Expectations Management
5-15-24
Opening Comments
My last note was about my epic line dance from 1990. The most opened links were my dance video and the story on ultra-processed foods to avoid.
All 50 States
Due to the power of the RR, a reader and good friend, Mike, got me a new subscriber in Alaska. The Alaskan reader had proven to be more elusive than a clear photo of Sasquatch but now the Rosen Report is officially read in all 50 states and 95 countries thanks solely to word of mouth. I had only invited 18 people to read the report in February of 2020. The rest has been organic. Thank you! In a funny aside, Mike was my training manager at Continental bank 32 years ago and we have remained friends.
We went over to my sister Debbie’s house for Mother’s Day Brunch and she took this picture of my children, Jack and Julia. Hard to believe he is 18 and she will be 17 in one month. Harder to believe he is almost 6’1” and she is 5’8.” Jack and Julia are incredibly close and very good kids. We are lucky.
I have a 3i Members golf outing at Boca Rio today so I am hitting send very early. I am excited to attend the event with a great group of people. 3i events are always fun and well attended. Boca Rio is where they have hosted an LPGA Tour event.
Markets
Meme Mania is Back
Seattle Increases Minimum Wage for Delivery With Consequences
Caitlin Clark Changing the Game
Stubbornly High Rents
Examples of Commercial R/E Discounts
Miami R/E Laws Impacting Older Condos
Newly Remodeled UN Plaza Condo for Sale
Video of the Day-Kenny Smith The Best Advice He Received
For those who do not know, Kenny Smith played in the NBA and was drafted 6th in the first round of the 1987 draft. He won two NBA titles with the Houston Rockets in 1994 & 95. In high school, Kenny thought he was special but his coach did not agree. The coach basically told him he did not have the work ethic to make it in basketball. How did Kenny respond? That summer he trained harder than ever and went from ZERO scholarships to a ton just months later. The coach could not believe the improvement in such a short time. Listen to the brief talk that all your kids should listen to about dedication and work ethic. I don’t care what you do in life, if you don’t have work ethic, you have an almost zero chance of success.
Expectations Management
I have written on the topic of Expectations Management before and feel it is crucial to be successful. A recent incident led me to write this theme piece. I had not played much golf in the past year. At one time, I was a pretty good golfer, but now my confidence is low given so few repetitions. I have back issues, and with my son, Jack, taking a break from golf, it means I am not on the course for hours each day anymore. I was scheduled to take a friend golfing Saturday morning for my first round since December. He cancelled due to food poisoning but I decided to go and play a few holes anyway.
On the first tee, I had no expectations and was there to have fun. I assumed I would play poorly and did not place any pressure on myself. I was loose and swinging freely. Despite an amazing drive on #1, I made an awful bogey after literally shanking my wedge. I followed it with a par despite a bad drive on #2, par on #3, par on #4, par on #5. So after 5 holes, I was +1. Given I had ZERO expectations going into the day, I was feeling good about myself and had far exceeded my expectations...up to that point.
Hole #6 was playing downwind and it is a par 5. On the tee, I had a bit of a swagger given my stellar play through 5 holes. In my mind, I started changing my expectations and thinking about shooting even par on the front 9 despite no golf in months. My relaxed demeanor changed. I gripped the club a little tighter. My heart rate was elevated and I felt more tension in my body. I proceeded to hit an AWFUL drive into the trees requiring me to re-tee. The short story is I made a 9 on the 6th hole. My expectations changed, placing far too much pressure on myself given my lack of playing time, and I paid the price. Although changing expectations based on results is human nature, it can clearly impact outcomes. I knew this, yet I made the mistake.
When it comes to managing talent, I feel it is imperative to manage expectations around performance and compensation. Early in my career as a manager, I did not do a great job and once wrote of an incident. I paid someone a $3mm bonus and he was livid, as he felt he deserved more. Just minutes later, I gave an assistant a $15k bonus and she started crying with joy, as she did not know she would receive a bonus. I had failed to manage each of their expectations.
As a result of this mistake, I started instituting a policy of two reviews a year (June and December) with positive feedback, areas of development and goals. Anyone in my organization received a sheet of paper with the outline. I have been hired by companies to help them grow and develop talent (a core competency of mine). I have shown them my review process that helps to keep everyone’s expectations on the same page. If you get an awful review in June, chances are your year end bonus or raise won’t be amazing. No one should be surprised.
Expectations Management is key to being successful both on and off the course.
