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Investors Will Be Walking Away With Empty Pockets

A report from the Times Standard in California. “Garberville and Whitethorn in Southern Humboldt County saw some of the highest foreclosure rates in the nation during this year’s third financial quarter, according to ATTOM. For ZIP codes with over 1,000 housing units, Garberville ranked as the fifth on the top 10 list of most foreclosures with one for every 60 housing units. Nearby, Whitethorn saw one foreclosure per 82 housing units, ranking it ninth on the list. The major factor driving the foreclosures is not a mystery, according to 2nd District Supervisor Michelle Bushnell, who represents the district. ‘With the decline of the cannabis market, they’re (residents) not being able to pay their mortgages with any kind of a job in this southern region and so they’re having to relocate, and they are trying to put those homes on the market, but they’re not selling,’ Bushnell said.”

“It was legalization that sounded the death knell for the local cannabis industry, of which Southern Humboldt County is a historic center. As a result, Garberville, Whitethorn and many other Southern Humboldt County communities which primarily depended upon cannabis farming as a revenue source, have struggled in recent years. Cannabis was so dominant an economic force in the region that local satellite industries – like food service and hospitality – also took a hit, leading to high foreclosure rates.”

“Bushnell said many homes were bought not to true value and residents, floating at sea while the cannabis industry sunk beneath the waves, were stuck with mortgages they suddenly could not afford. Many ended up relocating to the Eureka and Fortuna area, where jobs are more plentiful or moving outside of Humboldt County entirely. ‘There are an abundance of rentals in the southern region down here, where you used to be able to never find a rental there,’ Bushnell said. She added many of the rentals are sitting vacant.”

The Real Deal on California. “It doesn’t pay to build homes in San Jose. Higher interest rates and soaring construction and labor costs have curtailed home building across the Bay Area’s largest city, the San Jose Mercury News reported, citing a new report. The prospect for building both market-rate and affordable homes in the South Bay city remains ‘bleak’ as builders face ‘numerous challenges’ and economic pressure on various fronts, according to the city’s residential feasibility study. For the second year in a row, the report examined the cost feasibility of five different types of properties in San Jose. None of them penciled out.”

“‘Worse than last year,’ Nanci Klein, head of economic development for San Jose, told the newspaper. ‘Unless something crazy changes, we’re not going to get much development, housing or commercial.’ ‘Interest rates have really shut down the capital markets,’ Shawn Milligan, a San Jose-based developer, told the Mercury News. ‘You can’t borrow at 9 or 10 percent and underwrite a project. It’s impossible. It was possible when interest rates were 3 percent. It has kind of turned everything upside down.'”

“This has created a vicious cycle, added Louis Mirante, vice president of public policy at the Bay Area Council. ‘The fewer projects, the less labor there is,’ he told the newspaper. ‘The less labor there is, the fewer projects there are. That death spiral is going on.'”

Honolulu Civil Beat. “I love living in condominiums, having been a condo dweller for over 40 years. But I’m concerned that the condominium model of housing is collapsing. While more housing will answer much of Hawaii’s ills, creation and governance under the current condominium model may encourage an exodus of those fleeing the growingly oppressive consequences of current condominium governance. Condominiums are a form of property ownership created by government statute enabling development of higher density, lower-per-unit-cost housing. Condominium association governance is modeled after nonprofit corporations; the state Department of Commerce and Consumer Affairs lists nonprofit corporation law, HRS 414D, on its website as a law that pertains to condominiums.”

“The state’s condominium statute was written for those who build, sell, buy, and manage condominiums, and focused upon the transactional aspect of condominiums. Statutes that were added as afterthoughts to protect association members (owners) are mostly unenforceable, possibly written to maximize the use of attorneys to interpret these vague statutes and associations’ governing documents as they please. Without owner-protective changes, the government that created condominiums is furthering the collapse of the current condominium model, allowing condominiums to become less desirable, more financially taxing, and less physically sound, and culminating in harm to a large segment of Hawaii’s population and its economy.”

The Daily Mail. “Its expansive ski resorts, low living costs and vast hot springs attracted an influx of homebuyers during the pandemic. But is Idaho’s red-hot housing market coming to a fiery crash? Experts estimate homes in the Gem State are now more than 40 percent overvalued after soaring demand artificially pushed up prices. And as mortgage rates also rise, it means residents are at risk of falling into negative equity. Redfin shows that the median cost of a home in Idaho’s capital Boise is now $515,000. It marks a drop from their peak of $583,000 in May 2022 but remains well above the $333,029 cost in December 2019. It is little wonder then that experts are concerned.”

“Moody’s Analytics economist Matthew Walsh said: ‘If you look at Idaho over the past three years, you’ve had this extreme run up in home prices since the pandemic began. So if you look at that relative to the demographic drivers – the household formation and the income growth there – that run up has been so much more extreme which is why we see the inflated valuation of houses there.'”

The Journal News in New York. “More Westchester communities are moving into the luxury housing market as prices rise amid low inventory. A new report by Houlihan Lawrence, a leading real estate company in the northern suburbs, showed 209 luxury homes across 15 school districts were sold in the third quarter of 2023. In Westchester, homes sold for more than $2 million are considered luxury properties, according to the report. About 40% of this quarter’s luxury sales in Westchester closed below asking price. About 25% closed over asking, from $10,000 to $1 million over listed price.”

From Curbed. “After the first wave of COVID receded, buying a multifamily rental seemed like one of the best bets a person could make. Prices were high, sure, but interest rates were low, and it seemed that with a little savvy you could raise rents forever. (Not to mention that those high real-estate prices pretty much guaranteed steady demand that would keep rents up — all those would-be buyers priced out of the sales market.) But depending on when and what you bought and the debt you used to finance it, the tides have turned.”

“Next month, $4.5 billion in loans will mature, which means that many property owners will have to refinance their existing loans when interest rates are high and lenders are skittish about making new loans. But this is just a sliver of what’s coming due in the next four years: Between 2023 and 2027, $980.7 billion in multifamily debt will come due, an amount that dwarfs commercial-office debt.”

“We talked to Manus Clancy, a senior managing director at Trepp, a commercial real estate data firm, to find out what’s going on: ‘If you took out floating-rate debt, your cost of debt has probably doubled from 4 to 8 percent, and that’s eating away at your profits. And the level of rent growth is not what they were expecting now that the COVID rent boom is over. We’re seeing much higher costs: insurance, utility, and labor. And if their strategy was that they’d come in, slap a couple of cans of paint on the place, sell it for 15 percent more, the market isn’t there anymore. For a lot of buyers, they’ll have buyer’s remorse. Why did I buy during the peak of the market? The other buyers, the costs will eat up their profits, and they’ll end up defaulting on their loans.'”

“So were these bad bets? ‘It was this narrative that a lot of people believed in — that rates were never going to go up, that the Fed would never do what it did. You could look back and say they were pennywise and pound foolish and they should have known, but plenty of people were doing it.'”

The Globe and Mail in Canada. “British Columbia’s new legislation that would ban short-term rental in secondary investment properties will cause a whole lot of pain – and without producing the desired affordable housing, says a Kelowna, B.C., property manager. Amanda Van Der Lee is owner of How to Host Property Management & Design, an umbrella company that handles all aspects of short-term rental, including licensing and bookings, interior decorating and cleaning. Ms. Van Der Lee employs about 15 staff and hires contract workers to run 60 properties for her investor-clients. On their behalf, she rents out mostly condos, but single-family houses as well.”

“Not only will her business be affected and jobs lost, but her investors will suffer financial losses, she predicts. In Kelowna, she says there are 15 buildings that allow short-term rental, all licensed and above board. Her clients went into their investments playing by a set of rules that the province is now threatening to remove. She says the city had approved the buildings for short-term rental, or had grandfathered in non-conforming short-term rental – which would no longer be allowed under the new rules. Ms. Van Der Lee, who posted her grievance on TikTok, questions how that is fair.”

