I remember after my first trip in Feb 2023 when I talked about the sheer amount of self storages out there I saw on the road on xTwitter and how it was problematic (always right next door to a new car wash and new-build site) I would get serious hate. Wild. Great post!
I sure did. Love it. This is something Mr. Awsumb and I have been discussing as well. The build-up of the inventory has been quiet in MSM but it is about to take a lot of folks by surprise. Of course with the election awareness may not come until November.
I think you're on to something with the bifurcated economy... I read the other day (Zerohedge?) that almost 50% of "luxury" homes were bought in cash, and we have companies like Pepsi who have raised prices to keep profits up on reduced volume. With the MASSIVE government debt and ideas like taxing unrealized gains (seems not unlike property taxes going up with inflated property values), what happens when the pressure starts getting applied at the top? Are they determined to nose dive the rich and the poor at the same time? They can't be that...
Yeah, people are finding out nationally why California passed it's Prop 13, which limits the amount of property tax increase per year. Taxing unrealized "gains" is truly insane. They're not gains. They're ephemeral.
The people who own lots of stocks, say 5-10% of the population, are doing well and for them, price hikes are an annoyance, not an existential threat.
Anecdotally I've talked to several different small business people and they all say the same thing - fewer units, higher prices - so sales may be holding up for now.
Housing, same thing - near me, high-end area, just two overpriced houses for sale, for months. Very little supply. Then again I think Darth Powell tweeted out something like 250 houses for sale on South Padre Island, an area he apparently knows well. . Very bifurcated economy. Not good. Meanwhile, pundits live in that 10% or 5% and gaslight the other 95%.
As Tom McClellan (very) regularly calls out, the Fed's mandate for inflation is actually zero. Also, I think it was end of last year when Paulo Macro (maybe?) called that corporate bonds would trade inside Treasuries. I mean, Microsoft and Apple have more cash than the US right now, no?
Here in the great state of Massachusetts, a PE firm bought a hospital chain, Steward Healthcare, and then did a sale/leaseback on all the properties. From here it gets murky, but the whole system appears unable to cover the ground rent, and some say the PE firm paid out a large dividend with the sale proceeds. Whether this is literally criminal remains to be seen, probably covered by enough time to avoid preferential transfer...
But also, what entity owns the land, and what do they think they are going to do with these needed hospitals.
I am sure these people are sleeping comfortably in their beds right now, but times are changing
At this point it seems pretty bleak. Damned if you, damned if you don’t in terms of ways to position oneself for possible futures.
On one hand, being in a net short fiat position (through mortgage, other debt) seems best if the path to Weimar-level hyperinflation is relatively straightforward.
But that same positioning is devastating if we have a few deflationary collapses in between.
Hard to know what we’ll encounter on the road that lies ahead even if we know the destination.
It is hard to think about. A frustrating thing is that the people responsible will all remain fabulously wealthy and unaccountable. Then again, the voters vote for the people who are or appoint those responsible. I think most Americans like "free" stuff.
30-year fixed mortgage debt even at 7% is probably a gift. However, what about property taxes? What will a new roof cost? As for landlords. in very high inflations they absolutely will institute rent control. CA, NY etc. have already started. Skills will be valuable - e.g., medical, plumber, welder etc. Home Farming. Barter. Can't believe all this is a realistic scenario but here we are.
I keep hoping we'll avoid the Argentina (or worse) scenario - and we won't be first - but I don't see how we'd get out without an honest default (e.g. raising SS age a lot, pull way back on our empire, tax Larry Fink more) - which is painful, but less regressive and overall the lesser of two evils vs inflation (I've posted on this a lot - e.g. Felix Somary). Nevertheless, I'll continue to laugh, so I don't cry.
Yeah we’re starting to see the costs of homeownership (and even car ownership) outweigh the traditional high bar of down payment + on-time payments. Like you said, property taxes, maintenance, insurance; all through the roof and in some jurisdictions straight out of the exosphere.
Wouldn’t surprise me to see price controls slapped on everything eventually. I just wonder by that point if anyone is going to call politicians out on demand subsidization (which subsidies, price controls are) exacerbating the issues.
Cynically we know everyone responds to incentives, and the fact of the matter is politicians want home prices high to create faux wealth effect warm fuzzy feelings in consumers and to rake in more tax revenue. Which is why they’ll never outright support supply subsidization which is what we need to break the fever in the housing market.
