Category: Markets & Investing

If you were unaware that CPI came in higher than expected today, most of the world envies you. Nearly everyone was subscribing to the narrative that it would come in LOWER than expected because gas prices have come down from unaffordable to slightly less unaffordable.

The masses were disappointed, caught off guard, and the we know this because the markets had one their worst days in history. The “Fed pivot” is now delayed but still largely expected it seems. That’s dangerous and will keep things messy for longer.

An acquaintance friend guy I know that owns a house near one of my houses and also does AirBnb —let’s call him a friend — called me today to complain about the incompetence of his loan officer at Rocket Mortgage. My FRIEND is pulling a HELOC so he can use it to fund the purchase of a rental property and the loan officer is dropping the ball claiming DTI issues.

I digress.

Two interesting tidbits… the rate on his HELOC is 9.5% — WOWZA!

That was literally the word out of my mouth. He simply said, “Yeah… that’s where the market is at though”.

I think maybe he was talking about credit card balance interest rates (he wasn’t) but I didn’t ask.

His new 30-year rate is supposedly just 5.25% which seems low to me in this environment and about 50 basis points lower than I paid a couple months ago.

But the other interesting thing he mentioned was that Quicken Loans (owners of Rocket) have a 3-year rate guarantee. If rates drop below your interest rate in the next 3 years they’ll give you the lower rate at no cost to you, the borrower.

Again, I think I said “WOW!” and my friend replied with, “Yeah because you know rates will be dropping before that”. I told him I wasn’t so sure.

Beyond being curious about how that is all finagled behind the scenes I found it fascinating for a couple reasons.

For starters, Rocket is now essentially offering incentives for new loans. Make no mistake, this is a perk/incentive/bribe to drum up more interest for folks that are on the fence. They’re trying to drum up demand. You didn’t see these sorts of incentives six months ago.

Beyond that, I wonder if Quicken Loans believes rates will stay elevated for longer than everyone expects.

Think about it. If rates were to go up another 1-2% over the course of the next 12 months, plateau, and then start coming down, we could easily be outside the 3-year window with rates never hitting today’s levels. In that scenario Rocket offered an incentive they never had to make good on.

I assure you this incentive wasn’t made off-the-cuff. There was likely a great deal of analysis, revenue projections, etc. that went into it. A guarantee is never put in place in an effort to cost the guarantor money.

Maybe I’m overanalyzing it but I do believe my friend has a lessor chance of being right than wrong in his assumption that rates will be lower in 3 years.

All I keep hearing about is when the market is going to bottom. People seem obsessed with it. Every day I’m seeing more tweets, emails, etc. showing comparisons to previous market cycles, a sentiment indicator, anything really that points to how the market might soon be just maybe trying to put in or perhaps find a bottom somewhat possibly soon hopefully (ridiculousness intentional).

They have a staying for this kind of obsession: a watched pot never boils. With so many eyes obsessing over the stock market bottoming, do we really expect it to boil?

If there’s one thing I’ve become acutely aware of as I approach mid-life it’s that the masses are almost always wrong. This can come in several forms from people flat out telling you you’re wrong about something to too many eyes focused on the same thing.

My guess is the market bottoms when people stop trying to guess it will bottom.

That’s what I keep hearing from friends in online chat groups, twitter, etc.

Everyone is looking to buy… something. Anything, really.

“DCA!!!” Is the new mantra (dollar cost averaging for those not up on their acronyms) for degens that are now pretending to be long-term investors.

It will work out for some but not most.

The vast majority will run out of money to DCA with long before we reach the bottom. Then they’ll grow so bored of sideways price action they’ll figure either the markets are never coming back or they’ll have what they deem to be a better use for the money and sell.

I don’t know where the bottom is. It’s not a price target. It’s not a date on the calendar. I’m giving some thought to when a bottom might form but I’d rather wait for the market to tell me.

The first thing that needs to happen is asset prices to stop falling. We’re not there yet.

And of course, there will be bounces.

The last time I wrote about inflation was back in August 2021. Lumber had puked from ~$1,700 down to ~$470 only to later rally back to the $1,300’s by January and then fell again into the $500’s where we find ourselves today.

Now it’s oil’s turn. And if you didn’t know that, well, I don’t know how you can miss the barrage of memes thrown in your face all across social media.

And rates, of course… rates are on a tear. Here’s a look at the US 10-year treasury note:

Yes, we’ve seen these levels before. We were here in 2013 and 2018 in fact. But it doesn’t feel like this move is over and that has me thinking a lot about what’s to come.

When it comes to growth stocks and crypto I think we see continued pain followed by grueling sideways action. I doubt crypto sees new all-time highs for 18 – 24 months. It will be painful for many.

I’m not smart enough to know what it means for housing. Supply is still extremely low and, while demand is there, buyers seem to be picky, favoring fully renovated houses over their dated peers. Can you blame them? Tradespeople are in shorter supply than houses. Trying to find, vet, and schedule a good one is near impossible.

