Opening Comments
I received so many emails from the last note, “Woke Ideologues at Schools are Driving out Teachers...and Reason. It took me hours to respond to all of them. One sent me a crazy story of a parent who suggested 25% of his daughter’s class identifies as Trans, including his daughter. It is a relatively short story in the link and he feels his child was pushed into being trans by the Progressive school. “My daughter’s trans identity started when the school taught a module on ‘identity’ during which they told a group of 11-year-olds that, if you feel uncomfortable in your body, it means you are transgender.” Let’s get back to educating kids on how to succeed rather than indoctrinating them with overly woke values. This is an interesting chart from a recent Gallop Poll which goes well with the last Rosen Report. The overall confidence in public schools sits at 28%, hardly a screaming endorsement. Clearly, a lot is going wrong with education today if these are the numbers. We can do better. Our future depends on it.
Jack and I are heading back to the Hamptons tonight from Massachusetts. We will be there much of this week. This article suggests airfare prices are cooling, but I just spent $750 round trip to get Jack to Memphis later in the week.
Picture of the Day-Hidden Van Gogh
When The Food Never Comes
Quick Bites
Markets
Economic Data
JPM/MS Earning
Manchin Does Not Support Legislation
European Energy Crisis in Numbers
Math Powerhouse in Florida?
Other Headlines
Virus/Vaccine
Data
Real Estate
My General Comments
NYC Specific Thoughts
Affordable Housing Laws Hurting the Market
$175mm Palm Beach Estate
Two Miami Stories-High End Remains En Fuego
Picture of the Day-Hidden Van Gogh
Van Gogh is one of the most important painters in history, and due to an X-Ray of “Head of Peasant Woman” from 1885, an astonishing discovery was made. Van Gogh had a self-portrait behind the painting. The painting changed hands several times and in 1923 was acquired by Evelyn St Croix Fleming, whose son, Ian, became the creator of James Bond. It was not until 1951 that it came to Scotland, having entered the collection of Alexander and Rosalind Maitland, who later donated it to the National Gallery of Scotland in 1960, as part of a gift from a prominent Edinburgh lawyer. My personal favorite Van Gogh paintings are from a few years later: Stary Nights (1888), Sunflowers (1888), Self Portrait 1989, and Irises (1989). Some of my favorites can be seen in this link. The thickness of the brushstrokes, the textures, colors and movement are remarkable in the pieces I suggested. However, the discovery of the hidden painting is amazing. Everyone with a Van Gogh needs to take it to the MD Now for a quick X-Ray!
When The Food Never Comes
Today’s note is not about the substantial global food shortages and rising prices that plague the world. It is about a specific story which happened on Wednesday night. Jack and I jumped on the ferry from Orient Point, Long Island to New London, CT to head back to Marion, MA to play some golf. Given staffing issues, the club no longer serves dinner on Wednesdays, so we went to dinner with our dear friend, Chili, and decided to go to Ellia’s Wood Burning Oven in Wareham, MA.
We sat down at the table at 7:20pm and the waiter, Will, came over smiling. He was attentive and spewed out the specials with shocking detail. As he was speaking, I could see and taste the food given he was so specific about the entrees. Will was painting vivid pictures with his colorful descriptions. “The freshly caught tuna is seared with a rare center and served over a bed of corn succotash with a light cream sauce and bursts with flavor. The texture of the tuna against the corn is spectacular…” He went through the specials with a smile and pushed us to the tuna. We ordered a few appetizers and Jack and I ordered the tuna while Chili ordered the shrimp risotto. I was impressed by the waiter and wrongly thought to myself that he will be fantastic.
About 25 minutes later, our appetizers came of artichokes, a beet salad and truffle fries. It took a while, but the food was quite good, and we were entrenched in fun conversation, so it did not matter. We were all still starving, the food was not coming, and the waiter seemed to go missing in action. Finally, at 8:45pm, I flagged him down and asked where the entrees were, and he looked perplexed. It was as though he thought we had already eaten our main dish. He came back 5-minutes later apologizing that the kitchen is out of tuna. Wait. What? We ordered an hour and 20 minutes ago and you are just telling me you are out of the special you pushed?
