Opening Comments
I have some good news. Apparently, a man named Emillio Juan Donoso Tobalina, who has emailed me, has a friend who wants to make a donation to my family for $3.5mm. I sure could use the money to continue to improve the Rosen Report. I’ll let you know when the check clears. To be clear, I have no idea who this is and what country he is from trying to scam me. When the check clears, each loyal Rosen Report reader who CONSISTENTLY reads my newsletter will get a gift. Again, when the check clears.
Video of the Day-Blind & Neurodiverse Child Playing the Piano
Markets
Fed/Inflation/Rates
Marc Andreesen on Education vs Technology
Insane Travel Costs/Cabana Prices
West Boca Home for $7mm. WTF?
Barry Sternlicht Pulling Back
Blackstone European Default
Video of the Day-Blind & Neurodiverse Child Playing the Piano
Listen to this little blind girl who is blind and is neurodiverse playing a complex Chopin piece. Not much to say other than, “WOW.” Look at the faces of the people listening. The entire video is 3 minutes. I had never heard the term neurodiverse, but it was in the article.
FICO Scores-How the Hell?
I don’t get how my FICO score is on the border of “Good-Very Good” and not “Excellent.” I have no debt, own my home, cars, boat…and pay every credit card at the end of the month. If I cannot afford it, I don’t buy it. This was drilled into me as a child by a mother who made very little money and did not believe in debt. I have never once carried a credit card balance in my life of any kind. Despite some months having a large balance, they are paid in full. Paying 20% to borrow money is not something I would do unless it was an absolute emergency.
Of my cards, my lowest rating is 720 and highest is 787, which good, but not “Excellent.” I went on each credit card website and there is a section with your credit score to find mine. Years ago, I took a loan out once, just to show I could pay it back as someone suggested it would improve my credit score. I have spoken with multiple people who all said something along the lines of, “You should borrow money and have debt, and your credit rating will improve.” I don’t know if you understand how dumb that sounds. It is like telling a straight “A” student to get a “D” to improve your GPA.
What got me going was speaking with someone who filed personal bankruptcy which turned into a Chapter 7 liquidation 5 years ago. He has a HIGHER FICO score than I do. He has a mortgage, makes car payments, is barely getting by financially and is always liquidating assets to make a payment of some kind (house, car, alimony, cards, medical bills..). His cards are always maxed out. What idiots would rate this candidate higher than me? He has been divorced 3 times and has all kinds of monthly payments which exceed the little income he has coming in, yet he has an “Excellent” credit score of 834 as of this week. Did I mention he recently filed for personal bankruptcy?
It would be akin to a company with no debt and cash flow being rated at the low end of Investment Grade, while a levered entity which has missed bond interest payments and filed for bankruptcy is rated “AA+.” I have no plans to take out a mortgage, but just find the entire thing quite idiotic. The suggestion is despite having credit cards for 35 years with no delinquencies, more credit information is needed, and if I had more loans, I would improve my credit rating. Below is from Experian, a credit agency which explains how it works.
Your credit score is calculated using the information found on your credit report. Your payment history, the mix of credit accounts you have, the length of your credit history and your credit utilization rate (the percentage of available credit limits you are using) are all factors that might influence your credit scores. This link is great for showing the calculation.
To all you idiot credit card companies and rating agencies, never put a debt-ridden, bankrupt person ranked higher than someone who is liquid with no debt, assets and income.
Everyone should check their credit score and be sure there are no mistakes. I am yet to do it, as all require you to put in your social security number on-line, and I refuse to do so for all the obvious reasons.
On a separate, but related note, I spoke with someone in the consumer banking business and alerted me that when a consumer makes a credit inquiry to borrow money, the banks request credit information from rating agencies. Those agencies are alerted that you want to borrow money, and they sell your name and information. People at my friend’s bank were getting inundated with as many as 20 vendors within 24 hours of requesting a loan. The bank did not sell the consumer’s name, the rating agencies did. I do not understand how this is legal.
