Rain Man

5-15-22

Opening Comments

A reader reached out to me who is a trained sniper and self-defense/security expert. He told me about a class taught by ex-CIA Agents and Special Operations forces. It is called One.61-Personal Protective Techniques. I called “The Most Interesting Man in the World,” Johnny P, to see if he wanted to join me for a cyber-security class today and then field training on Wednesday. Of course, he jumped at the chance, because he thinks my outlandish ideas are a walk in the park given his impressive and crazy ideas of fun (flying upside down in a helicopter, surfing 50 ft waves, passing out with 6.5 G-Forces…). I will be writing about our experience next Sunday. No Rosen Report Wednesday most likely as I will be in class learning how to kill any haters with a paper clip. Actually, the field work is more about situational awareness, surveillance detection, threat identification, safety and preventing bad outcomes in what has become a far more dangerous world. I will give my feedback with assistance from Johnny and let you know what we think and if it merits your consideration. However, if after two days of training I am recruited by Special Ops to be an assassin or under-cover agent, it will be the end of the Rosen Report. Stranger things have happened; just look at the world lately. I need a call sign and 007 is unfortunately taken. I am all ears. No, Moron 009 is not a call sign I will consider, but open to other ideas.

I have heard from dozens of readers who feel they have lost a great deal of money in the market volatility. They have spoken to me about pulling back on spending as a result of the pain and uncertainty. There is a great podcast called, “All-in” and the specific episode about the current environment can be found here. Famed investor, Chamath Palihapitiya claims global wealth destruction in the $35 trillion area (9 min mark). This is higher than I would have guessed, as I believed the number was approximately $20 trillion. He suggested the recent carnage has destroyed 14% of the global wealth while the Global Financial Crisis destroyed 19%.

This surely will put a dent in spending and investing psychology (trading scared). Couple this with the Fed dramatically changing policy and liquidity, layoffs and hiring freezes and I think we will see more cracks show. I left this podcast more concerned and increasing my likelihood of a recession given the wealth destruction, increase in consumer credit, rates, layoffs and liquidity leaving the system (Fed has not started Quantitative Tightening yet). Raising money for underfunded business plans will be increasingly challenging. However, this chart suggests some SAAS-Software as a Service company multiples are getting interesting. They were trading at 15x+Next Twelve Month (NTM) revenues and now they are 5.6x. Sorry, I took a pic of the podcast and it was a little cut off, but you get the idea. They start discussing this around 14 minutes into the podcast.

I can speak for myself, I am relatively conservatively invested with 50% cash positions and my small crypto exposure (was 1% of net worth), small equity exposure and some Private Equity/Venture which been shockingly costly. I know many who had substantial exposures across crypto and equities who have lost a large chunk of their net worth in the past few months. My crypto is now down 70% in weeks on a diversified portfolio. The violent moves and mounting losses sure make the market feel as though it is down more than it is in my opinion.

My last note, Philadelphia Freedom had some very positive feedback, but the open rate was only 65%. Here it is again if you missed it.

• Picture of the Day-Recession Fears

• Rain Man

• Quick Bites

  • Markets

  • Stock Valuations

  • Crypto

  • Twitter/Musk on Hold

  • Fed/Powell/Inflation

  • Cash Alternative Ideas

  • Layoffs

• Other Headlines

• Virus/Vaccine

• Real Estate

  • General Comments

  • Miami Rents

  • $800/Month for Bay Area Bunk Bed

Picture of the Day-Recession Searches

I cite Jim Reid from DB from time to time as he puts out some good thought pieces. I felt this one was timely. You will likely now be aware of the DB Recession call that we instigated for 2023, 6-7 weeks ago. Outside of DB there are still very few economists who agree though. However, in recent weeks the awareness of the risks have shot up across the world and not just in financial markets. One way of showing this is Google searches for “recession” in the US. The index is benchmarked at 100 in March 2020, with volume of searches all relative to that. As a minimum, it shows how little fear there was for most of the 2010 decade. As we’ve discussed before, the post-GFC cycle was a very different one to this boom and bust one.

