Opening Comments
Michael Cembalest’s Energy Paper
Video of the Day-Prince on Guitar
The Cobra Effect
Quick Bites
Inflation Discussion-Yellen/Zell/Buffett/Me
Quick Bites-Markets, Crypto, Pfizer Earnings, Evictions,
TSA, Back to Office, Average US Net Worth
US Birth Rates, Chauvin Trial, LA Violence
Gates Divorce, Food Crisis, No Snow Days NYC
Woke Strikes Again at Cornell, Iran Propaganda Video
Virus/Vaccine-Cases & Hospitalizations improving, Vaccine roll-out issues
R/E
General Comments
18 Cities Where Inventory is Up 2%+
Opening Comments
Readers seemed to enjoy the last report. However, I continue to struggle with getting passed the pesky firewalls. I was told JPM blocks emails from Substack. I am sure others do as well. Won’t even go to spam or junk. I was fascinated by the article I read which led to today’s title, “The Cobra Effect.” I hope you enjoy it. I had to run out, so hit send early and did not get to see the markets close.
I read Eleven Madison Park is going vegan. The three Michelin Star restaurant will be 100% plant based. Don’t get me wrong, I appreciate healthy living, but if I am paying hundreds of dollars for a meal and you serve me lettuce and tofu, I am going to be livid. I have eaten at this restaurant 15 times in my life and never had a bad meal. I thought the food was always amazing, albeit quite pricey.
Facebook’s oversight board ruled to uphold the company’s decision to suspend former President Donald Trump’s Facebook and Instagram accounts. But, the board said, the indefinite time frame of the suspension “was not appropriate.”
Reminder, the links are underlined. I cannot change the color in Substack.
Cembalest Energy Paper
Anything I include from Michael gets a lot of views given they are so informative. This is his 11th annual energy paper and this one covers a lot of topics around the transition to renewables and electric vehicles. There is a discussion of China and Europe as well. Seems like the Biden Administration has some ambitious goals. My big takeaway is the reliance on fossil fuels won’t go away as fast as I had thought. As usual, good charts and helps to explain complex topics in a simplified manner.
Video of the Day
I enjoy playing the guitar and despite picking it up at 40, I can play decently. Unfortunately, my rock star dreams will never come to fruition due to the fact that I am decent, not remarkable and my sister has reminded me that my voice is horrific. I once told her my voice was a “3 out of 10,” and she told me it was not that high. I think she was dropped on her head and tone deaf, but she is my sister, so I need to accept it. I am definitely not below a “3,” but can’t suggest I am any higher than that either.
We play a lot of music at the Rosen house with my son on lead guitar, me on rhythm guitar and my daughter belting out the vocals. A friend sent me this 2004 video tribute to George Harrison with Tom Petty, Jeff Lyne, Steve Windwood, Dhani Harrison and Prince playing the song, “My Guitar Gently Weeps.” Obviously, it is an impressive group of talented musicians. The video is 6 minutes long, but Prince comes into the picture at 3:30 and wails on the lead guitar. Prince was a bit odd, but wow, he was one hell of a musician and song writer. I could never pull off any of the Price outfits, much to my chagrin. I wish I was 10% as good as any of these performers, especially Prince on the guitar. For perspective, on Prince’s debut album, he played ALL 27 instruments in 1978 at the age of 20.
The Cobra Effect
One of the things I am grateful for is all the things I learn in preparation to write the Rosen Report. I read hundreds of articles about the world and my loyal readers send me interesting pieces. I stumbled upon an article entitled “The Cobra Effect: No Loophole Goes Unexploited.” Cobras scare the crap out of me, so I decided to read the story to see what I might uncover. I was fascinated by the article and the excerpts are italicized below.
The Cobra Effect describes the unintended consequences and perverse outcomes that can occur when organizations or governments offer rewards, bounties, or incentives to encourage people to take some specific, pro-social action.
Economist Horst Siebert coined the term “cobra effect” based on the following: When the British ruled India, the city of Delhi was infested with cobras. To enlist the public’s help in eradicating the snakes, officials offered a bounty on cobra skins. Soon, however, a cottage industry of cobra farming sprang up. People were breeding them for their skins. The British paid out more and more money, but the cobra infestation did not abate. And cobra farming only added to the problem. When authorities finally got wise to the scam and withdrew the bounty, the farmers set their now-worthless cobras free. In this case, truly the road to hell was paved with good intentions – and cobra skins.
