Housing Armageddon

The market for homebuyers has rarely been this disgusting at any point in American history... [The Daily Peel... ]( September 25, 2023 | Peel #549 In this issue of the Peel: - The market for homebuyers has rarely been this disgusting at any point in American history, to put it nicely. - Alibaba and Ford had a ripe day, while Scholastic and Fisker pulled back for the day. - Brightline announced that they’re about to open the first private passenger rail in the U.S. in over 100 years. Market Snapshot Happy Monday, apes. Hope you had a nice weekend and that you’re 3-0 in fantasy this year. Sorry to all those already out of their survivor pools… have fun getting bullied until next season. Equity markets sure were feeling bullied on Friday, at least. Stocks looked good throughout the morning, but by the time everyone’s morning Xanny wore off, the nerves hit hard. Labor strikes and broader issues, along with rate uncertainty, seemed to drive markets lower going into the weekend, with energy and tech as the only green sectors for the day. Meanwhile, yields were mostly lower on the day, suggesting that a possible mini rotation into safer assets was the vibe to close the week. The 10-year yield came down from 16-year highs to just over 4.425%, while the 2-year stubbornly remained ~10bps above the key 5% line. Let’s get into it. The Ultimate Program for Aspiring Investment Bankers [image]() Landing an investment banking offer is tough coming from any school – from non-target all the way to the Ivy League. But 6-figures right out of school isn’t supposed to be easy. Luckily, with over 17 years of experience, 900,000+ members, and an insane network, WSO has cracked the code (it’s why we have directly helped over 1,000 students from all backgrounds break into these careers). 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Banana Bits - After bursting onto the scene in the 1980s, PE firms are set to experience their first-ever environment of [high rates for the long term](). - Like founders on a short leash staring down the barrel of “higher for longer” rates, Ukrainian President Zelensky is doing whatever he can for a [couple more bucks](, even looking at some of Wall Street’s most [beloved billionaires.](=) - “... ship is sinking” is exactly what you want to hear about our [government’s finances.](=) - Losses are occurring outside of just your portfolio, just like in your [credit card.]() Macro Monkey Say Housing Armageddon I can’t believe we’d ever have to say this, but to all those who live in homes, I’m sorry. While I’m not sure whether your wallet or your mental health is hurting more, it certainly can’t be a pretty picture. Don’t get me wrong—renters are hurting too, but [this Redfin](=) report only focuses on how mortgage payments just hit a new all-time high at $2.6k. [image] [Source]() "The double whammy of rate hikes and price increases are still raging." The double whammy of rate hikes and price increases are still raging. Although the Federal Reserve held rates steady this past FOMC meeting, their rudely hawkish tone still sent treasury yields soaring. And because mortgage lenders generally base rates on the 10-year note, terms for homebuyers are still moving in only the wrong direction. Adding to that double whammy, the “higher for longer” sentiment also likely means that rates aren’t coming down for a while. For homebuyers, the only pain relief medication available may simply be waiting for more supply. Oddly enough, my sources indicate the Fed isn’t launching a homebuilding arm anytime soon. Speaking of supply, more and more homeowners are becoming home sellers, too, but at a snail’s pace. According to the same Redfin report, listings fell 7% annually this month, but believe it or not, that’s the smallest decline since June. Could be worse! For more news that’s at least moving in the right direction, median sales price growth is decelerating as well. As of the 4-week rolling period ending September 17th, the median sale price of $374k is up only 3.4%, the smallest jump in just over a month. While we can try to put as much positive spin as we want (and trust me, we want to), the market for homebuyers has rarely been this disgusting at any point in American history, to put it nicely. "... the market for homebuyers has rarely been this disgusting at any point in American history ..." Many argue that the U.S. can’t really fall into a recession without a leap in unemployment, but keep in mind that unemployment figures don’t count those who are not actively searching for jobs. With a lower-than-average labor force participation rate, ungodly home prices, and mortgage rates higher than Snoop Dogg, a frozen housing market could drive that spiral. Not to mention, for the average American, their home is the most important non-living thing in their entire lives. Without an ample supply of homes, however, the traditional journey of living with parents/renting through your early-to-mid 20s and buying a “starter” home in your late 20s or early 30s is starting to look about as realistic as a swamp-dwelling ogre and his donkey best friend saving a princess from a dragon. Once again, happy Monday! What's Ripe Alibaba (BABA) ↑ 4.97% ↑ - Much like discussions on how often men think about the Roman Empire, Chinese internet stocks were on the rise on Friday. For those that hold these names within their portfolios, we hope both of the above topics are always increasing. - It was a win-win for the shareholders of Alibaba on last week’s close. Shares rose on news that the Chinese government is considering easing foreign investment limits in the country, and needless to say, hot and sexy tech names like Alibaba, Pinduoduo (+4.08%), JD.com (+2.01%), and others were the biggest winners. - Additionally, reports swirled that Alibaba plans to IPO its logistics arm, Cainiao, in Hong Kong next week. - As a reminder, the Chinese tech giant is