Redfishing in Louisiana
9-17-23
Opening Comments
In my last note about my first nervous Dimon meeting, the most opened links were the video to the infamous bathroom incident and the link to the story on happy kids in the Netherlands.
Happy New Year to all my readers who celebrate the Jewish holiday.
I am heading to NYC today until Thursday. Lots of meetings and recording multiple podcasts. The most exciting event will be my interview of Brian Koppelman, the writer of various shows and movies including Rounders, Ocean’s Thirteen, and Billions. David Constable (Breaking Bad, Better Caul Saul, Billions) and Damian Lewis (Homeland, Band of Brothers, Billions) are scheduled to part of the discussion as well. It is in conjunction with the relaunch of the building, 10 Bryant at 452 5th Avenue at 40th Street.
I hope to get out a short note on Wednesday afternoon but my travels, podcasts, and meetings could make it challenging.
Markets
PPI
ARM IPO/PE Ratio
Ken Griffin on Markets
Recent Polls on Biden/Trump/Age/Approval…
Best Public Colleges
Luxury South Florida Rents & Vacancies
Return To Work Forces Home Sales
Assumable Mortgages
CRE Daily on Office to Ressie Conversions
Video of the Day-Nvidia CEO on AI
This is a longer video for those who have an interest in learning about AI and the future. However, at 1:34 min, there is a discussion of the impact of AI and robotization of factories. Through The Nvidia Omniverse, companies can improve workflows and design with such efficiency, it is mind-boggling. The suggestion is everything will be software-driven and enabled by AI to allow robots to build robots. In the Other Headlines, I have a discussion on the UAW strike. Based on Nvidia/AI, I will only suggest that the near future will be driven by robotics and many high-paying factory jobs will be eliminated. I strongly advise people spend time understanding the crazy leaps that are happening due to AI. Check out this comment: Nvidia discussed “improved computer graphics by 1,000 times in 5 years using accelerated computing and AI.” Great rate tracing example at in the beginning of this video link which is incredible. The future is now and AI is a game changer on too many fronts. I am fairly confident very few people comprehend how fast things are going to change. In November of 2022, I wrote extensively how AI would be a game changer and I underestimated it now that I have a better understanding of it.
Red Fishing in Louisiana
I mentioned in a recent piece that I was s invited by a loyal reader to fish in Venice, Louisiana. The prior piece on the subject outlined the epic offshore Yellowfin Tuna fishing day with pictures to prove it. Today’s note will go over the inshore fishing in shallow water for Bull Redfish. “Keeper” Redfish are 16-27” and anything over 27” is considered a Bull Red. The massive ones are thrown back, as they are breeders, and they don’t taste as good as the smaller ones. However, the “slots,” fish within the 16-27” range or slightly larger are great-tasting fish. You are allowed to keep one fish per person over 27” each day.
The preferred bait of choice is live shrimp. You are casting near brush which is in 5 feet of water or less. After you cast (bobber) on the line, you jig the bait back quickly, let it rest, and do it again. The fish tend to bite just after you jig the line. When these Bull Reds hit, there is no doubt. My biggest one was 38” or 25 lbs. There is no photoshop below, but I agree it looks fake. I have all these always taken in portrait mode which helps focus on the subject and blur the background.
I caught 5 Bull Reds, a bunch of small ones, catfish and trout during the few-hour session. Two people fished in each boat, but theoretically, you can do four. I would not do more than 3 to be comfortable, as the boats are approximately 23’ and it leaves limited room for casting. We were cut short due to inclement weather. You can see in my pictures that the sky looked ominous, and to be safe, we headed back to the dock by 11:30 am.
The guide service used was Venice Adventures which is owned by Captain Alan Balladres Jr. He was a fun young man who was knowledgeable about his fishing. You use very light tackle for Redfish which made it more fun for me. He was an offshore guide for years as well. He can also take you for Tripletail fishing by the oil rigs. Alan has a strong accent, yet told me that I talk with a heavy accent. Such ridiculous banter made the trip fun and I had to crush him for such a suggestion.
This was the lodge we stayed at and found it to be reasonably priced with good food. I would bring your own wine or high-end liquor if you want to drink the good stuff.
I had gone to Herbsaint for lunch (James Beard Award Winning restaurant) in New Orleans and had an amazing Redfish entrée over crushed cannellini beans, with grapefruit and fennel. I recreated it with my own catch. I reached out to the restaurant for some tips, but they did not respond until after I made it. I was close, but realized they did it differently than I thought. I asked a chef from my club how to consider making the cannellini beans. He gave me a few tips and they were delicious. I love the taste of redfish, but rarely see them in restaurants in NYC or South Florida.
