Kids Don't Want to Drive Today-Also SVB
3-12-23
Opening Comments
Great feedback from my last piece, “FICO-How the Hell?” I received hundreds of emails from readers complaining about low FICO scores despite no debt, paying cards on time, and ample savings/cash. Clearly I am not alone in my frustration. A reader is connecting me with the CEO from FICO next week, and I will have updates as a result, given the interest from the Rosen Report community. The power of the connectivity of the Rosen Report.
I have written extensively on the market and my concerns about stocks relative to where I think they should be. My assets are 70% in Treasuries between 3 months and 3 years. Yes, I bought some 2-3 year Treasuries 60 days early, but feel good about reducing my equity exposures and my staggered, front-end Treasury position.
I want to remind readers that some email systems truncate the Rosen Report and require you to “View the Entire Message,” by hitting the link.
Video of the Day-Clips of My Interview on SVB and Related Matters
Markets
Bank Stocks Under PRESSURE-Expanded Section on SVB and Implications
Joe Biden Tax Proposal
$155mm Palm Beach Sale & $200mm ask for Land
Elon Musk’s Own Town Near Austin
Videos of the Day-My Interview on SVB and Related Matters
I was asked by my friends at Prometheus for my thoughts on SVB (Silicon Valley Bank) and the impacts at about 10am on Friday and did a short interview. Here are some excerpts. This was PRIOR to the FDIC news and I made it clear that SVB had hours not weeks. I explained why. Good topics covered and broke it out for you to listen to what interests you most. I hope you find them informative and helpful.
Eye on the Market-Mike Cembalest on SVB
Again, Mike goes into details with great charts. The piece suggests SVB took a lot more risk in deposits and assets than the basket.
Kids Don't Want to Drive Today
My son, Jack is 17, and my daughter, Julia is 15-years-old. Both now have their learners permit, and we are “kind of” working on driving. They are just not that into the process. It brings back memories of me learning to drive. Recently, I took Julia to an EMPTY parking lot to start her driving journey. She was so excited and nervous, and it was fun for me. She did a respectable job, but let’s just say she is a ways away from being ready to park between cars. Her first foray into parking did not exactly go as planned, but the lot was empty for a reason. Jack has driven with me a dozen times but does not seem super interested for some reason. Given my desire for independence at his age, maybe I need to get our DNA checked. We could not be more different with the desire to drive at that age.
According to a WaPo article on Yahoo, 60 percent of American 18-year-olds had a driver's license in 2021, down from 80 percent in 1983, according to data from the Federal Highway Administration. In that same period, the number of 16-year-olds with licenses dropped from 46 percent to 25 percent. The allure of independent mobility might be dimmed by the digital connectivity that didn't exist when previous generations came of age. Teens can summon an Uber or Lyft with the tap of a finger. Parents can monitor a child's every move through an app. Phones are at once a potential distraction behind the wheel, and why teens might feel less motivated to drive in the first place: When hangouts can happen at any time online, there's less urgency to meet up with friends in person.
This NY Post article is entitled, “My Gen Z kid refuses to get a driver’s license — it’s driving me nuts,” and gives a bunch of data and stories about kids unwilling to take the time to learn to drive.
I started driving very young, as my friends were all older and partied. They would come pick me up to go surfing at 4am, as we had to drive up to three hours to get to the good waves. When I was 14-years-old, they expected me to drive the full trip on I-95, and I did. I had no permit, and they were drunk or tired and refused. I remember Byron telling me, “It is my car, and I am the eldest. I nominate Eric to drive us.” By the time 16 came around, I was like Mario Andretti. Now, I am working on teaching my kids how to handle a car and it is nerve wracking and exciting at the same time.
I wrote a section recently about independence, and how it changed over time. When I was a kid, having a car was all I cared about. It gave me the independence to work, go on a date, go surfing and not be reliant on my mother. Today, kids are far less focused on driving. Their independence comes from their smart phones to hail an Uber, connect with friends, Facetime, Snapchat, search the internet…. and TikTok. I got my permit and license within 24 hours of turning 15 and 16. My kids, not so much. My son got his permit 9 months after turning 15 and only after I guilted him into it.
I started working at 11-years-old and saved enough money to buy my own car just before my 16th birthday. It was a 1980 Toyota Celica 5-Speed, and it was an awful car. The salesman took advantage of an eager 15-year-old kid, and I bought a lemon which had a massive trunk leak. However, it offered me independence, and I thought it was the best thing ever…until my friend got his brand-new car and mine was no longer so hot. What was I thinking that this car looked good? It was brown!
Given kids’ addiction to smart phones, I am concerned about them driving and looking at the phone. I have written countless times that I feel phones have been far more detrimental to children than helpful and do worry about the kids feeling the need to check the phone while behind the wheel. In the end, necessity is the mother of all invention and at some point, the kids will take driving more seriously. In the meantime, my wife and I are effectively Uber drivers.