Quick Bites
Wholesale prices rose .5% in April, relative to .2% estimates. Stocks were largely unchanged Tuesday post the news but rallied late in the day. Powell reiterated that inflation is falling more slowly than expected and expects rates to hold steady. Wednesday, CPI showed inflation easing in April with consumer prices +3.4% from one year prior. Treasury yields fell on the CPI data with the 2 year -7bps to 4.75% (recent high was 5.05%) and the 10 year -7bps to 4.37% (recent high 4.74%). Stocks continued to rally Wednesday and as of 11am, were +.5% to .8%, with the S&P and Nasdaq at all-time highs.
The idiocy of the meme stock is back after Roaring Kitty posted for the 1st time in three years. GameStop and AMC rallied massively over a couple of days. GameStop stock rallied from $17.31 Friday to $64.70 at one point Tuesday. While AMC stock went from $2.95/share Friday to $11.82/share at one point on Tuesday. This was all because the meme stock master, Roaring Kitty, posted a man leaning forward in a chair in what is meant to indicate that things are getting serious. Shorts lost billions on these meme stocks yet again. Let’s put it into perspective. On Tuesday afternoon, GME had a market cap of $16.1bn with trailing EBITDA of approximately $26mm. This indicates an EBITDA multiple of a mere 615 times. GME has since fallen down to a 500x EBITDA multiple. NVIDIA, the hottest company on the planet has an EBITDA multiple of 65 times and the S&P average EBITDA multiple is 15.1x. Anyone see an issue here? These companies need to sell shares at these stupid prices and raise money. I ask young investors to be careful. Take a long term view. Understand fundamentals. Note what happened last time when the stock went from $81 to $15/share in 6 days after the idiotic rally and sell off in 2021. We are seeing these stocks rally over 200% in 48 hours on nothing fundamental. Jay Clayton was on CNBC suggesting there needs to be some regulations around the idiocy.
I have written extensively about government intervention hurting markets and not resulting in the intended consequences. The 2019 NYC Rent Stabilization Laws is a perfect recent example. The US Healthcare disaster system is yet another of massive waste and runaway costs. Look at the state of education in many major cities and the spend per pupil relative to the ultimate education received and you will want to be sick. The recent minimum wage laws for fast food in California are creating havoc and now Seattle has made a mess with food delivery workers. I am for smaller government and a free market capitalist. For years, Gary Lardizabal made a living delivering food in the Seattle metro. But he says a new ordinance that went into effect in January is putting his livelihood at risk. The law, which was designed to increase pay for food delivery drivers, has resulted in a collapse of food orders. “I can’t pay rent. [Orders are] down 30 to 40%,” Lardizabal said. “This is not a living wage; this is a dying wage.” The legislation Lardizabal was referring to is PayUp, a 2022 law passed unanimously by the Seattle City Council that was intended to guarantee app-based drivers a “living wage” by mandating that drivers earn 74 cents per mile traveled and 44 cents per minute, or a minimum of $5 an order. Though the law raised the minimum wage of delivery workers to about $26 an hour (not counting tips), delivery services such as DoorDash and Uber Eats responded by increasing prices; a $5 fee was added to all orders placed through the apps. The result was an estimated 300,000 fewer orders, according to DoorDash, which led to $7 million in lost revenue for area businesses, not to mention lost income for drivers.
Caitlin Clark has had an amazing impact on women’s sports and the WNBA. However, there are some serious haters jealous of what she is doing. This WSJ article puts Clark’s impact on TV ratings into perspective “ Caitlin Clark Is Already the GOAT of TV Ratings.” Michael Jordan drew millions more viewers to NBA games. Tiger Woods provided a striking lift to ratings for pro golf. And Serena Williams made Grand Slam finals into must-see events. But none of those superstars, or any other athlete in modern sports history, can match the television impact of a 6-foot ponytailed college grad who has yet to play a single professional game. When it comes to sports TV, Caitlin Clark is the GOAT. Clark is literally changing the game for the WNBA. The league announced they will start using charter planes for travel rather than commercial. Do you think the Clark effect had anything to do with it? I do. Caitlin, I hope to see you shine in the WNBA and I will actually be watching it happen.
Israel/Middle East
I went into detail two months ago in my “Power of Networking” piece about why the civilian deaths out of Gaza were overstated and manipulated. This was undeniable. The UN just came out slashing their estimates of civilian losses relative to the numbers out of the Hamas controlled regime. The UN also stated that 40% of the civilian losses were men, 32% children and 20% women. Hamas claimed 14,500 children and 9,500 women were killed, while the UN report suggested 4,959 woman and 7,797 children were killed. Yes, war results in civilian deaths. If Hamas did not rape and murder women and children on October 7th and take hostages, this would not have happened.