Quick Bites
Stocks fell Friday as investors wrapped up a volatile week ahead of the Federal Reserve’s policy meeting. The Dow slid 289 points, or by 0.83%, to 34,618. At its lows, the index completely wiped out Thursday’s 332-point rally. The S&P 500 was lower by 1.22% to 4,450. The Nasdaq dropped 1.56% to 13,708. Information technology was the worst-performing sector in the S&P 500, down nearly 2%. The Dow closed out a positive week, up by 0.12%. However, the S&P 500 and Nasdaq both suffered a second straight week of losses, lower by 0.16% and 0.39%, respectively. On the economic front, the University of Michigan’s consumer sentiment survey showed one-year inflation expectations dropped to 3.1% in September, tied for the lowest since January 2021. Oil prices hit a 10-month high and was +4% on the week and now +16% YTD. At the beginning of the year, I suggested we would see $100/oil in 2023 and it is now $91+/barrel. Yes, global demand is now 103mm/barrels day, but my concern was on the supply side. Below is a chart showing seasonally high gasoline prices which hurt the consumer.
I am inserting a chart of the 30-Year Treasury Bond, something I rarely do. You can see the decline in yields for 40 years until a recent pop that is becoming more pronounced after hitting 1% in 2020 (4.4% today). I write about deficits, careless spending, waste, entitlements…. constantly because it is a concern. We have $33 trillion in debt and counting and continue to run massive deficits (approximately $1.5 trillion+ this year). Debt service has gone from $300mm/year in 2002 to $1 trillion and climbing. Futures are telling us there is about a 42% chance of one more rate hike and they are pricing in 75bps of cuts in 2024 on Fed Funds.
The producer price index increased a seasonally adjusted 0.7% in August, higher than the 0.4% estimate and the biggest monthly gain since June 2022. However, excluding food and energy, core PPI rose 0.2%, in line with the estimate. Elsewhere, retail sales climbed a higher-than-expected 0.6% in August, well above the 0.1% estimate.
Good news for the IPO market and FINALLY Softbank has a winner. $67bn valuation means a PE ratio of approximately 170 relative to Nvidia at 109 according to CNBC, but without Nvidia’s 170% current quarter growth forecast. Arm’s revenue shrunk last quarter but is expected to grow 11% this year and 20% next year. Softbank took ARM private for $32bn in 2016. The positive news is ARM did well in trading which may open the doors for others. However, it should be noted that the float is small with approximately 10% of shares publicly trading. The articles got me to thinking about PE ratios, so I put this chart together. Does anything look out of place? This CNBC article outlines 75% losses on Instacart based on new likely IPO valuation and mentions Sequoia and Andreessen.
Ken Griffin has built amazing businesses and wealth. They suggest his net worth is $30bn, but I will take the over on that one. He was interviewed on CNBC and here are some highlights. Ken Griffin, founder and CEO of Citadel, said Thursday he’s uncertain that the stock-market rally can keep chugging along as the economy starts to feel the pain from rate hikes. “I’m a bit anxious that this rally can continue,” Griffin said on CNBC’s “Squawk on the Street.” “Obviously one of the big drivers of the rally has been ... just the frenzy over generative AI, which has powered many Big Tech stocks... We’re sort of in the seventh or eighth inning of this rally.” The billionaire investor said he’s surprised by the strength of the market, especially when the Federal Reserve is in the middle of its most aggressive tightening campaign since the early 1980s. The central bank has taken the fed funds rate to the highest since 2007. “We’ve seen an increase in real rates and nominal rates, and yet the stock market’s been resilient,” Griffin said. “So that’s a really interesting year to see the resiliency of our stock market against this backdrop that would usually be very challenging for equities.” He thinks that the market might have a hard time maintaining its solid 2023 gains as the negative effects of rate hikes starts to emerge. Griffin believes that there’s a small chance of one more rate increase later this year.
Recent polls about Presidential candidates and voting preferences are a bit sad. America believes Biden and Trump are too old. Republicans are doing well against the incumbent. Democrats want someone else other than Biden as well, but he is the frontrunner. Trump’s lead in the Republican primary is growing. Polls show concern about Biden and Trump’s mental soundness and corruption as well. I put together some charts from both Fox News and CNN from recent polls. This CNN link shows Biden’s approval rating from recent polls and the latest Quinnipiac Poll has Biden with 36% Approval and 57% Disapproval. Recent polls (CBS, CNN, WSJ) are all similar with approximately 40% Approval and 60% Disapproval. All these polls suggest both parties need new front runners.
