Friday EFFing Memo
No Quarter
The Memo:
To:
The team
Re:
Equity vs Value destruction
Real Estate
Money
Equities
Employment
A special “Today in EFFing Time”
Comments:
Welcome to all the new team members!
This week marks the 3 year anniversary of The Fed raising interest rates, or the current EFFing timeline. Higher for longer, same as it ever was. This is a good time to remind ourselves, that the primary function here is to study the economic behavior patterns as timed by Effective Federal Funds Rate changes. (EFF Indexing). And it is serious research, albeit with some humor and a healthy side of history (and some pop culture).
This indexing has proven the timing of changes in: The Yen, Euro, Eggs, Orange Juice, Nasdaq and more so far.
One neat bit I’ve gleaned from further analyzing equity index patterns, is the level of “technical support” from past spring to the following summer. To that end as the charts above show, a bounce was never out of the question, but that isn’t the end of the cycle either.
The short of it: We’re not out of the woods yet.
All numbers as of close on 3/13/2025.
Mr Ryan: “So, Bill, what you're telling me, essentially, is that Napoleon was a short dead dude”
Bill: Well, yeah.
Ted: You totally blew it dude
Mr Ryan: Ted Stand up. Now, who was Joan of Arc?
Ted: Noah’s wife?
Mr Ryan: It seems to me the only thing you've learned is that Caesar is a "salad dressing dude."
End Memo.
The Report
Value Menu
Measuring by quarter, we’ve reached the point that Households have the highest percent of their financial assets in corporate equities. In history.
Unfortunately, from last quarter on, that always changes pretty quickly.
As of February, the Mag7 stocks had Price to Earnings ratio of 28.3. That’s a 28 1/4 year payback schedule. It might as well be a mortgage bond. A point about the technology behind these valuations including Apple: The most popular phone 28.3 years ago was the Nokia 6110. That depreciation schedule looks worse than a house though.
BuT: “debt as a percent of market value is low”. Let me show you why I think that’s a terrible metric.
It’s called a cycle for a reason. The “fundamental” reason for the Market Value is detached from reality, due in part to a lack of understanding and care for the dollar for what it is. And it always corrects.
That doesn’t mean you can’t make money on the situation, it does however mean that you should probably have solid plan to exit. Like Berkshire and Mr. Buffet, who is in talks to offload Home Services of America. His real estate portfolio.
Quarters, Dollars and Debts
Fourth Quarter Rental Vacancies increased.
What affect might this have on CoStar’s multifamily real estate price index, which has been negative (in dollar change from a year ago terms)?
Speaking of prices and quarters:
CoStar’s commercial real estate price index has declined for six consecutive quarters.
It’s never declined more than 5 quarters in a row without mortgage assets (whole loan) values also being destroyed. Unfortunately we have to wait until the end of April for the Federal Reserve to publish the mortgage asset transaction values for Q4 2024. Here’s a chart of the 3 prior times this has happened. And Bonus: the same compared to the International Monetary Fund’s “commercial real estate price change by quarter”.
A reminder: The IMF was founded through the Bretton Woods accords. Which started the current “spring” of this “cycle”. Lack of dollars now, for too long, leads to lack of future dollars to pay the mortgage. Or, how mortgage assets get destroyed. Quarter by Quarter.
Employment
JOLTS data for January came in. Construction hires are still extremely depressed. (December was 2nd lowest this century).
Initial Claims for unemployment continue to follow the trend. We’re 12 weeks away from “recession” territory. A reminder: Unemployment Spikes AFTER recession. It’s a byproduct of, not cause of recession.
Petro dollars?
No such thing. I remain increasingly interested in seeing if this time is different regarding crude prices. Do we follow typical behavior and see the resultant increase in price, or does it just crater to it’s usual cycle bottom?
The Cost of Money
The weeks are long for those who seek to reduce the cost of money.
The weeks are even longer for those who need the cost of money to drop.
The Creation, Distribution and Consumption of Money, Goods and Services
Or “economics”. Quarter(ly) GDP numbers (in EFFing dollars).
The average time to “recession” this century by rate raise is 13.5 quarters. Given we’re just rounding out #12 of the cycle, and we’re seeing lots and lots of economic stability (some might say, the most stable) that would put this one at somewhere between July and October, if we measure by smaller coins than quarters anyway. Just not by single value coins, those won’t exist anymore.
Here’s the same chart with markers at 9, 14, 18 for the the 01, 07, 2020 recessions.
