Have We Hit The Top?

[thepupil]

19 minutes ago, Gregmal said:

Yea I’m super fat and happy on 30 year fixed at 3/4/5 rates from primaries to investor loans. No plan to sell but if a bank said hey that $450k mortgage can be paid off for $325k I’d probably consider it, or at least do partial buybacks if available. But knowing the system if I say hey I got this one here at $450k with a 3.25% what’s the payoff they’d say $452k lol and it’s like ok enjoy your NIM

 

the market is basically offering you your mortgage at $382K / 84% of par /  ~6% yield, not quite the 70% of par you seek, but basically you are saying you are a buyer of discounted fixed long term obligations.....which are...wait for it...bonds! 

 

The mortgage backed securities index

 

 

 

 

[Gregmal]

10 minutes ago, thepupil said:

 

the market is basically offering you your mortgage at $382K / 84% of par /  ~6% yield, not quite the 70% of par you seek, but basically you are saying you are a buyer of discounted fixed long term obligations.....which are...wait for it...bonds! 

 

The mortgage backed securities index

 

 

 

 

Haha nice. I guess it’s ultimately the lens you look through which shapes the view.  

[TwoCitiesCapital]

1 hour ago, Spekulatius said:

the bank likely does not own your mortgage - certainly not if it is a conforming mortgage. The mortgage is owned by  by some MBS fund with thousands of other mortgages packaged together. That construct makes it probably not feasible to buy out individual mortgages.

 

Even if a bank does own your mortgage fully, i don't think they would buy it back because they would immediately realize a loss which would create a hit for their equity. Better to extend and pretend as this does not impair their capital (from a regulators perspective).

 

 /\/\ this

 

You'd have to take enough of a haircut on the balance/economics to incentivize them to want to commit to an MTM loss through the income statement as opposed to hiding the loss in HTM on the balance sheet 

[Cigarbutt]

11 hours ago, ValueArb said:

 

What is this measuring? Because its not correct for the US, as federal debt alone was 130% of GDP in 2022, and I don't believe that is counting state and local debt.

It's measuring global debt which is the US and the rest of the world (about 190 countries and total).

[UK]

6 hours ago, Gregmal said:

Is there actually a legitimate way to do this? Would imagine getting a payoff quote aint getting you a discount to amount outstanding. 

 

Only if you live in Denmark?

 

Borrowers may redeem their mortgage loans at any time without negotiating the price, as prepayment may always take place at the prevailing market prices. Danish mortgage borrowers may terminate their loans by buying back the mortgage bonds in the bond market and delivering them to the mortgage bank. This option is referred to as the delivery option or the buy-back option. The buy-back option applies to all mortgage bonds whether callable or non-callable.

[MattR]

This market is completely insane. Tesla added 150b in market cap in less than 15 days, Nvda over 250b on basically no news. Every company with a terrible balance sheet is rising as though rates have already been cut.

At the same time rate cut expectations are for March. We had the same this year as well, but rates rose and stock rose in tandem. 

[mattee2264]

If stocks are worth 20x earnings at 5% yields and 25 times earnings at 4% yields then not surprising why we are seeing big swings based on rate cutting expectations. Especially in growth stocks like Tesla and Nvidia where most of the value is in the terminal value and therefore very sensitive to discount rates.

 

But of course the above arithmetic assumes no change in earnings. If rate cuts are accompanied by falling earnings or slower growth then that is a negative valuation factor. 

 

And I think the market is being a bit too optimistic in thinking that we can get lower inflation and lower rates and continue to grow at 3% a year. And if growth does slow to 0-1% then that is going to have a negative impact on corporate earnings and growth rates. 

[MattR]

Just now, mattee2264 said:

If stocks are worth 20x earnings at 5% yields and 25 times earnings at 4% yields then not surprising why we are seeing big swings based on rate cutting expectations. Especially in growth stocks like Tesla and Nvidia where most of the value is in the terminal value and therefore very sensitive to discount rates.

