It’s a mixed bag for today’s Daily Cut.
A couple of observations from us on the market…
And a letter from a subscriber with a strong opinion on our thoughts on the upcoming election.
More on that in a moment.
First, the proverbial ticking time bomb that is real estate…
We’re Too Conservative to Understand
Maybe it’s your editor’s naturally conservative mindset… but we find it impossible to understand how folks can lose so much money on a single asset.
As Bloomberg reports:
Lynn Nathe was growing tired of the meager gains from her family’s retirement account. In late 2021, she invested $200,000 with a company that was making 30% returns by buying the hottest ticket in global real estate: US apartments.
Now, she says, most of that money is gone.
For Nathe, a business school graduate who invested earnings from her husband’s dentistry practice in Yakima, Washington, the loss is a personal calamity.
The report doesn’t mention the overall size of their personal wealth.
But we get the feeling it was a meaningful loss.
It’s why we’ve tried to hammer home in these pages the importance of taking a sensible and calm approach to reducing your market exposure.
That’s not always easy. Many investors have made big gains over the past few years. They’ve done so while ignoring the regular news stories about an ‘overheated’ or ‘overvalued’ market.
They bet on Nvidia at $200… they stuck with it… and they sure as heck aren’t going to sell now… not when analysts at Bank of America have a price target of $1,500 on the stock.
Then there are other investors who missed out… thought it was too expensive… still think it’s too expensive… but at some point over the next few months (assuming Nvidia doesn’t fall much) they’ll crack, and buy… right at the top.
You know what we’re talking about. Odds are, you’ve done something similar. We know we have.
The point is that no investment is a surefire winner at every price point. You can’t lose on real estate, right? Isn’t that what everyone says?
You can when there’s leverage involved, and when investors are flipping properties more regularly than a fry-cook flips burgers at your local diner.
The chart below shows an index of multifamily property prices:
Source: Bloomberg, MSCI
As the Bloomberg story notes, the index is down 18% from its peak. As with any index in a falling market, you can bet your bottom dollar there are a bunch of funds that are down much more than that.
Speaking of taking risks, another story from Bloomberg:
GameStop Corp. shares swung after the retailer unexpectedly released earnings and a plan to sell up to 75 million additional shares hours before Keith Gill’s highly anticipated return to YouTube drew in speculators.
The stock slipped 16% to $38.93 at 8:22 a.m. in New York. It had earlier soared to a premarket high of nearly $64 before news of its offering sent shares spiraling.
The video game seller’s first-quarter results, which were initially planned for Tuesday, showed slowing sales and a wider loss than analysts had expected. The extra shares, which can be sold into the market at prevailing prices, come in addition to GameStop selling nearly $1 billion worth of stock last month.
As the saying goes, it’s bound to end in tears for most folks. Again, no doubt some folks have made money trading crappy stocks like GameStop (GME), but the odds of that story having a happy ending are hundreds to one.
Finally, from the mailbag. Earlier this week, we published our thoughts on why you can expect another four years of President Biden. And one subscriber, David C., penned us a response:
Honestly, the single dumbest article I’ve ever read on the Daily Cut. While Trump likely won’t win in 2024, it has nothing to do with middle America watching network mainstream news. It has everything to do with communist democrats rigging the election in their favor. Wake up, Kris. There’s no way you are this misinformed.
Hey. We just say it as we see it. We’re yet to be convinced by the claims about vote-rigging affecting the election result. Although we don’t deny that it could be true. Look at any period in American history and there is proof of rigged voting.
Your editor has recently finished reading Bleeding Kansas by Nicole Etcheson. A book about the lead-up to Kansas’ admission to the United States. She writes:
The importing of voters and other types of ballot fraud Missourians practiced were, in fact, staples of U.S. elections at the time. In a period of rampant political corruption and lax residency requirements, violence and threats at the polling places were nothing to shock Westerners.
[…]
The territorial census earlier that month had found 2,905 voters in the territory, but over 6,000 men voted on March 30 [1855].
On that note. We retire for the weekend. Back next week.
Cheers,
Kris Sayce
Editor, The Daily Cut