Opportunity is knocking, but investors need to act now
I want to relay to the reader my recent personal investment experiences and why I accelerated my timeline in light of current national circumstances.
Over the past 10 months, I raised investment funds via three sizable cash-outs on my property portfolio. As you well know, I post information about my transactions in the comments section as they occur, so none of this should be news to you. These DSCR loans are funded by private money and all three loans were in the 6-7.4% range.
So, why did I accelerate my borrowings and investment activity?
Even when conforming mortgage rates were in the 3% range, these DSCR loans were around 6%. While I always thought that was a significant spread, I did use that market occasionally from time to time. As many investors already know, the conforming mortgage market is largely off limits, because we derive our income from passive sources. However, the primary reason I cashed out all this money this time around was because it was relatively cheap versus what the conforming mortgage market had been registering, which was north of 6%.
By borrowing all this money I was essentially predicting that longer dated Treasury yields were going to continue rising from the 3.5% range. By borrowing I was effectively shorting the bond and mortgage markets. We could say the federal government’s profligacy accelerated my timeline.
I’m grateful I overcame the inertia generated by the alt-financial and mainstream media and borrowed, because I took the opportunity to begin reconfiguring and upgrading the quality of my rental portfolio. I purchased another better property as well as executed three tax-free exchanges into better properties in better suited areas. Plus, I now have extra cash that I can park in a money market fund for at least 5%. Thus my real cost of holding that extra cash is probably less than 200 basis points. I may buy another property if there is a good deal to be had this winter.
Housing prices in many overlooked areas still have a basis in reality
On the landlording side I have been greatly encouraged by the continuing strength of the rental market. In the areas that I had been concentrating on and are overlooked by most landlords as being too rural, market rents have increased by as much as 50% over the past 5 years, and despite house prices rising, the capitalization rates are roughly the same or even higher now than they were back in 2017 and 2018. With higher US Treasury yields now an indefinite feature in the fixed income market, I suspect elevated prices and higher housing costs will continue to persist for some time.
Using the sales proceeds from 1031 exchange as well as cash on hand, I am currently under contract to purchase a large townhome in the village of Woodstock VA. It was built in 2007 and the sale price is $287,000. The contract was ratified earlier this week, I am paying cash, and the transaction will close at the end of this month. The only major cost will be for replacing the outdoor deck, but a new deck will add value and help to retain quality tenants. The deck will offer a very compelling view of the lower Shenandoah valley out to the mountain range. According to Zillow, full market rent is $2,300 while the seller was receiving $2,100 with the property in disrepair. In 2017, that rent was about $1,450.
It’s all about the numbers
When running the numbers, such as the cap rate, I come up with a full market value of $400,000 at a 6% cap. Yet this property was listed on MLS at $298,000 where it languished on the market for almost three months. I am purchasing this property from another landlord who was trying to sell it with the tenant currently in it; what a foolish concept for the seller, but this is my gain. The current full market value is about $335,000.
Yesterday, I called up my State Farm agent to ask him to underwrite a new rental dwelling policy for the property and he revealed the replacement cost to be $410,000. Thus, given all this new information, I suspect that within two years the full price of this property in the marketplace will be about $400,000.
As you can see, there is opportunity regardless of the circumstances that may prevail in the marketplace.
8% mortgage rates coming soon
I am now hearing that conforming mortgage rates may bump up against 8%. Bank of America on their website is already stating that their mortgage rate is 7.5% with a point.
Private lenders will still be able to get you competitive rates on their money for now, but I don’t know for how much longer. I am concerned that mortgage rates could really spike here and the private lending market could dry up. Only the institutions will be able to access large amounts of money inexpensively. Hence the institutional takeover of the SFR rental market. For many people, they will own nothing, but I don’t know how they’ll be happy. Maybe there’s something in the injections to assuage their stress.
As you can see, I tune out all of the housing market prognostications and don’t listen to the housing economists. To be successful in these endeavors we must look at the numbers and the trends and view it through a politically agnostic lens. It’s all about the numbers and it always will be. I still think house prices still make perfect sense in the areas I am looking for given the dynamics of the rental market.
We need to be out there making hay while the sun shines.