The Cobra Effect and COVID-19
Last year, Brigham Young University issued the following warning: “Students who…have intentionally exposed themselves or others to [Covid-19] will be immediately suspended from the university and may be permanently dismissed." BYU apparently received credible information that some students were trying to become infected in order to score a bigger paycheck when donating plasma.
Healthy individuals are paid $50 per visit by a plasma donation center near the BYU campus. However, the same donation center offers $100 per visit for those with Covid-19 “convalescent plasma.” Like entrepreneurs seeking to capitalize on a niche market, some students may have seen Covid-19 as an opportunity to apply what they learned in Economics 101 about supply and demand.
A Gun Buyback Program Goes Awry
Police in Oakland, California conducted a gun buy-back program. Presumably, the goal was to reduce criminals’ easy access to firearms. Anyone could turn in a firearm and walk away with $250, no questions asked. “The first two people in line at one of the three buyback locations were gun dealers with 60 firearms packed in the trunk of their cars.” They “bought a dozen guns from seniors living in an assisted-living facility.” Rather than getting guns off the streets, some less-than-trustworthy individuals were turning in their cheap weapons and using the $250 bounty to buy a better gun. So many people rushed to turn in guns that the police department ran out of money and had to give IOUs, leaving the department with a $170,000 debt.
The article ends by talking about the recent PPP set up by Congress and the flawed execution which allowed grifters to obtain millions under the guise of meeting payroll expenses. There were examples of people buying sports cars with the money and I know of companies who were doing amazingly well despite the pandemic which ended up with big checks; legally, I might add. To me, something needed to be done as the economy was going into a tailspin, but like most other government programs, PPP was flawed and lead to billions in waste. I am not suggesting the idiots in Congress had the time to make it perfect, but it is amazing how the Cobra Effect takes over when money is on the line.
Inflation Discussion
For the past couple months, I have been writing about my concerns about inflation and rising prices virtually everywhere. The markets have not seemed to mind too much and the all knowing “experts,” have not been concerned despite unprecedented stimulus and printing (1mm new $1,400 stimulus checks have been sent). Well, Yellen came out Monday and suggested rates may have to rise to keep a lid on burgeoning economic growth brought on in part by trillions of stimulus spending. Markets sold off on the news. I would have thought they would have been harder hit. However, she is the Treasury Secretary, not the Fed Chair. Treasury Secretary Janet Yellen later said Tuesday afternoon she wasn’t forecasting interest-rate increases to rein in any inflation spurred by President Joe Biden’s proposed spending, clarifying comments that ruffled financial markets a few hours earlier. Wow, that is not too confusing. Amateur hour. From my perspective, she 100% believes we need rate hikes.
I am a big fan of Sam Zell. The guy has the nickname the “Grave Dancer,” as for decades he has been a buyer of distressed properties and made billions. According to this Bloomberg article, Sam Zell is seeing inflation everywhere, and has bought gold as a hedge -- something he says he used to knock others for doing. “Obviously one of the natural reactions is to buy gold,” he said in a Bloomberg Television interview. “It feels very funny because I’ve spent my career talking about why would you want to own gold? It has no income, it costs to store. And yet, when you see the debasement of the currency, you say, what am I going to hold on to?” Zell, 79, said he’s concerned not only about the U.S. dollar but other countries printing money as well, and questioned whether inflation will be transitory, as Federal Reserve Chairman Jerome Powell indicated last week. “Oh boy, we’re seeing it all over the place,” Zell said of inflation. “You read about lumber prices, but we’re seeing it in all of our businesses. The obvious bottlenecks in the supply chain arena are pushing up prices. It’s very reminiscent of the ‘70s.”
“We are seeing very substantial inflation,” Warren Buffett said at the conglomerate’s annual shareholder meeting Saturday. “We are raising prices. People are raising prices to us and it’s being accepted.”
I was wrong before on this topic. I, like many others, thought that the GFC would lead to inflationary pressures with all the stimulus, but inflation never materialized. I wrongly believed the “Taper Tantrum” of the spring of 2013 was the move towards higher rates.
