The Investment Thread

[wallus]

4 hours ago, nate82 said:

If you are truly a bull or optimistic about the economy then rate cuts wouldn’t be what you are expecting.  The stock market isn’t really an indicator that I would use for rate cuts or increases.  You would want to look into liquidity and the bond markets for that.

I am not the one that determines rate cuts but I was just predicting what the fed will end up doing which I believe is two rate cuts.

The fed is supposed to worry about employment and price stability, not the stock market. The stock market does benefit from lower rates however.

[BrewerFan]

3 hours ago, homer said:

Can you clarify that last sentence? Are you saying immigrants won't be in the workforce in 20 years?

No, he's talking about the population growth related to job growth. He broke down the growth of immigrants vs new births citing those just born won't be entering the job market. He says right in there, almost all those who immigrated are of working age.

[homer]

10 minutes ago, BrewerFan said:

No, he's talking about the population growth related to job growth. He broke down the growth of immigrants vs new births citing those just born won't be entering the job market. He says right in there, almost all those who immigrated are of working age.

Yeah that makes sense. The comma after "births" was throwing me off.

[nate82]

2 hours ago, wallus said:

The fed is supposed to worry about employment and price stability, not the stock market. The stock market does benefit from lower rates however.

The fed is responsible for keeping inflation in check for the most part.  The feds best tool is raising and cutting rates.

Again inflation is still not where the fed wants it to be.  I wouldn’t expect a rate cut to occur unless the economy starts to falter a bit.  If the economy is fine and inflation is still too high for the fed expect another rate increase.

A rate cut will only come if the fed believes the economy is in trouble of faltering a bit.  I think we are still in a bit of a slightly flat economy so I think the fed will hold for now and may raise depending on the next quarters inflation numbers.

[nate82]

7 hours ago, LouisEly said:

I think that two rate cuts are much more likely than a rate increase.

Unlikely.  The fed still sees inflation as more of a problem than employment.  

[wallus]

2 hours ago, nate82 said:

A rate cut will only come if the fed believes the economy is in trouble of faltering a bit.  I think we are still in a bit of a slightly flat economy so I think the fed will hold for now and may raise depending on the next quarters inflation numbers.

The effect of rates on the economy can lag so they need to cut probably a little before things are officially worse. The analogy I have seen is it is like steering a large ship.

[owbc]

18 hours ago, nate82 said:

The fed is responsible for keeping inflation in check for the most part.  The feds best tool is raising and cutting rates.

Again inflation is still not where the fed wants it to be.  I wouldn’t expect a rate cut to occur unless the economy starts to falter a bit.  If the economy is fine and inflation is still too high for the fed expect another rate increase.

A rate cut will only come if the fed believes the economy is in trouble of faltering a bit.  I think we are still in a bit of a slightly flat economy so I think the fed will hold for now and may raise depending on the next quarters inflation numbers.

The Fed can only do so much. The inflation report showed that shelter (housing) costs are still increasing too fast. Many sources have shown that the number of new housing units has not kept up with population growth since the Great Recession. Raising rates will not reduce housing costs and may do the opposite, since rent prices tend to increase with higher rates and new construction is hampered by higher borrowing costs.

Legislators need to step in to help get more housing built, which we're starting to see at the local and state levels. But it's a slow process and can't be fixed overnight. Plus, there is a lot of resistance to the types of policy changes that could make it easier to build housing. 

 

 

[NeedMoreFans]

5 hours ago, owbc said:

Plus, there is a lot of resistance to the types of policy changes that could make it easier to build housing. 

One thing that needs to be done is for the FHA to change its rule on condo financing.  At present, a developer has to have 80% of the units sold, and one entity cannot own more than 10% of the units in a 20+ unit complex in order to get the loan to build the condo.  This is, of course, a reaction to the Great Recession, but it has nearly stopped any multi-family owner-occupied construction from happening in many parts of the country.  If more owner-occupied multi-family housing can be built (a combination of condos, townhouses, and duplexes/triplexes, etc...) it may ease rent increases a bit.  But again, it's not happening overnight. 

Cities are starting to redo their zoning codes to encourage different uses of land, but look up the westside Madison meeting from the other night to see how that's going right now. 