 

But of course the above arithmetic assumes no change in earnings. If rate cuts are accompanied by falling earnings or slower growth then that is a negative valuation factor. 

 

And I think the market is being a bit too optimistic in thinking that we can get lower inflation and lower rates and continue to grow at 3% a year. And if growth does slow to 0-1% then that is going to have a negative impact on corporate earnings and growth rates. 

I mean sure, but we are talking about stocks trading at over 100x earnings here. So they already did not price in the 5% yields anyway. 

PPI is negative today. Bad news is good news I guess. 

[Luca]

Stumbled on this nice Keynes quote again today, really relevant still today. "Anything we can do, we can afford." Its time to go long! 

 

 

 

 

 

Edited November 15, 2023 by Luca

[Spooky]

31 minutes ago, Luca said:

Stumbled on this nice Keynes quote again today, really relevant still today. "Anything we can do, we can afford." Its time to go long! 

 

 

 

 

 

 

I like it

[james22]

I find myself relying more and more, for a solution to our problems, on the invisible hand that I tried to eject from public thinking.

[changegonnacome]

1 hour ago, Luca said:

Stumbled on this nice Keynes quote again today, really relevant still today. "Anything we can do, we can afford." Its time to go long! 

 

Irony of ironies is that the USA decided to only build, back , better and spend some money to fix its crumbling infrastructure & airports not during the period where the 10yr treasury was sitting at 2%...or the 30yr at ~3%......but rather decided to start investing when the 10yr was almost 5%!

 

It'll be viewed as a curious time when economic historians look back and see the Governments of the USA, the UK and much of Europe effectively disinvesting in their own fixed asset bases while the cost of capital to those same governments were at hundred year lows.......I saw the UK numbers somewhere and during the 2010's it was deemed that the UK failed to even spend a level that might be considered maintenance capex on its infrastructure base. I suspect, judging by the airports etc, the same calculation applies to the USA but havent seen it anywhere.

[Luca]

Just now, changegonnacome said:

 

Irony of ironies is that the USA decided to only build, back , better and spend some money to fix its crumbling infrastructure & airports not during the period where the 10yr treasury was sitting at 2%...or the 30yr at ~3%......but rather decided to start investing when the 10yr was almost 5%!

 

It'll be viewed as a curious time when economic historians look back and see the Governments of the USA, the UK and much of Europe effectively disinvesting in their own fixed asset bases while the cost of capital to those same governments were at hundred year lows.......I saw the UK numbers somewhere and during the 2010's it was deemed that the UK failed to even spend a level that might be considered maintenance capex on its infrastructure base. I suspect, judging by the airports etc, the same calculation applies to the USA but havent seen it anywhere.

Yes, it was a catastrophic underfunding of everything and tax breaks particularly for people well off in the west. Everything starts crumbling now, hospitals dont have places, trains not running on time, not enough educated personnel in many sectors, underinvestment in diversified energy (europe, russia), underinvestment in local industry (industry too much in china), its crazy. Private capital wont invest because returns are difficult to be made because of the huge consolidation in many sectors over the last decades and there is a lack of demand because the bottom got squeezed out. Only solution would be a large scale keynesian boost+regulation IMO. 

[Luca]

Raising rates even further consolidates the status quo, a final squeeze! In Germany politicians are not willing to spend much at all, meanwhile we have a completely dysfunctional health sector, public mobility sector, public institutions are absolutely broken etc...and liberals continue running this country as a private household. The left is completely useless too because of a crazy immigrant strategy and boosting social safety nets instead of boosting wages and willingness to work. We just lack good leaders here, i am personally hoping the newly formed BSW party lead by Wagenknecht can find a balance in our political spectrum.

Edited November 15, 2023 by Luca

[Gregmal]

Nah there’s a simple and capitalist answer; one Trump already raised. Sell the infrastructure like bridges and highways to private enterprise. They’ll take care of them properly. And our government will endure the same fate all poorly managed and over-levered entities do. All that’s fine too. Good for efficiency.