“‘We are going to be left with so many units,’ she said in an interview. ‘And people have these terribly high variable rate mortgages where long-term income won’t be able to cover the mortgages on these properties. Owners will be cash flow negative. We will see that – or we will see a ton of [these units] hitting the real estate market, depreciating the values of them. And I don’t think people are going to cash out equal to the mortgage they owe on the property, so investors will be walking away with empty pockets. It’s terrible.'”

“She said luxury short-term rentals would never be affordable as long-term rentals. Also, a share of the presale market might depend on the short-term rental market. ‘We have new builds, not even built yet, and all these properties have deposits on them. So if a revenue property is eliminated, the [owners] will just leave their deposits on the table and walk away. Who wouldn’t?'”

From ABC News. “News that quarterly inflation has rebounded back to 1.2 per cent is a double-whammy for Frances Chapman, as it is for most Australians with a mortgage. Not only does it reveal just how much extra her family is paying to buy essentials, but it has also more than doubled the odds of another interest rate rise in a fortnight’s time. ‘That’s pretty scary to think about, to be honest,’ she said. ‘I’m not sure we could handle much more of a rate increase. So, ultimately, I guess we would have to look at trying to find a cheaper place to live and … we worked really hard to be able to afford this home. We might consider leaving Sydney — potentially moving down the south coast or something like that,’ she explained.'”

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This Post Has 104 Comments

  1. ‘And the level of rent growth is not what they were expecting now that the COVID rent boom is over. We’re seeing much higher costs: insurance, utility, and labor. And if their strategy was that they’d come in, slap a couple of cans of paint on the place, sell it for 15 percent more, the market isn’t there anymore. For a lot of buyers, they’ll have buyer’s remorse. Why did I buy during the peak of the market? The other buyers, the costs will eat up their profits, and they’ll end up defaulting on their loans’

    Manus, I’ll have you know this is THE holy grail of investing.

  2. ‘We have new builds, not even built yet, and all these properties have deposits on them. So if a revenue property is eliminated, the [owners] will just leave their deposits on the table and walk away. Who wouldn’t?’

    Just like that Amanda, all yer hard earned equity, yer just giving it away?

  4. ‘With the decline of the cannabis market, they’re (residents) not being able to pay their mortgages with any kind of a job in this southern region and so they’re having to relocate, and they are trying to put those homes on the market, but they’re not selling,’ Bushnell said.”

    Demand for cannabis isn’t declining, but willingness to pay high tax rates for legal pot is, when customers can buy from an illegal dealer who gets his pot from the Mexican drug cartels.

  5. But is Idaho’s red-hot housing market coming to a fiery crash?

    Prediction: as the Fed & Biden regime hurtle us down the road to Venezuela del Norte, native-born Idaho residents and ultra-conservatives relocating to the “free” states are going to turn increasingly hostile towards Californians who relocated to the state & brought their ideology with them.

  6. “Not only will her business be affected and jobs lost, but her investors will suffer financial losses, she predicts.

    Die, speculator scum.

  7. Her clients went into their investments playing by a set of rules that the province is now threatening to remove.

    Cry me a river. Houses are for living in, not speculation that has made shelter – a basic human need – unaffordable for millions.

  8. Matthew Perry who played Chandler on the show Friends had a 100% safe and effective moment in the bathtub. RIP.

    2. That thought crossed my mind as well. And for every celeb who has a “safe and effective” experience, tens of thousands of “little people” do the same, they just never make the headlines. Curious how politicians never seem to have one.

    3. But for the grace of God

      Matthew Perry, Emmy-nominated ‘Friends’ star, dead at 54

      Updated 11:59 AM EDT, October 29, 2023

      The actor was found dead at his Los Angeles home, according to coroner’s records. An investigation into how Perry died is ongoing, and it may take weeks before his cause of death is determined.

      Perry’s body was found in a hot tub at his home, according to unnamed sources cited by the Los Angeles Times and celebrity website TMZ, which was the first to report the news. LAPD Officer Drake Madison told The Associated Press on Saturday that officers had gone to that block “for a death investigation of a male in his 50s.”

      Perry was open about his long and public struggle with addiction, writing at the beginning of his 2022 million-selling memoir: “Hi, my name is Matthew, although you may know me by another name. My friends call me Matty. And I should be dead.”

      https://apnews.com/article/matthew-perry-dead-drowning-friends-f2963e83691d2bd2a8626d85a69c73cb

      1. Perry was open about his long and public struggle with addiction

        Note that they didn’t say that the OD’d in the hot tub. Probably because he didn’t.

        1. No drugs or signs of foul play from what I’ve read.

          The “vaccines” pushed his abused body into shutdown.

  9. “It marks a drop from their peak of $583,000 in May 2022 but remains well above the $333,029 cost in December 2019. It is little wonder then that experts are concerned.”

    Thank you for reminding us where 2019 pricing was. Because 2019 was still bubbly and overpriced. We got a ways to go. But we’re getting there.

  10. “You could look back and say they were pennywise and pound foolish and they should have known, but plenty of people were doing it.’”

    And there ya go. Herd mentality. See if you can fly as you leap off that cliff all you lemmings! I love a herd schlonging in the morning!

  11. “And I don’t think people are going to cash out equal to the mortgage they owe on the property, so investors will be walking away with empty pockets. It’s terrible.’”

    Terrible? Not for us vultures sitting on the sidelines. We’re just munching popcorn and enjoying the show.

    2. “…so investors will be walking away with empty pockets. It’s terrible.”

      It seems like investors getting washed out of the houses only purchased for prospective speculative gains would be an excellent step towards increasing inventories and affordability to young families who need a place to live in. Maybe we could even bring back the US birth rate to positive territory.

      Where is the downside?

      1. Fox News
        Population rate decline in the US triggers economic alarms from experts: ‘Calamitous effect’
        CDC data shows birth rates fell by 22% since 2007
        By Lindsay Kornick Fox News
        Published October 24, 2023 4:30am EDT
        Declining birth rates happen in prosperous nations: Ashley St. Clair

        The Babylon Bees Ashley St. Clair discusses the declining birth rate in America and the growing trend of being unmarried without kids on ‘Jesse Watters Primetime.’

        Falling fertility rates in the United States will trigger a “calamitous effect” on the economy if it hasn’t already, experts told Fox News Digital.

        According to CDC data, between 2007 and 2022, the U.S. birth rate fell by 22%. Not a single state reported an increase in birth rates, although some experienced a slower decline than others.

        “The U.S. birth rate is steeply declining, mimicking the patterns of other developed nations worldwide, causing the global population to stop growing sometime this century. The U.S. and other developed nations dropped below the replacement rate in recent years, meaning we are not producing enough children to maintain the population, much less grow it,” demographic strategist Bradley Schurman explained to Fox News Digital. “Today, three-quarters of U.S. counties and half of the states have deaths outpacing births.”
        …
        https://www.foxnews.com/media/population-rate-decline-us-triggers-economic-alarms-experts-calamitous-effect

      2. Maybe we could even bring back the US birth rate to positive territory.

        I hate to say this, but I think it will take more than affordable shelter to make that happen. I know plenty of young couples with good incomes and who bought before the current bubble went crazy, and few of them are interested in children. They want to travel, eat out, etc. and view children as an obstacle to their happiness.

  15. in multifamily debt will come due, an amount that dwarfs commercial-office debt.”
    I am in Panama City on vacation and the office/retail vacancies are much larger than they have been the past 2 years. For Rent every where. Worse that the Pandemic. Unemployment is 10%, and inflation is a hot topic. I don’t know the vacancy rate. They have WeWork “office” here as well as a CoLiving Studio complex within a short distance of my hotel.
    Also, I got t new computer and my Joshua Tree program didn’t transfer over. Would someone please let me know how to get that file. It’s great for finding comments that I haven’t seen/read yet!

