Is It Possible That Investments Might Go Into Alarm Mode?

1. I saw this bubble over 4 years ago and I’ve posted about it regularly since. How did I see it?

   ‘There’s been no pullback in apartment development capital availability to date, and construction won’t slow in a big way until money sources scale back on investment activity’…‘Part of the reason for strong inventory growth was interest among investors after the recession, especially for assisted living, because it held up better during the recession’

   See, it didn’t have anything to do with supply or demand. It was simply devising a way to rake in the huge amounts of Yellen bucks that were chasing yield.

   ‘As a result, supply wildly outraced demand’

2. Professor, can you explain to me what it means that the Fed has decided it will end quantitative tightening? Basically what I gather is that the Fed will stop allowing the mortgage backed securities that it bought out of thin air and replace them with treasuries. The way I see this is that it is essentially permanently monetizing the debt at the $4 Trillion level and thus all deficit spending, which is mostly military, social security, and medicaid/medicare. In my mind I think of this as a stealth tax via inflation as a central government directs resources away from consumers purchasing power to whatever congress is currently spending excess of its tax take on. I’d love to hear how you see this.

   1. I don’t claim an expert understanding of the inner workings of QE/QT. Like you and likely the vast majority of other posters here, I try to parse my understanding out of what the mainstream financial media writes.

      Given that disclaimer, I’ll try to answer your question as best I can after work.

   2. It means they will just allow their bond purchases to expire at maturity, and yes it means that money was essentially created out of thin air, and the debt monetized. I believe the same is true for the mbs.

      It’s truly sickening…the new baseline balance sheet for the Fed is 4 trillion. During the next crisis, expect this baseline to grow by exponents, as the debt/leverage in the system is rising parabolic.

      The Fed has shown they don’t have the stomach to allow another liquidity/credit crisis, and instead is opting for hyperinflation at some point. All fiat currencies (by design) go to zero.

      1. instead is opting for hyperinflation at some point.

         But they’ll try to hide it by hanging onto your wheelbarrow of cash for you and just shrug when you can’t afford to buy anything? At least that will save us from a wheelbarrow bubble.

         1. At least that will save us from a wheelbarrow bubble

            Will it though? Might become the national currency for all we know.
            Disclosure – I’m long wheelbarrows.

            1. Add tar and feathers and/or torches and pitchforks and I’m in.

      2. We have just entered into a deflationary spiral and there isn’t anyway out. Technology will ultimately automate all work and jobs and it is becoming increasingly difficult to pay existing debts. Cash was always king and will only increase in purchasing power from here on out. Unless the gov’t begins handing out money to jobless consumers, we will continue in deflationary spiral. Stocks and real estate will follow Bitcoin into oblivion over the next 15 years. I wouldn’t be surprised if a $1M Manhattan condo is selling for $250K in 2035.

         1. “automate all work and jobs”

            Robots can lay bricks but they’ll never replace sparkies.

            1. No construction can’t be automated. Efficiencies are wrung out by the best but no automation.

            2. Sure they could. Pre-fab walls from a factory could come pre-wired.

            3. It’s still a person burning holes and pulling in the shop. There’s still a driver hauling the panels, an EO sitting on a crane flying the panels and woodpeckers fastening panels.

            4. Elon Musk found out the hard way that humans do many tasks much better than any robot. At least with existing robotic technology.

            5. 3D printing technologies can already produce modest homes and will eventually be able to produce entire skyscrapers.

               Factory workers have been decimated and office workers are next. This will leave a massive overcapacity of infrastructure and thus eliminate the need to build new buildings. How many net new buildings is Detroit adding each year? -30,000. In the future, there will be no trade jobs because there will no need to build anything. There will be far more structures being torn down than built.

               Inflation is nonexistent outside of healthcare, childcare, education, and housing. The housing and education bubble are deflating as we speak and young people cannot afford children.

         2. “Unless the gov’t begins handing out money to jobless consumers, we will continue in deflationary spiral.”

            Dubya played that card to prevent a technical recession during his administration.

         3. I don’t think deflation is feasible politically or by the constituents. You’re already seeing the tech elite talk about Universal Basic Income and the Elizabeth Warrens of the world talking about billionaire wealth taxes.

            Warren might have a shot as she’s promising basically “Rich to pay for free child care for all”. If it’s paid for then the conservative argument is basically that personal billionaire wealth creates jobs aka trickledown. I’m not sure that message is going to resonate with the indebted middle class where both parents are working. Also going to be tough as conservatives are going to have to rail against a family oriented program. Not saying it’s right or wrong, just an observation.

            1. just an observation

               Money printing causes miserable poverty. Some people might want the bennies at first but it will bite.