Biden Blasted After Withholding Key Intel From Israel To Keep Forces Out Of Rafah
The Biden Administration does not exactly treat Israel as an ally.
Only Israel Is Not Allowed to Defend Itself
Blinken joins in the war against Israel’s right to self-defense.
Turkey's Erdogan defends Hamas, claims over 1K members are at his country's hospitals
Israel pushes deeper into Rafah and battles a regrouping Hamas in northern Gaza
Jerry Seinfeld booed by anti-Israel protesters who walk out of his Duke commencement speech
After making deals with protesters, universities are granting hearings on Israel divestment
I cannot believe what is happening on campuses and university administration offices. Schools are meeting to divest in Israel. I want you to think about something. Jews account for .2% of the population and have 22% of Nobel Prizes. Israel and Jews have done so much for the world, yet get vilified and are hated. We need more consequences for bad behavior.
Anti-Israel Columbia grads wear zip ties, rip diplomas on stage during commencement
Who would ever hire these kids?
Florida Dentist Who Called for Death of Jews Could Lose His License
No ‘credible plan’: U.S.′ Blinken issues harshest criticism yet of Israel’s Gaza operations
Other Headlines
Inflation outlook rises, fueled by expected increases for housing costs, New York Fed survey shows
I talked about auto delinquencies in my last note, but thought this chart was better.
Construction Industry Braces for Impact as Copper Prices Rise
Cocoa prices tumble 19%, giving up a chunk of their record-setting gains
Ford Cuts Battery Orders as EV Losses Top $100,000 Per Car
As EV prices have plunged and demand has slackened, Ford’s losses per EV exceeded $100k in the first quarter, more than double the deficit from last year.
Google rolls out its most powerful AI models as competition from OpenAI heats up
When Social Security started in 1935, there were 40 workers per retiree. Now there are three. $35 trillion in debt, over $1 trillion in annual interest, $2 trillion deficits in perpetuity and a rapidly aging population. What could possibly go wrong?
Jamie Dimon urges the U.S. to deal with its deficit sooner rather than later
Novavax stock jumps 50% as Sanofi deal kicks off turning point for struggling vaccine maker
SoftBank Vision Fund posts first annual gain in 3 years, up $4.6 billion
I am critical of the management team as I feel they are careless. Wins were ByteDance, DoorDash, and Arm.
Jersey Shore swamped with 80,000 Maga supporters as Trump gets nasty, brands Biden a total moron
Trump’s base is emboldened. I am not sure Biden could get 80,000 supporters to a rally unless he paid them. Trump sure has a lot of flaws, but very loyal followers.
Cohen Testifies Trump Told Him to Drag Out Hush-Money Talks: ‘Get Past the Election’
I am in shock this is the case to go after for a former President. A key witness, Cohen, is a a convicted criminal who lied and was disbarred. Not exactly the ideal witness for the prosecution. Go after Trump on the real stuff. I just don’t think this is one of them. Cohen testified Trump told him Federal Election probe would be “taken care of” by AG-Jeff Sessions.
Biden challenges Trump to pair of debates — but only on his terms: ‘Make my day, pal’
The proposal is two debates (June/Sep), no live audience, mic cuts off after you hit your time.
How is it possible that someone has 37 arrests? He is violent and mentally disturbed. He needs help, not extra chances. He threatened his sister with a pipe after she brought him food.
Accused has 14 arrests. Makes sense. How many times has the system failed due to woke policies? How happy am I that I sold my Park Avenue Co-Op in 2016 to buy in FL? I saw the writing on the wall, but in truth, had no idea it would be this bad.
Absolutely ridiculous. Deport them.
Suspect who randomly attacked actor Steve Buscemi in broad daylight identified by NYPD
To make these crimes stop, there must be consequences. Catch them and hold them accountable.
Pumping iron for a fitter brain: Weight training has surprising cognitive rewards
Nearly half of all cancer cases are linked to obesity
Study finds excess weight could be fueling more than 30 types of the disease. Note almost 70% of Americans are overweight. It is absolutely ridiculous.