Quick Bites
Stocks tumbled Friday as tech-focused lender Silicon Valley Bank shut down following losses in its bond portfolio, prompting the biggest bank failure since the global financial crisis and sending shockwaves through the banking sector.
The Dow dropped for a fourth consecutive day, finishing 345 points lower, or 1.07%, to close at 31,910. The S&P 500 lost 1.45% to settle at 3,862. The Nasdaq shed 1.76% to end at 11,139. The Dow fell 4.44% to post its worst weekly performance since June. The S&P dropped 4.55%, while the Nasdaq lost 4.71% on the week. YTD, Dow -3.7%, S&P-.6% and Nasdaq+6.4%. Treasuries rallied on weaker stocks with the 2-year yield falling over 10bps on Thursday and 30bps on Friday. This is the biggest 2 day move since Lehman! The 2-year yield is now 4.59% after being 5.06% on Wednesday. However, the 2/10 curve was still around -100bps Thursday before falling to -90bps on Friday. The massive rally in 2 Years on Friday is telling me 25bps, not 50bps at the next Fed meeting. Additionally, Eurodollar Futures are suggesting 50bps of CUTS by year end 2023, this is up from ZERO Wednesday. I had called adamantly for cuts in 2023 and softened it from a base case to a 25% chance in recent weeks, and now the market is back to cuts by end of year. The jobs report showed 311k rise in payrolls relative to 225k estimate, but hourly earnings only rose 4.6%, below the 4.8% estimate. Crypto is bank under pressure after a nice run on the heels of Silvergate liquidating. BofA had a report on the consumer with respect to card spending, and they saw a “sharp deceleration” on spending on restaurants. I have been adamant the consumer will roll over and this is a good data point
RDI-6.5 (+2.5 on the week). If other regionals are taken over by the FDIC this week, I can see the RDI at 8+, something I did not think would happen prior to the summer. This link explains RDI=Rosen Depends Index.
Bank stocks have been under pressure for a host of reasons. Rising rates and fears of economic slowdown are clearly weighing on bank sentiment. The curve inversion is not helping matters with front end rates sharply higher than out the curve. Signature Bank, 1st Republic, Pac West and SVB have been hit incredibly hard. SVB (15th largest US bank by deposits) announced a $1.8bn loss on recently sold securities and the need to raise capital which sent the stock -60% Thursday and another -60% over night which forced the FDIC to take over the bank. Customers withdrew $42bn on Thursday. Don’t forget about Silvergate Capital liquidating which further hurts sentiment and crypto. The regionals have been hit harder than the major banks. I put together a chart below to show the moves. Bank stocks are important to watch. As rates rise, fears of recession grow, and banks will be taking reserves on future losses. Commercial R/E fears, especially office markets are adding to pressures. Additionally, banks are pulling back lending which further exacerbates the situation for consumers and corporates. Roku had $480mm deposits with SVB. Others listed include: BlockFi, Roblox, Ginkgo Bio, iRythm, Rocket Lab, and others. Etsy warns sellers of delay in processing payments due to Silicon Valley Bank collapse. This Market Watch article lists other banks sitting on large security losses.
It is hard for me to recommend leaving large deposits in regional banks. It is not because they are bad banks, but if the dispositors want their money back and undrawn facilities are borrowed, you can get screwed as the person who did not pull out of the bank. Financial institutions do not last long when depositors fear losing money. Bear Stearns and SVB are two examples where liquidity was gone in a matter of hours. As a risk manager, I think of the asymmetric WRONG WAY risk. There is no upside other than the return of your capital. The downside is you lose significant money. I take asymmetric right way risks and do my best to avoid the asymmetric wrong way risks. Thursday and Friday, I advised my clients and friends to withdraw deposits at regional banks to be prudent. Big banks like JPM, BAC, Citi are getting substantial deposits in recent days. Janet Yellen talked of concern of a “few banks’ on Friday. I am not sure what will quell the markets, but everyone I speak with has or will be pulling cash out of the regional banks, and some are likely to lack the liquidity to meet the demand. I fear that the Fed or FDIC will need to have some kind of backstop mechanism, as the regional bank deposits are likely to get pulled early in the week. I am not a big fan of government intervention, but am concerned for the ramifications if SVB happens in other regional banks. Wait until these banks see the redemption requests Monday am. I am not convinced some will be able to meet the withdrawal/funding demands. This 18 second Simpson’s cartoon sums it up perfectly.