According to Will, there was a screw up in the kitchen and it was not communicated they were out of the dish. He suggested we do the striped bass over the same corn succotash and given we were starving, we agreed. We asked for some appetizer or bread or something as we were so hungry, and he brought out a pizza dough with olive oil and we were like crazed animals eating it. I don’t like to eat too much bread, but I could not control myself and felt like death due to the impact of one billion carbs in my bloodstream. The food came out at just before 9pm. It was good enough, but not worth the hassle or wait due to the inept service.
The manager came over, apologized, and offered to take the cost of the appetizers ($35) off the bill. The gesture was appreciated, but felt it fell short of what was right in light of the monumental screw up with no follow-up from the waiter. These mistakes, poor service and being out of menu items is becoming increasingly common in my travels given limited staffing, especially in the kitchen.
I think of myself as a very good tipper, especially when the service and experience are solid. My father-in-law, Stephen, had a saying, “You won’t go broke tipping, “ which was his way of suggesting to be generous. In the case Wednesday, I was perplexed as to what to do given the waiter’s clear mistakes, lack of follow through and unwillingness to admit his error. I gave 18% on the reduced bill but felt less was appropriate. In the end, we all screw-up from time to time. What would you have done?
Quick Bites
Stocks rallied on Friday in response to a new round of bank earnings and promising economic data as fears of a 100 basis point rate hike from the Federal Reserve to subdue rising inflation. The Dow popped 658 points, or 2.15%, to settle at 31,288. The S&P 500 jumped 1.92% to 3,863, and the Nasdaq bounced 1.79% to 11,452. Despite Friday’s rally, all the major averages closed out the week with losses. The Dow slipped close to 0.2% while the S&P and Nasdaq fell 0.9% and nearly 1.6%, respectively. The session’s moves left the S&P 500 roughly 19% down on the year, while the Nasdaq is down almost 27% YTD. Oil is back to just under $98/barrel and Natural gas his over $7.1 again as things continue to deteriorate in Europe. On a positive note, gas is down to $4.55/gallon or -9% in the past month. The 2s/10s Treasury spread remains -20bps with the 10 year Treasury at 2.93%.
The producer price index, a measure of the prices received for final demand products, increased 11.3% from a year ago, the highest reading since the record 11.6% in March. Retail sales rose 1% in June, slightly better than the 0.9% estimate. The numbers are not adjusted for inflation, which rose 1.3% on a monthly basis, indicating that real sales still were slightly negative. Gasoline stations, online sales, and bars and restaurants were some of the biggest contributors. I remain impressed and surprised by the US consumer. Given the number of people not working and housing refinancing slowing, I felt this number would have been weaker. Former Treasury Secretary, Lawrence Summers said, “The Fed let us down quite badly and is still unrealistic.” I think I have been crystal clear on my views for almost 18 months and continued to scream that the Fed had it wrong by keeping rates too low and continuing Quantitative Easing too long.
JPM and Morgan Stanley earnings disappointed on Thursday. JPM cited building loan loss reserves given the economic backdrop with loss reserves climbing $428mm. JPM also suspended share buybacks. MS missed due to worse than expected investment banking revenues. MS is a large equity capital markets player, and IPO proceeds are down 95% from last year. Here was Jamie’s comment on the economy: On the one hand, Dimon said the U.S. “economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy.” “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity ... are very likely to have negative consequences on the global economy sometime down the road,” he warned. Wells Fargo also fell on increased loan loss reserves. However, Citi beat expectations and cited rising rates which should have benefited all the banks. The Citi CEO said, “Little of the data I see tells me the US is on the cusp of a recession.” What does the chart below do to tax revenues for NY and CA. The tech boom is temporarily suspended which will create a substantial deterioration in tax receipts.
