Opening Comments
Pictures of the Day-Epson International Pano Awards
Human TheSauruS
Billionaire Tax
Quick Bites
Markets, TSLA, Alphabet Earnings
Powell on Inflation, El Erian on Inflation
Schwarzman on Energy Prices, Mortgage Rates
Corporate Min Tax, Feel Fabric on Your Screen
College Enrollment, SFO Security
Other Headlines
Virus/Vaccine
Data-Continued Improvement
FDA Panel on 5-11
China 3 Years Old
NYPD on Vaccine
Real Estate
My General Comments-Miami Condo Rental Market-Crazy
NYC Update
Bloomberg Story on NYC R/E Pricing
Opening Comments
My son, Jack, and I made it to Memphis. We tried going to Beale Street for dinner Monday and could not get in anywhere. Instead, we ended up at Southern Social. It was a high end eatery with a Southern flair. The food was fantastic and the wine list was very impressive. The also have a big bourbon game. We ate with the Greysermans (incredibly talented golf family) in hopes of some of the golf DNA rubbing off on Jack. One thing is for sure-Jack devoured his fried chicken dinner which may have added a pound to his thin frame.
I took Dean Greyserman, who will be attending Stanford next year on the golf team, bass fishing. He has never caught a fish in his life. I showed him what to do, and he quickly caught a fish. And I did not. I may need to quit fishing as a result of this turn of embarrassing events. He can hit a golf ball 330 yards and apparently can also catch a fish despite not knowing what he is doing. He must have had an amazing teacher! Yes, the fish is small, but he has reminded me 33 times that he is winning 1-0.
We checked into our beautiful Hampton Inn hotel at almost 10:30pm. I opened the door to the hotel room and I could see my breath. I do not know who the moron was who set the A/C, but see for yourself in the picture below. It was set to 47 degrees and the room read 58 degrees. I like to sleep in a cooler room, but this was beyond uncomfortable. I tried changing it to heat and the room immediately smelled like burnt hair so I had to turn it off. I slept in a sweatshirt and nearly froze to death. Travelling to crap hotels with Jack is always an adventure. I never knew the A/C setting could be set to such a frigid temperature.
Apologies for typos today. Working on a laptop which makes editing much more difficult and for some reason, spellcheck only works on my desktop on the Substack site.
Pictures of the Day
I found this article which shows the EPSON International Pano Award winners. There are 18 remarkable photos in the link. I struggled to pick just two. All are impressive and worth clicking the link. The technology today is remarkable and the quality of the photos in the link is really special.
Human TheSauruS
I never had braces as a kid. I think it was a combination of cost and I never pushed too hard for them. My teeth progressively deteriorated in my early 20s and I was frustrated. I grew self-conscious about it and decided to consider braces. I was living in Chicago at the time and set up a conlustation with an orthodontist. I told him my issues and my concern about looking like an idiot in my mid-20s with braces. Every problem has a solution and I was told about a “fantastic” new development in orthodonture called “lingual braces.” They put the braces behind your top teeth so no one can see them and use clear ceramic on the bottom rather than metal. On the surface, it seemed like a brilliant idea. I asked, “Does it make it harder to speak as your toungue hits the back of your teeth?”
“Good question, but no. You will be fine after a few days,” said Mr. Ortho.
The orthodontist laughed and said, “Do you know the woman on Channel 4 News? I put them on her 6 months ago and no one knows.” I was in shock. I had seen this woman on TV and never noticed she was wearing braces. I never heard her speak differently and I was sold. Oh, to be young and naive.
I spent $5k to get my ceramic bottoms and lingual top braces 27 years ago. Well, that did not go as promised. I immediately sounded like Donald Duck as my tongue was lashing the braces on the back of my top teeth. I was lisping horribly and my tongue looked like I was licking razor blades. Drespite the doctor’s promises, I never adjusted my speech and continued to lisp.
Found this picture of lingual braces on line
Everyone was making fun of me in the office as I sounded like a cartoon character and my toungue was raw. I could not say the letter, “S” without a horrible lisp. Prior to the brilliant decision to get the lingual braces, I would answer my work phone, “This is Eric Rosen.” Note, there are two times I would need to say the letter, “S.” I changed my speech pattern and answered, “Eric here.” I became a human theSauruS to not say the letter “S.” Dating became a clown show. My original fear about my teeth turned to a phobia of being laughed at about my horrible lisp and tongue which look like it went through a meat grinder. After about 9 months, I could not take it anymore and had them removed. Although it was a disastrous experience, my teeth are pretty darn straight now.