Quick Bites
Tuesday saw a 1-2% sell-off in stocks post Powell’s Hawkish comments about rates. Banks led the way down on recession fears, with larger banks losing 3-5% on the day. YTD, the Dow is -1.1%, S&P +3.9%, and NASDAQ +10.5%. February payrolls on Friday will be a big determining factor for the Fed and 25 or 50bps for the next meeting. Oil has been down on economic growth fears.
RDI-5 (+1 from Sunday) post Powell speech on rates (see below). For those who do not recall RDI, it stands for Rosen Depends Index on a scale from 1-10 about fear and can be read about here.
The 2-year U.S. Treasury yield on Tuesday rose to its highest level since July 2007 (4.97%) as investors assessed comments from Federal Reserve Chairman Jerome Powell who said the central bank may need to increase the pace of interest rate hikes again. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he added. The Fed chair’s comments suggested to investors that the terminal level of the federal funds rate could be higher than previously indicated, and that investors could expect a rate hike that is possibly larger than the most recent 25 basis point increase at the central bank’s next policy meeting. Based on the talk from the Fed, rates, the continued inversion of the 2/10 Treasury curve, and my fear around the consumer, I cannot understand why stocks are not lower. The 2/10 curve is now -103bps. I would be shocked if this does not end in recession. Ken Griffin agrees. Tuesday afternoon, Fed Funds futures were pricing in a 70% chance of 50bps in two weeks, up from 28% the day prior. The terminal rate is up to 5.88% now. I was wrong here. At the end of 2022, I thought the Fed would have two more 25bps hikes and be done. The market is telling us otherwise. In 5 weeks, the 2-year Treasury is up almost 100bps to over 5.06% (2nd chart). I continue to buy it as my short dated treasuries mature. Gundlach thinks it is “very likely” for a 50bps hike in March.
I found this article about legendary venture investor, Marc Andreesen, an interesting one. I have written extensively about my concern around the cost of a college education being unsustainable for many kids. I would guess maybe 50% of those who attend a 4-year college should go, based on the cost benefit analysis. "We are heading into a world where a flat screen TV that covers your entire wall costs $100, and a four year college degree costs $1 million, and nobody has anything even resembling a proposal on how to systemically fix this," Andreessen said. He pointed to this chart which I have inserted in a couple different notes. The Silicon Valley investor said that sectors provided or controlled by the government have become "technologically stagnant." Innovation in certain highly regulated sectors, like education and healthcare, "is virtually forbidden," causing high prices, he wrote. Andreessen said that over time the price of highly regulated products will continue to climb, while less-regulated products, like flatscreen TVs, will become cheaper. I checked a handful of private colleges and found the total costs of tuition, meal plans, housing and fees to be in the $75-85k/year. This does not include cars, Ubers, meals out, spending money, travel home for holidays…. I have spoken with many parents who tell me that they expect closer to $100k/year for private schools for their kids currently enrolled. One parent spends over $7k/month for their child to have a 1-bedroom apartment to attend a NYC college.
I am taking my daughter, Julia, 15 years old skiing in Park City, Utah from March 20-24. I am shocked at the cost of lift tickets ($250/day), hotels, and question how people can afford this. Some hotels are getting $2,000+/night for a regular room (no suite). A ski lesson is almost $1,500 for the day for one person before tip. This WSJ article outlines the cost of cabanas at the pool which can cost more than the rooms at the luxury resorts. These cabanas charge extra for food and drink and up to 25% gratuity on top of the cabana prices. I called The Resort (fka Boca Resort) and confirmed that over the Winter Break, they got as much as $2,800/day for the best cabanas. Taking a family away on vacation during peak travel times (Winter Break or Spring Break) to hot destinations (skiing or warm beach locations) is getting out of control. I do not understand how people can afford it or are willing to pay. By me, some rooms were going for $2,500+/night, and a family would take two rooms, cabanas, food, excursions… A one week trip with commercial flights is $60k+. This seems crazy to me. How many people have this kind of money? The high-end hotels are booked solid.
Other Headlines
Larry Summers: US economy could hit an ‘air pocket’ in the coming months
I am with Summers, which is why I don’t understand the equity market resilience.