splitting itself into 7 (much like Voldemort) with six separate entities and a holding company with some ownership of each. Keep an eye out for each Horcrux. Ford (F) ↑ 1.89% ↑ - Turns out that workers not working is bad for companies. Sure, expenses might be lower, but that whole “making and selling products” thing is a lot harder. - Luckily for Ford, however, it’s looking like their striking UAW employees are one step closer to returning to the job site. Basically, the UAW strike is going to impact Ford’s competitors—GM and Stellantis—a lot more going forward, as 38 plants owned by the latter two have more strikes coming. - Not Ford, however, leading analysts to believe the elder car maker is on better terms with its employees. We’ll see how it plays out. What's Rotten Scholastic (SHCL) ↓ 13.22% ↓ - Guess Scholastic should’ve hit the books harder last quarter because, oh man, was that earnings call ugly. If the share price move wasn’t bad enough, just wait. - Shares were dumped as lower book sales and struggles to cut costs disappointed investors. Like meme stocks and other absolute nonsense, reading boomed during the pandemic, and I think we just learned that it was not nearly as sticky of a trend as many may have thought (or hoped). - EPS of $2.35/sh on sales of $228mn, a 13% decline from a year ago, couldn’t live up to the $3.35/sh on a ~10% sales decline that was expected. Now that school is back in session and the best day of the elementary school year—the Scholastic Book Fair—is incoming, the company’s got a chance to turn this nerd bear market around. Fisker (FSR) ↓ 5.85% ↓ - You might have forgotten that this EV maker exists like I did, but shares have been on an absolute tear lately. After gaining over 30% from mid-August to mid-September, profit-taking and JPow are causing problems. - When companies surge to this degree, especially after losing 80% in the preceding two years, investors are quick to cash out when they can. - But, at the same time, small-cap EV makers like this find themselves in risk-on positions both macroeconomically as well as market-ly, in terms of higher rates and longer duration. While there don’t appear to be any immediate problems, just be sure to keep your head on a swivel… as always. Thought Banana Track to the Future When we think about the future of transportation, images of flying cars and supersonic jets are easy to imagine. But what if I told you that that future actually looked a lot more similar to that of Cornelius Vanderbilt before the Civil War? I’m talking about trains. You know them, you love them, and [this guy]() likes them. They’re Europe’s favorite thing to build, and in the United States, we’re slacking. Public transportation is a major issue in a lot of U.S. cities. Someone living in Boston or New York has access to a world of underground subway systems ferrying them around the more walkable, Europe-esque streets of those cities. But, when you venture outside the northeast, in cities like Houston, Charlotte, San Diego, etc., the public “transportation” is dominated by fledgling light rails and city buses. "Public transportation is a major issue in a lot of U.S. cities." Better public transportation has been demonstrated as key to a decent standard of living across the world. In Europe, the Northeast, and other regions of the world like the Eastern coast of China, these cities were primarily “designed” prior to the advent of the automobile. When cities like Houston and others popped up, Henry Ford was busy pushing his dream for independent, car-based transport, and the cities followed. Now, the U.S. has been f*cked on trains and public transport for at least the past 100 years. Anyone who’s had the misfortune of riding the T in Boston knows that it is religiously delayed and under construction, but according to [this ranking](), it’s still the best the U.S. has to offer. Public transport is key to a growing urban economy as well. When commuters can get around quickly and easily on foot, the micro-payments in the form of train tickets, street hotdogs, and coffee, and the expansion of job opportunities for low-income earners that can’t afford a car only increases the velocity of money and thus the micro-economy of that city. All this is to say that despite America’s staunch lack of public transport, it’s a pretty neat thing. So, when Brightline announced they’re about to open the first private passenger rail line in the U.S. in over 100 years, it’s exciting stuff. "The new line, connecting Miami and Orlando ... is expected to serve 8mn passengers ..." The new line, connecting Miami and Orlando in a 3.5-hour journey (just short of the 4-hour drivetime), is expected to serve 8mn passengers per year once fully operational. Aside from making family trips to Disney less family-friendly by allowing the team to end up in a Miami nightclub that night, there are plenty of additional reasons to be excited. Brightline is largely using this as a $5bn test case for a proof of concept to develop more public-private rail partnerships in the U.S. If all goes well, cities and routes like SoCal to Vegas and Boston to D.C. could be next. Long story short, I hope you like crowded, humid public settings. Because, at least for transportation, it’s coming, baby. The big question: Will the U.S. lean into high-speed rail for public transportation? How will this impact the economies of these regions and the nation overall? What about the impacts on quality of life? Banana Brain Teaser Friday — Can you find a color in the following sentence? "You'll find I got it elsewhere." Answer: Indigo Today — If you have me, you want to share me. But if you share me, I will no longer exist. What am I? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “Buy when there's blood in the streets, even if the blood is your own.” — Baron Rothschild How would you rate today’s Peel? 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