[LouisEly]

5 hours ago, owbc said:

The Fed can only do so much. The inflation report showed that shelter (housing) costs are still increasing too fast. Many sources have shown that the number of new housing units has not kept up with population growth since the Great Recession. Raising rates will not reduce housing costs and may do the opposite, since rent prices tend to increase with higher rates and new construction is hampered by higher borrowing costs.

Add to that 2.5M migrants coming into the country last year, most of whom need to find some place to live if they're not sent back and can get a work permit, and that pushes the bottom of the rent spectrum up.

[Fear The Chorizo]

So much of the consumer spending propping this bloated economy up is still coming from people racking up debt (credit cards), draining savings, or even pilfering their retirement accounts to try and offset the now permanent cost increases of everything.  In order to get things back on a sustainable track, I'm convinced that we do need to go through a period of deflation to reset prices - understanding that would be brutal for the economy across the board.  If that doesn't happen, eventually this thing comes crashing down anyways because people will exhaust the extra options they've been using to come up with enough funds to maintain their daily life.

The Fed needs to continue hiking rates, or at minimum maintain them where they are.  Lowering them at this time would limit their ability to alleviate rate pressure on the economy down the road when it is actually necessary.  I'd equate lowering rates at this point in time with that steering a big ship analogy to the captain of the titanic asking his crew to raise the cabin temperature 2 degrees to keep the passengers comfortable a couple hours before they crash into an iceberg instead of opting to turn the ship around and head back to port (would've ticked off all the passengers, but they'd still be alive to gripe about a bad luxury cruise experience).

[homer]

On 3/14/2024 at 6:03 PM, NeedMoreFans said:

One thing that needs to be done is for the FHA to change its rule on condo financing.  At present, a developer has to have 80% of the units sold, and one entity cannot own more than 10% of the units in a 20+ unit complex in order to get the loan to build the condo.  This is, of course, a reaction to the Great Recession, but it has nearly stopped any multi-family owner-occupied construction from happening in many parts of the country.  If more owner-occupied multi-family housing can be built (a combination of condos, townhouses, and duplexes/triplexes, etc...) it may ease rent increases a bit.  But again, it's not happening overnight. 

Cities are starting to redo their zoning codes to encourage different uses of land, but look up the westside Madison meeting from the other night to see how that's going right now. 

There was a nice article in JSOnline last year about condo construction (or lack thereof):

https://www.jsonline.com/story/money/2023/01/16/milwaukee-wauwatosa-condo-construction-rare-despite-high-demand/8236554001/

 

Agreed on zoning changes. 

Milwaukee has a plan to completely revise its zoning code:

https://www.jsonline.com/story/money/real-estate/commercial/2024/03/14/milwaukee-wants-more-housing-zoning-code-changes-are-a-first-step/72868202007/

 

[Samurai Bucky]

1 hour ago, Fear The Chorizo said:

I'm convinced that we do need to go through a period of deflation to reset prices - understanding that would be brutal for the economy across the board.  If that doesn't happen, eventually this thing comes crashing down anyways because people will exhaust the extra options they've been using to come up with enough funds to maintain their daily life.

I'm all for this, but would a reduction of the minimum wage requirement accompany this?

I truly believe that part of our problem is that people don't know how to manage their money.  High schools do not teach fiscal responsibility, budgeting, etc.  I know this is a fraction of the issue at hand, but I am amazed at how people will buy a house, take on a huge debt that requires them to put 80% of their monthly earnings towards the mortgage, and then have little to no furniture.

[Fear The Chorizo]

16 minutes ago, Samurai Bucky said:

I'm all for this, but would a reduction of the minimum wage requirement accompany this?

I truly believe that part of our problem is that people don't know how to manage their money.  High schools do not teach fiscal responsibility, budgeting, etc.  I know this is a fraction of the issue at hand, but I am amazed at how people will buy a house, take on a huge debt that requires them to put 80% of their monthly earnings towards the mortgage, and then have little to no furniture.

I don't think the minimum wage would need to be impacted....jobs would just be hemmoraged from sectors that are hit the hardest, and perhaps the skills gap for the tens of millions of unfilled jobs right now can be diminished.