Morgan Stanley's Michael Wilson Sees Near-Term US Stock Market Rally
He suggests technicals are supportive, but earnings estimates are too high.
JP Morgan Chase CEO says 'We love Florida,' other states should ask why people are going there
Great one minute video of Dimon talking about the greatness of Texas and Florida as pro business and low taxes. JPM has more employees in Texas than NY!
U.S. Shale Boom Shows Signs of Peaking as Big Oil Wells Disappear
America’s biggest oil gushers are shrinking, evidence that companies have drilled through much of their best wells. This is concerning to me and one of the reasons I fear higher oil prices.
Forget Peak Oil Demand: A Thirst for Barrels Puts $100 in View
Good Bloomberg article on oil prices, the impact of China coming back on line and supply shortages.
I have no problem with stock buybacks. Either does Warren Buffett. Nuff said.
OUCH! Chris Christie Hits Trump Right In His Sorest Of All Sore Spots
“You saw the scenes at CPAC,” Christie said on “This Week,” referring to the right-wing convention outside Washington where the former president spoke on Saturday. “That room was half-full.” Given how obsessed Trump is on crowd size, this one had to hurt.
Jill Biden dismisses Nikki Haley's proposal for mental competency tests for candidates over 75.
I believe a mental competency test should be required to run for President at any age. They do have the nuclear codes and are considered the most powerful person in the world. Sorry, Jill, I disagree. Given Jill is my wife’s name, I have said that sentence about 2,000,000 times.
Ben Savage of ‘Boy Meets World’ launches bid to replace Adam Schiff in Congress
I can only imagine Trump’s nicknames for Ben Savage.
White House endorses new Senate TikTok bill, urges Congress to pass it ‘quickly’
I pretended to be a 14-year-old boy on TikTok — what I saw terrified me
A woman created a fake profile of a 14-year old boy on TikTok and it was flooded with misogynistic, racist, sexual and violent content even when the reporter did not seek it. TikTok needs to be banned for a host of reasons including China spying, harmful content, kids addiction….
Let charter schools flourish so NYC’s children can
The testing and results from charter schools relative to the regular public schools are night and day and done for a fraction of the cost per pupil. Nuff said.
Ivy League’s Agreement to Ban Athletic Scholarships Is Illegal, Lawsuit Says
Interesting WSJ article. Historically, Ivy League schools would not offer athletic scholarships.
Deputy DA wins $1.5M in retaliation suit against George Gascón
Firm of NYC homeless boss Joslyn Carter's sister lands $1.7B in shelter contracts
Matamoros, Mexico: 4 US citizens were kidnapped by gunmen in case of mistaken identity
Demonstrators set to paralyse France in massive pension reform protests
Unions have vowed to bring the country to a standstill over the proposed changes, which include raising the retirement age from 62 to 64 and increasing the number of years workers have to make contributions for a full pension. Violence is erupting. Governments just don’t have the money to pay, and retirement ages need to increase commensurate with longer lifespans and rising healthcare costs.
Hilton, Holiday Inn allegedly let predators into women’s rooms
QUITE concerning. Be sure to use the latch inside to lock your hotel doors and let the front desk know to not give anyone else your key.
Illinois professor Angel Jones urges bereavement for black educators to process racism trauma
Girls' basketball team denied trophy after winning boys' championship
They were forced to “play up” with the boys and won. They should 100% be able to claim the trophy. This is ridiculous.
A longevity expert who studied people who live to 110 on how humanity and AI will master aging
GREAT story. I wish we would see more of this.
Wegovy has potentially deadly side effect, scientists warn
The weight loss drugs Wegovy and Ozempic are effective, but the suggestion in the article is they could cause your small intestine to become enlarged. I have seen amazing results with some Rosen Report readers who have lost a lot of weight, but a few have had bad side effects.
Florida alligator bites man on his front porch after he opens door
Things which clearly won’t happen when you open the door of your NYC apartment.
