Opening Comments
I have a good, succinct summary of the FTX debacle today (Quick Bites) after listening to Brian Armstrong (CEO of Coinbase).
I have not played golf in almost 6 weeks, as I am worried about my back again. I fish while Jack golfs, and the fish had not been biting. However, last Saturday, the fishing was solid, and I got quite a few bass and one other “thing.” I cast the rubber worm and got something big. It was not a fish. Someone threw a flag stick into the lake years ago and I caught it and could not get the hook out of it. Let me tell you, it smelled awful. Here is the 1st decent bass of the season as well.
Picture of the Day-Election Related
Borat & Me at Barney’s
Quick Bites
Markets
Inflation Declining
Household Debt Ballooning
Carl Icahn Negative Market Views
FTX in Simple Terms from Brian Armstrong
Retail Update
Other Headlines
Crime Headlines
Real Estate
Miami Traffic Update
NYC Condo Sales-Impressive
Homebuilder Sentiment Awful
Other R/E Headlines
Virus/Vaccine
Picture of the Day-Election
One week after the polls closed and look at the percentage of votes counted in California. How is this possible in 2022? Some districts are 35%, 40%, 50%. Why? Regardless of the GA runoff outcome, the Senate will be controlled by the Democrats. On the House, it seems as though the Republicans should have a slim majority and Kevin McCarthy won the nomination for House Speaker, but the final vote remains in 2023. Again, the election was a big win for Biden/Democrats, as the Red Wave did not materialize and Trump, McConnell and poor messaging are to blame for the Republicans. With the backdrop of inflation, consumer confidence, crime, economic concerns…I felt the Republicans would have fared far better getting 51 Senate seats and 227+ House seats. Sen. Rick Scott is running to unseat Minority Leader Mitch McConnell as the top Republican in the Senate, he announced in a note to GOP colleagues Tuesday. Trump launched his 2024 campaign, much to my chagrin. I am uncomfortable with Trump and am hopeful DeSantis enters the race despite Trump’s objections. Ken Griffin called Trump a “Three-Time Loser,” and asked him to step aside for DeSantis. On the Democrat side, I would like to see a different candidate than the existing President. Come on Jamie. America needs you after 6 years of clown shows.
Borat & Me at Barney’s
In 2000, I really got into the HBO series, Da Ali G Show, where Sasha Baron Cohen played three characters, Ali G, Borat and Bruno. My office was hysterical about it, and we would discuss the show after it aired. The show had not caught on in wide spread fashion, but I felt the Cohen was funny and could not believe his ability to stay in character.
Ali G Borat Bruno
I loved the show so much, I pushed my wife to dress up like AliG, while I went as Borat for Halloween around 2004.
Back to the story. I believe it was 2003 and I went to Barney’s for a big sale in NYC. I was walking around the multi-level store and froze. It was Sasha Baron Cohen and his then girlfriend, Isla Fisher (Wedding Crashers).
I don’t get star struck and really would never bother a famous person. I want to respect people’s privacy. However, I could not resist and was taken that no one noticed him, as the store was eerily quiet. I watched him for a minute and he was trying on crazy hats and Isla was laughing. I decided to walk up to Sasha and I said, “I don’t mean to bother you, but want you to know I am addicted to the Ali G show. My office goes over the skits the next day and just can’t get enough.”
Sasha, replied, “Thank you. I am surprised you recognize me, as I don’t get stopped often.” He shook my hand, and I tried to walk away as I did not want to create a scene. I was taken that he is very tall at 6’3,” especially relative to Fisher who is 5’3.”
Cohen would not have it. He asked me my name, profession and my favorite episodes. I was having a full-on conversation with Sasha and Fisher and was so excited that it was hard to contain myself. I said, “I just don’t understand how you stay in character while interviewing famous people about such silly topics.”
He laughed and said, “Sometimes it is hard not to laugh about things I do, especially after seeing the reaction of whoever I am speaking with at the time.” He interviewed Trump, Newt Gingrich, Boutros Boutros-Ghali, Buzz Aldrin, Evert Koop, Sam Donaldson and others while he was in character, AligG (see below). Cohen created incredible awkward/unprofessional situations that were so painful, it was almost challenging to watch. Trump figured out it was a farce and walked out in short order, but most interviewees had no clue.
My conversation with Cohen lasted maybe 10 minutes, and I had to do my Borat impression for him. He stood there deadpanned and then smiled and said, “Pretty good.” My day was made, and I could not have been happier. He and Fisher were so lovely and welcoming. I felt awkward about the amount of time I spent and thanked him. Wedding Crashers had not come out yet, so I did not know who Fisher was at the time. I loved that movie too. Had I owned a smart phone at the time, there might be a picture.
Quick Bites
Stocks fell on Wednesday as investors weighed a gloomy holiday quarter update from Target that pressured retail stocks. The S&P 500 ended the day down 0.83% at 3,959, and the Nasdaq shed 1.54% to 11,184. The Dow Jones Industrial Average wrestled with the flat line all day, but finished down 39 points, or 0.12% at 33,554. The S&P is now-17% and Nasdaq -28% YTD. The 10 Year Treasury fell another 11bps and is at 3.68% after hitting 4.21% in the past 10 days. It was driven by retail sales numbers today. Oil dripped down over 1% as the Druzhba pipeline from Russia to Hungary reopened and rising COVID cases weighed on China sentiment.
