Where do REIT'S go from here ?

[Ulti]

https://news.move.com/2022-07-21-Realtor-com-R-June-Rental-Report-Renting-is-More-Affordable-than-Buying-a-Starter-Home-in-Three-Quarters-of-the-Largest-Metros

[Ulti]

https://www.zumper.com/blog/rental-price-data/

[Gregmal]

Brother in Philly: is this what a recession is? Cheap stocks and plummeting rents? Not renewing my existing lease and taking something nicer for $600 a month less.

 

Sister in Orlando: so bummed. My renewal came in again. After going from $1500 to $1800 last year they offered me $1970 for 18 months. I was able to plead my case and they agreed to come down to $1910 but only for 9 months. 
 

Tale of two cities 

[Spekulatius]

1 hour ago, Gregmal said:

Brother in Philly: is this what a recession is? Cheap stocks and plummeting rents? Not renewing my existing lease and taking something nicer for $600 a month less.

 

Sister in Orlando: so bummed. My renewal came in again. After going from $1500 to $1800 last year they offered me $1970 for 18 months. I was able to plead my case and they agreed to come down to $1910 but only for 9 months. 
 

Tale of two cities 

Well you are just describing stagflation.

[Gregmal]

33 minutes ago, Spekulatius said:

Well you are just describing stagflation.

Prices going down in Philly and up in Orlando is stagflation?

[LC]

Stuff everybody already knew:

 

https://kdvr.com/news/data/wealthy-people-flood-colorado-2020/

[Gregmal]

3 hours ago, LC said:

Stuff everybody already knew:

 

https://kdvr.com/news/data/wealthy-people-flood-colorado-2020/

Nah bro Denver inventory up 30% from the lows. Crash incoming.

 

In other news, how about another 4 cap in retail? Any takers?

[changegonnacome]

+++++ AMC, Bed, bath & beyond....memes stock going to the moon again today........4% cap retail.........is this what monetary tightening via stricter financial conditions looks like? Or does it look like excess liquidity is still in the system fueling the continuation of speculative investment? .......because in reality actual financial conditions are far from neutral and are actually still VERY accommodative relative to the actual inflation rate..........& that the correct posture for a person in a 9% inflationary economy where you can still borrow pretty easily at ~3.x% rates....... is to borrow as much as they can and put the borrowed cash into real assets yielding 4% like your retail unit........and then play the spread on the asset itself....while also playing the time value of money arb opportunity where your paying back the loan next year in future 6-9% depreciated dollars.....& where your real cost of capital inflation adjusted is something like negative 5%

 

People are in for such a wake-up call in September when the Fed has to come out with another 0.75% hike & some very tough talk and guidance on the future direction of rates into 2023. See they have to break the math equation of what I've just described above to reduce aggregate demand. The math can change a number of ways via the inflation rate/interest rate/multiple on the asset but the equation I just described is highly STIMULATIVE and something you'd expect to see in an economy with 6% unemployment where the Fed is trying to resuscitate business investment....not a 9% inflationary economy with full employment & two job openings for every job seeker......its nuts.

Edited August 8, 2022 by changegonnacome

[Gregmal]

I wouldn’t chalk the meme stock stuff up to anything other than the wizards of Wall Street went all in on the shorts in June and July and are now getting scorched. It seems like pretty classic short covering. 

[Gregmal]

I mean I’m sure you saw MSGE even had like 7% short interest. AIV was almost 9%. The professionals are dumber then the folks on Reddit. They just don’t realize it. 

[changegonnacome]

10 minutes ago, Gregmal said:

I wouldn’t chalk the meme stock stuff up to anything other than the wizards of Wall Street went all in on the shorts in June and July and are now getting scorched. It seems like pretty classic short covering. 

 

I'd describe it more like this - its the moment in the casino, when you've lost all your money at the tables and decide to go back to your hotel room and call it quits.......& you head for the room elevators........but just out of the corner of your eye you see an ATM machine and think hang on a second........if I just take out what I lost and put it ALL on RED, I'll make it all back!