Headline Durable Goods data coming in worse than expected, but the core and the ex-transportation come in hotter. Jobless claims pretty much on target.
Core Durable Goods Orders (MoM) (Jul)
Act: 0.5% Cons: 0.2% Prev: 0.2%
Durable Goods Orders (MoM) (Jul)
Act: -5.2% Cons: -4.0% Prev: 4.4%
Durables Excluding Defense (MoM) (Jul)
Act: -5.4% Cons: Prev: 5.9%
Goods Orders Non Defense Ex Air (MoM)
Act: 0.1% Cons: 0.0% Prev: -0.4%
Initial Jobless Claims
Act: 230K Cons: 240K Prev: 240K
Continuing Jobless Claims
Act: 1,702K Cons: 1,708K Prev: 1,711K
Jobless Claims 4-Week Avg.
Act: 236.75K Cons: 232.63K Prev: 234.50K
Meanwhile in India..
M3 Money Supply
Act: 10.9% Cons: 10.6% Prev: 10.6%
PMI data disappointments… New Home sales better… Payrolls benchmark below consensus and drops by 306k jobs.
Bond bulls get a breather before Powell speaks more gibberish at Jackson Hole.
Building Permits (MoM)
Act: 0.1% Cons: 0.1% Prev: -3.7%
Building Permits
Act: 1.443M Cons: 1.442M Prev: 1.441M
Manufacturing PMI (Aug)
Act: 47.0 Cons: 49.3 Prev: 49.0
S&P Global Composite PMI (Aug)
Act: 50.4 Cons: 52.0 Prev: 52.0
Services PMI (Aug)
Act: 51.0 Cons: 52.3 Prev: 52.3
New Home Sales (Jul)
Act: 714K Cons: 705K Prev: 684K
New Home Sales (MoM) (Jul)
Act: 4.4% Cons: 0.2% Prev: -2.8%
Payrolls Benchmark, n.s.a.
Act: -306.00K Cons: Prev: 506.00K
There is another problem in India and in the world too… It is caused by the unpredictable weather globally and the loss of crop yields…
It is scary but it is what God intends to do.
There is a lot of pain coming as the growing season is ending.
The summer this year has been erratic to say the least if we put it mildly in the temperate regions of the Northern world, where we most live.
https://www.reuters.com/markets/commodities/india-set-ban-sugar-exports-first-time-7-years-2023-08-23/
Indeed, none of this is helping inflationary pressures. This summer here in Northern Virginia has been one of the coolest that I can remember. It’s been a little dryer than normal, but other than that it’s been a wonderful summer. Now it’s effectively over. I’m looking out my kitchen window right now and it’s in the upper 60s.
The cost of so many things have escalated tremendously and many of these costs are yet to be revealed to the average person until they’re forced to spend. Construction costs and the costs of new homes materials have risen amazingly over the past few years. I’m still trying to wrap my mind around all of the extra expenses. Commodities prices remain remarkably sticky and the Dow Jones commodity index has yet to take a big nose dive. I had expected the commodity complex to fall back as more supply came online, but that has certainly not been the case.
Though the Biden regime has done its best to undermine the oil and gas industry, American production continues to rise. After oil took out our $65 target it popped right back up again rather than continuing to fade.
I would have to suspect that the softs and trops prices are permanent. It’s been a three solid years and with virtually all the nations around the world increasing their M2 and M3 money stock measures the way India has been, I don’t see how prices will ever drop back.
My site primarily sticks to data domestically, but I view all of the international data coming out of the governments and their central banks and money growth around the world is simply breathtaking. It continues to rise even after covid is well in the rear view mirror.
United States is the largest producer of energy in the world. Gas at the pump here is relatively inexpensive versus our purchasing power. In fact, housing in the United States versus household income is the cheapest of anywhere in the developed world. Energy producing shareholders continue to make gobs of cash.
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US crude output to rise to record 12.76 million bpd in 2023 – EIA
August 8, 2023
NEW YORK, Aug 8 (Reuters) – U.S. crude oil production is expected to rise by 850,000 barrels per day to record 12.76 million bpd in 2023, according to a monthly report from the Energy Information Administration on Tuesday.
