The main story 📰
Author’s note: this is an unusually inter-connected Rollup. There is a common connection between this Substack I’m about to recommend, the interviews below, the inflation gauge I’m sharing, etc. Everything is linked together! I didn’t plan it that way it just sort of happened.
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Some people can look at a spreadsheet and get an idea of what’s happening within a given sector. I’m not really like that. I do better if someone puts a personal spin on the data and throws in a few anecdotes to prove a point. That’s why I was excited to discover Melody Wright’s Substack, in particular one of her pieces called Wealth Porn questioning whether ostentatious displays of wealth might be declining in popularity?
I’ve read through a few other of Melody’s articles and the impression I get is that we’re on the cusp of a bursting real estate bubble. Only this time it’s not so much single family homes as it is commercial real estate and other large developments.
For example, in this article she shares some great pictures from a massive business park/housing development combo platter, and the place looks like a ghost town. It’s freaky! Which is an easy thing for me to write, but it’s a difficult reality for the owners of this place to deal with.
Melody also weekly updates on largest rent increase/decrease by city, Airbnb price increase/decrease by city, real estate inventory by city, etc. It’s a goldmine if you’re interested in the housing sector.
So I was pretty happy to stumble across her Substack and if you’re interested in real estate I think you’ll like it too. My recommendation would be to follow it for free while you still can, since Substacks of this quality almost always end up going behind a paywall.
Investing conclusions?
As I’ve been saying for months, the commercial real estate sector looks scary. If I had to bet what financial tragedy will force the Fed to pivot, I’m laying all my chips on an implosion of office building loans and the like. As always when it comes to commercial REITs: Abandon hope, all ye who enter here.
Noteworthy quote ✒️
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.
Worth checking out 🔍
How does the brain choose what to focus on, remember and interpret? That’s what Morgan Housel’s latest article attempts to answer.
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Article from Making of a Millionaire about how credit card companies raise limits on their cards trying to get people to spend more since they believe that they’re a good credit risk. I can relate, since both my credit cards raised my limit by 50% without me even asking. Those sneaky devils 🤬
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Both Danielle DiMartino Booth and Mike Green recommended this new inflation metric called Truflation. Currently Truflation is showing inflation at 2.3% in the US.
Is that low? Sounds like it, but if you click over to data for the UK it’s at 11% so maybe it’s not too biased to the downside. Plus, as a rule I assume that Mike Green doesn’t recommend bullshit.
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What y’all are into: the top three most clicked-on links from last Sunday’s Rollup.
Noteworthy Chart 🧭
If you’ve stuck with American stocks you’re doing just fine.
Best articles 📖
From Babies to Boomers - Here’s a report from The Mad King looking at demographic profiles from around the world. Which countries have good demographics (about 3) and which have bad demographics (about 12,937).
The King correlates demographics to other metrics like GDP growth, manufacturing, immigration, etc. to show how the average age of a country’s citizens affects its position in the world.
This is a full blown, albeit highly illustrated, report so you’re looking at a 20 minute read time. A damn interesting 20 minutes at that though. I’m going to talk about demographics in a future edition of the Rollup since it’s going to be one of this century’s biggest themes.
PS - For whatever reason the Mad King posted a summary of his report… on the very last page! So scroll to the bottom if you want to try before you buy.
Noteworthy Tweet 🪶
I’ve read the Alchemist, it’s a fantastic book. I’ve also read half the other books on this list and can attest that this is a pretty good collection.
10 Must Read Books Before You Turn 45.
1. The Alchemist
— Psyche Wizard (@PsycheWizard)
Jun 18, 2023
Best of YouTube 🎬
Coming Credit Crunch Will Depress Bank Credit, Say Veteran Bankers | John Toohig & Randy Woodward
Two banking system experts have a deep discussion about the current conditions that they’re seeing in the financial system. Despite not knowing either one of these names I decided to watch it after Melody (from above) gave this interview a massive recommendation.