The producer price index (PPI) rose 0.2% in October, below the 0.4% estimate.
A significant contributor to the slowdown in wholesale inflation was a 0.1% decline in services, the first outright decline in that measure since November 2020. On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September. In other economic news, the Empire State Manufacturing Survey for November registered a reading of 4.5%, much better than the estimate for a -6% reading. I have been crystal clear on my call here, and the chart clearly shows the sharp decline as I suggested. A ways to go, but the trend is notable. Recent inflation data will force the Fed to have a discussion. I still feel 50bps is likely, but after that, I fear they will become too aggressive. Hoping for a more dovish tone in the next 60 days. I am not convinced inflation will go back to pre-pandemic levels near term. However, Fed’s Daly sees rising another 100bps as “pausing is off the table.” She believes the Fed Funds range is 4.75-5.25%.
Households increased debt during the third quarter at the fastest pace in 15 years due to hefty increases in credit card usage and mortgage balances, the Federal Reserve reported Tuesday. Total debt jumped by $351 billion for the July-to-September period, the largest nominal quarterly increase since 2007, bringing the collective household IOU in the U.S. to a fresh record $16.5 trillion. That’s an increase of 2.2% from the previous quarter and 8.3% from a year ago. The credit card balance collectively rose more than 15% from the same period in 2021, the largest annual jump in more than 20 years, according to the New York Fed. I have written extensively on this topic and it is concerning. Clearly the impact of inflation is taking a toll on the US consumer. We are also seeing all categories other than student loans see increases in delinquency (2nd chart).
Carl Icahn warned the stock market's epic rally won't last, called on the Federal Reserve to keep hiking interest rates until it breaks the back of inflation, and issued a grim outlook for the US economy in a recent CNBC interview. The billionaire investor and Icahn Enterprises chairman also revealed he's betting against the S&P 500. A few quotes from the interview. "I am still quite bearish on what is going to happen. A rally like this is of course very dramatic to say the least, but you have them all the time in a bear market, and I still think we're in a bear market." "Whenever you have higher interest rates that have moved as they have here, you have an inverted yield curve, Treasuries at close to a 5% yield — you are going to have a recession. "There's a way to go down because inflation is not going away for the near term, and you're going to have more of a recession, more of an earnings decrease." I am not convinced of his inflation view, as I believe we are seeing a material decrease and the trend will continue to fall on inflation. I had a dinner with Icahn in 2012 and may write about it. He could be the funniest individual I have ever met. Goldman Sachs believe we will see a “Significant” decline in US inflation in 2023 and get down to 2.9% on core PCE. However, Morgan Stanley is calling for a sharp plunge in stocks in coming months. Also of note, Michael Burry (Big Short) said, “You have no idea how short I am.”
Brian Armstrong, CEO of Coinbase, was on the “All-In Podcast” on Friday (starts at 21 minutes). Armstrong had spoken with numerous parties involved in FTX (Bankman-Fried and CZ-CEO of Binance). Armstrong’s take was Alameda Research, the market-making quantitative trading firm owned by Fried, was taking a lot of risk and lost a great deal of money months ago around the time of the Luna meltdown. Rather than coming forward and admitting losses, Fried “borrowed” client money from FTX and put the money into Alameda only to lose it. Armstrong believes there will be contagion with other firms who had funds in FTX or made loans to Alameda. He also believes this is more like Enron than Lehman due to the fraud angle. Cryptocurrency lender BlockFi Inc. is preparing a potential bankruptcy filing after halting withdrawals of customer deposits and acknowledging it has “significant exposure” to bankrupt exchange FTX. Also, Genesis Global is pausing redemptions. The crypto industry is screaming to be regulated. At Wednesday’s Financial Services Committee, the collapse of FTX was called a “dumpster fire.” The major venture funds have culpability here as they did not do enough due diligence in my mind. The insane diligence done to invest in my hedge fund was mind numbing at times. Clearly not the case with investments in FTX with Sequoia’s $215mm investment and a summary of their call with Bankman-Fried seen below.
As some of the nation’s largest retailers report quarterly earnings and revenue this week, Wall Street will pay close attention to another number, too — inventory levels. Walmart, Target, Gap, Kohl’s and others are trying to sell through a glut of extra merchandise piling up in store backrooms and warehouses. With housing and grocery prices surging, fewer Americans are buying big-ticket and discretionary items. Inventory, which accounts for the value of goods in transit as well as those in stock, also rose due to supply chain issues. WalMart announced, and beat earnings (stock+7%) and saw inventory reduction. They also raised guidance. Interesting consumer shopping habits outlined in the article, including “trading down” due inflationary pressures. Target warns of weak holiday quarter, plans cost cuts as profit tumbles and sales slow. TGT shares fell 14% post earnings.
