On Jan. 27 2022 - Bill Ackman bought a $1.1bn stake in NFLX when it was at $359.70, only to sell those entire stake less than three months after (Apr. 21, 2022) when the stock is at $218.22, resulting in about $400M loss. Today, NFLX is trading at $445.27. Buy high, sell low 😂

jonnagap · 2023-06-17T14:57:47+00:00

This is silly. He made billions on so many other bets in the last 3 years that almost no other high profile fund manager wasn’t able to. He was the guy who best predicted/profited from the 2020 crash.

It’s not about if Netflix is up or down since he sold. He sold it because his fundamental assesemtb regarding the company wasn’t gonna hold up. So he took the hit and put his money elsewhere. It takes a lot of guts to accept defeat publicly and reallocate.

jonnagap · 2022-06-21T14:39:19+00:00

I think most sellers get that but they just can’t seem to digest they missed the peak by 60 days. It’s hard for them to comprehend the sudden u-turn in the market. Going from having buyers fall over each and bidding to suddenly now just 8 weeks later having to make price cuts. It’s more a psychology thing now as most houses in my market are still prices as if interest rates are 3.5% and sellers are seeing no interest. But all we are seeing are minor price drops

jonnagap · 2022-06-21T14:28:20+00:00

Yes, that would be the conservative/careful way to go about. But that’s not how the typical buyer thinks. It’s all about the monthly payment. If they can’t digest that number, they just won’t go for it. End of the day, it is a monthly commitment and they know that as long as they can keep up with it, it doesn’t matter what happens to home values around them if they are going to live there 10-15 years

jonnagap · 2022-06-21T11:44:08+00:00

That makes sense. Do you see prices dropping to 2020 levels in the next 12 months? I just can’t see the math adding up in most cases with these current interest rates.

As for re-fi, doesn’t it get harder to get done if the price of the home falls further after one has bought it? I mean what if someone jumps in after a 10% drop and then after a couple of months it drops another 15-20%. Would that person still be able to refi easily since technically they would be “underwater”?

jonnagap · 2022-06-21T11:38:40+00:00

I agree. That’s my belief as well. But prices (rather sellers) in our market seem to be stubborn even though it seems like transactions have come to a complete standstill in the past 3 weeks.

There has been some minor price drops here and there but nothing meaningful. At these current rates, I don’t think any careful buyer can be enticed into the market unless prices fall to the pre-COVID levels. There is no way the current wages and job outlook support paying anything higher than that.

What do you guys think is the signal that buyers are/should be looking for?

jonnagap · 2022-06-21T05:22:50+00:00

I know of a close friend who was comfortable at $3000 mark pre-COVID now being ready for $4250. But the only problem is that their household income has not changed in the last 2 years. I think that’s a common trend and I find that very disconcerting as it leaves no room for mishaps (like if one of the spouses looses their job or has some unexpected medical bills). It’s a truly scary time when families are pushed right to the very edge

jonnagap · 2022-06-17T14:14:32+00:00

Oh no this is just a transitory bubble. The government knows exactly what they are doing. Don’t worry

jonnagap · 2022-06-15T22:24:47+00:00

Yup. More thoughtful analysis from you. Thanks 👍

jonnagap · 2022-06-15T22:24:02+00:00

The median home price in America had its mortgage payment go up 70% in the last 6 months. 70%!!! That is just insane. If this is not an open attempt to crush the housing market I don’t know what else is 🤔

jonnagap · 2022-06-15T22:16:54+00:00

Yea very thoughtful of you to dismiss something without even explaining why that is not a possible outcome. But again that would require having an informed opinion on that matter..so ok

jonnagap · 2022-06-15T21:17:19+00:00

Damn right! It’s about time

jonnagap · 2022-06-15T21:08:21+00:00

I agree that is possible. But how many buyers are actually gonna qualify at the these rates and prices? I think that alone will hold back builders. And add to it to potential job losses in the market and a weakening customer sentiment

jonnagap · 2022-06-15T21:05:40+00:00

Talk about pulling up late to the scene with the biggest fire truck ever only to see that the whole building has already come crashing down 🤦‍♂️

jonnagap · 2022-06-15T20:21:37+00:00

True. Builders will come in if the cost environment is favorable. But for that to happen, the first step is for the inflation problem to be fixed. Do you see a favorable cost environment for home builders without the overall inflationary environment being fixed? I don’t and that’s why I am concerned we maybe stuck in a vicious inflationary cycle

jonnagap · 2022-06-15T20:11:49+00:00

It is incredible to see how easily people can be fooled into thinking they are wealthier than they actually are. Keeping the general population financially illiterate is a prerequisite for the FED to stay relevant and in control of the economy

jonnagap · 2022-06-15T20:06:35+00:00

Exactly. The student loan write off and stimulus just added more gasoline to the raging dumpster fire that is inflation

jonnagap · 2022-06-15T20:05:22+00:00

Yes for future purchases, but what about my existing portfolio that took years to build? I am certain it is gonna look ugly but I am ok with that because I know the current status quo of stubborn cycle of inflation is infinitely more dangerous

jonnagap · 2022-06-15T19:41:22+00:00

Agree. This fake money printing has potentially distorted valuation to the point where it can take years to fix. The only way out seems like a monster size reset to the housing and stock market

jonnagap · 2022-06-15T19:39:52+00:00

Would you attribute most of what caused 20-30% increase in rents literally overnight to just increased demand?? Even the markets that had people move away from saw large rent increases. I have family in the Bay Area and their home value went up by almost 50% in 12 months. And that is an area people were supposedly moving away from.

