Almost irresponsible.

Sunday desk clearing...

Actually I have a lot more stories to go through, but one of the main reasons people unsubscribe is listed as “time.” That said, you don’t have to read every story - I’m a bit eclectic as you know - but scroll through and maybe something intrigues you.

“Ivar decided to introduce a new type of security, which he called a “B Share.” Ivar began with Swedish Match. He divided its common shares into two classes. Each class would have the same claim to dividends and profits, but the B Share would carry only 1/1000 of a vote, compared to one vote for each A Share. It was a simple, but profound, insight. B Shares could be sold to investors without affecting control. Ivar could double the size of his capital, while diluting his control by just a fraction of a percent.”

Frank Partnoy, The Match King

The Nifty 10

“The top 10 holdings in the S&P 500 now make up 30.5% of the index, the highest concentration we've seen with data going back to 1980.”

In he late 1960s and early 1970s, major institutional portfolio managers became so enamored with the idea of growth in general, and with the so-called “Nifty-Fifty” growth stocks in particular, that they were willing to pay any price at all for the privilege of owning shares in companies like Xerox, Coca-Cola, IBM, and Polaroid. These investment managers defined the risk in the Nifty-Fifty, not as the risk of overpaying, but as the risk of not owning them: the growth prospects seemed so certain that the future level of earnings and dividends would, in God’s good time, always justify whatever price they paid. They considered the risk of paying too much to be minuscule compared with the risk of buying shares, even at a low price, in companies like Union Carbide or General Motors, whose fortunes were uncertain because of their exposure to business cycles and competition.

Peter Bernstein, Against the Gods

This thought process was identical during the DotCom bubble as well (and seemingly today). A great example is the classic February 2000 Jim Cramer tome, “The Winners of the New World”:

How did this stock market get like this, to where the only people who can make a dime in it are the people who are interested in the most arcane subject, the moving of data from one space to another, via strange new machines and software? How did it get to the point where nothing else matters, most particularly the 90% of the stock market I have studied for the last 20 years? How did all of that knowledge become totally irrelevant and the only stocks that work are the stocks of companies that didn't exist five years ago and came public in the last two or three years?

If you bought the ten stocks he recommended there you got destroyed.

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United States FHFA (Federal Housing Finance Agency) House Price Index

Sorry, kids!

More charts here.

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The Value of Residential Real Estate Broke a New Record $52 Trillion

OK, just some aberrant thoughts here on “value.” Say you have a neighborhood of ten identical homes. In 2019, they all sold for $100k, so the “value” of the neighborhood was $1 million.

Now in 2023, the last one sold for $500k, so the “value” of the neighborhood is considered $5 million. If one house in the next year sells for $600k, then everyone will consider the value of their house to be $600k, and the neighborhood would be worth $6 million. But is it right?

In many ways this type of “valuation” is similar to the way crypto coins, baseball cards, stocks etc. are “valued” in aggregate (although I do concede that with stocks and houses, there is some there there.)

When Dogecoin briefly hit 60 cents, could you value all outstanding Dogecoins at that value? Of course not, but people did. Any real selling drove the price down dramatically. No way all holders could get out at 60 cents, 50 cents or 40 cents. Same is true of Nvidia.

Valuing housing markets is somewhat similar. If five homeowners in the above neighborhood were to suddenly decide to sell, would they all get $500k? Maybe, but doubtful. Say one seller was desperate, and sold at $400k. Would the value of the neighborhood suddenly fall by $1 million? Just as on the way up, I think it might, in the minds of realistic sellers, and certainly savvy buyers. The next eager seller might list at $375k, and buyers might offer $350k. I saw this sort of thing during the last housing bubble. Homes would list at last year’s price, and slowly chase the market lower, finally selling at a massively discounted price (from the initial offer).

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Asking Rents Down 1.2% Year-over-year

Rainier Valley homeowner lives in van while delinquent tenant lists rental on Airbnb

Jason’s deadbeat renter is listing the downstairs living space on Airbnb for $434 a night. Jason believes he is generating at least $2k a month, and possibly closer to $3k or possibly even $4k, depending on the month.

The city gave the delinquent renter a short-term rental license. A spokesperson for the city said, “…the license this individual has is not valid because it was obtained using inaccurate information about ownership of the property.”

“OK. So, not only is he not paying me, but he’s generating an income through the basement Airbnb unit, and meanwhile, I’m having to pay the utilities for that unit,” said Jason.

He’s tried to work with the renter and even came up with a payment plan, the renter signed it, paid a thousand bucks - and that’s it. Jason also tried dispute resolution, with no results. Now, he has to wait until late October for an eviction hearing. The current process for an eviction in King County is about 12 months. That’s another 12 months that Jason has to pay the mortgage on his house, that he can’t access. Before all is said and done, he is looking at $50k in losses.

Attorney Ryan Weatherstone said that King County courts are only hearing six cases per day. Half of those hearings get automatically continued for another three and a half months. So, the court is only really hearing three hearings per day and they’re only hearing it for four days a week for the biggest county in Washington.

Brutal.