 

Two thoughts on meme mania return..........It's the last gasp of the truly degenerate gamblers........and there' still lots of liquidity/cash lying around in checking accounts. For how much longer I wonder......the stock market is a wealth generating and destroying machine......and while the Fed will never come out and say it.......positive wealth effects work when the economy is on its knees, but negative wealth effects work as equally well an in economy thats overheating & needs cooling.

Edited August 8, 2022 by changegonnacome

[Gregmal]

Generally I think speculating about who’s doing daily trading in a security is unproductive, but if I had to do so I’d wager much heavier on the institution side here. I have a few friends and more acquaintances who buy shit like that. Typical retail investors. They’re petrified of the stock market again lol. Have been for several months now. And they’re tapped out of gambling money. They all wanna save back up so they can buy a house!

[changegonnacome]

4 minutes ago, Gregmal said:

if I had to do so I’d wager much heavier on the institution side here.

 

Perhaps - but it all flows from my little math equation which is kind of irrefutable in its conclusion which is borrowing to invest or borrowing to speculate (short stocks) or indeed borrowing to consume a fancy dinner/holiday/boat/bike/car..........is currently a no brainer, they're begging you do it........you'd be plain dumb not to do it.....get out there and spend the shit out of it the math says  

 

Whats the math > Inflation @ 9%.....credit lending at ~3%......negative ~6% real cost of money.........its the kind of real cost of capital one should see after a major economic shock that has decimated investment confidence in your economy and where the monetary authority desperately needs to coax folks out from the sidelines to participate in the economy again. Is that the current climate in the US?

[Gregmal]

Dude you’re gonna get fried if you keep underpinning the assumptions with inflation being 9%. It’s not, and it’s nowhere close to that. 
 

Its an easy number to use for them because now the bar inevitably has to be raised from an unsustainable high caused by one offs like COVID, stimulus and supply chain. It’s the path down. If they do 75 instead of 50 in September what does that do? 25 bps = 10-20% of the indexes again? I doubt it. 
 

Either way, I don’t recall what your overall market views were pre COVID. That was a while ago. But if they were along the lines “the Fed controls the stock market”, “gold and cash should do well”, “the market is a bubble”, “easy money, too much liquidity”, “punch bowl”, etc……just throwing out the usual stuff…and again I’m talk PRE COVID, than I’d be weary of falling back into that bias because it’s a mountain so many died on the last decade and the events following COVID did nothing but fuel them and the head fake on inflation I think ultimately fed into every ounce of bias behind that mentality but IMO it’s still a dangerous game to be playing. I don’t see @wabuffo around here as much as he used to be, but he had previously done a pretty amazing job explaining how much fundamentals DIDNT reflect all this hysteria. 
 

In fact I’ll go as far as to admit I am of the minority opinion that mortgage rates head much lower and that the 10 year heads lower as well, just not as much as mortgage rates cuz the spread already blew out. I mean people in January were trying to claim the Fed HAS to raise to 7% by end of year. Now it’s like, maybe they’ll go to 3. Nice mea culpa(those guys will remain nameless) Which is fine heading into next year where I don’t think you get more than maybe 3-4 months where even the fake and corrupted CPI is in positive territory. 

Edited August 8, 2022 by Gregmal

[changegonnacome]

6 minutes ago, Gregmal said:

Dude you’re gonna get fried if you keep underpinning the assumptions with inflation being 9%. It’s not, and it’s nowhere close to that. 

 

You know Greg i've been clear that 9% forever is not my base case later this year or next......as I've said a billion times but will say one more time......energy/supply chain inflation data will start coming out of the numbers over the next two/three quarters due to base effects....irrefutable and clearly it will.............but what will be revealed will be late 4's - 5%'s underlying stubborn domestically produced, cant blame China/Russia, monetary inflation......you can see it in the non-farm payroll data, its right there and its happening right now even as energy prices deflate.......in a world where you can borrow very easily at 3.x% & inflation is running at ~5%..........the monetary math is still deeply deeply broken if thats the case and if it is your running a highly highly accommodative monetary regime in an overheating economy at likely what is way beyond its natural full employment rate......good things dont happen in that world and Fed will be forced to act aggressively ....but you know maybe the non-farm payroll data in response to energy/supply chain inflation data moderates super quickly....that is possible, lets see.