Crude oil production is expected to rise by 330,000 barrels per day to 13.09 million bpd in 2024, EIA data showed.
The last record output was 12.3 million bpd in 2019, before the COVID-19 pandemic crushed demand and prices, and drillers were hit by higher costs that squeezed profit margins and investor demands to limit spending.
https://www.reuters.com/business/energy/us-crude-output-rise-record-1276-mln-bpd-2023-eia-2023-08-08/
Every day, more and more investors are abandoning Treasuries… Bidenomics best attribute.
T-Bill Yields to Climb Further With Foreign Money Steering Clear
6 hours ago
(Bloomberg) — Foreign investors are ditching short-dated Treasuries, keeping the pressure on bill yields to climb higher.
The very short part of the US curve — securities that mature in less than a year — is seeing renewed selling, particularly by cross-border investors, John Velis, a foreign-exchange and macro strategist at Bank of New York Mellon Corp., wrote in a note to clients, citing the company’s iFlow data. By contrast, yields on longer dated securities are sufficiently high that they’re starting to woo overseas money, he wrote.
“This means that the front end will cheapen further, as waning demand pressures prices,” he said.
The US Treasury has issued roughly $1 trillion of bills since June after the government suspended the debt ceiling. Money-market funds — the largest buyer of the paper — scooped up securities, using cash parked at the Federal Reserve’s reverse repurchase agreement facility to finance T-bill purchases. However, other investors faced with uncertainty over the economy and the US central bank’s policy path have piled into short-term debt that yields more than 5%.
While the difference between bill yields and so-called overnight index swaps — which investors use to measure the Fed’s path — is in positive territory for the first time since 2020, it hasn’t widened enough to entice money funds to continue moving cash out of the RRP. Eligible counterparties continue to stash more than $1.8 trillion at the central bank.
Still, there are signs that money funds are interested in accumulating more Treasury bills. The industry has extended its daily average maturity of its holdings to around 25 days, and Velis expects the extension to continue once there’s more clarity around central bank policy.
“Once it’s recognized that the Fed won’t be raising rates further and reducing policy uncertainty, combined with continuous and rising bill issuance into Q4 and year-end, there will be enough premium in the bills curve to reduce RRP further,” Velis said.
I’m being quoted for DSCR 30-year fixed loans at least 8.00% now. Things are getting pricey yet home prices don’t seem to be coming down anywhere.
That’s because rents continue moving higher, too. Moreover, it is increasingly becoming the consensus that rents will continue climbing on an ongoing basis, which attracts lower cap rates up front for the promise of higher cap rates in a few years.
Long gone are the days that I didn’t raise rent from year to year for existing tenants.
MarketWatch pens another misleading article with more double speak about why real bond yields are rising.
Longer dated US Treasury yields began rising out of their intermediate range immediately upon the US Treasury announcing their increased borrowing needs from $700 billion to at least $1 trillion for the quarter. Fixed income investors are increasingly growing impatient and are demanding a higher yield. That is when I told you to get out of all bonds and longer-dated fixed income securities. This has nothing to do with an improving economy and all to do with the government’s increased borrowing and spending needs. The economy is growing, because the federal government is spending so much more money than previously.
This may sound like I’m splitting hairs, but if we can see why yields are truly rising, we can respond correctly. Instead of looking at the linear relationship between rising bond yields and asset prices we must contemplate the prospects of what an exploding government’s borrowing needs and the rising money supply measures will ultimately have on our lives as well as asset prices. Most people are going to be swept in the undertow while those with the physical assets and other income generators will hold up much better.
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Rise in Treasury yields is almost entirely due to one factor, strategist says
https://www.marketwatch.com/amp/story/rise-in-treasury-yields-is-almost-entirely-due-to-one-factor-strategist-says-1a5a80b
The SoS banker’s job won’t be complete until this percentage rises to 100%. While current housing affordability may be as low as it was during the bubble from 15 years ago, the capitalization rates of today are comparable to pre-covid levels. Real estate investors are still attracted to this rental yield. We need more multicultural deficit spending. We need an inclusive environment in which landlords can continue raking up the cash. To all you broke multiculturalists, I say I have some rental properties for you. My rents have increased about 50% over the past 5 years, so be prepared to pay up. The gen pop slaves brought this upon themselves and have nobody to blame except the person in the mirror.
