Subject: Ross Rant Oct 17
I am afraid this is going to really upset all of you who understand monetary policy, how markets work, and fiscal policy, and market ramifications. The president of the San Fran Fed and the vice chairman of the Fed, in separate speeches this week, have now admitted that the Fed is so essential to funding the national debt that there is no possible way the Fed can stop buying Treasuries. The deficit is now so huge that there is simply not sufficient private market demand and capacity to fund all the Treasury auctions. It means the fiscal deficit is now so huge there is no possible way the private market can handle it, and there is no way the Fed can ever get out since the economy cannot grow fast enough at this point to keep up. They have now admitted that if the Fed were to ever stop its funding, the financial system would crash, and the asset bubble that is making us all wealthier in the stock market, would burst very badly. Employment would collapse, and rates would shoot up. The Fed never got out of the QE hole of $4 trillion from the 2008 crash, and now it is digging the hole far deeper. The San Fran president said she would not sacrifice jobs in order to get the stock market back into a real free market valuation. In short, she understands that to stop now would sacrifice jobs as badly as the virus has done, and so she is willing to see the stock market bubble continue ad infinitum in order to not have economic collapse. Think that through for a while. If this does not scare you, then you don’t get it. On the other hand, there is an implied Fed put in place now. There is also now federal government control of the stock market. While there will be volatility, and maybe some large declines from time to time, the Fed put remains in place keeping the bubble going at some level. One day this all ends very badly. That might be years away, but the central bank cannot be expected to sustain the stock and bond markets forever. The US Fed is not alone in this. All the major nation and EU central banks are doing the same, which just locks in everyone even more to avoid any one nation from thinking it can now go it alone on monetary policy.
Carmine Reinhart, the top economist at the World Bank, who co-wrote This Time Is Different, has just warned there is a major financial crisis coming due to the inability of many developing nations to be able to pay their debts. Around 60% is owed to China. This is a result of the debt trap China created through the Belt and Road program where they intentionally loaned huge amounts to poor countries to fund the big infrastructure projects China was building for them with Chinese labor. This gives China a lot of leverage over these countries politics. Now with the virus, none of these countries has any hope of repaying the debt. There are also loans from major US and EU banks. All of the big banks have granted these nation borrowers more time and other modifications, but that is only delaying the day of reckoning. She also warns that there are many loans from commercial banks that are to companies that will not be able to repay even when the world economy resumes some degree of normalcy. There is simply far too much debt all across the world, and one day it will see a lot of default. One good news thing- the US banks are in very strong capital condition and thanks to stress tests, the US banks are likely to survive this the best, but the overall impact on the world economy could potentially be very dramatic one day. This is why interest rates across the world will be kept low by central banks for several more years.
You ask so what does one do with their invested funds. Probably the stock market long term is best, but if the Dems get complete control, then I am sitting on cash and waiting it out. They will use other means to destroy equity values, and at some point, the moment will be right to get back into the market. Maybe 2022. I am already underway on my selling strategy. Part at a time as I still think Trump could win after the Hunter scandal, even with the press trying to hide and discredit it all. The polls in key states have Trump behind less than in 2016, and the economy is viewed as better now than in 2016. It is the economy stupid. The Hunter scandal is just like the Hilary email scandal in 2016 in October. This is the October surprise.
The Moody’s view is that the excess spending is needed to juice the economy right now, and to not do that will bring more unemployment. They admit that it is not a good solution as it runs up huge deficits and that will be bad, but in their view it is the least of the bad alternatives. I disagree. I believe that some deficit spend is needed, but only some, and raising taxes is absolutely the wrong thing to do now. If they go after real estate and high income people, and if they raise cap gains taxes, even if only for very high income investors, plus a wealth tax, it will cause the market to decline and then they lose the cap gains taxes they need to fill the hole of the deficit. I know from the feedback from many of you, that everyone will seek ways to not have to pay the higher taxes and in the end it will be what always happens, raise taxes too high, and the major taxpayers find ways to avoid the worst of the tax increase. In the end, it is the middle class who pays because the top income people don’t end up paying as much as the Dems projected, so then everyone has to make up the difference. Then one day Treasury rates rise too far and the Fed has to step in again, or the federal budget becomes unworkable. That is where we are headed if the Dems control everything. Moody does not really disagree if you read their 10 year forecast, and based on the private discussions I have with them. Moody’s does not adhere to the MMT theory.