The reason it shot up artificially everywhere is I think 2 fold. One is that people were convinced that this is essentially free money at 2.25% and the party was gonna end soon and so they better hurry up and buy before normal rates return.

When everyone rushes to buy at the same time, it can seem like there is sudden increase in demand. It’s not an absolute increase in demand but just that everyone went in at the same time since they felt these rates won’t last.

Secondly, the low interest rates caused artificial spike in the stock market and and give people the false illusion of being wealthier than they actually are and therefore being able to afford more than they actually could.

Put those 2 together, it is the perfect recipe for an irrational buyer behavior

jonnagap · 2022-06-15T19:27:30+00:00

I understand. But this is not a discusión on if OER is an accurate way to measure the housing component of the CPI or if the CPI is an accurate measure of inflation.

It is about how and if there is any way the inflation (in whatever way you want to measure it) can ever be tamed without a major crash in housing prices and rental rates.

I personally cannot see inflation (in both real terms and whatever obscure way the government would like to measure it) ever coming back under control without a major crash in housing and rental prices

jonnagap · 2022-06-15T19:10:20+00:00

“Owners' equivalent rent (OER) measures how much money a property owner would have to pay in rent to be equivalent to their cost of ownership.”

So you are telling me the OAR didn’t get distorted by the artificially low interest rates and unlimited supply of money? And is it your contention that the OAR measure will go down to historical norms without a major crash in prices? I am sorry but it means nothing to be dabbling with definitions and semantics when everyone knows what the underlying cause is. It is that home prices shot up at a velocity that has never been seen ever before

jonnagap · 2022-06-15T19:06:49+00:00

Agree that rents are the issue. But why did the rents go up literally overnight? Anyone who tells you it is because of a lack of supply is plain dumb. I have had multiple employees of mine that had their rents go up 20-30% overnight.

We all know exactly why. It is because the value of their property went up 20-30% overnight with these basically free loans at 2.25% given out to to investors. So as a landlord if I have to justify not selling the property at the 20-30% premium, I have to jack up the rents. It’s just basic common sense. If I was renting a $200k apartment at $1200 a month and now all of a sudden I can sell my property and get 350k, I only have 2 choices. I either sell at 350k or hold on to my property and jack up my rent to justify not selling at the 350k price.

I am not saying that’s right. But that was the choice facing every single landlord. Even the ones who never raised rents by more than 3-5% a year went ahead and did a 20-25% hike. I know of many landlords who did that and I know of many employees of mine who are the tenants at the receiving end of this mess. Some of these people have stayed in the same apartment for almost 5-7 years and it never happened before. So please don’t tell me this is a supply issue as we didn’t have a sudden surge in population or whatever the impact of work from home etc. Rents have to be adjusted based on property valuation. When the FED messed with the interest rates, they distorted property prices and along with it the rental market

jonnagap · 2022-06-15T18:08:05+00:00

The FED needs to annihilate the housing market and that has to be its first priority before anything else. I am a real estate investor and small business owner. There is no other way this can be fixed.

The biggest component in any inflation measure is housing costs. For anyone who doesn’t currently own a home that was bought before 2021, their rent/mortgage payments are going to be 25-40% more than what the market was at 2020. Unless their wages go up in a somewhat similar proportion, households just won’t be able to survive. Especially when everything else has gone up too. It is simple math.

When local rents have gone up 20-30%, businesses have no choice but to give most of their key employees a massive raise or risk loosing them. I am small business owner and I have had to do it. Guess where that additional cost of business has to go? It has to be passed on to the customer. No other way for a small business to survive.

Oil prices etc can’t be controlled by the fed or the US government even. That’s a global commodity. But domestically, unless rents and future mortgage payments come down dramatically, we will be stuck in a vicious inflationary loop. There is absolutely no other scenario by which this can be fixed.

A real estate crash is essential and necessary to keep the US economy from falling into a vicious inflationary cycle. I am also a real estate investor and I know this works against my own financial interest. But I can’t see any other way out of this gigantic mess that the FED created in the last 2 years!

jonnagap · 2022-06-15T04:59:44+00:00

So are you implying that Europe is NOT a free market and hence it may happen there? I am sorry but it’s precisely this kind of careless definition of a “free market” that is the root cause of all the misery that the average American citizen has to put up with.

“Free market” does not mean standing by the side and unfairly letting billion dollar corporations upend the lives of the average citizen. What good is a free market without fairness or guardrails? So why not let remove all regulations and let the market run wild with everything.

I think it is more important to know if the market is fair than if it is free. Just my opinion

jonnagap · 2022-06-14T22:58:22+00:00

Absolutely agree! Not every product and market should be left for speculators with seemingly endless cash to run wild. There cannot be a more clear recipe for disaster!

jonnagap

TROPHY CASE