And if interest rates keep ripping higher you’d think it would decrease people’s willingness to move. It’s hard giving up that 3% fixed rate for 5%+ right now.

At the same time people are tired of living in fear. We did that plenty during COVID. And I get the vibe that there’s a feeling of “Damn the torpedoes!!” and people are just going to do what they want because the memory of not being able to is still extremely fresh.

Maybe that’s the real danger.

I frequently talk about herd mentality.

We want to take notice when everyone is thinking, saying, doing the same thing because there’s outsized potential value unlocks to doing the opposite.

The same can be applied to things that seem incredibly obvious. Often times they don’t play out the way the masses expect. Here is a perfect example I’ve been keeping my eye on lately, a symmetrical triangle that’s formed in Ethereum:

I had been watching this develop for awhile, and I thought I was on to something.

Then I noticed others take note of it. Then I noticed what seemed like EVERYONE take note of it. Then it seemed like the only thing people were watching.

That set off alarm bells.

The assumption with a pattern like this is that, once it breaks one way or another, price will trend in that direction for a good while. Obviously, bulls were rejoicing when it broke higher out of this pattern.

But I’m not so sure. It just seems too easy. I would not be surprised if we see a whipsaw back in the opposite direction (lower here) to throw the masses for a complete loop.

Kibin received a check from the US Treasury today. Our mail goes to a company that scans it and gives us the option to have them open it, scan all pages, forward it, shred, etc. We do this because we’re a remote team, and I love it.

I wasn’t expecting anything from the US Treasury, and I only knew it was a check because of the clear envelope window on the front and the distinct, visible coloring of the check’s face. We used to receive quarterly checks for the R&D Tax Credit but we’ve since exhausted that program. Usually I’d just have those forwarded without having them opened and scanned.

But this one was unexpected, so I thought I’d kill the suspense of waiting for it to arrive and have it opened.

I’m glad I did; I could not believe my eyes.

I literally thought I was misreading the numbers.

$21,735.44 — yup, a bit surprising!

I shared the news with our team, and one of our teammates poked around and discovered that the check is for an employee retention credit as part of the CARES act.

This wasn’t at all explained with the check. It was literally just the check and an attached blurb stating what to do if you thought you received the incorrect amount.

The “Notice 134” was ultimately what tipped off my teammate and generated our response through the Google machine.

So what, you ask?

So, I’m baffled we just received what, to us, is a sizeable amount of money. I didn’t expect it and obviously wasn’t planning on it. We were happy to get the PPP… now this?

My wife and I were surprised when we got stimulus checks in the amount of $3,400 during the earlier pandemic months. It seems there will be more, it’s just a matter of time. I also wouldn’t be surprised if there’s more PPP as well.

And the endless money isn’t just coming in the form of handouts. It’s in the stock market, too. I believe major stock indices are about to break higher because… well the government won’t let them fall.

It’s all mindboggling, and I’m taking what I can from wherever it comes from because this party has to end sometime.

And when it does, it can’t end well.

The latest mainstream meme cloaked as intelligent thought is, “CITIES ARE DEAD!!!”. It was the obvious, easy conclusion to make post-COVID. But like any good meme it needs to go viral to really become mainstream. We can (partly) thank James Altucher and his article, “NYC IS DEAD FOREVER. HERE’S WHY“.

James didn’t spare the caps lock key for his title… intentionally.

If you’ve ever read anything by James Altucher with at least one open eye (metaphorically here), you’ll know he’s more interested in producing content that’s jarring and controversial than actually accurate and substantive.

Why?

Because it gets attention. It’s the same reason our president lies and embellishes at every opportunity. It’s brand building in the most simplistic, ugly form of the word.

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For about a week now, Kaitlin and I have been talking about the rising number of COVID-19 cases, but the seemingly steady or declining number of deaths. This is a good thing, obviously.

We’ve speculated that it’s most likely due to increase testing and people recognizing symptoms earlier and therefore getting treatment earlier. Today I saw this thread on Twitter that look at the rising number of cases in Florida, Texas, and California:

This is a deep dive into the Covid situation in Florida, Texas, Arizona, and California.

Afterall, we’re seeing a huge jump in cases!

But let’s look behind the case numbers being reported and let’s see what’s really going on. pic.twitter.com/tMWywkRxKc

— Gummi Bear (@gummibear737) June 28, 2020

Click through to read the thread, but the conclusion is at the end:

Overall Conclusions
-No reason for panic
-The surge in cases for all states in the last two weeks is probably BLM related
-Overall, cases increase with testing
-Overall, deaths do not increase with more new cases
-Arizona deserves a deeper dive to make sense of the second rise

— Gummi Bear (@gummibear737) June 28, 2020

I’m hopeful that these trends continue but still concerned we’re not doing enough to protect the most vulnerable. Requiring masks everywhere in public would be a huge win for the latter.