Manhattan office remains with only 10%-15% occupancy. Ridership on mass transit is still down 70% +-, and keep in mind most people in office in Manhattan are knowledge workers of one type or another, banking and finance, law, accounting, advertising and media, or company headquarters. We don’t manufacture anything other than money and media, in Manhattan anymore. So most can remain working from home and avoid the commute, which in the winter in NYC is bad. In addition, the NY Metro System is insolvent and nobody wants to give them money. They need about $12 billion or there will be major service reductions which just compounds the aggravation of commuting into the city, or even within the city. Owning a major office property is not what I consider a smart place to be now. With crime now skyrocketing, there is even less incentive to come in. If Trump wins, there will be mass protests to the degree that the NYPD had ordered all non-uniform cops to report for duty in uniform after October 25 to be prepared for riots and looting. So who wants to come into Manhattan every day to that when they can sit safely at home and work efficiently. Even in other parts of the country now, court hearings, other than jury trials, are held on Zoom. There is no reason that will change back now as it is far more efficient and less costly to everyone. On the other end of the spectrum is Palm Beach, by some opinions now the hottest real estate market in the country. What that says is the big taxpayers are moving out of Manhattan and going to FL. That just digs the hole deeper.
One other result of what is happening in NYC and other major cities such as Seattle, Chicago, etc, is the urban hotel industry is going to continue to get crushed for at least another year or probably more. If you are thinking of buying a big urban hotel now, even at a deep discount, you need to factor in a very long period of feeding it cash before it even breaks even. Then you will need to do renovation sometime in the next few years in many cases. If you are thinking of buying multifamily properties in these major urban markets, the rent decline in many places has not yet hit bottom. Rebuilding occupancy, and then rents is not going to happen quickly. Urban retail and restaurants are in the same or worse shape. If offices are not filled, then the supporting small businesses cannot survive. In NYC, the commissioner is planning to “reimagine” policing. That is idiotic. The solution is broken windows policy as under Giuliani, and a tough crackdown on even small crimes. They need to get rid of no bail, and they need prosecutors and judges who put people in jail. That is what stops crime, not reimagining. The good news is there is an election next November for mayor, and the vice chairman of Citibank is likely the winner. He is just what we need to turn it around. So there is hope.
Industrial absorption nationally in Q3 is up 22.7% year over year for the quarter, and rents are up 2.5% YY, and 4.3% over the past 5 quarters. Industrial is strong, indicating the economy is strong with inventories being built up again. Industrial has been the place to be for owning real estate, and should continue to be good. Distribution warehouse is especially strong despite substantial construction. I have direct evidence of that from my Bayonne project, but also from the data.
In my view, as an investor, you always need to look at every investment and consider, what are my alternatives for my cash. 8 years ago, when I said most hotel investments were not the place to be unless you could buy select service in certain markets at deep discount, I suggested the stock market would be far more return on investment. Needless to say, nobody in the hotel industry wanted to hear what I was saying. Now here we are. Stock investors made a fortune, and hotel owners are going bankrupt. And stocks are totally liquid. Try to sell a hotel today at any sort of decent price.
Johnson has said he expects no deal with the EU, and a complete Brexit break at December 31. There is a very good chance that will happen. It will mean material chaos and economic impact on the EU.
I only watched snippets of the Barrett hearings, but she is brilliant and made fools of the Dems. She even told Klobachar at one point that her question made no sense. She shut down Harris and left Feinstein bumbling. She will make a great justice.
The FBI has had the Hunter computer since December. All they had to do was ask the manufacturer who registered that serial number when it was purchased. They can also determine which retailer was shipped the computer, and then ask the retailer for the sales receipt and credit card used. That will show if Hunter bought it. This is the easy stuff. Their computer forensics can easily determine the medidata source of the emails to see if they are legit. Barr needs to demand to see this information and make it public to end the speculation if it is real or not. They can also look at the receipt held by the computer store to see when it was received for repair to check his credibility. Lastly there has to be fingerprints and DNA on the computer. The FBI can determine whose they are. This whole thing can be cleared up by in a day. Why is Wray hiding this. If the emails are genuine, Biden is compromised and needs to be out of the race. If it is all Russian disinformation, we need to know that. One needs to ask since Joe is of modest beginnings, and has been a politician and academic teacher for 47 years, where did all the money come from for him to own multiple homes that are said to be “luxurious”. Let’s look at his bank accounts. Let’s see who paid Hunter and those bank accounts, and see where the cash came from, and where that account then transferred it to. The press is hiding this from voters. What Twitter and Facebook did censoring the news will cost the whole social media industry a lot. It was exactly what the Republicans have been warning about, and this was the inflection point.
In case you doubted free speech was under real attack-there is your proof.