Other Headlines
Fed Official Warns Inflation Fight Has ‘Ways to Go’
Markets cheered a report of better inflation last week, but Fed governor Waller cautions against an overreaction
UK inflation hits 41-year high of 11.1% as food and energy prices continue to soar
Amazon reportedly plans to lay off about 10,000 employees starting this week
The # of layoffs are tiny relative to the hundreds of thousands hired since the pandemic started. AMZN had 876k employees in 2nd Q 2020 and 1.5mm in 2nd Q 2022.
Dan Sundheim’s D1 Capital reveals new bets on tech stocks, dumps Disney in third quarter
Elon Musk mocking a US senator has everyone convinced that the Chief Twit just dug his own grave
Musk is a brilliant engineer who has changed the landscape of the world with his many companies. However, to me, he has too much President Trump in him. This is not a compliment. Trump was the least Presidential President of all time and Musk is a very immature CEO/Chairman who says and does dumb things. Too many actions are beneath the office of the President or CEO in my opinion.
Ad market worse now than during pandemic lows, David Zaslav says
Pence’s new book details Trump’s lengthy Jan. 6 pressure campaign
The excerpts I have read are concerning and to me, show that Trump should not be in office.
The top 10 most-regretted college majors — and the degrees graduates wish they had pursued instead
The World's Best Business Schools, Ranked
Migrant crisis costing NYC ‘at least’ $600M a year, fiscal watchdog figures
Seems fair that NYC residents should pay for bad US immigration policies. Raise taxes more in NY. Let’s see if they can get up to 20% for NYC and NY State taxes.
Gettysburg College postpones event for people tired of 'White cis men
Audit finds New York lost $11 billion in unemployment fraud in 2020
A brain expert shares his 7 'hard rules' for boosting memory and fighting off dementia
Japan China conflict: Superpower braces for war with Beijing
Russian missiles cross into NATO member Poland, kill 2: senior US intelligence official. However, NATO chief says Poland blast likely caused by Ukrainian missile — but not Ukraine’s fault. It seems it may have been a Ukraine missle defense system trying to knock down Russian rockets.
Crime Headlines
Ariana Grande’s brother Frankie Grande, 39, viciously mugged in NYC by 13-year-old
Former UVA football player allegedly killed former teammates. There seems to have been some warning signs here.
Wedding photographer attacked during shoot in San Francisco
2 critically stabbed including child at LA Target store; homeless suspect shot
Chicago concealed-carry permit holder shoots, kills armed robber
Killer who stabbed 4 Idaho students to death still at large
The suggestion seems that the killer knew someone there and the authorities know the killer.
"Organized Crime" Looters Steal Astounding $400 Million In Goods From Target Stores
This makes goods more expensive for those who pay. Also, stores close and people lose jobs. Security costs coupled with lost money from stolen goods is impacting margins. Got to be a better answer.
Real Estate
I am often asked questions by folks from the Northeast, Midwest or California on where they should consider moving within Florida with the most common areas being Miami or Palm Beach. I feel I am well versed on the options now having lived here for over five years. I was in Miami on Monday for a dinner, and can tell you that I would NEVER live in Miami. At 6:15pm on 11/14, I drove 4.5 miles from the Standard Hotel (great place for a drink) to Contessa (upcoming review). Remember, this is not peak season in Florida, and there was no major event. How long did it take me to drive? It was 1:24. Yes, an hour and 24 minutes. It should be 15-20 minutes. Don’t get me wrong, Miami has great restaurants, young, hip, vibe, sports and some culture, but there is no way I can handle living there. I enjoy going for the afternoon and dinner, but then I am done. It is too congested and now too pricey. I would move to Jupiter (north of Palm Beach) if I could do it again, but that is the opposite of Miami. I also cannot stand Miami Airport.
I was surprised to read this article entitled, “Argo’s Greenwich condo sees quick-fire sales.” The condos at 64 University Place have seen 24 out 28 units sold in recent weeks and sold by word of mouth. The average unit sold for $3.5mm or $3,000/ft. I lived 3 blocks from here and it was my FAVORITE location in NYC. However, given the backdrop, I was surprised to see units sell so quickly with no real marketing campaign at $3,000/ft.
Homebuilder sentiment in the single-family housing market fell to the lowest level in a decade in November, as builders continue to struggle with higher costs for labor and materials and lower demand from homebuyers. A monthly sentiment index from the National Association of Home Builders dropped 5 points from October to 33. That is the 11th straight monthly decline and the lowest level since June 2012, with the exception of a very brief drop at the start of the Covid-19 pandemic that was followed by a strong rebound. A year ago, builder sentiment stood at 83. You basically need to go to the Global Financial Crisis to get these numbers.
Other R/E Headlines
KPMG: The Pandemic Housing Bubble is bursting—U.S. home prices falling 15% looks ‘conservative’
A reader sent me this interesting chart on University of Michigan buying conditions for homes.
Hair Removal Mogul Looks to Break Miami’s Condo Record with $85 Million Listing
Unlike most ultraexpensive apartments, the 12,000-square-foot spread is located near the bottom of one of the towers at the Estates at Acqualina
China’s real estate crisis could be over. Property stocks are soaring
Virus/Vaccine