Edited November 15, 2023 by Gregmal

[Luca]

3 minutes ago, Gregmal said:

Nah there’s a simple and capitalist answer; one Trump already raised. Sell the infrastructure like bridges and highways to private enterprise. They’ll take care of them properly. And our government will endure the same fate all poorly managed and over-levered entities do. All that’s fine too. Good for efficiency.

You mean to our PE friends like Bruce Flatt and Co ? They will surely take care of those assets and milk the public even more for the few BN shareholders left on this board.

Edited November 15, 2023 by Luca

[Luca]

Competition and the market should be used where its beneficial, so no essential public infrastructure. These things have to run perfectly without profits and milking in mind. Imagine private equity owning most of these assets, forming a quasi cartel and taking disproportionate amounts of money for a basic service, milking the citizens (US healthcare), i dont think its the answer.

[Gregmal]

7 minutes ago, Luca said:

You mean to our PE friends like Bruce Flatt and Co ? They will surely take care of those assets and milk the public even more for the few BN shareholders left on this board.

Nah Flatt will be chillin with Mike Pearson by then.

 

Ackman will be President of the USA. He’ll sell a majority stake in US Infrastructure Co to Pershing SPARC IV and all will be well.

Edited November 15, 2023 by Gregmal

[Luca]

2 minutes ago, Gregmal said:

Nah Flatt will be chillin with Mike Pearson by then.

 

Ackman will be President of the USA. He’ll sell a majority stake in US Infrastructure Co to Pershing SPARC IV and all will be well.

xD

[changegonnacome]

9 minutes ago, Luca said:

Only solution would be a large scale keynesian boost

 

I think that's where we're headed in the West. For a few reasons:

 

A curious thing has happened due to the wealth inequality divide in the West.......see you create enough people who are poor or feel poor relative to the top 10%......and it distorts the traditional party structures in a two party state like the UK or USA.....traditionally you had poor people vote democrat or labor in the UK........middle income & upper income voted for fiscally conservative Republicans or the Conservatives in the UK. Now I get the Republic party in the USA has that evangelical wing, the liberatrian wing & single issue voters....all of whom can be 'poor'. To that mix in the Republican party you've now added IMO a nearly prototypical democrat voter.

 

So you see the issue now is you build a large enough constituency of in equality in your society.....of actual poor people or simply those envious enough of the top 10% such that 'feel' poor (but to be clear arent!)........well.........you get what we have now.....a growing 'poor' voter constituency base upsets the balance in a two party system and encourages the fiscally conservative party to shop for those voters such that they can hold on to power....so now IMO there is enough poor people in the tent to fuel an element of keynesianism moving forward in not ONE party, both potentially BOTH parties.

 

The bond market shut down the UK conservative parties move to placate the new working class Red Wall voters it had picked up in the last election. The question is what latitude successive US administrations will have.

 

Donald Trump's great innovation was to pull in what you might think of as traditionally democratic voters (or in his case he found voters who had never really voted at all) and he pulled them into his version of the Republican party.

 

Democrats not to be out flanked promised more and Biden with his 2021/2022 trillion dollar bills delivered more.

 

Its why IMO we arent going back to ZIRP - fiscal largese, deficits and give aways wont allow it..... because both parties now in the USA have a constituency inside them that has gained ground to become the swing vote.....that swing vote, in both parties, deep down wants versions of cheques in the mail ala 2020....and well politicians aim to please. It's just another reason why when running a capitalist liberal democracy you really shouldn't let wealth inequality get too extreme....cause all your doing is expanding a group of voters who feel left behind....... left to their own devices they will elect politicians who do nothing but advocate for sending big cheques in the mail to people & will destabilize the system.