  17. Military/Industrial Complex..

    In my youth they traumatized us by the Commies are going to nuke us. Viet Nam war, Cold war, always a conflict.
    Than 911 and terrorist war, but weapons of mass destruction was a lie.
    Than Covid, than Ukraine proxy war. Israel/ Gaza war drums .
    Domestic crime war, transgender attack, Christine and Republicans domestic terrorist , war on white race , racism racism racism.
    Now Scientists calling for World Health Organization to declare Global Climate Change Emergency.
    The gig is up, the chess movers get more ridicules by the minute.

    1. And everytime something bad happens, like the recent Cat 5 hurricane that hit Acapulco, it’s blamed on climate change.

      I wonder how long before they try to move from “you can only buy an EV after 203X” to “you can’t drive your existing ICE car after 203X”.

      I think they will try a gradual approach to ban ICE cars. First you will have to pay an onerous fee to drive them in big cities. Then they will be banned from big cities. Then they will try to trickle that down to smaller and smaller urban areas, then ban ICE cars from coast to coast. Your ICE car still has plenty of life left in it? Too bad, because we’re closing all the gas stations.

      1. Still, there is hope. London installed special cameras to bust non compliant vehicles that haven’t paid the huge fee, and people sabotaged them.

    1. A quick looksie showed that about 60% are below 4%.

      What happens if you die before paying off your mortgage? Can your heirs just keep making the payments? Or is your estate expected to settle the balance within X days?

      1. Found this:

        If you decide to assume the loan and transfer the home’s deed to your name, the lender or servicer should be willing to work with you. This is because heirs have significant leverage in dealing with a mortgage in an estate situation, thanks to the Garn-St. Germain Depository Institutions Act of 1982 (Garn-St. Germain Act). The law provides protections for heirs, among other provisions, that can help them assume an existing loan.

    1. “Eve of a recession”? You’ve been drinking the MSM Kool-Aid. By all the metrics that matter, we’re already in a recession, if not an outright depression.

      1. The recession has been papered over by the unprecedented, massive deficit spending, which has predictably sent the CPI into the stratosphere.

        By using rigged CPI numbers they can show that the economy is “growing”, hence no recession.

        But other metrics, like shipping, cardboard box production, plummeting savings rates, etc., tell a very different story.

        1. “But other metrics, like shipping, cardboard box production, plummeting savings rates, etc., tell a very different story.”

          I’d call those leading indicators of recession, at least as recession is officially defined, based on changes in GDP. The most recent GDP release certainly doesn’t indicate a recession is currently underway, but it also doesn’t offer much hope to those who believe interest rates will soon settle down.

          1. One of the nifty features of GDP is that it doesn’t depend on production of goods so much as it depends on the person doing the adding up.

            Falsifying the CPI by over 50% is one thing that comes to mind. That alone could make our supposed 4.9% growth rate actually negative.

          2. One of the nifty features of GDP is that it doesn’t depend on production of goods so much as it depends on the person doing the adding up.

            Kinda like those nifty vials with the jab, or any vaccine for that matter. There is no way for us to know what’s in them, so it boils down to trust.

          3. The most recent GDP release certainly doesn’t indicate a recession is currently underway

            IIRC GDP includes all that deficit spending as well. How convenient that gov’t spending (of money it doesn’t have) is included in those numbers

      2. It’s not really showing up much in the official unemployment or GDP statistics so far. If you are among those who believe these numbers are made up, then I guess you can easily believe there is a recession or depression underway already, though it is hidden from view. I don’t see the evidence to support this.

        Another perspective is that while the official numbers may not be doctored, what they measure may miss important signals of economic decline, such as rising homelessness and collapsing home sales. It certainly doesn’t seem difficult to make the case that some segments of the economy are in a depression, regardless of what aggregate GDP or unemployment indicate.

        1. There is a widely read bay area blogger who is always harping on how great the unemployment numbers are but apparently he never steps foot outside in SF or Ookland. With the shops all closed, the office towers empty, and miles of tents and zombies I think it is safe to say the ‘official’ numbers aren’t telling the real story.

          1. “…and miles of tents and zombies…”

            Are homeless people counted as ‘unemployed’, or does government accounting exclude them from the unemployment count as ‘discouraged workers’?

            Masking homelessness in official statistics is one way to keep the ‘everything is awesome’ official narrative alive and well.

        2. If you think that rigged CPI numbers are tinfoil hat stuff, so be it.

          What I do know is that I had to reduce my savings rate (from 30 down to 25%) because I was no longer able to make ends meet without changing my lifestyle. I was able to dodge that bullet last year as I got a raise. However this year we were told “sorry, no raises this year”.

          I lowered my savings rate with great distress. I suspect that I will have to start resorting to “hedonic substitution”, lowering the thermostat in winter, raising it in summer, no vacations, etc. as further lowering of my savings rate is not on the table.

          1. Speaking of the “no raises this year” thing, there was quite a bit of blow back from the rank and file on the annual “anonymous feedback survey “. Everyone knows that those online surveys are not anonymous, but the complaints were made nonetheless.

            During a recent all hands meeting our VP apologized for the lack of raises and said “something would be done”, with no specifics on what or when.

          2. “If you think that rigged CPI numbers are tinfoil hat stuff, so be it.”

            I don’t see the incentive for government statisticians to destroy their reputations and break the law by falsifying official statistics. And if this were happening, I believe whistleblowers would report it in the free US press and the foreign press.

            Not saying it is impossible, but it seems quite unlikely, given that we still have a politically independent professional workforce staffing government statistical agencies, at this point in history.

            Following the 2024 election, all bets are off…

          3. I don’t see the incentive for government statisticians to destroy their reputations and break the law by falsifying official statistics.

            I once thought the same. I also once had that opinion about those who count the votes.

            In a corrupt country, anything goes.

        3. I don’t see the evidence

          In general we are not maintaining our standard of living.

          The Feds are borrowing $2 Trillion a year.

          If this was your personal finances, you wouldn’t think you were growing.

          2. The Feds are borrowing $2 Trillion a year.

            That buys a lot of wallpaper, but at some point you just can’t hang another layer.

        4. Business The West U.S. & World
          ‘Ominous’ prediction: Rising mortgage rates stand to tip sector back into recession, Wells Fargo says
          Prospects for housing rebound ‘dim’ as mortgage rates hover near 8%, sinking U.S. affordability to new record low
          By Katie McKellar
          Oct 26, 2023, 5:00pm PDT
          A home for sale sign in Draper, Utah.
          A home in Draper is for sale on Wednesday, Oct. 18, 2023.
          Laura Seitz, Deseret News

          Warning that the housing market is contracting again as today’s mortgage rates hover near 8%, Wells Fargo economists wrote in a new analysis that rising borrowing costs “stand to tip the housing sector back into a recession.”

          The “ominous” special commentary posted Thursday, according to a Wells Fargo news release, states prospects for a housing rebound are dimming as mortgage rates tighten their grip on the already sharp U.S. housing affordability issues.

          Even though the economy has shown “a remarkable degree of resilience” this year — and a strong labor market along with moderating inflation has “raised hopes that the U.S. economy can avoid a recession — the same can’t be said for the real estate market. Unfortunately, not every sector of the economy has been as sturdy in the face of rising debt costs,” the Wells Fargo economic group wrote.
          …
          https://www.deseret.com/2023/10/26/23933827/housing-market-prediction-recession-mortgage-rates-wells-fargo

    2. That Uneasy, Sinking Feeling You Have Is the Best Recession Indicator
      Smiley face
      (Dreamstime)
      By Phillip Patrick Friday, 27 October 2023 10:43 AM EDT ET Current | Bio |
      …intuition is always right in at least two important ways; It is always in response to something. It always has your best interest at heart.
      From The Gift of Fear, by Gavin de Becker

      After all of the economic craziness we’ve been enduring over the last 3 years, you might have a weird feeling in the pit of your stomach.