I struggle to agree with Jay Powell that inflation is transitory, but again, I am not a macro economist. I am just observing my surroundings and looking at the stimulus coming and it is hard for me to fathom more inflation is not on the way. You can’t find a house or an employee (Montana ending extra unemployment pay due to worker shortage), you pay more for everything you use (food, consumer goods, oil, gas, plastic, logistics, services, education, healthcare, rental cars, fitness equipment, golf clubs, toys, cars, chips, lumber, services….). The semiconductor shortage has now hit Ford Bronco, SUV and pick up truck production. KFC is looking to fill 20,000 part and full time positions and are struggling to find workers. What have I done? I have more assets in gold, crypto, r/e, art and hard assets as partial hedge. Truth be told, I am under hedged if we had any real inflation. We have Buffett, Zell and others seeing “substantial” inflation. This WSJ article is entitled, “Everything Screams Inflation-Investors are woefully unprepared for what me a once-in-a-generation shift in the market.”
Remember, in May of 2007, the Fed Chairman at the time, Ben Bernanke, said, “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.” Wait. He was the Chairman of the Fed, went to Harvard undergrad and has a PhD from MIT, had access to all fathomable data and was a complete idiot on this topic and could not have been more wrong. My point is, just because Powell is comfortable that inflation is transitory, does not make it true.
Quick Bites
Markets sold off after Yellen’s rate comments Monday, but rebounded later in the day and again on Wednesday with strong earnings. Nothing seems to bring the market down for too long, even rate fears. As of 3:45pm, stocks were up less than .5% for Dow, .2% for S&P and down slightly for NASDAQ. The 10 year Treasury is at 1.58%. Oil is over $65/barrel.
The joke of Dogecoin continues to defy logic and is up to 61c. Remember, this was created as a prank and was under 1c in late January 2021. It seems that the crypto market was all up sharply between 5-10%+. Bitcoin is up to $57k and Ethereum is almost $3,500.
Sotheby's has become the first major auction house to introduce cryptocurrencies as a payment method for physical artworks, following its prior sales with digital NFT art last month. "Love is in the Air" (2003), one of street artist Banksy's most recognizable works, is the first piece that Sotheby's will make eligible for purchase via either Bitcoin or Ether.
Pfizer's COVID-19 vaccine earned the company $3.5 billion in the first three months of this year, representing nearly a quarter of its total revenue, the company announced ahead of its earnings call Tuesday. The drug giant said it expects the vaccine to earn about $26 billion in total revenue for 2021, based on signed contracts as of mid-April that call for 1.6 billion doses of the shot to be delivered this year. The company's previous forecast was $15 billion for the year, but its first-quarter 2021 revenues alone totaled $14.6 billion.
A federal judge struck down on Wednesday the national eviction moratorium, potentially leaving millions of Americans at risk of losing their homes. Housing advocates have said that the national ban is necessary to stave off an unprecedented displacement of Americans, which could worsen the coronavirus pandemic just as the country is turning a corner. Property owners have criticized the policy and say landlords can’t afford to continue housing people for free. I feel the moratorium may have been necessary, but no longer feel it is fair to landlords or lenders. Unemployment is way down, stimulus is flying around and many refuse to go back to work. We cannot supplement Americans forever. The deficits are exploding with one economist suggesting it will be 2x GDP by 2050.
The TSA has seen the highest post pandemic clearing #s the other day at 1.6mm or 64% of the 2019 levels. The 2020 # was 170k for perspective. Lyft is showing more signs of recovery with revenue +7% over the last quarter as well.
GS and JPM have pushed employees to come back to the office. GS suggested staff should be prepared by June 14th in the US and June 21 in the UK. Last week, Dimon said in a memo to staff Tuesday that it “would fully expect that by early July, all U.S.-based employees will be in the office on a consistent rotational schedule.”
Thee Federal Reserve Board issues the Survey of Consumer Finances to share information about family net worth and income in the US. I felt the chart below was interesting.
The years-long U.S. baby drought worsened last year, with births dropping 4% from 2019 to the lowest level since 1979. The provisional data for 2020, at 3.6 million births, marks the sixth annual drop in a row. The decline will likely continue in 2021, when the brunt of the impact from the pandemic will be recorded -- with a nine-month delay. Fears of contracting the virus while pregnant, or while in hospital to give birth, combined with job insecurity and government measures limiting social contact and business activity, dissuaded Americans from having babies.
