Juggling Dynamite

The sharpest monetary contraction in decades (US M2 below since 1960) has hit highly leveraged people and sectors like a meteorite from outer space.

After twelve years of TINA reaching for yield and levered gambling, a new financial mantra is sweeping the land: survival. Real estate investors are increasingly responding to the math of higher rates by mailing keys back to lenders; see Brookfield defaults on more office mortgage debt.

Changes in monetary conditions move with long and variable lags. In a world of short attention spans, most are underappreciating the multi-year nature of real estate downturns and their large knock-on effects. The segment below illuminates further.

Patrick Carroll, Carroll Founder and CEO, joins ‘Squawk on the Street’ to discuss signs of weakness in the housing market, the commercial real estate crisis, and the repurposing office buildings as more people work remotely. Here is a direct video link.

The Statista chart below of cellphone activity in the fall of 2022 in major urban centers as a percentage of the activity in the fall of 2019 further confirms a trend that has legs well beyond the pandemic.

Danielle was a guest with Jim Goddard on This Week in Money. You can listen to an audio clip of the segment starting at 33:30 on the play bar here.

The 8.2% year-over-year increase in US shelter costs was the highest housing inflation since 1982; however, home prices and rents are both now decreasing. In March 2023, U.S. Asking Rents saw their first YoY decline since March 2020 (chart below from Redfin courtesy of Charlie Bilellio). Shelter costs comprise the largest share of the overall CPI Index, with a 34% weighting. At a multi-month lag, falling shelter prices will work to push the CPI lower.

Here’s a chart of San Francisco office vacancies I referenced in the interview. Similar trends are evident in most major cities.

David Rosenberg, founder and president of Rosenberg Research, joins BNN Bloomberg for his reaction to Canada’s latest rate hike decision. Rosenberg adds investors should be focusing on what the BoC will say 6 months from now as the jobs market will be completely different. Here is a direct video link.

Recessions are a regularly recurring part of the business cycle and typically open up once-in-a-decade investment opportunities for those who can capitalize on the clearance sale prices they bring. It’s important to reiterate, however, that the largest equity drawdowns occur during recessions (blue bars below), not in the year before; #not there yet.