Opening Comments
My last note was about my memorable dinner with Carl Icahn and worth a read for any who missed it.
I had a good dinner in South Beach at Abbale Telavivian Kitchen. I would go back for the spreads and food, but look elsewhere for the vibe.
Big NFL Conference Championships today with the 49ers at the Eagles and Bengals at the Chiefs. Mr. Irrelevant (my 12-14-22 piece in the link), Brock Purdy, continues to play well above expectations, despite being a rookie and the last person taken in the 2022 Draft. A rating of 107.3 with 13 TD, 4 interceptions and a 67.1% completion rate. What a story it would be if the 49ers won the Super Bowl. Joe Burrow has had the Chief’s number and is playing with confidence. The Chiefs have injuries to the star QB and tight-end. Nothing like playoff football. I am making some chili today and watching the games.
Reminder, there are anchor links in the table of contents and if you click on the underlined headlines, it will take you to that section of the newsletter.
Markets
Economic Data-PCE/GDP
China Auto Exports Booming
Every Company Leaving CA
ChatGPT Update on Uses and Job Disruption
Miami High-End Condo Update
Off-Market Amazing Miami Waterfront Lot Listing
Tommy Hilfiger $36.9mm Palm Beach House
Five Cities Where Home-buying is More Affordable
Video/Pictures of the Day-Horrible Police Brutality Murder-Memphis
The video is disgusting and there is no excuse for the behavior of the officers involved. I hope justice is served, and the investigation uncovers the truth. The beating is incredibly disturbing, and the video shows how vile bad actors can be. It appears Tyre Nichols was stopped for reckless driving and fled on foot. I am told there is video of the cops fist bumping after the beating to celebrate, but did not see it myself. The victim, Tyre Nichols lived with his parents and cried out for his mother during the beating. He was 6’ 150lbs and the cops were massive. Bodycam video shows Tyre Nichols being beaten, tased by Memphis police. Nichols died of injuries from police 3 days after the incident. The victim was Black and the officers involved appear to all be Black as well. This happened in Memphis, and I believe all the officers have been fired. The officers were part of a unit called SCORPION, which was made of 40 officers split into four teams who patrolled “high crime hotspots.” SCORPION has been disbanded due to the murder of Nichols.
I'll Give You The Scoop
My wife was in the fashion industry and knew everyone involved given she was a Fashion Director at Spin Magazine, Mirabella, Talk, Radar-On-Line and was a stylist to the stars. Jill has been on Oprah, E! Network, NBC, ABC and countless others. One of the perks of Jill’s connections were discounts at retail stores including Prada, Gucci, Ralph Lauren, Armani and many others. Jill was friends with Stefani Greenfield who started the great clothing store, Scoop, in the late 1990s with Uzi Ben-Abraham. Scoop was built on a model of curating items from different designers such as Prada, Chloe, Stella McCartney, Helmut Lang, Marc Jacobs, and many others. Stefani was a genius when it came to merchandising and layouts for the stores.
Also, who could forget those great Scoop plastic bags, which are now sold online for up to $35. I must have had 1,000 of them over the years.
Scoop was acquired by Ron Burkle’s private equity firm, Yucaipa, in 2007, and although the merchandising went downhill without Stefani, it remained a staple for me given my discounts continued and the fun casual attire. Since 2004, I had never bought a casual piece of clothing from anywhere else other than Scoop. Every pair of jeans, casual sweaters, shirts, shorts, sneakers were all from Scoop and the salespeople knew me well. Rene, one of the friendly salespeople, would call me to tell me when something was on sale, and when the store closed down in 2016, I CLEANED UP. I bought my wife a dozen dresses at 75% off, and shockingly 100% of them fit her. I bought every pair of jeans and every coat in my size. All the cool baseball caps, shirts, sneakers and belts in my size were purchased in the final days of Scoop. I have not purchased a pair of jeans, a sweater, or casual clothes since Scoop closed down over 6 years ago.
The store below was about 300 yards from my apartment when I lived on 74th and Park, so I would walk by it constantly.