As for people having issues knowing how to manage money, totally agree but can't be surprised given the fact the government does the same thing.

[LouisEly]

David Rosenberg of Rosenberg Research was just on CNBC.  If you strip shelter (housing/rent) out of the CPI, the YoY inflation rate is 1.8%.  PPI YoY is similar.  Shelter is ~30% of the CPI.  While the Fed prefers PCE, CPI is 71% of the PCE and PPI is 12% and the numbers mirror each other fairly closely.  Shelter is only 16% of PCE, but who only spends 16% of their expenditures on housing?  I think CPI better measures the consumer.  He believes that there will still be a recession and it is already starting.

As stated earlier in this thread, higher interest rates push rents higher.  Higher interest rates lead to less home purchase affordability which leads to increase in demand for rent which leads to higher rents. 

[owbc]

On 3/18/2024 at 8:39 AM, LouisEly said:

David Rosenberg of Rosenberg Research was just on CNBC.  If you strip shelter (housing/rent) out of the CPI, the YoY inflation rate is 1.8%.  PPI YoY is similar.  Shelter is ~30% of the CPI.  While the Fed prefers PCE, CPI is 71% of the PCE and PPI is 12% and the numbers mirror each other fairly closely.  Shelter is only 16% of PCE, but who only spends 16% of their expenditures on housing?  I think CPI better measures the consumer.  He believes that there will still be a recession and it is already starting.

As stated earlier in this thread, higher interest rates push rents higher.  Higher interest rates lead to less home purchase affordability which leads to increase in demand for rent which leads to higher rents. 

I do think that is part of the picture but the inability of housing supply to keep up with demand means that lowered interest rates won’t completely fix this either. I agree that a recession could be triggered by housing costs, people have no choice but to pay more for housing and eventually they will cut spending elsewhere which we are starting to see. 

 

[BrewerFan]

And the Fed announced they expect 3 cuts to interest rates this year...sending the market soaring and...Gold...which is a bit strange.

Gold generally goes up when the market is done.

Have we seen Gold hitting All-Time Highs at the same time as the Markets? I don't know. I do know it was a great day for my portfolio. 

 

On 3/16/2024 at 10:07 AM, Fear The Chorizo said:

So much of the consumer spending propping this bloated economy up is still coming from people racking up debt (credit cards), draining savings, or even pilfering their retirement accounts to try and offset the now permanent cost increases of everything.  In order to get things back on a sustainable track, I'm convinced that we do need to go through a period of deflation to reset prices

Raising the interest rates is just going to hurt those who are using their credit cards, paying higher interest rates on their credit cards, home loans, car loans.

It seems like lowering the interest rate may help grow the economy even more than it currently is. More investment, particularly in real estate, more people buying homes. The Dollar is strong.

 

[nate82]

One thing I haven't seen talked about is the realtor commission piece.  This is good for buyers and sellers but this is really good for investors more.  I don't think I like the way this is going to end for the actual consumers.  This may hurt the home buyers more than it will help.  I could see prices going up even more with investors buying up even more properties than they have been recently.  This could cause another housing crash and I hope all of these investment companies do not get bailed out at all.  If a teachers union or government union pension fails because of this I am fine with that let it fail they shouldn't have invested with these companies that have been putting them at a high risk of default. 

[BrewerFan]

19 minutes ago, nate82 said:

One thing I haven't seen talked about is the realtor commission piece.  This is good for buyers and sellers but this is really good for investors more.  I don't think I like the way this is going to end for the actual consumers.  This may hurt the home buyers more than it will help.  I could see prices going up even more with investors buying up even more properties than they have been recently.  This could cause another housing crash and I hope all of these investment companies do not get bailed out at all.  If a teachers union or government union pension fails because of this I am fine with that let it fail they shouldn't have invested with these companies that have been putting them at a high risk of default. 

I'm not fine with a teachers' pension plan failing because investors are buying up real estate.

That'd be a terrible thing for a teacher who probably has no idea what their fund invests in. Or a Gov't.

I'm kinda confused why someone would pay 5-6% for a realtor fee though. Perhaps you could educate me as I haven't used one outside of a small area of the Country.