[matthew2129]

3 hours ago, Gregmal said:

In fact I’ll go as far as to admit I am of the minority opinion that mortgage rates head much lower

Completely agree. 30 year fixed mortgage rates in the 5-6% range while the 30 year forward inflation expectation is at 2.2% is not cheap. Same goes for high yield in the 7-8% range while the 5 year forward inflation expectation is 2.3%. Think inflation expectations are wrong? Then go bet on breakevens. But comparing YoY trailing inflation to the current Fed Funds Rate is completely missing the point. Nobody buys groceries, gas or real estate at the Fed Funds Rate.

 

[Gregmal]

1 hour ago, matthew2129 said:

Completely agree. 30 year fixed mortgage rates in the 5-6% range while the 30 year forward inflation expectation is at 2.2% is not cheap. Same goes for high yield in the 7-8% range while the 5 year forward inflation expectation is 2.3%. Think inflation expectations are wrong? Then go bet on breakevens. But comparing YoY trailing inflation to the current Fed Funds Rate is completely missing the point. Nobody buys groceries, gas or real estate at the Fed Funds Rate.

 

The 2.whatever longer term rates tell you all you need to know about the nature of this “inflation”. It’s just another hoax.

[changegonnacome]

15 hours ago, matthew2129 said:

Think inflation expectations are wrong? Then go bet on breakevens

 

15 hours ago, Gregmal said:

“inflation”. It’s just another hoax.

 

Hoax is a very strong word which suggests a hell of lot of certainty in a macro prediction which I'd suggest, given the complexity involved, folks stay a little more humble on it. Let's see 40 years of falling inflation & interest rates say the trend is your friend & you fellas are right.........but you know trends don't go on forever and at some point there's is a secular inflection point (interest rates move in big decade long cycles) and there's a reasonable macro case to say thats exactly where we are right now.......a global pandemic followed by unprecedented FISCAL transfers (unlike money printing bank reserves in GFC) and the first war in Europe in decades + ramping up of a real life Cold War 2.0 with China all thrown in the pot.........these are the stuff secular shifts are made off. The pandemic though is the doozy....it really really has changed mindsets and approachs in every company I speak too, how could it not.

 

I didnt listen to Hussman and his elk for the last decade and made plenty of money not doing so......I am not a perma-bear and I'm not even advocating for going all in on the inflation & fed funds @ 6% trade........I'm not, I'm hedging my bets.........but I look around and I think about the big picture drivers and I try to polk holes in the secular shift talk on higher rates/inflation.......and I'm finding it hard to polk holes in it and I'm usually pretty damn good at polking holes in things and when I cant........ i start wondering if there are any holes there at all!

 

So when presented with something like that I try do sensible things that work in different macro versions of the world that seem possible/plausible...........while remaining FULLY invested....and where things will work out wether we transition to a new secular period of higher rates and higher inflation or not. Sure one will do better for me.....but the other will do just fine for my financial goals.

 

Think on internet forums just given the format your always somehow labeled as vehemently for or against something. Macro forecasting is hard, almost impossible but sometimes a macro trend is screaming out at you so loud you'd be dumb to completely dismiss it and so you've got adjust a bit. I think this has real real merit in it and why I repeat it here ad nauseam for the benefit of whom ever might value a different opinion on the consensus doing the rounds right now..... which to be clear is "its going back to the 2010's, get on the bull train". The contrarian case isn't welcome and I get that > it to speaks to a fundamentally much more challenging investing climate for the next decade versus the last which is unpleasant to think about it.....but given its unpleasantness it's exactly why you should be thinking about it! Ignore it if you wish but marinate on it for a while before you dismiss.....be careful of ideas your so in a rush to dismiss.  “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. “ – Mark Twain

 

I think COBF participants are gonna do fine with higher inflation & higher rates....... as these conditions favor more value orientated strategies/shorter duration assets & actual 'jam today' cash flow type enterprises than whats been in vogue.