Finally, more people should be looking to sources like this on Twitter for facts and news rather than mainstream media. It’s sad we can’t depend on those channels for rational, data-driven insights like these.

Everyone is trying to figure out the next move.

You can’t blame them. There’s a lot at stake.

The equity markets have been seesawing in a range. As of today, we’re effectively unchanged in the S&P 500 for the past month.

Real estate investors, agents, and contractors are trying to figure out what’s going to happen with the RE markets next. Anecdotally, I’ve been hearing that things are busier than ever. It was a bit hard to believe, because I’m not in the day-to-day of selling homes. Kaitlin and I have rethought some things, but ultimately we’re proceeding with our plans. That said, we’re not representative of the “average” American.

Then, yesterday, I read this piece from Redfin. The short of it is that demand has now surpassed pre-COVID levels. Here’s the chart porn they include:

Demand is back, but inventory isn’t. The article cites it being down 24% year-over-year. Obviously, this puts upward pressure on price.

It’s too early to say whether this is temporary, pent-up demand, or if it’s sustainable. I have a hard time believing it’s the latter given our country’s failing attempt at properly dealing with COVID. South Korea is making the US look like a third-world country with the way they’re testing, tracing, and handling the virus. Check out this awesome Twitter thread from a journalist visiting the country recently.

Not only are they thoroughly screening travelers, but they’re able to quickly respond/mitigate new outbreaks like the nightclub incident recently experienced.

KCDC Seoul nightclub outbreak update:

153 people in total so far infected. 90 club goers infected. 63 friends , family and colleagues caught COVID19 from them.

More than 46,000 people have been tested for covid19 in connection with these cases.

— Laura Bicker (@BBCLBicker) May 15, 2020

Meanwhile, the US is attempting to “reopen” without any real measures in place. People are literally out of their minds. Check out this clip from a reporter today:

I’ll probably never forget what happened today.
I was insulted. I was berated. I was practically chased by people who refused to wear masks in the middle of a pandemic.
All the while, I was there to tell THEIR story. Here’s the finished product. pic.twitter.com/HV2Hrcs7gi

— Kevin Vesey (@KevinVesey) May 14, 2020

The thing is… I get it. They should be mad. They should be pissed off. But it SHOULD be directed at Trump and the current administration, because it is THEIR job to be fixing this and they have grossly dropped the ball. Now, local governments are abandoned and left to pick up the slack. It’s disgusting.

I wish I could have each of these people read this thread:

Alright. There is a LOT of chatter on this website bashing those who are saying most of the country still isn’t ready for a safe reopening.

So, as we approach what would normally be summer pool season, here’s a short analogy about pooping and accountability.

— Jeremy TEST/TRACE/ISOLATE Konyndyk (@JeremyKonyndyk) May 15, 2020

Click through for the full thing. It’s well worth it.

With the way this is all unfolding, I can’t imagine we recover quickly. We could be trapped in this cycle of “reopening”, locking down, “reopening”, locking down for a year or more.

That won’t be good for anyone. It will leave a trail of devastation that will take years to recover from, if ever.

A week ago I was noting the optimism I was sensing both anecdotally and from general market sentiment. Since then, crude oil traded to negative $40/barrel and is now trading around $17 while broader market indices are almost completely unchanged. We’re seeing chop as the markets look for direction… hope that we’re coming out of this or signs we’re not.

I mentioned the Gilead Sciences remdesivir trial. It was met with great optimism a week ago, but I noted my skepticism. Turns out, we learned today that it’s likely not going to be the silver bullet folks were hoping for.

To me, it really doesn’t feel like markets can hang on much longer here. The S&P 500 looks vulnerable, hanging below resistance and continuing to be rejected by the 50-day SMA:

Meanwhile, in what seems like it would be positive news regarding antibody tests in New York, the market failed to rally and finished slightly down on the day. But to me, all it confirms is there’s a lot more pain to get through if we’re hoping for herd immunity. I think we’d be looking at a death toll 10-15x higher in the US before getting there.

We’re currently sitting just under 50,000 US fatalities:

That’s scary. But I don’t think the market is weighing that.

It seems we’re starting to recognize the reality of the economic impact. This article about the “death” of department stores caught my eye yesterday. Yes, the pandemic is accelerating an already clear inevitable. But the speed that it’s happening will be astounding.

The short of it all is stores are canceling orders for merchandise, not paying their bills, and in serious risk of bankruptcy or filing already. What’s the point? Nobody is shopping anyway.

But the bigger implications here are that factories have nothing to fulfill. So when you hear all this talk about “opening up the economy”, ask yourself what orders factories in China are fulfilling…

Meanwhile, I’ve learned that Vegas has an absolute lunatic for a Mayor and MBA students are demanding tuition refunds.

Shit is going to get ugly.