Real Estate
Interesting WSJ article entitled, “Stubbornly High Rents Prevent Fed From Finishing Inflation Fight.” Stalled inflation this year hasn’t derailed the Federal Reserve’s plans to eventually cut interest rates. That’s because it expects a slowdown in housing costs to eventually drag inflation close to its 2% target. The problem: It has been waiting for that slowdown for 1½ years now, and it still hasn’t arrived. But some analysts worry it’s not going to happen because of changing dynamics in the housing market. If so, that would significantly weaken the case for lower rates. Housing has played a large role in the inflation of recent years because its cost rose so much and carries such large weight. It is one-third of the consumer-price index and around one-sixth of the price index of personal-consumption expenditures, the Fed’s preferred inflation measure. It is also, in theory, predictable. Government statisticians don’t use home prices to calculate inflation because a home is partly an investment. Instead, they use monthly rents to capture what tenants pay to rent a house or apartment, and what a homeowner would in theory pay to rent her own home. Housing “has not behaved the way we thought it would,” Chicago Fed President Austan Goolsbee said in an interview last month. “I still think it will, but if it doesn’t, we’re going to have a hard time” bringing inflation back to 2%.
More examples of commercial real estate under siege. Burnett Plaza, the tallest building in Fort Worth, Texas, has been purchased via foreclosure auction for $12.3 million just three years after it was sold for more than $137.5 million, according to the Dallas Business Journal. The 40-story behemoth was bought back by Pinnacle Bank Texas in the auction held on the steps of the Tarrant County courthouse on Tuesday. Investor sells Illinois shopping center at a $60M+ loss. LaSalle Investment Mgmt sold Geneva Commons for $64M. They acquired it for $124M in 2013. Barry Sternlicht's Starwood Capital has recently defaulted on 3 loans tied to Chicago area malls totaling $232M. This WSJ article is entitled, “The Office-Market Meltdown Comes for Trump’s Prized Wall Street Building.” Trump bought the 63 story tower for $5mm for a long-term lease in 1995 when the vacancy rate was 5%. Today, it is 21% with the 23,000 sq. ft. former Duane Reade store no longer in the retail space on the ground floor. Trump’s loan is at 3.7% and comes due in July 2025. To refinance it would be above 7% today. Interesting article on the state of play for once hot properties. This Real Deal article shows Charles Cohen is in trouble on multiple NYC buildings. Charles Cohen is looking at another foreclosure filing — the office landlord’s second in two weeks.
The special servicer on $130 million in CMBS debt backed by 750 Lexington Avenue filed the action. Less than two weeks ago, Fortress Investment Group moved to foreclose on the equity interests in a $548 million Cohen portfolio after the billionaire failed to make debt payments.
The Miami Beach collapse of the condo building has forced new laws that are wreaking havoc on the condo market. Remember, many of the owners of these units are elderly and acquired the condos years ago for little money. Now they are facing special assessments for more than they paid for the condos as outlined in this WSJ article entitled, “New Florida Law Roils Its Condo Market Three Years After Surfside Collapse.” Ivan Rodriguez leapt at the chance to buy a unit at the Cricket Club, an exclusive bay-front condominium in North Miami. In 2019, he liquidated his 401(k) retirement account to purchase a nearly 1,500-square-foot unit with water views for $190,000. But because of a recent state law that requires older buildings to meet certain structural safety standards, the condo board recently proposed a nearly $30 million special assessment for repairs, including roof replacement and facade waterproofing. It would amount to more than $134,000 per unit owner. Rodriguez, 76, didn’t have the money. So he reluctantly put his two-bedroom condo up for sale, joining dozens of others in the building who are doing the same. After originally listing his unit for $350,000, he kept marking it down until finally it sold for $110,000 last month, or 42% less than what he paid for it. Condo inventory for sale in South Florida has more than doubled since the first quarter of last year, to more than 18,000 units. While the sharp rise in Florida home insurance costs is driving some to sell, most of the units on the market are in buildings 30 years or older. Under the new law, buildings must pass milestone structural inspections no later than 30 years after they are built. A reader told me his mother has a unit in Miami Beach that generally has a $5,000/month maintenance and they added an incremental $8,000/month fee for 2 years to get the reserves up and a leaky fountain fixed. An incremental $96k/year crushes those on fixed incomes and pushes the price of units lower.
A reader sent me this NYC apartment as an example of value. I personally would never live in this location (UN area), but the condo is very nice. It was never lived in because the husband died before it was finished. First listed at $7.8 mm and is listed for $5.9mm (can get it lower). She has $10mm+ in it and everything is brand new. 845 UN Plaza 75B. 2,857 sq ft, 3 beds 3.5, baths. I am a downtown guy. I would never live uptown again; however, this is a very nice apartment. I am told the condo sold on Tuesday in the low $5mm range but have not confirmed the price.
© 2024 The Rosen Report LLC. All rights reserved. Does not constitute investment, financial, legal, or tax advice. Consult with your lawyers and professional financial advisers. Rosen Report™ #682 ©Copyright 2024 Written By Eric Rosen.