 

But you know step back and these are some of the things below that just scream common sense to me and I find hard to ignore re:higher rates/inflation moving forward........which lets be clear is a minority contrarian opinion......inflation expectations & consensus as @matthew2129 say that we are going back 2.3% inflation & the Fed is gonna start cutting in early 2023......I'm saying based on my read that in THIS instance there's a better than descent chance that the consensus has got this DEAD wrong. You know frame this post or whatever and come back in 18 months and laugh at me but like think about the below drivers:

 

Inflation Drivers:

 

• Deglobalization> inflationary
• Re-shoring/friend shoring > inflationary
• World/China/the West "short people", immigration hot button political issue in the West UK/USA/EU making sensible immigration solve short people impossible > inflationary

 

Demand-Supply shift for Capital = structurally higher interest rates 

• Higher inflation (as per above) = higher rates
• Degloblization/re-shoring of industry> potentially hugely capital intensive activity versus the previous capital light services economy we've had in the West for the last 20-30 years (Google et al)....... leading to increasing demand for capital to build these industries/factories up again (Chips act etc.) = higher rates
• Greening of the economy (Federal EV tax credit in recent 'Inflation reduction Act' with its demands for in USA-battery production is a hint at the future) > huge capital investments required here = higher demand for capital =  higher rates
• Solar/Wind/Grid - unbelievably levels of capital to be deployed here = structurally higher rates

Anyhow for better minds to ponder than me.........some might call the above a laundry list of another 'bear boy' who cried wolf.....but this cry I'm heeding which is rare for me I'v ignored similar for the last decade............so I'm heeding the call more than normal and adjusting my portfolio posture......I'm not going ALL in or out......I'm adjusting my portfolio posture........... MACRO is hard/impossible.......but there's something brewing call it a gut feeling or not but I'm positioning for it.

 

I'll take a break on the interest rate/inflation threads for while....folks are getting sick of me and I'm getting sick of listening to myself..........the next few CPI prints are going to be filled with confirmation bias for those looking for inflation back to 2.3% narratives as energy/supply chain CPI base effects start rolling off......I dont propose to jump in on each thread cheering it lower (I will cheer it lower myself too, i hate inflation!) but lets see what happen when it gets down to 4.5% and STOPS moving down......well we aren't in Kansas anymore then I'll tell you.

 

Chow for now inflation friends.......see you in 12 months time............but I will see you over on the investment ideas threads......where I'll be looking for short duration > low p/e companies with inflation linked pricing power >  that can grow FCF streams ~5-6% sustainably & predictably even in a US printing 4.x% inflation & Fed Funds at 5%  . We'll get an answer to our little inflation conundrum soon enough. I'll be watching with my lips sealed  on it for a while, my lets call it hunch has been splashed across these pages enough for now. I'll haunt you no more.

[Gregmal]

14 minutes ago, changegonnacome said:

 

 

Hoax is a very strong word which suggests a hell of lot of certainty in a macro prediction which I'd suggest, given the complexity involved, folks stay a little more humble on it. Let's see 40 years of falling inflation & interest rates say the trend is your friend & you fellas are right.........but you know trends don't go on forever and at some point there's is a secular inflection point (interest rates move in big decade long cycles) and there's a reasonable macro case to say thats exactly where we are right now.......a global pandemic followed by unprecedented FISCAL transfers (unlike money printing bank reserves in GFC) and the first war in Europe in decades + ramping up of a real life Cold War 2.0 with China all thrown in the pot.........these are the stuff secular shifts are made off. The pandemic though is the doozy....it really really has changed mindsets and approachs in every company I speak too, how could it not.

 

I didnt listen to Hussman and his elk for the last decade and made plenty of money not doing so......I am not a perma-bear and I'm not even advocating for going all in on the inflation & fed funds @ 6% trade........I'm not, I'm hedging my bets.........but I look around and I think about the big picture drivers and I try to polk holes in the secular shift talk on higher rates/inflation.......and I'm finding it hard to polk holes in it and I'm usually pretty damn good at polking holes in things and when I cant........ i start wondering if there are any holes there at all!

 

So when presented with something like that I try do sensible things that work in different macro versions of the world that seem possible/plausible...........while remaining FULLY invested....and where things will work out wether we transition to a new secular period of higher rates and higher inflation or not. Sure one will do better for me.....but the other will do just fine for my financial goals.

