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Memo from yesterday About Jeremy Grantham He prompted numerous emails saying he was a sneaky old man who could always say bad things about stocks. In my opinion, its best call was bullish and was made exactly when the market bottomed out in 2009 (see). Here).

Anyway, today I will write about the nasty highs again, so your bull will have to put up with it for another day. I will write something more cheerful tomorrow.

Do you also have to worry about house prices?

If you need an asset bubble, it’s a good idea to have one at a time. In Japan in the 1980s, a large-scale bubble burst in both inventory and housing, and the damage was enormous. Illusions about US equities Shouldn’t we also ask ourselves if the prices of American homes are of interest to us (because this newsletter is recent)?

Here’s what US home prices have done using the most standard index, Case-Schiller:

House prices have been accelerating steadily since last summer. Newer and less reliable data from the National Association of Real Estate Agents Case Shiller Index Will continue to accelerate over the next few months:

The problem is that recent remarkable growth (nearly 20% in April!) Is a post-pandemic bottleneck (almost 20%!). wood, For example) and higher demand for the economy to reopen, or if we see slow bullish speculative activity / desperate yield pursuits shifting to housing.

A standard measure of this is the percentage of home purchases that are not owned, that is, bought to flip or rent for performance (see). this Paper etc.). But I still couldn’t find a timely estimate of this, so we have to look (for now) in the background, anecdotes and expert opinion.

Dimitris Valatsas, chief economist at Greenmantle, provided important context to reduce speculation problems. He says the sheer housing shortage in the United States is bigger than the labor and material bottlenecks in question. In the long recovery of the past decade, the United States has not been built well. Only 0.5 house was built for all the added jobs. The long-term average is 0.7. This ratio suggests that in 2020 there was a shortage of 3.5 million homes in the United States.

Therefore, as the United States builds more houses (and it is under construction) After) The pressure on prices should ease (although Valatsas is more worried about the rise in the price of the second house).

Professor Robert Shiller himself, developer of the index and expert on why the market is overshooting, said on economic news channel CNBC last week:

” [market] History where we are more tolerant of emotions and social excitement and this seems to be one of those times. .. ..just now [we set] Virtually a new record, [house] This is what the price has never been higher. .. .. I don’t think everything is explained [by] Central bank policy. There is something in the sociology of the market going on. The question is whether it can be stabilized without crashing, which is difficult to do. “

This is Robert Kaplan, president of the Federal Reserve Bank of Dallas. Speaking a few weeks ago. He finds it difficult for the capital of Wall Street to enter the market:

“Housing prices have always been high, and increasingly over the past six to eight weeks there are more and more reports of individual investors entering the single-family home market, competing with their families. and often witnesses of offers. We demand that houses remain furnished, not visible beyond asking price, so we are crowded with the fact that only one family can buy their first house. Are in a position to be or under pressure .. .. This is one example of those unusual side effects resulting from excessive, perhaps unintended, consequences. [Federal Reserve] Action. “

There are many such anecdotes. Large investors have a lot of cash and are looking for returns. history Cerberus Capital Management bought more than 200 homes from Home Flipper in the first quarter, which the company will lease, as announced on Friday. Most impressive:

“Cerberus… operates over 24,000 rental properties through a holding company called FirstKey Homes. According to the Kroll Bond rating agency, the company recently closed $ 2.5 billion at a fixed rate of 1.99% of part of its real estate portfolio. Borrowed. “

What happens to house prices if you can borrow $ 2.5 billion at a fixed rate of 2% to finance a rental home? What if interest rates go up?

There are good fundamental reasons for house prices to soar, but the strong smell and speculation of cheap money is also dependent on the market. I keep looking for better data.

Email is no longer for cowards: cold calling

Feel nostalgic, Bank of America trainee brokers No longer authorized Make a cold call to a potential client.In this old-fashioned practice, ambitious young people on Wall Street call billions of complete strangers and ask them to buy stocks and bonds (see). this Scene from Boiler room, Giovanni Ribisi plays the “pinball machine” – the rookie must immediately hand over his first contact to a more experienced salesperson).

I just miss it because I’ve never done cold calling. So I spoke to the two people who started it.

The first person explained his cold calling calculations this way: he dialed the number 100 and asked someone to speak to him for more than 30 seconds. Of the 100 of those “real” conversations, 10 were the leads and the people he actually filmed. 1 in 10 leads have been sold. In other words, 1,000 calls and one sale. These numbers have been solid over time. “It really, really worked,” he said. “It was amazing giving money to people that people have never met.”

The downside was that cold calling brought great benefits to wealthy children. Wealthy kids were able to get a phone book from a country club where they grew up playing tennis (or whatever) and make connections. “It ruins children without a network,” he said.

Another former interviewer who worked in a particularly casual store had a darker outlook (I removed the adjectives that were repeated all the time): “Psychologically, it’s best not to make cold calls at all. It is difficult. A lot of people tell you to go. Who intends to give you money on a cold call? It should be about relationships. “

A good read

Paul krugman Federal Reserve says it’s not Monetization of government bonds. I hope he is right, but I need to think more about it.

Recommended newsletter for you

due diligence – Top story in the world of corporate finance. Here

Marsh Note – An expert insight into the crossroads of money and power in American politics. Here

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