      I know I do. Ever since the pandemic panic, I feel like I’ve been waiting for the other shoe to drop.

      Recently, I’ve been hearing the same thing from friends and colleagues. I assume it’s the same sort of uneasy intuition of inexplicable wrongness that sends animals into a restless panic before an earthquake strikes.

      In this case, it’s an economic earthquake.

      If you’re feeling the same way, I don’t think you should ignore that gut feeling. You’re not the only one having it.

      And there’s a growing pile of evidence that we’re feeling something more than just mild indigestion.

      Yes, a recession is on the way
      …
      https://www.newsmax.com/finance/phillippatrick/recession-inflation-retirement/2023/10/27/id/1139944/

    3. The Wall Street Journal
      ‘Buy the Dip’ Investing Mantra Lives On—in the Bond Market at Least
      Investors this year have poured $21 billion into TLT, BlackRock’s long-dated Treasury fund, despite punishing decline in its shares
      PHOTO ILLUSTRATION BY EMIL LENDOF/THE WALL STREET JOURNAL; ISTOCK
      By Jack PitcherFollow
      Updated Oct. 29, 2023 12:01 am ET

      One of the hottest investments on Wall Street is something of a surprise—it’s a battered long-dated Treasury bond fund.

      Shares of the iShares 20+ Year Treasury Bond ETF are near a 16-year low and have lost more than half their value from their 2020 peak, but investors are piling in. They added more than $2 billion to the fund on Tuesday and Wednesday alone, bringing its total inflows for the year to $21 billion.

      The roughly $40 billion BlackRock (BLK -1.48% decrease; red down pointing triangle) fund, known by ticker symbol TLT, passively invests in long-dated U.S. Treasury bonds and currently yields about 5%—in line with the 30-year Treasury bond. It has taken in more money than any other fixed-income, exchange-traded fund in 2023 and all but two equity funds.

      What is unusual about investors’ behavior is that fund flows almost always follow performance. In this case, though, some appear to be betting that yields are near their peak and set to fall, a debate that is raging on Wall Street and is key to the outlook for financial markets.

      A fall in yields would be a win for TLT investors, some of whom may be buying because they hope the fund will reclaim its status as a haven in the event other parts of the market falter. It could also brighten the appeal of rate-sensitive sectors like technology stocks.

      “Just in the last week we’ve seen flows start to come in, and I’m expecting that to pick up as investors look for signs that we may be topping out in yields,” said Steve Laipply, global co-head of iShares fixed-income ETFs at BlackRock.

      If yields begin to fall, investors in long-dated bonds will benefit from price appreciation. Because longer-duration bonds are the most sensitive to interest rate moves, they will appreciate faster if rates fall and decline faster if they move higher.

      TLT has become the center of the action for investors big and small to bet on the path of bond yields or simply add exposure to long-dated bonds. Anyone with a brokerage account can buy the shares.

      Its size, liquidity and the robust options market around the fund have made it a favorite tool of Wall Street traders for its ease, versus buying and selling the underlying bonds. The fund has attracted significant long and short bets in recent months.

      The bulk of the fund’s flows this year are likely from investors looking to boost their fixed-income exposure to take advantage of higher yields, Laipply added. The 30-year Treasury yield was as low as 3.5% in April of this year, before marching above 5% in recent days.

      Ten of TLT’s 12 busiest days by trading volume on record have occurred since the last Federal Reserve meeting on Sept. 20, according to Dow Jones Market Data. All eyes will again be on Fed Chair Jerome Powell when he speaks Wednesday at the conclusion of the central bank’s November meeting for any clues about the interest-rate trajectory. He recently suggested that the run-up in long-term Treasury yields could allow the bank to pause its rate hike campaign.

      For Michael Price, a recently retired 58-year-old financial adviser in Toledo, Ohio, the 10-year Treasury yield’s climb above 5% was a signal to take some cash out of money markets to lock in similar yields for a longer period.

      Price had more than 80% of his portfolio invested in stocks for most of his career but has used his retirement and the recent pickup in yields as a chance to trim his equity exposure to about 60%, he said.

      “My money market is paying 5% right now, but I don’t know if that will be the case five years from now,” Price said. “I think it does make some sense to try to reach a bit longer.”

      In addition to owning a short-duration bond fund, Price recently set up a Treasury bond ladder and bought shares of BlackRock’s TLH, a cousin of TLT that has a 10- to 20-year Treasury duration.

      The potential reward of buying long-dated government debt is becoming more attractive to some investors. If yields were to fall half a percentage point from Thursday’s levels, investors in a 30-year on-the-run U.S. Treasury would get a 13% total return over the next 12 months between price appreciation and interest payments, according to an analysis from Genoa Asset Management. A 1-percentage-point drop in yields would lead to a 23% total return.

      A move in the other direction would be fraught.

      “You’re still taking significant risk. Yields could go to 5.5 or 6%, and that’s going to hurt,” said Alex Chaloff, chief investment officer at Bernstein Private Wealth Management. “I like the phrase ‘T-Bill and chill’ until Powell signals otherwise.”
      …

    4. This Day in History: Black Thursday marks start of stock market crash
      KCCI logo
      Updated: 5:36 AM CDT Oct 29, 2023
      Infinite Scroll Enabled
      National Desk Staff

      On this day in 1929, nearly 13 million shares of stock were traded as Black Thursday hit Wall Street. The day is remembered as the start of the worst stock market crash in U.S. history and the beginning of the Great Depression.

      The stock market experienced rapid expansion in the 1920s, but by Aug. 1929, production had declined and unemployment had risen, leaving stocks in great excess of their actual value.

      Other causes of the market’s collapse were low wages, an increase in debt, a struggling agricultural sector and an excess of bank loans that couldn’t be liquidated.

      Stock prices began to fall in September and October until Black Thursday hit on Oct. 24.

      After nearly 13 million shares were traded, investment companies and bankers tried to stabilize the market the next day by buying up great blocks of stock. That produced a moderate rally, but on Oct. 28, the market went into a free fall.

      Stock prices collapsed completely the next day, with more than 16 million shares traded on the New York Stock Exchange. The day resulted in billions of dollars lost and financially devastated thousands of investors.
      …
      https://www.kcci.com/article/this-day-in-history-black-thursday-1698575399/45674499

    5. Financial Times
      Property sector
      Surging US mortgage rates halt rally in homebuilder stocks
      Shares of leading developers sag as demand for new houses starts to falter
      A house under construction
      Homebuilder confidence is at its lowest level since January
      Alexandra White in New York 9 hours ago

      A powerful rally in the stocks of US homebuilders has gone into reverse, as investors worry that a rapid rise in mortgage rates is starting to threaten demand for new houses.

      Shares in DR Horton, Lennar and NVR have dropped more than 16 per cent since their peak in July. Those of PulteGroup, which had surged 86 per cent in 2023 until August, are down by a similar amount.

      Rapid rises in mortgage rates had at first propelled homebuilder stocks, because they made current homeowners holding cheaper fixed-rate loans less willing to sell their properties. Buyers sought out newly constructed houses as an alternative.

      But higher rates are finally having an effect. Mortgage rates have risen sharply in recent months, rising from 6.48 per cent at the start of the year to a 23-year high of 7.79 per cent last week, according to Freddie Mac. Homebuilders have said that the recent jump had begun to price more homebuyers out of the market.
      …

      1. Bloomberg
        Wealth
        Mortgage Rates at 8% Make a Brutal US Housing Market Even Worse
        Contracts to buy homes in September were canceled at the highest rate in nearly a year.
        Photographer: David Paul Morris/Bloomberg
        By Jennifer Epstein and Shelly Hagan
        October 28, 2023 at 5:00 AM PDT

        Seven straight weeks of rising borrowing costs are sideling more homebuyers. Shoppers forging ahead are trying to take advantage of a less competitive market.