 

Think on internet forums just given the format your always somehow labeled as vehemently for or against something. Macro forecasting is hard, almost impossible but sometimes a macro trend is screaming out at you so loud you'd be dumb to completely dismiss it and so you've got adjust a bit. I think this has real real merit in it and why I repeat it here ad nauseam for the benefit of whom ever might value a different opinion on the consensus doing the rounds right now..... which to be clear is "its going back to the 2010's, get on the bull train". The contrarian case isn't welcome and I get that > it to speaks to a fundamentally much more challenging investing climate for the next decade versus the last which is unpleasant to think about it.....but given its unpleasantness it's exactly why you should be thinking about it! Ignore it if you wish but marinate on it for a while before you dismiss.....be careful of ideas your so in a rush to dismiss.  “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. “ – Mark Twain

 

I think COBF participants are gonna do fine with higher inflation & higher rates....... as these conditions favor more value orientated strategies/shorter duration assets & actual 'jam today' cash flow type enterprises than whats been in vogue.

 

But you know step back and these are some of the things below that just scream common sense to me and I find hard to ignore re:higher rates/inflation moving forward........which lets be clear is a minority contrarian opinion......inflation expectations & consensus as @matthew2129 say that we are going back 2.3% inflation & the Fed is gonna start cutting in early 2023......I'm saying based on my read that in THIS instance there's a better than descent chance that the consensus has got this DEAD wrong. You know frame this post or whatever and come back in 18 months and laugh at me but like think about the below drivers:

 

Inflation Drivers:

 

• Deglobalization> inflationary
• Re-shoring/friend shoring > inflationary
• World/China/the West "short people", immigration hot button political issue in the West UK/USA/EU making sensible immigration solve short people impossible > inflationary

 

Demand-Supply shift for Capital = structurally higher interest rates 

• Higher inflation (as per above) = higher rates
• Degloblization/re-shoring of industry> potentially hugely capital intensive activity versus the previous capital light services economy we've had in the West for the last 20-30 years (Google et al)....... leading to increasing demand for capital to build these industries/factories up again (Chips act etc.) = higher rates
• Greening of the economy (Federal EV tax credit in recent 'Inflation reduction Act' with its demands for in USA-battery production is a hint at the future) > huge capital investments required here = higher demand for capital =  higher rates
• Solar/Wind/Grid - unbelievably levels of capital to be deployed here = structurally higher rates

Anyhow for better minds to ponder than me.........some might call the above a laundry list of another 'bear boy' who cried wolf.....but this cry I'm heeding which is rare for me I'v ignored similar for the last decade............so I'm heeding the call more than normal and adjusting my portfolio posture......I'm not going ALL in or out......I'm adjusting my portfolio posture........... MACRO is hard/impossible.......but there's something brewing call it a gut feeling or not but I'm positioning for it.

 

I'll take a break on the interest rate/inflation threads for while....folks are getting sick of me and I'm getting sick of listening to myself..........the next few CPI prints are going to be filled with confirmation bias for those looking for inflation back to 2.3% narratives as energy/supply chain CPI base effects start rolling off......I dont propose to jump in on each thread cheering it lower (I will cheer it lower myself too, i hate inflation!) but lets see what happen when it gets down to 4.5% and STOPS moving down......well we aren't in Kansas anymore then I'll tell you.

 

Chow for now inflation friends.......see you in 12 months time............but I will see you over on the investment ideas threads......where I'll be looking for short duration > low p/e companies with inflation linked pricing power >  that can grow FCF streams ~5-6% sustainably & predictably even in a US printing 4.x% inflation & Fed Funds at 5%  . We'll get an answer to our little inflation conundrum soon enough. I'll be watching with my lips sealed  on it for a while, my lets call it hunch has been splashed across these pages enough for now. I'll haunt you no more.

I think the internet and lack of context create a picture that seems more confrontational, redundant, and headbutty that things really are. The other side/pushback is always good. 