Now fast forward to recently and my kids and their braces. There is a new scam in town. Now, most kids get braces twice. Once at 8 or 9 and then again at 13 or 14 years old. Why pay for something once when you can pay for it twice? I asked my kid’s ortho about her view on lingual braces and she started cracking up. She said, “Lingual braces were the dumbest idea and were sold to people who were too vain to think about the ramifications of braces in the back of your teeth. No one I know would suggest them to a patient today.”
I then started laughing and said, “Guilty as charged.” She felt horrible about calling me an idiot, but it was one of the many times in my life it was deserved. I am sure the lingual brace experience was not the last time vanity got in the way of a good decision.
Billionaire Tax
I wrote this Monday and Tuesday and now it seems that Manchin will vote against it, so the piece is less relevant. If you have interesting the proposed billionare tax, check it out, if not, skip to Quick Bites. It seems the billionaire tax is picking up steam and the WSJ does a nice job of summarizing it. Remember, this tax will impact approximately 700 American families. A new annual tax on billionaires’ unrealized capital gains is likely to be included to help pay for the vast social policy and climate package lawmakers hope to finalize this week, senior Democrats said Sunday. “We probably will have a wealth tax,” House Speaker Nancy Pelosi (D., Calif.) said Sunday on CNN, noting that Senate Democrats were still working on their proposal, which isn’t technically a wealth tax but bears a strong resemblance to that idea. The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN. The tax is expected to affect people with $1 billion in assets or $100 million in income for three consecutive years, according to a person familiar with the discussions. The idea, for which President Biden recently expressed support after excluding it from his campaign plans and administration agenda, would affect a narrower group of people than the capital-gains changes that have already flopped among congressional Democrats. Mrs. Pelosi said Sunday that the tax on billionaires’ assets would likely generate somewhere between $200 billion and $250 billion in revenue over 10 years but that Democrats would be able to find other ways to pay for the bill’s cost.
Why do I think this is a bad idea? A reader sent me this link which is entitled, “The Billionare Tax: The Worst Tax Idea Ever.” It was written by an NYU professor, Aswath Damodaran, and includes a 28-minute video of him speaking about the proposed billionaire tax. I agree with a lot of the conclusions in this article/video, but you can read it if you have interest.
In short, yes, the rich have gotten richer and the super-rich have benefited greatly from the dozen years of central bank accommodative policy. There is no deying it. Some charts from the piece I cited above.
This chart clearly shows how the wealthy have left the lower income earners in the dust.
This chart shows that the top 1% is paying an increasing share of taxs over almost 40 years.
This chart needs to be looked at most closely. The argument by the Progressives is when you look at total taxes (not just income), the wealthy are not paying enough as a percent of income. Look at the 1st column of total Federal taxes. The bottom 50% pay 6.3% and the top 1% pay 32.9%.
I am supportive of billionaires paying more in tax, but I am not supportive of the proposal as I understand it. I believe taxing on unrealized gains is a bad idea which will result in untended consequences. I also believe it is the beginning of a slippery slope. If Congress wanted to outline some minimum tax on billionaire actual income or distributions, I could be supportive. However, taxing on unrealized gains is a recipe for disaster.
According to CNBC, Elon Musk’s net worth increased by $140bn in 2020 and another $119bn in 2021. I am going to assume he sold no stock in 2020 and now the government would tax Musk on the $140bn gain. How would he pay? Lets assume it is a 25% tax rate. He would need to sell $35bn in stock in order to pay it. For 2021, a similar outcome. What happens if TSLA stock craters in 2022? Here is what Musk had to say about the new billionaire tax proposal: "Eventually, they run out of other people's money and then they come for you," he wrote on Twitter. "Who is best at capital allocation — government or entrepreneurs — is indeed what it comes down to," he wrote on Twitter. "The tricksters will conflate capital allocation with consumption." I tend to agree with Musk’s comments and feel the government is a horrific allocator of capital.
The proposal is not clear what happens to private companies, but there is a suggestion in the WSJ article above that it is on “liquid assets.” One of the unintended consequences would be to take companies private and others would just not go public.
