher payouts, and higher legal fees on every case = higher premiums = growth in float. More expenses are actually a GOOD thing, as long as they're adequately underwritten. One of the tough things right now is that used car values are going up in an unprecedented fashion, so property damage losses are coming in higher than expected. With inflation, there will likely also be inflation in pain and suffering awards which can cause a short term hit to underwriting results, but also should result in higher premiums and more float on a long term outlook.

Small add to APO and KKR

@thepupil Nice call on this. I took the opposite side of this trade, fortunately not a big position, and sold short some TLT and bought puts on TLT. TLT is about 1.5% below my cost basis, but the puts are all down pretty dramatically, I have until August so I'm going to leave the trade on in either event. I'm curious how QT is going to play out with longer term yields. It seems like the FED could conceivably continue to raise short term rates, and prevent inverted yield curves (at least for a while) with accelerated QT. I'm making a not so educated guess that the FED is trying to slowdown the housing market, and it seems like 5% mortgages aren't going to do all that much. I have a very large cash position (not due to market timing, but a private investment has been paying off handsomely) that I'm using to buy into stocks (and hopefully private real estate) on the way down. I've bought all the I bonds I can, but have been thinking about moving all of my cash into Treasury Bills to automatically roll over. I did the math, and being in a high state income tax bracket in California, this is a no brainer compared to CDs or high yield savings accounts. Just placed a small order on Treasury Direct for 4 week bills to automatically roll over, I plan to move the vast majority of cash over to treasury direct, although I'm looking at durations between 4 weeks and 2 years.

Added to APO and BX. APO is much cheaper, but I promised myself I would add to my BX position if it got to a reasonable valuation.

I sold short a very small position in TLT, and used the proceeds to buy ITM, slightly OTM, and very OTM. Very late to this trade, and I'm only dabbling in small amounts. If rates on the long term melt upward though the next two Fed meetings, this might provide a little green in a sea of red for my portfolio.

Added to APO.

APO with a 59 handle.

Glad to get some reinforcement that I’m thinking of this right and agreed that the 2 year looks attractive. I’m not willing to go much longer on duration but it would take a sharp increase in interest rates to do worse than a bank account here. Will probably try to buy in both my accounts to experiment with the platform. I think for Schwab this needs to be a broker assisted transaction or else I’m just missing stupid and can’t figure out how to place this as an electronic order.

I’m experimenting in small doses with short selling. When I put this on in December I felt like AAPL was overextended, and I had a big indirect position through Berkshire Hathaway. So I sold aapl short and then rolled the short sale proceeds back into more Berkshire shares at around $280. In the longer run I’m not an experienced short seller and it makes me uneasy remaining short on a great company like aapl even though it was only a partial hedge for the look through aapl stake from Berkshire Hathaway. It’s not a big position, so I decided to take a ~10% gain covering my short and will pay the margin back and hold the Berkshire shares long term. I have a big position in bam and I’ve been thinking of short selling bepc/bipc/bbuc to get more exposure to the asset management spinoff so I may experiment with a similar strategy here.

Thanks for the recommendation, I have read that thread, and hit my allocation for I bonds.

I've been trying to weigh the advantages of buying individual treasury notes in lieu of holding cash. It seems like you could get about 2% on a 2 year treasury note, but a fraction of that through a CD or high yield bank account. It seems like if I needed fast liquidity I could always sell the treasury notes before maturity, but otherwise at least get some yield. Does anyone do this? Do you just buy the notes through your broker? I need to reach out to see if I can do this at Chase or Schwab which are my two current brokers, although I could set up a separate account if there's a better platform. I prefer the idea of buying individual notes rather than buying a bond fund to avoid fees or unintended exposure to longer duration or riskier assets. Also, it looks like you can buy these on treasury direct, but I'm not sure how you would go about selling them before maturity, so I feel like doing this through a brokerage would be preferable.

Covered my AAPL short at $159. I went short back on December 15 at $178 and plowed the proceeds of the shortsale back into BRK.B (which is up ~17% in the meantime). I'm holding onto the BRK.B, used margin to cover AAPL short.