               We should be leery of a big tax on the wealthy. Socialists have always been liars. Always and everywhere. They will start someplace you agree to and then relentlessly chew right down to the ground. I would rather defend the richest person for the sake of defending my own liberty.

   3. In layman’s terms, it means they are not going to reduce their balance sheet, instead holding everything they currently have, or at least only selling as much as they are buying.

      A more crude example would be that the Fed is carrying the entire US eCONomy.

      1. RIP fiscal conservatives in office.

         1. fiscal conservatives

            A popular but meaningless catch phrase.

            1. not sure how popular it is these days… got debt?

      2. Mauldin is predicting an eventual $20 trillion QE program rather than a massive deflation of assets.

         1. I believe it. And then in a few more years we’ll need 100 trillion. Etc. It will stop eventually but as long as the current PTB can hold onto what they’ve got they have no better choices. I still think Fed and Friends will eventually own everything because they will buy it all at the peak(s) with printed money to avoid deflation.

            1. In that case, we’ll all be dead before it plays out.

            2. In that case, we’ll all be dead before it plays out.

               Not necessarily of natural causes. But yeah.

   4. “In my mind I think of this as a stealth tax via inflation as a central government directs resources away from consumers purchasing power to whatever congress is currently spending excess of its tax take on.”

      I agree with this to a point. When economists say ‘inflation’, they mean a general increase in the price level, but I am not sure how many real examples exist. Certainly countries undergoing currency collapse fit this description, but when QE went into force, it offset tremendous deflationary pressures due to collapsing stock and housing prices.

      What seems most disturbing to me is that QE gives the Fed a license to massively reallocate wealth among different groups in society, which I thought was a power Constitutionally reserved for elected officials. For instance, stock and house owners were massively rewarded, young people thinking about someday owning a home and retirees living off interest on their savings were screwed. So it goes when you are engaged in a panicked attempt to stave off another Great Depression.

      1. “When economists say ‘inflation’, they mean a general increase in the price level, but I am not sure how many real examples exist.”

         I’ve always disliked the general use of the word “inflation” to blanket price increases. For instance, if demand is constant for some good but supply falls, you would have an increasing price and thus inflation. Or, you could have constant supply but increased aggregate demand causing the price to rise and there we get inflation again. But to me this is not true inflation. Friedman said that inflation is “always and everywhere a monetary phenomenon”. In other words, changes in the monetary base chasing the same amount of goods is how I define true inflation. I would prefer other uses of inflation to be styled “increases in aggregate demand” or “decreases in supply”, but not inflation. To me using inflation for any general price increase is a bit sloppy. But that’s just me.

         About mid last year I read a good quote from Barry Ritzholtz that I liked: “We have deflation in the things we want, but inflation in the things we need.” I felt that that was very apt.

         The interesting thing about the tariffs that are going on is that it may function as a form a stealth tax increase and show up as inflation in the CPI.

3. ‘So the outlook for the multifamily construction sector should be of interest to builders who are now constructing more than 35,000 North Texas apartments’

   Around 6 months or so ago I figured DFW had a 30 year supply of apartments existing or on the way. The absorption could have changed, but these guys are already off the cliff IMO.

   1. ‘The default notice is the latest sign of trouble for Morgan, an investor and developer who has built a multifamily real estate empire over the last two decades through aggressive buying and selling of properties from his suburban Rochester base. He owns and operates more than 36,000 apartments in 14 states’

      Biggest mortgage fraud case since 2008. Hardly gets a MSM notice. Hmmm…

      1. Ben, it’s no better here in Rochester, especially living in a Morgan owned property. MSM and Morgan itself keep it hush-hush. Probably because Morgan owns the majority of rental properties here in Rochester and there’d be a major flip-out if it was in the news more prominently.

         Morgan started nickel-and-diming residents like crazy ever since the investigation. Most likely due to all their money issues. Just recently we were asked to pay a bunch of “back cable” all the way to when they bought the property three years ago.

         In addition to monthly cable charges, which used to be included in the cost of rent, we’re now charged for water, sewer, and trash. Of course we don’t have meters to monitor how much each unit actually uses, so it’s based on some calculation.

         The money is obviously not going to fixing the property or maintenance. The property is slowly falling apart and they don’t even do the bare minimum to keep things running.

         For an entire summer they hadn’t even cut the grass. The grounds are a mess with crumbling walkways and siding is broken on each block of units. It used to be a beautifully maintained property when it was owned by Farash. Farash had also kept up on maintenance and immediately responded to requests.

         We’ve had to call in plumbing issues and such several times that they fix only temporarily. It’s still barely usable but it does little good to call it in until it’s so bad the water needs to be shut off at the main. The maintenance men are great guys but spread across several properties because Morgan didn’t want to pay for maintenance guys for just that property, like Farash had done.