What if the tax is on illiquid assets? Some have suggested as much even though the WSJ article used the specific words, “liquid assets.” How do you value a private company? How do you value a minority ownership in a private company or real estate venture? How do you value art? IF the tax were to be on illiquid assets and you had someone who created wealth in through a private company or art, how would they sell these illiquid assets to pay the tax? Who would value the illiquid assets? There would be massive incentive to game the system and undervalue assets. This link suggests that real estate would be treated differently and goes into a little more detail on how the tax would be paid on liquid assets. “In cases of non-tradable assets, such as real estate, billionaires would not pay taxes annually on the gains but would pay a charge, on top of regular capital gains taxes, when they sell the assets.”
I understand why the proposal is attractive to politicians as it impacts so few people. However, I fear this is the beginning and in a short time the definition of uber wealthy will be lowered to impact a growing number of families. If the tax is only on liquid assets, all the smart people will stay private or take public companies private and who loses? The small investor who will not have access to these companies. Many small investors made a killing on AMZN, FB, TSLA, NFLX, AAPL and others. What if they remained private for only the wealthy, hedge funds, mutual funds, PE, VC… to buy?
I hope cooler heads will prevail, but in this witch hunt I fear it will pass and is the beginning of a snowball which could grow out of control. It won’t be the first time or the last time the government screwed up. I feel the bigger problem is one of government spending. I do believe billionaires should be taxed, but would like to see the Federal Government control spending too. There was a WSJ article late Tuesday night suggesting the Billionaire unrealized capital gain tax was facing headwinds. Is it possible that we get to the right answer?
Quick Bites
On Wednesday, the S&P 500 slipped 0.5% for its first down day in three as the rally on a strong earnings season started to ease. The blue-chip Dow dipped more than 250 points, falling for the first time in four days. Major averages has been marching higher on earnings momentum this month. The S&P 500 has gained 5.6% in October, on pace to post its best month since November 2020. The Dow is up 4.9% this month, while the tech-heavy Nasdaq Composite has rallied 5.5%. Nearly 40% S&P 500 companied have reported earnings and more than 80% of them beat Wall Street expectations, according to CNBC calculations. S&P 500 companies are expected to grow profit by about 37.6% in the third quarter.
Tesla crossed $1 trillion in market value Monday, joining a select group of companies after its stock price more than doubled this past year on surging vehicle sales and rising profits. Investors pushed the electric-vehicle maker over the line after Hertz ordered 100,000 autos to be delivered to the rental-car company by the end of next year, a bulk purchase that promises to expose more mainstream drivers to Tesla’s technology. TSLA is up 10-fold in a couple years and joins Apple, Alphabet, Amazon, and Microsoft in the trillion-dollar club. Lots of shorts have been eviscerated on TSLA. I do wonder how TSLA will do over the next few years as other competitors come into the picture with what appears to be superior battery technology.
Alphabet Inc.’s Google tallied its highest sales growth in more than a decade and nearly doubled its profit in the third quarter, as smaller businesses poured money into digital ads aimed at customers whose purchases have shifted online. The strong results underscored how the pandemic has turbocharged the company’s core advertising business. With retail foot traffic dwindling, marketers turned to Google to promote their products, delivering in a single year the kind of quarterly sales growth that the search giant typically records over a two-year span. Alphabet said Tuesday that revenue rose 41% to $65.12 billion, its largest in 14 years. It posted a profit of $21.03 billion, nearly three times what it reported before the pandemic.
Federal Reserve Chairman Jerome Powell indicated he is now somewhat more concerned about higher inflation and said that the central bank would watch carefully for signs that households and businesses were expecting sustained price pressures to continue. “Supply-side constraints have gotten worse,” Mr. Powell said Friday at a virtual conference. “The risks are clearly now to longer and more-persistent bottlenecks, and thus to higher inflation.” While the Fed has anticipated that price pressures would abate as the pandemic subsides, Mr. Powell said it would be important for the central bank to stay flexible in the months ahead. The central bank will “need to make sure that our policy is positioned for a range of possible outcomes.” In between his personal stock trading, I guess Powell has taken the time to see what is going on in the world and finally admits to inflation. I have written countless times about the Fed being wrong. Most infamously was Bernanke’s comments in May of 2007 that, “Subprime contagion will be limited.” Hey, Benny B with your fancy PhD; how did that call work out for you and the country?
Former President Barack Obama’s chief of global development on Tuesday predicted inflation was here to stay, despite the Biden administration’s protestations to the contrary. Prices “will go higher, and the Fed has misread the inflation dynamics in a big way,” former Global Development Council Chairman Mohamed El Erian said in an afternoon interview with Fox News’ Sandra Smith, adding that the Federal Reserve was “still hostage to this notion that it’s transitory.” Stop me if you heard me say almost these exact words before. “The first thing it should do is stop injecting $120 billion every month,” he said, referencing the Fed’s monthly purchase of Treasury securities and mortgage-backed bonds aimed at encouraging heightened levels of consumer borrowing and spending. “It should stop that. Do we really need the Fed to buy $40 billion of mortgages and push house prices even higher? No!”