Rain Man

I hope my readers recall the 1988 movie with Dustin Hoffman and Tom Cruise. Hoffman plays and autistic savant who has a wheeler-dealer brother played by Cruise. It is a fantastic film with many memorable scenes. Today’s note has nothing to do with the movie Rain Man, but the title was apropos.

Given the historic droughts on the west coast (see this concerning story) which I have written about at length, I feel it is my duty to offer a solution.

One idea is a ritual done in Mexico. Seeking to appease the God of storms and end a drought, men and women in tiger costumes whip each other mercilessly into submission in an ancient ritual in southern Mexico. "They say it's a drop of blood for a drop of rain," Karina Vicente says as she prepares to take part in the annual tradition for the first time.

Another, better idea is that I believe I am THE Rain Man. No, I am not autistic and no, I am definitely not a savant, but I do have the ability to make it rain. I have found that if I get my car washed, there is a 90% chance of a thunderstorm within hours of the washing. Two weeks ago, it had not rained by me in a week and I got my car washed with sunny skies. I am not lying, less than 1 hour later it was like a tropical depression with sideways rain. This happened again on Friday. Tree sap was on my car. I got it washed in clear skies. On the DRIVE HOME FROM THE CAR WASH, it started raining. I started speeding to try to not get the car wet and my son said, “Dad, I am pretty sure it is not worth dying in order to get home with a clean car.” Where does my son get such sarcasm? Very concerning. DNA test please.

If I want the rain probability to go on an asymptotic line to 100%, I can do it no problem. I have a service which comes to the house every three weeks to clean up outside. They alternate what they do between washing windows, cleaning up the grill area, power washing the terrace/decks….I can assure you that if I get my car washed AND my house windows washed it will pour for hours.

How did I arrive at these results? I am a man of statistics and I have a large enough sample size. If I get my windows washed in my house, the rain chance is 95% within 24 hours. If I get my car washed, the chance is 90%. If both happen on the same day, the probability jumps to 99.9%.

Here is my proposal for the West. If you move me out there and buy me a house and a car, as well as give me tax incentives and a security detail, I will cure your drought. I will get my car washed and house windows washed regularly and can assure you it will pour. Its just plain statistics. After all, I am the Rain Man.

Quick Bites

• The Dow Jones Industrial Average rose 466 points to 32,196,or 1.5%. The S&P 500 gained 2.4% to close at 4,024 and the Nasdaq jumped 3.8% to 11,805. The S&P 500 on Friday finished its best day since May 4, while the Nasdaq posted its strongest one-day gain since November 2020. Despite Friday’s gains, the major averages posted losses for the week, with the Dow closing down 2.14% and posting its first 7-week losing streak since 2001. Despite Friday’s major rally, the S&P 500 fell 2.4% and hit its longest weekly losing streak since 2011, while the Nasdaq slipped 2.8%. For the year indices are down: Dow -11.4%, S&P-15.5% and Nasdaq -24.5%. It feels to me, the market indices should be lower, but energy is keeping them up. I checked the top 25 performing S&P stocks and 22 or were energy and one was fertilizer. They are up 24% to 121% YTD. Check out this chart which shows energy outperforming. Without it, the S&P would be down a lot more. Energy +44.8% and Consumer Discretionary -26.3%, Info Tech -22.3%, Communication Services -25.3%…I think it is close to rotate to some of the beaten down sectors.

  

  • Top S&P Names YTD returns. Disregard #1 and check the others.

    

  • Below is the one week Nasdaq chart which is going in the opposite direction of energy YTD. Oil rallied 4% Friday and finished the week slightly higher after many volatile sessions. Nat gas saw volatility as well and finished the week slightly lower at $7.6. With the broader market sell off, Treasuries rallied and the 10-year finished at 2.9% after starting north of 3.1%. I would like to see a vicious limit down sell-off in the next two weeks as a sign to buy stocks. I am not sure if it happens, but am also not convinced that Friday’s gains were an all-clear signal either.

    

• This WSJ article is entitled, “Stocks Are Way Down. They’re Still Expensive- The S&P 500 still has plenty of room to fall, if history is any guide.” Two good charts below.

