Are We Approaching Bubble Status?

• 4 min read
Are We Approaching Bubble Status?

SOMETHING INTERESTING

If you’ve been concerned about inflation, currency manipulation & the Fed’s “fiscal policy,” you’re in good company. I’m not saying you should buy gold or silver or Bitcoin - I’m saying it’s important to study what happens when empires ruin their currency.

Interesting thread here about the debasement and destruction of the Roman currency (get to #12 in the thread and it gets really interesting -- especially when matched to the Fed’s policy. Thread #17 & #18 give great investment advice).


MARKET MOVERS

  • Pfizer is on a roll. First, full FDA approval. Now they’re announcing plans to acquire Canadian drug developer Trillium Therapeutics Inc. to boost Pfizer’s arsenal of blood cancer therapies, in a $2.26 billion deal. Pfizer expects to benefit from Trillium’s blood-cancer therapies, including novel fusion proteins designed to enhance the ability of patients’ immune systems to detect and destroy cancer cells. (PS in our opinion $PFE is undervalued, pure conjecture only)  Read more here.

  • The gap between wages and home prices is getting wider, pushing homeownership out of reach for many buyers, especially locals in smaller suburban areas. Last year, the median list price for homes grew by 7.2%, while wages increased only by about 3.7%., according to Realtor.com. “Now, more Americans have flexibility around where they live and work, and that’s put these lesser-known markets on the map,” says Ali Wolf, chief economist at real estate research firm Zonda. This is WHY the smaller markets (less urban) are doing BETTER for returns right now...also likely why fringe markets are experiencing the same inflation in prices. Read more here.

  • Let’s talk about Uber. First of all, the company has been declining all year. That’s good if you’re into buying the stock. Second - the company is facing serious challenges in several key markets. Recently a California judge made ruling disallowing Uber (and Lyft) to classify drivers as contractors. This means even further decreased profitability for Uber. Analysts have mentioned concern around the P/E multiple for the company, but the recent dip is providing a good buying opportunities if you’re a value investor. Uber is also testing IN APP advertising, this will create redundant profit streams for the company.

  • RE home builders: profits for home builders surged in Q2 despite increased supply costs. And to boot - 39% of American home sales are now attributed to publicly traded home builders. Here’s what this means: profits drive competition which drive profits down. We have about a year for inventory to catch up (before new builders enter the market to take their fair share of the profits) and if we don’t catch up by then, that means the housing shortage will likely be kicked down the road again due to a lowering of profits & thus, lower competition and thus, lower new inventory hitting the markets.

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WHAT WE'RE WATCHING

  • For the first time, we’re seeing dangerous signs in the mortgage market (reminiscent of 2007). Big firms (like J.P.Morgan Chase & Co., Goldman Sachs, and others) are again packaging and selling mortgages that the government-backed firms can’t or won’t back. Mortgage investors predict this new dose of competition (especially in a market that’s been long dominated by government-backed mortgage giants Fannie Mae and Freddie Mac) means the private market will proliferate. We’re always keeping a close eye on what’s going on with Wall Street and real-estate, and this could have some major implications for the near future. Read more here.

  • Speaking to the point above, we still don’t think we’re actually in a bubble. The inventory is so far behind that we’d have to lose (or slow down) millions of relocations per year for anything to “crash.” Also, there’s something to be said for WHO is buying homes in the current market. Many think that expanding access to mortgages & real estate debt won’t make a difference. Our firm, for example, buys all cash. We aren’t at the whims of bankers & lending regulations. Data suggests many home buyers are in a similar position.

  • Remember when we mentioned inflation impacting wage increase in our previous digest on 8/22? Well, here’s something to chew on:
  • If you think the idea of your employer requiring a vaccine is crazy - think again.

  • From 30 offers per home, to 10 offers per home. Signs of a cooling off are showing. As a real estate professional, I can’t begin to describe to you how good this news is. We’re keeping an eye on “offers per home” in two of our biggest markets, Charlotte NC and Birmingham AL. One other interesting bit of data we track is “lease applications per home.” Usually, a lowering of offers per home means an increase of lease applications per home. More on this later.

FINAL THOUGHTS

“You learn new things by putting yourself in difficult and new situations that force you to become a flexible learner.” (Benjamin Hardy, Willpower Doesn’t Work)


The key to longevity is a mind that craves learning. Biologically speaking, this runs counterintuitive to our impulses, requiring you to sometimes place yourself into situations where you don’t know something to begin with. They say the best way to learn a new language, is to move to a city where the learning is required of you. In business as in life, the same principle applies.

← Difficult market for 1st-time buyers, investors are winning
Fed Tapers, FDA Approval Incoming →

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