         Residents have complained numerous times about walkways not being cleared of snow or salted to prevent ice. The parking area was never cleared of snow or salted after the last couple snowfalls so it’s all snow and ice right now. It has to be a nightmare for anyone with mobility issues.

         What Morgan charges new residents is about $300 more than what us long-term residents pay from when it was owned by Farash. They’re also able to get new tenants for monthly washer/dryer use charges and pet rent fees that long-term residents don’t. Morgan seems like it wants to push out long-term tenants who didn’t originally sign leases under their management so we don’t get the same customer service as newer tenants.

         Unfortunately there are only a couple property companies that own all rentals in Rochester and surrounding areas – Morgan, Rochester Management, Hanna. We’ve lived with each of them and it’s the same thing with all – a lack of proper management or maintenance of their properties. They all just let them go to sh!t.

         Since Morgan did only buy our property three years ago with a loan double the amount of the assessed value, one has to wonder if it might be one of the properties in trouble next. It’s not a large property but there are always at least several empty units (you can tell because they leave the lights on in them). It’d be a shame because it is such a great property to live in, or at least it would be if they’d take proper care of it.

         Thanks for always posting the stuff about Morgan. It’s hard to come by, especially here, and an interesting read.

         1. Here is NY shared meter laws https://www.coned.com/en/accounts-billing/how-to-read-your-meter/shared-meters

            http://tenant.net/alerts/Shared_Meter_Brochure_Eng.pdf

            1. Thanks, aNYCdj. Although those links are for gas/electric rather than water/sewer/trash, but I wonder if the same things still apply.

         2. I’d move.

            1. I’d move too. GA looks good in comparison.

            2. Chinbabwe, we’d love to. Everything is owned by the same rental companies though. We get a lot of space for what we pay for too. It’d cost us double what we pay now to rent a SFH with similar space. So our only other option is to buy. Which we almost did but, fortunately, lost out during the bubblicious madness. We’re hoping to snag something once the market settles into reasonable/affordable. In the meantime, we’re just paying off debt and saving like crazy.

            3. WestWorld5, would if we could. I can work anywhere but spouse has a very specific type job and refuses to move. I’ve tried for 20 years to get us the hell out of NYS, to no avail. It’s just not gonna happen.

            4. “I’ve tried for 20 years to get us the hell out of NYS, to no avail. It’s just not gonna happen.”

               Sounds like the mother-in-law lives nearby?

            5. “Sounds like the mother-in-law lives nearby?”

               rms, Right you are!

         3. gen X?
            when do genX workers figure they can retire?
            age 55 for county n state workers in VA

            1. I don’t think most of GenX ever thought they would have the option of retiring. They assumed they would get screwed over on career, social security, or both. So far it’s gone a little better than they expected it would. We’ll see how long that holds out.

            2. Taxpayers, honestly? Never. We don’t plan on being able to retire. Ever. Not one single hardworking GenXer I know anyway. Maybe – a big maybe – if we can manage to buy an affordable SFH with decent taxes and pay it off, we might be able to retire. But who knows what fresh hell we’ll be dealing with by then.

               Boomers fooked us over, big time. We are the Screwed Generation. Millennials will probably end up better off than GenX in the long run. Boomers have taken advantage of, and then taken away, everything given to them by the Greatest Generation. We don’t have the same opportunities as Boomers because they’re torching the trail behind them as they go.

               By the time any of us made it to the job market, there were already no jobs offerings pensions unless it’s things like teachers, police officers, federal work. Employers used to pay for healthcare but then the damn ACA took that away too. Health insurance used to mean something but now it’s no better than catastrophe insurance.

               H1B Visas and their anchor kids all being sent to medical schools are the ones really taking our jobs away and, locally anyway, all the good homes or pushing prices upward. Then on the other end are the people who make a career out of living off benefits by having kids every couple years and not working. Or coming into our country with nothing but are given everything while people born here are running the rat race indefinitely. All of which happened thanks to Boomer policies that allowed/allow it. It’s only getting worse.

               Boomers have gotten to enjoy leisurely early retirements with exotic trips every year and vacation homes. Whereas all the GenXers I know we can’t even afford just a regular home to put a roof over our own heads.

               So, no, any hardworking middle class GenXer is probably never going to be able to retire. We’ll probably die in debt instead, despite many of us working good, well paying jobs our entire adult lives.

            3. Carl Morris, many of us still don’t think we’ll ever have the option of retiring. We have been screwed and we’ll continue to be screwed. Every GenXer I know is resigned to that fact. We’re skeptical that anything will change for the better enough in our lifetime to be able to benefit from it. As pessimistic as that sounds, I think most of us are just realists at this point.

            4. “Retirement” is a relatively new concept, one that will likely go the way of the buggy whip. My 78 year old aunt is still working, otherwise she can’t afford her shanty.