  

  

• To me, the big news of the week aside from the insane crytpo volatility was around Terra and Luna. The crash of the stablecoin, Terra USD and the massive collapse of the Luna crypto currency to ZERO will have ramifications for a long time in the space. The above link is informative. The stablecoin was at $1….until it crashed. This Market Watch article gives good data on Luna and the stablecoin USDTerra. It calls Terra’s collapse the largest wealth destruction event in the short history of crypto. Of course, I owned some. Thankfully, small size.

  

  

  

• The crypto carnage is substantial, and this Bloomberg link had a couple good charts to show it. After months of decline, the bottom dropped out of the crypto market, sparking talk of a “crypto winter,” when many tokens lose most of their value for a sustained period. Investors who’d been hoping to get rich quick are now trying to figure out if they can cut their losses instead. This CNBC headline makes a great deal of sense and expect changes: Regulators are growing anxious about stablecoins after Terra’s stunning collapse. This Bloomberg article outlines the ramifications of the crash of Terra/Luna.

• I have been very clear that I want Musk to buy Twitter to make it a more consistent source of information without being so biased. I believe it is good for the world. I also have stated that he is overpaying handsomely for Twitter based on any metric and that has only been amplified by the massive sell-off in comparable stocks in the past month. On Friday, Musk suggested the deal was “on hold” pending information on fake accounts. Twitter was already trading at a substantial discount to the $54.2/share agreed upon take out price. It was trading in the sub $46 range prior to the “on hold” Tweet and after, the stock fell as low as low as $33.79, but settled at $40.85, or a 25% discount to the agreed upon sale price. I personally believe fair value is less than $30 if the transaction fails to close based on the carnage in the space. Musk suggested in a later Tweet that he is committed to closing. I hope this is merely a tactic to lower the price, but fear the deal collapses and the current price of the stock 25% below the take-out suggests the market is concerned too. All the editing of the 2nd pic done on an iPhone by yours truly. The TSLA stock move is not pretty either, as it is -23% in the past month.

• I have written extensively in my reports about how poorly I feel the Fed failed and that the Biden Administration has added to the issues. The Fed left the gas on the fire too long and the Biden Administration’s $1.9 trillion stimulus bill energy policy surely contributed to the oil/gas crisis as well. Clearly, supply chain issues and the Ukraine war were factors as well. The Fed continued Quantitative Easing and low rates for too long and are now behind the curve. I remain disappointed how the Fed seems to get it wrong so often. This CNBC article outlines Federal Reserve Chairman, Jerome Powell’s views. Powell said he couldn’t promise a so-called soft landing for the economy as the Fed raises interest rates to tamp down price increases running near their fastest pace in more than 40 years. “So a soft landing is, is really just getting back to 2% inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now, for a couple of reasons,” the central bank chief said in an interview with Marketplace. He noted that with a tight labor market pushing up wages, avoiding a recession that often follows aggressive policy tightening will be a challenge. Remember, Powell was convinced inflation was transitory and refused to change policy when he had the opportunity. This WSJ article from March (inserted in a prior piece), suggests the likelihood of Fed success is low and explains why. I have found the Biden Administration’s excuses for inflation quite comical as he seems to blame everyone else. He said 70% of the price hikes were due to Putin. He also blamed energy companies and even Senator Rick Scott. I believe a great deal of the inflation is due to the Fed and Biden’s policies. Biden also blamed low corporate taxes as an inflation driver and Bezos said the new 'disinformation board' should review Biden's tweet that tied high inflation to low corporate taxes, calling it 'misdirection.' Don’t hold your breath on an investigation. Remember, the people running the “disinformation board” are left of left. Gas hit another all time high with Unleaded at $4.47 and Diesel at $5.57. I saw $5.99 Regular Unleaded last week in Miami. Biden’s energy policy can accept a good deal of blame on gas prices.