I thought of Scoop during the Arctic blast over Christmas, where temperatures in South Florida got into the 40s. I have lived down here for 5.5 years and had never worn a coat, and only worn a sweater a couple of times. I had a lunch in Palm Beach on Christmas day at Le Bilbouquet and was “Scooped Out.” I wore Citizens of Humanity jeans, a Scoop sweater, a button down shirt and a Belfast leather jacket all from Scoop. Given I no longer wear any jackets, I think it was the 4th time I ever put it on. I need to amortize the cost of these bad boys over more wears. Unfortunately, Scoop closed its doors due to a number of factors from high rents to the change in retail shopping. I cannot gain more than 2 pounds or my Scoop haul won’t fit. Given my notoriously frugal ways, I am getting a tummy-tuck or going on Ozempic before I throw these snappy duds away, as it will be cheaper than repurchasing everything.
Quick Bites
All the major averages are positive for the week and month. The Dow and the S&P 500 have gained 2.2% and 2.9% this week, respectively. The Nasdaq is up 4.7% and set to notch its best monthly performance since July. So far this year, markets have bucked 2022′s selloff trend. The Dow is up 2.5%, while the S&P has gained 6%. The Nasdaq has surged 11%. Tesla rose 12% Friday, building on a more than 33% weekly gain after reporting record revenue.
Personal consumption expenditures excluding food and energy increased 4.4% from a year ago, down from the 4.7% reading in November and in line with the Dow Jones estimate. Spending adjusted for inflation declined 0.2% on the month, worse than the 0.1% drop that Wall Street had been anticipating. That came despite a 0.2% increase in income, which met estimates. Gross domestic product rose at a 2.9% annualized pace in the fourth quarter, slightly better than expected. Consumer spending weakened from the previous period but remained positive. I have written extensively on weakening consumer spending due to rising debt levels, inflation, crashing savings rates… I believe we will see the consumer pull-back more aggressively in coming months, but hope I am wrong. The third chart is another example of the consumer under pressure. The 4th chart shows consumption falling, but is 3 month annualized. Remember, consumer spending drives two thirds of the US economy. Friday, we saw Treasuries sell off 1-3bps post the PCE data. Fed Funds Futures implies 25bps at the next meet and one more increase after that with the terminal rate of 4.91% last I checked.
I hate on China at every opportunity given the government players are bad actors, who lie, cheat, steal and have horrible human rights violations. However, I did think this Bloomberg article entitled, “The US Hasn’t Noticed That China-Made Cars Are Taking Over the World,” was an interesting read. As China’s auto brands woo more and more foreign customers, the nation is poised to become the world’s No. 2 exporter of passenger vehicles, a milestone that could reshape the global auto industry and spark new tensions with trading partners and rivals. Overseas shipments of cars made in China have tripled since 2020 to reach more than 2.5 million last year, according to data from the China Passenger Car Association. That’s only a whisker (about 60,000 units) behind Germany, whose exports have fallen in recent years. The target is to sell 8 million passenger vehicles overseas by 2030—more than twice Japan’s current shipments, he says. The trend underscores that China has moved beyond being the “world’s factory” for low-cost consumer electronic devices, appliances and Christmas toys.
A reader sent me this link entitled, “Every Company Leaving California: 2020-2023.” Now, I am not convinced it is all encompassing, but the list is long with massive companies departing. We know there is a $22-24bn budget deficit in CA slated in 2023 (without a recession), but we need to understand that the wealth in terms of companies and individuals leaving and the impact on the budget. I do not have room to list all of the large companies, but here are the major ones I recognize: Lucas Oil, American Airlines, Chevron, Tesla, Kaiser Aluminum, Snowflake, Charles Schwab, Oracle, Hewlett Packard Enterprises, CBRE, Palantir and many others. They have four dozen more under 100 employees which left as well. Interestingly, Texas was the preferred state where companies moved accounting for 44% of the moves, Florida only accounted for 6%. I wonder how many major companies left Texas and Florida to move to California? Remember, when people like Musk, Larry Ellison, Joe Londsdale, Drew Houston, Austin Russell, Orlando Bravo, Stewart Butterfield…leave CA, they take their billions and big spending with them.