I remain unconvinced that college is for everyone. With sky-high costs and a challenging job market, I feel many should consider vocational schooling, which is far less expensive, time-consuming and can lead to real money over time. However, I thought this article about the best public universities in the country was interesting. None were in California, which was a surprise to me. In-state tuition is quite reasonable in many cases and they have various programs to help lower it.
Other Headlines
The second chart is an updated one of depleted savings.
Corporate defaults jump, highest August monthly tally since 2009, S&P says
Default rates are expected to hit 4.5% in the United States by June 2024 from 3.5% in July 2023, and to increase to 3.75% in Europe by June 2024 from 3.1% in July 2023, the report added. The chart below shows growing consumer delinquencies as well.
El-Erian Warns of ‘Massive’ Corporate Refinancing Next Year
Economist says high yield, CRE at risk of refinancing shock. $41bn matures in 2024 and $113bn in 2025 in the HY market and rates are sharply higher.
Retailers are losing $100 billion a year from return fraud, bots and coupon stacking, study says
Factor in shoplifting, shrinkage from employees, higher labor costs and inflation and rates hurting the consumer, and retailers should really start feeling the pressure.
Planet Fitness shares sink 15% after board ousts CEO in shocking move
Apple disputes French findings, says iPhone 12 meets radiation rules
Apple ‘Entrepreneur Camp’ Program Bars Applicants Based On Race
To participate, organizations must have “black, Hispanic/Latinx, or Indigenous” members in both leadership and on staff.
U.S. auto workers target Detroit Three with first simultaneous strike
Approximately 13,000 out of a total of 145,000 UAW workers are on strike. Due to the strike, layoffs are coming. I do not believe the ask from the UAW is a reasonable one. This article does a great job of outlining the UAW demands. In short, they want to be paid for 40 hours of work while only working 32 hours. They want 36% raises over four years. I believe 94% of American private sector jobs are non-unionized for perspective. The cost of a robot arm is $25k and $250k to train it per Nvidia. The proliferation of AI will take the cost to train the arm to near zero very shortly (Nvidia). AI will change the game and render many high-paying factory jobs extinct. Robotics and AI will sharply reduce the costs to manufacture and make the US more competitive with cheap labor countries.
SoftBank’s Masayoshi Son says AI-fueled technology can surpass human intelligence ‘big time’
JPMorgan Chase to offer online payroll services as it steps up fight with Square, PayPal
Consulting Firms Are Paying Undergrads $25,000 to Do Nothing
Recent college graduates headed to Accenture, Bain and Deloitte haven’t been spared from an industry slowdown in work.
‘Every’ Democrat agrees Biden is ‘too old to run’ for re-election: MSNBC’s Joe Scarborough
Joe HATES Trump and he is right on Biden. The Dems need to find a replacement. I do not believe the answer for America is Biden, Harris or Trump. Even Pelosi suggested Biden may drop out of the race and refused to say if Harris was best running mate.
Hunter Biden indicted on firearms charges
Biden is charged in two of the counts with lying about his illegal drug use in connection with his purchase of a Colt Cobra revolver. Remember, many charges cannot be filed given they allowed the statute of limitations to expire to protect Biden. The maximum sentence is 25 years and $750k in fines, but generally, the result is much less time.
Not sure how informative such an obvious statement is today, but coming from a man with serious cognitive issues and multiple “freezing” spells has gotta hurt.
Trump Hints at Female Running Mate If Nominated for 2024 Race
South Dakota’s Noem is mentioned.
Angry McCarthy goads House Republicans in government shutdown fight
Current funding expires September 30th according to the article.
Hypersonic Missiles Are Game-Changers, and America Doesn’t Have Them
Concerning article suggesting China and Russia have hypersonic missiles and the US does not. Just ask Musk, he will do it with some paperclips, gum and a rubber band like MacGyver.
In what universe is this ok? The DA actually requested significant bail and the judge released him. The repeat offender served nearly 5 years in prison and has 6 felonies and 7 misdemeanor criminal convictions.
NYC vandals smash windows on dozens of subway trains, suspending service
Illegal immigrant charged with murder released by New York police because of paperwork delay
Old case in which the teacher had stab wounds in the back of her head, yet was ruled a suicide.