I may be in a minority here but I don’t view housing as a sound investment. Without leverage its returns are pathetic. You see this issue in Canada and China now where so much wealth preservation is predicated on home prices marching ever higher; at some point there is no one left to buy at market highs. They’re all priced out.
Given the ignorance and lack of discipline demonstrated by our elected officials, I see no plausible outcome other than outright default. Very depressing.
Yeah, I try to be flippant about these things but it's hard. They will default for sure, almost assuredly primarily through stealthier, regressive inflation.
I hate to ask this question out loud because I am pretty sure what the answer is and it means, as the song goes, "it's the end of the world as we know it"....has any government or central bank EVER successfully pulled back from inflationary policies and behavior?
"No central bank has managed successfully to reverse quantitative easing over the medium to long term. In practice, central banks have engaged in quantitative easing in response to adverse events but have not reversed the policy subsequently." https://committees.parliament.uk/publications/6725/documents/71894/default/
The U.S. dollar itself is really just an experiment, 53 years old now. Healthiest horse in the glue factory. There might be a historical case somewhere of slowing the debasement, but once on that path, as we I think are, I think those in charge see high inflation as the only way out, even though it is just as much a default as anything. Even worse, because it's so regressive.
“That’s crazy. Hey, did you catch that game last night?” Had dinner with a CFP friend Sunday night. Conversation turned to inflation. History lesson followed. Apparently, the CFP curriculum doesn’t include any monetary history. Go figure, but to be fair, I know quite a few CFPs and VP’s at UBS, Merrill, and the like. They all could use a dose of reality to go with an intro course to Austrian economics.
"It is possible to leave university now knowing nothing of financial history, even if one has a degree in finance - even if one has a post-graduate degree" - Russell Napier
You really wonder how they sleep at night even on their yachts
I remember after my first trip in Feb 2023 when I talked about the sheer amount of self storages out there I saw on the road on xTwitter and how it was problematic (always right next door to a new car wash and new-build site) I would get serious hate. Wild. Great post!
Thank you. Did you see that chart of the ratio of new home sales to new home supply?
I sure did. Love it. This is something Mr. Awsumb and I have been discussing as well. The build-up of the inventory has been quiet in MSM but it is about to take a lot of folks by surprise. Of course with the election awareness may not come until November.
You guys are way more in the RE weeds than me. I revisit the topic from week to week as a tourist.
I would say a bit more than a tourist :)
I think you're on to something with the bifurcated economy... I read the other day (Zerohedge?) that almost 50% of "luxury" homes were bought in cash, and we have companies like Pepsi who have raised prices to keep profits up on reduced volume. With the MASSIVE government debt and ideas like taxing unrealized gains (seems not unlike property taxes going up with inflated property values), what happens when the pressure starts getting applied at the top? Are they determined to nose dive the rich and the poor at the same time? They can't be that...
Yeah, people are finding out nationally why California passed it's Prop 13, which limits the amount of property tax increase per year. Taxing unrealized "gains" is truly insane. They're not gains. They're ephemeral.
The people who own lots of stocks, say 5-10% of the population, are doing well and for them, price hikes are an annoyance, not an existential threat.
Anecdotally I've talked to several different small business people and they all say the same thing - fewer units, higher prices - so sales may be holding up for now.
Housing, same thing - near me, high-end area, just two overpriced houses for sale, for months. Very little supply. Then again I think Darth Powell tweeted out something like 250 houses for sale on South Padre Island, an area he apparently knows well. . Very bifurcated economy. Not good. Meanwhile, pundits live in that 10% or 5% and gaslight the other 95%.
I liked this example I tweeted the other day https://twitter.com/RudyHavenstein/status/1777874864432390440
As Tom McClellan (very) regularly calls out, the Fed's mandate for inflation is actually zero. Also, I think it was end of last year when Paulo Macro (maybe?) called that corporate bonds would trade inside Treasuries. I mean, Microsoft and Apple have more cash than the US right now, no?
100% https://twitter.com/RudyHavenstein/status/1566241165967765505
The 2% inflation target was just pulled out of thin air.
https://www.cfr.org/blog/history-and-future-federal-reserves-2-percent-target-rate-inflation-0
Here's Powell trying to explain it, rather amusingly https://twitter.com/RudyHavenstein/status/1689648695669919744
I was a lawyer for 25 years. That 30 seconds of gibberish is why I have little use for lawyers. Haha.
Yep, in the early 1980's Powell practiced law. It shows.