 

The biggest thing I struggle with on the big bear side is simply....quantify it. Few if any do. Its always "you're gonna wanna be in cash". "About to fall off a cliff"..."theyre going to be forced to raise rates"....in addition to the stupid buzzwords like "coming in hot" "stickier than expected" and "money printing"....What exactly does this stuff mean in an actionable way? I was probably on the tech crash before all the guys who now claim to have "called it"...at least in the context that I said short it almost immediately after the vaccine rather than spending multiple years being wrong as a broken record....but when things that you saw as an obvious bubble were down 90% or approaching justifiable valuations, its like, OK, trade is over. With this whole inflation gang bear crew theres never any reason or rationale applied. Everything always has "further to fall" or is "just getting started"...That is certainly not you @changegonnacome, but its most of those loudmouth asshats which is perhaps where it gets tiring hearing it. Most of them just seem to want attention, clicks, retweets, etc rather than seeming to be interested in making money. I won't even get into their track records either. IF the Fed raises 75 bps and then 50, instead of 50 and then 25, does this entail anything significant? To me...even if they do, its not really changing my big picture and if anything, like always, probably creates opportunities. So the context around these sort of things as being big "gotcha/doom is coming" are overblown to me. 

[changegonnacome]

4 hours ago, Gregmal said:

With this whole inflation gang bear crew theres never any reason or rationale applied. Everything always has "further to fall" or is "just getting started"...That is certainly not you

 

Totally get you on the no rational and no actionable info from some of these guys...its bear clickbait....whats the old joke with predictions if asked......give the level but never the timing or if you give the timing don't give a level.

 

Listen I'll just hang it out there one last time........ my US market bear case is a simple reversion to the mean over the next 2-3 years that has been trouted around in 2010's to ill results (I ignored it then it wasnt compelling argument at all, the US was clearly in better shape than the rest of the world post-GFC)..........but if we go back in the US to mortgage rates (~6-7%) and inflation averaging ~3%+.....and we are genuinely short people such that labor starts winning against capital again (BLS data suggests thats the case) & maybe US governments have to dial up corporate tax to pay for all the old people (15% minimum is start of reversing Trump cuts I think)....well first (because of inflation & higher discounts rates) your market multiple reverts back to more average levels not 20x like we have today on SPY but closer to ~15x.......while profit margins (through corp. taxation & increased labor costs) get squeezed back to more historical levels (I maintain 2021/early 22 will be a cyclical record high for US corporate profit margins) so your E is contracting too .....and one amplifies the others cause its a ratio........ put em all together I think you could grind down over time to 2,900 - 3,100 on the SPY in the next 24-36 months and then build out from that base....or your just desperately range bound between 3000-4000 for years...result in aggregate is the same.......growth stocks get even more crushed ..........lsiten I don't a fuck about the indices, they are zero fun....& I do this for fun........but the issue for stock pickers in the US market making a journey from 4100 down to 2900....... is you pick good companies but you just get crushed by the beta no matter how better YOUR companys are versus the indices. Its tough sledding. I'm choosing to step more into markets where I think the beta moving forward is better....I like the wind at my back type thing, but I definitely don't want it at my front........& its why for the first time in a long time I've been grabbing my investing passport and going international stock picking. Your dollar goes a lot further & if I'm right-ish the beta won't be kicking you in the balls so aggressively & I'll have better results. Lets see....time will reveal all.

[Gregmal]

Case in point on the "meme" stuff...NVTA today. Day traded the squeeze a little from the pool but thats one where retail idiots got washed out ages ago. This move is all those clown fund hedge fund guys who overstayed their welcome recklessly shorting. 

[Ulti]

https://www.msn.com/en-us/money/realestate/why-the-rent-inflation-is-so-damn-high/ar-AA10NrMr

[Ulti]

https://www.rentcafe.com/blog/

multifamily construction at a 50 year high

[Gregmal]

Brand new Taco Bell in Chicago MSA. 4.5 cap. 7.5% bump every 5 years. Store is apparently bullet hole free. 

[Dinar]

EQR seems bullish.  https://investors.equityapartments.com/news-events/press-releases-news/news-details/2022/Equity-Residential-Provides-Operating-Update/default.aspx