A juror in the Derek Chauvin trial may have jeopardized the guilty verdict by attending a rally last year and wearing a “Get Your Knee Off Our Necks/BLM” T-shirt, raising questions about whether he told the truth during jury selection. Brandon Mitchell, known as Juror #52, told Minneapolis news outlets Monday that he attended the Aug. 28 march in Washington, D.C., featuring speeches by George Floyd’s siblings, while a photo circulating online shows him with two cousins wearing the T-shirt as well as a “Black Lives Matter” hat. What may come back to haunt the prosecution is that Mr. Mitchell, 31, answered “no” when asked during jury selection if he had attended any protests for George Floyd. Chauvin’s attorney filed motion for a new trial.
I have written about violence in various cities in the country and focused a great deal on NYC and Chicago. Here is a story about LA and an uptick in violence. As COVID-19 began hospitalizing and killing more people in Los Angeles last year, so did shootings in the street. The increased bloodshed, much of it linked to gangs, surged as the economy faltered, leading to the deadliest year of violence in L.A. in a decade. According to Los Angeles Police Department data, the city as of Saturday had seen 465 shootings since Jan. 1, an almost 67% increase over the same period last year. Homicides, at 115 as of Sunday, were up more than 26%.
Microsoft cofounder Bill Gates and his wife Melinda Gates are parting ways after 27 years of marriage, the couple announced Monday, leaving the fate of a $146 billion fortune and America’s largest philanthropic foundation up in the air.“After a great deal of thought and a lot of work on our relationship, we have made the decision to end our marriage,” the Gateses said in a joint statement Monday. “We no longer believe we can grow together as a couple in this next phase of our lives.” Bill and Melinda, I am available to mediate your divorce. I will be fair and impartial. I propose I oversee the division of the estate for a fee of .1% of the estate. I am dirt cheap. That comes out to $146mm. I will even given you a slight discount if you agree to give me a deal on MSFT products. Leon Black paid Epstein $158mm and he had no degree, was not a lawyer or an accountant and Leon’s net worth is a fraction of yours. I have negotiated hundreds of deals and have an M.B.A. from the University of Chicago, so clearly a fee of $146mm is fair. Given Gates owns 270,000 acres (422 square miles of land) in a dozen states, I will also consider taking a portion of my fee in raw land. Ok, twist my arm, I will do it for an even $100mm. That is a bargain. If you don’t hire me now, I might not be available tomorrow, I have a Rosen Report to write.
Some 155 million people across 55 countries -- more than the population of Russia -- suffered from issues ranging from a food crisis to famine, according to a report with data from more than a dozen agencies. That’s up 20 million from 2019, with economic shocks overtaking extreme weather as the No. 2 cause.
This new NYC school rule for snow days will have kids bummed. The Department of Education announced Tuesday that students will have to learn remotely during winter storms. I grew up in South Florida and loved hurricane days in the late 1970s and early 1980s. I recall multiple times having no school for a week or more. We went onto the public golf course and skim boarded on the fairways.
A rock-climbing course at an Ivy League university in New York state has now been opened to all students after critics complained about racial segregation, according to a report. The so-called "BIPOC" course at Cornell University was initially available only to students who were Black, Indigenous or represented other "people of color" groups, the Cornell Daily Sun reported. But media reports portraying the course as banning White students – as well as complaints posted on Reddit -- prompted the university to lift enrollment restrictions.
Iran released a propaganda video which shows fake footage of the US capital being blown up. The leaders of this country hate America and Israel and threaten us daily. As we gave them money, they chant, “Death to America.” I don’t know about you, but I feel a wee bit uncomfortable if these lunatics have nuclear weapons.
Virus/Vaccine
US data is improving on cases and hospitalization, but death data has slightly deteriorated and the vaccine roll out is hitting a wall. Cases fell 5.8% for the week and the 7 day average is 49.2k. Hospitalizations fell 7.9% on the week and are 39k. For perspective, peak was 135k. Deaths increased by 2.5% and the 7 day average is up to 720. More than 1.19 billion doses have been given in 175 countries, according to data collected by Bloomberg. The latest rate was roughly 19.8 million doses a day. In the U.S., 248 million doses have been given so far. In the last week, an average of 2.19 million doses per day were administered. My issue is the daily vaccinations are down SHARPLY. After peaking at 3.4mm for the 7 day average, the US is down to 2.2mm. This is partially due to the J&J debacle and the fact that many people won’t get vaccinated. There are no lines anymore. Someone called and got in the next day in South Florida. I had to wait weeks.