I have been an early adopter of ChatGPT and believe it will be incredibly disruptive in coming years. This article outlines job disruption from the AI model and outlines a half dozen sectors which will be impacted. I feel over the next 5 years, it will be far more broad than the things listed. This past week, US representative Jack Auchincloss gave a speech to Congress on creating a US-Israel AI Center and he had ChatGPT write the two-paragraph speech. You can watch the impressive 44-second speech here. Amazon employees are already using ChatGPT for software coding and to answer tricky AWS customer questions. Not all of the initial usage has been as impressive as I would have thought. For example, ChatGPT passed exams from law and business schools, but hardly received A’s as can be read here. If I had to guess, if the test was taken again in a year or so, it would score far higher as it continues to learn over time. AI is evolving and improving. The future is exciting and concerning at the same time. There are more reports about ChatGPT being a bit woke as well as can be seen in the link. Also, it appears a paid version of ChatGPT is being considered as the CEO indicated they have to “monetize it somehow.”
Other Headlines
Starwood Capital CEO Barry Sternlicht weighs in on the current labor market
Great 5-minute video from CNBC of a Sternlicht interview from 1-26. He is VERY impressive, and I share some of his concerns. He discusses the Fed, immigration, minimum wage, hotel market, recession…
Big Oil earnings preview: Energy giants to smash annual profit records
President Biden, maybe you should consider the carrot and not the stick when pushing energy companies to invest. These decisions are multi-year and billions of dollars. Remember, the Keystone Pipeline? These CEOs don’t want to lose a ton of money when minds are changed. No one was crying for energy companies when oil traded at -$38/barrel and they lost billions.
Intel's horrible quarter: Inventory glut and underused factories
Intel’s December earnings showed significant declines in the company’s sales, profit, gross margin, and outlook, both for the quarter and the full year. The stock was -10% on the news as PC sales have slowed and there is a glut of chips in the market.
Adani Rout Crosses $51 Billion as Stocks Plunge by Daily Limits
A short seller, Hindenburg Research, published a report detailing allegations of corporate malpractice sending shares of related companies sharply lower.
Slashed bonuses mean Wall Streeters are living less large
I don’t see how high-end NY area (including Hamptons) R/E holds up well given rates, bonuses, layoffs…Maybe it will be easier to get into country clubs up there in a year? The article talks about cars, vacations, dining, watches, yachts, planes….
Great article about the importance of saving, investing, being frugal and taking a long-term view. A janitor amassed $8mm!
Morgan Stanley fines employees $1M for WhatsApp messaging violations
Caroline Ellison, Sam Bankman-Fried's mom 'not cooperating with probe'
Hawley introduces Pelosi Act banning lawmakers from trading stocks
To be clear, BOTH parties are guilty, but the name of this bill is quite clever. Hawley on Tuesday introduced the Pelosi Act — or the Preventing Elected Leaders from Owning Securities and Investments Act — renewing a legislative push to curtail stock trading by lawmakers. I am adamantly opposed to members of Congress being allowed to trade securities. Unless you have worked at a bank, you have no idea how restrictive it is to attempt to actively manage a portfolio. So many limitations, restrictions…Not for Congress who trades on inside information with no consequence.
DeSantis rolls out sweeping criminal justice package
“Right now, the state of Florida, our crime rate is at a 50-year low,” DeSantis said. His proposals are tougher on criminals and Fentanyl, especially when trafficked to children. He wants to consider the death penalty for child molestation cases.
To be clear, Veritas has a mixed record of reporting and does edit the videos. I would just say that the senior Pfizer employee does seem to say damaging things around Pfizer potentially mutating the virus IF the video proves to be true. Pfizer has issued a public statement here denying gain of function or directed evolution research. Senator Rubio sent Pfizer a letter and Representative Green is asking for an investigation post the video. This warrants an investigation in my opinion. Of note, when you searched it on Google, on Friday, you got the 3rd picture.