Miami TSA officers seen stealing from passengers in newly released footage
Harvard psychology expert shares the No. 1 thing she sees holding people back from success
Good thoughts here. Getting out of your comfort zone and not backing down goes a long way towards you being more successful.
2023’s Happiest States in America
Good interactive chart in the link.
Kate Moss & smoking: Experts share how cigarettes can ruin your looks
I have never smoked a cigarette or tried coffee. These pictures are telling and the added wrinkles on the hands and face due to the heat and smoke should scare people off. Oh yea, the sticks cause cancer and emphysema too.
The shark attack “capital” of the world is New Smyrna and as a kid I surfed there too many times. I would NEVER do it again.
Flooding death toll soars to 11,300 in Libya’s coastal city of Derna
Scientists call fraud on supposed extraterrestrials presented to Mexican Congress
No, I did not believe the Mexican alien story, but do believe some of the UFO sightings are unexplainable and have spoken with pilots who have seen things. NASA appointed a UFO research director and there is a 33 page report on UFOs.
Florida Man arrested for torching car belonging to his cousin, who is also his girlfriend
I believe I need to officially start a “Florida Man” section, and in each note have one story from the website. Of note, these outlandish stories tend to be from Central and North Florida.
Real Estate
I went to a real estate dinner in Miami with 3i Members on Wednesday night at Casa D’Angelo with a dozen members. I go to two or three dinners/events each month between NYC and South Florida with 3i and the discussions range from markets, private equity, venture, real estate, and politics… and are informative with an interesting crowd. The discussion on Wednesday covered a lot of topics, but one I will highlight was an owner of luxury apartment buildings in Aventura/Miami, Naples and Ft Myers who spoke about the recent increase in vacancies. He said occupancy rates are down about 5% in recent months and has seen rents 5-10% lower after increases of 50-100% over the prior few years. He suggested that people cannot afford to live in Florida in many cases as R/E has priced people out of many markets. As quoted in my last piece, a lot of new luxury units are going up which should help bring down prices and increase vacancy rates. In a related matter, this article outlines that you need $117k of annual income to purchase a median-priced home in the US. It is +$20k from the prior year driven by higher rates.
This short article outlines some data about people being forced to sell their homes given return to work. There are statistics from a McKinsey survey around age groups who want to go to the office and others who want to work from home. The research highlights that 44% of senior workers and 50% of mid-level employees are in favor of working remotely. However, this sentiment is only shared by 6% of junior employees.
I felt this WSJ article entitled, “A 3% Mortgage Rate in a 7% World? This Startup Says It Can Do That,” was an interesting piece. The suggestion is Roam, a company, believes they can help you assume the mortgage of the seller which is at a far lower rate than today’s levels. Yes, in practice, this sounds amazing, as mortgage rates went from 2.5% to 7.5% and crushed affordability. If I were buying and needed a mortgage, I would look into it, but not convinced this works for a large number of deals. Not all mortgages have assumption features. Some 22% of active mortgages are part of the government programs that have assumption features, according to the mortgage-data and technology company Black Knight. Interesting idea. Just not convinced it becomes commonplace, but you could get lucky.
Good article in CRE Daily about office-to-residential conversions. If you follow Commercial R/E, you should sign up. I have spoken with many market insiders and the conclusion is eerily consistent that they do not believe it is generally financially feasible and will not result in massive conversions without major incentives and law changes. In the aftermath of the pandemic, there's been a remarkable shift to hybrid and remote work, leading to a surge in office vacancies. However, it raises the question: why are only 217 office-to-residential conversion projects planned in the U.S.? As remote and hybrid work models become the norm, a staggering 1BSF of office space could be vacant by 2030, almost 1.5x pre-pandemic levels. Office vacancy rates are currently at a 30-year high, standing at around 18%. With a structural housing shortage of around 2M units in the US, experts believe converting vacant office spaces into multifamily residential units is a potential solution. Studies by CBRE and Deloitte suggest that office-to-resi conversions are expected to continue as cities offer tax abatements and credits. However, since conversions are costly and complicated, only 217 conversion projects are in progress, falling far short of the immense need. While the potential for office-to-residential conversions to alleviate the housing shortage and office space glut in the US seems obvious, the reality is these projects are complicated and expensive. To fully realize benefits, more cities need to offer significant incentive programs to offset costs and show a long-term commitment to addressing the changing needs of urban spaces.
Rosen Report™ #614 ©Copyright 2023 Written By Eric Rosen