        Surging US mortgage rates are delivering a stark warning to would-be buyers: A brutal market is getting even more challenging.

        Over the past two months, rates for 30-year mortgages have hurtled toward 8% by most measures. Affordability pressures are cutting into sales, with purchases of previously owned homes in September dropping to the lowest level since 2010, according to the National Association of Realtors.
        …

    6. Elon Musk, Jamie Dimon, and Ray Dalio just issued fresh warnings about the US economy. Here’s what 10 experts recently said about recession risks.
      Theron Mohamed Oct 29, 2023, 7:35 AM ET
      Elon Musk
      REUTERS/Lucy Nicholson

      – Elon Musk, Jamie Dimon, and Ray Dalio all have serious concerns about the US economic outlook.

      – Leon Cooperman, David Solomon, and David Rosenberg have also predicted trouble in recent days.

      – Several of these experts anticipate a full-blown recession to hit next year.
      …

    7. Yahoo
      Reuters
      Frazzled U.S. stock investors eye frothy Treasury market as Fed looms
      David Randall
      Fri, October 27, 2023 at 2:56 PM PDT·3 min read
      In this article:
      Traders work on the floor of the NYSE in New York

      NEW YORK (Reuters) – Financial markets are bracing for what could be a momentous week, with a Federal Reserve meeting, U.S. employment data and earnings from technology heavyweight Apple Inc possibly setting the course for stocks and bonds the rest of the year.

      October has lived up to its reputation for volatility, as a surge in Treasury yields and geopolitical uncertainty pressured stocks. The S&P 500 index is down 3.5% for the month, adding to losses that have left it over 10% off its late-July high.

      Whether the ride remains rough for the rest of 2023 may depend in large part on the bond market. The Fed’s ‘higher for longer’ stance on interest rates and rising U.S. fiscal worries pushed the benchmark 10-year Treasury yield – which moves inversely to prices – to 5% earlier this month, the highest since 2007. Higher Treasury yields are seen as a headwind to stocks, in part because they compete with equities for buyers.

      Investors worry that yields could rise further if the Fed reinforces its hawkish message at the central bank’s Nov. 1 monetary policy meeting. Strong U.S. employment data next Friday could also be a catalyst for yields to rise if it bolsters the case for keeping rates elevated to cool the economy and prevent inflation from rebounding.

      “Stocks will start to recover when the market believes that bond yields have peaked,” said Sam Stovall, chief investment strategist at CFRA Research.
      …
      https://finance.yahoo.com/news/frazzled-u-stock-investors-eye-215642906.html

    8. Christmas is less than two months away, and Santa Claus is getting ready to reward Wall Street bulls with a year-end rally. Don’t let your FUD keep you away from this spectacular opportunity to climb a wall of worry with all the other brave bovines.

      1. A Bull Market Is Coming: 2 “Magnificent Seven” Stocks to Buy Hand Over Fist Before They Rally 36% and 52%, According to Wall Street
        By Danny Vena – Oct 29, 2023 at 5:10AM
        KEY POINTS

        – The so-called “Magnificent Seven” stocks have far outpaced the gains of the broader market so far this year.

        – Wall Street analysts believe two of these stocks still have plenty of additional upside.

        – The accelerating adoption of generative AI should spur further gains for Amazon and Nvidia.
        …
        https://www.fool.com/investing/2023/10/29/a-bull-market-is-coming-2-magnificent-7-stocks-to/

  21. (A long read …)

    The Specter of Hyperinflation Looms over the Economy

    https://mises.org/wire/specter-hyperinflation-looms-over-economy

    The threat of hyperinflation has haunted fiat money economies throughout history. Although past empires crumbled under the weight of unrestrained money printing, modern bankers at the Federal Reserve assure us that today’s financial system is immune to such a fate. Austrian business cycle theory, however, reveals that current economic stimulation may be propelling us toward a crisis of catastrophic proportions: a crack-up boom that marks the dramatic end of this boom-and-bust cycle. When a central bank expands the money supply to reinflate bubbles, it destroys the currency’s purchasing power. This endgame, in which the monetary system crumbles beneath a weak economy, represents the ultimate failure of interventionism. Once the public expects prices to keep rising, hyperinflation becomes a self-fulfilling prophecy.

    The Expanding Boom-and-Bust Cycle Ends in a Crack-Up Boom
    To comprehend the precarious state of America’s monetary system, we must first review the boom-and-bust cycle as formulated by Ludwig von Mises and the Austrian school. The Austrians observed that the artificial suppression of interest rates by a central bank initiates an unsustainable economic boom by promoting malinvestment. Pushing rates below natural market levels sends a distorted signal to businesses that long-term capital investment is more profitable than the economy can actually support. In the euphoric boom phase, jobs multiply and GDP grows with investment. But the investments lack economic merit, so the house of cards eventually collapses.

    With the liquidation of malinvestments, the bust phase emerges: unemployment soars, output contracts, and a recession begins. Since the investments were built on quicksand, they must unwind. Each failed business further curtails consumer spending, rippling the bust through the economy. But rather than letting liquidation and market corrections occur, policymakers add stimulus, setting up a larger bubble and more painful bust down the line.

    At this point, people panic and exchange currency for real assets before rapid devaluation consumes their savings. As the crack-up boom picks up steam, the demand for money plummets while prices of real goods skyrocket, leading to hyperinflation. This psychological shift marks the event horizon where monetary policy is rendered impotent. Mises describes the nature of this crisis:

    This phenomenon was, in the great European inflations of the ’20s, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call “velocity of circulation.”

    The characteristic mark of the phenomenon is that the increase in the quantity of money causes a fall in the demand for money. The tendency toward a fall in purchasing power as generated by the increased supply of money is intensified by the general propensity to restrict cash holdings which it brings about. Eventually a point is reached where the prices at which people would be prepared to part with “real” goods discount to such an extent the expected progress in the fall of purchasing power that nobody has a sufficient amount of cash at hand to pay them.

    The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether. People return either to barter or to the use of another kind of money.

    The crack-up brings the unsustainable, debt-fueled boom to a catastrophic end. Personal savings are wiped out along with the monetary system’s credibility. Society becomes less stable as the populace loses faith in institutions and scrambles for resources. The economy finds its ultimate bottom not in recession but in the total decay of the currency itself.

    The Facade of Stability
    Today, deficits balloon out of control as a result of efforts to sustain demand. Rather than allowing healthy corrections, the Fed piles on monetary stimulus at the first signs of financial crisis. Like an addict, the economy needs increasingly larger doses to maintain the status quo. But this trajectory of interventionism cannot persist forever without severe consequences: the Faustian bargain of trading long-term stability for short-term gain will backfire catastrophically.

    With each intervention, the Fed suppresses market corrections, inflates asset bubbles, and encourages high-risk debt. This constant flood of stimulus promotes moral hazard as it optimizes the economy for speculation while curtailing organic productivity. How much longer can this monetary dance along the precipice of hyperinflation continue before the dollar plunges into the abyss?

    Despite the veneer of stability, individuals sense that the economy rests on a precarious foundation of debt and deceit. They intuitively grasp that capitalism has metamorphosed into a cronyism that disproportionately rewards those with political connections in an amalgamation of concentrated power, unrestrained money creation, and escalating inequality.