Re private equity:
Here in the great state of Massachusetts, a PE firm bought a hospital chain, Steward Healthcare, and then did a sale/leaseback on all the properties. From here it gets murky, but the whole system appears unable to cover the ground rent, and some say the PE firm paid out a large dividend with the sale proceeds. Whether this is literally criminal remains to be seen, probably covered by enough time to avoid preferential transfer...
But also, what entity owns the land, and what do they think they are going to do with these needed hospitals.
I am sure these people are sleeping comfortably in their beds right now, but times are changing
P/E is a menace imo. https://twitter.com/RudyHavenstein/status/1682204024475652098
Bonds, from
"So, long bonds?" to
"So long, bonds!"
I love my short bond position on a 3% 30 year bond, with an embedded call option. My only real long term hold.
I've never been a bond guy. The only bonds I own are some I-bonds i bought in the early 2000's currently yielding nearly 7%.
At this point it seems pretty bleak. Damned if you, damned if you don’t in terms of ways to position oneself for possible futures.
On one hand, being in a net short fiat position (through mortgage, other debt) seems best if the path to Weimar-level hyperinflation is relatively straightforward.
But that same positioning is devastating if we have a few deflationary collapses in between.
Hard to know what we’ll encounter on the road that lies ahead even if we know the destination.
It is hard to think about. A frustrating thing is that the people responsible will all remain fabulously wealthy and unaccountable. Then again, the voters vote for the people who are or appoint those responsible. I think most Americans like "free" stuff.
30-year fixed mortgage debt even at 7% is probably a gift. However, what about property taxes? What will a new roof cost? As for landlords. in very high inflations they absolutely will institute rent control. CA, NY etc. have already started. Skills will be valuable - e.g., medical, plumber, welder etc. Home Farming. Barter. Can't believe all this is a realistic scenario but here we are.
I keep hoping we'll avoid the Argentina (or worse) scenario - and we won't be first - but I don't see how we'd get out without an honest default (e.g. raising SS age a lot, pull way back on our empire, tax Larry Fink more) - which is painful, but less regressive and overall the lesser of two evils vs inflation (I've posted on this a lot - e.g. Felix Somary). Nevertheless, I'll continue to laugh, so I don't cry.
Yeah we’re starting to see the costs of homeownership (and even car ownership) outweigh the traditional high bar of down payment + on-time payments. Like you said, property taxes, maintenance, insurance; all through the roof and in some jurisdictions straight out of the exosphere.
Wouldn’t surprise me to see price controls slapped on everything eventually. I just wonder by that point if anyone is going to call politicians out on demand subsidization (which subsidies, price controls are) exacerbating the issues.
Cynically we know everyone responds to incentives, and the fact of the matter is politicians want home prices high to create faux wealth effect warm fuzzy feelings in consumers and to rake in more tax revenue. Which is why they’ll never outright support supply subsidization which is what we need to break the fever in the housing market.
I may be in a minority here but I don’t view housing as a sound investment. Without leverage its returns are pathetic. You see this issue in Canada and China now where so much wealth preservation is predicated on home prices marching ever higher; at some point there is no one left to buy at market highs. They’re all priced out.
Given the ignorance and lack of discipline demonstrated by our elected officials, I see no plausible outcome other than outright default. Very depressing.
Yeah, I try to be flippant about these things but it's hard. They will default for sure, almost assuredly primarily through stealthier, regressive inflation.
I hate to ask this question out loud because I am pretty sure what the answer is and it means, as the song goes, "it's the end of the world as we know it"....has any government or central bank EVER successfully pulled back from inflationary policies and behavior?
The UK Parliament posted this in 2021:
"No central bank has managed successfully to reverse quantitative easing over the medium to long term. In practice, central banks have engaged in quantitative easing in response to adverse events but have not reversed the policy subsequently." https://committees.parliament.uk/publications/6725/documents/71894/default/
The U.S. dollar itself is really just an experiment, 53 years old now. Healthiest horse in the glue factory. There might be a historical case somewhere of slowing the debasement, but once on that path, as we I think are, I think those in charge see high inflation as the only way out, even though it is just as much a default as anything. Even worse, because it's so regressive.
“That’s crazy. Hey, did you catch that game last night?” Had dinner with a CFP friend Sunday night. Conversation turned to inflation. History lesson followed. Apparently, the CFP curriculum doesn’t include any monetary history. Go figure, but to be fair, I know quite a few CFPs and VP’s at UBS, Merrill, and the like. They all could use a dose of reality to go with an intro course to Austrian economics.
"It is possible to leave university now knowing nothing of financial history, even if one has a degree in finance - even if one has a post-graduate degree" - Russell Napier