Covid-19 cases will likely surge again in the U.S. as the highly contagious B.1.1.7 variant takes hold across the country, peaking in May before sharply declining by July, according to new data released Wednesday from the Centers for Disease Control and Prevention. The rise in Covid cases is expected as states relax pandemic prevention strategies for businesses, large-scale gatherings and schools and the B.1.1.7 variant, first identified in the U.K., spreads more rapidly throughout the country, the CDC said in the report.
President Joe Biden set the goal of getting 70% of U.S. adults to receive at least one dose of a Covid vaccine by July 4. The White House will also aim to have 160 million adults fully vaccinated by Independence Day, senior administration officials said. The announcement came two months out from the Fourth of July, a date the White House hopes will mark a turning point in the pandemic.
Florida Gov. Ron DeSantis on Monday signed an executive order to end all local emergency orders relating to COVID-19, effectively halting enforcement of restrictions across the state. Florida, which became one of the world’s epicenters for the virus in July, has fully vaccinated 37.3% of its population.
President Joe Biden said his administration is "ready to move immediately" if and when the US Food and Drug Administration authorizes the Pfizer Covid-19 vaccine for use in youths ages 12-15. States are getting ready, too. Biden said he has directed states to make sure these teens can get vaccinated right away, but some states, medical associations, and pediatricians say they don't need the encouragement. Many are ready, willing and able to help meet what one expert described as a "pent-up demand" for these vaccines for teens.
The coronavirus wave that plunged India into the world’s biggest health crisis has the potential to worsen in the coming weeks, with some research models projecting that the death toll could more than double from current levels. A team at the Indian Institute of Science in Bangalore used a mathematical model to predict about 404,000 deaths will occur by June 11 if current trends continue. A model from the Institute for Health Metrics and Evaluation at the University of Washington forecast 1,018,879 deaths by the end of July.
Seychelles, which has fully vaccinated more of its population against Covid-19 than any other country, has closed schools and canceled sporting activities for two weeks as infections surge. The measures, which include bans on the intermingling of households and the early closure of bars, come even as the country has fully vaccinated more than 60% of its adult population with two doses of coronavirus vaccines. The curbs are similar to those last imposed at the end of 2020. “Despite of all the exceptional efforts we are making, the Covid-19 situation in our country is critical right now with many daily cases reported last week,” Peggy Vidot, the nation’s health minister, said at a press conference Tuesday.
Real Estate
I receive numerous calls from readers on real estate questions. One called me about something in Jupiter. I looked up two communities where I thought he might like to live (Old Palm and Old Marsh). Both are gated communities with golf in or close to Jupiter. There were two listings in Old Palm out of 313 homes and one land listing in Old Marsh out of 172. I then checked Admirals Cove which has three listings out of 893 homes. In total, there is less than .5% of the potential inventory available for sale. Historically, it would be 10%. This just seems insane to me. A friend from Chicago came down and was telling me how many of his friends are moving to South Florida and they want to be close to each other. More are buying in communities together and others want to join and cannot find a listing. He had 6 friends buy in one gated community and now another few cannot seem to find a listing to join them. No, I do not think the crazy gains continue, but just cant see a major near term correction in South Florida housing prices. I would not want to be short here.
While the pandemic all but froze U.S. home buying activity a year ago, the market rebounded in the summer and has been red-hot for months. Would-be buyers — motivated by historically low interest rates and a desire for more personal space for remote work and schooling — have flooded the market, gobbling up inventory. That momentum led to a historic shortage of homes for sale. Now, there’s evidence that supply is increasing and the housing market’s hot streak might be (very slightly) cooling. Data from Zillow shows that nationally, the number of homes for sale has been steadily decreasing since July. But there are a handful of metro areas where housing inventory increased between February and March. According to Zillow, in 18 of the nearly 100 U.S. metros the website publishes data for, housing inventory ticked up by 2% or more between February and March. San Jose and Seattle led the pack: The number of homes on the market there increased by more than 10%.