Greetings,
Today I would like to do a continuation of observations I had about our Coronavirus lives:- Cash is Trash. The Fed has decided to monetize not only government debt, but had a "special purpose vehicle", or "SPV" to purchase corporate debt. The reason they had to do this is because their charter does not allow them to purchase these types of (risky) assets, the SPV is housed at the Treasury, meaning with the executive branch.
- This is sinister as it bypasses the need for the executive branch to ask Congress to loosen the purse-strings, Mnuchin, and by extension, Trump, can buy what he wants at will.
- Debasing the currency means that you should consider hard assets, either gold ($GLD, $IAU) or real estate. I have closed, or will close (removed contingencies) on 4 properties since this started, two of which are units.
- Seriously, in case you missed it, go buy gold and real estate, when you debase a currency, assets denominated in that currency go up.
- At the same time, I would like to quote Jared Dillian @dailydirtnap;
If I told you that the Fed was going to buy a thing, you would probably buy the thing. Let's not overthink this.
Consider equities trades as well, Don't fight the Fed, though buy and HODL (hold on for dear life) may not be advisable.
- Consider real estate to be a collection of commodities (lumber, cement, tile, paint, etc.) plus the land value. The land value is decreased (land value is based on distance to amenities, work and family, which are all devalued right now), but the commodity values will increase, not the raw costs, but for finished products (cabinets vs. lumber)
- The Phase 1 trade deal signed in January, is probably not happening, US will continue to tariff Chinese products. When I first started rehabbing houses in 2013, we paid $2,200 for cabinets for a 1,000 s.f. condo, in 2016, we paid $4,200 for the same set-up, and today we are paying closer to $5,000. HOWEVER, consider that this set, if it was "made the USA" would cost closer to $10,000 to $12,000. Our behavior may be changing so that we have to "repair" things rather and "buy new" for everything.
- As a consequence, I think home improvement will be muted, warehouses are almost empty with non-essentials, manufacturing is being geared towards masks versus these non-essentials, such as, cabinets and shingles and floors are all on the back-burner.
- Labor rates will go up, a new labor movement will form, not unlike what we saw with Cesar Chavez in the 70s. This is actually common when pandemics occur in history, less supply, similar demand equals higher prices. I expected to see continued shortage of construction worker and possible collapse of the gig economy, such as Postmates, Lyft, Uber. I expect to see "legislated equality" as these workers, who feel slighted for generations now, form new forms of labor unions, even if not by that name.
- Obvious maybe, but many stores that are now closed will never open again, especially small businesses that have low cash flow and high labor (restaurants).
- DO NOT BE LATE ON YOUR MORTGAGE OR FORBEAR IT, if you can help it. We are likely to see historic, generational, insert your preferred hyperbole, lows in rates. If you can get a 30 year fixed for 1% or 2% down the line, it is worth some short term pain. The Fed really wanted to decrease rates, and although they messed up initially, they are coming down now.
- Mortgage interest rates dropped last week, and are etching up this week, best time to lock rates would have been the Thursday before good Friday, if you missed it, there will be other opportunities, you just have to be ready to strike when it happens, so be prepared.
- Stocks that benefit from Covid-19 are at an all-time high, including $NFLX, $AMZN, $ATVI (streaming video, onlines sales, video games). Amazing.
- Unemployment numbers out tomorrow, 16M new unemployment filings in 3 weeks, approx. 10% of the entire US labor force, people are projecting unemployment to reach 30%. The consequences of this is apocalyptic (hence the title of this piece), and governments MUST GIVE DIRECT CASH TRANSFERS (to citizens, not companies), otherwise revolution will happen.
- I consider myself a Capitalist, so I think that we should not be doing bailouts of companies, bankruptcy exists for a reason. If airlines go out of business, those jobs do not just disappear, they just answer to new shareholders.
- At the same time, I do not believe in complete laissez-faire, it is unpatriotic because you are agnostic about the outcome. If all systems were allowed to compete unfettered, it would be no different than anarchy. Example, if you believe that the US should compete with China and Europe on things as critical as 5G communications, Airplanes, and ports/harbors, and you do not think they would "cheat" (subsidize research, guarantee outcomes), hi there Pollyanna, long time no see.
- The United States is also better than those large countries and worth protecting, it is a latter day Rome, with all its good and bad; we are the beacon of democracy, rule of law, not of men, with the free world relying on the Pax Americana. You are damn right I am biased on what horse I want to win.
#Odaenathus
#COVID19
#Coronapocalypse
#CashisTrash
#PayYourMortgage
#Goldbug
#Fedup
#Fedtastrophe
#Fedpocalypse
#Fedsury
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