Other people’s money
Are we still friends?
Gold just set a new record in “dollars” for futures. Speaking of, here’s the average of the futures of days of futures past compared to today. All the X (.com) Men are discussing it.
Today in EFFing Time it is:
Today: 3/14/2025
The US office of the comptroller of currency authorized banks to begin “stable coin” activity.
December 7th 2018
Former Naval Aviator, House Rep, Ambassador to United Nations, Chief Liaison to People’s Republic of China, CIA Director, Vice President and President of the United States, George H.W. Bush is laid to rest after passing away at 94 years of age. His former Attorney General Bill Bar is appointed to be Attorney General for then President Donald J Trump via Tweet at 4:18pm. Amongst other tweets that day were: “China talks are going very well!”
June 29th 2007
Inflation in Zimbabwe rises to 11,000%. The International Atomic Energy Agency arrives at the Yongbyon Nuclear Reactor in North Korea, with plans to “shut them down”. Lebanon declares victory over Al Qaeda linked group. Tony Blair resigns as Prime Minister. Apple releases the iPhone.
April 26th 2002
Hugo Chavez returns to power. India and Pakistan clash in Kashmir. Palestinians attack and kill Israeli’s in Adora. The Battle of Jenin and Siege of Bethlehem ensue. US Unemployment rate reaches 6%. It would peak at 6.3% one year later.
January 5th 1996
The first flip phone goes on sale. “Hello Moto”. President Clinton is embroiled in Whitewater scandal, US deploys troops to Bosnia.
September 15th 1989
Boris Yeltsin visits the US, Meeting with President George H.W. Bush at the White House, he tours NYC, MN, Johnson Space Center in Houston and a grocery store. 2 Months Later the Berlin Wall comes down. Meanwhile the Resolution Trust Corporation begins working to salvage the $120,000,000,000 in mortgage asset losses created from more than 4k bank failures and the destruction of US commercial Real Estate. Iraq accuses Kuwait of drilling into it’s borders for oil.
January 24th 1986
Tax Reform Act moves from House to Senate. Yemen Civil War Ends, Voyager 2 probes Uranus. 3 Days later Space Shuttle Challenger disintegrates mid flight. Gorbachev proposes denuclearization treaty.
The 1980 Cycle was over by January 1st 1983
The New Jersey Transit Police Dept. is created. China halts imports of US cotton and soybeans. Farm bankruptcies began en mass. The Adjustable Rate Mortgage was legalized.
February 23rd 1979
Ayatollah Khomeini returns from Exile, overthrows the Shah and storms the US Embassy in Tehran taking US hostages. US Ambassador to Afghanistan Adolph Dubs was kidnapped and murdered, deteriorating US-Afghan regime relations. USSR would later invade Afghanistan that year.
February 7th 1975
Văn Tiến Dũng arrives in South Vietnam to take control of the PVN. 2 Months later the US would evacuate, after 10 years and 58,220 US service member casualties.
October 20th 1970:
Phase one of the Economic Stabilization Act of 1970 put in place to control prices, paving the way to end Bretton Woods and remove gold convertibility of the US Dollar. Also At 2:51 in the afternoon, the North Tower of the World Trade Center became the world's tallest building when a piece of framework was fitted into place, bringing the tower's height to 1,254 feet.
April 3rd 1964:
6 Months after JFK was assassinated, Richard Nixon criticizes LBJ’s Vietnam plan. Thanks Dick. A lot of good that did.
The 1958 Cycle was over by March 31st 1961:
One day after Reagan’s “Encroaching Control” speech, the same day which saw the Ayatollah Ruholla Khomeini take his father’s place. NASA’s mercury tracking network becomes fully operational.
In Eisenhower’s Farewell Address he warned the Nation to Safeguard against the Military Industrial Complex
November 15th 1957
Within a span of 3 days: A Boeing B-29 Stratofortress crashed into a mountain in Alaska, killing 6 of 10 onboard, State and Federal Police raid the Appalachin “mafia” meeting in Appalchin NY. Arresting 58 members, and Serial Killer Ed Gein was arrested in a grocery store in West Plainfield Wisconsin.
June 11th 1954:
Operation Glory was launched, allowing exchange of POW’s in the Korean War.
January 2nd 1948:
Jerusalem and Palestinian War erupts months after the UN Partition Plan, thousands die and blockades in January lead to the Ben Yehuda Street Bombings in February.