    The Mirage of Reform
    Hoping for a return to monetary and fiscal restraint may prove naively optimistic. Exercising prudence would require immense political courage and social responsibility, qualities rarely exhibited in politics. Politicians face overwhelming incentives to maintain short-term stability through stimulus, spending, and low rates. And restructuring programs with enormous and unfunded liabilities like Medicare and Social Security would spur public backlash, even if it was fiscally prudent.

    After decades of excess, the economy is addicted to perpetual stimulus and deficit spending. The prevailing social mindset assumes that unending, debt-fueled growth is the natural state of affairs. With little political will for discipline, reform may depend on a crisis to force change. In the meantime, politicians, paralyzed by the status quo, are unlikely to make the difficult choices that could preempt such a crisis.

    It is all but inevitable that central banks will continue expanding the money supply to delay the day of reckoning and preserve the facade until the inevitable hyperinflationary crack-up boom, although the sheer weight of debt alone may produce this outcome. Promises of reform have been made, only to go unfulfilled. In order to prevent disaster, we must fundamentally rethink our monetary and fiscal policies against the temptations of short-term political gain. To quote Ayn Rand:

    Just as a man can evade reality and act on the blind whim of any given moment, but can achieve nothing save progressive self-destruction—so a society can evade reality and establish a system ruled by the blind whims of its members or its leader, by the majority gang of any given moment, by the current demagogue or by a permanent dictator. But such a society can achieve nothing save the rule of brute force and a state of progressive self-destruction.

    The Erosion of Centralized Control
    A crack-up boom would erode the power of the federal government: with a dramatic fall in the currency’s purchasing power, the administration’s ability to fund programs and institutions would deteriorate, the Treasury would go bankrupt, and the government would have to either massively downsize or attempt to fund operations by printing even more money. Along with the value of the promissory notes, trust in centralized authority would evaporate.

    With the federal government weakened and desperate, power would naturally shift back to individuals and their local communities. When faced with harsh economic realities, communities depend on themselves rather than flailing national policy. Individuals and communities should strengthen their local networks to weather the coming storm, increasing local involvement and forging bonds of cooperation. Joining area organizations and neighborhood groups can foster mutually beneficial relationships and support systems, invaluable resources for when the currency buckles. With shared purpose, communities enhance their capacity to withstand the crisis.

    Equally vital are the practical skills and knowledge that can provide real value to others when centralized systems fray. Pursuing expertise in food production, energy generation, medicine, engineering, and other technical fields equips people to meet local needs. In these ways, proactive societies can cultivate the true source of lasting wealth: strong social webs and skilled human capital. Global forces are beyond local influence, but strong communities retain some control over their destiny, even in hyperinflation’s wake.

    Praxeological reflection, the methodology of Austrian economics, can expose the unsound foundations that stretch currencies to their breaking point. It cannot foresee when hyperinflation will arrive, but it can point to the causes and guide human action toward stability and prosperity.

    2. The Specter of Hyperinflation Looms over the Economy

      Makes me think if the meme where a hanging is about to happen, and one necktie wearer says to the other one “Your first time?”. Anyway, that dude would be Argentina.

  22. ‘Interest rates have really shut down the capital markets…You can’t borrow at 9 or 10 percent and underwrite a project. It’s impossible. It was possible when interest rates were 3 percent. It has kind of turned everything upside down’

    Shawn:

    Yip-yip-yip-yip-yip-yip, bmm
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na
    Ahh, yip-yip-yip-yip-yip-yip-yip-yip
    Mum-mum-mum-mum-mum-mum, get a job
    Sha-na-na-na, sha-na-na-na-na
    Well every morning about this time (Sha-na-na-na, sha-na-na-na-na)
    She gets me out of bed, a-crying get a job (Sha-na-na-na, sha-na-na-na-na)
    After breakfast everyday she throws the want ads right my way
    And never fails to say – get a job
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na
    Ahh, yip-yip-yip-yip-yip-yip-yip-yip
    Mum-mum-mum-mum-mum-mum, get a job
    Sha-na-na-na, sha-na-na-na-na
    Lord, and when I get the paper I read it through and through
    I, my girl never fail to see if there is any work for me…
    I got to go back to the house, hear that woman’s mouth
    Preachin’ and a cryin’, tell me that I’m lyin’ about a job
    That I never could find
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na
    Ahh, yip-yip-yip-yip-yip-yip-yip-yip
    Mum-mum-mum-mum-mum-mum, get a job
    Sha-na-na-na, sha-na-na-na-na
    Lord, and when I get the paper I read it through and throu-ough
    I, my girl never fail to see if there is any work for me…
    I better go back to the house, hear that woman’s mouth
    Preachin’ and a cryin’, tell me that I’m lyin’ about a job
    That I never could find
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na, sha-na-na-na-na, ahh-do
    Sha-na-na-na…

  23. ‘The fewer projects, the less labor there is,’ he told the newspaper. ‘The less labor there is, the fewer projects there are. That death spiral is going on’

    That’s the spirit Louis! Great wording and everything, keep up the good work.

  24. ‘The state’s condominium statute was written for those who build, sell, buy, and manage condominiums, and focused upon the transactional aspect of condominiums. Statutes that were added as afterthoughts to protect association members (owners) are mostly unenforceable, possibly written to maximize the use of attorneys to interpret these vague statutes and associations’ governing documents as they please. Without owner-protective changes, the government that created condominiums is furthering the collapse of the current condominium model, allowing condominiums to become less desirable, more financially taxing, and less physically sound’

    Airboxes have been around for a long time but IMO the huge number of them now, especially in speculative markets like Hawaii, is a direct result of the housing bubble. It’s a crappy housing solution that fails repeatedly.

  25. ‘That’s pretty scary to think about, to be honest…I’m not sure we could handle much more of a rate increase. So, ultimately, I guess we would have to look at trying to find a cheaper place to live and … we worked really hard to be able to afford this home. We might consider leaving Sydney’

    Frances, I’d bet you and those kids eat at least once a day. Do you really want to be a winnah!?

    1. Nice. Very similar to my original plan, but I would have pulled the RV into the last bay of the pole barn to temper the weather.

      Best be single, just sayin.

  27. While we have witnessed some bloodletting so far on Wall Street, nothing resembling capitulation has happened yet. Everyone is waiting in the wings to buy the next dip.

    I advise waiting until the dips buyers are either too scared or too broke to buy before further adding to your stock HODLings. Be a strong hand, not a weak hand.

  28. Yahoo Finance
    8 Ways People Become Poor While Earning a High-End Salary
    Angela Mae
    October 26, 2023, 10:00 am

    The average annual salary in the United States is $56,220 across all occupations. So, when we think of a high-end salary, it’s significantly above that. In fact, many people consider a high-end salary to be anything in excess of six figures — that is, the $100,000 range or higher.

    But even high-earners aren’t always in a good position financially. According to a LendingClub report, nearly half of people earning $100,000 a year still struggle to make ends meet. Rather than building wealth, a lot of these individuals are actually living paycheck to paycheck.

    This might seem strange when you consider the numbers on their own, but the truth is that it’s very possible to become poor even when living on a higher salary. Poor money management, excessive spending, limited savings or investments, and a lack of financial preparedness can all keep even the highest earners strapped for cash.

    If you’re wondering just how it is that people with a high-end salary become poor, here are some of the most common ways.

    Overreliance on Credit Cards
    …
    https://finance.yahoo.com/news/8-ways-people-become-poor-170027930.html

  29. Eric Abbenante
    @EricAbbenante

    “I was on the board of my kids’ school during COVID. I wanted a harsher lockdown policy. In retrospect: I was wrong. The damage to kids of keeping them out of school longer was greater than the risk. But here’s the bottom line: We were doing our best. But let’s give a little grace and forgiveness for the shit show that was COVID.”