            5. Another aunt, 80, IS retired because she won the housing lottery, buying a rambler in Bellevue, WA in the 1960s. She cashed out at the peak. Dumb luck.

            6. Chinbabwe, I wouldn’t be surprised if “retirement” goes away either. Although it seems that the economy, or at least employers, rely on it. I work for a massive employer, largest in the region, and they definitely push employees toward retirement, whether or not it’s realistically feasible.

            7. “…buying a rambler in Bellevue, WA in the 1960s.”

               Especially the late sixties… Boeing was in the toilet too.

            8. Boomers have taken advantage of, and then taken away, everything given to them by the Greatest Generation. We don’t have the same opportunities as Boomers because they’re torching the trail behind them as they go.

               Actually…Most of my co-boomers imitated the prosperity of their parent’s generation by going deeply into debt and sending the wife off to work.

            9. So many victims! Oh the horror of it all!
               This country is so abominable that almost everyone on the planet wants to move here. Quit blaming someone else and get yer head out of yer azz and take advantage of the wealth of opportunities you have.
               signed a boomer born 1945 and I retired in 2016 at age 71.

4. Asheville, NC Housing Prices Crater 10% YOY As 2011 Vintage Adjustable Rate Mortgage Failures Accelerate

   https://www.movoto.com/asheville-nc/market-trends/

   1. there’s enough smug there to see them through

5. https://www.forbes.com/sites/forbesrealestatecouncil/2019/02/21/multifamily-outlook-and-the-interest-rate-conundrum-in-2019/#6ca110457b81

   ‘We’ve also seen compression in the spread between cap rates for suburban markets and the urban core, currently at 40 basis points, its lowest since 2010. Signs of overbuilding are evident in high-end multifamily projects in the urban core markets. Cap rates have hovered around 5% in the urban core for the past four years, while suburban rates have dropped to 5.4% as of mid-2018.’

   ‘The northern and coastal markets are the notable exception, however, as markets like Washington, D.C., and New York City continue to experience vacancies well above historical averages. According to Freddie Mac, Fort Lauderdale, Los Angeles and Orange County are all expected to fall in this category in 2019.’

   ‘The reality is that multifamily remains a flight to safety for most real estate investors. While significant volatility plagued most asset classes throughout 2018, multifamily acquisitions actually increased by 12.1% to $173 billion, according to CBRE’s fourth-quarter report.’

   See what I mean: flight to safety? From what? Just admit it: there’s a huge pot of money and you want some more!

6. Winter Park, FL Housing Prices Crater 25% YOY As Deceased Boomer Heirs Liquidate

   https://www.zillow.com/winter-park-fl/home-values/

   *Select price from dropdown menu on first chart

7. REITS near all time highs
   ex: VNQ

   1. I wish there was a way to short them without the risk of getting “squeezed,” because I’d bet everything I own on it.

      1. The fed doesn’t appreciate shorty’s role when they’re performing their magic show.

         1. Hehehee …

         2. Wanker.Banker$ ride to the re$cue:

            “Every major Central Bank in the world has done its bit to inject another do$e of euphoria into its market patch. The Fed has been the most visible and dominant dealer, cruising the block and turning heads with the screeching sound of the handbrake turn it just pulled. But the other key central banks also seem ready to defend their monetary turf, with ECB board members talking of resuming TLTRO, the BoJ Governor Kuroda’s promising Japan’s parliament he would deliver more QE if required, and finally the PBoC allowing a record $480bn surge in bank loans in January.”

            Edwards concludes that an investment community hooked on monetary opioids$ could foster bubble$ in the financial $ystem. That is to say, he believes that central banker$’ inability to end ea$y-money policie$ that had been put in place to address the 2007-09 financial cri$is could lead to more ri$k-taking on Wall $treet that could lead to a fresh crisi$.

            A prominent Wall Street permabear says the stock market is ‘stoned on free money’ and it could ‘prove fatal’

            MarketWatch |Published: Feb 21, 2019
            Central bank$ intent on injecting ‘another do$e of euphoria’ into financial market$: Albert Edwards

8. I am seeing an absolute explosion of inventory, all priced at the peak of course. Should be a long, long year as it appears to be the stalemate stage where sellers “aren’t going to give it away.”

   1. or this very close to its all time low
      Direxion Daily Financial Bear 3X ETF (FAZ)

9. Oregon set to become 1st state with mandatory rent controls

   https://www.apnews.com/5852bf92518d4502acb0270099066d73

   1. When the plebs revolt they’ll put the torch to everything combustible.

   2. I’m not surprised that’s happening in Oregon. The Californicators have turned the rental market upside down, with the poverty-stricken natives resembling something out of The Grapes of Wrath.

10. If you are a congressperson over 70 yrs old, of course, you don’t care about the deficit, you just want vanity projects with your name on them.

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