Sen. Joe Manchin on Thursday dealt a devastating blow to Democrats' hopes for sweeping legislative action this year, telling Senate Majority Leader Chuck Schumer and his staff "unequivocally" that he won't support the climate or tax provisions of a Democratic economic package, two sources familiar with the talks tell CNN. Manchin is open to letting Medicare negotiate prescription drugs prices and to extending enhanced Affordable Care Act subsidies for two years, one of the sources said, which suggests that's all Democrats are likely to get in the package. But the moderate West Virginia Democrat, who has cited increased federal spending as a main driver of inflation, would not budge on other Democratic priorities, and he told Schumer that he will not consider raising taxes on the wealthy or corporations. Could you imagine the inflation if Biden got Build Back Better ($1.75 trillion) passed? Manchin stopped it from happening for good reason.
I have written extensively on the subject of energy/power and the need to be independent. In the desire to be “Green” countries, have made horrible decisions which is coming back to haunt. In Europe, the heavy reliance on Russia and the decisions to shut coal and nuclear facilities prematurely has been devastating to the economy and the people. Germany wanted to be “Greener,” yet the dumb decisions are forcing them to bring back coal and burn firewood, which are incredibly polluting. Check out these price charts with my comments. Look at what the futures are projecting for prices for power in Germany and natural gas in the Netherlands. The German electricity prices are approximately 5 times higher than the US this winter based on the futures contracts. The US natural gas futures are $7 for December, while Europe is in the $53+ range. The world does not have the alternative energy sources at this time to move away from nuclear and even coal in some instances. There is not enough solar, wind, wave power, nor does it have the consistency to work year round at this time. According to the EIA, in 2021, renewable energy sources accounted for 12.2% of US energy consumption and 20.1% of electricity generation. Right now, the Nord Stream 1 pipeline is shut down for maintenance. It brings 55 billion cubic meters of gas from Russia to Germany each year. There is fear that Russia wont turn it back on given Germany’s assistance to the Ukraine. Policies matter. Elections matter. I am all for going “Green” in a sensible manner. However, shutting down power plants prior to having viable alternatives and relying on maniacal rulers for key resources is not the option I support. Watch this story in the winter as temperatures drop. It could get very ugly.
I wrote about some of the issues in education today in my last note, but this is a positive story and shows how much impact a teacher can have on students. This is a great WSJ article about a Gainesville, Florida school with an incredible math teacher. Will Frazer was a Wall Street bond trader who retired and ended up creating a DOMINANT math team who has managed to win 13 of the last 14 national math championships. The students love Frazer and feel he makes math fun. “The difference between what I do now and what I did on Wall Street is that I used to get paid money,” said Mr. Frazer, 63. “Now we get trophies.” I never thought of Gainesville, FL as a bastion of brilliance, but it shows what can be done with the proper leadership. I have been critical of education and the direction, but this is an example of making it work and helping children. The school is #66 in the state of FL and outside the top 1,000 overall in the US, but they win nationals constantly and by huge margins. Schools need to learn from Frazer and copy his formula, as I feel in too many instances, we are failing the students. Here is a great example of a teacher who cares deeply and has found a winning formula which is improving the lives of the children.
Other Headlines
Supply Chains Inching Back to Normal Brace for Headwinds of Softer Demand
Yet another issue contributing to inflation which is now slowing. My view is unchanged. Inflation is peaking as more major inflation contributors are slowing again.
People Have Money but Feel Glum—What Does That Mean for Economy?
Biden arrives in Saudi Arabia 'much diminished president': Prince Turki
Too much to type, but read why he feels Biden is so diminished.
MBS hits back at Biden after the President confronts Saudi prince about Khashoggi
The videos I have seen are awkward. I am not convinced Biden achieved his goals with this trip. Even liberal MSNBC suggested it was not ideal.