    Funny how the people who created and promoted the shit show want forgiveness

    https://x.com/EricAbbenante/status/1718153125125574695?s=20

    1. MarketWatch
      Markets
      Market Snapshot
      How stock-market investors can ride out a ‘fear cycle’ as S&P 500, Nasdaq fall into correction
      Published: Oct. 29, 2023 at 12:01 p.m. ET
      By Joy Wiltermuth
      Pencil in stock prices you like, but 5% on Treasurys isn’t bad either

      Many people like to feel at least a little bit of fright.

      That has been the whole point of Halloween for ages. The spooky traditions might even be a sort of hedge, a way to limit carnage should darker days lurk around the corner.

      Where it gets trickier is when fear impacts a nest egg, retirement fund or portfolio holdings. And fear of looming…
      …

      1. [Found the full version]

        MarketWatch
        How to ride out the ‘fear cycle’ in a spooky week ahead after U.S. stocks slip into correction
        Provided by Dow Jones
        Oct 29, 2023 9:01 AM PDT
        By Joy Wiltermuth

        Pencil in stock prices you like, but 5% on Treasurys isn’t bad either

        Many people like to feel at least a little bit of fright.

        That has been the whole point of Halloween for ages. The spooky traditions might even be a sort of hedge, a way to limit carnage should darker days lurk around the corner.

        Where it gets trickier is when fear impacts a nest egg, retirement fund or portfolio holdings. And fear of looming mayhem has been higher in October, with a sharp selloff causing the S&P 500 index SPX to break below the 4,200 level, landing it in a correction on Friday. It also joined the Nasdaq Composite Index in falling at least 10% from a summer peak.

        In addition, a brutal bond-market rout has pushed the 10-year and 30-year Treasury yields up dramatically, with both recently dancing around the 5% level, which can drive up borrowing costs for the U.S. economy and cause havoc in financial markets.

        “Round numbers matter,” said Rich Steinberg, chief market strategist at The Colony Group, which has $20 billion in assets under management. He said the backdrop has investors trying to figure out “where to put money” and wanting to know “where can we hide?”

        “When you get into a fear cycle, the dynamics can get out of whack with reality,” Steinberg said. He thinks investors won’t go wrong earning roughly 5.5% on shorter term risk-free Treasurys, while penciling in stock prices they like.

        “That’s where investors really get rewarded over the long-term,” he said, granted they have enough liquidity to ride out what could be elongated patches of volatility.
        …
        https://www.morningstar.com/news/marketwatch/20231029188/how-to-ride-out-the-fear-cycle-in-a-spooky-week-ahead-after-us-stocks-slip-into-correction

      1. Some commentators seem to think the only driver of stock prices is whether investors are feeling bullish (a bearish indicator) or bearish (a bullish indicator). However investors are feeling is a contrarian indicator that prices will soon reverse in the opposite direction.

        However, fundamentals matter at some point…such as real interest rates going from deeply negative to positive in record time.

        “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

        — Warren Buffett

    4. JPMorgan’s top strategist warns stocks could be about to plummet 20%: ‘I’m not sure how we’re going to avoid’ a recession
      BYChloe Taylor
      October 6, 2023 at 3:56 AM PDT
      Traders work on the floor of the New York Stock Exchange on June 14, 2023 in New York City. One of them looks stressed.
      Stocks could be about to tumble by as much as 20%, according to JPMorgan’s top strategist.
      Spencer Platt—Getty Images

      It’s been a rocky few weeks on Wall Street—but according to JPMorgan’s top strategist, things could be about to get a whole lot worse.

      In an interview with CNBC’s Fast Money on Thursday, Marko Kolanovic, JPMorgan’s chief market strategist and co-head of global research, said America’s biggest bank is maintaining a “somewhat negative” outlook for stocks.

      “[We’re] not necessarily calling immediate sharp pullback, but we do think that recession will eventually happen,” he said. “I’m not sure how we’re going to avoid [a recession] if we stay at this level of interest rates.”

      He acknowledged that the U.S. labor market was still strong, but noted cracks were beginning to show when it came to American consumerism.

      “Rates could go a little higher, which [would be] problematic for a lot of people,” he said. “This [recession] will eventually come…the upside versus downside in stocks is not that great.”

      This economic uncertainty meant choosing cash at a 5.5% return was an attractive defensive position, according to Kolanovic.

      “Could there be another five, six, seven percent upside in equities? Of course… But there’s a downside,” he explained. “It could be 20% downside. Compare that to cash: 5.5%. So how much equity upside above 5.5% [is there]?”

      The so-called Magnificent Seven stocks—Amazon, Alphabet, Meta, Apple, Tesla, Microsoft, and Nvidia—would be particularly hard-hit by a recession, Kolanovic predicted. Those stocks have led the gains on major U.S. indices this year—but the JPMorgan strategist warned they were susceptible to “catching down”to the rest of the stock market and sectors like consumer staples and utilities.

      Stocks got off to a good start in the first half of this year, with the S&P 500 logging a return of more than 16% by the end of June. As traders geared up for 2023, equities were coming off of their worst year since the financial crisis.

      However, stocks have found themselves on shakier ground in recent weeks, with investors spooked by the Federal Reserve’s higher-for-longer interest rates warning and concerned about how long the U.S. economy can maintain its resilience.

      Turbulence in the market has seen the S&P 500 shed almost 6% since the start of September. Some calculations suggest that the S&P 500 is headed below 3,000 points—which would be at least a 30% decline from current levels.

      Kolanovic isn’t a lone voice on Wall Street when it comes to bracing for things to take another downward turn.

      Albert Edwards, a global strategist at French investment bank Société Générale, warned recently that markets were currently mimicking the run-up to 1987’s stock market crash. He argued in a note on Tuesday that there was “plenty of evidence to suggest a recession is imminent.”

      “All you can do is brace yourself and hope for the best,” he said.
      Barclays too

      Meanwhile, Barclays analysts wrote in a note to clients this week that an equities crash was needed to rescue the flailing bond market.

      “We can think of one scenario where bonds rally materially: if risk assets fall sharply in the coming weeks,” they said.
      …
      https://fortune.com/2023/10/06/jpmorgan-recession-sp500-stocks-kolanovic/

    5. Coinspeaker
      Magnificent Seven Stocks Lose $280 Billion as Crypto Market Spikes
      Oct 26 2023 · 12:08 UTC | Updated Oct 27 2023 · 07:42
      by Tolu Ajiboye · 3 min read
      Magnificent Seven Stocks Lose $280 Billion as Crypto Market Spikes

      The crypto market’s largest assets have noted significant increases even as giant Magnificent Seven tech stocks plunged yestereday.

      Stocks of tech companies called the “Magnificent Seven” fell significantly after several companies published earnings reports that provoked concerns about a recession in the tech space. On Wednesday, October 25, the Magnificent Seven lost more than $280 billion. The stocks comprise seven giant tech firms, including Apple Inc (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL), Nvidia (NASDAQ: NVDA), Amazon (NASDAQ: AMZN), Meta (NASDAQ: META), Tesla (NASDAQ: TSLA), and Microsoft (NASDAQ: MSFT).

      Magnificent Seven Stocks Plunge Triggering Recession Concerns

      Google’s parent company, Alphabet, had the largest fall, losing over 9%, equivalent to $180 billion. In a post on X (formerly Twitter), The Kobeissi Letter mentioned that it was the company’s worst day since March 2020. The global capital market commentary service also noted in another post that the “7 stocks effectively account for the entire S&P 500 YTD [year-to-date] rally.”

      According to MarketWatch data, Amazon fell 5.58%, while Nvidia and Meta lost 4.31% and 4.17%, respectively. Tesla and Apple withstood smaller losses at 1.89% and 1.35%, respectively. Of the Magnificent Seven stocks, only Microsoft gained, rising 3.07% to $340.67. Microsoft has also increased 2.82% in the last 5 days and 8.62% in the last month. The company’s YTD gains have crossed 41% so far, and 50.24% in the last year.