Blackstone CEO Stephen Schwarzman warned Tuesday that high energy prices will likely set off social unrest around the world. "We're going to end up with a real shortage of energy. And when you have a shortage, it's going to cost more. And it's probably going to cost a lot more," the private-equity billionaire told CNN International's Richard Quest at a conference in Saudi Arabia. US oil prices climbed above $85 a barrel on Monday for the first time in seven years. Gas prices continue to creep higher, nearing $3.40 a gallon nationally, according to AAA. Natural gas prices have likewise skyrocketed, especially in Europe and Asia, prompting the shutdown of factories.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 3.30% from 3.23%. Refinance demand fell 2% week to week, seasonally adjusted. Volume was 26% lower than the same week one year ago. Mortgage applications to purchase a home increased 4% for the week but were 9% lower than the same week one year ago. This is good in my opinion. Continued increases in rates will help to cool the housing market.
Three key senators released legislation that would require some U.S. companies to pay a minimum 15% rate on profits they report to their corporate shareholders, in lawmakers’ latest bid to find consensus behind revenue-raising measures to fund President Joe Biden’s economic agenda. The proposal, sponsored by Senate Finance Committee Chairman Ron Wyden and Senators Elizabeth Warren and Angus King, would require that companies that report more than $1 billion in profits to shareholders pay at least a 15% tax rate -- even if they qualify for lots of tax breaks. The new levy would raise $300 billion to $400 billion over 10 years, according to King, an independent who caucuses with Democrats. I am not opposed to these kinds of tax rules.
Researchers are working on touch screen technology that would allow people to “feel” physical objects—including, for example, the texture of an item of clothing’s fabric while shopping online. I am constantly amazed by the engineers and developers who come up with these ideas and bring them to life.
The coronavirus pandemic continues to ravage college enrollments, with new data revealing declines compounding from last year to this fall. According to early data from the National Student Clearinghouse Research Center, undergraduate enrollment continued to decline by 3.2% after dropping last year amid the coronavirus pandemic. Enrollment at community colleges dropped by 5.6% and at public four-year colleges by 2.3%. "These data are depressing, but they also show that the effects of the pandemic on higher education are far from over," Robert Kelchen, professor of higher education at the University of Tennessee, told Yahoo Finance. I am a believer that the pandemic will shake out colleges and universities and some will not make it. I also am of the opinion that many students should be in vocational school, not a traditional four-year program. Too many are graduating with too much debt and not making enough upon graduation.
The darker the orange, the sharper the decline in enrollment. (Map: National Student Clearinghouse Research Center)
Residents in San Francisco have begun hiring private security to protect their homes, citing concerns over the continued rise in crime. Roughly 150 families from the Marina District have hired Patrol Special Officer Alan Byard to provide security to their homes, according to San Francisco CBS. The families said they've seen an increase in auto and home thefts occurring both during the day and the evening. "We don't feel safe in our neighborhood," resident Katie Lyons said. "And we have an alarm, we have security cameras on our property, but we want the extra security of having someone have eyes on our place." So, let me get this right. You live in SFO and pay some of the highest taxes in the country, yet feel unsafe. This is the government failing you with bad policies and overly-woke District Attorneys. Vote with your feet and take your wealthy out of there like TSLA and Musk.
Other Headlines
1mm in mortgage forbearance, highest number since financial crisis
AMD sales rise 54% on strong demand for chips for servers and game consoles
Loudoun County parents demand superintendent, school board resign after alleged sexual assault email
To Fight Rising Murder Rate, More Cities Find, Mentor and Pay Likely Shooters
Trump says he’d do ‘extremely well’ in 2024. Do polls agree?
Robinhood drops 10% to below IPO price as investors worry about bleak outlook
‘Let’s Go Brandon’ rapper Bryson Gray boots Adele out of No. 1 spot with banned anti-Biden song
Virus/Vaccine
The data continues to improve across the board. Cases fell 23% and are at 71k/day. Hospitalizations are -19% and at 52k, while deaths fell 17% to 1.4k/day.