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Americans now need to spend 43% of their income to afford a home as mortgage rates surge to a 23-year high
•Americans need to spend nearly half of their income to afford a home as mortgage rates soar, a market expert said.
•”US housing affordability is worse today than the peak of the last housing bubble,” Charlie Bilello said.
•The average rate on the 30-year fixed mortgage jumped this week to a 23-year high of 7.48%, per Mortgage News Daily.
https://www.businessinsider.com/housing-affordability-home-price-us-43-income-mortgage-rates-increase-2023-8?amp
On a separate note. Be warned about moving to states like Florida. New homeowners from out of state will be hit with a property tax bill roughly three times that of the previous owner . Floridians who have been in the state have their taxes capped at 3 percent a year. They make that gap up on the new out of state buyer.
Agreed. I do not recommend FL as its housing and other living costs have escalated dramatically since 2019. The property tax bills and insurance alone compare to NY when based on purchase and replacement costs.
Florida is becoming a new headquarters of the tribe. It will turn into NY or CA in no time. Any place that is flat and coastal is prime breeding ground for the tribe.
Why CJ ?
Property tax cap is why I am NOT moving out of CA – unlike so many people I know. The allure of cheap living and low house prices may get washed away with unexpected costs. It’s better the devil you know.
About how high are you talking? I want to move there. We lived in a small town without hardly any services and our taxes rose steadily until they reached $7,000 a year so we moved to a low tax district. Our taxes have continually been raised to now $5,000 a year.
Is Florida worse than that?
I think the property taxes are based on purchase prices, and since prices in FL have increased property taxes for new homeowners are higher than those who have been there already.
I’m painting with a broad brush about FL, so if you want to move there I would say it’s fine, but be careful about housing expenses.
I will watch. That’s probably how they’re going to get people to jam into cities: by raising property taxes.
As investors and economic stakeholders continue to lose faith in the federal government and especially the Federal Reserve, longer dated bond yields continue to grind higher.
A crisis in confidence is now occurring a repricing of any asset can result in a sudden and sharp movement.
Hi
What are your thoughts on dollar cost averaging bitcoin purchases say on a weekly or monthly basis. Thanks
That’s a good idea. Take these pullbacks as an opportunity to build buy and hold positions. I will look to add to my position. I do the same with gold. I just make certain I don’t need the money anytime soon.
Hi. Should we limit crypto purchases to only BTC and ETH or are there others worth considering. Thanks again
I am not an expert in cryptocurrencies, so I don’t know the in and outs of the sector, which is why I almost exclusively recommend BTC. Ether is fine, too. For someone like me who doesn’t really study the sector all that much and is not an expert in it, I just stick to bitcoin. It’s the one crypto that seems to be almost universally endorsed by all the media and has the derivatives trading that the others do not. Holding a Bitcoin offers us a less risky way to gain exposure to the sector. For those who are more intimately involved in the business of cryptos, I’m sure they might have other thoughts. I don’t own any ether, but that doesn’t mean you shouldn’t. I actually own a little xmr, too. But my overwhelming holding in the crypto sector is Bitcoin.
In the short run here, Bitcoin is very dependent on movements in the bond market. Higher yields coincide with poorer performance and vice versa.
Regardless, unless we see a financial market collapse like we observed in the beginning of covid, I suspect Bitcoin will eventually break out and move higher over time. This is why I always recommend having cash on the sidelines, even if it burns a hole in our pockets.
And holding cash now is no longer a huge sacrifice given that money market funds are yielding at least 5% now.
Turkish Investors Hunting for Inflation Hedge Rush Back to IPOs
3 hours ago
(Bloomberg) — Turkish stock buyers are again piling into new share offerings by companies, lured by the promise of jumbo returns as they clamor for ways to shield against resurgent inflation.
There’s been a string of IPOs that have been met with intense demand, with two in August drawing 2.6 million investors apiece, a record for any Turkish company. And given the backdrop of plentiful demand, 31 companies have come to market this year.