Real Estate
I have written about Boca R/E, but thought this story was a bit crazy. There is a new GL Homes community in WEST Boca called Boca Bridges. It is located among a bunch of similar communities (The Bridges, Seven Bridges, Lotus..). They are gated communities with a clubhouse, restaurants, tennis, pools, gyms, play areas for kids… No golf. A home is for sale in Boca Bridges for $6.75mm and it is almost 8,200 ft with 6 beds and 9 baths on .36 acres. It is 12 miles form the beach. Records show that the house sold in May of 2022 for $2.6mm. However, I would assume the buyer bought it pre-construction 18 months or so prior, and it had just closed in May. To be clear, this is the asking price, and it may sell for less. But even it if sells for $6mm, that is a lot to live so far west in my opinion. The issue is to live in that house near the ocean would be a heck of a lot more than $5mm. In my community, it would be $10mm. I work with many families attempting to relocate from the tri-state area, Chicago, CA… to South Florida. I help them find homes, schools, make introductions to build a network… I am really starting to get pushback on affordability. Many want to live closer to the beach, but pricing is out of control. Although South Florida is far cheaper than the places I mentioned when you factor in everything (taxes, housing, education, cost of living…), the home prices down here have made relocating challenging. You must have a school prior to buying a house. Limited options and limited availability.
Barry Sternlicht says this is one of the best times in years to make commercial real estate loans. He regrets, however, that his firm can’t take full advantage of the opportunity. Starwood Property Trust, a Greenwich, Connecticut-based real estate investment trust and the self-described largest U.S. commercial mortgage REIT, could be aggressively originating commercial real estate loans now as “banks are on the sidelines,” Sternlicht said during a conference call. Sternlicht is the REIT’s chairman and CEO, as well as the chairman and CEO of the private alternative investment firm, Starwood Capital Group. Credit spreads mean newly made loans would be highly profitable, too. “We feel we could deploy capital extremely well and at incredible spreads in this market,” Sternlicht said. “We think we can make extraordinary loans today.” Instead, Starwood is “going to play defense” for the time being and do "virtually nothing" to protect the REIT’s liquidity. Sternlicht blamed the Federal Reserve raising interest rates seven times last year and one time so far this year for creating "incredibly tight conditions.” Barry is an amazing investor and someone I have spent some one-on-one time with over the years. I am personally seeing far more “hard money” lending opportunities at far higher rates than just one year ago. Barry has been critical of the Fed (just like me) and is concerned about how the aggressive rate hikes will hit the economy. I just can’t see how the consumer does well in 2023 and with the sharp move higher in rates, believe the likelihood of a “soft-landing” is going down.
Blackstone Inc.’s clash with lenders backing a small portion of its European real-estate portfolio is more than just a little local difficulty in a market with specific problems. It could well be a pivotal moment in the property cycle, serving as a warning of the grim prognosis for lower-quality office and retail assets everywhere. At issue is Blackstone’s default on around €300 million ($319 million) of the remaining principal of €531 million of commercial mortgage-backed securities financing properties in Finland. The CMBS supported assets acquired in the 2017 purchase of Sponda Plc. Pandemic travel restrictions, the popularity of hybrid working, rising rates and neighboring Russia’s war in Ukraine have lowered Finnish rents and valuations. So a refinancing by the time the debt matured in the middle of last month wasn’t possible. I feel strongly that given the higher rates, higher vacancies, lower rents and the desire for shinny and new, many owners will be giving the keys back to the lenders in the next couple years. Large debt maturities will only make matters worse.
Other Real Estate Headlines
The ‘Hotel California’ Wealth Tax
Great WSJ opinion piece which outlines the issues facing Blue states as wealth leave for greener pastures. Massive budget deficits looming. Good numbers are outlined in the short piece. Worth a read.
This Bay Point, Miami home just sold for a record $38M
More than double the previous record for the community and sold for $4,691/ft. The demand for high-end properties in Miami and Palm Beach area remain high with limited inventory.
Virus/Vaccine
I have been critical of Fauci since early in this process, and the more news which comes out the worse he looks. I wrote on June 6th 2021 a piece entitled, “Fauci Ouchie-Time to Go,” because I felt his conflicts and decisions were awful. Read the latest conflict about a paper he commissioned and then cited to prove the lab leak was implausible. This is disgusting, and we should all be irate. There must be consequences for years of lies.