      The Kobeissi Letter also suggested that stocks are pricing in a recession. The argument is that the S&P 500 has lost a heavy $4 trillion since its July 27 high. The post also revealed that the index is only 1% from “correction territory” after losing 430 points in three months. Furthermore, the market is now at its lowest since May, with 3 rate cuts already priced in the last time the S&P 500 was at its current level. As high rates and futures no longer show rate cuts until next July, The Kobeissi Letter is now considering the likelihood of a recession.

      Google search trends also point to general feats of a recession as searches for “stock market crash” jumped 233% in the past week, according to TheFinanceNewsletter.com reporter Andrew Lokenauth.
      …
      https://www.coinspeaker.com/magnificent-seven-stocks-crypto/

    6. The Financial Times
      52 minutes ago
      Asian stocks fall ahead of interest rate decisions in Japan, US and UK
      William Langley in Hong Kong

      Asian stocks declined on Monday ahead of a busy week of central bank monetary policy decisions.

      Japan’s Topix shed 1 per cent, Hong Kong’s Hang Seng index fell 0.6 per cent and China’s CSI 300 declined 0.3 per cent. South Korea’s Kospi edged up 0.2 per cent.

      Investors are looking ahead to interest rate decisions from the Bank of Japan, the US Federal Reserve and the Bank of England on Tuesday, Wednesday and Thursday, respectively.

      The Fed is expected to leave US interest rates on hold, but economists will look for hints that rates may rise again in the coming months with hotter inflation and strong economic data.
      …

  32. (Paul Krugman does stand-up …)

    America’s national debt is over $33 trillion — but here’s why the country won’t pay it down

    https://www.yahoo.com/finance/news/us-national-debt-sits-33-123000638.html

    At $33 trillion and counting, America’s national debt is a figure simply unfathomable by many everyday citizens.

    But government deficits don’t exactly work like household debt, as New York Times columnist and Nobel Prize-winning economist Paul Krugman contends in his May 13 offering. The big, bad number isn’t as scary as it seems.

    “Governments aren’t like people,” he wrote. “[They] must service their debts — pay interest and repay principal when bonds come due — but they don’t necessarily have to pay them off; they can issue new bonds to pay principal on old bonds, and even borrow to pay interest as long as overall debt doesn’t rise too much faster than revenue.”

    (Er, this sounds suspiciously like one of those Nasty Ponzi scheme thingies …)

    Krugman breaks down and defends his thesis in convincing fashion, though it’s easy to see why so many Americans are spooked by today’s debt figure and ill-informed politicians try to make a political football of it.

    In fact, you’d have to go back to 1837 to find the last time the United States was debt-free. Texas was still an independent republic and only 26 states existed.

    So how big is the debt, really?

    One trillion, let alone 33, is a number many folks can’t quite wrap their heads around. It is “a million times a million” — though “trillion” sounds so close to “billion” that it’s easy to lose track of just how behemoth a sum it is.

    Here are a few ways to put the current level of U.S. debt, roughly $33 trillion, in perspective:

    It’s 22% higher than the U.S. gross national product as of June 30 (about $27 trillion).

    It’s six times the U.S. debt figure in 2000 ($5.6 trillion).

    Paid back interest-free at the rate of $1 million an hour, $33 trillion would take more than 3,750 years.

    Voters and elected officials can understandably get bent out of shape when they assume that running up so much debt is due to reckless and runaway spending.

    We’ve all been told to spend less than you make, avoid high-interest credit card debt and delay material gratification on big-ticket items until you’ve worked out the numbers first.

    All of that’s true and smart. Excessive personal debt will force you to spend a lifetime playing catch-up, or to declare bankruptcy, which leaves a black mark on your credit score for between seven and 10 years.

    But debt-wise, comparing the federal government to a family of four doesn’t work. That’s because the principles of personal finance don’t apply to how governments spend. So unless you or someone you know plans to dress as Uncle Sam in the next local Fourth of July parade, dismiss the notion that governments are people. They play by entirely different pocketbook rules, which Krugman makes clear as crystal.

    Debt grows, but revenues do, too
    Need a pat explanation for why the government need not pay off its debt, even though you must? Here it is, in blunt Krugman style: “You are going to get old and eventually die. The government isn’t.”

    In other words, the capacity of the United States or any sovereign nation to manage its debt boils down to one question: can it still produce revenue to meet its obligations? That’s where his notion of “servicing” debt as opposed to paying it off in full comes into play.

    To be sure, Krugman notes by way of Rudyard Kipling in his poem “Recessional,” that all nations will be “one with Nineveh and Tyre” and cease to exist. But excluding such a tragic event — in which case debt would be irrelevant anyway — governments “normally see their revenues rise, generation after generation, as the economies they regulate and tax grow,” Krugman wrote.

  33. At what point does the national debt get so large that the federal government has to borrow money to pay interest on the debt?

    1. Yahoo
      Business Insider
      Get ready for more US debt sticker shock as Wall Street sees a bigger wave of Treasurys flooding the bond market
      Filip De Mott
      Sat, October 28, 2023 at 1:45 PM PDT·2 min read
      Treasury Secretary Janet Yellen.
      Chip Somodevilla/Getty Images

      – The Treasury Department will provide an update on its debt issuance plans on November 1.

      – Some Wall Street banks have raised their forecasts for the amount of Treasurys to be auctioned.

      – Meanwhile, bond market investors have shown signs of lackluster demand for the rising supply of debt.

      Investors are focused on the Treasury Department’s upcoming quarterly refunding statement as Wall Street braces for another dose of sticker shock on US debt.

      Set to be released on November 1, the quarterly update will lay out the department’s bond issuance plans for the next three months. A prior report with upward revisions raised concerns about the bond market’s appetite for additional Treasurys, sending yields higher and contributing to a historic price collapse.

      So the upcoming release is getting heightened market attention. In recent weeks, investor demand for Treasurys has shown signs of weakness just as the government’s ballooning deficits are flooding the market with more debt.

      After raising auction estimates in August, the department has already hinted that the Treasury supply will need to keep increasing.

      “Further gradual increases in coupon auctions sizes will likely be necessary in future quarters,” Josh Frost, assistant Treasury secretary for financial markets, said in September, referring to longer-dated bonds.

      It’s an outlook shared by Wall Street, and institutions are raising their expectations on the size of US debt issuance.

      Bank of America revised its deficit expectations higher for coming years, noting that US overspending will grow to $2 trillion by fiscal year 2026 from $1.7 trillion in 2023. A major factor driving this upswing will be higher interest expenses on US borrowing, forcing the Treasury to keep issuing more bonds.
      …
      https://finance.yahoo.com/news/ready-more-us-debt-sticker-204501804.html

      1. “A major factor driving this upswing will be higher interest expenses on US borrowing, forcing the Treasury to keep issuing more bonds.”

        Oh.

  34. Does it seem like just when the news on the Chinese real estate collapse can’t get any worse, it does?

    1. REAL ESTATE
      Evergrande shares fall 20% to all-time low as court adjourns winding-up hearing
      PUBLISHED MON, OCT 30 2023 12:05 AM EDT
      UPDATED 2 HOURS AGO
      Lim Hui Jie

      KEY POINTS

      – Evergrande’s shares plunged more than 20% from last Friday’s close of 23.6 Hong Kong cents to the all time low of 18.8 Hong Kong early Monday, before recovering slightly to 22.2 Hong Kong cents.

      – Reuters reported that Justice Linda Chan from Hong Kong’s high court said the Dec. 4 hearing would be the last before a decision is made on the winding up order.
      …
      https://www.cnbc.com/2023/10/30/evergrande-shares-at-all-time-low-as-court-adjourns-winding-up-hearing.html

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