I don't want to make this about me, but when I owned an investment property, I would get constant solicitations for sale. I got offered a price I wanted, I kept all the people who'd offered before a chance to beat it...and then I hired a realtor to do the paperwork. It was 1.5%. It was a little more of a pain because there were a lot of things that had to be worked out in the contract...if the security deposits would go to him or stay with me, the people who'd paid ahead a lot of things like that. 

But 6%? That's a pretty healthy chunk on a regular house. You get 4-5 houses for...average of 300K, that's crazy. 

Is this the norm? Before this transaction I had a friend of my Father's who was exceptionally helpful and it was never near 5-6%.

 

I don't think there's going to be a housing bubble though. Not Nation Wide. There are still too many people who want to buy. If housing prices dropped, I think your average consumer would just start snapping them up that much more quickly. 

Explain to me where I'm wrong(if you don't mind Nate, I'm genuinely curious and relatively ignorant). 

 

[igor67]

In a thread that actively advocates trading in a purely speculative 'product' that has been rife with funding illegal activity for over a decade (aka crypto) specifically targeting public pensions is a weird move. It's not like the Wisconsin retirement system has only had 4 negative return years since 1967 with a 5 year return of 8.29% and 10 year return of 7.27% for it's more conservative fund with a minimal fee structure. Along with all the other benefits of pensions over private investments.

[nate82]

13 minutes ago, igor67 said:

In a thread that actively advocates trading in a purely speculative 'product' that has been rife with funding illegal activity for over a decade (aka crypto) specifically targeting public pensions is a weird move. It's not like the Wisconsin retirement system has only had 4 negative return years since 1967 with a 5 year return of 8.29% and 10 year return of 7.27% for it's more conservative fund with a minimal fee structure. Along with all the other benefits of pensions over private investments.

The illegal what now?  Do you even know what you are talking about?  Let me guess you don't understand it therefore it is illegal got it. 

Pensions have been gobbling up housing like a monster with BlackRock.  If BlackRock fails I have no problem with the teacher and government pensions going down the drain with them.  They made their bed with them let them sleep in it. 

[igor67]

Because crypto was unregulated and designed to be difficult to track various forms of theft and exposure of being used to stash illegal cash were the subject of numerous investigations long before the dramatic take downs of the last 2 years. I do think considering that lowering the transaction fees might well have an unintended consequence in terms of how market distortions have percolated, but those distortions are also highly traced to trying to rely only on interest rates to control inflation and economic activity. 

[owbc]

2 hours ago, BrewerFan said:

I'm not fine with a teachers' pension plan failing because investors are buying up real estate.

That'd be a terrible thing for a teacher who probably has no idea what their fund invests in. Or a Gov't.

I'm kinda confused why someone would pay 5-6% for a realtor fee though. Perhaps you could educate me as I haven't used one outside of a small area of the Country.

I don't want to make this about me, but when I owned an investment property, I would get constant solicitations for sale. I got offered a price I wanted, I kept all the people who'd offered before a chance to beat it...and then I hired a realtor to do the paperwork. It was 1.5%. It was a little more of a pain because there were a lot of things that had to be worked out in the contract...if the security deposits would go to him or stay with me, the people who'd paid ahead a lot of things like that. 

But 6%? That's a pretty healthy chunk on a regular house. You get 4-5 houses for...average of 300K, that's crazy. 

Is this the norm? Before this transaction I had a friend of my Father's who was exceptionally helpful and it was never near 5-6%.

 

I don't think there's going to be a housing bubble though. Not Nation Wide. There are still too many people who want to buy. If housing prices dropped, I think your average consumer would just start snapping them up that much more quickly. 

Explain to me where I'm wrong(if you don't mind Nate, I'm genuinely curious and relatively ignorant). 

 

The norm is 2-3% each from the buy and sell side. Popular agents in hot markets make serious bank. 

I think a really good agent can be worth it but in my experience most of them are mediocre and more interested in closing a sale than looking out for their clients. If you don’t know what you are doing you certainly need their advice and one with a solid list of contractors, stagers, inspectors, etc can save time. But you can do most of that yourself. 