Biden's approval ratings hit all-time lows in CNBC poll
Regardless of the pollsters, the Biden #s are horrific. There is no chance in hell he can win re-election. I am not one to try to call elections 2.5 years in advance, but nothing can turn it around for Biden in my opinion.
Secret Service Deleted Jan. 6 Texts After Oversight Officials Requested Them
Donald Trump on 2024: ‘I’ve Already Made That Decision’
Suggestion is the announcement is coming. I believe he wants to run in 2024, but do not want him to do it. I surely hope it is not a Trump/Biden 2024 election. As much as everyone hates Trump, he very well could beat Biden given the overwhelming issues and low polling numbers. For the love of God, let’s have different candidates please.
Why Democrats are begging Trump to start 2024 right now
The article suggests given how divisive Trump has become, an announcement that he is running will help the Democrats raise cash.
Italian PM Mario Draghi says he will resign as coalition government collapses
I don’t follow this closely, but the article is interesting and suggests the European governments are very different from the US on such matters. Italy is in turmoil on many fronts and is a fiscal mess.
California police discover underground bunker full of stolen goods in homeless encampment
Wild video shows Florida home invaders running for their lives after resident opens fire
Difference between Florida, California/NY is that in CA and NY, the homeowner would be arrested, and the thieves set free. In Florida, the opposite happens.
Woke Los Angeles DA Gascon accused of ‘abandoning’ victims by scrapping parole unit
Gascon has been accused of further “abandoning” victims’ rights by disbanding a unit that alerts them to their assailants’ parole hearings.
The DA does not want mandatory sentencing for 3 strike felons. Read the article. Remind me why he was elected.
NYC is a big place and has over 8mm residents. However, the number of attacks in public places on subways, buses, Grand Central, Central Park, the streets, restaurants are getting ridiculous. I am hearing from more residents that they are concerned about safety.
Incarcerated transgender woman Demi Minor impregnates two inmates at NJ prison
UPenn Nominates Transgender Swimmer Lia Thomas for NCAA Woman of the Year Award
Citadel's Ken Griffin Gives $130 Million in Chicago While Moving Firm to Miami
So, the billionaire gave $730mm to the city of Chicago and the politicians would not do basic things to improve the safety for the constituents. He is now a Florida resident and has been welcomed with open arms. He is bringing his people. Chicago is uninhabitable. I am from Chicago.
With Few Able and Fewer Willing, U.S. Military Can’t Find Recruits
Cites so many job openings and higher pay elsewhere.
8 in-demand soft skills to put in your resume
The link lists by the # of job listings which require the skill. Check out the link, but top skills include: Communication, Customer Service, Scheduling and many more.
We do not allow our kids to take an Uber alone.
Baby born on 7/11 in Shinnston 7-Eleven parking lot
It is a story from West Virginia. If my wife delivered a baby in the 7-11 parking lot, I am pretty sure it would result in me being served divorce papers.
Britain, France Could Hit Record Highs As Heat Wave And Wildfires Grip Parts Of Europe
‘Hackers love it’ when you make these 6 biggest password mistakes, says security expert
Virus/Vaccine
Data is deteriorating again with cases +14%, but positivity rates dropped to 17% from 18%. Hospitalizations, ICU and deaths are all going the wrong direction and deaths are now back above 400/day after being as low as 298 on June 22nd for the 7-day average.
WHO to reconvene monkeypox emergency panel on July 21
You will excuse me if I have little faith in the WHO or CDC after the debacle of COVID. Almost 10k cases in 63 countries with 1.8k in the US.
Real Estate
I have written extensively over the past 6 weeks or so about the housing slow down across the board with few exceptions. I spoke with an independent mortgage broker who said in the past month, things hit a wall. She normally has 30-40 mortgages she has originated at any one time and then sells to banks. Today she has three! She said, “It has been a total 180 degree turn in terms of mortgage originations mostly driven by rates.” Her average mortgage is approximately $700k.