I am told (not confirmed) that approximately 50% of SVB assets have been sold as of Saturday. I believe the depositors will get the $250k FDIC insured amount Monday and another approximately 50% by mid-week given the asset sales if the color I got proves true. The remainder is likely to take months and I am not convinced they get 100% back. Additionally, I was told (not confirmed) that your borrowings are allowed to offset your deposits. If you borrowed $10mm from SVB and had $15mm in deposits, you are now only owed $5mm. I am hearing some SVB deposit claims may have traded in the 70s for perspective. Need to confirm.
Venture is under pressure and getting funding is extremely challenging in the start-up world. One of SVB’s businesses was to fund start -ups through loans partially based on the amount of equity raised. With funding for start-ups harder to come by today and SVBs troubles, it will be even more challenging to get funding. See “Mass Extinction” story. 50% of US Venture bank Tech or Health Science start ups bank with SVB according to the website. The ramifications of this are major. There will be many companies unable to make payroll due to the SVB collapse as deposits and undrawn loans were with the bank. There is a story going around on Harry & Meghan having a lot of money in SVB as well.
I feel contagion is real, and the chart tells you a good deal about regional banks. I got dozens of calls from people/companies pulling a billions of deposits from regional banks. As an aside, there is a CNBC story which suggested SVB employees received bonuses hours before the government takeover. First Republic is not the only other one of concern.
President Joe Biden is proposing a series of new tax increases on billionaires, rich investors and corporations in his latest proposal for how Congress should prioritize taxes and spending. Biden’s budget request to Congress calls for a 25% minimum tax on billionaires. The plan would also nearly double the capital gains tax rate for investment to 39.6% from 20% and raise income levies on corporations and wealthy Americans. President Biden’s annual budget plan calls for roughly $5.5 trillion in tax increases over the next decade to offset proposed spending increases — including a massive 5.2% federal worker pay raise. The Biden proposal would require that the richest 0.01% of Americans pay at least a 25% tax rate. It would also increase the top tax rate for Americans making $400,000 to 39.6% from 37%, reversing one of Trump’s tax cuts. It additionally calls for investors making at least $1 million to pay that 39.6% on their long-term investments, which are currently taxed at a 20% rate. I just cannot fathom this can pass in any form close to the proposal, given a Republican Congress. The CRFB suggests the proposal will lead to $51 trillion in national debt by 2033.
Other Headlines
CNBC’s Jim Cramer urged viewers to buy Silicon Valley Bank stock last month
Stock was $320 when he was recommending it.
Oracle shares sink nearly 5% after third-quarter revenue miss
DocuSign Shares Slide 23% as Margins Face Scrutiny (-47% in past year)
Saudi oil giant Aramco posts record $161 billion profit for 2022
DeSantis plays graphic video of ‘pornographic’ books found in Florida schools at press conference
DeSantis did this to prove a point. It was so vulgar that Twitter slapped a sensitive content on it and a Tampa based TV station dropped the live feed. DeSantis was showing books that are available in schools for young children how how obscene they were. I would not want my young child reading about this in the school library.
New York prosecutors indicate Trump criminal charges likely, report says
Senate GOP leader Mitch McConnell hospitalized after fall
So, three senators have been hospitalized in recent weeks. (McConnell (81), Feinstein (89) and Fetterman (stroke related depression). Maybe we have some age limits and cognition requirements to hold major office. Just a thought. My age limit would be 70 at the time of taking office.
DeSantis privately acknowledges he will run for president in 2024
I am in the anyone but Trump, Biden or Harris camp. Polls suggest Trump wins the Republican Primary easily as the number of Republicans running increases. I hope these polls are wrong.
Black couple’s home appraises for $500K more —when white pal poses as owner
Pregnant Chicago woman killed while trying to pull off robbery
Unbelievable. A 7-month pregnant woman and her boyfriend tried to rob drug dealers and she was killed along with the baby. Gotta read this story to believe it. The drug dealers left cash on her dying body, and her boyfriend grabbed it an ran.
NYC judge went easy on gangbanger now charged in shooting near school
Car thefts hit 1 million in 2022 due to weak enforcement and juvenile offenders
San Diego teen high on salvia survives 60-foot fall
Crazy story. Never had heard of this hallucinogenic plant. The incident nearly killed the boy who required 62 pieces of hardware inside his body and breaking countless bones.
Accused NYC rapist was free because no one told court he blew plea deal in assault case
Crowd cheers while cuffed suspect topples NYC cops, runs
Welcome to the new America where people cheer police getting hurt. Pretty disgusting.
NYPD cops resigning in new year at record-breaking pace — with a 117% jump from 2021 numbers
Villify cops and push to defund, and look what happens. The city is less safe as a result. I can’t figure out why the wealthy are leaving NYC, Chicago, LA, SFO… in droves. Can you?
Six dead in shooting at Hamburg Jehovah’s Witness center
You just don’t see many mass shootings in Europe.