The domestic retail investors attracted to those deals are part of a cohort of Turkish share-owners that has more than doubled in size to 5.9 million over the past year, according to data from the central securities depository.
The immediate lure is the prospect of big returns. Two thirds of the stocks that made their debut in 2023 soared more than 60% in their first five trading days, while only three fell in their first week.
But also fueling the latest uplift in demand is a jump in the inflation rate to 47.8%, spurred by the lira’s sharp depreciation after elections in May. The surge in consumer prices is adding to the allure of equities as a way to offset erosion of the real value of savings as living costs rise.
The trend for investors in high-inflation countries with weak currencies to seek value in stocks isn’t unusual. A similar pattern has also played out in countries including Egypt and Argentina.
In Turkey, the phenomenon is giving fresh impetus to a buying frenzy that has seen the Borsa Istanbul IPO Index, which tracks stocks that have listed in the past two years, soaring 3,904% since the start of 2020.
Meanwhile, the best-performing stock on the benchmark Borsa Istanbul 100 Index this year is electronic equipment maker Astor Transformator Enerji Turizm Insaat ve Petrol Sanayi Ticaret AS, up 972% since its debut in January.
Tighter Conditions
Among the most recent offerings, shares in power firm Izdemir Enerji Elektrik Uretim AS are up 46% since they began trading on Aug. 16. Utility Enerya Enerji AS is due to start trading on Aug. 23.
At the same time, tighter access to costlier funding has made raising money with an IPO a more attractive option for Turkish companies.
Firms have raised more than 41 billion liras ($1.5 billion) so far in 2023, a record amount in local-currency terms, according to Turkish Capital Markets Board data.
New listings are “juicy because their returns are at least 70%,” said Betul Seckin, 31, who has been investing in shares for the past 18 months as a way bring in extra income. “There’s almost no risk in betting on IPO stocks compared to others.”
Seckin says she takes profits once a rally in a newly-traded stock starts to subside, though says she plans to hang on to her shares in energy firm IPOs as a longer-term investment for her child.
The surge in interest in IPOs from Turkish mom & pop investors isn’t without risks, however.
“Most of the IPO investors are short-term, looking for rather an adventure and to earn a few bucks,” said Mehmet Gerz, chief investment officer at Ata Portfoy brokerage and a member of the board of Turkey’s Financial Literacy and Inclusion Association. “Some of these people end up having a traumatic experience and forgoing equities for years.”
Demand for IPOs flagged around the time of the elections as lira deposit rates jumped and investors waited for more clarity on the direction of policy.
Since then, President Recep Tayyip Erdogan’s appointment of two former Wall Street bankers to run the country’s finances has added to the appeal of stocks as they flag a gradual return to more orthodox economic policies.
©2023 Bloomberg L.P.
Stock prices benefit from inflation and increased government spending. If you don’t feel comfortable being a landlord, then buy stocks as an alternative income producing asset.
Open borders brings this upon the people. An overinjected and immunocompromised population of retarded misfits are sitting ducks. Just make sure you’re their landlord.
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First locally acquired malaria case reported in Maryland in decades
https://thehill.com/policy/healthcare/4162327-first-locally-acquired-malaria-case-reported-in-maryland-in-decades/
The Maryland Department of Health has reported its first locally acquired malaria case in more than four decades.
State officials said late last week that a Maryland resident tested positive for malaria despite not having traveled outside of the United States or to another U.S. state with recent malaria cases.
I have noticed that since the Covid Clot shot roll out, other diseases are suddenly popping up. No doubt these vaccines reduce immunity to all infections. The Covid shot is clearly population control.
I have a strong feeling that a much worse pandemic with a much higher mortality rate such as Marburg or small pox will come about soon. Of course, they will “miraculously “ come out with a vaccine at the height of the next plandemic. The masses who are asses will rush to get this vaccine out of fear of dying from the disease. This vaccine will be designed to silently destroy people like the Covid Clot shot . The next plandemic will be damned if you do and damned if you don’t about taking the vaccine or not.
The only way to protect yourself is to get right with God by turning to the Holy Bible.