  

  

• I have an idea for cash alternatives. Bank deposits pay approximately 30-65bps depending on the bank. You need to check and know what you are getting paid. For low risk, but higher rates, I suggest two alternatives. Term Deposits (TD) which range from 3-12 months and pay 1.5-2.6%. These are “Locked Up.” You cannot get your money before even with a penalty and result in ordinary income (taxes). The other, is a portfolio of high-quality short dated (1 year average) maturity munis which are tax advantaged and can get you closer 2.5-3% tax equivalent yield. If you go out to 2 year duration, you can pick up more yield. My point is simple, bank deposits are not paying enough and there are alternatives. You should speak with your bank about options to get more yield without losing sleep. Here is an example of Term Deposit rates from a major dealer. Separately, I am hearing that the smartest credit hedge funds are buying deeply discounted dollar price Investment Grade bonds. I had put charts in my last piece on prices.

  

• In my last report, I wrote about hiring freezes/layoffs especially in tech, banks and any firm needing to raise money to fund a business plan. This WSJ article is entitled, “ The Companies Cutting Staff, Freezing Hiring or Slashing Costs.” The list includes, Peloton, Meta, Twitter, Uber, Carvana, Netflix, Robinhood, Better.com, Scott’s Miracle-Grow and Wells Fargo in this article. But make no mistake, there is more to come. Any business plan which is not funded for some time will be under pressure to let go staff. Money was easy in 2021 and now it will become increasingly challenging. The All-in podcast I cited in Opening Comments discusses layoffs as well.

Other Headlines

• Heavily shorted online used car seller Carvana surges 30%, is halted several times

  • Another example of market pain and there are many of these crowded trades working against the shorts.

• Robinhood shares jump after crypto CEO Sam Bankman-Fried acquires stake

• Since its wildly successful IPO and ensuing run, Dutch Bros Inc. has been too hot for many investors to handle.

  • The stock went public 9/15/21 at $23 and closed up 61% on the 1st day. The all-time high was $81.4 and it has settled at $27 Friday after being as low as $21.3 on Thursday.

• At Tech Companies, the Rebellion Against the Return to the Office Is Getting Serious

  • A consistent theme of mine has been work from home and the battle is raging between employers and employees. I believe tech layoffs are coming and those who demand WFH may get squeezed.

• Here's what's getting more expensive at the grocery store

  

• GOP rep says illegal migrants sent ‘pallets’ of hard-to-find baby formula

  • I don’t know where to begin here. Why is it that we favor illegal immigrants over our own tax paying, legal US citizens? Parents are scrambling for formula in the US. Remember, in San Diego, during COVID, the teachers were educating illegal immigrant children in PERSON while CA citizens had to educate on-line.

    

  

• Baby Formula Shortage Could Last Months

• Inflation: Airline fares surge 18.6% in April as travel demand picks up

  • I have spoken of this first-hand experience which is troubling. Rental car prices are no picnic either, as I am starting to book my travel.

• Inflation is costing U.S. households an extra $311 a month. Here’s what’s more expensive and how you can save some money

• Laura Ingraham Asks Why There Was No Hoarding Under Trump. Twitter Explodes

  • Hard to have credibility when something so stupid is suggested. I vividly recall waiting at Costco in my mask and gloves trying to buy toilet paper and masks and the lines and crowds were getting aggressive in 2020. They limited you to two toilet paper packages assuming they had any. Laura, this was a dumb comment. I love this tweet and many more in the link.

    

• Small, mid-sized US police agencies reeling from loss of officers, job recruitment woes amid anti-cop climate

  • Wait. If you vilify the police, attack them, humiliate them and defund them, they don’t want to work?

• NYC teen gangbanger who was cut loose while facing attempted murder charge busted again on gun rap

• Suspect in armed elevator rape is Level 3 sex offender who spent 16 years in jail and just got out

  • He turned himself in. The system failed yet again.

• Chicago alderman says 400 people, ages 14-21, flooded streets for party, prompting concerns ahead of summer

  • After 63 years, my sister is leaving Chicago and closing her business. The #1 reason she is leaving is safety and the inability to leave her office or apartment without fear. She was robbed in the past two weeks.

• 10 dead, suspect arrested in mass shooting at supermarket (Buffalo)

  • The gunman, Payton Gendron is 18 years old and the attack was racially motivated. 11 victims were black and two were white.

• Johns Hopkins center against child sexual abuse hires professor who defended 'minor-attracted persons'

  • I wrote about this professor in the past. The transgender professor resigned after attempting to normalize the phrase, “minor-attracted persons.”