We’re actually in the process of buying an investment property off-market, we’re using a real estate attorney. It’s costing a few thousand bucks which is like 0.4% of the sell price. The seller is probably going to use their agent at a reduced rate like you did. It helps that my wife previously worked in the real estate space and knows what she is doing. 

Although this purchase was largely circumstantial, my view is that it’s a good time to pull liquid savings out of the stock market and real estate is a good place to park it for now. 

[nate82]

1 hour ago, igor67 said:

Because crypto was unregulated and designed to be difficult to track various forms of theft and exposure of being used to stash illegal cash were the subject of numerous investigations long before the dramatic take downs of the last 2 years.

Your point being?  Cash is still king for criminal organizations.  It is far easier to hide cash than it is to hide crypto.  Actually it is far easier to launder cash than it is to do it with crypto.  Crypto not being regulated is actually a good thing there is far less corruption because of the deregulation.  The more you regulate something the higher it becomes corrupt if your argument is it will be used for criminal purposes then why are you using dollars?

It is actually not hard to track crypto there is an actual audit trail of every single crypto transaction.  For cash there is no such thing.  Crypto is actually far better than cash and tracking criminal organizations.  You should really stop listening to the main stream media on crypto it is like listening to conspiracy theorists.

1 hour ago, igor67 said:

I do think considering that lowering the transaction fees might well have an unintended consequence in terms of how market distortions have percolated, but those distortions are also highly traced to trying to rely only on interest rates to control inflation and economic activity. 

Incorrect.  With the rate increases it should have lowered housing because there would be less demand, less people who are able to get a loan will create a decrease in demand.  The problem with the rate increases in terms of housing is that it did nothing for the supply.  Demand still outpaced supply even with the rate increases.  The federal reserve can't control housing supply and it should not.  It controls the interest rate and that is all it should control and no more.  Local governments and HOA's are the problem with the supply.  Antiquated regulations by the local governments and the HOA overly complex and over bearing rules have also killed supply. 

Another issue with supply has been companies like BlackRock buying up properties for its investors (pension plans, 401k's etc.) are also another issue.  This will create a bubble and I hope it takes down BlackRock and other companies like it but then they will be bailed out because gasp we can't let them fail because the pensions!  The idiots need to learn a lesson and find out tax payers are not your safety net.  If this causes teacher unions or government pensions to default then they default.  These pensions should have mitigated their risks just like everyone else if they fail so sad to bad. 

[igor67]

My point on crypto is that it only has value because people believe it has value and it continues to spin around purely based on that with an extensive track record of various scams. My analysis is based very little on standard media sources and is instead driven by my own analysis of years of patterns, an inability to provide compelling proof of an actual product, and various more in depth academic looks at the product including the grad student who first cracked who to track the originally billed as untrackable world of crypto which led to the first big wave of busts. The pattern since then has just been a continual moving of goalposts about what the product will accomplish, like the infamous it's the new gold argument, except that instead of performing opposite from the market it seems to go up everytime the market in general rises. 

I didn't go back and track down the long form older article I had read that did a good job laying out the issues, but it was basically pointing out that responding to inflation driven by the run-up in housing prices by raising interest rates only keeps making the problem worse in the long run because it hits builders first and continues to drive supply lower than demand so I'm not remotely viewing this as applicable only to the moment it is a long run issue. In the abstract as long as the economy keeps being managed in this crude interest rate way it's pretty rational to be heavily invested in real estate because the payoff is going to be too good. Regardless of whether it's a private entity or public pensions I don't think large scale corporate ownership of property is good. I prefer to broaden the thought process on how to manage the economy because it is a disturbing cliche to point out that the Fed is a hammer and so all problems must be nails with the present way most people talk about the issue.

[nate82]

28 minutes ago, igor67 said:

My point on crypto is that it only has value because people believe it has value and it continues to spin around purely based on that with an extensive track record of various scams.

You basically just described all fiat money.  Everything has scams.  I am not sure what your point is at all it is just blabbering nonsense. 

Crypto doesn’t need to have a product.  Fiat doesn’t have a product.  There have also been busts prior to the cracking.  It is actually far far far easier to track down a criminal organization using crypto than it is if it is using cash.