“full market rent is $2,300”
If the property value doesn’t goto 400K within two years… then it’s just $27600 a year in rent income. After expenses, maintanence, insurance, etc…looking around 10 years out to make a profit?
There’s many ways to profit from residential real estate. There’s a bundle of tax benefits that the holder enjoys, the taxes are only about $1,700 a year and property insurance is about $750.
At my purchase price, my cap rate is close to 8%. Historic cap rates are closer to 6%. I make a profit from day one and full market value is $335,000.
I have tax appreciation, and since the transaction is part of a 1031 exchange, my taxable cost basis is about half of the purchase price.
Most potential investors look at the circumstances all wrong, which is why they don’t get involved.
Bond Investors Brace for Supply Freight Train Before Fed Confab
1 hour ago
(Bloomberg) — The highest long-term Treasury yields in years are headed for a major hearing next week as investors place their bids for two risky auctions — right before the Federal Reserve’s potentially game-changing annual gathering at Jackson Hole.
A relentless Treasury-market selloff this month wiped out what was left of year-to-date gains that at one point exceeded 4%. Next week, the US Treasury will sell 20-year bonds and 30-year inflation-protected bonds, demand for which is notoriously unpredictable. If investors shy away, even higher yields will be needed to lure them back.
For most of the past two years, Treasury yields were led higher by short-dated tenors in anticipation of Fed interest-rate increases that have totaled more than five percentage points. Over the past month, though, long-maturity yields have taken the baton as focus has shifted to the labor market’s refusal to buckle, a still-elevated inflation rate, and an expanding supply of new Treasuries sold to close a growing federal budget deficit.
“No one wants to step in front of the issuance freight train, especially in the long end at the moment,” said George Catrambone, head of fixed income, DWS Americas. “There aren’t great reasons to front-run a hawkish Fed, additional supply and very resilient US economic data prints.”
The pain is registering acutely for bondholders, with a Bloomberg index comprised of Treasuries maturing in 10 years and more slumping 5.7% so far in August, on course for its worst month since September.
The coming week’s auctions are particularly worrisome because 20-year bonds and 30-year TIPS have smaller investor bases than other Treasury products, so demand will be closely followed for any hint the current rout is nearing an end, or perhaps has further room to run.
To be sure, some people have a soft spot for the 20-year, in part because it has long stood out as being the highest-yielding Treasury benchmark and traded above those on both 10- and 30-year bonds.
A key consideration around the 30-year TIPS sale is whether pension funds and insurance companies bite at a 2%-plus yield not seen since 2011. Some on Wall Street believe this group of investors, long absent from these auctions, may start returning.
Once the dust settles from the debt sales, the last full week of August — in addition to being a popular holiday week with few major economic releases — also features the Fed’s annual confab in Jackson Hole, which occasionally has been used to reshape market expectations for monetary policy.
A hawkish tone from Chair Jerome Powell Friday will likely test a bond market that still retains faith in rate cuts arriving next year. It’s a belief that explains why many fund managers favor owning the five-to-10-year area of the market, according to positioning surveys.
But a tug of war is playing out in the long end, where a surge in so-called real yields, insulated from the effects of inflation, represent the risk-free rate of return investors demand.
Investors want a higher premium for owning long-dated debt amid uncertainties over data that could prompt another Fed rate hike later this year and keep policy well above 5% in 2024. There’s also supply concerns as the Treasury boost sales to fund the fiscal deficit while the Fed withdraws from the market to shrink its balance sheet.
“The question of how much term premium needs to be priced is the big one,” Matthew Raskin, head of US rates strategy at Deutsche Bank, wrote in an email. “Some of the term structure models Fed staff use still have historically low longer-dated term premia, which seems … wrong.”
For Meghan Swiber, director of US rates strategy at Bank of America, the focus is on whether a resilient economy means the Fed’s current long-run policy rate estimate of 2.5% should be adjusted higher.
“At Jackson Hole, there is really going to be two points of focus,” she said. First, “how much if at all they need to adjust the Fed funds rate higher,” and the second is “where do they think these longer run rates ultimately have to be, which the back end of the curve is really struggling with.”
©2023 Bloomberg L.P.