[Dinar]

55 minutes ago, Luca said:

Yes, it was a catastrophic underfunding of everything and tax breaks particularly for people well off in the west. Everything starts crumbling now, hospitals dont have places, trains not running on time, not enough educated personnel in many sectors, underinvestment in diversified energy (europe, russia), underinvestment in local industry (industry too much in china), its crazy. Private capital wont invest because returns are difficult to be made because of the huge consolidation in many sectors over the last decades and there is a lack of demand because the bottom got squeezed out. Only solution would be a large scale keynesian boost+regulation IMO. 

Luca, tax rates are almost 60% in the US on high income people in places like NY, CA, NJ & HI.  US needs tax cuts not tax increases.  As for infrastructure investment, yes, we need it, but it has to be done efficiently (not like NY underground at 3x the cost of say Paris), and financed via cuts of social spending.  When in January of 2020 when there literally hundreds of help wanted adds in NY on every street offering $20 per hour + benefits, 25% of NYC was on the dole; something is clearly wrong.

[Luca]

14 minutes ago, changegonnacome said:

Its why IMO we arent going back to ZIRP - fiscal largese, deficits and give aways wont allow it..... because both parties now in the USA have a constituency inside them that has gained ground to become the swing vote.....that swing vote, in both parties, deep down wants versions of cheques in the mail ala 2020....and well politicians aim to please. It's just another reason why when running a capitalist liberal democracy you really shouldn't let wealth inequality get too extreme....cause all your doing is expanding a group of voters who feel left behind....... left to their own devices they will elect politicians who do nothing but advocate for sending big cheques in the mail to people & will destabilize the system.

Yeah, that is basically happening in germany now but its a bit sinister. If you dont have a job and dont work you are eligible for social safety net money which now ironically is almost as high or higher than most lower to middle class jobs because it covers rent, healtcare, money for kids etc. So the left parties had one job, which is to stand for the normie worker and defend his rights but that didnt really happen. Instead you had leftist policies that actually really send money checks to people for doing nothing and making working unattractive for the labor voter. So they failed in that regard. What is a bigger problem is that wages are so low, they havent tackled that issue much yet. 

 

Now the right parties want to get rid of the social safety net but they wont improve labor, the worker who actually works now thinks that the left destroys the system and starts voting right wing, which actually doesnt fully benefit him but he feels he has no other lever to push. In germany close to every fourth person votes right wing now, i do agree with some of their planned policies (increasing local birthrates, stopping migration from people who are not trained workers, incentivicing work etc) but i lack they keynesian and labor mindset that is fundamentally important to our economy too.

[Luca]

2 minutes ago, Dinar said:

Luca, tax rates are almost 60% in the US on high income people in places like NY, CA, NJ & HI.  US needs tax cuts not tax increases.  

Yes, tax cuts for the bottom 70% and increases for the super high income earners+more responsibility in spending--> No more unnecessary money for wars, no funding for bullshit projects at unis etc

2 minutes ago, Dinar said:

 

As for infrastructure investment, yes, we need it, but it has to be done efficiently (not like NY underground at 3x the cost of say Paris), and financed via cuts of social spending.  When in January of 2020 when there literally hundreds of help wanted adds in NY on every street offering $20 per hour + benefits, 25% of NYC was on the dole; something is clearly wrong.

20$ in NYC? Can you even live of off that lol?

[Luca]

Germany pays at least 10% of its yearly budget on migrants, if not more. Its 50b a year, there are many other things that are not necessary, shrink down the parlament, stop funding for any ideologically motivated projects, be diligent in general...

 

You can even think of a more progressive capital gains tax where the 20b USD fund pays progressively more than the 500k household trader. But you gotta get that through the government

 

Things like these would make life better for the vast majority, improve daily life and the rich would still be very rich and happy.

Edited November 15, 2023 by Luca

[Luca]

Ackman said in a latest interview that he likes to be invested in high quality names with small and great unit economics that have pricing power, feel like that fits well into this underfunded economy. People will accept a slight increase in a low fee YT subscription or that the burger gets 5-10% more expensive but with bigger things? Cars etc?