How I Learned to Stop Worrying and Love the Coronavirus

Greetings,

Today I wanted to simply jot down some thoughts I had about this novel coronavirus (COVID-19) that the news cycle seems to love to talk about:

- Will real estate values be affected? The answer is the same as every real estate question, it depends. I believe luxury will be impacted, I think more modest dwellings will not, and for a very simple reason, there is not more inventory and people have to live somewhere.

- Is this our 1987 moment? In 1987 we had Black Monday, the biggest one day stock market drop in history, afterwards, real estate prices went up in a straight line for 18 months. Just like any good investor, when there is a shock to the system, you have to recalibrate, you either go to safety (or even relative safety, like houses versus paper ownership in a company), or you go to what has been undervalued. I suspect there is a good chance this is our 1987 moment for real estate. The 80's are dead, long live the 80's.

- The drop in stock prices has been a long time coming. Essentially since 2013, we have been looking for an excuse for the sky to fall, be it Eurozone collapse, Government shutdown, Trump's America, or the most recent taper tantrum with the Fed. People did not trust our longest recovery of all time (2009-2020) and wanted a reason for it to fail. We have an actual, tangible, non-falsifiable reason for this to happen.

- After this is all said and done, I expect this to cost $10-12 trillion dollars, between the Fed, Congress and loss revenue from the IRS and tax authorities. I think we are well on the way to $50 Trillion dollar national debt. Technically hundreds of millions is considered an astronomical number (hundreds of millions of stars), I don't even know what to to say with how commonly we are using trillion now.

- Mortgage rates are the most volatile they have ever been. The spread of the 10 year treasury bill and the mortgage backed security (MBS) are having unprecedented spreads. There are a few possible explanations for this, but since the two are tied together, a likely one is that there are mortgage defaults priced into the MBS's. Another explanation is that lenders are rejecting new applications because they have 3-5 times as many applications as they have ability to process it.

- QE Infinity may solve this problem, the Federal Reserve is expected to buy unlimited mortgage back securities, this will likely stabilize the mortgage market from unprecedented volatility. Based on 10 year treasury rates, our current interest rates should be 2.75% to 3.25%, not about 1% higher than that.

- Not as a political statement, but I wonder if this will be Trump's "Heck of a job Brownie" moment, during Hurricane Katrina. I believe strongly that if Katrina happened in 2004 instead of 2005, Bush Jr. would not have been re-elected.

- A related, but distinct thought, we are hurting so bad because we all have debt up to the gills. If households were not so levered, and companies so levered (with stock buybacks), we can weather a pause much better. This is an unintended consequence of "keeping people in their homes" during the Great Recession and giving people 0% loans, silent seconds, forbearance and modifications. People were never allowed to move on (or would not allow themselves). This hurts so much more because of that.

- Is the disease worse than the cure? As much as we all should value human life, especially those who have already served our communities and countries (seniors), I want to consider what happens when there is 3.3M estimated new unemployment filings. The domino effect of one dollar that was flowing to 7-8 people (hairdresser pays the restaurant owner, who pays Costco, who pays the property tax and insurance company), divorces go up (after people can afford them), suicides go up (Possibly 45,000 suicides annually are caused by unemployment) , depression goes up, property crime goes up. Remember, the scope of the shutdown is unprecedented.

- The Coronavirus is not going away. Influenza's first mention in writing was Hippocrates (of Hippocratic oath fame) in 412 BC. Coronavirus will mutate and may be contained, but consider that SARS (another coronavirus) from 2003 flares up every so often, as well as H1N1. Consider also that we have flu antibodies, but no Coronavirus antibodies.

- We can all party like it's 1999. Consider how much less traffic there is here than there was a month ago. My brother just mentioned to me that it 'makes him feel like a kid again', because he has seen population become much more dense in his lifetime. I remember a family member, who use to commute from West Covina to Pasadena, saying it would take about 25 minutes, that commute was, as of a month ago, 1hr. 30 min.

- The Corona-apocalypse is nothing compared to the zombie-apocalypse. I expect more out of humanity.

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