Healthy alternatives to 7 of the most popular processed and ultra-processed foods
Everyone Is Taking This Drug to Lose Weight. Instead, It's Rapidly Aging Their Faces.
I have seen amazing results with friends on this drug. Maybe the weight loss is so impressive, I don’t notice aging faces. I am going to be more aware after this article.
Kyodo Senpaku Co. unveils Whale meat vending in Japan
Three arrested in murder-for-hire plot targeting U.S. journalist who criticized Iran
I got this one wrong. I never thought Ukraine would still be fighting Russia one year later. I thought Russia would have won in a few weeks.
Crime Headlines
Paul Pelosi attack: Police body camera video shows violent hammer assault
Very strange 1-minute video of police knocking on the door and the attack on Pelosi. When door opens, Paul and DePape are holding a hammer, and when the police ask them to drop it, Paul is hit by DePape. It is disturbing. The Paul Pelosi 911 call is here too. Shockingly calm conversation. The 911 operator is an idiot.
Howard Beach poised to hire off-duty NYPD cops amid crime concerns
High schooler breaks teacher’s leg during attack in Rockdale County classroom
Video is crazy. Outside of Atlanta.
Jerusalem synagogue killing spree leaves seven dead, three injured
Jerusalem shooting: Alleged 13-year-old Palestinian gunman apprehended by armed Israeli citizen
Real Estate
I spoke with Devin Kay from Douglas Elliman, and he had some strong views about the high-end market. “New development condo market remains extremely hot as everyone is gravitating towards the newest and best product, although these projects are 2-3 years away. In the last 60 days I will have sold over $100M worth of condos at both Shell Bay & The Perigon. All of my buyers are all major hedge fund / Private equity executives.” The Perigon is at 53rd at Collins, and prices are ranging from $2,300 to $4,000+/ft. The Shoreclub, The Aman, The Surfclub are going for $4,800+ for good units. Devin has a new listing next week which is outlined below. “I am also listing an incredible waterfront lot on upper north bay road next week. It is 27,000 SF lot with 150 feet of water-frontage and downtown skyline views. Asking price is $33M, renderings below of a proposed home we had created by architect Cesar Molina. 2 blocks from La Gorce. 6 homes worth over $75M within 2 blocks.” My guess is building costs would be $1,500/foot to build a great house.
Lawrence Moens, the undisputed top agent of Palm Beach, sold his historic estate on the island for $36.9 million to designer Tommy Hilfiger. Records show M & M Palm Beach Property Investors LLC, a Florida entity tied to Moens, sold the home at 930 South Ocean Boulevard to TCM1 LLC, a Connecticut entity managed by designer Hilfiger. The Palm Beach Daily News reported the property as Moens’ personal home. Moens is the mysterious Palm Beach broker who has handled some of the biggest sales in recent years, including billionaire Oracle co-founder Larry Ellison’s $173 million purchase of a 16-acre ocean-to-lake Manalapan estate from fellow tech billionaire Jim Clark. An analysis by The Real Deal estimates Moen’s deal volume near $1 billion since the start of 2021. He doubled his money on the sale to Hilfiger in just under two years, although it is unclear if he completed any renovations.
Buying a home is now more affordable than renting in these five cities
Memphis, Tennessee, had the biggest savings to homebuyers over renters, with the monthly cost of home ownership 32.7% less than renting. It was followed by Pittsburgh; Birmingham, Alabama; St. Louis and Baltimore. Monthly buying costs assume a 7% down payment with a mortgage rate of 6.36%, and include taxes, insurance and homeowners association fees.
Other R/E Headlines
New home sales (chart below) in December totaled 616k, about as expected but November was revised down by 38k to 602k. Months’ supply was 9 vs 9.2 in November and 9.4 in October. Some of this supply though is not fully finished homes. The y/o/y home price gain was up 7.8% but bounces around a lot because of mix. (From Peter Boockvar)
Virus/Vaccine
Data improvement continues across the board.