You’re going to need to have a decent grasp of the banking system to follow along but if you know your repos, collaterals and yield curves then this interview is outstanding. The general conclusion is something alone the lines of: if the Fed doesn’t lower rates it’s literally going to blow up the financial system.
Also, the very obvious point that the system might have been able to take higher rates if the Fed had taken us to 5% over the course of three or four years. It’s the speed of the rate hikes which is putting firms in so much trouble right now.
So many of our customers are desperate for the pivot. All of this unrealized losses, it's just accounting math. With a 200 basis point drop in rates, all of those unrealized losses vanish.
Danielle Dimartino Booth and Whether Powell Can Hang On
The above interview 👆 was also referenced in this interview with Danielle DiMartino Booth. Specifically the part about “trash and trophies.” That’s an idea that only the best and worst properties are trading in commercial real estate right now. The vast expanse in the middle is not trading.
Danielle suggested the Truflation metric from above, and all her data show that the economy is deteriorating and the recession is going to be worse than most people imagine. Overall an interesting interview, lots to consider.
I just ran a chart that shows that the personal consumption expenditures for food are declining! This is a very long series, going back decades & decades, and it’s extraordinarily rare to see US households spending less money on food. The CEO of Tyson came out a few days ago and said: “We’ve never seen falling pork, beef and chicken sales across the spectrum before.
Thinking We'll Avoid Recession Is Delusional
It seems like I recommend a Mike Green video every week right? Am I insane? Well, I certainly hope not. The thing is, even though I follow MG closely and know his arguments better than I know my neighbors, I still always learn something from him.
In this case I learned a new perspective on the debt markets. Adam Taggart asked Mike: “What could cause a breakdown in the financial system like you’ve described?”
And Mike replied, “Well nobody can say for sure right, but if I had to guess I would say the credit markets since they have an embedded catalyst. It’s usually easy for companies to make the payments on their debt but the problem comes when they have to repay or refinance the loan at maturity. The time duration limit on debt is the embedded catalyst that can cause things to rapidly start to fail.”
I just paraphrased all that so it’s not very eloquent, but you see what I’m trying to say. The debt must be rolled over and once enough companies can’t afford the rollover at higher rates, say goodbye to the good times.
Mike also points out that unemployment among recent college grads is at ~2% when normally it’s at ~1%. Doesn’t sound like much difference until you consider that it’s an increase of 100%. That’s kind of a big deal… And finally, Mike also recommends the Truflation metric from above 👆
Overall I really enjoyed this interview. Mike is levered long on ~2 year Treasuries and for anyone wondering he’s doing that via Simplify’s $TUA ETF. I asked Mike (on Twitter) about TUA and he said it’s levered about 2-3x on SHY.
Used Car Market is JUNK
This is an interesting video because Lucky Lopez explains how inexperienced car dealers get screwed, and how those dealers then try to pass the screwingness onto their customers.
It’s a peak behind the scenes at how the large auction houses work, and how these car auctions give their buddies (large banks) a great deal at the expense of dealers and the public.
My favorite off topic video 🍿
I’ve been binge watching Corey’s videos and I think they’re freaking hilarious (if the YouTube comments are indication, everyone else thinks they’re hilarious too).
Corey is a poker Vlogger playing low stakes $2/5 & sometimes $5/10. He’s perhaps above average at the game (maybe) but the reason I watch his videos isn’t for the analytical revelations, it’s because of his commentary. The guy is self-deprecating, honest and funny as shit. Every video is good for some laughs and laughing is good for soul.
Best AI image 🏆
Mechanopus
👋 Do you like this newsletter? In addition to the Rollup I also write a long form article each week on Substack. I write about investing, the strange state of our society, plus lots of interesting book reviews.
If you’d like to give my writing a try (it’s 100% free) one of my most popular articles is based on Mike Green’s work exposing how regulators manipulate financial data to make the economy look better than it is.
Fascinating and slightly scary stuff 👇