With respect to NYC R/E, I know the rental market is on fire and re-leases are up sharply, and in some cases 70% or more from the pandemic rents. NYC rents average a record $5,058/month now and were +29% in the past year. The vacancy rate at the end of June was just 1.9%, with about 6,400 apartments available — down 46% from last year.
However, big bank earnings warnings, poor hedge fund returns, big losses in stocks, fixed income and crypto will lead to a turn of events in NYC R/E in my opinion. Add to this a sharp reduction in bonuses and coming layoffs and I feel NYC and Hamptons prices will slow sharply. The combination of lower tax revenues, reduced spending/sales tax receipts and the impact of the multiplier effect on that suggests to me that discussions of the state budget will be back in fashion by the end of 2022. Also of note, Wall Street accounts for approximately 25% of the income in NYC with only 5% of the jobs. I have spoken with bankers, traders, salespeople, analysts, hedge fund managers and with few exceptions, do I hear confidence about year-end compensation.
On NYC rentals, tens of thousands of affordable apartments sit empty due to the inept new rent laws which are having unintended consequences. The Housing Stability and Tenant Protection Act, a sweeping rent reform passed by the state Legislature in 2019, dramatically limited landlords’ ability to increase rents on stabilized apartments. The measure ended the vacancy bonus that had allowed owners to raise rents 20 percent when stabilized units became unoccupied. It also reduced to $15,000 over 15 years the renovation costs that landlords can recover by hiking rents. In countless cases, when the tenant vacates, the apartment is in horrible condition and to re-rent it, it must be up to code which can cost $40-$100k+ in many cases. If you can only raise the rent by $83/month, how can the landlord ever recoup the cost? The result is apartments are not fixed and sit vacant. Remember, everything is going up in price with inflation (rents, labor, gas, appliances, taxes…). Yet another regulation which was meant to help is instead hurting all parties. Landlords have no incentive to fix an apartment if they cannot recover the expenses. The morons who passed this legislation need to take another look at it.
The oceanfront estate of the late conservative radio host Rush Limbaugh is being marketed for sale for a whisper price ranging from $150 million to $175 million. The house is a tear down according to most articles. Mr. Limbaugh purchased the property for $3.9 million in 1998 through a limited liability company, records show. I am not suggesting the ask will be received, but large, ocean front, Palm Beach estates are rarely offered and despite the market weakness, these trade at a huge premium. I’ll be watching as to where this shakes out. The general market has softened, but prime oceanfront in Palm Beach or bayfront in Miami Beach remain sought after and rare.
Non-waterfront 24,000 ft lot (teardown house) on LaGorce Island in Miami has sold four times in two years. The price went from $3mm to almost $9mm.
Sales History of 31 La Gorce Circle:
Sold in 2020-$3M
Sold in December 2020-$4.150M ($300k over ask) *Devin Kay sold
Sold in February 2021-$5.5M (Full Ask) *Devin Kay Sold
Sold in June 2021-$5.9M ($100k Over Ask)
Pending Sale in July 2022-Last Asking Price $8.950M
In a separate story, there is a 3,958/ft condo at the Surf Club in Surfside which was listed Friday for $6,200/ft ($25mm), which seems high. However, there were four showings on the 1st day of the listing. High end Miami remains very well in demand given virtually zero supply. Monthly maintenance is almost $9k and taxes at that price will be approximately $450k/year or $38k/month.
Other R/E Headlines
Mortgage rates jump after two weeks of declines
The rate on the 30-year fixed mortgage jumped to 5.51% from 5.30% the week prior.
Vegas home builder bets $32.5 million spec mansion will smash a local record in Southern California
With such as a major screw up tipping is optional. However, knowing waiters compensation it is usually given (as a charity). Last time similar incident happened to us in Budapest and we never got that main dish.
Thank you for publishing the article about Will Frazer. His method can probably be replicated in many schools throughout the country instead of Common Core.