A key FDA advisory committee on Tuesday recommended a lower dose of Pfizer and BioNTech’s Covid-19 vaccine for children ages 5 to 11. The vote was nearly unanimous with 17 members backing it and one abstention. The endorsement was a critical step in getting some 28 million more kids in the U.S. protected against the virus as the delta variant spreads. The agency doesn’t always follow the advice of its independent committee, but it often does.
Children as young as 3 will start receiving COVID-19 vaccines in China, where 76% of the population has been fully vaccinated and authorities are maintaining a zero-tolerance policy toward outbreaks. China becomes one of the very few countries in the world to start vaccinating children that young against the virus. Cuba, for one, has begun a vaccine drive for children as young as 2. The U.S. and many European countries allow COVID-19 shots down to age 12, though the U.S. is moving quickly toward opening vaccinations to 5- to 11-year-olds. Local city and provincial level governments in at least five Chinese provinces issued notices in recent days announcing that children ages 3 to 11 will be required to get their vaccinations. Despite high vaccination rates, there seems to be spikes in China. I would never trust the data out of that country, so I refuse to spend much time on it.
The NYPD is doing everything in its power to convince cops get COVID vaccine shots as the city’s mandate deadline looms — a cutoff that could send a quarter of the police force home without pay. “We have to prepare as if this is going to go into effect Friday evening and that’s exactly what we’re going to do,” Police Commissioner Dermot Shea said on NY1 Tuesday. “We have vaccines available throughout the city for our members.” Police say that 73% of the NYPD has gotten at least one vaccination shot. The number should increase ahead of the deadline, Shea said. City employees not vaccinated by Friday will be sent home without pay.
Real Estate
Miami Condo Rental Madness
I spoke with a reader who rented a 3 bedroom apartment in the Continuum in South Beach last year for 6 months in the high season. He paid $78k for the 6 months or $13k/month. Remember, you pay a premium in the high season for those 6 months. It is akin to renting in the Hamptons pre-pandemic. The charge for June-August relative to full year is not linear. The summer is a massive premium to the other 9 months historically. My friend bought a 2 bedroom in the building and received a call to rent it for the full year. He was offered $26k/month or $312k/year. So, now, he got a massive premium to the 3 bedroom he rented last year and has it rented for the full year. The pandemonium does not end down here. I told this to Devin Kay (Miami to Jupiter Broker). He told me in the past couple months, in the Continuum, he rented a 3 bedroom for $38k/month (12-month lease) and a 4 bedroom for 6 months for $52k/month. Another 3 bedroom with a den is asking $65k/month. At the St. Regis in Bal Harbor, 3 bedrooms are going for $70-85k/month for 3-6 month seasonal rentals. A 2 bedroom just rented in the St. Regis for $27k/month.
Devin spoke with a friend who has sold well over $300mm in 2021 and 42% of the broker’s transactions were done off-market. This means, the house was not listed, but sold in a private transaction. I have been contacted by a few brokers who have shown my house and there has been interest, I just can’t find a place to live.
NYC Market Update-Jared Halpern-Douglas Elliman
50 contracts were signed in the luxury market ($4M+), which was 9 more than the week before. 42 Condos, 5 co-ops and 3 townhouses. Third time this year there was 50 or more contracts signed. The $483,647,999 volume this week is not only the highest weekly total this year but also since December 16-22, 2013.
Of the 50 contracts signed, 16 of those were $10M+ which is the largest total of trophy properties since March 11-17, 2013.
The highest contract signed was Lewis Hamilton’s PH at 443 Greenwich, last asking $49,500,000. He originally paid $43,991,454 back in 2017 and tried listing it in 2019 for $57M. Hamilton also bought the Penthouse at 70 Vestry above Tom Brady for just under $41M. Many suspect he bought the PH at 70 vestry in 2018 because it blocked a lot of the water views from his PH at 443 Greenwich.
Good Bloomberg article on NYC R/E. Great charts in the link, but there is a bug in my laptop and I cannot import the pictures. New York City home prices are rising fast in some of its most-prestigious neighborhoods. In the third quarter, Manhattan’s Greenwich Village and Chelsea—expensive-to-live-in staples of downtown cool—each saw resale prices jump to a median of $1.3 million. The gains from a year earlier were 40% and 24% respectively. The Upper West Side median rose 20% to $1.2 million. Brooklyn’s prime neighborhoods—all close to Manhattan—are faring the same. Resale prices in the Cobble Hill/Boerum Hill area increased 20% to $1.12 million. In Williamsburg, they climbed 17% to $1.16 million.