French Senate Votes To Raise Retirement Age From 62 To 64
Right decision despite the unions. Quite frankly, the age should be closer to 70 in my opinion. The average person in France lives to 82.2 years and is up 13 years since 1960.
Alaska volcano dormant for a century delivering ominous warning signs: 'Significant unrest'
Daughter turns father’s 11-year-old thriller novel into a bestseller with viral TikTok
The power of social media is amazing. A book which sold a few dozen copies in 11 years, sold 650k copies after the author’s adult daughter posted a 16 second TikTok video which was viewed 15mm times in a few days. Can someone make a viral TikTok about the greatness of the Rosen Report?
IQ scores in the US have fallen for the first time in decades, study suggests
Vinyl Records Outsell CDs for the First Time Since 1987
An $18 million Ferrari leads record classic-car auction at Amelia Island. See all 10 top sellers
Tiger Woods' Ex-Girlfriend Erica Herman Sues Golfer's Trust for $30 Million After Breakup
Herman is trying to suggest her NDA should be null and void due to to the “Speak Out Act” which protects victims of sexual assault or harassment. I have no clue what is going on here, but the story does not read well.
Netanyahu raps IAEA chief, claims Israel free to attack Iran’s nuclear sites ‘in self defense’
I have called for higher oil despite the economic slowdown due to supply issues. IF Israel attacks Iran, oil goes higher in a hurry and based on saber rattling in Israel, the potential seems to have gone up in recent weeks.
Real Estate
I have written extensively about South Florida R/E and the fact that the uber high-end in Miami and Palm Beach remains well sought after. There is limited inventory and lots of demand. As long as NY, NJ, CT, IL, CA, DC… continue to overcharge residents for a poor quality of living, the migration will continue. Rush Limbaugh’s estate sold for $155mm. It has 250ft of ocean frontage and direct access. The estate has multiple structures on the 2.7acres. Limbaugh bought the estate for $3.9mm in 1998. It turns out William Lauder bought the Limbaugh estate. In a related matter, William Lauder listed a 2.3 acre lot with 360 feet of ocean frontage for $200mm. This is a lot with NO STRUCTURE and the listing is here. I am not suggesting it sells at almost 100mm/acre, but the point is simple around the demand for ultra high-end property in South Florida. I believe Lauder bought the two lots for $29mm and $110mm in the past couple years. Each week, I am contacted by more incredibly wealthy people who have recently moved or are trying to relocate. I am shocked at the wealth. The people have hundreds of millions or billions who continue to reach out to me with questions. Hate Florida all you want, I just don’t think the overall quality of life, cost of living, weather, taxes, pro-business, lack of mandates… comes close in the Northeast, Midwest or California. Sternlicht agrees, the migration is not done. The latest NYC tax proposal on wealthy will only push more wealthy to leave.
WSJ article entitled, “Elon Musk Is Planning a Texas Utopia—His Own Town,” which is called Snailbrook outside Austin. Elon Musk is planning to build his own town on part of thousands of acres of newly purchased pasture and farmland outside the Texas capital, according to deeds and other land records and people familiar with the project. In meetings with landowners and real-estate agents, Mr. Musk and employees of his companies have described his vision as a sort of Texas utopia along the Colorado River, where his employees could live and work. Executives at the Boring Co., They say Mr. Musk and his top executives want his Austin-area employees, including workers at Boring, Tesla Inc. TSLA, and SpaceX, to be able to live in new homes with below-market rents. Must be nice to be so wealthy you can create your own town with your own rules. Maybe if the Rosen Report grows to 1 billion subscribers and each pay $5/month, I too can have my own large town for my subscribers.
Other R/E Headlines
A look inside a $22.5 million Miami condo with insane luxury amenities
Place looks amazing and comes with a $1.2mm beachfront cabana. The condo is 6,200 ft, and the amenities are insane. Show me what you get in a high-end building in NYC. Video link shows the apartment and building.
Clean energy exec selling oceanfront Miami Beach property for record price
3-bedroom, 4,800 sq foot condo bout for $2.9mm in 2017 sold for $7.9mm.
A 50% rent increase? Record property demand in Dubai is creating a nightmare for some residents
Crazy CNBC article. Gives examples of rents +60% and suggests YTD +27.7%. Dubai real estate is on fire. I saw a 500 square foot studio on-line for almost $4k/month.
Virus/Vaccine
Fauci Responds to Ex-CDC Director’s ‘Disturbing’ Lab-Leak Suppression Accusation
In terms of Fauci, he has negative credibility with me. I don’t trust him for a second.
I can’t believe your son doesn’t borrow your 442 olds 🔑 & take it to school . His dating scene will exponential soar ! Car is a chick magnet 🧲!