• A Harvard nutritionist and brain expert avoids these 5 types of foods that can make you ‘tired and stressed’

  • Processed Foods, Industrial Seed Oils, Added & Refined Sugars, Fried Food, Artificial Sweeteners.

• California Sees Record $97.5 Billion Surplus, Driven by the Rich

  • I would like to see what it looks like for the next 12 months with the market crash, lack of IPOs and more wealth leaving the state. Tech stocks have been smashed.

• Finland to apply to NATO 'without delay' as Russia threatens 'retaliatory steps'

  • The President of Finland spoke with Putin who told him it would be a mistake to join NATO. I am convinced Putin is very ill and called it in my 2-27-22 piece.

• Ukraine: Putin humiliated as satellite pics show tanks wiped out in brutal massacre

• Russia has lost ‘a third of ground forces’ in Ukraine attack

Virus/Vaccine

• Data continues in the wrong direction. Cases grew 58% from the prior two weeks and hospitalizations grew 21%. My daughter’s school saw an uptick in cases as well. US Deaths have been oscillating around zero growth and were -3% to 310/day. Total deaths approaching 1mm in the US.

  

• National Institutes of Health acting director Lawrence Tabak confirmed to lawmakers Wednesday that US health officials concealed early genomic sequences of COVID-19 at the request of Chinese scientists — but insisted the data remains on file. No one is troubled by this? More deceit out of the NIH during the crisis.

Real Estate

• To me, it will be interesting to see what happens to the homes on the market today. I suspect the homes by me will struggle at these aspirational prices, especially given the time of the year (people leave for summer). A few new homes in my community came on the market in recent days and the asks are actually offensive. I just cannot fathom anyone paying near the asking price. In one blatant example, the house sold for $10mm on 11/16/21 after sitting on the market. It was a combination of two old homes and the layout is HORRIFIC. It is asking $16mm months after selling for $10mm 6 months ago. If anyone is dumb enough to buy this home anywhere near that price, then come buy mine. You can have it for $20mm and it is a steal on a relative basis. Better house. Better lot. Better location. Better layout. Another one is being built and asking $17.5mm for what I believe is one of the worst locations in the neighborhood and on a small lot. To me, too much carnage has taken place in recent weeks and everything needs to take a pause. The secondary markets and vacation homes should reset. The most special properties probably hold in fine for now, but the wealth destruction discussed make suggest most assets are heading lower.

• Rents in Miami have gone bonkers and this WSJ article sent to me by over a dozen readers highlights it. Rents are doubling in some instances and the locals are upset. Miami-area apartment rents have soared 58% over the past two years through March, the fastest rate of any U.S. metro area, according to Realtor.com. That compares with a 19% average national rental increase over that period. But in some of Miami’s most desirable neighborhoods, like Brickell, Edgewater and Downtown, rents have surged much more than that. For at least a dozen high-end buildings in these hot spots, individual condo owners leasing their apartments have asked for rents at double last year’s price, according to real-estate agents and tenants.

  

• For $800 a month you could live in a tiny bunk bed-style pod with 13 other roommates in the Bay Area. Eight-month-old startup Brownstone Shared Housing has come under the spotlight this week after an Insider profile on the company revealed what it looks like inside the Palo Alto home with 14 tenants each living in a "pod." While the $800-a-month rent may seem steep for a stacked bunk bed pod, the average rental rate for a studio apartment near Stanford University, where the pod-home sits, is currently around $2,400. Let me be crystal clear about living in the Bay Area. It is a NON-STARTER for me. I could not disagree more with the way the city is run: crime, homelessness, taxes, cost of living, lack of consequences for violating the law, filth, drugs, earthquakes, mudslides, fires, droughts, floods, power outages, traffic, cost of living and taxes. People are leaving for a reason and rather than spend $800/month to live in a bunk with a dozen strangers, I suggest you rethink your life and set up shop elsewhere. Join the Army and get paid to live like this instead. You will also get into shape and be given cool clothes and dog tags. This is a crazy CA fire story about a $10mm house which burned down just as the final documents were to be signed to finalize the sale. Proceed with caution in CA!